AP

Question 1

An agent is a person or entity that acts on behalf of the principal. 

Agency is a fiduciary relationship, and
exists if there is:

Answer 1

(1) assent

(2) benefit

AND (3) control

(HIGH)

Question 2

Whether an agency relationship exists depends upon the
existence of the required elements above (the characterization
of the relationship by the parties is irrelevant).  The parties
realizing that a principal-agent relationship is formed or the
agent receiving compensation is NOT REQUIRED to create
an agency relationship. A writing is NOT required to form

Answer 2

an
agency relationship (even if the transaction the agent enters
into requires a writing under the Statute of Frauds).

(HIGH)

Question 3

An agency relationship terminates and the agent no longer has
authority to act if: 

Answer 3

(a) the P or the A MANIFEST to
the other relationship is terminated; 

(b) TERM of agent’s authority EXPIRED;

(c) (OP OF LAW) DEATH of the principal or agent;OR

(d) INCAPACITY of the principal or agent (OP OF LAW)

(except where a durable power of attorney exists).

(MEDIUM)

Question 4

There are three types of agency relationships. 

Answer 4

1) universal agent - broad authority to act on behalf of P + authorized to perform ALL acts the P is
allowed to perform. 

2) general agent - authority
to conduct:
-series of transactions
-over a period of time
-for a particular purpose, business, or operation

(i.e. a manager of a restaurant). 

3)special agent - limited authority to
conduct: 
(a) a specific act/transaction;OR
(b) certain actions over a specified period of time

(MEDIUM)

Question 5

Under the common law, an agent’s authority is
revoked upon death, regardless of whether the third
party has notice of the death.  In some states,

Answer 5

the
authority is not revoked until the third party is notified
of the principal’s death.

(MEDIUM)

Question 6

Apparent authority continues until the principal communicates
the termination to third parties (even if the agency relationship
was actually terminated).  A principal may communicate
termination by

Answer 6

1) notifying third parties directly,

2) public announcement, or

3) recovering from agent any items
indicating authority.

(MED)

Question 7

Termination of an Agency Contract:  When an agency
relationship is governed by an agency contract
(i.e.  employment agreement), the principal can

Answer 7

1) still terminate agent at any time. 

***principal may be liable
for damages if the agency is terminated prior to the expiration
of the K

(unless the agent materially breached the contract).

(MED)

Question 8

P is bound to K’s entered into by A if
the A has actual or apparent authority.

Actual authority may be express or implied. 

Express authority occurs when
the P has explicitly told the agent (either orally or in writing) that he is entitled to act. 

Implied authority occurs when either:

Answer 8

(a) the A believes entitled to
act bc the act is necessary to carry out express authorized duties; 
(NECESSARY)

(b) the A has acted similarly in prior
dealings between P and A;
(PRIOR DEALINGS) OR

(c) customary for agents in that position to act in that way.
(CUSTOM)

(HIGH)

Question 9

An agent has actual authority to act in accordance
with his reasonable understanding of his authority,
even if the principal later establishes that the agent was
mistaken.  Silence or prior acquiescence by the principal may

Answer 9

give rise to the agent’s reasonable belief that he has authority
to perform similar acts in the future.

(HIGH)

Question 10

If an agent acts within his scope of authority, the principal
will be liable to a third-party on the contract, even if

Answer 10

P is
1) undisclosed,
2) partially disclosed, or
3) unidentified.

(HIGH)

Question 11

A P is bound to K’s entered into by A
if the agent has actual or apparent authority.

Apparent authority exists when: 

Answer 11

(1) a third-party REASONABLY BELIEVES
that the person/entity has authority to act on behalf of the
principal;  AND

(2) the belief is TRACEABLE to the principal’s manifestations

(the principal holds the agent out as having authority)

HIGH

Question 12

A principal holds an agent out as having authority
when he: 

Answer 12

(a) gives A position or title
indicating certain authority;
(POSITION/TITLE) 

(b) previously held A out as having authority and has not published
a revocation of said authority; 
(PRIOR ACT/NOT REVOKED)

OR

(c) cloaked the A with the appearance of such authority.
(ACTS AS IF)

HIGH

Question 13

A P will be bound to a K even if A
1) acted on his own behalf or
2) in violation of specific instructions

