Study your flashcards anywhere!

Download the official Cram app for free >

  • Shuffle
    Toggle On
    Toggle Off
  • Alphabetize
    Toggle On
    Toggle Off
  • Front First
    Toggle On
    Toggle Off
  • Both Sides
    Toggle On
    Toggle Off
  • Read
    Toggle On
    Toggle Off

How to study your flashcards.

Right/Left arrow keys: Navigate between flashcards.right arrow keyleft arrow key

Up/Down arrow keys: Flip the card between the front and back.down keyup key

H key: Show hint (3rd side).h key

A key: Read text to speech.a key


Play button


Play button




Click to flip

72 Cards in this Set

  • Front
  • Back
What is an Agency relationship?
It is the legal relationship whereby an agent is authorized to represent a principal in business dealings with third parties.
How is an Agency relationship created?
For a valid agency relationship to exist there must be:
1. Capacity: P must have full contractual capacity and A must have at least minimal mental capacity;
2. Consent of both parties;
3. Writing if required by SOF.
4. No consideration required.
What are the modes for creating an Agency relationship?
May be created by:
1. Acts of the parties - by agreement (actual authority), holding out by the P (apparent authority); or
2. Operation of law - Estoppel, statute.
What duties does an Agent owe to the Principal?
In addition to express contractual duties, A owes P strict fiduciary duties, even if agency is gratuitous:
a. Duty of loyalty (must disclose all material facts & get permission)
b. Duty of reasonable care (depends of any special skills A may have)
c. Duty of Obedience (must follow P's reasonable instructions)
What duties does a Principal owe to the Agent?
All duties imposed by their contract, reasonable compensation, reimbursement for expenses and indemnify.

If the agency agreement is silent regarding compensation, the A is entitled to reasonable compensation.
What are the Agent's remedies for Principals Breach of Duties?
1. Contractual remedies
2. Possessory lien
What are the Principals remedies for Agents Breach of Duties?
1. Contract remedies (if compensated)
What is the relationship of Principal and Third Party (TP) assuming Agent had actual authority or a substitute for it?
1. P is always liable to TP;
2. TP is always liable to disclosed P (TP knows P's identity) or to a partially disclosed P (TP knows P exists, but doesn't know P's name).
3. TP is liable to undisclosed P (TP doesn't know a P exists) UNLESS:
a. holding TP liable would unduly burden TP; or
b. P fraudulently concealed her identity; or
c. TP was bargaining for A's personal skills/reputation.
Hypo: Katie and Tom are getting married and she hired Emeril to cater the wedding. In fact, Emeril was acting on behalf of Peg Bundy. Katie had no clue! Does Peg have any rights against Katie? Would Emeril be liable to Katie?
Answer: NO
TP - Katie
A - Emeril
P - Peg Bundy

GR: TP is liable to an undisclosed P unless TP was bargaining for A's person skills or reputation.

Here, Katie would be liable to Peg because he is an undisclosed P. However, Katie is not liable to Peg because she bargained for Emerils personal skill as a world famous chef.

GR: A is not liable to TP unless P is undisclosed.

Here, Emeril would be liable to Katie b/c Peg was an undisclosed P.
What is the relationship of Agent is Third Party?

Hint: A is just an intermediary
1. TP is not liable to A UNLESS A's power is coupled with an interest; or
2. A is not liable to TP UNLESS:
a. P is undisclosed or partially disclosed; or
b. A breached her warranty of authority (said she had authority when she didn't)
State the GR for liability in Contract.
Principal becomes liable to Third Party through the actions of his Agent if:
1. A and P both consent; AND
2. A is subject to P's control
What is the analysis to determine whether an Agent's acts will bind the Principal in a contract liability setting?
1. was there express or implied actual authority (authority the A reasonably believes she possesses based on her dealings with the P)?
If yes --> P is bound
If not, then:

2. was there apparent authority (authority the TP reasonably believes the A has based on the TP's dealings with the P)?
If yes --? P is bound
If not, then:

3. did the P ratify the contract after the A entered into it on the P's behalf and before the TP withdrew?

If yes --> P is bound
If no --> P is not bound
What is actual authority?
Actual authority is authority that the agent reasonably believes she possesses based on the principals dealings with her. It may be express or implied.

Express: orally said or which is contained in the agency agreement. It's effective even if it was granted mistakenly or b/c of misrepresentation.

Implied: implied authority is that which the A reasonably believes she has as a result of the P's actions.
If you have determined that actual authority was created, you must then consider whether that authority has been terminated. How may termination occur?
1. lapse of a specified or reasonable time;
2. happening of a specified event;
3. change in circumstances (subject matter is destroyed);
4. A's breach of fiduciary duty;
5. either party's unilateral termination;
6. death, incapacity or bankruptcy, unless the power is irrevocable;
7. when A acquires an interest adverse to P's (joining P's competitor);
8. When P says so unless the power's irrevocable (coupled with an interest)
note: revocation is effective upon receipt.
What is Apparent Authority? How does it arise?
Apparent authority arises from reasonable beliefs of third parties. P leads TP to mistakenly believe A has authority. Apparent authority can linger in even after actual authority terminates.

