Agency & Partnerships

Question 1

Agency definition

Answer 1

Agency is the fiduciary relation which results from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control, and consent by the other so to act.

Question 2

Consent req

Answer 2

Consent of both the principal and the agent is necessary to form an agency relationship. Consent may be established expressly (written or oral statements), or by implication from the parties’ conduct.

Question 3

On behalf of req

Answer 3

The agent must be acting primarily for the benefit of the principal, rather than for the benefit of the agent or some other party.

Question 4

Control req

Answer 4

The agent must act subject to the principal’s control, but the degree of control exercised by the principal does not have to be significant. Can be simply the fact that the principal has specified the task that the agent should perform, even if principal did not give details of how the task should be accomplished.

Question 5

Do the parties need capacity to contract?

Answer 5

Only the principal needs capacity. Agent does not because agent is just intermediary in contract btw principal and third person.

Question 6

When is a writing required to form agency relationship?

Answer 6

SOF. If AP relationship is w/in SOF or if agent is to enter into a contract that reqs statute of fraud, agreement must be in writing.

Question 7

Is consideration required to form agency relationship?

Answer 7

Consideration is not required for the creation of an agency relationship.

Question 8

Agent’s fiduciary duties to the principal

Answer 8

1. Duty of care (carry out work with reasonable care)
2. Duty of loyalty (account for profits, act solely for benefit of principal, refrain from working with adverse party, not compete with principal on subject matter of agreement, or use principal’s property for own purposes).

Question 9

How do courts remedy breach of fiduciary duty

Answer 9

Court has wide discretion to institute equitable remedies and “do justice” in the situation.

Question 10

Duty of obedience

Answer 10

An agent must obey all reasonable directions of his principal. While the principal may be liable for the agent’s acts in violation of directions (apparent authority), the agent will be liable to the principal for any loss that the principal suffers.

Question 11

Principal’s duty to agent

Answer 11

No fiduciary duty, but if an agent incurs expenses or suffers other losses in carrying out the principal’s instructions, the principal has a duty to indemnify the agent. And unless the circumstances indicate otherwise, it will be inferred that the principal agreed to compensate the agent for his services.

Question 12

Actual authority

Answer 12

Authority that the agent reasonably thinks she possesses based on the principal’s dealings with her. Can be express (oral or writing) or implied.

Implied includes:

1. Incidental to express authority
2. Arising out of custom known to the agent
3. Prior acquiescence of principal
4. Emergencies
5. Pay for and receive goods when had authority to buy

Question 13

When does actual authority terminate? (5)

Answer 13

(1) after a specified time or event, or after a reasonable time (if there is no specified time or event);
(2) by a change of circumstances (e.g., the subject matter of the agency is destroyed);
(3) by a breach of the agent’s fiduciary duty;
(4) by a unilateral act of either the principal or the agent; or
(5) by death or incapacity of the principal or the agent.

Question 14

Apparent authority

Answer 14

If the principal’s words or conduct would lead a reasonable person in the third party’s position to believe that the agent has authority to act on the principal’s behalf. Must be PRINCIPAL’s assertions, not agents.

Question 15

Power of position

Answer 15

An agent’s title might confer apparent authority if authority is typically bestowed upon person with that title. Can also confer actual authority if agent reasonably believes he has authority to act based on hist title.

Question 16

Ratification of contract

Answer 16

Even if agent had not authority, principal still bound if principal ratifies contract. Substitute for pre-transaction authority.

Question 17

How to ratify:

Answer 17

Express (oral/written) or implied (P accepts benefits)

Question 18

Requirements for ratification

Answer 18

1. Principal must have knowledge of all material facts
2. Principal must accept ENTIRE transaction
3. Cannot alter rights of intervening parties.

Question 19

Who’s liable on contract if no ratification or authority? And exception

Answer 19

Principal, not agent. EXCEPT if P is undisclosed (3rd party doesn’t know agent is acting on behalf of principal) OR partially disclosed (3p knows agent acting for principal, but doesn’t know who. In this case, both principal and agent liable.

Question 20

Vicarious liability: Master

Answer 20

A principal who employs an agent to perform service in his affairs and who controls or has the right to control the physical conduct of the other in the performance of the service.

Question 21

VL: Servant

Answer 21

A servant (i.e., an employee) is an agent so employed by a master.

Question 22

VL: Independent Contractor

Answer 22

A person who contracts with another to do something for him but who is not controlled by the other nor subject to the other’s right to control with respect to his physical conduct in the performance of the undertaking.

Question 23

Vicarious liability tests

Answer 23

A master is liable for torts committed by a servant within the scope of the servant’s employment. The master and the servant are both jointly and severally liable.

A principal is generally not liable for torts committed by an independent contractor in connection with his work unless P KNOWINGLY selected incompetent contractor (negligent = personal liability), gave a nondelegable duty, or it was an ultrahazardous activity

Question 24

Servant v. IC

Answer 24

If a person is subject to the control of another as to the means used to achieve a particular result, he is a servant. By contrast, if a person is subject to the control of another as to his results only (but not over how to achieve those results), he is an independent contractor.

