Agency And Partnership Law - North Carolina Bar Exam

Front 1

How to tackle question:

Relationship b/w a master and servant in tort action

Back 1

First:
-Is the servant an employee of the master? [Full time? Contractor? What would T think?]
Second Question:
Was the servant acting within the scope of employment of the master?
• Frolic? Detour? Within scope of employment?

If yes – Master and servant are jointly/severally liable. Master can sue servant for indemnity

Direct liability – if master was negiligent in hiring the servant

Front 2

How to tackle question:

Relationship between a principle and an agent to enter a contract

Back 2

o No sof requirement, no consideration necessary, and principle has authority to enter into the contract
• Did the principle give the agent authority?
o Actual authority
• The p told the a he could enter into agreement
• The p didn’t tell a he could enter into agreement, but once he did he acknowledged it
o Apparent authority
• The principle let a t think that [through his own action] that a had the authority to enter into a k
• Actual authority created beforehand can linger **
o The p can also affirm the conduct of the a by:
• Adopting
• Not retroactive – liable on the k from date of adoption
• Ratifying
• Retroactive
• Principle can ratify if he knew of the k and accepted the entire transaction post-facto
• Principle must have been in existence at the time of creation of the k!

Front 3

When can an agent enter into a K on behalf of the Principle?

Back 3

i. When the principle has given consent and control

1. Principle has capacity to enter into the k [age? Role?]
2. No writing is req
3. No consideration is req

Front 4

Principle gives agent consent and control by:

Back 4

1. Actual authority

2. Substitutes for actual authority:
a. Apparent authority
i. p leads t to believe that a has authority [via silence or other mode]
b. Ratification
i. p ratifies the k that a entered into post-facto [but if p is a corporation it must have existed already][otherwise adopt]
ii. retroactive

c. Adoption
i. Not retroactive
ii. The p can adopt a contract entered into by the agent

Front 5

Torts by an agent

Back 5

Test: was tort committed by a servant of the master within the scope of the employment?

1. Consider the type of employee [permanent? Contractor? Look at factors
2. Scope of employment-
a. Detour? Frolic? Within scope of employment?
3. If the master is liable to third party:
a. T can sue both m and s j/s
b. T can sue m directly and m can indemnify the servant

Front 6

Duties owed by Agent to Principle

Back 6

Duty of care [sliding scale!], loyalty and obedience

Front 7

Duties owed by Principle to Agent

Back 7

To pay or indemnify the Agent

Front 8

Duties owed by Principle to Third Party

Back 8

All duties - must pay or perform

Front 9

Duties Owed by Agent to Third Party

Back 9

None

Front 10

Duty owed by Third party to Principle

Back 10

Owes a duty. Unless - the T did not know of the existence of the P AND the agent had a special skill

*Think: Rachel Ray!

Front 11

How do you form a General Partnership?

Back 11

Two or more people carrying on as co-owners a business for profit

Intent does not matter!

Watch out for 2 ppl who are in a general partnership by accident! No intent needs to be made

Front 12

How does one become a partner in a general partnership?

Back 12

1. Capital – contribution is not required by partner

2. Control – a right to control is all you need! This right does not need to be exercised.

3. Profit – a person who receives a share of profits is presumed to be a partner [this presumption is rebuttable!]

Note: There is no presumption of partnership if someone receives money from the general partnership b/c of a past debt [this is "coupled with an interest]

4. No SOF requirement for creation of a partner

Front 13

Do you need a writing to create a general partnership in NC?

Back 13

No. There is no SOF requirement in NC

Front 14

Hypo: Laura tells TK that she is a partner of Maynard Law Firm. TK believes Laura and enters into a contract with Laura. In reality, Laura is not a partner at Maynard Law Firm - she is a first year associate.

TK is mad because he relied on this contract and lost lots of money. He was going to use this money to buy something really, really special.

What can TK do?

Back 14

Partnership by Estoppel is possible here.

Beware situations where someone represents they are a partner to a third party!

Person representing themselves as a partner = will be treated as partner for estoppel purposes

Front 15

Laura publishes an article in the Daily Gazette that says "TK and Laura have opened up a bistro, a general partnership, on Franklin St.

In reality, TK owns this general partnership on his own. Laura is his cashier.

TK owes Suzy $10,000. Can Suzy go after Laura?

Back 15

Partnership by Estoppel is possible here.

If it’s a public statement of partnership = other creditors can go after real partner and fake partner

Suzy can try to go after TK and Laura

Front 16

TK and Laura enter into a loan repayment negotiation with Maynard Lending Bank. TK and Laura represent to the financial adviser, Molly, that Laura is a partner of Lolly Palooza Lollypops, a general partnership located on Franklin St.

TK nods his head and does not argue even though he knows this is a false statement.

Can Molly at the bank assert a defense?

Back 16

Partnership by Estoppel is possible here.

When the real partner lets another represent himself as a partner = both are liable now

Front 17

When property comes into a general partnership - who does the property belong to: the partner or the partnership?