If a principal directly or indirectly holds out another as possessing certain authority, thereby inducing reasonable reliance by others on that authority, the person so held out has apparent authority, even though as between A and P no such authority has been granted.
What is the key difference in apparent v. actual authority?
Apparent: discuss what transpired between the P and TP

Actual: discuss what transpired between P and A
How do you terminate apparent authority?
P must send the TP either actual or constructive notice of the termination.

Also death or incompetency of the P terminates all authority of the agent w/o notice to either the A or TP.
Define Ratification and the requirements for it.
Defined: An agency relationship is created by ratification when an A purports to act on the behalf of the P w/o any authority at all, but the P subsequently validates the act by expressly affirming the contract, accepting the benefit of the contract; or suing TP on the contract, and becomes bound.

1. P must have knowledge of material facts;
2. P must accept entire transaction;
3. P must have contractual capacity both at time of ratification and time of original contract because ratification is retroactive.

note: since ratification is retroactive, we must be concerned about the intervening rights of a BFP who would be hurt by ratification.
What is the difference between ratification and adoption?
Adoption is not retroactive.
Summary Card: Liability in Contract
Principal: bound if valid authority existed (actual, apparent, by ratification)

Agent: bound unless P's existence and identity are disclosed.

Third Party: bound to P if valid authority existed; bound ti A if P partially disclosed or undisclosed and A enforces contract, but P entitled to contract benefits.
What is the general rule for tort liability - respondeat superior.
The doctrine of respondeat superior imputes joint and several liability to the employer-principal for torts committed by the employee-agent within the scope of the employee's employment. An employer may be liable for her own negligence in hiring or retaining and employee or in supervising or entrusting an employee with specific responsibilities.
What is the analysis to determine if the Principal is liable for the Agents torts?
1. Is the servant an employee or an IC (look chiefly to the extent of the P's control over the manner and method of the S's performance);

2. If there is a lot of control and we determine that S is an employee then we discuss whether the act was within the scope of employment (was the employee where she was supposed to be (frolic or detour), doing what she was supposed to be doing, with the purpose of the employer in mind)?
If Yes --> P is liable
If No --> P is not liable

3. If we determine that there was no control over S, then we discuss whether S was an IC. (was either the activity involved inherently dangerous, the duty non-delegable, or the P negligent in selecting the IC?
If Yes --> P is liable
If No --> P is not liable
Is the Master liable for the servant's intentional torts?
Servant's intentional torts are outside the scope of employment unless:
1. force is used to further M's business (ex. bouncer);
2. M ratifies the use of force; or
3. M authorized S to commit the tort (ex. misrepresentation)
If servant commits a tort within the scope of employment, from whom can the third party seek recovery?
Both the employee and employer. Master and Servant are jointly and severally liable to Third Party (TP can sue S alone or M alone or join them both as D's, but is entitled to only one total satisfaction).
note: If TP releases S from liability then M is also released from liability.
Hypo: Domino's hired Dennis the Menace w/o checking his driving record. He had 2 DUIs. Drunk on a frolic, Dennis injures Mr. Wilson. Is Domino's liable? If so, on what theory?
GR: M is directly liable for its own negligence if M fails to train or supervise employees or fails to check an employee's criminal record or job history.

Here, Domino's is not vicariously liable for Dennis' negligence b/c he was on a frolic. BUT, Domino's is liable for its own negligence b/c he failed to check Dennis' driving record.
Agency Mini Review Card

Is P liable on a contract entered into by A?
Look for one of the following fact patterns:
1. Actual/apparent authority at time of contract, if not then,
2. Look to see if P ratified or adopted the contract.

Liability: P is liable to TP and TP is almost always liable to P. Generally, A is not liable at all.
Agency Mini Review Card

Is an employer liable for a tort committed by an employee?
Look for: tort committed by servant in scope of employment.

Liability: M and S are jointly and severally liable to TP.
General Partnership Defined
An association of two or more persons carrying on as co-owners a business for profit
To determine who is a partner, what factors should you consider?
1. Intent: but a court may find involuntary partnership to protect the interest of an innocent TP.
2. Control: the right of control may be enough even if control is never exercised (b/c owners usually have the right to control operations)
3. Capital: a capital contribution is not required to be a partner.
4. Profit: a person receiving a share of profits is presumed to be a partner (prima facie evidence)
Formation of a general partnership
1. Capacity
2. Partnership agreement can be express or implied
3. Writing is only required if the partnership agreement cannot be performed within a year
4. Formed for a legal purpose
5. Must have express or implied consent of all partners
If no partnership if formed, parties may still be liable as if they are partners under the partnership by estoppel (POE) doctrine. Explain.
When a person by words or conduct represents himself or permits another to represent him as a partner, he will be liable to third parties who extend credit to the actual or apparent partnership in reliance on the representation.

