Agency/Partnerships

Question 1

Actual Authority (Liability of Principal in Contract)

Answer 1

[Based on the communication between the principal and the agent.] Words or conduct by the principal (or course of dealing between the principal and agent) that causes the agent to reasonably believe that the agent has the power to act on behalf of the principal.

Question 2

Apparent Authority (Liability of Principal in Contract)

Answer 2

[Based on the communication between the principal and 3rd party.] Words or conduct by the principal that causes the 3rd party to reasonably believe that the agent has the power to act on behalf of the principal, even if the agent does not have actual authority; may be based on the principal giving the agent a particular title, industry custom, or course of dealing as well as the principal’s actual words.

Question 3

Authority by Estoppel (Liability of Principal in Contract)

Answer 3

[Based on words or actions between the agent and 3rd party, very limited in scope] 1) 3rd party reasonably believes that a transaction is being done on putative principal’s account, 2) 3rd party detrimentally relies on such belief (i.e. changes position), and 3) the putative principal negligently or intentionally caused such belief or allowed the false belief to continue after learning of such false belief

Question 4

Inherent Agency Power (Liability of Principal in Contract)

Answer 4

Very uncommon. Occurs when the 3rd party is not even aware that the principal exists.

Question 5

Ratification (Liability of Principal in Contract)

Answer 5

1) Agreement made by putative agent on behalf of putative principal, and
2) Putative agent had no actual or apparent authority to bind the putative principal, and
3) Putative principal, knowing the details of the agreement, affirms the agreement

Question 6

Implied Warranty of Authority (Liability of Agent in Contract)

Answer 6

Every contract by an agent includes an implied warranty by the agent that the agent has the authority to bind the principal except when the third party knows that the agent lacks authority or when the agent and 3rd party agree that no such warranty exists.

Question 7

Fully Disclosed Principal (Liability of Agent in Contract)

Answer 7

1) 3rd party knows the agent is acting as an agent, and
2) 3rd party knows the identity of the principal
Agent is not liable on the contract if principal is fully disclosed.

Question 8

Partially Disclosed Principal (Liability of Agent in Contract)

Answer 8

1) 3rd party knows the agent is acting as an agent, and
2) 3rd party does not know the identity of the principal
Agent is liable on the contract

Question 9

Undisclosed Principal (Liability of Agent in Contract)

Answer 9

3rd party is unaware that the agent is acting as an agent.

Agent is liable on the contract.

Question 10

Tort Liability of Principal

Answer 10

Principal is liable for the torts of servants (employees) if committed within the scope of their employment but not independent contractors.

Question 11

A tort is within the scope of the agent’s employment if…

Answer 11

1) it is of the kind the agent is employed to perform
2) it occurs substantially within the authorized time and space limits, and
3) it is actuated, at least in part, by a purpose to serve the master

Question 12

Apparent Agency (Tort Liability of Principal)

Answer 12

If 1) putative principal represents that putative agent is his (actual) servant and 2) this causes 3) a third party to justifiably rely upon the care or skill of the putative agent, then the putative principal is liable to the third party for harm caused as if the putative agent were an actual servant.

Question 13

Duty to account (fiduciary duties of agents)

Answer 13

Profits earned by the agent in connection with the agency transactions must be paid to the principal.

Question 14

Duty of loyalty (fiduciary duties of agents)

Answer 14

Agent must act only for the benefit of the principal. This is the rule that prevents agents from “stealing” clients

Question 15

Duty to indemnify the agent (fiduciary duties of principals)

Answer 15

Agreement between principal and agent may provide for indemnification. In the absence of an agreement, the principal must indemnify the agent if it is “fair” that the principal should bear the cost. Agents are generally not indemnified for costs arising out of their own negligence.

Question 16

Partnership

Answer 16

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

Question 17

Control (partnership – management)

Answer 17

all partners have equal rights in managing/controlling the partnership; votes by a majority of the partners are how the partnership takes action on ordinary matters; extraordinary matters require unanimous agreement by the partners (e.g. adding a partner)

Question 18

The following cannot be altered by the partnership agreement.

Answer 18

1) partner’s apparent authority to bind the partnership 2) partners’ personal liability for partnership debts 3) partners’ right to dissolve the partnership

Question 19

Actual Authority (partnership management)

Answer 19

Partners typically have some actual authority from their right to control the business of the partnership. Partners and others may be given actual authority by a majority vote of the partners or the partnership agreement as well as the usual facts (course of dealing etc.)

Question 20

Apparent Authority (partnership management)

Answer 20

all partners have apparent authority to bind the partnership for apparently carrying on in the usual way the business of the partnership EXCEPT if the third party knows that the partner lacks actual authority

Question 21

Tort Liability of Partnership

Answer 21

partnership is liable for any wrongful acts of the partner if the wrongful act is within the ordinary course of business of the partnership; the partnership is liable if a partners misapplies (i.e. steals) any property in the custody of the partnership

Question 22

A partner’s duty of care

Answer 22

limited to refraining from engaging in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of law

Question 23

A partner’s duty of loyalty

Answer 23

relatively unforgiving standard; every partner must account to the partnership any benefit derived from any transaction connected with the partnership