Question 25

Factors to consider when assessing servant v. IC

Answer 25

(1) skill required—where great skill is required, more likely IC;
(2) tools and facilities—if the principal supplies the tools and facilities, more likely employee;
(3) period of employment—if period is indefinite and/or long, more likely employee;
(4) basis of compensation—if compensation is on the basis of time, more likely employee; if compensation is paid based on the job, more likely IC;
(5) business purpose—if hired to perform an act in furtherance of principal’s business, more likely employee;
(6) distinct business—a person who has her own business or occupation is more likely IC

Question 26

Detour and frolic

Answer 26

A minor deviation from the employer’s directions is usually within the scope. This is called a detour. A substantial deviation is usually outside of the scope. This is called a frolic.

Question 27

Intentional torts and scope of employment?

Answer 27

Intentional torts usually not w/in scope of employment unless nature of job is torts, its motivated to serve the employer, or was specifically authorized or ratified by employer.

Question 28

Employer lends employee to another. Employee commits tort. Which employer is liable?

Answer 28

Whoever has primary right of control? Usually original employer.

Question 29

What is a partnership?

Answer 29

A partnership is formed as soon as two or more persons associate to carry on as co-owners a business for profit, regardless of whether the parties subjectively intend to form a partnership. No state filing or other formalities are required.

Question 30

Factors determining if partnership exists

Answer 30

1. SHARING OF PROFITS (not gross returns… profits) raises a PRESUMPTION of partnership

Unless: Profits were received in payment of a debt, as wages or compensation, as rent, or as interest on a loan.

2. Right to control business (even if not exercised)

Question 31

When is writing required to form partnership?

Answer 31

SOF. Forming a partnership “for two years” for example.

Question 32

Partnership by estoppel?

Answer 32

If no partnership was formed in fact, parties may still be liable as if they were partners to protect reasonable reliance by third parties.

Question 33

Effect of a partnership agreement

Answer 33

Not required, but if exists, can contract around all statutory provisions. Can be oral, written, or implied.

Question 34

Who can vote in a partnership

Answer 34

Unless otherwise agreed, 1 partner = 1 vote. Matters within scope of business = majority. Matters outside scope = unanimity.

Question 35

Right to salary/compensation?

Answer 35

Unless agreed upon, no. Doesn’t matter how much work they do.

Question 36

Sharing profits/losses

Answer 36

Unless otherwise agreed, profits shared equally. Losses always shared how profits are shared.

Question 37

When is a partnership liable in tort?

Answer 37

When the tortious conduct of a partner (or an employee) acting in the ordinary course of business of the partnership or with authority of the partnership causes loss or injury.

Question 38

When is a partnership liable in contract?

Answer 38

A partnership is liable for contracts entered into on its behalf by partners with actual or apparent authority.

Question 39

How is liability shared in a partnership?

Answer 39

A defining characteristic of the general partnership is that each partner is jointly and severally liable for all of the obligations of the partnership (whether arising in tort or contract). BUT: the plaintiff must first exhaust partnership resources before seeking to collect from an individual partner’s assets (so the partners are essentially guarantors).

Question 40

What are the fiduciary duties of a partner?

Answer 40

1. Duty of Loyalty
2. Duty of Care
3. Duty of Disclosure

Question 41

Duty of Loyalty

Answer 41

Requires each partner:

(1) to account to the partnership for any benefit derived by the partner in conducting p-ship business, using the p-ship’s property, or appropriating a p-ship opportunity;
(2) to refrain from dealing with the p-ship in the conduct of its business as (or on behalf of) a party having an interest adverse to the p-ship;
(3) to refrain from competing with the p-ship in conduct of its business.

Question 42

Duty of Care

Answer 42

Each partner must refrain from engaging in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of law.

Question 43

Duty of Disclosure

Answer 43

A statutory duty rather than a fiduciary one. Each partner and the partnership shall furnish to a partner (1) without demand, any information concerning the partnership’s business and affairs reasonably required for the proper exercise of the partner’s rights and duties; and (2) on demand, any other information concerning the partnership’s business and affairs (except to the extent the demand or the information demanded is unreasonable or otherwise improper under the circumstances).

Question 44

Which duties can be eliminated?

Answer 44

Duty of disclosure. Can’t eliminate duty of loyalty or care.

Question 45

What is partnership property?

Answer 45

1. Acquired to pships name or in partner’s name where apparent that partner is acting for pship
2. Presumed if pship fund are used
3. Presumed to be PARTNER’s property if acquired in her name w/o pship funds and no sign she’s acting for pship

Question 46

What is a partner’s ownership interest in the pship ?

Answer 46

The INTEREST is personal property (like a shareholder’s stock)

Question 47

What can partners do/not do with their ownership interest?

Answer 47

Do:

1. Manage business, obtain info, be recognized as a partner
2. Transfer financial rights in partnership (transferee not a partner)

Not do:
1. Unless otherwise agreed, can’t unilaterally transfer management rights to another unless unanimous vote

Question 48

What is a dissociation?