When a person hold another out as a partner, he thereby makes that person his agent to bind him to third parties.

note: POE applies only to contract claims NOT to TORTS!
What is partnership property?
Everything the partnership owns, including both capital and property subsequently acquired in partnership transactions. In determining what comprises partnership property, the controlling factor is the partners' intent to devote the property to partnership purposes. Some factors to consider are:
-who furnished the funds used to buy the property;
-how the property was used;
-who paid for repairs, maintenance, insurance;
-title to the property (not dispositive, since title to partnership property can be held in anyone's name-a partner's name or even a third party's);
-the relation of the property to the business
Rights in Partnership Property
GR 1: The partnership's rights in partnership property are unrestricted.
Ex. Partnership can pledge its interest in the property as collateral for a loan; a creditor of the partnership can attach the partnership's interest in the property.

GR 2: A partner's only right in partnership property is to use it for partnership purposes, unless the other partners consent.

GR 3: A partner has no rights in partnership property she can transfer b/c we don't want outsiders to be able to interfere in partnership affairs.
How is a partners interest in the partnership treated?
Definition: the right to receive a share of the profits and surplus.

GR: A partner's interest in the partnership may be attached by her judgment creditor, assigned, devised, or transferred, but that just redirects profits; it does not confer management rights or other attributes of ownership.

Partners interest is treated like personal property.
Sharing of profits and losses
Unless otherwise agreed, each partner shares equally in the profits and surplus remaining after all liabilities, including those to partners, as satisfied. Each partner must contribute to the partnership losses according to her share of the profits. Even if a partner does not bear a partnership loss, they are still liable to third parties.
GR: There is no right to remuneration for services rendered to the partnership absent an express or implied agreement to the contrary. However, a surviving partner is entitled to remuneration for services performed in winding up the partnership business.
All partners have an equal right to participation in the management of the partnership unless the partnership agreement provides otherwise. Majority number rules in voting.
Indemnification and Interest
A partner has a right to be indemnified by fellow partners for expenses incurred on behalf of the partnership.
Fiduciary Duties
Every partner is a fiduciary who owes the partnership a duty of care, a duty of loyalty, and a duty to render full information about the partnership on demand.
Admission of New Partners
Unless otherwise agreed, the admission of a new partner requires unanimous consent.

The new partner is liable for partnership debts incurred before his admission only to the extent of his capital contribution; he will not be personally liable. He will be equally liable for future debts.
Retiring Partner
A retiring partner remains liable for obligations arising while he was a partner unless there has been payment, release or novation. A retiring partner is also liable for acts done after retirement until he has given notice of his withdrawal.
Application of Agency Law to Partnerships
Every partner is an agent of the partnership for the purpose of its business. The act of every partner will bind the partnership and thereby bind the other persons.
How can actual authority be conferred on a partner?
A partner may have actual authority to bind the partnership. Actual authority may be conferred by:
1. the partnership agreement
2. majority vote of the partners in most matters; or
3. statute, which makes every partner a partnership agent for carrying on its business in the usual way (but can be negated by partners)
Even without actual authority a partner can bind the partnership because of her apparent authority. How is apparent authority created?
1. partners title;
2. the way the partnership has conducted business in the past; or
3. the way similar firms in the area conduct business
If there is no authority what should we look for?
Ratification or adoption
Exam Tip:
Actual and apparent authority for partnerships
As agents of the partnerships, partners have apparent authority to bind the partnership to any contract within the scope of the partnership business. If a contract is outside the scope of partnership business, the partnership generally will not be bound unless the partner has actual authority.
What type of liability do partners have on contract claims?
Joint liability. The third party must try to recover from from the partnership first (exhaust partnership resources) before resorting to partners.
What type of liability do partners have on tort claims?
Joint and several liability. Third party need not exhaust partnership resources first. If third party recovers from a partner then that partner has the right to be indemnified by the partnership and to get contribution from the other partners for their share of the loss.
Defined: Dissolution
Dissolution is a change in the relationship of the partners caused by any partner ceasing to be associated in the carrying on of the business.
What are the causes of dissolution?
Act of the partners:
-per partnership agreement
-mutual assent of partners
-expulsion of partner
-by will of partner (partnership at will can be dissolved at any time w/no penalty-most partnerships are at will so it's easy for a partner to walk away with no liability to the other partners for breach)
-accomplishment of a particular undertaking

Operation of Law:
-death of partner
-bankruptcy of partner

Decree of court:
-breach of partnership agreement by partner
-unprofitability of partnership
-misconduct of partner
-incompetency of partner
-incapability of partner
-circumstances rendering dissolution equitable
Winding up after dissolution
After dissolution, a partner has authority to wind up the partnership affairs. This includes only transactions designed to terminate business (old business - assigning claims; selling partnership assets; collecting debts due; paying off creditors; etc.)

