Agency & Partnership (Essay/Mixed)

Question 1

Creation of Agency Relationship/Levels of Authority

Answer 1

An agency relationship is created when a person (the principal) manifests an intent that another person (the agent) act on his behalf and both parties consent to the agreement.

Actual Authority: (i) The authority the agent reasonably believes he possesses based on the principal’s dealing with him; (ii) Actual authority can be express or implied from the actions of the principal.

Apparent Authority: Exists where the principal holds out the agent as having certain authority causing third parties to reasonably believe the agent has such authority.

Question 2

General Partnership

Answer 2

A general partnership is formed when:

1. Two or more people associate to carry on as co-owners a business for profit;
2. The INTENT of the parties to carry on as a co-owners can be implied by their conduct; and
3. The sharing of profits raises a presumption that a partnership was formed.

Additional Points:

1. Partnership may be formed without filing anything with the state.
2. Most other entities require registering with the state.
3. Courts look to INTENT of the parties.

Question 3

Partnership Agency Power

Answer 3

Every partner is an agent of the partnership, and acts of a partner will bind the partnership if the partner acted with authority.

Question 4

Partnership: Actual Authority

Answer 4

1. Actual authority is the authority a partner reasonably believes he has based on the communications between the partnership and the partner;
2. If the act is within the ordinary course of business, the partners may confer actual authority by a majority vote;
3. Hiring employee to perform partnership business is within the ordinary course of the partnership’s business.

Question 5

Partnership: Apparent Authority

Answer 5

1. Apparent authority is the authority that a third party would reasonable believe a partner has based on his being held out by the partnership as a partner; and
2. The act of a partner in the ordinary course of the partnership business or business of the kind carried out by the partnership will bind the partnership UNLESS the partner had no actual authority and the third person with whom the partner was dealing KNEW, or received NOTICE that the partner lacked authority.
3. An agent has implied authority to face an emergency.

Question 6

Partnership: Liability

Answer 6

1. Partners are jointly and severally liable for all obligations of the partnership;
2. A judgment will not personally bind a partner who has not been served; and
3. A judgment creditor must first seek satisfaction of any judgment from the partnership, and then from the partners personally to the extent not covered by partnership assets.

Question 7

Principal: Agent Liability

Answer 7

1. A principal is liable to a third party for contracts entered into by an authorized agent;
2. An agent is authorized to act on behalf of a principal if he has actual or apparent authority:
3. Actual authority is authority the agent reasonable thinks he possesses based on the principal’s dealings with him; and
4. Apparent authority exists when the principal “holds out” the agent as having certain authority, causing third parties to reasonably believe the agent has such authority.

Ratification occurs when a principal accepts a contract made by an agent without authority after learning of all the material facts.

Question 8

Vicarious Liability

Answer 8

Partners are liable for torts committed by an employee of the partnership in the ordinary course of partnership business or with the authority of the partnership.

Question 9

Partnership Presumption Exception

Answer 9

Person who shares in profits of business presumed to be a partner, except where:

1. Profits are received in payments of rent; or
2. When it is actually gross returns (not profits) that are being shared.

Question 10

Limited Liability Partnership

Answer 10

1. Is comprised of one or more general partners, and one or more limited partners;
2. General partners are personally liable for partnership obligations;
3. While limited partners generally do not have any liability beyond their contributions; and
4. To form a limited partnership a certificate of limited partnership must be filed with the secretary of state.

The Partnership becomes an LLP at the time of filing or on the date specified in the registration.

Question 11

Respondeat Superior

Answer 11

A Corporation is liable for its own acts, and acts of its own employees under the doctrine of respondeat superior. Under the doctrine of respondeat superior:

1. An employer is liable for the torts of an employee committed within the scope of employment.
2. Typically, an employer will not be held liable for intentional torts, but an exception applies when the intentional tort occurs as a natural incident of carrying out the business of the employer or if a benefit runs to the employer from the conduct.

Question 12

Dissolution: Order of Payment

Answer 12

1. When a partnership is dissolved its assets are reduced to cash, the cash must be used to pay the partnership’s liability in the following order: creditors, and then partners in settlement of their accounts.
2. If assets at dissolution are worth less than the money owed to creditors and the partners’ capital contributions that have not been repaid, the shortfall is a loss that must be divided among the partners; and
3. As among themselves absent an agreement to the contrary, partners share losses in the same proportion as they share profits, and absent an agreement to the contrary, partners share profits equally.