Agency & Partnership

Question 1

Define

Agency

Answer 1

Fiduciary relation

• Which results from the manifestation of consent
• By one person to another
• That the other shall act on his behalf and subject to his control
• And consent by the other so to act

Question 2

Control

Answer 2

• Degree need not be significant
• Sufficient if principal specifies tasks agent should perform

Question 3

Equal Dignities Rule

Answer 3

Agency agreements must be in writing when agent is to enter into certain contracts within statute of frauds OR agency agreement itself would fall within statute of frauds

Question 4

Agent’s Fiduciary Duties to Principal

Answer 4

Duty of care
* Carry out agency with reasonable care

Duty of loyalty
* Owe undivided loyalty to principal

Question 5

Duty of Obedience

Answer 5

Agent must obey all reasonable directions of principal

Question 6

Principal’s Duties to Agent

Answer 6

• Not fiduciary in nature
• Indemnify agent’s losses in carrying out principal’s instructions
• Compensate agent for services

Question 7

Types of Authority

Answer 7

Actual Authority: Based on agent’s reasonable belief
* Express: Conveyed by the principal in words (oral or written
* Implied: Agent reasonably believes exists

Apparent Authority: Based on third party’s reasonable belief
* Power of position: Based on agent’s title or position

Ratification: After-the-fact authority
* Express: Oral or written affirmation
* Implied: Principal accepts benefits

Question 8

Termination of Actual Authority

Answer 8

• Specified time
• Specified event
• Reasonable time
• Change of circumstances
• Breach of fiduciary duty
• Unilateral act
• Death

Question 9

What is insufficient to create actual or apparent authority?

Answer 9

Unilateral agent representations

Question 10

Who is bound on contract?

Answer 10

• Actual authority, apparent authority, or ratification = Principal bound
• Undisclosed or partially disclosed principal = Agent also bound

Question 11

Define

Master

Answer 11

Principal who employes an agent with right to control agent

Now called employer

Question 12

Define

Servant

Answer 12

Agent so employed by master

Now called employee

Question 13

Define

Independent Contractor

Answer 13

Person contractually obligated to do work, but not controlled in how the work is done

Question 14

Define

Vicarious Liability

Answer 14

Master liable for torts in scope of servant’s employment

Question 15

Factors for Right to Control

Answer 15

• Skill required
• Tools and facilities
• Period of employment
• Basis of compensation
• Business purpose
• Distinct business

Question 16

Detour v. Frolic

Answer 16

Detour: Minor deviation from employer’s directions

Frolic: Substantial deviation from employer’s directions

Question 17

Intention Tort Employer Liability

Answer 17

Employer generally not liable for employee’s intentional torts

Exceptions (“BAN”):
* For principal’s benefit
* Principal authorized it, or
* Conduct arose naturally due to nature of employment

Question 18

Define

Borrowed Servant

Answer 18

Employee of one employer doing services for another

Question 19

Define

Partnership

Answer 19

Two or more persons associate to carry on as co-owners in a business for profit

Question 20

Partnership Formation Factors

Answer 20

• Profit sharing
• Right to participate in control of business
• Loss sharing

Question 21

Define

Gross Returns

Answer 21

Revenues (everything a business makes) of a business.

Sharing in gross returns does not, by itself, establish or raise a presumption of partnership.

Question 22

Partnership by Estoppel

Answer 22

Partner liability imposed when a party is not a partner in fact. Holding out that you are a partner and third party relies on that holding out.

Question 23

Partnership Voting Default Rules

Answer 23

• One partner, one vote
• Ordinary business decision = Majority vote
• Extraordinary business decision = Unanimous vote

Question 24

Profit/Loss Sharing Default Rules

Answer 24

• Profits shared equally
• Lossess shared in same manner as profits

Question 25

Partnership = [blank] under agency law

Answer 25

Partnership = Principal under agency law

Question 26

Define

Statement of Partnership Authority

Answer 26

Document filed publicly limiting partners’ authority to transfer real property

Question 27

Partner = [blank] under agency law

Answer 27

Partner = Agent under agency law

Question 28

Liability of Partners

Answer 28

Each partner is jointly and severally liable for partnership obligations
* But only as guarantors - Plaintiff needs to go after partnership before going after partners personally

Question 29

Admitting New Partners

Answer 29

Default rule: Unanimous vote required

Question 30

Fiduciary Duties

Answer 30

Duty of care and duty of loyalty to the partnership and to the other partners

Loyalty
* Account to partnership for any benefit
* No taking adverse positions to partnership
* No competing with partnership

Care
* No grossly negligent or reckless conduct

Question 31

Can a partnership agreement eliminated partners’ fiduciary duties?

