BLAW Midterm
What is the test for ratification? (Agency Law)
*all must apply* For ratification to occur: -A must be purporting to act on behalf of P -P must know or have reason to know all material facts, -P must accept the entire valid transaction and -P must have capacity (must be in existence if P is a corp)
In agency law, how can third parties who have previously dealt with an agent or started dealing with an agent be told that an agency is terminated?
- actual notice is required (verbally or writing) - for others, constructive notice is enough (posting in paper, online, etc)
To eliminate apparent authority of a winding up partner, partners must ensure what?
-3P knows PS is dissolved - 3P receives notice of dissolution -3P advised of dissolution -Statement of Dissolution Filed -if unknown 3P, file constructive notice in paper to stop 3PS
What is the rule for nonexistent Principal?
-Agent is liable when A knows or has reason to know that P does not exists (for ex: P has not yet been incorporated or P lacks capacity) - This is true even when 3P knows P lacks capacity or does not exist
What is the capacity of an agency?
-Principal must have contractual capacity -incompetent ppl cannot be principals -minor's appointment of an agent is voidable at the minor's discretion -Agent must have only minimal capacity (even a minor may be an agent)
What are the consequences for wrongful disassociation?
1. 90 days for non wrongful remaining p's to dissasociate 2. 50%+ of remaining P's vote to continue the PS or wind up 3. the WDP has no further right to manage 4. WDP will receive their PS share minus damages caused by disassociating (if the PS was for a specific duration or purpose, compensation will be deferred until that date)
What are the points about conflict of interest (agency relationship)?
1. Agent may not acquire a material benefit from a third party in connection with an agency transaction 2. When conducting P's business, an Agent may not self deal unless the P consents 3. Agent may not compete with P nor assist P's competitors while employed by P 4. Agent who is authorized to make certain transactions may not act on behalf of other party to make the transaction without informed consent 5. conflict of interest rules do not continue after agency ends...
What does an agent's duty of loyalty entail?
1. Agent must avoid conflicts of interests with the P 2. Agent must not disclose confidential info
Winding Up Rules
1. Any partner who has not wrongfully disassociated may perform winding up 2. They are entitled to reasonable compensation for W-U services 3. In addition to usual share of the profits
Creation of Partnership Rule
1. Association of two or more persons (note: no person may be *forced* to be a partner of another person) 2. Carrying on a bizz 3. co-ownership (share profits & management) (sharing profits is the most imp and then sharing mgmt is second most imp) 4. For Profit (the partners can lose money and still qualify as a partnership as long as the intent was to make a profit)
What are the formalities that an agency requires?
1. Capacity (P must have full capacity, and A must have at least minimal mental capacity) 2. Consent (of both parties) 3. Writing (only if required by statute of frauds)
An agent has several duties to its principal. The main duty is the fiduciary duty - what are the subsets of the fiduciary duty?
1. Duty of Loyalty (avoid conflicts of interest- does not continue after agency ends & not disclose confidential information (continues after agency ends) 2. Duty of Reasonable Care (paid A must act with care, competence, skill normally exercised by A in similar circumstances) 3. Duty to disclose (A must disclose to P all material facts pertaining to the agency) 4. Duty of Segregation (not mingle the principal's property with the agent's property or anyone else's, and keep accounts of the principal's money and other property)
What are the duties of principal to an agent?
1. Duty to compensate agent at a reasonable rate 2. Duty to Cooperate: not undermine A's ability to complete the req tasks 3. Duties of Reimbursement (reimbursement of any $ that the A spends on P's behalf) 4. Duties of Indemnity (indemnity is promised by the principal to ensure the A for losses that should be born by P)
Describe the two methods to ratify (agency law)
1. Express (by express statement/ for ex: states orally) 2. Implied: through conduct of P including acceptance of transaction benefits, silence (if there is a duty to disaffirm) & failing to sue on the transaction)
What are the duties part of Fiduciary Duty of Partners to PS and each other?
