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Which of the following statements is(are) correct regarding the relationship between an agent and a nondisclosed principal? I. The principal is required to indemnify the agent for any contract entered into by the agent within the scope of the agency agreement. II. The agent has the same actual authority as if the principal had been disclosed. a. I only. b. II only. c. Both I and II. d. Neither I nor II.

Answer: The correct answer is C. A principal owes her agent the duty of indemnification, which is a type of reimbursement for costs and liabilities incurred by the agent as a result of authorized acts on behalf of the principal. Actual authority is the authority that the agent reasonably believes she possesses because of the communications to the agent. The agent has the same actual authority whether the principal is disclosed or undisclosed.

True or False. No liability for obligations arising from before she joined the partnership and unlimited liability for those arising afterwards.

False

True or False. Unlimited liability for obligations of the partnership, both for those arising before she joined the partnership and those arising after joining.

False

Which of the following statements best describes the effect of the assignment of an interest in a general partnership? a. The assignee becomes a partner. b. The assignee is responsible for a proportionate share of past and future partnership debts. c. The assignment automatically dissolves the partnership. d. The assignment transfers the assignor's interest in partnership profits and surplus.

The correct answer is D. The assignee of an interest in a partnership receives the assignor's rights to profits and surplus.

In 1992, Anchor, Chain and Hook created ACH Associates, a general partnership. The partners orally agreed that they would work full time for the partnership and would distribute profits based on their capital contributions. Anchor contributed $5,000; Chain $10,000; and Hook $15,000. For the year ended December 31, 1993, ACH Associates had profits of $60,000 that were distributed to the partners. During 1994, ACH Associates was operating at a loss. In September 1994, the partnership was dissolved. In October 1994, Hook contracted in writing with Ace Automobile Co. to purchase a car for the partnership. Hook had previously purchased cars from Ace Automobile Co. for use by ACH Associates partners. ACH Associates did not honor the contract with Ace Automobile Co. and Ace Automobile Company sued the partnership and the individual partners.

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When a valid contract is entered into by an agent on the principal's behalf, in a non-disclosed principal situation, which of the following statements concerning the principal's liability is correct? The principal The principal may must ratify be held liable the contract to once disclosed be held liable a. Yes Yes b. Yes No c. No Yes d. No No

Answer: The correct answer is B. Once disclosed, an undisclosed principal can be held liable on a contract made on the principal's behalf by an agent if the agent had authority. There is no need to ratify; indeed, an undisclosed principal can never ratify because a principal can ratify only when a person represents that he is an agent acting with authority on the principal's behalf when in fact the person lacks authority. When a principal is undisclosed, there is no representation of agency and so a prerequisite for ratification is missing.

With respect to the following matters, which is correct if a general partnership agreement is silent? a. A partnership will continue indefinitely unless a majority of the partners votes to dissolve the partnership. b. Partnership losses are allocated in the same proportion as partnership profits. c. A partner may assign his interest in the partnership but only with the consent of the other partners. d. A partner may sell the goodwill of the partnerships without the consent of the other partners when the sale is in the best interest of the partnership.

Answer: The correct answer is B. As a general principle of partnership law, as well as under the Revised Uniform Partnership Act, in the absence of an agreement otherwise, partnership losses are allocated among partners in the same proportion as partnership profits.

Cobb, Inc., a partner in TLC Partnership, assigns its partnership interest to Bean, who is not made a partner. After the assignment, Bean asserts the rights to I. Participate in the management of TLC. II. Cobb's share of TLC's partnership profits. Bean is correct as to which of these rights? a. I only. b. II only. c. I and II. d. Neither I nor II.

Answer: The correct answer is B. The assignee of a partner's interest in the partnership does not thereby become a partner absent the unanimous consent of the other partners. Thus, the assignee has no right to participate in the management of the partnership and has only a right to receive the assignor's share of the partnership profits.

North, Inc. hired Sutter as a purchasing agent. North gave Sutter written authorization to purchase, without limit, electronic appliances. Later, Sutter was told not to purchase more than 300 of each appliance. Sutter contracted with Orr Corp. to purchase 500 tape recorders. Which of the following statements is correct? a. Sutter will be liable to Orr because Sutter's actual authority was exceeded. b. Sutter will not be liable to reimburse North if North is liable to Orr. c. North will be liable to Orr because of Sutter's actual and apparent authority. d. North will not be liable to Orr because Sutter's actual authority was exceeded.

Answer: The correct answer is C. Although Sutter had apparent authority by virtue of the written statement of authority, he had no actual authority because actual authority is that authority which the agent reasonably believes he has, and here North told Sutter that he no longer had authority to make unlimited purchases. There is no requirement that actual authority granted in writing be rescinded in writing. North is liable to purchase from Orr for 300 appliances because of actual authority and for 200 appliances because of apparent authority. Choice A is incorrect. An agent impliedly warrants to third parties with whom he deals that he has the authority that he purports to have. If this warranty is breached, he is liable to the principal for any damages that are caused. Choice B is incorrect. An agent who exceeds his actual authority is liable to his principal for any damages caused by the excess. There is no requirement that actual authority granted in writing be rescinded in writing; the oral limitation on actual authority was valid between North and Sutter. Choice D is incorrect. Although Sutter exceeded his actual authority, North will be liable because of Sutter's apparent authority. Apparent authority arises from a third party's reasonable beliefs of authority based on the principal's holding the agent out. Where the principal has given the agency written authority, the agent has apparent authority consistent with the written authority, even after actual authority is terminated, until the written authority is retrieved.

