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Question 1

If an agent acts without actual authority and the principle is bound through apparent authority, the agent…(liability)

Answer 1

is liable to the principal for any resulting damage.

Question 2

When agent acts within the scope of his actual authority…(liability)

Answer 2

he is not liable to third persons on the obligation

created.

Question 3

A common type of implied actual authority

Answer 3

Incidental authority to do acts reasonably necessary

to accomplish an authorized transaction.

Question 4

Who is bound when an agent with apparent authority acts?

Answer 4

An act by an agent within the scope of his apparent authority binds the principal to a third party who is aware of the manifestation by the principal and believes the person is authorized to act on behalf of the principal.

Question 5

In order to establish apparent authority, the third party must establish that:

Answer 5

1. it was reasonable for him to believe that the agent was authorized to act;
2. based on what the principal said or on the impression that principal created.

Question 6

Disclosed Principals

Answer 6

a principal is disclosed if the third party knows, or has reason to know from the information on hand, the identity of the principal at the time the transaction is entered into.

Question 7

when a transaction is entered into on behalf of a disclosed principal…

Answer 7

the principal becomes a party to that contract (the agent does NOT become a party to such a contract unless there is an agreement to the contrary).

Question 8

the agent cannot be liable if

Answer 8

(a) he had authority to act; and (b) the principal is

disclosed.

Question 9

Partially Disclosed Principal

Answer 9

A principal whose identity is unknown but the third person is on notice that the agent is in fact acting on behalf of some principal

Question 10

Who is bound by an agreement between an agent working on behalf of a partially disclosed principal?

Answer 10

The partially disclosed principal becomes immediately bound to any authorized contracts entered into by the agent AND the agent also becomes bound to the third party unless otherwise agreed upon.

Question 11

Undisclosed Principal

Answer 11

a principal is undisclosed if the third party is not aware that the agent is acting on behalf of anyone

Question 12

Who is bound by an agreement between an agent working on behalf of an undisclosed principal?

Answer 12

The agent is personally liable to the third person since the third party believes he is dealing directly and solely with the agent as the real party in interest AND an undisclosed principal is also liable on the contract to the third party if the agent was acting within the scope of his actual authority

Question 13

Agency Costs

Answer 13

describes the costs incurred by a principal who entrusts decision making to an agent where the agent reaches decision in light of his own personal preferences and desires rather than those of the principal.

Question 14

Duty of Disclosure in a partnership

Answer 14

because every partner is an agent to the partnership, there is a DUTY to disclose all material facts to co-partners and failure to do so may be a breach of fiduciary duty [Meinhard v. Salmon].

Question 15

Fiduciary Duty in a partnership

Answer 15

co-partners, owe to one another, while the enterprise continues, the duty of the finest loyalty. Not honesty alone, but the PUNCTILIO of an honor the most sensitive, is the standard of behavior [Meinhard v. Salmon].

Question 16

Charging Order

Answer 16

A charging order gives the creditor the right to get the profits that are due from the debtor partner which flow out of the partnership

Question 17

Capital Accounts

Answer 17

Keeps track of each partners’ partnership interests

Question 18

Events Causing Partner’s Dissociation (RUPA)

Answer 18

(1) a partner’s express will to withdraw as partner;
(2) an event in the partnership contract like retirement;
(3) a partner’s expulsion pursuant to the partnership contract;
(4) or by unanimous vote by the other partner’s;
(5) by judicial determination;
(6) the partner’s becoming a debtor in bankruptcy;
(7) in the case of a partner who is an individual:
(i) the partner’s death;
(iii) judicial determination of incompetence/disability

Question 19

Test for Determining if a Partnership is Created

Answer 19

whether an association of two or more persons
carried on the business as co-owners to make a profit:
1. Profits: profit sharing creates a rebuttable presumption of the existence of a partnership.
2. Co-Owners: in determining if someone is acting as co-owner, the main issue is control, and power, in the partnership. [Martin v. Peyton].

Question 20

Business Judgment Rule

Answer 20

the business judgment rule presumes that directors act on an informed basis, in good faith, and in an honest belief that the actions are for the good of the company.