1. Fiduciary Duty 2. Adverse Interests/ No secret profits 3. Not to compete 4. To serve 5. Of Care 6. To act Within Actual Authority 7. To account 8. Of confidentiality
What are the events causing non wrongful dissolution...?
1. When a PS term expires 2. When PS has completed the undertaking for which it was created 3. All PS agree 4. Event occurs in PS agreement that leads to dissolution 5. When the bizz of a PS is unlawful
An agency may be terminated by an act of the parties or by an operation of law. What are the reasons why an agency may be terminated by act of the parties?
1. at a time or upon the happening of an event stated in the agreement or reasonable time 2. when a specified goal has been accomplished if the agency was created to accomplish a specified result 3. At the option of either party Revocation: P does it Renunciation: A does it 4. By mutual agreement (they have the power to to terminate but no right to do so)
What are the reasons that would cause an agency to be terminated by operation of law?
1. it's reasonable to believe P wouldn't want A to act further or the responsibilities of the A have become illegal 2. Death of individual P or A/ OR P has permanent loss of capactiy 3. Cessation of existence/ suspension of power of P/A that is not an individual (ex: corporation)
When is it wrongful for a partner to disassociate? aka what are the rules
1. when in breach of the ps agreement or 2. if the ps is for a definite term and the partner withdraws, is expelled, or becomes bankrupt before the end of the term
Test for Undisclosed P
3RD PArty 1. lacks knowledge or reason to know of P's existence AND 2. lacks knowledge of reason to know of P's identity 3. cannot refuse to perform under a K for an undisclosed P unless the K prohibited undisclosed P
Which of the following is classified as termination by "operation of law?" A) Bankruptcy B) Lapse of time C) Fulfillment of purpose D) Mutual agreement by the parties
A
Which of the following is not a consequence of purported partners? A. PP has unlimited liability B. PP does not share profits or mgmt C. PP does not owe fiduciary duty D. PP does not own bizz
A (they are liable for K that are entered into in reliance upon the appearance of PS)
What does the PS duty to act within your actual authority say?
A Partner must not exceed their actual authority given to them in the PS agreement (if no agreement, authority normally held by Ps in their position) If a Partner violates this, they will be liable for any losses that result.
Test for Unidentified Principal
A Principal is unidentified when a 3rd Party: -knows or has reason to know A is acting for a principal, BUT -lacks knowledge or reason to know P's identity
Duty to Account Partnership Rule?
A partner's duty to tell his partners how he has used PS funds and property 1. P may not misappropriate a bizz opportunity in which the partners had an interest or expectancy 2. Partner must keep records and make records available to the PS 3. Personal use of ps resources is theft
What is the test for Respondeat Superior? Is there an additional test that goes along with this concept?
A principal who is an employer is liable for torts committed committed by agents: 1) Agent must be an employee AND 2) who commit tort while acting within the scope of their employment * Scope of Employment Test: 1) it was the kind of activity that employee was employed to perform 2) occurred roughly within working hours 3) occurred substantially within work location 4) motivated, at least in part, by purpose of serving employer
What are the two types of authority?
Actual Authority (express & implied) and Apparent Authority
When an Agent has Actual Authority, who is liable when the principle is UNDISCLOSED? What about when the agent has Apparent Authority?
Actual: P and A are liable Apparent: Impossible
A two party relationship where agent is authorized to act on behalf of and under the control of the principal
Agency
What does the agency confidentiality rule entail?
Agents may not disclose confidential information of a Principal for agent's purpose or that of a third party. -confidentiality rule continues after the agency ends -confidential facts include customer lists, tech secrets, trade secrets (facts unavailable to public)
Which type of authority is this? Principal's manifestations cause a THIRD PARTY to reasonably believe that the A is authorized to act a certain way.
Apparent Authority
Rule for Apparent Authority
Apparent authority: authority created based on: -manifestations by the P to the 3rd Party, that -cause 3rd Party to reasonably believe that an A has such authority It is based on what the P tells the 3P (either through communication or manifestation). This can take many forms, including acquiescence in A's behavior (to allow to happen/even by not taking action). Agent cannot give themselves AA.