UNLESS

Answer 13

(a) third party had notice A was
exceeding his authority,
(NOTICE) or

(b) the contract/transaction was
not within the ordinary usages of business (ordinary usage
includes purchase of goods at a reasonable price). 
(ACT NOT WITHIN ORD BUSINESS)

AA NOT APPLICABLE if third-party
has actual knowledge that A did not have authority. 

third-party has duty to make further inquiry when situation suggests that it may be unreasonable to believe A has authority

(UNREASONABLE= 3rd PARTY FURTHER INQUIRY)

HIGH

Question 14

Unidentified/Partially Disclosed Principal:  Apparent authority
MAY exist when the principal is

Answer 14

1) partially disclosed or
2) unidentified

(when the third-party knows the A is acting on behalf of a P but does not know identity).

HIGH

Question 15

Undisclosed Principal:  Apparent authority CANNOT exist
when there is an UNDISCLOSED PRINCIPAL (when

Answer 15

the third-party
does not know an agent is acting on behalf of a principal).

HIGH

Question 16

Under the Restatement (Second) of Agency, the Inherent
Agency Power (also known as inherent authority) protects

Answer 16

third-parties in certain situations when dealing with agents
even if there is NO actual or apparent authority.\

MEDIUM

Question 17

The Inherent Agency Power is derived solely from
the agency relation (it is not derived from actual
authority, apparent authority, or estoppel), and exists

Answer 17

for the protection of persons harmed by or dealing
with an agent.

MEDIUM

Question 18

Inherent Agency Power falls into two groups:

Answer 18

The first group subjects an employer to liability when: 
(1) A acts in furtherance of
employer’s business;  AND
(2) A’s conduct harms a
third-party.

The second group subjects the principal to contractual
liability when: 
(1) an agency relationship exists
between P & A;  AND
(2) the A engages in acts that would normally be authorized,
but are not because he
(a) violated principal’s instructions or (b) acted in his own interests.

The concept of Inherent Agency Power was eliminated in the
Restatement (Third) of Agency.

MEDIUM

Question 19

A principal’s ratification of an agent’s conduct will make the
principal liable for those contracts entered into by an agent
without authority.  Ratification occurs when the principal: 

Answer 19

(1) knowledge of material facts or K terms;  AND
(2) manifests assent (approves)
through words or conduct.

MEDIUM

Question 20

Despite ratification by the principal, an agent also
remains liable for any acts or contracts entered into if
the principal was

Answer 20

UNDISCLOSED TO THIRD PARTY.

MED

Question 21

Under the Restatement (Second) of Agency, an undisclosed
principal generally CANNOT ratify an agent’s unauthorized
act because ratification requires that the agent

Answer 21

purported to act on the principal’s behalf. 

However, under the Restatement
(Third) of Agency, an undisclosed principal MAY ratify an agent’s unauthorized act.

MEDIUM

Question 22

Generally, an agent has NO contractual liability to a thirdparty for a contract entered into with that party if he: 

Answer 22

(1) fully discloses the P  AND
(2) the agent had
(a) actual authority or
(b) apparent authority (even
if no actual authority present). 

an agent will be liable on the K if both elements above not met.

HIGH

Question 23

An authorized A will be liable to the third-party on a K when P is undisclosed 

An undisclosed principal’s ratification

Answer 23

DOES NOT eliminate the A’s liability to the third-party on the K

HIGH

Question 24

Unless otherwise agreed, an authorized A will be liable to
the third-party on a K when the P is partially
disclosed or unidentified when the..

Answer 24

third-party knows the
agent is acting on behalf of a P but does not know the
identity

HIGH

Question 25

Where an agent is 1) liable on a contract AND 2) his conduct was authorized, he may

Answer 25

seek IDEMNIFICATION from P on any payments he made to the third-party. HIGH

Question 26

An employer is vicariously liable for an employee’s negligent acts if the employee 1) was acting WITHIN the SCOPE of employment.  However, a P/EMPLOYER is generally

Answer 26

NOT vicariously liable for the torts of an independent contractor. HIGH

Question 27

An employee is an agent whom the employer ___ the manner and means of the agent’s performance of work

Answer 27

controls (or has the right to control) HIGH

Question 28

An independent contractor is a person who contracts with another to do something for him, but ___  The contractor may or may not be an agent.

