Jack appoints Tom as his agent to purchase a car on his behalf. Tom enters into a contract with a car dealer to buy a specific model of car for Jack. Before Tom finalizes the purchase, Jack revokes Tom's authority.

Is Jack bound by the contract entered into by Tom with the car dealer?

Carl is 16-years-old and wants to buy a car after getting his license. Carl sends his Butler out with a blank check with Carl's name on it and tells his Butler to buy him the nicest car he can find. The Butler finds a nice car and signs a contract for the car with a car dealership. The car gets delivered a week later, but as the truck pulls up, Carl informs the car dealership he no longer wishes to buy the car despite the agreement having been signed in his name.

Can the car dealership enforce the contract against Carl?

Peter sends his employee Raphael to buy a pizza at Casey’s Italian restaurant. Raphael tells Casey that he, Raphael, is acting for Peter. Secretly, though, Raphael wants the contract to be between himself and Casey. Casey, taking Raphael at his word, assumes that Raphael is acting on behalf of Peter. Raphael signs the contract with Peter's name.

Has a contract been formed between Casey and Peter?

Arturo tells his employee Charlie to rent a Ferrari for him from a nearby car rental enterprise. As soon as Charlie has left, Arturo calls the relevant car rental enterprise, states his name, and says: “I have sent my employee Charlie over to rent a car for me. He can rent any car as long as it is luxurious.” The employee in charge at the car rental enterprise concludes that Charlie has authority to rent a luxurious car for Arturo, no matter the brand. As it happens, the car rental no longer has Ferraris in store. Therefore, Charlie decides to rent a Bentley instead.

Is Arturo bound to the contract, and, if so, why?

Doug and Morgan operate a valid partnership where they sell rubber ducks together, called "Duck Co." They agree with each other to sell ducks at full market price for the first 3 months of operation, meaning no discounts. Morgan starts speaking with a local toy company, and agrees to sell rubber ducks at a 25% discount. The contract is signed with the partnership's name. Doug discovers this and says the contract is void, as this was not what they agreed to do. The buyer sues Duck Co. to enforce the contract.

Is Duck Co. bound to this contract?

An uncle and nephew jointly own a hardware store. The uncle runs the store, the nephew works as a cashier. The uncle pays the nephew a salary, and also pays the nephew 10% of the store's profits.

A customer buys a saw from the store, which explodes and causes injury to the customer. The customer sues the uncle and nephew jointly for her injuries. The customer contends that the nephew is a partner.

Which of the following supports the customer's position that the nephew is a partner?

Elon Perfume wants to accumulate shares in a company, but did not want to buy them personally because his name association would drive up the cost. Perfume appoints an agent to buy a block of shares in the company. The agent tells the stock broker that he is acting on behalf of someone "who shall remain nameless, but whose name you would recognize." The agent signs the contract to buy the shares. Days later, the stock price dropped heavily, and Perfume refused to pay for the shares. The stock broker sues to compel payment.

Who is liable?

Lisa and Mike decide to start a catering business together as general partners. They contribute equal amounts of capital and share profits and losses equally. However, they do not formalize their partnership agreement in writing. After a few months, the business encounters financial difficulties, and Lisa wants to dissolve the partnership. Mike disagrees and wants to continue the business.

What happens now? Select all that apply.

In which type of business ownership structure does each owner in the group risk losing his/her personal property even though responsibilities are shared?

Emily operates a freelance graphic design business as a sole proprietor. She hires an independent contractor to assist with a project for a client. During the project, the contractor breaches the terms of their agreement, resulting in financial losses for the client.

Can the client hold Emily personally liable for the contractor's actions?

Sarah owns a clothing store and appoints her friend, Alex, as her agent to purchase inventory on her behalf. Alex enters into contracts with suppliers for clothes beyond Sarah's specifications. When the suppliers demand payment, Sarah refuses, claiming that Alex acted outside his authority.

Are the suppliers entitled to enforce the contracts against Sarah?

Tom and Jerry are partners in a landscaping business. Without consulting Jerry, Tom enters into a lease agreement for a new office space on behalf of the partnership. When Jerry learns about the lease, he refuses to acknowledge it, claiming that Tom acted without authority.

Can the lease be enforced against the partnership?

How can an agency relationship be terminated?

Check all that apply.

On January 1, Brad, Tom, and Sandy agree that they will start a bakery together and that each of them will get one-third of the profits. They also agree, without putting it into writing, that the firm shall go on for “at least 10 months even if business is horrible.” On January 15, the bakery opens its doors to the public.

Soon afterward, the three have a bitter disagreement about whether to use solely organic flour or non-organic flour as well. During a heated discussion on January 20, Tom says: “This firm is finished, let’s shut the whole thing down.” Brad replies: “Oh yeah? Fine with me, this business is over.” Sandy simply says: “I agree.” On January 25, Sandy dies in a traffic accident. On January 30, Brad dies of a heart attack.