An agent's liability to bind his principal and affect his legal actions
Authority!
Creature of Statute refers to which corporate entity? A. Sole Prop B. Corporation C. Partnership D. LLC
B &D
Which of the following is incorrect when an agency terminates? A. Agent loses actual authority B. Agent loses apparent authority C. Apparent Authority is retained until 3P receives notice D. Apparent authority is retained until it is no longer reasonable for 3P to assume apparent authority
B (Agent may maintain apparent authority because it's from the perspective of 3p...so until, the 3p receives notice or it's no longer reasonable for them to assume apparent authority)
Which of the following would not qualify as partnership capital/contribution? A. Josh contributes $3000 to his bizz. B. Liz takes out a loan of $500 for the bizz. C. Josh generates income of $300 for the bizz. D. Liz purchases a flat screen tv for the bizz.
B (loans by partners are not capital! They are liabilities of the PS)
Duty of Care Partnership Rule
Business Judgement Rule: The courts will defer to the judgement of management unless there is a showing of bad faith, fraud or breach of fiduciary duty
Apparent agency is also known as __________ A) Agency by equity B) Agency by expectation C) Agency by estoppel D) Agency by inference
C
Non Wrongful Dissasociated Partners will receive their partnership share within how many days? A. 90 B. 170 C. 120 D. 50
C
Which is of the following is incorrect regarding partnerships? A. No corporate formalities B. Flexible Structure C.limited liability D. 2+ is usually the default partnership setting
C. There is unlimited liability
What does the duty of Adverse Interests/ No secret Profits say / what is the test?
Conflict of Interest where P profits personally rather than as a partner Test: 1. P deals in good faith 2. makes full disclosure of all material facts affecting the transaction and 3. obtain approvals from the partners
Which of the following is incorrect about sole proprietorships? A. Not a legal entity - cannot sue or be sued B. There are no formalities C. If you go out and do anything without filing - you might be a sole prop. (default setting) D. Unlimited liability - Owner bears some risk of the loss
D
Which of the following is not an occurrence that will terminate an agency relationship? A) Death B) Insanity C) Bankruptcy D) All of the above occurrences will terminate an agency relationship
D
Which type of principal is the phrase "the agent is a conduit of liability" applicable to? A. Undisclosed B. Unidentified C. Nonexistent D. Disclosed
D (because third party knows that A is acting on behalf of P, then liability flows from the A to the P)
Change in the relationship of the partnership caused by any partner ceasing to be associated in the carrying on of the business
Disassociation
When the winding up process begins
Dissolution
If a partnership is absent an agreement of how to deal with partner's interest in the PS, how do they handle it?
Each partner is entitled to an equal share of the profits and must contribute towards losses in property to his share of profits
What are the two types of actual authority?
Express Authority - actual authority that the P has communicated to the Agent. (it is usually in writing) Express Authority is effective even if granted mistakenly or by misrepresentation Implied Authority - Agent has implied authority to act in a way that the agent reasonably believes the principal wants him to act, usually as a result of P's actions! Implied authority cannot contradict the principal's express statements.
Kiko hires a tree remover expert and tells him that he is authorized to remove the giant tree that is blocking her driveway. What kind of authority has she given the tree remover expert?
Express Authority! Express authority is one subset of actual authority. It is actual authority that the principal has communicated in detailed language. it is usually in writing. Express Authority is effective even if granted mistakenly or by misrepresentation
Describe Partner's Actual authority (the two types...)
Express- created by either a verbal or written agreement. P can expand, limit or eliminate authority. Implied - P has this type of authority to act consistently with authority that P in that type of bizz generally has. *implied authority cannot contradict express authority*
T/F: A person may not be a partner with their spouse.
False
T/F: A principal has duty to indemnify losses to an agent even if the losses resulted from an unauthorized transaction or A's sole negligence/fault.
False
T/F: Even if there is no term specified, non wrongful dissasociated partners may not force a partnership bizz to wind up.