1. Which of the following actions requires an agent for a corporation to have a written agency agreement? A. Purchasing office supplies for the principal's business. B. Purchasing an interest in undeveloped land for the principal. C. Hiring an independent contractor to renovate the principal's office building. D. Retaining an attorney to collect a business debt owed the principal.

B

2. A principal and agent relationship requires a A. Written agreement. B. Power of Attorney. C. Meeting of the minds and consent to act. D. Specified consideration.

C

Forming an agent relationship requires that A. The agreement between the principal and agent be supported by consideration. B. The principal and agent not be minors. C. Both the principal and agent consent to the agency. D. The agent's authority be limited to the express grant of authority in the agency agreement.

C

Lee repairs high-speed looms for Sew Corp., a clothing manufacturer. Which of the following circumstances best indicates that Lee is an employee of Sew and not an independent contractor? A. Lee's work is not supervised by Sew personnel. B. Lee's tools are owned by Lee. C. Lee is paid weekly by Sew. D. Lee's work requires a high degree of technical skill

C

True or False. Liability to the extent of her investment for all obligations, arising either before or after she joined the partnership.

False

True or False. No liability for obligations arising from before she joined the partnership and limited liability for those arising afterwards.

False

A. The ACH Associates oral partnership agreement was valid. B. The ACH Associates oral partnership was invalid because the partnership lasted for more than one year.

The correct answer is A. A partnership agreement does not have to be in writing to be valid. If the partners want to enforce an agreement to be partners for more than one year, that agreement must be in writing, but merely having the partnership last more than one year does not make an oral partnership agreement invalid.

A. Anchor, Chain, and Hook jointly owning and conducting a business for profit establishes a partnership relationship. B. Anchor, Chain, and Hook jointly owning income producing property establishes a partnership relationship.

The correct answer is A. A partnership is defined as an association of two or more persons who carry on as co-owners a business for profit. Merely owning income-producing property jointly is not sufficient.

The apparent authority of a partner to bind the partnership in dealing with third parties A. Will be effectively limited by a formal resolution of the partners of which third parties are aware. B. Will be effectively limited by a formal resolution of the partners of which third parties are unaware. C. Does not permit a partner to execute an instrument in the partnership name. D. Must be derived from the express powers and purposes contained in the partnership agreement.

The correct answer is A. Each agent in a general partnership is an agent of the partnership. The partners may not limit partnership liability to third parties by agreement between the partners alone. But apparent authority is effectively limited to the extent a third party knows of limitations imposed on a partner's authority. Answer B is incorrect because the scope of apparent authority is limited by communications by the principal (the partnership) of which the third party is deemed to be aware. Answers C and D are incorrect because a partner's act, such as execution of an instrument in the partnership name, for apparently carrying on in the ordinary course the partnership business, or business of the kind carried on by the partnership, is binding unless the partner lacked actual authority and the other party knew or had notice of such lack of authority.

A. Ace Automobile Co. would lose a suit brought against ACH Associates because Hook, as a general partner, has no authority to bind the partnership. B. Ace Automobile Co. would win a suit brought against ACH Associates because Hook's authority continues during dissolution.

The correct answer is B. A partner's authority to bind the partnership continues after dissolution to persons who have extended credit to the partnership previously and who are without notice of the dissolution. The facts state that Hook had previously purchased cars for the partnership from Ace, and presumably the purchases were on credit. Since nothing in the facts indicates that Ace was given notice of the dissolution, the partnership will be bound.

A. Anchor's capital account would be reduced by 1/3 of any 1994 losses. B. Hook's capital account would be reduced by ½ of any 1994 losses.

The correct answer is B. If the partnership agreement is silent on how losses will be shared, they are shared in the same manner as profits. Here, the partners agreed to share profits on the basis of their contributions, which were in a ratio of 1:2:3 respectively, for Anchor, Chain and Hook. Thus, Anchor is liable for one-sixth of the loss, Chain is liable for 1/3 of the loss, and Hook is liable for ½ of the loss.

A. ACH Associates and Hook would be the only parties liable to pay any judgment recovered by Ace Automobile Co. B. Anchor, Chain, and Hook would be jointly and severally liable to pay any judgment recovered by Ace Automobile Co.

The correct answer is B. Since Ace brought suit against both the partnership and the individual partners, if judgment is rendered against the partnership, all partners could be held jointly and severally liable.

A. Anchor's share of ACH Associates' 1993 profits was $20,000. B. Hook's share of ACH Associates' 1993 profits was $30,000.

