Agency & Partnership

Question 1

What is the definition of agency?

Answer 1

Agency is the fiduciary relationship that exists between an agent and principal where the agent acts on the principal’s behalf and is subject to the principal’s control.

Question 2

What are the two conditions for the creation of an agency relationship?

Answer 2

• The parties voluntarily consent (express or implied) to enter into an agency relationship
• The agent is subject to the principal’s control

Question 3

How can an agency relationship be terminated by the parties?

Answer 3

• The agent or principal manifests to the other the desire to cease the agency relationship
• The express terms of the agency expire
• The purpose of the agency relationship is fulfilled

Question 4

What are the ways an agency relationship can be terminated by operation of law?

Answer 4

• The agent or principal dies
• The agent or principal loses capacity
• The agent materially breaches a fiduciary duty owed to the principal

Question 5

What is the authority of an agent to bind a principal?

Answer 5

An agent may bind a principal to a contract if the agent is acting within his actual or apparent authority, or inherent agency power.

Question 6

What is actual authority in the context of agency?

Answer 6

An agent acts with actual authority when he reasonably believes the principal wishes him to act.

Question 7

What are the two types of actual authority?

Answer 7

• Actual express authority
• Actual implied authority

Question 8

What is apparent authority?

Answer 8

An agent acts with apparent authority when the principal holds the agent out as having authority to act on the principal’s behalf.

Question 9

True or False: Apparent authority exists if the third party knows the agent does not have actual authority.

Answer 9

False

Question 10

What is inherent agency power?

Answer 10

Inherent agency power allows courts to hold a principal liable for damages to third parties even when the agent acted without actual or apparent authority.

Question 11

Under what conditions can courts apply inherent agency power?

Answer 11

• An agency relationship exists
• The totality of the circumstances weighs against forcing the third party to absorb all of the damages

Question 12

What is the doctrine of respondeat superior?

Answer 12

Under respondeat superior, an employer may be liable for torts committed by an employee if an employer-employee relationship exists and the tort occurs within the scope of employment.

Question 13

What must be true for an employee’s tort to be within the scope of employment?

Answer 13

The employee’s conduct must be of the same general nature as that authorized, or incidental to the conduct authorized by the employer.

Question 14

What distinguishes a general partner from a limited partner in a limited partnership?

Answer 14

General partners manage and control the business, while limited partners are passive investors and have limited liability.

Question 15

What is required for a limited partnership to be formed?

Answer 15

A written certificate of limited partnership must be executed and filed with the secretary of state.

Question 16

What is a limited liability partnership (LLP)?

Answer 16

An LLP limits a partner’s potential liability for professional malpractice committed by another partner.

Question 17

What must partners do to form an LLP?

Answer 17

• Approval of the partners by vote
• Filing a statement of qualification with the secretary of state

Question 18

What is the tort liability of a partnership?

Answer 18

A partnership is liable for wrongful acts or omissions of any partner acting within the ordinary course of the partnership’s business.

Question 19

What is the contract liability of a partnership?

Answer 19

Each partner is an agent of the partnership, binding the partnership with actions within the ordinary course of business.

Question 20

Fill in the blank: A partner may transfer his interest in the profits and losses of the partnership to a third party, but the transferee does NOT automatically become a _______.

Answer 20

partner

Question 21

What happens during the dissolution of a partnership?

Answer 21

Dissolution does NOT immediately terminate the partnership; rather, the partnership enters a ‘winding up’ phase.

Question 22

What are the fiduciary duties owed by an agent to the principal?

Answer 22

• The duty to act with reasonable care and skill
• The duty to act loyally for the principal’s sole benefit
• The duty to act obediently within the principal’s control

Question 23

What does a transferee not become liable for in a partnership?

Answer 23

Obligations of the partnership incurred before or after the transfer

A transferee may become a partner if all other partners consent, becoming liable for obligations incurred after admittance.

Question 24

What phase does a partnership enter during dissolution?

Answer 24

Winding up phase

This phase continues until the winding up of the partnership’s affairs is completed.

Question 25

What is the limit of a partner's authority during the winding up phase?

Answer 25

Actions necessary to wind up the partnership’s affairs ## Footnote A partner may still have apparent authority to bind the partnership if the other side does not have notice of the dissolution.

Question 26

Do general partners have equal rights to manage and control the partnership's business?

Answer 26

Yes, absent an agreement to the contrary ## Footnote Limited partners generally have no say in management matters.

Question 27

What must a partner do to use partnership property for personal use?

Answer 27

Obtain consent from the other partners ## Footnote Partnership property can only be used on behalf of the partnership or to carry on its business.

Question 28

What rights do partners have regarding access to the partnership's books and records?

Answer 28

Every partner must have access during normal business hours ## Footnote The right to inspect is not conditioned on the partner's purpose, but abuse of this right may violate good faith obligations.

Question 29

How are profits and losses shared among partners in the absence of an agreement?

Answer 29

Equal share of profits and responsible for losses in proportion to profit share ## Footnote Each partner is generally entitled to an equal share of partnership profits.

Question 30

What is the duty of care that each partner owes to the partnership?

Answer 30

Refrain from gross negligence, intentional misconduct, or knowing violation of the law ## Footnote Breaching this duty may result in personal liability for damages.

Question 31

What are the components of the duty of loyalty owed by each partner?

Answer 31

Act in good faith, account for benefits derived, and refrain from competition or usurping opportunities ## Footnote Breach of this duty may also result in personal liability for damages.

Question 32

What distinguishes dissolution from winding up and termination?

Answer 32

Dissolution triggers winding up but does not immediately terminate the partnership ## Footnote The winding up continues until the partnership’s affairs are completed.

Question 33

What are the three main causes of dissolution?

Answer 33

* Actions taken by the partners * Operation of law * Court order ## Footnote These causes can vary based on the circumstances surrounding the partnership.

Question 34

What does the Uniform Partnership Act (UPA) state about partner membership changes?

Answer 34

Triggers dissolution unless there is an agreement to the contrary ## Footnote Any partner can dissolve the partnership by withdrawing, unless it is wrongful.

Question 35

What does the Revised Uniform Partnership Act (RUPA) allow regarding disassociation?

Answer 35

Continuing the partnership despite a partner's withdrawal ## Footnote Remaining partners may buy out the withdrawn partner's interest instead of winding up the business.

Question 36

What happens in an at-will partnership upon disassociation?

Answer 36

Automatically triggers dissolution and liquidation ## Footnote Any member can disassociate at any time.

Question 37

What is a term partnership?

Answer 37

A partnership that exists for a specified duration or until a specified event occurs ## Footnote Under RUPA, it can be dissolved before its term if certain conditions are met.

Question 38

What must happen for a term partnership to dissolve within 90 days after a partner's disassociation?

Answer 38

* At least half of the partners express will to wind up * All partners agree to amend the partnership agreement ## Footnote Conditions include disassociation due to death, bankruptcy, incapacitation, or wrongful disassociation.