Back 17

Consider:

a. Funds – whose money bought the property?

b. Use – how is the property used?

c. Upkeep – who maintains the property?

d. Agreement – any agreements abt the property?

e. Title – Not dispositive because the title can be in partners name and used by partnership [Analyze]

Analyze all these facts in an essay question!

Front 18

A creditor of Lolly Palooza Lollypops (a GP) wants to collect money it is owed. What can it go after?

Back 18

A creditor can go after partnership property via attachment, pledge, etc.

Front 19

Laura's creditor wants to collect $40K from Laura. Laura is a partner at Lolly Palooza Lollypops (a GP). Lolly Palooza owns several expensive lolly pop making devices.

Can the creditor go after the lolly pop device?

Back 19

No.

A partner can use partnership property only for partnership purposes! Laura cannot attach partnership property to pay off or secure her own personal debts.

Partner cannot pledge interest, attach as collateral, etc on partnership property

Common sense = you can only attach what you own yourself!

Front 20

TK and Molly are partners in a GP that produces wands for wizard themed television shows. They are quite successful and have made millions of dollars recreating wands from popular books for television shows.

Molly wants to use the wand creating machine for her personal use so that she can create custom made wands for her friend Harry's birthday.

Can Molly, as a partner, use this property w/o TK's permission?

Back 20

No. Molly, a partner, needs consent of other partners to use the partnership property for personal use

Front 21

TK purchased a wand making device with his personal funds. The wand making device was used primarily by the partnership him and Molly own together. The wand making device is maintained by Molly. There is no agreement on use of the device b/w Molly and TK. The device is in TK's name.

TK wants to buy a car so he borrows $50K from the bank. He pledges the device as security for his loan.

Can TK do this? Who owns the device - TK or the partnership?

Back 21

Consider all these factors to argue that since the primary use is creating the wands - TK and Molly are in the business of making wands - that the device probably partnership property.

TK cannot attach partnership property for his personal loans

Front 22

Laura and Molly own a general partnership that produces artificial mustaches for Broadway musicals. Both are partners. Molly is dedicated to a charity organization and redirects her shares of the partnership to the charity. Is this permitted?

Back 22

Yes. Molly's share of the profits are transferable. All this does is redirect funds to another (here, the charity).

A Partner can attach, assign or redirect her portion in the partnership

However, the charity (or other transferee) does not become a partner!

Front 23

Relationships b/w Partners in a General Partnership in NC are determined by:

Back 23

Default Rules OR Agreement b/w the partners

Front 24

What is the default rule for Profits and Losses in a General Partnership

Back 24

Split equally

- UOA

Front 25

Rachel contributes 50% of the capital for XYZ corporation and Phoebe and Monica agree that if they are sued, Rachel won’t be liable. Can Rachel enforce this against Ross when he sues XYZ?

Back 25

No. Ross can go after Rachel, Monica and Phoebe. But, Rachel can enforce this b/w Monica and Phoebe.

Front 26

Do general partners in a general partnership have a right of compensation?

Back 26

No Right to Compensation. Must be contracted for.

Front 27

What is the default rule in NC for management of a general partnership?

Back 27

Equal Management Rights

You need to negotiate/agree if you want your vote to weigh more

Front 28

Do partners who spend money for the general partnership have a right to indemnification?

Back 28

Yes. When a partner spends money on behalf of the general partnership – they have a right to indemnification [get paid!]

They get Money + interest

Think of this as a loan a partner made for the general partnership

Front 29

What Duties Do Partners Owe to the General Partnership?

Back 29

Fiduciary: Duty of Loyalty, Care and Duty to Render Full Information about the partnership

Trick: The partner doesn’t have to provide full information unless the other partners DEMAND it!

Front 30

L, M and T are all partners in a General Partnership. L wants to add a new partners, Jennifer Lopez, to the partnership.

What is the default rule for adding a new partnership to a general partnership in NC?

Back 30

Unanimous Consent by all partners. T and M would have to agree to this.

Partners can negotiate different terms.

Front 31

What duties do general partners owe one another?

Back 31

Fiduciary: Duty of Loyalty, Care and Duty to Render Full Information about the partnership

Trick: The partner doesn’t have to provide full information unless the other partners DEMAND it!

Front 32

When a new partner is added to the general partnership in 2005, is he liable for the debts of the partnership created between 2001-2005?

Back 32

Yes but we cut him some slack. He will lose his interest in the partnership but nothing more. No personal liability on new partner.

Front 33

T, L and M are in a general partnership together. T decides to leave. Is T released of all liability once he decides to leave?

Back 33

No. When you leave a general partnership you need to ask your creditors to release you of liability – otherwise you are still liable

Front 34

What is the relationship b/w a partner and a third party?

Back 34

Partners are agents. Apply the agency rules.

Actual Authority of a partner to act on behalf of general partnership– May be created by the partnership agreement, a majority vote of partners, or the statute [which makes every partner an agent for carrying on business in the usual way

The other partners can negate actual authority of a partner to act as an agent

Apparent Authority of partner to act on behalf of the general partnership – May be created by a partner’s title or the partnership’s prior conduct

Front 35

Rachel, Phoebe and Monica are partners in a general partnership. Rachel spends a lot of money – so Monica and Phoebe tell her she can’t write checks out anymore. Rachel tells Chandler she is a general partner at XYZ. Rachel writes Chandler a check. Can Chandler collect on the check?

