Agency & Partnership

Question 1

Formation of agency

Answer 1

a. Capacity—The principal must have contractual capacity; the agent only needs
minimal capacity.

b. Consent—Consent must be manifested by both the principal and the agent.

c. Benefit - the agent’s conduct must be for the principal’s benefit

d. Control - The principal must have the right to control the agent by having the power to supervise manner of performance

Question 2

Agent’s Duties

Answer 2

a. Duty of loyalty—The agent must disclose interests adverse to the principal.

b. Duty of obedience—The agent must obey all lawful instructions of the principal.

c. Duty of care—The agent must act with reasonable care depending on agent’s special skills

d. Duties under contract—The agent must comply with any terms of the agency contract.

Question 3

Principal’s Duties

Answer 3

a. Duty to compensate and reimburse— Unless the agent agrees to act gratuitously, the principal must compensate the agent, as well as reimburse her for expenses and losses.

b. Duty to cooperate—The principal must cooperate with the agent and help him carry out his agency functions.

c. Duties under contract—The principal must comply with any terms of the agency contract.

d. indmnify

Question 4

Remedies of Principal

Answer 4

1) A compensated agent can be held liable for damages based on breach of contract.

2) Any agent is subject to tort liability for damages resulting from his misuse of the principal’s property, for intentional or negligent misperformance, or for the failure to perform.

3) If an agent breaches her fiduciary duty of loyalty and secretly profits, the principal may recover the profits or property.

4) The principal can bring an accounting action in equity to determine the exact amount an agent owes the principal.

5) If the agent has committed an intentional tort, or intentionally breached her fiduciary duty, the principal may, in addition to other remedies, withhold the agent’s unpaid compensation.

6) The principal may terminate the agency relationship when the agent breaches one of his duties.

Question 5

Remedies of Agent

Answer 5

1) A compensated agent can sue for breach of contract.

2) An agent has a possessory lien on any money the principal owes her.

Question 6

Will the principal be bound by agent’s actions

Answer 6

yes, if they acted with authority.

a. Actual Authority—The authority that the agent reasonably thinks she possesses based on the principal’s dealing with her. May be express or implied.
1) Actual express authority—The authority that a principal expressly gives an agent. P’s conduct or words would lead a reasonable person to believe authority.
2) Actual implied authority—The authority that the agent reasonably believes she has as a result of the actions of the principal. For example, if given the express authority to manage an apartment building, there might be implied authority to hire a janitor.

b. Apparent Authority—Even if the agent lacked actual authority at the time of the contract, the principal will be bound on the contract if (1) the principal held out the agent as having authority, and (2) based on the holding out, the third party reasonably believed that the agent had authority to act.

c. Ratification—A principal can be bound by a contract if the principal later ratifies the transaction, knowing all material facts, and accepts the entiree transaction.
* Methods of ratification include: acceptance of the transaction’s benefits, silence if there is a duty to affirm, and suing on the transaction. If ratified, the contract will be treated as if it had originally been entered with authority.

Question 7

Contract liability to 3rd party

Answer 7

a. Third Party v. Principal—The general rule is that if the agent had authority, the principal is liable to the third party.

b. Third Party v. Agent—Whether an agent can be held liable on a contract he enters on behalf of the principal depends on whether the principal was disclosed, unidentified, or undisclosed.
1) Disclosed principal—Agent generally not liable.
2) Unidentified or undisclosed principal—Generally either the principal or agent can be held liable (third party chooses).

c. Principal or Agent v. Third Party—Where the principal is disclosed, only the principal (not the agent) may enforce the contract and hold the third party liable. If the principal is unidentified or undisclosed, either the principal or the agent may hold the third party liable.

Question 8

Respondeat Superior

Answer 8

1. A principal may be vicariously liable for the acts of an employee committed within the scope of employment.

a. Employer/Employee Relationship—There are many factors the courts will consider in analyzing whether an agent is an employee or an independent contractor, but generally, the most important factor is whether the principal had the right to control the manner and method of the agent’s work.
1) A principal is not liable for the acts of independent contractors unless: (1) inherently dangerous activities are involved; (2) nondelegable duties have been delegated; or (3) the principal knowingly selected an incompetent independent contractor.

b. Conduct Within Scope of Employment—Like the employee-employer relationship, the courts will consider a number of factors, including the nature of the work, whether the conduct was substantially removed from the authorized time and space limits of the employment (frolic vs. detour), and whether the conduct was actuated, at least in part, by a purpose to serve the employer.

2. Apparent Authority—A principal is liable where an agent appears to deal or communicate on behalf of the principal and the agent’s apparent authority enables the agent to (1) commit a tort or (2) conceal its commission.

