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Flashcards in Agency & Partnership Deck (45)

What are the 3 main agency questions that will be tested?

  1. Liability of principal to third parties for torts of an agent
  2. Liability of principal to third parties for contracts entered into by an agent
  3. Duties which agents owe to principals


When is a principal vicariously liable for the torts commited by its agent?

Principal will be liable for torts committed by its agent if:

  1. A principal-agent relationship exists, and
  2. The tort was committed by the agent within the scope of that relationship


When does a principal-agent relationship exist?

A principal-agent relationship requires:

  1. Assent
    • Principal, who has capacity, and agent enter into an informal agreement
  2. Benefit
    • Agent's conduct is for the benefit of principal
  3. Control
    • Principal has the right to control the agent by having the power to supervise the manner of the agent's performance


When is a principal liable for a sub-agent's tort?

Only if there is:

  1. Assent
  2. Benefit
  3. Control

Between the principal and sub-agent tortfeasor

Typically the principal does not assent to the sub-agent's help and does not have the right to control the sub-agent


When is a principal liable for a borrowed agent's tort?

Only if there is:

  1. Assent
  2. Benefit
  3. Control

Typically, although the borrowing principal may assent to and benefit from the borrowed agent's help, the borrowing principal does not assume any right to control the borrowed agent


What is the key distinction between agents and independent contractors?

There is no right to control independent contractors because there is no power to supervise the manner of its performance


When is a principal liable for an independent contractor's tort?

  • Inherently dangerous activity
    • Independent contractor commits a tort while engaging in inherently dangerous activity
      • E.g., brake repair work
  • Estoppel
    • Principal holds out the independent contractor with the appearance of an agent
      • E.g., gas station sign says "gas station and brake repair"


When does an agent act within the scope of the principal-agent relationship?

Consider the following factors:

  • Was the conduct of the kind the agent was hired to perform?
    • If the conduct was within the agent's job description, it was within the scope
  • Did the tort occur on the job?
    • Frolic
      • If the agent went on a new and independent journey, it was outside the scope
    • Detour
      • If the agent went on a mere departure from the assigned task, it was within the scope
        • E.g., look for language "on the way back"
  • Did the agent intend to benefit the principal?
    • If the agent even in part intended to benefit the principal, it was within the scope


What is an employer-employee relationship?

A genuine principal-agent relationship


Are intentional torts within the scope of the principal-agent relationship?

Intentional torts are generally outside the scope


  • Authorized by the principal
  • Natural from the nature of employment
  • Motivated by a desire to serve the principal

E.g., a bouncer meets all three of these exceptions


When is a principal liable for contracts entered into by its agent?

Only if the principal authorized the agent to enter into the contract

Four types of authorization:

  1. Actual express
  2. Actual implied
  3. Apparent
  4. Ratification



How can a principal authorize its agent to enter into a contract?

  1. Actual express authorization
    • Principal used words to express authority
  2. Actual implied authorization
    • Principal implied authority through conduct or circumstance:
      • Necessity - tasks that are necessary to accomplish and expressly authorized task
      • Custom - tasks which by custom are performed by person's with the agent's title or position
        • E.g., inherent authority
      • Prior acquiescence - tasks which the agent believes to be authorized based on prior acquiescence by the principal
  3. Apparent authorization
    • Principal cloaked agent with appearance of authority
    • Third party reasonably relied on the appearance of authority
  4. Ratification
    • ​​Principal has knowledge of all material facts regarding the contract
    • Principal accepts its benefits
    • Principal has not altered the terms of the contract


Does actual express authority have to be in writing?

Generally, no. It can be oral and private (e.g., whisper).


  • If the contract itself must be in writing (e.g., statute of frauds - land conveyance), the actual express authority must be too


When can express authority be revoked?

When the principal has not given durable power of attorney, and:

  • Unilateral act of either principal or agent
  • Death or incapacity of principal


What is durable power of attorney?


  • Clear survival language

Power of attorney

  • Written expression of authority to enter into a transaction


How is actual express authority construed?

Narrowly construed to the language within it


When is an agent liable for contracts entered into on behalf of a principal?

  • The contract is unauthorized
  • The undisclosed principal
    • Agent only partially discloses principal (i.e., only existence disclosed)
    • Agent does not disclose principal (i.e., neither existence nor identity disclosed)

The third party can choose whether to hold the agent or the principal liable


What duties do agents owe to their principals?

In return for reasonable compensation and reimbursement of expenses, agents owe principals:

  1. Duty of care
  2. Duty to obey instructions that are reasonable
  3. Duty of loyalty, which means no:
    • Self-dealing
      • Receiving a benefit to the principal's detriment
    • Usurping the principal's opportunity
      • Taking an opportunity the principal had
    • Secret profits
      • Making a profit at the principals' expense without disclosure


What remedies does a principal have against an agent who breaches their duty of loyalty?

The principal may:

  • Recover losses that are caused by the breach
  • Disgorge profits made by the breaching agent


What are the five main partnership areas that will be tested?

  1. General partnership formation
  2. Liabilities of general partners to third parties
  3. Rights and liabilities between general partners
  4. General partnership dissolution
  5. Alternative unincorporated business organizations


How is a general partnership formed?

