Agency & Partnership COPY

Question 1

Creation of Agency Relationship

Answer 1

Agency is a fiduciary relationship, where a person or entity (agent) acts on behalf of another (principal)

Question 2

Elements of Agency Relationship (ABC)

Answer 2

Assent - a formal or informal agreement
Benefit - the conduct primarily benefits the principal
Control - the principal has the right control the agent

Question 3

An agency relationship terminates by:

Answer 3

a) A manifestation by either party that the relationship is terminated;
b) Expiration of a specified term of authority;
c) Death of principal or agent (by operation of law);
OR
d) Incapacity of the principal or agent (by operation of law) – except if a durable power of attorney exists.

Question 4

Actual Authority

Answer 4

A principal is bound to a contract entered into by its agent if the agent had actual authority.

Agent has actual authority when acting within their reasonable understanding of authority.

Question 5

Two types of Actual Authority

Answer 5

Express Authority- by principal’s explicit directions to the agent.

Implied Authority either:

a) action is necessary to carry out the agent’s express authorized duties.
b) agent acted similarly in prior dealings with the principal
c) it’s customary for an agent in that position.

Question 6

Apparent Authority

Answer 6

A principal is bound to a contract entered into by its agent if the agent has apparent authority.

exists when:

1. a third party reasonable believes the agent has authority to act AND

2, belief is traceable from the principal’s manifestation.

Question 7

Apparent Authority

A principal holds the agent out as having authority when he:

Answer 7

• gives a position or title indicating of authority
• previously held the agent out and did not publish a revocation OR
• cloaked the agent with the appearance of authority

Apparent Authority is NOT applicable if the third-party had knowledge that the agent did not have actual authority.

Question 8

Existence of Apparent Authority with Disclosed, Partially Disclosed, and Undisclosed Principal

Answer 8

Disclosed and Partially Disclosed Principal: Apparent Authority CAN exist.

Undisclosed Principal: Apparent Authority CANNOT exist.

Question 9

Inherent Agency Power: Protects third-parties when dealing with agents even if there is no actual or apparent authority.

Answer 9

First Group: Subjects an employer to liability when:

1) an agent acts in furtherance of employer’s business; AND
2) his conduct harms a third-party.

Second Group: If an agent violates the principal’s orders and there is no actual/apparent authority, inherent agency applies when:

1) An agency relationship exits; AND
2) Agent engaged in acts that are generally of a kind that would fall within his actual authority, but for the violation of principal’s instructions.

Question 10

Ratification: Makes the principal liable for an agent’s contract entered into without authority.

Answer 10

Ratification occurs when the Principal:

1) Has knowledge of all material facts or contract terms; AND
2) Assents (approves) to the same through words or conduct.

*Agent also remains liable if principal was not disclosed.

Question 11

Agent’s Contractual Liability

Answer 11

An agent has no liability if they fully disclose the principal to third party AND act within their scope of authority.

Agent will be liable if (1) conduct was unauthorized OR (2) principal was undisclosed or partially disclosed to third-party.

Agent can seek indemnification if: Agent is liable and his conduct was authorized.

Question 12

Employee vs. Independent contractor

Answer 12

Primary focus is whether the principal had the right to control the manner and method in which the job was performed.

Question 13

Respondeat Superior Doctrine

Answer 13

An employee is liable for an employee’s a negligent acts if the employee was acting within the scope of the employment.

Question 14

Employee acts within Scope of Employment when:

Answer 14

a) Performing work assigned by the employer; OR
b) Engaging in a course of conduct subject to the employer’s control.

Question 15

Intentional Torts – are generally outside the scope. EXCEPTIONS:

Answer 15

a) Act was specifically authorized by employer;
b) Act was driven by a desire to serve employer;

OR

c) Act was the result of naturally occurring friction from the type of employment.

Question 16

Liability if Respondeat Superior Doctrine is Inapplicable – An employer will be liable for acts outside the scope of employment if:

Answer 16

a) Employer intended the conduct / consequences;
b) Employer was negligent or reckless in selecting, training, supervising, or controlling the employee;
c) It is a non-delegable duty; OR
d) Employee had apparent authority, the appearance of authority enabled the tort, and the third-party reasonably relied on such authority.

Question 17

Liability for Independent Contractor

Answer 17

An employer/principal has no liability for independent contractors torts unless:
A) inherently dangerous
b) non delegable duty owed by principal.
c) Estoppel - the principal holds out the contractor as his agent

Question 18

Duty owed by Agent to the Principal

Answer 18

Duty of Care- duty to use reasonable care when performing agent’s duties.

