Agency & Partnerships

Question 1

Agency Formation:

Answer 1

When principal manifests assent to another person to act on behalf of principal.

Both parties must assent to the relationship.

No consideration required.

Question 2

Capacity Issue: (Agency)

Answer 2

Incompetent person cannot be principal but can be agent.

Question 3

Serving 2 Adverse Parties

Answer 3

Agent cannot serve for two adverse parties in a transaction. If he does, transaction is voidable by either party

Question 4

Burden of proof for agency

Answer 4

rests on party asserting the relationship and proven by a preponderance of evidence

Question 5

Subagent

Answer 5

Hired by the agent.

If subagent appointed without authority of principal, no agency relationship exists between the principal and the subagent.

Question 6

Contract liability: When can an agent bind a principal?

Answer 6

Actual authority
Apparent authority

Question 7

Actual authority

Answer 7

When P manifest to the agent to act in behalf of P. This can be express or implied.

Express authority is a direct request from the P

implied authority is anything the agent reasonably believes is necessary to accomplish the principal’s express request

Question 8

Apparent authority

Answer 8

Arises from reasonable belief of third parties.

When due to behavior of the P, third party is led to believe that agent is acting within the principal’s behalf. This requires some sort of overt action by the principal such as words, conduct, failure to act.

Arises when agent exceeds authority and third party has no reason to know or agent has no authority

P is estopped from denying existence of agency relationship where P intentionally cause mistaken belief

Question 9

Principle may ratify:

Answer 9

grant retroactive authority for his agent’s earlier unauthorized actions.

Question 10

Contract liability to third parties: Third party versus Agent

Answer 10

Agent is personally liable where the principal is undisclosed or partially disclosed.

If third party later learns of identity of principal, it can elect to sue either principal or agent.

For torts, agent is liable for his own actions unless tort is within scope of employment.

Question 11

Contract liability to third parties: Principal versus Third party:

Answer 11

P can be vicariously liable for acts of agent (respondeat superior).

a. Two questions to ask: Is it employee or contractor? Was the worker within scope of employment?

b. Conduct within scope of employment : liability is imposed if employee is performing tasks assigned by the employer. A frolic(substantial deviation from work) imposes no liability on principal but a detour does.

Note whether employee was advancing P’s interest, deviation occurred before or after employer’s objective

c. Independent contractors : No liability on principal unless inherently dangerous activity or non-delegable duty, or negligent hiring

d. Employee driving his own vehicle can still impose liability but commuting is an exception.

e. Knowledge of the agent is imputed to principal

Question 12

Duties owed by the agent

Answer 12

Duty of care
Duty of loyalty
Duty of Duty to account
Duty of Candor
Duty not to compete

Question 13

Duty of Care (Agent)

Answer 13

Agent must perform contract and render services with reasonable care, indemnify principal against loss

Question 14

Duty of loyalty (agent)

Answer 14

Agent may not engage in self-dealing or usurp a business opportunity belonging to the principal.

Business opportunity is one that is so closely relayed to the principal’s business that it could be deemed incidental to the business.

Question 15

Duty to Account (agent)

Answer 15

Agent must account for money or property received for the principal separately from his own

Question 16

Duty of Candor (agent)

Answer 16

Agent must disclose to principal any and all facts relevant to transaction that principal should know.

Question 17

Duty not to compete (agent)

Answer 17

Ends upon termination of agency relationship

Question 18

Duties owed by principal:

Answer 18

Duty to compensate or reimburse, cooperate, due care towards agent, indemnify and exonerate

Question 19

Remedies to agent:

Answer 19

Breach of contract, retain lien on any property of the principal to which he has lawful possession

Question 20

Remedies to principal:

Answer 20

Agent must indemnify the principal, Agent must regurgitate profits earned by engaging in self-dealing

Termination: Power to terminate at any time.

Death or incapacity terminates the relationship. All duties cease.

Question 21

PARTNERSHIP: Capacity

Answer 21

While a minor can enter into a partnership agreement, he may void the partnership agreement on the basis of his
infancy. However, if a minor voids a partnership agreement on the basis of his infancy, his investment in the business is subject to
the claims of creditors

Question 22

PARTNERSHIP: Joint Venture

Answer 22

Generally, a joint venture may be described as an association contemplating a single transaction or related series
of transactions. In contrast, a partnership is generally considered to be carrying on an ongoing business

Question 23

General Partnership:

Answer 23

An association of two or more people to carry on a business for profit.

There is no requirement that the parties subjectively intend to form a partnership, only that they intend to run a business as co-owners.

