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Agency & Partnership


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What are the 3 agency problems?
1. Liability of principal to 3rd parties for tort of an agent.
2. Liability of principal to 3rd parties for contracts entered by an agent.
3. Duties which agents owe principals.
What is the test for a principal-agent relationship?

1. Assent (agreement between principal -- who has capacity -- and agent);
2. Benefit: agent acts for benefit of principal;
3. Control.
Is there vicarious liability for a sub-agent's tort?
Only if there is ABC over sub-agent.
Is there vicarious liability for a borrowed agent's tort?
Only if there is ABC.
Is there vicarious liability for an independent contractor? Exceptions?
Rule is that there is no vicarious liability.

1. Ultra hazardous activities.
2. Estoppel (if you hold 'em out as agent, you'll be estopped from denying agency).
What is the difference between a frolic and a detour?
A frolic is a new and independent journey, outside the scope of agency.

A detour is a mere departure from an assigned task, and is within the scope of agency.
For purposes of determining a tort, how do you tell if something was within the scope of agency?
1. Was the conduct of the kind the agent was hired to perform?
2. Did the tort occur on the job?
3. Did the agent intend to benefit the principal?
What is the rule, and what are the exceptions, regarding intentional torts?
The rule is that they are outside the scope of agency.

1. Specifically authorized.
2. Natural from the nature of employment.
3. Motivated by a desire to serve the principal.
What is the test for whether a principal is liable for contracts entered into by an agent?
1. A principal-agent relationship exists.
2. The principal authorized the agent to enter the contract.
What are the four types of authority?
1. Actual express
2. Actual implied
3. Apparent
4. Ratification
What is the equal dignities doctrine?
If the contract itself must be in writing, so must the expression of authority to enter that contract be in writing.
How can express authority be revoked?
1. Unilateral act of either party.
2. Death or incapacity of the principal.

EXCEPT: express authority will not be revoked if there is a durable power of attorney.
When is there actual implied authority?
1. Necessity (stuff needed to accomplish an expressed task).
2. Custom.
3. Prior dealings.
What is the test for apparent authority?
1. Principal cloaked agent with the appearance of authority.
2. 3rd party reasonably relies on appearance of authority.
What is secret limiting authority?
Principal tells clerk "Don't sell that clock."
What is lingering authority?
Apparent authority that results when actual authority has been terminated.
When is there ratification?
1. Principal has knowledge of all material facts.
2. Principal accepts contract's benefits.
What are the general rules of liability on the contract?
If there is authority, Principal is liable.

If there is no authority, the Principal is not liable and the Agent is.
What special rules for partially disclosed (only the identity is concealed) and undisclosed principals?
The third party can choose whom to hold liable -- the agent or the princpal.
What duties does the agent owe the principal?
1. Reasonable care.
2. Obey reasonable instructions.
3. Loyalty (no self dealing, usurping principal's opportunity, or secret profits).
What are the four principal areas for partnership?
1. Formation.
2. Liabilities of partners to 3rd parties.
3. Rights and liabilities between partners.
4. Dissolution of partnership
What is a definition of a general partnership?
An association of 2 or more persons carrying on as co-owners of a business for profit.
What is important about the fact that profits are shared?
The contribution of money or services in return for a share of the profits creates a presumption that a general partnership exists.
What are the liabilities of general partners to third parties?
Agency principles apply:
1. partners are agents of the partnership for usual partnership business;
2. partnership is bound by torts committed by partners in scope of business.
3. partnership is bound by contracts entered by partners with authority.
Can you sue partner A for partner B's torts?
Yes, if committed in scope of business.
Is an incoming partner liable for pre-existing debts?
No, but any capital contributed to the partnership may go to debts.
Is a dissociating partner liable for subsequent debts?
They retain liability on future debts until actual notice of their dissociation is given to creditors OR 90 days after filing of 'notice of dissociation' with the State.
What is General Partnership Liability by Estoppel?
If you represent to a third party that there is a general partnership, you'll be liable as if it did.
What is needed for a limited partnership?
1. At least one general and at least one limited partner.
2. Must file a limited partnership cedrtificate with the names of all general partners.
3. General partners have both liability and control.
What do you need for a registered limited liability partnership?
For an RLLP, you need a statement of qualification and annual reports.

No partner is personally liable.
What duties do partners owe each other?
1. Loyalty.
2. May bring action for accounting if partner has breached. May recover losses recovered by breach or may disgorge profits.
What are partners' rights to partnership property?
1. Partners can't transfer assets without partnership authority.
2. Partners' share of profits and surplus is personal property and may be transferred.
3. Partners' right to manage belongs only to the partnership, not individual partners, so not transferable.
How can you tell if an asset is a partnership asset or personal property?
Whose money was used?
How do you tell who manages the partnership?
Absent an agreement, each partner entitled to equal vote, EVEN IF THE PROFITS ARE NOT SHARED EVENLY.
What is the rule re. partnership salaries?
Absent an agreement, no salary. The only exception is for winding up partnership business.
What are the rules re. partners' shares of profits and losses?
1. Absent an agreement, profits are shared equally.
2. Absent an agreement, losses are shared like profits.
If the agreement says "losses are shared 60/40," how are profits shared?
How is a partnership dissolved?
If no agreement, upon dissociation of any single partner.

If an agreement, partnership is not dissolved when a partner leaves unless a majority of the remaining partners vote to dissolve within 90 days of that partners' dissociation; or, if all partners agree.
What is termination?
The REAL end of the partnership.
What is winding up?
The time between dissolution and termination in which remaining partners liquidate assets to satisfy creditors.
Is there liability during wind up?
Yes. For new business, liability until actual notice of dissolution is given or until 90 days after filing the Statement of Dissolution.
What is the priority of distribution of assets?
1. Creditors (including partners)
2. Capital contributions by partners paid.
3. Profits and surplus.
What if partnership has $700,000 to distribute, and $700,000 debts and partner A made capital contributions of $200,000?
Loans are paid.
The partnership still owes Partner A $200,000.
Thus, the partnership is facing a $200,000 loss.

The partners split up that $200,000 loss.

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