Agency/Partnerships Basics

Question 1

Agency/Partnerships - Summary of Tested Issues

Answer 1

1. Creation of Agency Relationships
2. Liability of Principal to Third Parties
3. Principal’s Contractual Liability
4. Principal’s Tort Liability
5. Partnership Formation
6. Partnership Relationships of Partner with Partnership and Between Partners
7. Partnership Relationships with Third Parties

Question 2

Agency Bonus - Approach to Essay Questions

Answer 2

1. Identify the existence of the agency relationship
2. Discuss whether the principal is liable for the agent’s actions

Question 3

Agency - Creation of Agency Relationship

Answer 3

R: Agency law addresses the legal consequences of someone (an agent) acting on behalf of and subject to the control of another (principal).

Principal: Typically an employer, corporation or partnership
Agent: Typically a director, officer, or other employee - unless a partnership, where they can also be a partner

Question 4

Agency Liabilities to Third Parties - Contractual Liability Generally

Answer 4

Principal is subject to liability on a contract that the agent enters into on the principal’s behalf if the agent has the power to bind the principal to the contract. This power is present when the agent has actual or apparent authority. (Basis of most analysis)

Question 5

Agency Liabilities to Third Parties - Contractual Liability, Express Actual Authority

Answer 5

A principal can give an agent express actual authority to contract on their behalf through
(i) oral or written words,
(ii) direct and definite language,
or
(iii) specific detailed terms and instructions.

*Likely too obvious to be tested

Question 6

Agency Liabilities to Third Parties - Contractual Liability, Implied Actual Authority

Answer 6

Agents can take whatever actions are properly necessary to achieve the principal’s objectives, based on the agent’s reasonable understanding of the manifestations and objectives of principal objectives.
- This can come from authority implied by a position, such as a treasurer’s implied authority to manage funds.

Question 7

Agency Liabilities to Third Parties - Contractual Liability, Apparent Authority

Answer 7

Apparent authority results when a principal causes a third party to reasonably believe the agent has authority to act. A third party’s reasonable belief in the agent’s authority to act will bind the principal to the contract.

Question 8

Agency Liability to Third Parties - Contractual Liability, Third Party’s Reasonable Belief in Apparent Authority

Answer 8

The reasonability of a third party’s belief in an agent’s authority will be determined by the court through
- Trade customs and industry standards
- The agent’s position at the time of communication

Question 9

Agency Liability to Third Parties - Contractual Liability, Ratification

Answer 9

Principals can ratify an act performed by the agent whether or not the agent had authority to make the contract binding. This requires:
(i) the principal ratifies the entire contract by express assent or conduct indicating affirmation,
(ii) Timely ratification (before 3rd party withdraws), and
(iii) Principal knows the material facts involved in the original act.

Question 10

Agency Liability to Third Parties - Principal’s Tort Liability

Answer 10

Principals can be vicariously and directly liable to third parties harmed by torts committed by an agent.

Question 11

Agency Liability to Third Parties - Respondeat Superior

Answer 11

Principals may be vicariously liable for torts committed by agents acting within their scope of employment.
Agents act within the scope of employment when they perform work assigned by the employer, including mistakes or carelessness in assigned duties.

Question 12

Agency Liability to Third Parties - Respondeat Superior and Intentional Torts

Answer 12

Intentional torts may be in the scope of duty if they
(i) are made during work hours,
(ii) the agent was motivated to act for the principal’s benefit, and
(iii) the act was within assigned duties

Question 13

Agency Liability to Third parties - Direct Liability to Third Parties

Answer 13

Principals may be directly liable to third parties harmed by an agent’s conduct if
- The principal authorized/ratified the agent’s conduct,
- The principal negligently hired the agent
- The principal negligently supervised the agent
- The principal delegated a non-delegable duty to the agent

Question 14

Partnerships - Formation

Answer 14

R: A partnership is an association of two or more persons to carry on a for-profit business as co-owners. It requires:
(i) Sharing of Profits,
(ii) Intent (specific), and
(iii) Agreement. Writing is not required.

Question 15

Partnerships - Relationships, Partner as Agent for Partnership

Answer 15

A partner is an agent of the partnership for business purposes, allowing partners to commit the partnership to binding contracts with third parties.

Question 16

Partnerships - Relationships, Fiduciary Duties

Answer 16

Partners owe the partnership (and other partners) duties of loyalty and care

Question 17

Partnerships - Relationships, Duty of Loyalty

Answer 17

Partners must refrain from competing with the partnership business, advancing adverse interests, usurping partnership opportunities, or using partnership resources to derive profit without notifying the partnership

Question 18

Partnerships - Relationships, Usurping Partnership Opportunities

Answer 18

Partners usurp the agreement when they take opportunities that are the same type the partnership engages in without first informing the other partners and receiving their permission to act alone.

Question 19

Partnerships - Relationships, Duty of Care

Answer 19

Partners must refrain from engaging in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of the law.

Question 20

Partnerships - Relationships, Profits/Losses

Answer 20

The partnership agreement controls partner rights to profits and losses. A lack of an express agreement presumes entitlement to equal shares of profit and loss for each partner.

Question 21

Partnerships - Relationships, Management Rights

Answer 21

Each partner has equal rights in the management and conduct of the partnership.
- A majority of partners can make a decision for ordinary matters of business
- All partners must consent to matters outside ordinary business

Question 22

Partnerships - Relationships with Third Parties, Partner as Agent

Answer 22

Partners can act as agents, committing the partnership to binding contracts with third parties

Question 23

Partnerships - Relationships with Third Parties, Express or Implied Authority

Answer 23

Express authority arises from the partnership agreement or authorization by partners.
Implied authority comes from a partner’s reasonable belief that an action is necessary to carry out their express authority.

Question 24

Partnerships - Relationships with Third Parties, Apparent Authority

Answer 24

Partners sometimes perform unauthorized acts in the ordinary course of partnership business. A third party reasonably believing in the partner’s authority to act can create a binding contract.
- Third parties knowing or on notice of the partner-agent’s lack of authority will not be able to claim reasonable belief.

Question 25

Partnerships - Relationships with Third Parties, Liability for Tortious Acts

Answer 25

Partnerships are liable for a partner’s tortious acts committed in the ordinary course of partnership business or with partnership authority.

Question 26

Partnerships - Relationships with Third Parties, Effect of Judgment

Answer 26

Creditors of partnerships must exhaust the partnership’s assets before taking individual partner assets.

Question 27

Partnerships - Changes and Termination

Answer 27

Dissolution - Lacking fixed termination dates, at-will partnerships will dissolve when a partner chooses to dissociate by giving notice.
Winding Up - dissolved partnerships still exist to ‘wind up’ their business. Creditors get priority to partnership assets over the partners themselves, and any assets leftover are distributed to the partners.