Agency & Partnership

Question 1

Apparent authority in a LLPs

Answer 1

even if a partner lacks actual authority, a limited liability partnership can be bound by the acts of a parter, “ if the partner was “apparently carrying on in the ordinary course the partnership business or business of the kind carried on by the partnership.”

However, when the other party knew or had notice that the partner lacked authority then the third party is bound by a limitation of authority under RUPA 1997

Question 2

RUPA provides that a partner in an LLP

Answer 2

a partner in a limited liability partnership is not liable for partnership obligations “solely by reason of being or acting as a partner.

Partners can become liable, however, for partnership obligations based on their own personal misconduct or piercing the entity veil.

Question 3

Under RUPA what duties do partners owe to the partnership and other partners?

Answer 3

the duties of loyalty and care . Partners are liable for damages to the partnership and co-partners for breach of these duties. Claims for breach of duties by partners in a limited liability partnership are not subject to the rule of limited liability applicable to claims by outside parties.

Question 4

Fiduciary duty of loyalty

Answer 4

the fiduciary duty of loyalty includes the obligation to refrain from appropriating partnership assets for personal use.

Question 5

Duty of care

Answer 5

The duty of care, which is remediable in damages, includes a duty not to engage in intentional misconduct and knowing violations of law.

Question 6

Who can bring an action against a partner that breaches his fiduciary duties?

Answer 6

the partnership can maintain an action against the partner for violating his fiduciary duties to the partnership and thus causing harm to the partnership.

A partner can maintain an action against another partner, with or without an accounting, to enforce the partners rights under the partnership act, including an action for violation of duties.

Question 7

Accounting action brought by a partner

Answer 7

a partner can bring an accounting action to have the breaching partner account to the partnership for the money he took from the partnership.

A partnership could seek damages for breaches by a majority of votes. *

Question 8

Actual authority

Answer 8

exists when the principal by written or spoke words or other conduct “causes the agent to believe that the principal desires [the agent] to act on the principals account.”

While rephrased, the Third Restatement is similar and provided that “an agent acts with actual authority when, at the time of taking action that has legal consequences for the principal, the agent reasonably beleives, in accordance with the principals manifestation to the agent, that the principal wishes the agent so to act.”

Question 9

Apparent authority

Answer 9

is created with respect to a third person when “by written or spoken words or any other conduct” the principal causes the trhid person to believe that the principal consents to have the act done on his behalf by the person purport to act for him.

The Third Restatement is similar, “apparent authority is created by a persons manifestation that another has authority to act with legal consequences for the person who makes the manifestation, when a third person reasonably believes the actor to be authorized and the belief is traceable to the manifestation.”

Question 10

What are the consequences of an agent for breaching actual and apparent authority?

Answer 10

a person who “purports to make a contract with a third party on behalf of another person, lacking power to bind that person, gives an implied warranty of authority to the third party and is subject to liability to the third party for damages for losses caused by the breach of that warranty, including loss of the benefit expected from performance by the principal.”

Question 11

Undisclosed principal

Answer 11

an undisclosed principal is bound by contracts made on his account by an agent acting within his authority. An agent who purports to a ct on his own account but in fact is making a contract on behalf of an undisclosed principal, is also a party to the contract.

the rationale for this rule is that the trhid part has every reason in the case of an undisclosed principal and agency to assume that the person with whom it contracts expects to be liable on the contract. Additionally the extend the third party was relying on the financial solvency of the person on the other side of the contract, the third party would have no basis to rely on anyone but the agent who signed the contract.

Question 12

Partially disclosed principal

Answer 12

when a third party contracts with a person that the third party knows is acting in an agency capacity for another but the third party is unaware of the identity of the principal, the principal for whom the agent acts is called a partially disclosed principal.

Question 13

Ratification by principal

Answer 13

even though the agent acts without actual or apparent authority, if the principal accepts the items and uses them, this amounts to ratification of the contract between the agent and the third party.

Where the principal ratifies the act of an agent, the principal is liable on the contract just as if the agent had acted with actual authority. Ratification occurs if the principals conduct justifies a reasonable assumption that the principal consents to the act performed on the principals behalf.

Question 14

A limited liability partnership must include

Answer 14

a general partner who has signed the initial Certificate of Limited Partnership filed with the Secretary of State.

Question 15

Partners in a general partnership are

Answer 15

liable jointly and severally for all obligations of the partnership unless otherwise agreed by the claimant or provided by law.

Question 16

What steps must a claimant creditor follow to recover personally from general partners?

