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BAR EXAM > Agency & Partnership > Flashcards

Agency & Partnership Flashcards

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1
Q

Agency

A

The fiduciary relationship that arises when one person (the principal) appoints another (the agent) to act on the principal’s behalf and the agent consents to act.

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2
Q

What degree of control must the principal exert over the agent?

A

Does not need to be significant - may just be that the principal has specified the task to be performed and not the details of how to perform it.

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3
Q

What capacity must the principal and agent have?

A

Principal: contractual capacity (so minor cannot appoint agent)
Agents: minimal capacity (you can be an agent without having capacity - a minor can be an agent but not a principal)

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4
Q

Does agency law require a writing?

A

No, but the Statute of Frauds may require one if the agent is to enter into certain contracts within the SoF (equal dignities rule) or when the agency agreement itself would fall within the SoF.

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5
Q

What are the elements of agency?

A
  1. Capacity (full contractual for principal, minimal for agent)
  2. Consent of both parties
  3. Writing (if required by SoF)
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6
Q

What are the agent’s duties to the principal?

A

Agent has fiduciary duties (even if unpaid), so the duties of loyalty, care, and obedience.

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7
Q

What is the duty of care?

A

Duty to carry out agency with reasonable care.

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8
Q

What is the duty of loyalty?

A

Duty of undivided loyalty, so to act with the utmost fairness. Includes not profiting off the relationship for themselves, acting solely for the benefit of the principal, not competing with principal, not using principal’s property or confidential info for their own purposes.

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9
Q

What is the duty of obedience?

A

Agent must obey all reasonable directions of the principal (often considered an aspect of the duty of loyalty)

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10
Q

What are the principal’s remedies if the agent breaches?

A

They can sue in contract, tort, for secret profits, imposition of constructive trust. Can recover actual profits or properties held by agent whether or not the agent’s profit has caused the principal any loss.

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11
Q

What duties does the principal owe to the agent?

A

No fiduciary duties. They owe express contractual duties, reasonable compensation, cooperation, and reimbursement for expenses.

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12
Q

When can the agent bind a principal to a contract?

A

When the agent acts with authority when entering into the contract.

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13
Q

Actual authority

A

Authority that the agent reasonably believes they possess based on the principal’s dealings with them. When principal’s words or conduct lead a reasonable person in agent’s position to believe that they had authority to act on the principal’s behalf.

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14
Q

When is actual authority express?

A

When authority was conveyed by the principal in words, even if it was granted mistakenly or because of misrepresentation.

*There is no such thing as partial authorization

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15
Q

When is actual authority implied?

A

When the agent reasonably believes they have authority as a result of the principal’s words or actions. Could arise from custom, prior acquiescence, incidental to express authority, etc.

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16
Q

When is actual authority terminated?

A
  1. Happening of event specified in agreement
  2. Lapse of a reasonable time
  3. Change in circumstance
  4. Agent’s breach of fiduciary duty
  5. Either party’s unilateral termination
  6. Operation of law (death or incapacity of either party, but only when agent has notice of principal’s death).
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17
Q

When is agency irrevocable?

A

When coupled with an interest or when it is a power given as security.

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18
Q

What is apparent authority?

A

When the principal “holds out” another as possessing authority and based on this holding out, a THIRD PARTY is reasonably led to believe that such authority exists. Protects innocent third parties who rely on the principal’s manifestation of a person as their agent.

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19
Q

What is power of position?

A

When apparent authority is established through an agent’s title or position. A title or position given to an agent by the principal may create a reasonable belief in the third party that the agent is authorized to act for the principal in ways that are typical of someone who holds that title or position.

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20
Q

Will unilateral agent representations create apparent authority?

A

Generally no, a principal will not be bound when the principal does nothing to hold the agent out as having authority and the only statement of authority comes from the agent.

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21
Q

Why may a principal need to give notice to third parties when an agent’s actual authority has terminated?

A

Because the agent may have lingering apparent authority after their actual authority is terminated.

