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COMM 304 - BL > Session 8 > Flashcards

Session 8 Flashcards

Agency Law & Law of Partnerships

1
Q

Which of the following is false in an agency relationship:
1. 3 parties are involved (principal, agent, and 3rd party)
2. Principal binds agent in contract with 3rd party
3. Agent is not to be mentally incapable
4. If there is no conflict of interest, one agent can act for multiple principals

A

Number 2 is false: the agent binds the principal in the contract.

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2
Q

Which of the following is false in an agency relationship:
1. Often based on contract
2. Can also be established based on the parties’ conduct
3. If identity of the principal is not disclosed, it is a fictitious agency
4. Written form for agency agreement is advisable but not required for simple agency

A

Number 3 is false: If the identity of the principal is not disclosed it could be a fictitious agency, or it could be an undisclosed principal.

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3
Q

Which of the following is false in an agency relationship:
1. Subagency does not require the principal’s consent
2. The principal is liable for certain torts committed by the agent
3. Principals can ratify contracts entered into by agents without authority
4. Principals are liable toward 3rd parties for contracts entered into by their agent acting within their authority

A

Number 1 is false: The agent must receive consent from the principal to create a subagency.

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4
Q

Which of the following is false in an agency relationship:
1. Can be terminated by either party based on agency agreement’s terms
2. Death of either party terminates the agency relationship
3. Bankruptcy of the principal terminated the agency relationship
4. Lack of ratification by the principal for an un-authorized contract entered into by the agent terminates the agency relationship

A

Number 4 is false: The principal can ratify a contract without telling the agent, they just must not change terms of contract; this does not terminate the agency relationship.

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5
Q

Who can terminate an agency agreement which is silent on termination?
a) The principal only
b) The agent only
c) Both the agent and the principal
d) The 3rd party, agent and principal

A

C: Both the agent and principal

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6
Q

In a typical agency relationship, whose interests does the agent have to serve?
a) Their own
b) The interest of the principal
c) The interest of the 3rd party
d) The agent can determine whose interest they want to serve

A

B: The interest of the principal

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7
Q

What is the default rule in law as regards subagency?
a) The agent can appoint a subagent as they think fits
b) The agent can appoint a subagent if they think fits, but only for certain types of transactions
c) The agent can only appoint a subagent with the permission of the principal
d) Subagency is forbidden even if the principal consents

A

C: The agent can only appoint a subagent with the permission of the principal

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8
Q

Which type of agency relationship can easily cause legal challenges?
a) Agency by contract
b) Agency by necessity
c) Agency by conduct
d) Agency by statute

A

C: Agency by conduct

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9
Q

All of the following scenarios typically terminate an agency relationship, except:
a) The death of the agent
b) The bankruptcy of the principal
c) The incapacity of the 3rd party
d) The death of the principal

A

C: The incapacity of the 3rd party

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10
Q

True or false: In the case of an undisclosed agency, the principal is liable toward the 3rd party for the transaction entered into by the agent.

A

False: In the case of an undisclosed agency, the agent is liable toward the 3rd party for the transaction they entered into.

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11
Q

What is agency:

A

One person (the agent) is authorized by another person (the principal) to act on their behalf.

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12
Q

Who binds the principal in an agency relationship?

A

The agent acting towards the 3rd party binds the principal.

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13
Q

Is the agent personally liable for committments toward the 3rd party?

A

No, the agent is not personallt liable for commitments toward the 3rd party if they inform such 3rd party that they are only an agent acting for a principal.

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14
Q

What are the basic characteristics of agency?

A
  • Agent has authority to bind principal in contract with a 3rd party.
  • Agent has duty to fairly represent principal acting in the principal’s best interest.
  • 3rd party can rely on agent’s authority holding principal legally responsible.
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15
Q

What are the steps of agency?

