Agency and Partnership

Question 1

Principal

Answer 1

Typically an employer, such as a corporation or a partnership.

Question 2

Agent

Answer 2

Typically a director, officer, or other employee. The agent of a partnership is typically a partner or employee.

Independent contractors can be agents if they are subject to control over their physical conduct by the principal.

Question 3

Contractual Liability of the Principal

Answer 3

A 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. An agent has the power to bind the principal to the contract when the agent has actual authority or apparent authority.

Question 4

Actual Authority (Express)

Answer 4

When agent enters into a contract on behalf of the principal that is created via oral or written words; clear, direct, and definite language; or specific detailed terms and instructions

Question 5

Actual Authority (Implied)

Answer 5

Allows an agent to 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 the principal.

If the agent is placed in a position that customarily has certain authority, such as a treasurer, the agent will have implied authority to carry out the duties of a treasurer.

Question 6

Apparent Authority

Answer 6

When a principal causes a third party to reasonably believe that the agent has authority to act.

Question 7

Apparent Authority - Third Party’s Reasonable Belief

Answer 7

Consider:

1. Trade customs and industry standards
2. Agent’s position - If agent is appointed to a specific position (such as vice president or treasurer), the principal will be found to have made a manifestation that the agent has the customary level of authority possessed by a person in the agent’s position.

Question 8

Ratification

Answer 8

A principal can ratify (affirm/approve) an act performed by an agent, even if the agent did not have authority to act, and therefore be bound to a contract with a third party.

Question 9

Ratification Requirements

Answer 9

1. The principal ratifies the entire contract or transaction by express assent or conduct that indicates affirmation
2. The ratification must be timely (before the third party withdraws from the contract); and
3. The principal must have knowledge of the material facts involved in the original act.

Question 10

Principal’s Tort Liability

Answer 10

Principal can be vicariously liable and directly liable to a third party who is harmed by a tort committed by an agent.

Question 11

Respondeat Superior

Answer 11

P may be vicariously liable for a tort committed by an agent acting within the scope of his employment.

Question 12

Intentional Torts

Answer 12

ITs may be in the scope of duty if they are during work hours, the agent was motivated to act for the P’s benefit, and the act was within her assigned duties.

Question 13

Work-related travel

Answer 13

Travel for work purposes is within the scope of employment.

Question 14

Principal’s Direct Liability to Third Parties

Answer 14

When the principal authorizes or ratified the agent’s conduct; is negligent in hiring/supervising the agent; delegates a non-delegable duty to the agent.

Question 15

Partnership Formation

Answer 15

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

Question 16

Sharing of Profits (Partnership)

Answer 16

The key test to determine a partnership is whether there is a share of profits from the business. Partnership will be presumed if so.

Question 17

Partner as an agent for partnership

Answer 17

A partner is an agent for the partnership for business purposes. He can commit the partnership to binding Ks with third parties.

Question 18

Duty of Loyalty

Answer 18

Partner is required to refrain from competing with the partnership business, advancing an interest adverse to the partnership, and usurping a partnership opportunity or using partnership property or business to derive a profit, without notifying the partnership.

Question 19

Usurping partnership opportunity

Answer 19

If a business opportunity is presented to a partner that is the type of business the partnership engages in, the partner must present the opportunity to the partnership; he cannot take the opportunity for himself without first informing the other partners and receiving their permission to do so.

Question 20

Duty of Care

Answer 20

A partner is required to refrain from engaging in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of the law.

Question 21

Profits/Losses

Answer 21

The partnership agreement controls a partner’s rights to share the partnership’s losses and profits. If there is no agreement, each partner is entitled to an equal share of profits and losses.

Question 22

Management Rights

Answer 22

Each partner has equal rights in the management and conduct of the partnership. A majority of the partners can make a decision as to an ordinary matter of business. All partners must consent to a matter outside the course of ordinary business.

Question 23

Partner as an agent for partnership

Answer 23

A partner is an agent of the partnership for business purposes and can contractually bind the partnership when the partner acts with actual (express or implied) or apparent authority.

Question 24

Partnership Agent - Apparent Authority

Answer 24

If the third party has knowledge that the partner lacked authority, it cannot assert apparent authority and bind the partnership to the contract.

if a partnership sends written notice to the third party indicating the partner’s lack of authority and the third party receives the notice, there will be no apparent authority.

Question 25

Partnership Liability

Answer 25

• Liable for partner’s tortious acts committed in the ordinary course of partnership business or with partnership authority.
• A partnership is subject to a lawsuit for its obligatons.
• A partner is jointly and severally liable for all partnership obligations.

Question 26

Effect of judgment

Answer 26

A partnership creditor must exhaust the partnership’s assets before taking the partner’s individual assets.

Question 27

Partnership Dissolution

Answer 27

Partnership at will is an open-ended partnership that does not have a fixed termination date or event. It is dissolved when a partner chooses to dissociate from the partnership by giving notice.

Question 28

Winding Up

Answer 28

A partnership that is dissolved only continues to exist to “wind up” its business.

Assets: creditors have priority over partners to the partnerships’ assets

Obligations: partnership assets are first applied to pay off obligations to creditors (creditors may include partners who made loans to the partnership) before being distributed to the partners.