Back 35

Yes. Rachel does not have actual authority to act as an agent of the company. But Rachel has apparent authority to act as an agent here.

Front 36

Conveyance of Real Property by a partner ** [Review this one - former essay question in conjunction with real property]

Back 36

If the names on the title and the conveyance match up – the transfer of real property is valid

If the names on the title and the conveyance do not match – only the partnerships equitable interest passes

Front 37

Explain J/S liability in a general partnership

Back 37

Partners are Liable for Partnership Obligations

Partners are J/S liable for all partnership obligations

Beware who you partner with!

Defendant can try to recover directly from you – even if it was another partner who caused the malpractice!

Front 38

What is a dissolution? Does it terminate the business forever?

Back 38

A dissolution is the end of a legal relationship – not end of the business/assets

Front 39

What are the causes of a dissolution?

Back 39

1. End of a definite period of time
2. Completion of a particular undertaking [ex: partnership just for the purpose of buying commercial real estate]
3. A partner expressly withdraws
4. All partners agree to dissolve the general partnership [ceases to exist]
5. A partner is expelled by the other partners
6. Operation of Law [ex: Bankruptcy or death]
7. Court decree

Front 40

When a partner withdraws from a partnership that was created for the sole purpose of purchasing commercial real estate before the commercial real estate is purchased – what happens to that partner?

Back 40

Breach of K action

Front 41

Once a general partnership dissolves, can a partner enter into a new contract on new business? *** [former essay question]

Back 41

1. May Be Apparent Authority to bind the partnership on new business even after dissolution
2. But the partnership can avoid liability by giving notice of dissolution
3. Note that some dissolutions will terminate the entire partnership while others will remain alive and well if the partnership agreement states so

Front 42

Monica, Phoebe and Rachel are partners in a general partnership. The partners mutually agree to dissolve the catering business. Even though the business has dissolved, Monica enters into a new contract for catering a large wedding under the name of the general partnership. Are Monica, Phoebe and Rachel liable on this contract?

Back 42

1. There might be apparent authority here b/c Monica was a general partner [consider whether the client knew this]
2. This could have been avoided if they had given notice of the dissolution before entering into the contract

Front 43

Creditors and Dissolution

Back 43

tell your creditors - also pub in the paper!

Front 44

Is there a right of contribution for dissolution?

Back 44

No, unless dissolution caused by one persons bankruptcy/death

Front 45

Distribution of Partnership Assets After Dissolution **

Back 45

1. First: Third party creditors
2. Second: Partners other than for capital and profits (e.g. loans)[Ex: Partner who loaned the business $]
3. Third: To partners for capital invested
4. Fourth: To partners for profits [UOA]

Front 46

Continuing Partnership Business After Dissolution

Back 46

Unless otherwise agreed to, partnerships have a right to continue. The partners have the business liquidated and each partner gets his share of the surplus paid in cash. Then the remaining partners are free to continue the partnership business.

Front 47

Limited Liability Partnership (LLP)

Back 47

Are the exact same as a general partnership

Only difference is there is no J/S liability

Ex: Malpractice suit against the LLP. People who are liable: The LLP itself and the negligent partner. The defendant can’t go after the other partners!

How to form a LLP in NC: File papers with Sec of State and use LLP in your name

Front 48

Limited Partnership

Back 48

Partnership with one or more general partners [generally liable] and one or more limited partners [limited to their investment]

Must file paperwork with Sec of State

Name must include “LP” or “Limited Partnership”

General partnership law applies [except where Limited Partnership Statute is inconsistent]

Liability of Limited Partners ***Gen Rule: The liability of a limited partner is limited to her capital contribution, even if she participates in control of the Limited Partnership. This is very unusual compared to other states – highly tested!!

Front 49

What kind of liability does a limited partner have in a limited partnership? **

Back 49

Gen Rule: The liability of a limited partner is limited to her capital contribution, even if she participates in control of the Limited Partnership. This is very unusual compared to other states – highly tested!!

Front 50

Chef Tom forms a Limited Partnership. X invests $50K as a limited partner. The bistro flops and all of its money is gone! Is X liable for the debts of the L.P?

Back 50

No b/c her liability is limited to her investments. Here she only invested 50K. X can even participate in control of the business and still not expand her liability!

Front 51

In a Limited Partnership (LP) what kind of liability does a general partner have [as opposed to a limited partner]??

Back 51

General Rule: J/S liability

Exception: Limited Liability Limited Partnership (LLLP) shields general partners from V/L the same way an LLP does

To insulate your personal assets but remain a general partner you convert your Limited Partnership to an LLLP!

Front 52

Describe the LLC

Back 52

Filing + Name + Professionals may form a professional partnership

Management of LLC = members run the LLC; can be run like a corporation or like a partnership.

Directors and Managers * [Buzz Words in LLC!]

No Liability for Members except their own torts!