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22
Q

What is ratification?

A

An agent purports to act on behalf of a principal without any authority at all, but the principal subsequently validates the act and becomes bound. It is retroactive approval of the transaction.

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23
Q

How might ratification occur?

A

Express or implied conduct of principal, including:
-oral or written affirmation of contract
-principal accepts benefits of contract
-silence if there is duty to disaffirm

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24
Q

What are the requirements for ratification?

A

Principal must…
1. Have knowledge of all material facts regarding contract;
2. Accept the ENTIRE transaction; AND
3. Have capacity

Cannot be used to alter the rights of intervening parties

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25
Q

Is the agent personally liable for contracts entered into for the principal?

A

Generally no, if they had actual or apparent authority, unless the existence and identity of principal are not disclosed.

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26
Q

Who can be held liable if the principal is unidentified and undisclosed?

A

Either the principal or the agent can be held liable if the agent had authority to enter the contract.

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27
Q

Who can hold the third party liable and enforce the contract?

A

-Disclosed principal: only the principal can enforce contract & hold third party liable
-Unidentified/undisclosed principals: either principal or agent may enforce

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28
Q

How may a principal be vicariously liable for the torts of their agent?

A

Respondeat superior or apparent authority.

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29
Q

Respondeat superior

A

An employer is liable for the torts of an employee committed within the scope of the employment, but generally not for torts committed by an independent contractor.

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30
Q

What is the difference between an independent contractor and employee?

A

The principal/employer retains the right to control the manner in which an employee performs their work, but not the manner in which an independent contractor performs their work.

Can consider the degree of skill required, whose tools and facilities are used, period of employment, basis of compensation, business purpose, customs, etc.

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31
Q

When is conduct within the scope of employment?

A

When it is conduct “of the kind” the agent was hired to perform, when it occurred on the job, and when it was at least in part to benefit the principal.

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32
Q

Is the employer generally liable for the employee’s intentional torts?

A

No, unless they are within the scope of employment

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33
Q

Who is liable for the actions of a borrowed employee?

A

Whoever had the primary right of control over the employee (likely the loaning principal).

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34
Q

Partnership

A

Association of two or more persons to carry on as co-owners of a business for profit. Formed regardless of subjective intent to be partners.

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35
Q

Factors that tend to indicate a partnership

A

-Sharing of profits (most important, raises rebuttable presumption of partnership)
-Right to participate in control
-Sharing of losses
-Title to property held in joint tenancy or in common
-Designation of relationship as partnership
-Venture undertaken requires extensive activity
-Sharing of gross returns

36
Q

Is a writing required to form a partnership?

A

Generally no, unless the partners wish to have an enforceable agreement to remain partners for more than one year.

37
Q

Partnership by estoppel

A

No partnership was formed in fact, but parties may still be liable as if they were partners to protect reasonable reliance by third parties.

38
Q

Is a partnership agreement required?

A

No, but partnership agreements can be used to contract around the default statutory provisions.

39
Q

What kind of legal entity is a partnership?

A

A legal entity distinct from its partners, except for partners’ personal liability for partnership obligations.

40
Q

What is the default rule for voting in a partnership?

A

All partners have equal rights in management of business and equal votes.
-Ordinary course of business = majority
-Outside ordinary course of business = unanimous consent

41
Q

What is the default rule regarding compensation for partners?

A

No right to compensation because they are splitting profits.

42
Q

What is the default rule for sharing profits and losses in a partnership?

A

Profits are shared equally, and losses are shared in the same manner as profits (losses follow profits, but profits do not follow losses)

43
Q

What is the partnership’s liability in tort and contract?

A

-Tort: Partnership liable for loos or injury caused to a person as a result of the tortious conduct of a partner or employee acting in OCB
-Contract: liable for all contracts entered into by a partner in the scope of partnership business

44
Q

Statement of partnership authority

A

Filed with the state, it grants or limits a partner’s authority to enter into transactions on behalf of the partnership but the restrictions are not binding on third parties for transactions not involving real property (to be binding on transactions involving real property, it must be filed in the county where the property is located).

