Question

1. Which of the following is true of apparent authority?

A. It arises when an agent falsely claims to be acting under the authority of a principal.

B. It requires express authorization, in words or writing, from the principal to the agent.

C. It arises when the principal leads a third party to reasonably believe that an agent is authorized to act for the principal.

D. It can only arise when the principal owes the agent a fiduciary duty.

2. An agent is retained by his principal to purchase a painting from X. Instead, the agent buys the painting for himself and re-sells it to Y, for a profit. In doing so the agent has breached which duty to the principal?

A. Respondeat superior.

B. Fiduciary.

C. Statutory.

D. Indemnification.

3. Which form of compensation is a partner entitled to receive from a partnership?

A. Weekly salary for work performed.

B. Fair market value for services rendered.

C. A share of partnership profits.

D. A reasonable management fee for managing the business.

4. In Finch v. Raymer, the court ruled that the plaintiff and defendant had formed a partnership to renovate real property because:

A. Title to the real property was held in the names of both parties.

B. Defendant had drafted the partnership agreement and therefore any ambiguity regarding the parties’ relationship had to be construed against her.

C. Plaintiff proved that the parties had agreed to combine their assets, labor, and skill with the understanding that profits would be shared between them.

D. All of the above.

5. Which of the following is NOT a characteristic of a limited liability company (“LLC”)?

A. Members are jointly and severally liable for all LLC obligations.

B. Members of an LLC may elect to have the LLC treated as a partnership or corporation for income tax purposes.

C. An LLC may be member-managed or manager-managed.

D. An LLC may only be formed in accordance with a statute authorizing the formation of such entities.

Answer 1

1. (c) It arises when the principal leads the third party to reasonably believe that an agent is authorized to act for the principal.

Apparent Authority refers to a situation where a reasonable third party would understand that an agent had the authority to act. This means a principal is bound by the agent's actions, even if the agent had no actual authority, whether express or implied.

2. (b) Fiduciary

A fiduciary is a person who holds a legal or ethical relationship of trust with one or more other parties. Typically, a fiduciary prudently takes care of money or other assets for another person.

3. (c) A share of partnership profits

The lock-step system is used by a fair number of firms that are organized in a traditional fashion. The basic concept is that each partner is rewarded an ever-increasing share of the firm's profits, based solely on seniority. The longer a partner remains with a firm, the more money the partner will make.

4. (d) All of the above

Following a bench trial, the trial court found that all of the disputed property was partnership property and that each party held a one-half undivided interest in the property. Accordingly, the court declared that the parties owned the disputed real property as tenants in common, and it awarded the plaintiff a judgment for one-half of the value of certain personal property. The court also awarded attorney’s fees to the plaintiff. The court further concluded that the defendant had fraudulently conveyed partnership property to her father, a co-defendant, and the court set aside the sale and held that the defendant was responsible for repaying to her father the amount he paid for the fraudulently conveyed property.

5. (a) Members are jointly and severally liable for all LLC obligations

An LLC offers limited liability protection to its members. Unlike the case of a partnership business, where a partner may be responsible for the acts of other partners, LLC members are only responsible for their own actions and they cannot be held responsible for torts and civil wrongs committed by other members of the company.