Duty of Loyalty - duty to act solely and loyally for the principal’s benefit.

Duty of Obedience - duty to obey all reasonable directions of the principal.

Question 19

GP - General Partnership creation:

Answer 19

1. two or more persons
2. as co-owners
3. carry on a business for profit.
   (intent to form a partnership is not required)

Question 20

Creditor vs. Partner – A person who receives a share of the profits is presumed to be a partner UNLESS the payment is received in payment:

Answer 20

a) of a debt;
b) for wages as an employee or independent

contractor;

c) of rent;
d) of an annuity or retirement benefit;
e) of interest/loan charges; OR
f) for the sale of goodwill of a business.

Question 21

Limited Partnership (LP):

Answer 21

is composed of limited partner(s) AND at least one general partner.

Formation – An LP is formed upon filing a Certificate of Limited Partnership with the Secretary of State, which must include:

Question 22

Limited Liability Partnership (LLP)

Answer 22

In an LLP, all partners have limited personal liability.

Question 23

Authority to Bind Partnership

Answer 23

A partner is an agent of the partnership, and generally has authority to bind the partnership for business. (Partner MUST have authority to bind the Pship)

Question 24

Express Actual Authority – A partner receives such authority from the partners.

Answer 24

− Acts within the ordinary course of business must be approved by a majority of the partners.

− Acts outside the ordinary course of business must be approved unanimously.

− If Pship Agreement is silent, a partner has authority for usual & customary matters UNLESS he knows: (a) other partners might disagree, or (b) that consultation is appropriate.

Question 25

Implied Actual Authority (Incidental Authority):

Answer 25

A partner may take actions reasonably incidental or necessary to achieve the partner’s authorized duties.

Question 26

Apparent Authority – A partner has apparent authority for acts:

Answer 26

a) conducted within the ordinary course of the Pship business; OR
b) of the kind carried on by the Pship.

BUT, a partner’s act will NOT bind the Pship when the:

1) Partner lacked authority; AND
2) Third-party knew (or received notice) of a lack of authority.

Question 27

Authority to Bind the Partnership After Dissolution:

A partner’s authority is limited after dissolution.

Answer 27

Actual Authority → limited only to acts appropriate for winding up the business.

Apparent Authority→a partner has apparent authority to bind the Pship if the:

1) Partner’s acts would have normally bound the Pship; AND
2) Third-party did not have notice of dissolution.

Question 28

Liability of GP: Personal Liability

Answer 28

GP are personally liable for all obligations of the Pship unless otherwise agreed by claimant or provided by law.

Question 29

Liability of GP- Incoming Partners

Answer 29

Partners admitted into an existing pship are not liable for obligations incurred prior to their admission. (but risk losing their capital contributions.

Question 30

Judgment Enforcement Against a Partner’s Personal Assets

Answer 30

A judgment against the Pship is NOT a judgment against the individual partner(s).

− BUT, a judgment may be sought against the Pship and individual partners in the same action. After the partnership’s assets are exhausted, the creditor can go after the partner’s personal assets.

Question 31

Liability of Limited Partners – Limited partners are NOT personally liable for obligations of the LP.

Exceptions:

Answer 31

a) Liable for their own misconduct;
b) At risk of losing their capital contribution to the

Pship; OR

c) May become personally liable if the partner participates in management (depends on the jurisdiction).

Question 32

Liability of Limited Liability Partners – Under RUPA, a partner in an LLP is NOT liable for partnership obligations.

But a partner in an LLP is liable:

Answer 32

a) for their own misconduct;
b) when the partner signs a personal guarantee for an obligation; OR
c) for obligations incurred before the Pship became an LLP.

Question 33

Pship: Duty of Care

Answer 33

A partner owes the fiduciary duty of care to the Pship and other partners.

Breach by

1) gross negligent or reckless behavior
2) intentional misconduct
3) a knowing violation of law

if breach, may be personally liable.

Question 34

Right to Management & Control:

Answer 34

A partner owes the fiduciary duty of care to the Pship and other partners.

Breach by

1) gross negligent or reckless behavior
2) intentional misconduct
3) a knowing violation of law

if breach, may be personally liable.

Question 35

Transfer of Partnership Ownership: A partner can only transfer:

Answer 35

1) his interest in the share of profits and losses;

AND

2) the right to receive distributions.