Answer 28

who is not controlled nor subject to the other’s right to control with respect to his performance.

Question 29

The determination of whether a person is an employee or an independent contractor centers on whether the principal had

Answer 29

the right to control the manner and method in which the job is performed. HIGH

Question 30

Generally, if the principal has substantial control in dictating the manner and method in which the job is performed, then the person is deemed to be an employee of the principal.  In contrast, a person subject to less extensive control is considered an

Answer 30

independent contractor HIGH

Question 31

Whether an employer-employee relationship exists is a

Answer 31

factual determination (the characterization of the relationship by the parties is not determinative). HIGH

Question 32

The factors used to determine whether an agent is an employee are: 

Answer 32

(1) extent of control over details of the work;  (2) A’s occupation or business;  (3) type of work;  (4) payment (hourly or per project);  (5) equipment or tools;  (6) supervision;  (7) skill;  (8) job part of the principal’s regular business;  (9) time;  (10) belief;  and (11) hired for a business purpose. HIGH

Question 33

Under the doctrine of respondeat superior, an employer is vicariously liable for an employee’s negligent acts if the employee was acting

Answer 33

within the scope of employment. HIGH

Question 34

An employee acts within the scope of employment when: 

Answer 34

(a) performing work assigned by the employer;  (WORK ASSIGNED) OR (b) engaging in a course of conduct subject to the employer’s control.  (CONDUCT SUBJ TO CONTROL) Factors to determine if conduct is within the scope of employment include whether:  (i) kind employed to perform;  (KIND) (ii) occurs within the authorized time and space limits;  (AUTH TIME AND SPACE) and (iii) motivated (in whole or part) by a purpose to serve the employer.  (MOTIVATION/PURP TO SERVE) conduct is within the scope of employment if it’s of the SAME GENERAL NATURE (or incidental) as the conduct authorized.  NOT outside scope just bc employee disregards the employer’s instructions. (HIGH)

Question 35

An employee’s act is NOT within the scope of employment when: 

Answer 35

(1) occurs within an independent course of conduct;  AND (2) not intended to serve any purpose of employer. HIGH

Question 36

An employee’s intentional torts are generally NOT within the scope of employment UNLESS the act:

Answer 36

(a) was specifically authorized by employer;  (SPECIFICALLY AUTHORIZED) (b) driven by a desire to serve the employer;  (TO SERVE EMPLOYER) OR (c)result of naturally occurring friction from the type of employment. (RESULT FROM TYPE OF EMPLOYMENT) HIGH

Question 37

In certain situations, a principal (or employer) may still be liable even if the doctrine of respondeat superior is inapplicable.  Such situations include when:

Answer 37

(a) principal intended conduct or consequences;  (P INTENDED CONDUCT) (b) principal was negligent or reckless in selecting, training, retaining, supervising, or controlling the agent;  (P’s NEGLIGENCE) (c) the conduct involved principal’s non-delegable duty to an injured person that it had a special relationship with;  (P’s NONDELEGABLE DUTY) OR (d) when (i) A had APPARENT AUTH (ii) the A’s actions+ apparent authority = the tort or enable the A to conceal its commission, and (iii) third party reliance on authority.  Apparent authority is created when the E holds the A out as having authority and the third-party REASONABLY BELIEVES the A has authority to act. MEDIUM

Question 38

Generally, a principal is NOT vicariously liable for the torts of an independent contractor. However, several exceptions exist, and a principal will be liable for torts committed by an independent contractor if: 

Answer 38

(a) engaged in an INHERENTLY HAZADROUS ACTIVITY;  (b) the duty owed by P is NONDEGLEBABLE (i.e. the duty of care owed to an invitee);  OR (c) ESTOPPEL when (i) the principal HOLDS IC out as A to a third-party, (ii) the third-party REASONABLY RELIES on the care and skill of the agent, and (iii) the third-party SUFFERED HARM as a result of A’s lack of care or skill. HIGH

Question 39

When determining a principal’s legal relations with a third-party, a principal may be deemed to know or receive information that is known or received by an agent. An agent’s knowledge of a fact is IMPUTED to the principal if

Answer 39

knowledge of the fact is material to the agent’s duties to the principal. LOW

Question 40

A notification given to an agent is EFFECTIVE as notice to the principal if the agent has

Answer 40

actual or apparent authority to receive the notification.