Has the partnership been dissolved and, if so, when?

Joe and Anne sign a partnership agreement to create a partnership for two years selling paper. They acquire no property over those two years and pay off all their debts. Once those two years expire, Joe gives Anne a contract to renew the partnership, but Anne walks away and blocks Joe's number. Joe sues Anne for breach of fiduciary duty, stating that renewing the partnership is in the best interest of the partnership.

Will Joe's suit be successful?

Joe and Anne are in a partnership together, this time indefinitely. Just as things are booming for the partnership, Joe falls in a manhole and dies. Anne is left with the partnership.

Can she continue the partnership?

Doug and Banjo run a partnership together and have a partnership agreement in writing. Doug is an 80% partner, Banjo is a 20% partner. Having fallen upon hard times, they decide to dissolve the partnership. They sell all the partnership assets and pay off all creditors, but much to their surprise, they end up with a major surplus of money left over.

How should this money get distributed?

A graphic-design firm was organized as a general partnership with five partners. At one point, the founding partner sold her transferable interest in the partnership to an investor. Among the firm's employees was one junior designer, who had worked on various projects for all five partners. One day, the partners held a meeting to decide whether to admit the junior designer as a partner of the firm. The investor also attended the meeting. The firm's partnership agreement did not address admission of a new partner to the firm. The five partners all agreed that the junior designer should be made a partner in exchange for an equity buy-in at a favorable price, which the junior designer was ready, willing, and able to pay. The investor, however, was opposed to making the junior designer a partner.

May the junior designer be made a partner of the firm?

A pastry chef and her friend formed a general partnership to own and operate a bake shop. The shop sold bread, bagels, cakes, and other baked goods. The partners' capital contributions were used to purchase a delivery truck, which the partnership used to transport baked goods to customers. The delivery truck was titled in the partnership's name. Shortly after the partnership's formation, the friend's personal car broke down. Over the pastry chef's objections, the friend began using the delivery truck to commute to and from her day job as a financial advisor.

Is it permissible for the friend to use the delivery truck to commute to and from her job as a financial advisor?

Several dentists worked together in a partnership. When one of the dentists decided to retire, he told the other partners that he was going to transfer his partnership interests to his son, another dentist who had sometimes done independent contractor work for the partnership.

Which of the dentist’s partnership interests, if any, is transferable to his son?

Three partners formed a partnership to manage a zoo. Soon thereafter, one of the partners left a group of school children alone in a cage with a tiger while showing potential investors around the zoo. The children were unhurt, but the other partners were extremely angry about the partner’s gross negligence. As the other partners investigated the situation, they discovered that the partner had signed her own management contract with another zoo, was helping to build a zoo in direct competition with the partnership, and had lied to the partnership about zoo costs to secure a better deal for her brother’s company, which sold specialty food to zoos. The other partners filed a lawsuit, arguing that the partner had violated her fiduciary duty of care.

If the court finds that the partner violated her fiduciary duty of care, which is its most likely reason for doing so?

A group of lawyers worked together in a partnership. Because he was nearing retirement age, the eldest lawyer decided to transfer his partnership interests to his daughter, a recent law school graduate. He informed the other lawyers that he was transferring his partnership interests, but he also said he would continue to come in to work when help was needed with established clients. After the transfer was made, the partnership decided to move the partnership offices to a larger and more expensive building. The eldest lawyer opposed the move, believing that it was too expensive and could bankrupt the partnership.

Does the eldest lawyer have a right to challenge the move?

On January 1, Maria and Reuben decided to open a law firm (“Maria & Reuben Law Partners”). They agree that the firm will open its doors to the public on January 15. On January 5, Reuben, acting in the name of “Maria & Reuben Law Partners,” calls Peter, a printer, and orders 5000 business cards. When, on January 6, Maria learns of this order, she promptly calls Peter and tells him that she does not approve of the purchase and “won’t be held responsible.” Peter insists that both Reuben and Maria are liable to him.

Can Peter hold Maria and/or Reuben personally liable?

A partnership goes out of business. Joe, a partner, paid $600,000. Tom, a partner, paid $200,000. Cam and Bob paid $100,000 each. When they entered into the partnership after buying in, they revised the partnership agreement so that they would all be equal partners indefinitely. Now that the partnership has dissolved and the assets are being liquidated, Joe feels he is not getting his fair share for how much he paid. Creditors have been paid out, and the partnership is left with $100,000 surplus. Joe sues Tom, Cam, and Bob for recovery of 60% of the surplus, since he paid 60% of the costs to start up.

Will Joe's suit be successful?