Answer 31

No, a partnership agreement may not eliminate duties of loyalty and care

Question 32

Define

Partnership Interest

Answer 32

Partner’s ownership stake in the partnership

• Financial rights (only partnership interest that is unilaterally transferable)
• Management rights

Question 33

Define

Dissociation

Answer 33

Partner’s withdrawal from partnership

Question 34

Dissociation by Express Will

Answer 34

Partner voluntarily leaves

Dissociating partner can force partnership to dissolve

Question 35

At-Will Partnership
vs
Term Partnership

Answer 35

At-Will Partnership: No agreement to remain partners

Term Partnership: Agreement to remain partners for amount of time or until completion of project

Question 36

Dissolution

Answer 36

Partnership ends, business is wound up, assets are sold off

Question 37

Buyout

Answer 37

Dissociating partner’s right to be paid value of partnership interest by continuing partners

Question 38

Distribution of Partnership Assets

Answer 38

• First, to creditors
• Second, to reimburse partners for capital contributions
• Third, to partners based on profit sharing

Question 39

Key principle #1:

Answer 39

When determining whether an agency relationship exists, see if consent and control are
present. However, remember that even if an agency relationship exists, it can terminate.

Question 40

Key principle #2:

Answer 40

The principal is bound on a contract entered into by an agent if the agent had authority to enter into the contract. Note that actual and apparent authority are heavily tested in Agency and Partnership questions. Remember that partners in a general partnership generally have actual and apparent authority to bind the partnership in contracts entered into in the ordinary course of business. The same applies to members in an LLC.

Question 41

Actual authority:

Answer 41

Actual authority can be express, where the agent is expressly given authority to act for the principal. It can also be implied. Implied authority is present when the principal’s conduct leads the agent to believe it has authority. This authority can be implied by custom, past course of conduct by the principal, necessity, or an emergency circumstance. This authority terminates after a reasonable time or following a change in circumstances, death, or incapacity of the principal, etc. (J2022, F2022, O2020, S2020, F2020, F2017, F2009, J2007, F2005, J2004, J2003, J2002, J2001, F1997, F1996)

Question 42

Apparent authority:

Answer 42

The elements of apparent authority are as follows: (1) the person dealing with the agent must do so with a reasonable belief in the agent’s authority and (2) the belief must be generated by some act or neglect on the part of the principal. (J2022, F2022, O2020, S2020, F2020, F2017, F2016, J2013, F2013, F2009, J2007, J2006, F2005, J2004, F2004, J2003, J2002, J2001, J1997, F1997, J1996)

Question 43

Ratification:

Answer 43

Even if the agent did not have authority to enter into a transaction, the principal can ratify the acts (and thus become liable) by expressly or impliedly affirming or accepting the benefit of the acts, so long as the principal knew the material facts and had capacity. (J2022, F2022, F2017, F2013)

Question 44

Key principle #3:

Answer 44

The agent is bound to a third party on a contract he enters into with the third party if the agent had no actual or apparent authority to enter into the contract. The agent is also liable if the principal is undisclosed (i.e., the third party does not know the agent is acting on another’s behalf) or if the principal is “partially disclosed” (i.e., the third party knows the agent is acting on behalf of another but does not know the identity of the principal). The agent is bound to the principal for breach of contract if the agent acts beyond his authority. (F2022, F2017, F2013, J2002, J2001, F1997, F1996)

Question 45

Key principle #4:

Answer 45

A principal can be vicariously or directly liable for the torts committed by his agent. The agent is always liable for his own torts.

Question 46

Vicarious liability of employer (respondeat superior):

Answer 46

The employer is liable in tort for the acts of an agent or employee if the agent or employee (mnemonic=SMI)
▪ was acting in the scope of employment;
▪ made a minor deviation (a detour) from employment (rather than a frolic); or
▪ committed an intentional tort only if it was (mnemonic=BAN) for the principal’s benefit, because the principal authorized it, or one that arose naturally due to the nature of employment. The agent is liable too under a theory of joint and several liability. (F2021, F2020, F2015, J2013, F2006, F2003)

Question 47

Indemnification:

Answer 47

The principal can recover against the agent for indemnification if the agent acts beyond his authority. (F2015, F2006, F2003)

Question 48

Direct liability of principal:

Answer 48

The principal is directly liable for his own negligence if he negligently hired the agent, failed to fire the agent, or failed to properly supervise the agent. (F2020)

Question 49

Key principle #5

Answer 49

The agent owes a duty of care and a duty of loyalty (not to engage in self-dealing, not to profit without disclosure, and a duty to follow instructions). The principal may recover losses from and profits made by the breaching agent. (F2006, J2003)