There are also no formal
requirements for a general partnership.

Under the RUPA, receipt of profits (not gross returns) from business is prima facie
evidence of partnership.

Courts generally look to the intent of the parties to determine if a partnership exists.

Question 24

Relationship between partners and third parties:

Answer 24

Partner’s ability to bind partnership can be express or apparent. If there is no
partnership agreement, partner may still bind business through apparent authority.

Question 25

General Partners Liability

Answer 25

The general partners are jointly and severally liable for all obligations of the partnership.

Each partner is individually liable for the entire amount of the partnership obligation.

Partners are also liable for any torts committed by a partner or employee in the ordinary course of the partnership

Question 26

Rights of Partners

Answer 26

Partners share equally in profits and each partner must contribute towards the losses in proportion of her
profits.

Partners have equal management rights unless otherwise stated in agreement.

Question 27

Indemnification (Partners)

Answer 27

Where one partner is compelled to satisfy the whole obligation, he is entitled to seek indemnification from the partnership.

If the partnership cannot indemnify, then he can seek contributions.

All partners must contribute in proportion to their relative share of losses.

Question 28

Partnership by estoppel:

Answer 28

Even when a person is not actually a partner in a partnership, the person’s agency authority may be created by the “holding out” of the person as a partner.

If all the members of the partnership consent to the representation, any liability incurred by the person is a partnership obligation; otherwise, the person acting and the partners consenting to the representation are jointly and severally liable.

Question 29

Transfer (Partnership)

Answer 29

Partner can transfer economic rights (profits/loss) in partnership but not management rights.

Any shares put into partnership become partnership property.

Transferee only has right to receive distributions, but not participate in management or require access to any information concerning partnership.

No new members can become a partner without consent of all partners. Conversion: A GP may convert to an LLP by a vote of the partners with a majority share of the interests

Question 30

Fiduciary duties: (Partnership)

Answer 30

Duty of care – Each GP owes partnership duty of care in conduct and winding up of partnership business

Duty of loyalty – Duty not to compete – Partner may not exploit a business opportunity that comes to her in her capacity as a partner. Partner must first present the opportunity to partnership and can only pursue if they reject.

Duty to disclose: Duty to render true and full info concerning things affecting the partnership.

Duty to account: Partner must account to the GP and hold as trustee GP property

Duty to keep books and right of inspection – Every partner shall have access to and may inspect, copy any books

Question 31

Dissociation

Answer 31

Withdrawal of a partner, expulsion via judicial order, bankruptcy or financial insolvency

GP must purchase the dissociated partner’s interest for a buyout price equal or greater than liquidation of assets

Dissociated partner can still bind partnership: Where partnership continues after dissociation, the partnership is bound by an act of the dissociated partner if the other party: 1) reasonably believed that the dissociated partner was then a partner; and 2) is deemed not to have knowledge or notice of the dissociation.

GP is not discharged from obligations incurred while he was still a partner

Question 32

Dissolution

Answer 32

Beginning of the termination in relation of the partners caused by dissolution.

Question 33

Winding up:

Answer 33

Process of settling affairs.

Question 34

Termination:

Answer 34

Point at which all partnership affairs are wound up.

Question 35

Mandatory Dissolution

Answer 35

Partner dissociated and majority of GP vote for dissolution, an event agreed upon in partnership agreement, a partnership for specific undertaking, or when an event makes it unlawful for all or substantially all of
business partnership to continue, unless there is a cure for the illegality within 90 days

Question 36

Permissive Dissolution

Answer 36

May be dissolved by express will of all the partners at any time or if a partner applies to court and can show frustration of economic purpose or if a GP is engaged in conduct that makes it impractical to carry on part

Question 37

Dissolution - Distribution of assets:

Answer 37

Assets must be applied towards outside creditors, including any partners who are creditors, and then any surplus goes to GP according to their relative rights.

Question 38

Limited Liability Partnership (LLP)

Answer 38

Partnership must file a statement of qualification with the SOS with correct notation.

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

Partners are not liable for the LLP’s obligations, but partner remains liable for her own wrongful acts and the acts of those she supervises.

Question 39

Limited Partnership –

Answer 39

LP is composed of at least one general partner and one limited partner.

GP manages the partnership
while LPs contribute capital and share in profits.

LP is not liable even if she participates in management. If LP is not listed as an LP, he has opportunity to amend the filing.

The GP are jointly and severally liable for partnership obligations while the limited partners do not have liability beyond their contributions.