Question 41

An agent owes the principal the following fiduciary duties concerning matters within the scope of agency: 

Answer 41

(1) DUTY OF CARE – to use reasonable care when performing the agent’s duties;  (2) DUTY OF LOYALTY – to act solely and loyally for the principal’s benefit;  AND (3)DUTY OF OBEDIENCE – to obey all reasonable directions given by the principal and to act in accordance with the express or implied terms of the relationship HIGH

Question 42

The principal has a claim against the agent when an agent breaches any fiduciary duty owed.  For example, an agent will be liable to the principal for any payments the principal made to a third-party when the agent breached his duty to follow directions or acted outside the scope of his authority.  Additionally, the agent will be liable and must account for

Answer 42

any profit made in violation of the duty of loyalty. HIGH

Question 43

Conversely, an agent has NO liability to the principal when the agent fulfills his fiduciary obligations and

Answer 43

he acts within the scope of his authority HIGH

Question 44

A General Partnership is created when

Answer 44

(1) two or more persons, (2) as co-owners, (3) carry on a business for profit.  No written agreement or formalities are required.  A person’s intent to form a partnership or be partners is NOT required HIGH

Question 45

Part ownership or common ownership of property alone is NOT enough to create a partnership.  Likewise, a joint venture

Answer 45

DOES NOT automatically create a partnership. HIGH

Question 46

A person who receives a share of the profits of the partnership business is presumed to be a partner of the business UNLESS the profits were received in payment: 

Answer 46

(a) of DEBT;  (b) for WAGES as an employee or independent contractor;  (c) of RENT;  (d) of an ANNUITY or other retirement benefit;  (e) of INTEREST/LOAN charges;  OR (f) for the sale of the GOODWILL of a BUSINESS. HIGH

Question 47

Individuals may inadvertently create a general partnership despite their

Answer 47

expressed subjective intent not to do so (i.e.  when the required formalities to form a Limited Partnership or Limited Liability Partnership are not followed). HIGH

Question 48

A Limited Partnership is a partnership composed of general and limited partners, and MUST have

Answer 48

at least one general partner. MEDIUM

Question 49

It is formed upon the filing of a Certificate of Limited Partnership with the Secretary of State that includes:

Answer 49

(1) the NAME of the partnership;  (2) the ADDRESS of the partnership’s principal office;  (3) REGISTERED AGENT NAME + ADDRESS – must be within the state;  (4) GENERAL PARTNERS NAME+ ADDRESS;  (5) whether the partnership is a LLLP (Limited Liability Limited Partnership);  AND (6) it must be SIGNED BY ALL general partners. MEDIUM

Question 50

Name Requirements:  If an LP, the name must contain “limited partnership” or the abbreviation “LP” or “L.P.”.  If an LLLP, the name must contain

Answer 50

the phrase “limited liability limited partnership” or the abbreviation “LLLP” or “L.L.L.P.” If the Certificate of Limited Partnership fails to meet the above requirements, then a General Partnership is created. MEDIUM

Question 51

A Limited Liability Partnership (LLP) is one in which all partners have limited personal liability.  Any partnership may become an LLP upon: 

Answer 51

(1) APPROVAL by the same vote that is necessary to amend the partnership agreement; AND (2) FILING a Statement of Qualification with the Secretary of State.  Unless otherwise agreed, a unanimous vote is required to amend a partnership agreement. MEDIUM

Question 52

A Statement of Qualification must include: 

Answer 52

(i) NAME AND ADDRESS of the partnership;  (ii) a STATEMENT that the partnership ELECTS TO BECOME an LLP;  AND (iii) a deferred effective date, if any.  The name of a LLP must end with “Registered Limited Liability Partnership”, “Limited Liability Partnership”, “R.L.L.P.”, “L.L.P.”, “RLLP,” or “LLP” MEDIUM

Question 53

The filing of a Statement of Qualification DOES NOT create a new partnership.  Instead, the LLP

Answer 53

A) CONTINUES to be SAME PARTNERSHIP that existed prior to the filing.  B) Thus, the LLP REMAINS LIABLE for any unfulfilled obligations before it became an LLP. MEDIUM

