Agency, Partnerships, LL Entities (Wesson)

Question 1

How is an agency relationship created?

Answer 1

An agency relationship requires ABC
A- Assent of both the principal and the agent
B- Benefit to the principal
C- Control of the principal over the agent’s work

Consideration is not required for an agency relationship, also no formal writing is required.

Question 2

Who can terminate an agency relationship?

Answer 2

Either party may terminate the relationship unilaterally.

Question 3

What capacity is required to enter an agency relationship?

Answer 3

The principal must have legal capacity, this includes individuals and legal entities.
The agent is only required to have minimal capacity, including the ability to assent, perform, and be subject to control. This can include minors.

Question 4

What is a servant or employee?

Answer 4

When an employer has the right to control the agent’s physical conduct of work, including providing tools needed, paying a structured pay, and directing how tasks are accomplished.

Question 5

What is an independent contractor?

Answer 5

When the principal does not control or have the right to control the agent’s physical conduct of work, including when the agent has a high level of independence, is free to work for other people, paid a fixed fee, and typically uses his own tools.

Question 6

When might a principal be liable for the acts of an independent contractor?

Answer 6

Principals are not generally liable for acts of independent contractors. When an independent contractor makes misrepresentations for the benefit of the principal, is engaged in abnormally dangerous activities, or acts with apparent authority, the principal may be liable. Also when the principal was negligent in hiring the contractor.

Question 7

When does the doctrine of respondeat superior apply?

Answer 7

When an employer exercises significant control over the employee’s work, AND the employee commits a tort in the scope of employment.

Question 8

How does a court consider the scope of employment for respondeat superior?

Answer 8

When the employee’s activity is of the same general nature that is authorized, or incidental to authorized conduct. This is based on the function the employee normally performs, the authorized time and space limits, conducted to benefit the employer, and foreseeable to the employer.

Question 9

When may intentional torts be subject to respondeat superior?

Answer 9

When the intentional tort is authorized by the employer OR the force used is within the scope of the employment (ex. security guard).

Question 10

Respondeat superior and Detour versus Frolic-

Answer 10

Employer’s are liable during a detour, or a minor deviation from the scope of employment, even if mainly for employee’s benefit. Employers are not liable during a frolic, or a major deviation from the scope of employment.

Question 11

A principal is liable for contracts entered by an agent when:

Answer 11

A principal is liable for an agent’s contracts when the agent was authorized to enter the contract and the agent acted with legal authority, either actual, apparent, or by ratification.

Question 12

What is actual authority?

Answer 12

Actual authority exists when the principal expresses authority by words or conduct that cause the agent to reasonably believe she has that authority.
the agent also has actual (implied) authority to act within accepted business practices or trade usages.

Question 13

What is apparent authority?

Answer 13

Apparent authority exists when some manifestation of the principal causes a third party to reasonably believe the principal consents to the acts of the agent.

Question 14

How can a principal ratify an agent’s contract?

Answer 14

A principal ratifies the contracts of an agent when the principal knows of the material terms of the contract and accepts the benefits of the contract.

Question 15

What is Agency by Estoppel?

Answer 15

If the principal fails to take reasonable steps and ordinary care to inform a third party of the lack of authority.

Question 16

Who is liable when an agent contracts for a disclosed principal?

Answer 16

If the agent acted with authority (actual, apparent, or ratified) from a disclosed principal, the principal is bound by the contract.

If the agent acted without authority from a disclosed principal, the agent is bound (under the theory of implied warranty of authority).

Question 17

Who is liable when an agent contracts on behalf of an unidentified principal?

Answer 17

When the agent has authority, both the agent and the principal are bound by the contract.

When the agent does not have authority, the agent is bound by the contract.

If the agent did not have authority, but the contract was ratified or agency estopped, both agent and principal are bound.

Question 18

Who is liable when an agent contracts for an undisclosed principal?

Answer 18

When the agent has actual authority, both the principal and agent are bound by the contract.

When the agent does not have authority, only the agent is bound.

(Note, no apparent authority in undisclosed principals because there can be no manifestation)

Question 19

What duties do agents owe to principals?

Answer 19

Duty of care.
Duty to obey reasonable instruction.
Duty of loyalty: not usurp a business opportunity, not take in secret profits, not take part in competing business.

(These may be consented to mutually after disclosure)

Question 20

Who has the authority to bind a partnership?

Answer 20

Any general partner has the authority to bind a partnership, if within the scope of the partnership and not expressly limited.

Partners have presumed apparent authority, unless 3rd party given actual notice of limits.

Question 21

Upon dissolution of a partnership, what property can be used to offset liability?

Answer 21

Partnership property can be used to offset partnership liabilities. Whether something is partnership property is based on the intent and use of the property.

Question 22

What type of partnership has no personal liability limits and the partners are jointly and severally liable for debts; created by 2 or more persons to be co-owners and do business for a profit?

Answer 22

This is a general partnership.
Courts don’t consider if the parties intended to form a partnership, rather do they: operate as co-owners, share in profits, and share in control.

Question 23

What type of partnerships have 1 or more general partner and 1 or more limited partners, where general partners are jointly and severally liable and limited partners are only liable up to their investments?