Question 36

Right to Partnership Property:

Answer 36

All property acquired by a Pship (or with Pship assets) is owned by the Pship, not the partners individually.

Question 37

Property acquired in the name of the partner is presumed to be separate property as long as:

Answer 37

1) no Pship assets are used to acquire it; AND
2) title to the property does not reference the

Pship.

Question 38

Management & Control in a LP

Answer 38

General Partner: Has full management rights and control.

Limited Partner: Has NO say or control as to how the LP is run, and DOES NOT have the right to manage or control day-to-day business.

Question 39

Duty of Care – A partner owes the fiduciary duty of care to the Pship and other partners.

Under RUPA, a partner only breaches the duty of care if he engages in:

Answer 39

a) Grossly negligent or reckless conduct;
b) Intentional misconduct; OR
c) A knowing violation of law.

*If a partner breaches, he may be held personally liable to the Pship for any losses.

Question 40

Pship: Duty of Loyalty

Answer 40

Partner owes fiduciary duty of loyalty to the Pship and other partners. Required to act in the best interest of pship.

Under Rupa, a partner must

1) account for anything derived from Pship property or business.
2) no conflict of interest
3) not compete with Pshhip

breach = personally liable.

Question 41

BUT, a partner is NOT liable for breaching duty of loyalty if:

Answer 41

1) He fully discloses information; AND
2) Either:
a) the Pship agreement is amended; OR
b) all partners consent.

Question 42

Disassociation (Withdrawal of Partner)

Answer 42

A partner can dissociate (withdraw) from Pship at any time upon notice.

Question 43

Dissociation Events – A partner becomes dissociated from the Pship upon:

Answer 43

a) The partner providing notice of their express will to withdraw;
b) The occurrence of an agreed upon event;
c) Expulsion pursuant to the Pship agreement;
d) Expulsion by unanimous vote if it’s (i) unlawful to

carry on the business with that partner or (ii) he transferred all of his Pship interest (other than for security purposes);

e) Judicial expulsion;
f) Bankruptcy;
g) Incapacity or death;
h) Appointment of a personal representative or

receiver; OR

i) Termination of an entity partner (who is not an

individual, pship, corporation, trust, or estate).

Question 44

Wrongful Dissociation: Dissociation is deemed wrong if

Answer 44

1. in breach of an express provision or
2. before the completion of agreed upon term or undertaking.

*A wrongfully dissociated partner CANNOT participate in management or the winding up process.

A partner may be liable to the Pship (and other partners) for damages caused by his wrongful dissociation.

Question 45

Dissolution Events – Unless agreed otherwise, dissolution occurs upon:

Answer 45

1) notice of partnership’s express will to withdraw
2) occurrence of agreed upon event
3) business becomes unlawful, or
4) judicial dissolution.

Question 46

Dissolution of a Pship for a Definite Term occurs:

Answer 46

a) within 90-days after a partner’s dissociation by death or wrongful dissociation, if it’s the express will of at least half of the remaining partners to wind up (rightful dissociation constitutes the expression of the partner’s will to wind-up);
b) upon the express will of all partners to wind up;

OR

c) upon the expiration of the term or completion of the Pship’s purpose.

Question 47

Does Dissociation Cause Dissolution?

Under UPA (1914):

Answer 47

The Pship MUST be wound up and terminated (regardless if rightful or wrongful).

Question 48

Does Dissociation Cause Dissolution?

Under UPA (1914):

Answer 48

− Dissolution may be rescinded by the affirmative vote or consent of ALL remaining partners to continue the business.

− Buyout: In such instance, the dissociated partner is entitled to a buyout of their interest (value of interest = greater of liquidation or going concern value + interest).

Question 49

Winding Up & Termination of a Partnership

Dissolution vs. Winding Up vs. Termination:

Answer 49

− Dissolution: Occurs upon the occurrence of any specified statutory event (see above).

− Winding Up: Is the period between dissolution and termination, in which assets are liquidated to satisfy creditors.

− Termination: Occurs when the winding up process is complete. The real end of the Pship, in which the Pship ceases to exist.

Question 50

Distribution of Partnership Assets – During the winding up process, the Pship assets are converted to cash and distributed in the following order:

Answer 50

1) Outside creditors.
2) Inside creditors (partners who loaned money to the Pship).
3) Partner’s capital contributions.
4) Any remaining profits or surplus goes to the partners equally (unless agreed otherwise).

*If there are insufficient assets to satisfy creditors, the loss will be divided among the partners.