False ( if no term is specified, yes they can)
T/F: Jody wrongfully disassociated from Oreos Partnership on October 19th. Oscar learns of this and wants to disassociate as well. His disassociation will be wrongful.
False (90 days after another P wrongfully dis. -> it is ok for another P to disassociate)
T/F: Apparent authority is based on what the principal tells the agent
False (EXPRESS AUTHORITY)
T/F: If express authority is granted mistakenly or because of misrepresentation, it is not effective.
False (Express Authority is effective even if granted mistakenly or by misrepresentation)
T/F: Parties must know that they are creating an agency relationship in order for an agency to be formed.
False (If facts establish an agency, parties don't need to know an agency may be present. this applies even if parties didn't intend to create an agency)
T/F: Gary and Spongebob are partners in their PS bizz. In their PS agreement, they do not disclose how they will share losses. Gary contributes 80% of the work while Spongebob contributes 20% of the work. In the PS agreement they do disclose that profits will be split equally according to each P's contributions. Since no loss agreement was specified, Gary and Spongebob will recognize losses equally.
False (Since there was no loss agreement, but there was a profit agreement, Ps will follow the profit rules, so Gary will receive 80% of profits and Spongebob will receive 20% of the profits. LOSSES FOLLOW PROFITS BUT PROFITS BUT DONT FOLLOW LOSSES)
T/F: Josh, a partner in a stock brokerage firm, embezzles a customer's securities and funds. Josh will be the only one held liable in the PS because he is the one who participated in the embezzlement.
False (all of the Ps will be liable because this was a tort that was committed within the ordinary course of business - more specifically it was a breach of trust)
T/F: A valid Agency relationship consists of the following: -consent of P & A -consideration is required -no writing is required, the agency may be created verbally
False (consideration is not required - ex: gratuitous agent)
T/F: L and Light are partners who conduct a bizz together. They did not create an agreement for how to distribute profits and losses but Light contributes 60% while L contributes 40%. Light is entitled to 60% of the profits and L is entitled to 40%.
False (if absent an agreement, partners must share profits equally according to the number of partners and not according to their capital contributions)
T/F: Agents are liable when there is a disclosed P.
False (not liable! no matter if there is actual or apparent authority - agents will not be held liable because third parties are aware that A are acting on behalf of someone else, therefore they rely on the P's ability to perform the K)
T/F: If an agent terminates the agency, it is called revocation.
False (renunciation)
T/F: A gratuitous agent usually has the same fiduciary duty as a paid agent and needs to perform as promised.
False (they do have the same fiduciary duty but they don't need to perform as promised. This means, that they can terminate the agency without incurring liability. However, a gratuitous agent is liable for failing to perform as promised when her promise causes the principal to rely upon her to undertake certain acts, and the principal suffers losses because he refrained from performing those acts himself.
T/F: Gratuitous Agent do not have the same power to bind to Principal
False (they do!)
T/F: Conflict of Interest agency rules continue after the agency ends.
False (they don't continue)
T/F: When an agent lacks authority, a principal cannot bind themselves to a contract.
False. (even if they lack authority, a P may bind herself by later ratifying a K made by an unauthorized agent)
Principal holds agent in a position of trust and confidence. Duty of loyalty, obedience to reasonable directions and reasonable care under the circumstances, including the duty to disclose all relevant information.
Fiduciary Duty
Agent must use this entrusted power and property in best interest of the principal
Fiduciary duty
A construction Project supervisor is most likely which type of agent?
General Agent (hired continously to conduct a series of transactions)
This agent is continuously employed to conduct a series of transactions. EX: manager at McDonald's
General agent
Partnerships - Intent of the Parties... what does our textbook say about this?
If it is their intent as evidenced by their relationship with others - not their stated intent that determines whether PS has been created... remember - ACTIONS SPEAK LOUDER THAN WORDS
What is the test for agency's existence?
If parties' written or spoken words or other conduct indicate an agreement that one person is to act on behalf of another, the relationship exists an agency requires: capacity (P must have full capacity and A must have minimal) Consent of both parties Writing (only if required by statute of frauds)
Which corporate structure is only limited to professionals (ex: accountants, lawyers, architects...etc)
LLPs
What are the default rules for a PS Disagreement?