A
  1. Principal grants authority to agent.
  2. Agent negotiates and enters into a contract with 3rd party.
  3. Contract between 3rd party and principal is formed.
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16
Q

True or false: An agent is authorized to enter into the contract on the principacl’s behalf.

A

True.

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17
Q

True or false: Agency relationships are an exception to privity of contract.

A

True

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18
Q

What are the different ways an agency relationship can be created?

A
  • By creation
  • By statute
  • By appointment
  • By conduct
  • By necessity
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19
Q

Creation of an agency relationship by contract:

A

Principal and agent regulate their relationship in a contract, agent’s powers are ideally clearly set out.

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20
Q

Creation of an agency relationship by statute:

A

The law assumes certain relationships being one of agency.

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21
Q

Creation of an agency relationship by appointment:

A

The principal appoints the agent to a position of authority that allows the agent to bind the principal.

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22
Q

True or false: As a principal you should limit what the agent can do in a contract.

A

True

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23
Q

What type of agency creation method is common in partnerships?

A

Creation by statute.

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24
Q

Who are usually agents by appointment?

A

Officers of a corporation.

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25
Creation of an agency relationship by conduct:
Principal makes representations to a 3rd party suggesting someone is his agent.
26
Creation of an agency relationship by necessity:
Common law defines persons as agent of others in emergency situations where consent of the principal cannot be obtained, limited practical relevance in business context.
27
True or false: Agency by conduct is always actual authority.
False: agency by conduct is not always actual authority.
28
What is the most legally challenging form of an agency relationship?
Agency by conduct.
29
In an agency by conduct relatonship can a 3rd party ask for evidence of authority?
Yes
30
True or false: It is the responsibility of 3rd parties to check the scope of n agent's authority.
False: Prudent 3rd parties check on the scope of an agent's authority, but it is not their responibility.
31
What are the obligations of the principal?
- Act in good faith in the agency relationship. - Pay the agent for their services. - Indemnify the agent for expenses incurred.
32
What are the obligations of the agent?
- Act in good faith and take care in the performance of their obligations. - Act in the best interest of the principal not in their own best interest of the principal not in their own best interest nor that of the 3rd party. - Keep information confidential and remain in close contact with principal. - Obey all lawful instructions of the principal. - Keep record of funds received for principal and keep such funds separate. - Apply any special skills they possess. - No sub-agency unless expressly permitted by principal. - No double agency for principal and 3rd party at the same time unless expressly permitted.
33
True or false: Agent has fiduciary duty.
True
34
True or false: Agent must keep any money received on behalf of principal separate from their own.
True
35
True or false: Subagency is usually allowed in an agency relationships.
False: subagency is forbidden unless explicitly allowed in contract/by principal.
36
Double-Agency
Agent works on behalf of both parties, not usually allowed or it is allowed with disclosure and both principals' consent.
37
Multi-Agency
May work for many unrelated principals.
38
Disclosed Agency
Agent indicates to 3rd party that they are an agent and discloses who the principal is. Only the principal is bound by transaction and liable toward 3rd party.
39
Undisclosed Agency
Agent does not indicate to 3rd party that they are an agent and the 3rd party assumes agent acts in their own name. Only the agent is bound by the transaction and liable toward 3rd party.
40
Disclosed Agent but Undisclosed Principal
Agent indicates to 3rd party that they are an agent, but the agent does not disclose the identity of the principal. Only principal is bound.
41
Fictious Agency
Agent indicates that they are an agent and discloses a fictious principal. Only agent is bound.
42
True or false: Fictious agency is very uncommon.
True
43
True or false: Principal can ratify a contract withoud telling the agent.
True: However, they cannot change terms or cherry-pick in ratification.