Answer 23

A limited partnership. This must be filed with the Secretary of State and the parties must substantially comply with the requirements.
Limited partners may become general partners through their actions (substantially same test).

Question 24

How does a Limited Liability Partnership protect partners?

Answer 24

LLPs limits a partner’s liability for professional malpractice that is committed by ANOTHER partner. Individual partners always have liability for their own malpractice and the malpractice of those they supervise.

LLPs must file annual reports with the appropriate state office.

Question 25

When is a partnership liable for the wrongful acts or omissions of any partner?

Answer 25

When the wrongfully acting partner is acting within the ordinary course of partnership business OR acting with authority of all other partners.

General partners are jointly and severally liable under these same conditions.

Question 26

Who are agents of a partnership?

Answer 26

Each partner is an agent of the partnership, and any action made in the ordinary course of business binds the partnership unless:
the partner had NO authority, AND
the 3rd party had knowledge or notice of lack of authority.

Question 27

When do partner acts outside the ordinary course of business bind a partnership?

Answer 27

When the other partners unanimously authorize (ratify) an action outside the ordinary course of business, the partnership is bound.

Question 28

What are is a partnership’s liability during dissolution?

Answer 28

Dissolution does not terminate a partnership and the partnership may incur liabilities necessary to wind up the partnership.
A partner’s actual authority during winding up is limited to that necessary to wind up. Apparent authority may still exist if 3rd parties are unaware of the dissolution.

Question 29

How are disagreements related to ordinary business matters decided in a partnership?

Answer 29

Absent an operating agreement to the contrary, partnership disagreements are decided by the majority of the partners.

Question 30

How may a partner use partnership property?

Answer 30

Unless agreed otherwise, a partner may only use partnership property on behalf of the partnership, OR to carry on the partnership business.

Personal use of partnership property requires consent of the partners.

Question 31

Who has a right to access the books and records of a partnership?

Answer 31

Every partner has a right to inspect records, and the partnership must provide true and full information.

The requesting partner need not have proper purpose or motive (distinction from shareholder’s right to inspect).

Question 32

What are the 3 main causes for dissolution?

Answer 32

Actions by the partners: disassociation or agreement.
Operation of law: partnership purpose becomes illegal
Court order: judicial dissolution if no longer reasonably practicable to continue.

Question 33

Under the UPA, what happens with a change in partner membership?

Answer 33

Under the UPA, any change in partner membership triggers dissolution UNLESS agreement to the contrary.

Note, wrongful dissolution (by wrongful dissociation) the remaining partners may hold dissolving partner liable for damage.

Question 34

Under the RUPA, what happens with a change in partner membership?

Answer 34

Under the RUPA, a partnership may continue despite a partner’s withdrawal if the remaining partners buy-out the withdraw partner’s interest.
Absent agreement otherwise, disassociation is not an auto trigger of dissolution UNLESS:
An at-will partnership, OR
Will of the parties (specific term or undertaking complete).

Question 35

What type of organization is considered a blend of a partnership and a corporation?

Answer 35

Limited Liability Companies are considered a mixture of partnerships and corporations.
LLC members generally do not have individual liability for LLC obligations.

Question 36

What is required to form an LLC?

Answer 36

The formation of an LLC must be filed with the Secretary of State.
Also “LLC” or “Limited Liability Company” must be included in the name to give notice to 3rd parties.

Question 37

When might an LLC member be liable for LLC obligations?

Answer 37

When the Veil can be Pierced.
Piercing the Veil is an equitable action, and equitable defenses apply (latches, duress, misrepresentation, mistake, etc.)

Question 38

What is required to Pierce the LLC Veil?

Answer 38

To Pierce an LLC, one must show:

1) the liability limits create an injustice or fundamental unfairness, AND
2) the LLC is a mere instrumentality or alter-ego of the member.

Question 39

What is a de facto corporation?

Answer 39

A de facto corporation is considered a corporation even if not properly formed. A de facto corporation can occur when:
There is a relevant incorporation statute,
There was a good faith attempt to comply with the statute,
There is evidence it is being ran as a corporation, AND
There are Article of Incorporation.

Question 40

What is a de jure corporation?

Answer 40

A de jure corporation is undeniably a corporation, complying with all relevant requirements.

Question 41

What is corporation by estoppel?

Answer 41

Corporation by estoppel is when an organization is holding itself out as a corporation even though it is not, and a 3rd party detrimentally relies on that.

Question 42

When an LLC member agrees to be personally liable for a business loan, what is the result?

Answer 42

The individual member is liable for the LLC debt. Members can be held personally and individually liable for obligations by agreement.

Question 43

When an LLC member is removed, what is required?

Answer 43

Removal of an LLC member requires the payment of fair market value of that member’s equity, unless otherwise expressed in agreement or in specific state statute.

Question 44

If a member wrongfully dissolves, what recourse do creditors have?

Answer 44

Creditors can claim against a member if there was a wrongful dissolution, limited to the amount the member received through dissolution.

Question 45

What creates a wrongful dissolution?

Answer 45

A wrongful dissolution occurs where creditors are not given proper notice or company debts are not properly settled.

Question 46

When can the court order dissolution?

Answer 46

Judicial dissolution can occur when the court finds it is not reasonable practicable to carry on business in accordance with the articles or operating agreement.