Answer 16

Ordinarily, a claimant may not take action against a partner’s separate assets unless the partnership assets fail to satisfy the claimant’s judgment.

under the Uniform Partnership Act, a judgment against a partnership is not, by itself, a judgment against a partner. Consequently, a judgment against a partnership may not be satisfied out of the partner’s separate assets unless there is also a judgment against the partner. A
judgment against a partner personally may be sought in the same action as a judgment against the partnership.

Question 17

A partner’s authority “in the ordinary course of business”

Answer 17

Section 401(h) of the Revised Uniform Partnership Act, as amended, provides that “each partner has equal rights in the management and conduct of the partnership’s business.” This grant of authority to each partner is tempered by subsection 401(k), which provides: “A difference arising as to a matter in the ordinary course of business of a partnership may be decided by a majority of the partners. An act outside the ordinary course of business of a partnership and an amendment to the partnership agreement may be undertake only with the affirmative vote or consent of all the partners. “

Question 18

If the partnership agreement is silent on the scope of the agent-partner’s authority

Answer 18

a partner has actual authority to commit the partnership “to usual and customary matters, unless the partner has reason to know that (i) the other partners might disagree, or (ii) for some other reason consultation with fellow partners is appropriate.

In light of this principle, a partner has authority to bind the partnership as to “usual and customary” dealings with third parties and need not seek the prior approval of the other partners unless the partner has reason to believe that the other partners might not approve or might expect to be consulted.

Question 19

Proper withdrawal from a partnership

Answer 19

A partner dissociates from a partnership when the partnership has notice of the partner’s will to withdraw as a partner.

A partner can dissociate at any time. The notice of the partner’s will to withdraw need not be in writing. The dissociation is rightful–that is, the dissociating partner has no obligations to the other partners–when the partnership is at will and the dissociation breaches no express provision in the partnership agreement.

Question 20

Dissolution of at will partnerships

Answer 20

Normally, a partner’s dissociation in an at will partnership results in its dissolution, and the business must be wound up. But such dissolution can be rescinded by the affirmative vote or consent of all remaining partners.

Under RUPA, as amended, the dissociating partner is no longer considered a partner and does not participate in this decision to continue the partnership. When a partnership is continued and not dissolved, the dissociating partner is entitled to have her interest purchased for a buyout price equal to that partner’s interest in the value of the partnership, based on the greater of its liquidation or going-concern vale (plus interest from the date of dissociation)

Question 21

Dissociating partner must make written demand

Answer 21

If the dissociating partner makes a written demand for payment and no agreement is reached within 120 days after the demand, the partnership must pay in cash the amount it estimates to be the buyout price, including accrued interest.

If the demand is oral, the partnership does not have a specific time in which to pay the buyout price.

Question 22

Upon dissolution, the partnership:

Answer 22

continues until the winding up of partnership affairs is completed. Thus, dissolution marks the point when the parties case carrying on the partnership business together and begin a process of settling the partnership affairs. The partners’ rights, powers, and duties continue during the winding-up process that follows dissolution, during which the partnership liabilities ar paid, the business is settled and closed, and the partnership assets are distributed. The partners’ legal relationship and the partnership terminate only when all of the partnership affairs are completely wound up.

Question 23

Among the partner’s fiduciary duties is a duty to account to the partnership for any benefit derived by the partner from the appropriation of any partnership opportunities.

Answer 23

The duty not to appropriate partnership opportunities continues during the winding-up process, although “scope of the partnership opportunities inevitably narrows.”

Question 24

A partnership opportunity includes one that is

Answer 24

closely related to the entity’s existing or prospective line of business, [that] would competitively advantage the partnership, and . . . that the partnership has the financial ability, knowledge and experience to pursue . . . “

A partner who learns of a business opportunity during the term of a partnership may not appropriate that opportunity (without sharing with his co-partners) during the winding-up process or after the partnership term ends. In addition, the partner must perform his duties during the winding up of the partnership business “consistently with the contractual obligation of good faith and fair dealing.”

The obligations of good faith and fair dealing encompass a disclosure duty.

Question 25

The test of whether a person is an employee is whether

Answer 25

the person’s “physical conduct in the performance of the services is subject to the [employer’s] control or right to control.” This is generally a question of fact. A number of factors are relevant, including the level of skill required to perform the work, who supplies the instrumentalities used, the duration of the relationship, and whether the work is part of the principal’s regular business. No single factor is determinative.

Question 26

The Restatement Third of Agency section 7.07 states that

Answer 26

an employee acts within the scope of employment when performing work assigned by the employer or engaging in a course of conduct subject to the employers control. An employee’s act is not within the scope of employment when it occurs within an independent course of conduct not intended by the employee to serve any purpose of the employer.