Agency & Partnerships – Key Exam Concepts

These flashcards present question-and-answer prompts covering the major doctrines, default rules, duties, liabilities, and formation requirements for Agency and Partnership law as discussed in the lecture notes.

On an agency essay, what two issues should you always analyze first?

(1) Whether an agency relationship exists and (2) whether the principal is liable for the agent’s acts.

What are the three elements that create an agency relationship?

Principal manifests assent; agent acts on principal’s behalf and subject to principal’s control; agent consents.

Who is typically the principal and who is typically the agent in exam fact patterns?

The principal is usually an employer (corporation or partnership); the agent is usually an employee.

When is a principal contractually liable for an agent’s act?

Only when the agent acted with some form of authority (actual, apparent, or through estoppel/r​atification).

Define express actual authority.

Authority expressly given to the agent by the principal’s direct statements.

Define implied actual authority.

Authority the agent reasonably believes she has based on the principal’s words or conduct and the surrounding circumstances.

What is apparent authority?

Authority arising from the principal’s manifestations to a third party causing the third party to reasonably believe the agent may act for the principal.

Can there be apparent authority if the principal is undisclosed?

No. Apparent authority requires the principal’s manifestations to the third party.

What is agency estoppel?

A principal is prevented from denying liability when he failed to use reasonable care to inform a third party that the agent lacked authority.

How does a principal revoke actual vs. apparent authority?

Tell the agent to revoke actual authority; notify the third party to revoke apparent authority.

List the four requirements for a valid ratification.

(1) Principal ratifies the entire contract; (2) principal and third party have capacity; (3) ratification occurs before the third party withdraws; (4) principal knows all material facts.

What are the requirements to form a general partnership?

Association of two or more persons to carry on a for-profit business as co-owners and sharing of profits—no intent, formal agreement, or writing required.

Does repayment of a loan from profits automatically create a partnership?

No, sharing profits to repay a loan alone does not make the lender a partner.

Name the three fiduciary duties partners owe the partnership and each other.

Duty of loyalty, duty of care, and obligation of good faith and fair dealing.

What three actions violate a parteners duty of loyalty?

Competing with the partnership, advancing an adverse interest, or usurping a partnership opportunity.

May a partner take a business opportunity the partnership declined?

Yes, after first offering it to the partnership and the partnership validly declines.

What conduct breaches the duty of care?

Grossly negligent, reckless, intentional misconduct, or knowing legal violations.

What is the default rule for sharing profits and losses absent agreement?

Profits and losses are shared equally among partners.

Can a partner transfer her right to distributions? What is the effect?

Yes. The partner remains a partner with all other rights; the transferee only receives distributions and may seek judicial dissolution.

Who owns property acquired by the partnership and how must it be used?

The partnership owns it and it must be used for partnership benefit.

What are the default management rights in a partnership?

Each partner has equal management rights; a majority decides ordinary matters; unanimous consent is required for acts outside the ordinary course.

What access to records must a partnership provide partners?

Full access during business hours.

When does a partner have apparent authority to bind the partnership?

When acting in the ordinary course of partnership business and the third party reasonably believes the partner is authorized.

When is a partnership liable for a partner’s tort?

For torts, including fraud, committed in the ordinary course of partnership business or with authority.

Explain partners’ liability for partnership obligations.

Partners are jointly and severally liable, but a creditor must first exhaust partnership assets before reaching a partner’s personal assets.

What is dissociation and does it always cause dissolution?

A partner’s withdrawal from the partnership; it may but does not necessarily cause dissolution.

Describe the priority of distributions during winding up.

Partnership assets pay creditors (including partner-creditors) first, then any remainder is distributed to partners.

What filing is required to create an LLP and what liability shield results?

A statement of qualification must be filed; thereafter partners are not personally liable for LLP obligations (except their own torts).

If a general partnership becomes an LLP, who is liable for pre-transition debts?

The LLP is liable; partners remain liable for debts incurred while it was a GP; new partners are not liable for pre-transition debts.

How is a limited partnership (LP) formed and what partners are required?

By filing a certificate with the state; it must have at least one general partner and one limited partner.

To what extent is a limited partner liable for LP obligations?

Only up to the amount of the limited partner’s contribution, unless she participates in control and a third party reasonably believes she is a general partner.

Does removing a general partner constitute “control” for limited-partner liability?

No, removing a general partner alone is not control that triggers liability.

Are partners agents of an LLP?

Yes, each partner is an agent of the LLP.

What happens if parties attempt to form an LLP but fail to file?

They likely have a general partnership with full personal liability.

In agency, what does Exam Tip 2 instruct about theories of authority?

Discuss all theories, but spend more time on the ones relevant to the facts to earn full credit.

In the estoppel example with co-agents A and B, why could principal P be estopped?

Because P knew B was falsely stating A’s authority and failed to inform the third party, leading to justifiable reliance.

Why can’t an undisclosed principal rely on a secret limitation of an agent’s authority?

Because the principal may be estopped—third parties can rely on the authority a disclosed principal would normally grant in the circumstances.

What is the customary employment term in the restaurant industry relevant to agency questions?

Employment is usually at-will; a long-term contract (e.g., 20 years) exceeds a restaurant manager’s customary authority.