Agency & Partnership

Question 1

What are the 3 main agency questions that will be tested?

Answer 1

1. Liability of principal to third parties for torts of an agent
2. Liability of principal to third parties for contracts entered into by an agent
3. Duties which agents owe to principals

Question 2

When is a principal vicariously liable for the torts commited by its agent?

Answer 2

Principal will be liable for torts committed by its agent if:

1. A principal-agent relationship exists, and
2. The tort was committed by the agent within the scope of that relationship

Question 3

When does a principal-agent relationship exist?

Answer 3

A principal-agent relationship requires:

1. Assent
   
   • Principal, who has capacity, and agent enter into an informal agreement
2. Benefit
   
   • Agent’s conduct is for the benefit of principal
3. Control
   
   • Principal has the right to control the agent by having the power to supervise the manner of the agent’s performance

Question 4

When is a principal liable for a sub-agent’s tort?

Answer 4

Only if there is:

1. Assent
2. Benefit
3. Control

Between the principal and sub-agent tortfeasor

Typically the principal does not assent to the sub-agent’s help and does not have the right to control the sub-agent

Question 5

When is a principal liable for a borrowed agent’s tort?

Answer 5

Only if there is:

1. Assent
2. Benefit
3. Control

Typically, although the borrowing principal may assent to and benefit from the borrowed agent’s help, the borrowing principal does not assume any right to control the borrowed agent

Question 6

What is the key distinction between agents and independent contractors?

Answer 6

There is no right to control independent contractors because there is no power to supervise the manner of its performance

Question 7

When is a principal liable for an independent contractor’s tort?

Answer 7

• Inherently dangerous activity
  
  • Independent contractor commits a tort while engaging in inherently dangerous activity
    
    • E.g., brake repair work
• Estoppel
  
  • Principal holds out the independent contractor with the appearance of an agent
    
    • E.g., gas station sign says “gas station and brake repair”

Question 8

When does an agent act within the scope of the principal-agent relationship?

Answer 8

Consider the following factors:

• Was the conduct of the kind the agent was hired to perform?
  
  • If the conduct was within the agent’s job description, it was within the scope
• Did the tort occur on the job?
  
  • Frolic
    
    • If the agent went on a new and independent journey, it was outside the scope
  • Detour
    
    • If the agent went on a mere departure from the assigned task, it was within the scope
      
      • E.g., look for language “on the way back”
• Did the agent intend to benefit the principal?
  
  • If the agent even in part intended to benefit the principal, it was within the scope

Question 9

What is an employer-employee relationship?

Answer 9

A genuine principal-agent relationship

Question 10

Are intentional torts within the scope of the principal-agent relationship?

Answer 10

Intentional torts are generally outside the scope

Exceptions:

• Authorized by the principal
• Natural from the nature of employment
• Motivated by a desire to serve the principal

E.g., a bouncer meets all three of these exceptions

Question 11

When is a principal liable for contracts entered into by its agent?

Answer 11

Only if the principal authorized the agent to enter into the contract

Four types of authorization:

1. Actual express
2. Actual implied
3. Apparent
4. Ratification

Question 12

How can a principal authorize its agent to enter into a contract?

Answer 12

1. Actual express authorization
   
   • Principal used words to express authority
2. Actual implied authorization
   
   • Principal implied authority through conduct or circumstance:
     
     • Necessity - tasks that are necessary to accomplish and expressly authorized task
     • Custom - tasks which by custom are performed by person’s with the agent’s title or position
       
       • E.g., inherent authority
     • Prior acquiescence - tasks which the agent believes to be authorized based on prior acquiescence by the principal
3. Apparent authorization
   
   • Principal cloaked agent with appearance of authority
   • Third party reasonably relied on the appearance of authority
4. Ratification
   
   • _​​_Principal has knowledge of all material facts regarding the contract
   • Principal accepts its benefits
   • Principal has not altered the terms of the contract

Question 13

Does actual express authority have to be in writing?