Question 9

Partnership formation requirements

Answer 9

A partnership is an asosciation of two or more persons to carry on as co-owners a business for profit.

1. No formal agreement or writing is required to form a partnership; the parties’ intent can be implied from their conduct
2. Anyone who is capable of entering a binding contract is capable of being a partner
3. The partnership may not have an illegal purpose
4. No one may become a partner without the consent of all the partners

Question 10

Factors - Implied partnership

Answer 10

1. Intent of the parties
2. Sharing of profits raises a presumption of partnership (exception—payments for: a
   debt, services rendered, rent, annuity or retirement benefits, interest on a loan, or sale of goodwill of a business)
3. Other factors do not raise a presumption but are evidence that a partnership has formed:
   a. Title to property is held in joint tenancy or tenancy in common
   b. Parties designate their relationship as a partnership
   c. The venture requires extensive activity
   d. Sharing of gross returns

Question 11

Factors to determine whether property eblongs to the partnership

Answer 11

1. For real and personal titled property, apply R.U.P.A.:

a. Property belongs to partnership if it is titled in:
1) The partnership name, or
2) The name of the partnership and the instrument transferring title notes the
titleholder’s capacity as partner or the existence of a partnership

b. Property is presumed partnership property if purchased with partnership funds

c. Property is presumed separate property of partner if:
1) The property is held in name of partner(s)
2) The instrument transferring title does not indicate the person’s capacity as a partner or mention the existence of a partnership
3) Partnership funds were not used

2. For untitled property, apply common law factors:
   a. Used partnership funds
   b. Use of property by partnership
   c. Listed in partnership books as an asset
   d. Close relationship between property and the business
   e. Improvement with partnership funds
   f. Maintenance with partnership funds

Question 12

Partner’s right in partnership property

Answer 12

1. Partners are not co-owners of partnership property and have no transferable interest in partnership property
2. Partners have no right to use partnership property other than for the benefit of the partnership

Question 13

Rights of Partners

Answer 13

1. equal right to participate in mangement and control unless agreement says otherwise
2. equal right to share in profits and losses and receive distributions
3. no entitled to remuneration except for reasonable compensation for services rendered in winding up the partnerhsip’s business
4. indemnity for payments reasonably made and obligations reasonably incurred by a partner in carrying on the business of the partnership
5. if partner pays more than his fair share in debt hes entitled to contribution from other partners
6. right to inspect books and records
7. may sue and be sue in the partnership name or in the names of the individuals

Question 14

Duties of partners

Answer 14

1. Duty of loyalty
   a. Partners must account for all profits or other benefits derived by the partner in
   connection with partnership business
   b. Partners may not deal with partnership as one with an adverse interest
   c. Partners may not compete with the partnership
2. Duty of care
   a. Partners must refrain from engaging in negligent, reckless, or unlawful conduct
   b. Partners must refrain from engaging in intentional misconduct
3. Duty of obedience
   a. Partners must obey all reasonable directions of the partnership
   b. Partners must refrain from acting outside the scope of the partner’s actual authority
4. Duty to provide complete and accurate information
   a. Partners must provide complete and accurate information concerning the partnership

Question 15

Liability of partners

Answer 15

Under RUPA each partner is an agent of the partnership. The act of any partner binds the partnership unless the partner had no authority and the third party knew or had notice that the partner lack authority.

Contract liability - partners are liable on ontract made by a partner in the scope of the partnership business and on any other contract expressly authorized by the partners

tort liability - partners are liable for any torts committed by a partner or an employee of hte aprtnership int he ordinary course of partnership business

Question 16

Dissociation

Answer 16

A partner is dissociated from a partnership upon:
a. Notice of the partner’s express will to withdraw

b. The happening of an agreed upon event

c. The valid expulsion of a partner

d. The partner becoming bankrupt

e. The death of an individual partner, or the termination of a partner that is a business entity, or

f. A court decision that a partner is incapable of performing her duties

Question 17

Disslution

Answer 17

Generally, a partnership is dissolved and its business must be wound up:

a. In a partnership at will, when a partner gives notice of her express will to withdraw

b. In a partnership for a definite term or particular undertaking, when:
1) Within 90 days after a partner’s death, bankruptcy, or wrongful dissociation, at least half the remaining partners express a will to wind up the business
2) All the partners express a will to wind up the business, or
3) The term expires or the undertaking is complete

c. Upon the happening of an agreed upon event

d. Upon the happening of an event that makes it unlawful for the partnership to continue, or

e. Upon a judicial decree

Question 18

Limited partnership formation

Answer 18

Governed by ULPA.

Need one or more general partners plus at least on limited partner.

Need to file a certificate of limited partnership with the secretary of state.