44
True or false: Agents are liable for torts they committed even if they are carrying out their obligations under the agency relationship.
False: Principals are liable for torts committed by agents if the agent is carrying out their obligations under the agency realtionship.
45
True or false: Often both the principal and agent are liable for torts committed by the agent.
True
46
True or false: Only the agent is liable for torts committed outside their scope of work under the agency relationship.
True
47
What is an exception to the rules of tort liability in agency relationships?
If the principal subsequently approves the transaction of the agent.
48
True or false: Bankruptcy of the agent terminates the contract.
False: Bankruptcy of the principal, not of the agent terminates contract.
49
What are the forms of doing business?
- Partnership - Corporation - Sole Proprietorship - Other (less common forms)
50
PS
Partnership
51
Types of Partnerships
- General PS - Limited PS - Limited Liability PS
52
Types of Corporations
- Public - Private
53
What are some of the less common forms of doing business?
- Joint Ventures - Licensing - Franchises - Distributorships
54
What is the simplest form of doing business?
Sole proprietorship
55
Which type of corporation has less SH: private or public?
Private
56
SH
Shareholders
57
Liability
The extent to which owners are liable to debts of the company.
58
Sole Proprietorship
One single person runs and owns the business.
59
When does the business begin in a sole proprietorship?
The moment you begin to operate.
60
Is a sole proprietorship its own entity?
No.
61
True or false: You as the owner of a sole proprietorship can employ yourself.
False: You can have employees, but you cannot employ yourself.
62
What does the term "partnership" usually refer to?
General partnerships.
63
Is a partnership a legal entity?
No.
64
True or false: No partner can be a creditor of the PS.
True
65
True or false: Partners are agents of the PS.
True
66
Is a PS taxed as a separate entity?
No
67
What is the legislation in place for partnerships right now (characteristics)?
- Is outdated and may not be suitable for many PS today. - Provides for a set of default provisions applicable in the absence of another agreement between partners. - Is incomplete in addressing affairs of PS.
68
Key content of legislation of partnerships in place:
1. Formation, dissolution and nature of partnerships. 2. The relationship of partners towards each other. 3. The relationship between partners, the partnership and 3rd parties.
69
What are examples of relationships distinguished from partnerships?
- Debtor/creditor relationships - Co-ownership of property - Profit-sharing schemes for employees - Annuity payments to spouse/child of deceased partner
70
What is the issue with the partnership act?
It is outdated and based on partner default rules from 1980.
71
True or false: A not for profit can be a partnership.
False: Must be for profit in order to be a partnership, cannot be a charity, goal/intention for profit is a requirement.
72
Formation of a General Partnership
Do not have to officially disclose that you are a partnership, but must demonstrate to the outside world that you are a partnership.
73
True or false: No need for written PS agreement, can be oral or implied.
True
74
Partnership Property
- Where property is treated as PS property it becomes PS property even if title remains with individual partners. - Partners loses beneficial interest in property contributed to PS. - BUT: property is not legally owned by the PS.
75
True or false: Partners owe each other fiduciary duty.
True
76
True or false: Partnership act assumes partners are equal.
True: although usually the contributions ($) between partners are not equal.
77
True or false: All partners are separately liable to every individual debt to a 3rd party.
True
78
Is there any liability in partnerships outside the usual scope of the PS business.
No liability outside the scope of business.
79
True or false: Partners are only liable for acts/omissions occurring while they are partners.
True
80
True or false: Liability for acts/omissions stops the moment the partner leaves.
False: liability for acts/omissions can continue after partner leaves.
81
True or false: 3rd party can go after retired partner if they were still working at the partnership when debt was concluded.
True
82
Can there be an issue of liability when a partner who's name is in that of the PS retires.
Yes, the PS should ensure there are contracts and clarifications in place so that it is legally clear that they are no longer a partner.
83
What is the liability of partners to 3rd party?
Liability of the PS to 3rd party is always 100%, subdivisions are done internally.
84
What are the main reasons to conclude a PS agreement?