Answer 13

Generally, no. It can be oral and private (e.g., whisper).

Exception:

• If the contract itself must be in writing (e.g., statute of frauds - land conveyance), the actual express authority must be too

Question 14

When can express authority be revoked?

Answer 14

When the principal has not given durable power of attorney, and:

• Unilateral act of either principal or agent
• Death or incapacity of principal

Question 15

What is durable power of attorney?

Answer 15

Durable

• Clear survival language

Power of attorney

• Written expression of authority to enter into a transaction

Question 16

How is actual express authority construed?

Answer 16

Narrowly construed to the language within it

Question 17

When is an agent liable for contracts entered into on behalf of a principal?

Answer 17

• The contract is unauthorized
• The undisclosed principal
  
  • Agent only partially discloses principal (i.e., only existence disclosed)
  • Agent does not disclose principal (i.e., neither existence nor identity disclosed)

The third party can choose whether to hold the agent or the principal liable

Question 18

What duties do agents owe to their principals?

Answer 18

In return for reasonable compensation and reimbursement of expenses, agents owe principals:

1. Duty of care
2. Duty to obey instructions that are reasonable
3. Duty of loyalty, which means no:
   
   • Self-dealing
     
     • Receiving a benefit to the principal’s detriment
   • Usurping the principal’s opportunity
     
     • Taking an opportunity the principal had
   • Secret profits
     
     • Making a profit at the principals’ expense without disclosure

Question 19

What remedies does a principal have against an agent who breaches their duty of loyalty?

Answer 19

The principal may:

• Recover losses that are caused by the breach
• Disgorge profits made by the breaching agent

Question 20

What are the five main partnership areas that will be tested?

Answer 20

1. General partnership formation
2. Liabilities of general partners to third parties
3. Rights and liabilities between general partners
4. General partnership dissolution
5. Alternative unincorporated business organizations

Question 21

How is a general partnership formed?

Answer 21

There are no formalities. Just do it.

Question 22

What is a general partnership?

Answer 22

An association of two or more persons to carry on as co-owners of a business for a profit

Question 23

What gives rise to the presumption that a general partnership exists?

Answer 23

The contribution of money or services in return for a share of profits (i.e., not in return for a salary, wages, fixed rate of interest, etc.)

Question 24

When is a general partnership liable to third parties?

Answer 24

General agency principles apply

Partners are agents of the partnership for apparently carrying on the usual partnership business

So, the general partnership is liable for:

• Each partner’s torts within the scope of the partnership business
• Each partner’s authorized contracts

Question 25

What is the cardinal rule of general partnerships?

Answer 25

Each general partner is _personally liable_ for: * All _debts_ of the partnership * Each co-partner's _torts_

Question 26

Are _incoming_ partners liable for a general partnership's pre-existing debts?

Answer 26

Generally no. But any money paid into the partnership can be used to satisfy those prior debts.

Question 27

Are _dissociating_ (i.e., withdrawing) partner's liable for a general partnership's subsequent debts?

Answer 27

Only until: * _Actual notice_ of their dissociation is given to creditors, or * _90 days_ after filing a _notice of dissociation_ with the state This applies even to _dying_ partners

Question 28

Can a non-partner ever be liable for partnership debts? What if a partnership doesn't even exist?

Answer 28

Yes. This is called liability by _estoppel_. A non-partner who _represents to a third party_ that a general partnership exists will be liable as if a general partnership exists.

Question 29

What rule governs the rights and liabilities between general partners?

Answer 29

General partners are _fiduciaries_ of eachother and the partnership So, general partners owe eachother and the partnership the following: * Duty of _loyalty_, which means no: * _Self-dealing_ * Receiving a benefit to the principal's detriment * _Usurping_ the principal's opportunity * Taking an opportunity the principal had * _Secret profits_ * Making a profit at the _principal's expense_ without _disclosure_

Question 30

What remedies does the partnership and its partners have against a partner who breaches their duty of loyalty?