Answer 48

When a partner withdraws or “bows out” of the partnership.

Question 49

What causes dissociation?

Answer 49

(1) a partner giving notice to the partnership of his desire to withdraw (dissociation by “express will”);
(2) a partner’s expulsion, death, or bankruptcy;
(3) an agreed-upon event; and (4) the appointment of a receiver for a partner.

Question 50

When is dissociation wrongful?

Answer 50

If the dissociation is in breach of an express term in the partnership agreement. A dissociation is also wrongful in a term partnership if the partner withdraws, is expelled, or becomes bankrupt before the end of the term. A partner who wrongfully dissociates is liable to the partnership for any damages caused by the dissociation.

Question 51

At-will v. term pship

Answer 51

At-will: where the partners have not agreed to remain partners until the expiration of a definite term or project completion (most partnerships)

Term: where the partners have agreed, explicitly or implicitly, to remain partners for a definite term or until the completion of a particular undertaking.

Question 52

What happens after a dissociation?

Answer 52

1. Partnership is dissolved and business must be wound up. This means that the partnership business will be liquidated (“sold off”) OR
2. Partnership continues in existence with the dissociated partner entitled to a buyout of his partnership interest.

Question 53

When is a partnership dissolved?

Answer 53

1. In general, when a partner dissociates by express will in an at-will partnership, the partnership is dissolved and its business must be wound up.
   b. In a term partnership, if one partner dissociates wrongfully, or if a dissociation occurs because of a partner’s death or bankruptcy, dissolution and winding up of the partnership are required only if, within 90 days after the dissociation, one-half of the remaining partners agree to wind up the partnership.

Question 54

What is a partner who dissociates liable for? How long does their apparent authority last

Answer 54

Pre-dissociation partnership obligations. Apparent authority and lasts for 2 years and post-dissociation liability incurred w/in two years after dissociation unless notifies creditors or files public statement about dissociation.

Remember: Apparent authority terminates if 3rd party has knowledge partner has no authority or has received notice (even if hasn’t read). Also incoming partner has no liability for actions taken before becoming partner.

Question 55

What happens to pship assets at dissolution?

Answer 55

Partnership assets must be applied to the discharge of partnership liabilities. If the assets are insufficient, individual partners are required to contribute (“pay in”) in accordance with their loss shares. If there are excess assets, they are distributable to the partners in cash in accordance with their profit shares.

Question 56

Priority of distribution of assets upon dissolution

Answer 56

1. Creditors (external and internal)
2. All capital contributions made by partners
3. Profits or losses

Question 57

Limited Partnerships: Definition, formation

Answer 57

At least one general partner and one limited partner. File “certificate” w/ sec of state w/ name, address, address of general partners. If formation fails, just creates a general partnership

Question 58

Who manages LP

Answer 58

General managers. Limited partners usually have no management rights unless pship agreement grants them. EXCEPTION: Extraordinary activities requires vote of all partners, gen and lmtd.

Question 59

Limited partners liability/fiduciary duty

Answer 59

Limited, meaning they can only lose the value of their investments. Doesn’t have fiduciary duty.

Question 60

Limited Liability Partnerships: Definition, formation, liability

Answer 60

General partnership where ALL members have limited liability. Must file “statement of qualification” w/ SOS w/ name and address, election to be LLP, date of effect. NO personal liability for partners, just personal liability for wrongful acts.

Question 61

Limited Liability Company: Definition

Answer 61

A hybrid between a corporation and a partnership in which the owners (called “members”) have limited liability as well as the benefits of partnership tax treatment. This is not a corporation, nor is it a partnership. It is its own business form. An LLC is treated as a separate legal entity distinct from its members.

Question 62

LLC formation

Answer 62

Must file “articles (or certificate) of organization” with the secretary of state. Includes (1) the name of the LLC; (2) the address of the LLC’s registered office; and (3) the name and address of its registered agent.

Question 63

What governs operation and governance of LLC?

Answer 63

Operating agreement

Question 64

Who manages LLC?

Answer 64

Management of the LLC is presumed to be by all of the members. A majority vote of members (or managers if manager-managed) is required to approve ordinary business decisions. A unanimous vote of members (or managers if manager-managed) is required to approve extraordinary business decisions.

Question 65

Liability of LLC members

Answer 65

Members generally are not personally liable for the LLC’s obligations. They have limited liability and can only lose the amount of their investments. As always, members are liable for their own torts.

Question 66

What fiduciary duties are owed in LLC?

Answer 66

Care and loyalty

Question 67

What dissolutes an LLC?

Answer 67

(i) An event or circumstance that the operating agreement states causes dissolution; (ii) The consent of all of the members; or (iii) The passage of 90 consecutive days during which the LLC has no members; (iv) an application for judicial dissolution

Question 68

Taxing of LLC

Answer 68

No entity level tax, just individual tax

Question 69

Member-managed LLC

Answer 69

Members owe duty of care and loyalty

Question 70

Manager-managed LLC

Answer 70

Only managers are subject to duties of loyalty and care