Question 54

Each partner is an A of the partnership, and generally HAS AUTHORITY TO BIND the partnership for the purpose of its business (including entering into contracts). A partner has EXPRESS actual authority to bind the partnership upon receiving said authority from the partners.  Differences among the partners as to acts within the ordinary course of the partnership business need only be approved by a majority of the partners.  Acts outside the ordinary course of business must be approved UNANIMOUSLY.  If the partnership agreement is silent on the scope of the partner’s authority, a partner has authority to bind the partnership to usual and customary matters, UNLESS the partner knows that:

Answer 54

(a) other partners MIGHT DISAGREE; OR (b) CONSULATION with fellow partners IS APPROPRIATE.  Hiring is normally within the ordinary course of partnership business, unless the partnership agreement states otherwise. HIGH

Question 55

A partner has implied actual authority (also known as incidental authority) to take actions that are reasonably incidental or necessary to

Answer 55

achieve the partner’s authorized duties. HIGH

Question 56

A partner has apparent authority to bind the partnership for all acts apparently conducted within the ordinary course of the partnership business OR the kind carried on by the partnership.  However, a partner’s act will NOT bind the partnership if: 

Answer 56

(1) the partner LACKED AUTHORITY;  AND (2)the third-party KNEW (actual knowledge) or HAD NOTICE that the partner lacked authority.  For acts outside the scope of business, there must be MANIFESTATION by the partnership that partner had authority in order to bind the partnership HIGH

Question 57

An act or transaction is within the ordinary course of business if it is normal and necessary for managing the business –

Answer 57

a person would REASONABLY conclude the act is DIRECTLY and NECESSARILY embraced within the partnership business. HIGH

Question 58

After dissolution, a partner’s actual authority to bind the partnership is limited only to those acts appropriate for winding up the partnership business.  However, a partner has apparent authority to bind the partnership even after dissolution if: 

Answer 58

(1) the partner’s acts would have NORMALLY BOUND the partnership;  AND (2) the third-party HAD NO NOTICE of the dissolution. MEDIUM

Question 59

If the partnership is bound, then ALL partners will be jointly and severally liable for the partnership’s obligation.  Any partner that pays more than their proportionate share of their obligation to a third-party may

Answer 59

seek contribution from the other partners. MEDIUM

Question 60

Under the Revised Uniform Partnership Act (RUPA), a person winding up a partnership’s business may: 

Answer 60

(1) PRESERVE partnership business or property as a going concern for a reasonable time;  (2) PROSECUTE and DEFEND actions and proceedings;  (3) SETTLE and close the partnership’s business;  (4) DISPOSE of and TRANSFER the partnership’s property;  (5) DISCHARGE the partnership’s LIABILITIES;  (6)DISTRIBUTE the ASSETS of the partnership;  (7) SETTLE DISPUTES by mediation or arbitration;  and (8) perform other NECESSARY ACTS MEDIUM

Question 61

Personal Liability:  General Partners are personally liable for ALL obligations of the partnership UNLESS

Answer 61

otherwise agreed by the claimant or provided by law. HIGH

Question 62

Under the Uniform Partnership Act (1997), general partners are jointly and severally liable for partnership obligations, which means that a claimant can collect the full amount of the debt from any one of the partners.  However, a partner may

Answer 62

seek CONTRIBUTION from the other partners if he pays more than his proportionate share of the partnership obligation. HIGH

Question 63

proportionate share of the partnership obligation. o Under the Uniform Partnership Act (1914), general partners are only jointly liable (not jointly and severally liable), which means that a

Answer 63

plaintiff must join all partners in an action. HIGH

Question 64

Incoming Partners:  Incoming partners admitted into an existing partnership are NOT liable for obligations incurred prior to their admission, even if the incoming partner has notice of a claim.  Even though that partner is not personally liable for the debts of the partnership, he is still at risk of

Answer 64

losing any capital contributions he made to the partnership that are used to satisfy partnership obligations. HIGH

Question 65

Judgment Enforcement Against a Partner’s Personal Assets:  Generally, a judgment creditor CANNOT levy execution of the judgment against a partner’s personal assets for a partnership debt UNLESS: 

Answer 65

(1) judgment rendered against the partner;  AND (2) partnership assets exhausted or insufficient. HIGH

Question 66

Under the Uniform Partnership Act, a judgment against the partnership is NOT by itself a judgment against the individual partners.  However

Answer 66

judgment may be sought against the partnership and the individual partners in the same action. HIGH

Question 67

Generally, limited partners are NOT personally liable for obligations of the Limited Partnership (LP).  However, certain exceptions to this rule exist.