There are no formalities. Just do it.


What is a general partnership?

An association of two or more persons to carry on as co-owners of a business for a profit


What gives rise to the presumption that a general partnership exists?

The contribution of money or services in return for a share of profits (i.e., not in return for a salary, wages, fixed rate of interest, etc.)


When is a general partnership liable to third parties?

General agency principles apply

Partners are agents of the partnership for apparently carrying on the usual partnership business

So, the general partnership is liable for:

  • Each partner's torts within the scope of the partnership business
  • Each partner's authorized contracts


What is the cardinal rule of general partnerships?

Each general partner is personally liable for:

  • All debts of the partnership
  • Each co-partner's torts


Are incoming partners liable for a general partnership's pre-existing debts?

Generally no.

But any money paid into the partnership can be used to satisfy those prior debts.


Are dissociating (i.e., withdrawing) partner's liable for a general partnership's subsequent debts?

Only until:

  • Actual notice of their dissociation is given to creditors, or
  • 90 days after filing a notice of dissociation with the state

This applies even to dying partners


Can a non-partner ever be liable for partnership debts?

What if a partnership doesn't even exist?

Yes. This is called liability by estoppel.

A non-partner who represents to a third party that a general partnership exists will be liable as if a general partnership exists.


What rule governs the rights and liabilities between general partners?

General partners are fiduciaries of eachother and the partnership

So, general partners owe eachother and the partnership the following:

  • Duty of loyalty, which means no:
    • Self-dealing
      • Receiving a benefit to the principal's detriment
    • Usurping the principal's opportunity
      • Taking an opportunity the principal had
    • Secret profits
      • Making a profit at the principal's expense without disclosure


What remedies does the partnership and its partners have against a partner who breaches their duty of loyalty?

Action for accounting

  • The partnership may:

    • Recover losses that are caused by the breach

    • Disgorge profits made by the breaching party



What are the different types of property in a partnership?

Who owns them?

Who can transfer them?

  1. Specific partnership assets
    • ​​This is land, leases, equipment, etc.
    • Owned only by the partnership itself
    • May not be transferred by individual partners without partnership authority
  2. Share of profits
    • ​​This is personal property
    • Owned by the individual partners 
    • May be transferred to third parties
  3. Share in management
    • ​​This is the right to manage the partnership
    • Owned only by the partnership itself
    • May not be transferred by individual partners to third parties


What is the test to determine whether property (other than a share in profits and a share in management) is owned by the partnership or the individual partners?

Who's money was used to buy the property?


How do you determine how much control (i.e., votes) each partner gets?

How many votes will decide an issue?

Absent an agreement otherwise, each partner is entitled to equal control


  • Majority vote governs ordinary affairs, and
  • Unanimous consent governs fundamental matters


How do you determine whether partners get a salary?

Absent an agreement otherwise, partners get no salary


  • Partners do get compensation for helping to wind up the partnership business


How do you determine each partner's share of the partnership profits and losses?


  • Absent an agreement otherwise, profits are shared equally


  • Absent an agreement otherwise, losses are shared just like profits


When does a general partnership dissolve?

A general partnership has a limited life

Absent an agreement that either:

  • Sets forth events of dissolution, or
  • Limits the partnership's length,

A general partnership dissolves upon notice of the express will of any one general partner to dissociate

This is called dissolution


What is the real end of a partnership called?



What is the period between dissolution and termination?

Winding up

  • Period between dissolution and termination in which remaining partners liquidate partnership assets to satisfy partnership creditors


What is the liability of the partnership and its partners during the winding up period?

Old business

  • The partnership and its partners retain liability on all transactions entered into to wind up old business by satisfying creditors who existed when winding up began

New business

  • The partnership and its partners retain liability on brand new transactions during wind up until:
    • Actual notice of dissolution is given to creditors, or
    • 90 days after filing a statement of dissolution with the state


What is the priority of distribution upon dissolution of a partnership?

  1. First, pay all creditors, including:
    • ​​Non-partner trade creditors
    • Partners who loaned money to the partnership
  2. Second, repay all capital contributions
    • ​​Most important step
  3. Third, allocate the remaining profits or losses
    • Absent agreement otherwise, these are allocated equally


What is a limited partnership?

A partnership with at least:

  • One general partner, and
  • One limited partner


How do you form a limited partnership?

File a limited partnership certificate with the state, including:

  • The names of all general partners


In a limited partnership, who retains liability?

Who retains control?

General partners

  • Liable for all limited partnership obligations
  • Retain a right to control the business

Limited partners

  • Not liable for limited partnership obligations
  • Retain a right to control the business, but if they do:
    • They become liable to third parties who believe they were general partners


What is the difference between a limited partnership and a registered limited liability partnership (RLLP)?

In a registered limited liability partnership (RLLP), no partner is liable for the debts and obligations of the partnership

But individual partners can always be sued for their torts, just not the obligations of the partnership


How do you form a registered limited liability partnership (RLLP)?

Register with the state by filing:

  • statement of qualification and
  • Annual reports