Question 19

limited partnership contributions

Answer 19

contributions may be in the form of any benefit to the partnership.

Partner has no rights to distribution absent contribution.

Question 20

liability of limited and general partners

Answer 20

Limited partner - have no personal liability for obligations of the partnership

general partner- is jointly and severally liable for all partnership obligations. THey may also be limited partners but they still have all of the liabiltiies and duties of a general partner.

Question 21

Duties of limited and general parnters

Answer 21

General partners - owe the limited partnership fiduciary duties of care and loyalty

Limited partners - owe no fiduciary duty to the partnership and are free to compete with the partnership except as otherwise provided in the partnership agrgeement.

Question 22

Rights of both general an dlimited parnters

Answer 22

1. Both general and limited partners have the right to distributions, which can be transferred, in whole or in part
2. A partner may transact business with the limited partnership
3. Any partner may maintain a derivative action on behalf of the partnership if the
   partner first makes demand on the general partners or the demand would be futile
4. Any partner may apply for a decree of dissolution whenever it is not reasonably
   practicable to carry on the business in conformity with the partnership agreement

Question 23

Rights of only general partners

Answer 23

1. Each general partner has equal rights in management
2. A general partner has a right to the partnership’s business information
3. A general partner is not entitled to remuneration for services performed for the
   partnership
4. A general partner is entitled to indemnification for liabilities incurred in the ordinary course of the partnership’s activities

Question 24

Rights of only limited partners

Answer 24

1. Limited partners have no right to participate in management, except as provided by the partnership agreement
2. Limited partners have the right to inspect and copy certain partnership records that are required to be kept in the records office

Question 25

Limited Liablity Partnerships LLP Formation

Answer 25

1. must be approved by whatever vote is necessary to amend the partnership agreement
2. requires statement of qualification (registration) with the secretary of state containing:
   - name and address of partnership
   - statement of election to be an LLP

Question 26

Liability of partners (LLP)

Answer 26

partner is not personally liable for the obligations of the partnership

Partner remains liable for their own acts.

Question 27

Rights and obligations of partners (LLP)

Answer 27

1. Same as those for a general partnership.

Question 28

Formation of LLC

Answer 28

Governed by RULLCA.
Taxed like partnerships bu members enjoy limited liability like shareholders in a corporation and the LLC is treated as an entity distinct from its memebers.
An LL is formed by filing a certificate of organization with the secretary of state.

Question 29

management of LLC

Answer 29

All members particiapte in management except as otherwise specified in the operating agreement.

each member of a member managed LLC has authority to bind the company to contract unless the member lacks actual authority to do so and the other party has notice of same.

Question 30

Duties of LLC

Answer 30

member managed:
* members in a member-managed LLC owes duties of care and loyalty to each other and the LLC
* they must also discharge their duties consistently with the contractual obligation of good faith and fair dealing.

manager-managed:
* only the managers are subject to the duties of care and loyalty
* only the members may authorize or ratify an act by a manager that would otherwise violate the duty of loyalty.

Question 31

Piercing the LLC viel

Answer 31

courts may pierce the LLC veil to reach personal assets of members in circumstances similat to those justifying piercing in corporation

Question 32

distribution LLC

Answer 32

The uniform act calls for distributions in equal shares unless the operating agreement provides otherwise, but most states do not follow that approach and allocate distributions on the basis of contributions unless the operating agreement provides otherwise

Question 33

Rights to information

Answer 33

1. Member-Managed LLC
   a. In a member-managed LLC, a member has a right to inspect and copy any record concerning the LLC’s business that is material to the member’s rights
   and duties
2. Manager-Managed LLC
   a. In a manager-managed LLC, the managers have the same right to information and duty to furnish information as discussed above

Question 34

Dissociation in LLC

Answer 34

1. A member has the power to dissociate at any time
2. A wrongfully dissociating member may be liable to the LLC for damages
3. Generally, the events that cause dissociation of a partner also cause dissociation of an LLC member

Question 35

Dissolution of LLC

Answer 35

1. An LLC will dissolve when any of the following events occur:
2. a. An agreed upon event of dissolution
   b. The consent of all the members
   c. The passage of 90 consecutive days during which the LLC has no members
   d. Judicial decree
   e. Administrative dissolution by the secretary of state

Question 36

Agency

Answer 36

An agency relationship is created when one person (principal) manifests an intent that another person (agent) act on his behalf an dboth parties consent to the agreement.

Question 37

Borrowed Agent

Answer 37

If a Principle loans an agent/employee, P is liable for torts of agent, unless the agent was being directed and controlled by the borrowing principal (→ new P will be liable for torts of borrowed agent under his control)