Answer 30

_Action for accounting_ * The partnership may: * _Recover losses_ that are caused by the breach * _Disgorge profits_ made by the breaching party

Question 31

What are the different types of property in a partnership? Who owns them? Who can transfer them?

Answer 31

1. Specific partnership _assets_ * _​​_This is land, leases, equipment, etc. * _Owned_ only by the _partnership_ itself * _May not be transferred_ by individual partners without partnership authority 2. Share of _profits_ * _​​_This is personal property * _Owned_ by the individual _partners_ * _May be transferred_ to third parties 3. Share in _management_ * _​​_This is the right to manage the partnership * _Owned_ only by the _partnership_ itself * _May not be transferred_ by individual partners to third parties

Question 32

What is the test to determine whether property (other than a share in profits and a share in management) is owned by the partnership or the individual partners?

Answer 32

Who's money was used to buy the property?

Question 33

How do you determine how much control (i.e., votes) each partner gets? How many votes will decide an issue?

Answer 33

Absent an agreement otherwise, each partner is entitled to _equal control_ Moreover: * _Majority vote_ governs _ordinary affairs_, and * _Unanimous consent_ governs _fundamental matters_

Question 34

How do you determine whether partners get a salary?

Answer 34

Absent an agreement otherwise, partners get _no salary_ Exception: * Partners do get compensation for helping to _wind up_ the partnership business

Question 35

How do you determine each partner's share of the partnership profits and losses?

Answer 35

Profits * Absent an agreement otherwise, profits are shared _equally_ Losses * Absent an agreement otherwise, losses are shared _just like profits_

Question 36

When does a general partnership _dissolve_?

Answer 36

A general partnership has a limited life Absent an agreement that either: * Sets forth _events of dissolution_, or * Limits the partnership's _length_, A general partnership _dissolves upon notice_ of the express will of _any one general partner_ to dissociate This is called _dissolution_

Question 37

What is the real end of a partnership called?

Answer 37

Termination

Question 38

What is the period between dissolution and termination?

Answer 38

_Winding up_ * Period between dissolution and termination in which remaining partners _liquidate partnership assets_ to satisfy partnership creditors

Question 39

What is the liability of the partnership and its partners during the winding up period?

Answer 39

Old business * The partnership and its partners _retain liability_ on all transactions entered into to wind up old business by satisfying _creditors who existed when winding up began_ New business * The partnership and its partners _retain liability_ on _brand new transactions_ during wind up until: * _Actual notice_ of dissolution is given to creditors, or * _90 days_ after filing a _statement of dissolution_ with the state

Question 40

What is the priority of distribution upon dissolution of a partnership?

Answer 40

1. First, pay _all creditors_, including: * _​​Non-partner_ trade creditors * _Partners_ who loaned money to the partnership 2. Second, repay _all capital contributions_ * _​​_Most important step 3. Third, allocate the remaining _profits or losses_ * Absent agreement otherwise, these are allocated _equally_

Question 41

What is a limited partnership?

Answer 41

A partnership with at least: * One _general partner_, and * One _limited partner_

Question 42

How do you form a limited partnership?

Answer 42

File a _limited partnership certificate_ with the state, including: * The _names_ of all _general partners_

Question 43

In a limited partnership, who retains liability? Who retains control?

Answer 43

General partners * _Liable_ for all limited partnership obligations * Retain a _right_ to control the business Limited partners * _Not liable_ for limited partnership obligations * Retain a _right_ to control the business, _but if they do_: * They become liable to _third parties who believe_ they were general partners

Question 44

What is the difference between a limited partnership and a registered limited liability partnership (RLLP)?

Answer 44

In a _registered limited liability partnership (RLLP)_, no partner is liable for the debts and obligations of the partnership But _individual partners_ can always be sued for their _torts_, just not the obligations of the partnership

Question 45

How do you form a registered limited liability partnership (RLLP)?

Answer 45

_Register_ with the state by filing: * A _statement of qualification_ and * _Annual reports_