Agency/Partnership Rule Language

Question 1

Agency Relationship Formation

Answer 1

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

Question 2

Requirements for an Agency Relationship

Answer 2

1. Consent by both the principal and the agent that the agent will act for the principal’s benefit and
2. that the agent is subject to the principal’s control.

Question 3

Principal Liability for Agent’s acts (contracts)

Answer 3

The principal is bound on a contract entered into by an agent if the agent had authority to enter into the contract.

Question 4

Actual Authority

Answer 4

“Actual Authority is authority that the agent reasonably thinks he possesses based on the principal’s dealings with him.”

Actual authority can be express, where the agent is expressly given authority to act for the principal.

It can also be implied. Implied authority is present when the principal’s conduct leads the agent to believe it has authority.

This authority can be implied by custom, past course of conduct by the principal, necessity, or an emergency circumstance.

Question 5

Apparent Authority

Answer 5

“Apparent authority is authority that a third party reasonably believes the agent has based on the PRINCIPAL’S ‘holding out’ to the agent as having such authority.”

The elements of apparent authority are:
1. the person dealt with the agent must do so with a reasonable belief in the agent’s authority and
2. the belief must be generated by some act or neglect on the part of the principal.

Question 6

Ratification

Answer 6

Even if the agent did not have authority to enter into a transaction, the principal can ratify the acts (and thus become liable) by expressly or impliedly affirming or accepting the benefit of the acts, so long as the principal knew the material facts and had capacity.

Question 7

Agent’s liability to 3rd party

Answer 7

The agent is bound to a third party on a contract he enters into with the third party if the agent had no actual or apparent authority to enter into the contract.

Question 8

Undisclosed/Partially disclosed Principal Implications on liability

Answer 8

The agent is liable to the third party if the principal is undisclosed (ie the third party does not know the agent is acting on another’s behalf) or if the principal is partially disclosed (ie the party knows the agent is acting on behalf of another but does not know the identity of the principal.

Question 9

Principal Tort Liability

Answer 9

A principal can be vicariously or directly liable for the torts committed by his agent. The agent is always liable for his own torts.

Question 10

Vicarious liability of employer (RS)

Answer 10

The employer is liable in tort for the acts of an agent or employee if the agent or employee (SMI):
1. was acting in the scope of employment;
2. made a mini deviation from employment (rather than a frolic one); or
3. committed an INTENTIONAL tort only if it was (BAN)
a. for the principal’s BENEFIT,
b. Because the principal AUTHORIZED it, or
c. one that arose NATURALLY due to the nature of employment.

Question 11

Indemnification

Answer 11

The principal can recover against the agent for indemnification if the agent acts beyond his authority.

Question 12

Direct Liability of principal

Answer 12

the principal is directly liable for his own negligence if he negligently hired the agent, failed to fire the agent, or failed to properly supervise the agent.

Question 13

Partnership Definition

Answer 13

“A partnership is the association of two or more persons to carry on a so owners, a business for profit whether or not the persons intended to form the partnership.”

Question 14

Result of Profit Sharing

Answer 14

Profit sharing creates a presumption that a person is a partner unless the profits were received in payment of a debt, rent to a landlord, wages, etc.

Question 15

Liability of partners (in a GP)

Answer 15

“All partners are jointly and severally liable for all obligations of the partnership, which means that each partner is personally liable for the entire amount of such obligations.”

Incoming partners are not personally liable for prior debts of the partnership.

However, outgoing partners are personally liable for debts incurred during their time at the partnership.

Question 16

Partnership Fiduciary Duties

Answer 16

Partners are in a fiduciary relationship with one another and must act in good faith. They are charged with the duty of loyalty, duty of care, and duty to account.

Question 17

Steps of Ending a Partnership (3)

Answer 17

Step 1: Dissociation: The dissolution of a partnership is the change in the relation of the partners.
Step 2: Winding up: This is where partnership assets are liquidated, and creditors are paid. (Note that partners are still liable for any liabilities that occur during the winding up phase).
Step 3: Termination: This is the true end of the partnership.

Question 18

Creditor’s rights for claims against a partner

Answer 18

If a creditor has a claim against a partner, the creditor can obtain an interest in the PARTNERSHIP. This includes profits BUT NOT management or voting rights.

Partners are jointly and severally liable for the obligations of the partnership.

Question 19

Creditor’s rights for claims against the partnership

Answer 19

If a creditor has a claim against the partnership, the creditor can try to collect from the individual partners.

Question 20

Limited Liability Partnership liability

Answer 20

No partner is personally liable for the obligations of the partnership (but partners are liable for their personal torts).

If a general partnership converts into an LLP, then partners remain jointly and severally liable for actions that took place before the conversion.

Question 21

Limited partnership liabilities

Answer 21

At leas one partner must be listed on the certificate filed with the state. Limited partners have limited liability (limited to their capital contributions). General partners are liable for all partnership obligations and manage control of the business.

Question 22

Partnership Profit Sharing Presumption

Answer 22

“A person who receives a share of the profits form a business is presumed to be a partner.”

Question 23

Employee v. Independent Contractor

Answer 23

“In determining whether an individual is an employee or an independent contractor, the primary issue is whether the principal has the right to control the individual’s method and manner of work.”

Question 24

Principal Liability for Independent Contractors (torts)

Answer 24

“Ordinarily, a principal is NOT liable for the torts of an independent contractor.”

“However, estoppel can expose the principal to liability.”

“Estoppel can be raised when the principal creates the appearance that an employer-employee relationship exists, and a third party relies on that relationship.”