Agency/Partnership

Question 1

What is partnership by estoppel?

Answer 1

If person holds themselves out as a partner by words/conduct or consents to someone else doing so, they are liable if third party extends credit in reliance on this representation.

Also, if someone holds someone else out as their partner they make them their agent.

Question 2

When is titled property considered partnership property?

Answer 2

When it is held in the partnership’s name or in a partner’s name where it is clear they are acting as a partner. (presumed if property was purchased with partnership funds).

Question 3

What is the rule regarding the transfer of a partner’s ownership rights?

Answer 3

A partner may NOT unilaterally transfer their management rights, but may transfer their financial rights.

Question 4

What is the default rule regarding the distribution of profits in a partnership?

Answer 4

Unless otherwise stipulated, profits are distributed equally (losses follow profits).

Question 5

What is required by the duty of care in a partnership situation?

Answer 5

Partners must not engage in gross negligence, recklessness, or intentional misconduct and must not knowingly violate the law

Question 6

What is the duty of disclosure owed by partners?

Answer 6

Partners must disclose, without request, any information reasonably necessary to the proper exercise of the other partners’ rights and duties (and any other information concerning the partnership upon request).

Question 7

What is statutory apparent authority?

Answer 7

Under RUPA, a partner has apparent authority to enter any contract in the regular course of partnership business OR business of the kind carried out by the partnership.

Question 8

What are the three requirements to form an agency relationship?

Answer 8

Both parties must consent for the agent to act “on behalf of” the principal, and subject to the principal’s control.

Question 9

When does statutory apparent authority not apply?

Answer 9

When a partner lacked actual authority and the third party knew or had notice of that fact.

Question 10

What is the liability of a disassociating partner after dissociation?

Answer 10

The partner remains liable for partnership obligations arising prior to dissociation, and may be liable for partnership obligations incurred over the next two years if (1) the other party reasonably believed they were still a member of the partnership when they entered the transaction and (2) the other party did not have notice of dissociation.

(Partnership liable for obligations formed by dissociating partner to the same extent)

Question 11

In what situations is dissolution of a partnership required due to dissociation of a partner?

Answer 11

When a partner dissociates by express will in an at-will partnership, or a partner wrongfully dissociates/dies/goes bankrupt in a term partnership and the members vote to dissolve w/i 90 days.

Question 12

What is the priority of distribution of funds from winding up a partnership?

Answer 12

1) Inside and outside creditors
2) Capital contributions of the partners
3) Profits and losses, according to each partner’s share

(If assets insufficient, partners must contribute in proportion to their loss shares)

Question 13

What rules govern the management of an LLC?

Answer 13

An LLC is presumed to be managed by each owner (member), but operating agreement may stipulate that it is “manager managed.”

Question 14

What events trigger the dissolution of an LLC?

Answer 14

An event stipulated in the operating agreement, an agreement by all members to dissolve, or a 90 day period in which the LLC has no members

Question 15

What are the main differences between a partnership and a limited partnership?

Answer 15

LP is formed by filing, limited partners have no management rights outside of extraordinary matters and are only entitled to distributions proportional to their contributions, limited partners are not personally liable for the obligations of the partnership

Question 16

When can estoppel be raised to preclude a principal from avoiding liability for torts committed by an independent contractor?

Answer 16

When a principal holds an agent out as their employee, they are estopped from denying the employment relationship to avoid liability under respondeat superior

Question 17

When does actual authority of an agent terminate by law?

Answer 17

When the principal dies or becomes incapacitated and the agent has notice.

Question 18

What is required for a principal to validly ratify a contract that an agent entered into without actual or apparent authority?

Answer 18

The principal must (1) be aware/have reason to know of the material terms of the contract (2) ratify the contract in its entirety and (3) have contractual capacity

Question 19

What are the limits on a principal’s ability to ratify an agent’s contract?

Answer 19

Ratification may not be used to alter the rights of intervening parties, an undisclosed principal may not ratify a contract, and a contract cannot be ratified if the subject matter is illegal/third party has withdrawn/there has been a material change in circumstances

Question 20

What factors are relevant to evaluating whether an agent is an independent contractor or an agent?

Answer 20

The degree of skill required by the work, whether the agent is paid on a regular or job basis, the period of employment, whose supplies the agent uses to complete the job, whether the agent has a distinct business, how the parties characterize and understand the relationship

Question 21

What factors are relevant to whether an act was committed within the scope of employment?

Answer 21

Whether the conduct was authorized by the employer, whether the conduct was of the kind agent was hired to perform, whether the conduct was “on the job”, and whether the conduct was motivated by a desire to serve the employer