Answer 67

1) limited partners are ALWAYS liable for their OWN MISCONDUCT or when they SIGN PERSONAL GUARANTEE for an obligation. 2) even if a partner is not personally liable for the debts of the partnership, he is AT RISK OF LOSING ANY CAPITAL CONTRIBUTIONS made to partnership 3) a limited partner MAY become personally liable if that partner PARTICIPATES in the MANAGEMENT OR CONTROL of the business.  If a limited partner’s control and management activities are so extensive as to be substantially the same as those of a general partner, then some JXs have held partner liable in the same manner as a general partner.  Whether the limited partner is liable (and the extent of the liability) depends on the applicable Act enacted in the JX MEDIUM

Question 68

Under the latest Uniform Limited Partnership Act (2001) , limited partners are NOT personally liable for an obligation of the LP, and

Answer 68

liability is NOT created when the limited partner participates in the management or control of the business. MEDIUM

Question 69

Under earlier versions of the Uniform Limited Partnership Act , participation in the management or control of the business subjected the limited partner to personal liability for the LP’s obligations.  In jurisdictions that follow the earlier versions, participating in the removal of a director is

Answer 69

NOT considered to be participating in management and control MEDIUM

Question 70

Under RULPA , a limited partner will become liable for the obligations of the LP if he participates in the control of the business.  However, that limited partner is liable only to

Answer 70

persons who transact business with the LP reasonably believing that the limited partner is a general partner (based upon the limited partner’s conduct). MEDIUM

Question 71

The RULPA Safe Harbor Provision sets forth certain activities that DO NOT constitute the exercise of control and management, which include:

Answer 71

(1) being a contractor for, or an agent, employee, general partner of the LP;  (2) being an officer, director, or shareholder of a corporation that is a general partner of the LP;  (3) advising or consulting with a general partner concerning the business of the LP;  (4) acting as surety or guaranteeing an obligation of the limited partnership;  (5) bringing a derivative action in the right of the LP;  (6) requesting or attending a meeting of partners;  (7) proposing, approving, or disapproving the following matters:  (i) the dissolution and winding up of the LP;  (ii) the sale, exchange, lease, mortgage, pledge, or other transfer of all (or substantially all) of the assets of the LP;  (iii) the incurrence of indebtedness by the LP other than in the ordinary course of its business;  (iv) a change in the nature of the business;  (v) the admission or removal of a general partner;  (vi) the admission or removal of a limited partner;  (vii) a transaction involving an actual or potential conflict of interest between a general partner and the LP or the limited partners;  and (viii) an amendment to the partnership agreement or certificate of limited partnership.

Question 72

An obligation incurred by a Limited Liability Partnership (LLP) is solely the obligation of the LLP.  Under RUPA, a partner in an LLP is NOT liable for partnership obligations. However, certain exceptions to this rule exist

Answer 72

1) , partners are ALWAYS liable for their own misconduct or when they sign a personal guarantee for the obligation.  2) even if a partner is not personally liable for the debts of the partnership, he is at risk of losing any capital contributions he made to it.  3) obligations incurred before a partnership becomes an LLP are treated as obligations of the prior partnership entity (i.e.  general partnership or limited partnership) MEDIUM

Question 73

A partnership IS LIABLE for loss or injury caused to a person (or for a penalty incurred) because of: 

Answer 73

(1) the wrongful act, omission, or actionable conduct of a partner, (2) acting in the ordinary course of partnership business. LOW

Question 74

Unless otherwise agreed, profits are shared equally between partners, and losses will be shared in the same ratio as profits.  If an agreement is only made to how losses are shared (no matter the ratio), then profits will be shared equally.  Any partner who pays more than his fair share in partnership losses is entitled to

Answer 74

receive a contribution from the other partner(s) for their proportional share of the losses. LOW