Majority Vote -1 Vote Per partner regardless of their PS interest (PS agreement may create classes of P's with differing voting rights) -2 Management - generally each partner has the authority to manage
Generally, a ________ __________ controls ordinary business decisions in a partnership transaction. Any act not in the ordinary course of business requires a _________ __________________ (different term).
Majority Vote; Unanimous Agreement
If Kay transacts with Mary (who she believes is partners with Gal), and Mary has misled Kay... who will be liable?
Mary
When there is an undisclosed principal, can the third party escape liability on the contract?
No. the 3rd party is liable and cannot escape liability
What does the partnership duty not to compete say/test?
Not to take bizz away from the PS unless permission is obtained from the other partners... - P deals in good faith - makes full disclosure of all material facts affecting the transaction and -obtains approval from other partners
What term does this describe? When Corporate formalities are not met, individuals can disregard the limited liability aspect of corporations and grab at specific individuals
Piercing the Corporate Veil
What does the PS duty to serve say?
Ps must work full time for the PS. They must run the daily bizz operations. Silent Partners are ok. Breach of duty to serve will result in charges to hire someone to do their part
PS Apparent Authority Rule
RUPA provides that: 1. The act of any P 2. for carrying on in the ordinary course of the partnership bizz/ez of the kind carried out by the partnership 3. binds the partners unless 4. partner had no authority to act in that instance AND 5. the 3p dealing with the partner knew or received notice that the partner lacked authority (ex... filing statement of PS authority)
Which method does this describe? An agent "purports" (appears or claims to be) to act on behalf of P without any authority at all! but the P subsequently validates the act and becomes bound
Ratification
Under this doctrine, a principal who is an employer is liable for torts committed by agents
Respondeat Superior
Ratification gives a transaction a ___________________ effect.
Retroactive
These types of partners merely contribute capital to the partnership. ___________ partners do not have the duty to serve, but they have the same liability for partnership debts as any other partner.
Silent
This agent is hired to conduct a single transaction or a small, simple group of transactions
Special Agent
A company hires Moss Adams who uses an accountant to prepare their tax return. The accountant is an example of a ___________.
Subagent
When there's a question about whether property is partnership or independent property, what does the law say to look at?
The Intent of the Parties and who Purchased it. Written agreements are always recommended!
What does the duty to disclose (agency) state?
The duty is one of the subsets of the general fiduciary duty that an agent owes to a principal. A must disclose to P all facts A knows or has reason to know when A knows or should know that the facts are material to the agency
What does the duty of segregation (agency) state?
The duty is one of the subsets of the general fiduciary duty that an agent owes to a principal. an agent cannot comingle p's property with his own
What does the duty of reasonable care state? (agencies)
The duty of reasonable care is one of the subsets of the general fiduciary duty that an agent owes to a principal. This duty states that a paid agent must act with care, competence, skill normally exercised by an agent in a similar circumstance (real estate agents, attorneys and other professionals...)
What does agency law refer to when they talk about nondelegable obligations?
There are some duties that must be done personally and not delegated onto an agent. For example: signing a will, making statements under oath, voting, contract for P's personal services
Peter (a partner) leases appartments through his partnershio business. His daughter, Sheila, needs a place to live for six months so Peter lets her live in one of the appts rent free. Is this acceptable? Will Peter be liable? What does this action breach in PS law?
This breaches the duty to account - PS law.
What is agency law's most important function?
To stimulate commercial activity
T/F: A subagent is also the P's agent.
True
T/F: An agent cannot give themselves actual authority.
True
T/F: An agent's duties to a subagent's are the same as a principal's duties to an agent.
True
T/F: If an agent breaching fiduciary duty, then the principal can terminate the agency and recover damages from the agent.
True
T/F: If apparent, express or implied authority is present, then the P will be bound to a contract.
True
T/F: Linda makes a public representation that she is a partner of another. If a third party relies on that representation, Linda will be held liable even if she is not aware of the reliance.