A partner is individually liable for any new business after dissolution - entering into new contracts; extending time on a debt; etc.
New Business: Is the partnership liable on the obligation?
1. a partnership may continue to have apparent authority to bind the partnership after dissolution even if he's not winding up partnership affairs.

2. But the partnership can avoid liability by providing notice of dissolution to potential creditors who were unaware of the dissolution.
What type of notice is required for dissolution?
Prior creditors and those who have extended credit to the partnership in the past: personal notice

Others who knew of the partnership before dissolution: newspaper notice

Those who did not know of the partnership before dissolution: any notice at all
What happens if the partnership fails to give notice of dissolution?
Failure to give notice binds partners personally to third parties who, while unaware of the dissolution, extended credit to the partnership.
Are partners liable on post-dissolution obligations?
Yes. Partners have the same post-dissolution obligations as pre-dissolution.
Can a partner get contribution on post-dissolution obligations?
GR: No right to contribution
Exception: where it may be hard to learn of the dissolution.
Hypo: Phoebe bought supplies for RPM after RPM's five-year term was up. Can Phoebe get contribution from the other partners if she pays the debt?
No. Phoebe is presumed to know when the term was up.
Dissolution of partnership assets after distribution.
1. to third-party creditors
2. to partners for their advances
3. to partners for contributions to capital
4. to partners for profits
What happens when partnership assets are insufficient to cover liabilities post dissolution?
They are deemed partnership losses borne by the parters unless otherwise agreed.
Who has priority over partnership assets: the partnership creditors or the partners personal creditors?
The partnership creditors have priority on partnership assets.

Ohio Law: separate creditors have priority on separate property

Fed. Law: both sets of creditors have equal claims on separate property.
How can a partners business continue after dissolution?
1. all partners who have not wrongfully dissolved must consent.

2. creditors of dissolved partnership automatically become creditors of the new partnership.

3. continuing partners must compensate the withdrawing partner
a. if the partners agree, the withdrawing partner gets the agreed amount
b. if they can't agree, he gets his interest in the partnership on the date of dissolution plus either a market rate of the interest or a pro rata share of profits.

4. A partner who wrongfully dissolves is not entitled to compensation for partnerships good will and is liable to the other parties for breach of contract.
Tort liability in LLP
1. a partner in an LLP is not liable for torts of other partners or LLP employees unless she was directly supervising the tortfeasor.

2. A partner in an LLP is still liable for his own torts, malpractice, etc.

3. The LLP itself if liable for torts committed in the course of its business.
Contract liability in LLP
1. Partners in an LLP are jointly liable on contracts

2. The LLP itself is liable for contracts (assuming authority or substitute)
Formation and Maintenance of LLP
1. must register with SOS and pay specified fee.
2. must include at end of its name LLP notice.
3. must file biennial report with SOS, or risk having its registration cancelled (which means it will be treated as general partnership.
LP Defined
A partnership with one or more general partner (generally liable for firm debts) and one or more limited partners (liability limited to their investment)
Nature and Formation of LP
1. must file with SOS and pay fee
2. name must contain LP notice
3. general partnership law governs, except where the LP statute is inconsistent.
What is the GR and exception for liability of LP's?
GR: Limited partners have limited liability

Exception: where a limited partner takes part in "control." The LP statute does not say what "control" is, but does provide certain "safe harbors."
What is the scope of liability for LP's?
A limited partner is liable only to persons who transact business with the LP with actual knowledge of her participation in control (reliance test)
What are some ways in which a limited partner can become liable for LP debts?
1. If a limited partner knowingly lets her name be included in the LP's, she's liable to creditors who did not know she was just a limited partner.

2. If no certificate is filed, limited partners are liable like general partners. But can avoid future liability by filing a certificate or withdrawing from the LP and notifying the SOS within a reasonable time after discovery.
Distribution of assets after dissolution of LP.
1. all creditors, including partners who are creditors, are paid off first.
2. limited partners are then repaid their capital contributions.
3. Whatever is left (profits) is split according to the terms of the LP agreement.
Formation of an LLC
1. must file articles of organization, have registered agent.
2. name must contain phrase LLC
3. professionals can form PLLC, but all members must be licensed in Ohio
4. profits/losses split per OA; if not specified, in proportion to capital contributions
5. pass through taxation, like a partnership, unless it opts to be taxed as corporation.
Liability of LLCs
1. members get limited liability for all LLC obligations, except their own torts.
2. the LLC itself may be vicariously liable under agency principles.