45
Q

What is the apparent authority that partners have?

A

Apparent authority to bind partnership to transactions within ordinary course of partnership’s business or business of the kind carried out by the partnership.

46
Q

What is the liability of the partners themselves?

A

Each partner is jointly and severally liable for all obligations of the partnership arising in tort or in contract. Plaintiff must first exhaust partnership resources before collecting from an individual partner’s assets.

They are entitled to indemnification from the partnership and contribution from the other partners.

47
Q

Is a partner liable for debts incurred by the partnership before their admission?

A

Not personally liable for obligations incurred before they became a partner.

48
Q

What fiduciary duties do partners owe to each other and to the partnership?

A

Loyalty, care, disclosure, and obedience

49
Q

What is the duty of care for a partnership?

A

To refrain from engaging in grossly negligent or reckless conduct, intentional misconduct, or knowing violation of the law (ordinary negligence is excused).

50
Q

What is the duty of disclosure for a partnership?

A

To provide complete and accurate information concerning the partnership.
-Without demand = anything concerning partnership’s business and affairs reasonably required for proper exercise of partner’s rights and duties
-With demand = any other information

51
Q

May the partnership eliminate any of the duties by agreement?

A

Disclosure, but NOT loyalty or care.

52
Q

What is partnership property?

A

Titled property that is acquired in the partnership’s name or in a partner’s name where it is apparent from the document that they are acting for a partnership. Anything purchased with partnership funds is rebuttably presumed to be partnership property.

Property is presumed to be a partner’s separate property if none of the above apply.

53
Q

What rights does an individual partner have in partnership property?

A

To use the property for partnership purposes. They are not a co-owner and cannot transfer an interest in the property.

54
Q

What are the components of the partnership interest, and how do you transfer them?

A
  1. Management rights (right to participate in the management of the business) - can only be transferred with unanimous vote of the partners
  2. Financial rights (right to receive share of profit distributions) - can be unilaterally transferred and transferor remains partner.
55
Q

Dissociation

A

Withdrawal - change in the relationship of the partners caused by any partner ceasing to be associated in the carrying on of the business.

56
Q

What are the events of dissociation for a partnership?

A
  1. Notice of express will to withdraw (automatically triggers dissolution)
  2. Happening of agreed event
  3. Valid expulsion of partner
  4. Partner’s bankruptcy
  5. Partner’s death or incapacity
  6. Decision of court that partner is incapable of performing duties
  7. Termination of a business entity that is a partner.
57
Q

What is the difference between an at will and term partnership?

A

At will - default form, partners have not agreed to remain partners until expiration of definite term or completion of particular undertaking
Term - partners have explicitly or implicitly agreed to remain partners for a definite term or until completion of particular undertaking

58
Q

What are the two options when a partner dissociates?

A

Event of dissociation determines which of the following will occur:
1. Partnership is dissolved and business is wound up
2. Partnership continues in existence and dissociated partner is entitled to buyout

59
Q

When might dissolution be required?

A
  1. When partner dissociates by express will in an at-will partnership
  2. In a term partnership, if one partner dissociates wrongfully, or if dissociation occurs because of death or bankruptcy AND if within 90 days at least 1/2 of the remaining partners agree to wind up
60
Q

What is wrongful dissociation?

A

If dissociation is in breach of express term in partnership agreement, or if partner withdraws, is expelled, or becomes bankrupt before the end of the term.

A partner who wrongfully dissociates is liable for damages caused by dissociation

61
Q

What does a dissociated partner remain liable for?

A

-All pre-dissociation partnership obligations
-Post-dissociation obligations incurring within 2 years after dissociation if other party entering transaction reasonably believed that dissociated partner was still a partner and did not have notice of dissociation

Can always protect themselves with direct notice to creditors or public notice, which takes effect in 90 days

62
Q

Can a partnership be bound by a dissociated partner?