The correct answer is B. Unless otherwise agreed, partners share profits equally. Here, the partners agreed to share profits on the basis of their contributions, which were in a ratio of 1:2:3 respectively for Anchor, Chain and Hook. Thus, Anchor's share of the 1993 profits was $10,000, Chain's share was $20,000, and Hook's share was $30,000.

Skip & Trip decide to start a boutique selling preppy clothing. They sign a partnership agreement providing that Skip will contribute $6,000 toward the necessary $10,000 in start-up capital, and Trip will contribute $4,000. If the agreement is silent as to management and profits, Skip should receive A. 60% of the profits and share management equally with Trip. B. 60% of the profits and control 60% of the management functions. C. 50% of the profits and share management equally with Trip. D. 50% of the profits and control 60% of the management functions.

The correct answer is C. Absent a contrary agreement, partners have equal rights in the management and conduct of the partnership business. In addition, absent an agreement to the contrary, each partner has the right to share equally in partnership profits even if their contributions are unequal. Skip and Trip had no such contrary agreement. Answers A and B are incorrect because Trip is entitled to an equal share of the profits and equal rights in the management of the business. Answer D is incorrect because Trip is also entitled to equal rights in the management of the business.

Which of the following rights will a third party be entitled to after validly contracting with an agent representing an undisclosed principal? A. Disclosure of the principal by the agent. B. Ratification of the contract by the principal. C. Performance of the contract by the agent. D. Election to void the contract after disclosure of the principal.

The correct answer is C. An agent contracting for an undisclosed principal is liable on any contracts entered into. Choice A is incorrect because the agent is not obligated to disclose the principal. Choice B is incorrect because so long as the contract is within the agent's authority, the principal is always liable on contracts made by the agent, thus ratification is meaningless here. The facts of the question state that the contract was validly entered into. Choice D is incorrect because a third party cannot void a contract merely because it was entered into by an agent.

An agent will usually be liable under a contract made with a third party when the agent is acting on behalf of a(an) Disclosed Undisclosed principal principal a. Yes Yes b. Yes No c. No Yes d. No No

The correct answer is C. An agent will usually be liable under a contract made with a third party when the agent is acting on behalf of an undisclosed principal. An agent will usually not be liable under a contract made with a third party when the principal is disclosed.

Bolt Corp. dismissed Ace as its general sales agent and notified all of Ace's known customers by letter. Young Corp., a retail outlet located outside of Ace's previously assigned sales territory, had never dealt with Ace. Young knew of Ace as a result of various business contacts. After his dismissal, Ace sold Young goods, to be delivered by Bolt, and received from Young a cash deposit for 20% of the purchase price. It was not unusual for an agent in Ace's previous position to receive cash deposits. In an action by Young against Bolt on the sales contract, Young will a. Lose, because Ace lacked any implied authority to make the contract. b. Lose, because Ace lacked any express authority to make the contract. c. Win, because Bolt's notice was inadequate to terminate Ace's apparent authority. d. Win, because a principal is an insurer of an agent's acts.

The correct answer is C. While employed, Ace had express authority from the terms of his employment and perhaps apparent authority because of the position given to him by the principal, Bolt. Upon his termination, the express authority ended immediately. But he continued to have apparent authority after his termination. Bolt should have published a notice in trade journals or other appropriate places to terminate this apparent authority. Note that the reasons given in answer choices A and B are correct statements (Ace and neither express nor implied authority), although the conclusion that Young loses is incorrect.

Noll gives Carr a written power of attorney. Which of the following statements is correct regarding this power of attorney? a. It must be signed by both Noll and Carr. b. It must be for a definite period of time. c. It may continue in existence after Noll's death. d. It may limit Carr's authority to specific transactions.

The correct answer is D. A general power of attorney grants broad powers, but a principal can also execute a special power of attorney granting limited powers. Choice A is incorrect because only the principal must sign. Choice C is incorrect because a power of attorney ceases at death.

Partners have a fiduciary relationship with each other. Accordingly, a partner A. May engage in a business that competes with the partnership if it is operated with his or her own resources. B. May take advantage of a business opportunity within the scope of the partnership enterprise if the partnership agreement will terminate before the benefit will be received. C. Must exercise a degree of care and skill as a professional. D. May not earn a secret profit in dealings with the partnership or partners.

The correct answer is D. A partner is an agent of the partnership and the other partners and thus owes fiduciary duties of loyalty and due care. A partner also has an obligation of good faith and fair dealing. In dealings with the partnership or other partners, a partner may not earn a secret profit. She must account to the partnership and hold as trustee for it any benefit derived in the conduct or winding up of the partnership business or from use of partnership property (including appropriation of a partnership opportunity). Answers A and B are incorrect because a partner's duty of loyalty precludes competition with the partnership. Answer C is incorrect because a partner's duty of care to the partnership is limited to refraining from gross negligence, reckless conduct, intentional misconduct, or knowing violation of the law. She is not liable for ordinary negligence to fellow partners if her honest errors of judgment are not intended and do not result in personal benefit.

True or False. Liability to the extent of her investment for obligations from before joining the partnership, and unlimited liability for those arising afterwards.

True