- Modify the default rules of PS legislation. - Provide a structure for the operation of the PS where PS legislation is silent. - Address consequences of mandatory PS legislation especially on liability toward 3rd parties. - Set up comprehensive management system. - Establish reporting, monitoring and control procedures. - Reproduce provisions in PS legislation to remind partners of those and have "everything in one place".
85
PS Membership
Requirements for admission of new partners, rules on expulsion of a partner.
86
Capitalization
Initial capital contribution of each partner, define circumstances in which capital can be withdrawn.
87
Distribution of Profits
Allocation of profits amongst partners, definition of contributions for profit allocation purposes.
88
Management
Restrictions on who can sign what with 3rd parties, consequences for failure to adhere to management rules.
89
Dissolution
Dissolution in case of death or bankruptcy of partner, which circumstances call for dissolution.
90
Default provisions under PS Act, applicable unless the partners agree otherwise:
- If set up for a fixed term, upon expiry of term. - If set up for a single undertaking, by termination of the undertaking. - If set up for unlimited term, by notice of any partner. - By the death of a partner. - By the bankruptcy of a partner.
91
True or false: Terms can be excluded in PS agreement.
True: such as that the PS dissolutes if a partner dies.
92
When is a partnership agreement dissoluted?
- In cases as defined in the PS agreement. - If activity of the PS becomes illegal. - By court order.
93
What happens upon dissolution of a PS?
- Liabilities to 3rd parties are paid out first from the assets of the PS, then advances and capitol of partners. - If not enough assets to pay 3rd parties partners must contribute to cover shortfall in proportion to their entitlement to profits (unless otherwise regulated in the PS agreement).
94
How many general partners does there need to be in a limited partnership?
There must be at least one general partner, and at least one limited partner.
95
True or false: The general partner in a limited PS may not be a corporation.
False: The general partner may be a corporation.
96
In a limited PS which partners are liable to 3rd parties?
Limited partner is not liable to 3rd parties, they are only liable for their initial investment.
97
True or false: Limited partners are not to participate in the management.
True
98
Can the name of a limited partner be in the name of the partnership?
No, this would change them to a general partner.
99
LLP
Limited Liability Partnership
100
What is an LLP a hybrid of?
A general PS and a corporation.
101
True or false: An LLP can be use for a large scope of purposes.
False: An LLP is only available for narrowly defined purposes of professional firms (lawyers, accountants).
102
Is an LLP a legal entity?
No.
103
How is liability structured for each partner in an LLP?
Liability of all partners is limited, they are only liable for things that they have done, not what their partners do.
104
What are the rules for an LLP to be formed?
- Must be registered to be formed. - Must have LLP in its name.
105
JV
Joint Ventures
106
From a legal perspective what does the term "joint venture" mean?
Absolutely nothing.
107
How can JVs be set up?
- JV can be set up on a contractual basis only (not recommended). - JV can be set up as a corporation itself (with corporate shell). - JV can be set up as a PS.
108
How is a JV usually set up?
As a corporation.
109
True or false: A JV will likely feel lots of instability if not done as corporation.
True
110
Is a JV typically long term or temporary?
A JV is typically a temporary relationship between 2 or more people/businesses for the purpose of completing specific projects.
111
What is the issue with a JV?
Is there a fiduciary duty of JV parties toward each other?
112
What type of agreement is a licensing agreement?
It is a purely contractual relationship.
113
True or false: Today it is almost impossible to set up and run a business without some sort of licensing.
True
114
Licensing
Licensor allows licensee to use something licensor owns, typically an intellectual property right.
115
How does the licensee obtain usage rights?
Licensee has to pay a fee (royalty) for use.
116
Franchises
Gives right to operate a business using the name, business model and processes of another business.
117
What is an example of a franchise?
- McDonald's - Subway - Etc.
118
True or false: Franchises are almost always skewed to franchisee's advantange.
True
119
Does distrubutorship have a precise legal meaning.
Not really.
120
When does a distrubutorship exist?
Exists if one business (distributor) sells products of another (manufacturer).
121
What is an example of a distribuorship?
Car dealership.

COMM 304 - BL (10 decks)

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