A

Yes, within 2 years of dissociation if the act would have bound the partnership before the dissociation and the other party to the transaction reasonably believed the dissociated partner was still involved.

Again, can protect through notice: directly to creditors or public statement (90-day period before effective)

63
Q

Dissolution

A

Partnership business is wound up. Assets must be applied to discharge partnership liabilities, and if they are insufficient, partners have to contribute in accordance with their loss shares.

64
Q

What is the priority of distributions in dissolution?

A
  1. All creditors (outside and inside)
  2. Repaying capital contributions from partners
  3. Profits and losses
65
Q

Limited partnership

A

A partnership with at least one general partner and one limited partner

66
Q

What is required for formation of a limited partnership?

A

-Certificate filed with state
-maintain in the state an agent for service of process
-name that includes some designation indicating that it is a limited partnership (like LP)

67
Q

Who manages a limited partnership?

A

The general partners, who have equal management rights. Limited partners have no management rights unless granted by the partnership agreement, but may be required to vote for certain extraordinary activities

68
Q

What are the financial rights for partners in an LP?

A

Distributions made on the basis of the partners’ contributions (different than a general partnership)

69
Q

What is the liability for partners in an LP?

A

-General partners: jointly and severally liable for all obligations
-Limited partners: not personally liable, can only lose the value of their investment

70
Q

What are the fiduciary duties of partners in an LP?

A

-General partners: fiduciary duties of loyalty and care
-Limited partners: no fiduciary duties

71
Q

Limited Liability Partnership

A

All of the partners have limited liability - nobody is personally liable for the LLP’s obligations. Generally governed by general partnership rules.

72
Q

How do you form an LLP?

A

-File statement of qualification with the state
-include designation of LLP in name

73
Q

Do partners in LLPs and LPs remain liable for personal wrongful acts?

A

YES - the limited liability shield of a business organization does not protect a person from liability for their own torts.

74
Q

Limited Liability Company

A

A hybrid business org between a corporation and a partnership that is taxed like a partnership and offers its members limited liability of corporation shareholders.

75
Q

Formation requirements for LLC

A

-Certificate with name, address, and registered agent
-Name with indication that it is LLC

76
Q

What is the default management of an LLC?

A

-Presumed to be managed by all members
-Majority vote required to approve ordinary business decisions
-Unanimous vote to approve extraordinary business decisions

77
Q

What are the default financial rights of an LLC member?

A

Unless otherwise agreed, profits and losses and distributions are allocated on the basis of contributions.

78
Q

What is the liability of a member of an LLC?

A

Generally not personally liable (only lose the amount of investment), unless the court pierces the LLC veil

79
Q

What are the fiduciary duties owed by a member to the LLC and other members?

A

Care and loyalty

80
Q

What is the difference between a member-managed and a manager-managed LLC?

A

Member managed is managed by all members, while manager-managed is managed by a set group of managers who may be members.

81
Q

Are ownership interests in an LLC transferable?

A

The financial rights are unilaterally transferable, but management rights are only transferable with the consent of all members.

82
Q

When can a member dissociate from an LLC?

A

At any time, rightfully or wrongfully, by expressly withdrawing.

83
Q

What are the events causing dissolution of an LLC?

A

-Event or circumstance that operating agreement states causes dissolution
-Consent of all members
-Passage of 90 consecutive days during which LLC has no members

84
Q

When might a judge grant an application for judicial dissolution?

A

-Conduct of LLC’s activities is unlawful
-Not reasonably practicable to carry on the company’s activities
-Controlling members have acted/will act in a way that is illegal or fraudulent
-Controlling members have acted/are acting in a way that is oppressive and was/is directly harmful to the member applying for dissolution

85
Q

How are partnerships and LLCs taxed?

A

On a pass-through basis. There is no entity-level tax, and business income is passed through to owners and reported on individual tax returns (by contrast, a corporation has double taxation)

BAR EXAM (14 decks)

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