True
T/F: The confidentiality rule for an agency continues after the agency ends.
True
T/F: A business may carry on without the dissociated partner.
True (dissasociation does not mean dissolution and winding up)
T/F: A minor can be an agent.
True (only minimal capacity is required to be an agent)
T/F: A person with no mental capacity cannot be an agent.
True (this is an exception to the capacity rule)
T/F: If a partner retires from a PS that is at-will (has no term), it is not wrongful disassociation.
True - withdrawal at no term is ok
T/F: An agent's implied authority cannot contradict the p's express statements.
True!
What are purported partners?
Two persons may not be partners but may APPEAR to be partners to a third person
When an Agent has Actual Authority, who is liable when the principle is UNIDENTIFIED? What about when the agent has Apparent Authority?
Under both actual and apparent: both P and A are liable on the contract. A is liable unless A and the unidentified P agree otherwise
uppose that Carroll, Melton, and Ramirez are partners and that they agree that Carroll will be the only purchasing agent for the partnership Discuss whether there is apparent, express and implied authority and to which extent...
Unless the agreement is communicated to 3P whom sell goods to the PS, Melton and Ramirez will have Apparent Authority to purchase. Melton and Ramirez do not have express authority to purchase goods. There will also be no implied authority because implied authority cannot contradict express authority.
Orderly liquidation of PS assets and distribution of proceeds to those having claims against the PS
Winding Up
Rule for Winding Up Apparent Authority?
Winding Up Partner has Apparent Authority unless notice is given to 3P to whom the PS has previously done business
Implied Winding Up Authority Rule? (aka what are the powers that the WU Partner has?)
Winding up partner has *the power to* do those acts appropriate for winding up the partners business. 1. to engage in any transaction necessary to liquidate assets 2. to maintain and preserve assets or to enhance the value for sale 3. to complete executory contracts 4. borrow money to do any of the above
In an LLP, innocent partners will not face liability for the professional negligence of another partner. They will also not be held liable for the debts of the partnership itself (lease payments, bank loans, etc...) Which two individuals will face unlimited liability in an LLP?
Wrongdoing partner and supervisor partner
T/F: Mr. Salt and Mrs. Pepper tell each other that they are not partners but they engage in a profit sharing bizz together. Are they partners?
Yes (ppl can be partners even if they tell each other that they are not partners)
A(n) __________ is an agreement that does not specify the objective or duration of the partnership A) Partnership at will B) Partnership by decree C) Unlimited partnership D) Durable partnership
a
Test for a Disclosed Principal
a P is disclosed if a 3rd Party knows or has reason to know: -The A is acting for P AND -The P's identity
what is actual authority?
authority that is based on what the P tells the A. It is what the A reasonably believes. consent must be communicated to the agent.
Which of the following is not a characteristic of a corporation? A) Separate legal entity B) Status as a "legal person" and "citizen" C) Creature of the state D) Unlimited liability of shareholders Which of the following is not a characteristic of a corporation? A) Non-transferability of corporate shares B) Perpetual existence C) Centralized management separate from owners D) Corporate liability for torts and crimes of agents
d; a
Like apparent authority, purported partners is a _______ concept. It is based upon reasonable reliance of a third party's POV of the representations that two ppl are partners.
estoppel
What does the fiduciary duty of PS say?
highest duty of royalty/ must act with good faith and fair dealing. Trust, confidence and honest
When is a principal bound by a subagent's acts?
if an agent has authorized the subagent to act, and the act is within the authority granted by P, the P is bound by SA's acts
What are the general rules for Partnership torts and crimes - negligence & intentional torts?
negligence: partners and partnerships are held liable (because it's within the ordinary course of bizz) intentional: partners and partnerships usually not liable (b'c it's not within ordinary course of bizz)
What does the phrase economies of scale mean in agency law?
one Principal can have numerous agents generating business or entering contracts
What is ratification mean in the partnership context?
partners accept an act of a partner who had no actual or apparent authority to do the act when it was done
