I

AGENCY TEST QUESTIONS AND ANSWERS

1995-2001

PROFESSOR FRANKS1. (2001)(Similar hypo on 1998)

In 1999, Dewey, Billum and Howe decided to go into the car repair business, opening a shop appealing to the owners of small cars. Finding a suitable facility in the Broadmoor area that they could buy and remodel for about $200,000, they determined that they would take on an additional investor rather than take out a mortgage on the building. Howe's rich aunt, Sarah Commendam, agreed to be that investor.

Articles of Limited Partnership were drawn and filed with the Secretary of State, identifying the general partners as Dewey, Billum and Howe, and the limited partner as Commendam.

The agreement provided as follows: The partnership shall be known as Cars R Us, a limited partnership. Dewey, Billum and Howe shall be the general partners. Commendam shall be the limited partner. The four partners will share profits equally, with twenty-five per cent of the profits going to each of the four partners. The partners shall make the following contributions to the capital of the partnership:

Dewey

$100,000

Billum

$100,000

Howe

$100,000

Commendum

$ 80,000

Following the execution and filing of the articles of limited partnership, Dewey paid into the partnership bank account the full $100,000 he had obligated himself to pay; Billum paid $60,000; Howe paid $70,000; Commendam paid $55,000. The partnership then purchased the building and remodeled it for a total of $200,000, which the partnership paid in full in cash from the partnership bank account. Billum, Howe and Commendam never paid in the remainder of their contributions as shown in the partnership agreement.

The partnership next purchased tools and equipment, all from Matco Tools, for a purchase price of $130,000, to be paid in installments, financing secured with a security interest in the tools and equipment purchased.

The partners proudly opened for business in late 1999. Business did not go well, despite the shop's massive advertising campaign. In February 2001 the cash-flow problem was so bad that Dewey made an unsecured loan of $15,000 to the partnership. Business has not improved.

At yesterdays meeting, the four partners unanimously voted to dissolve the partnership. As of yesterday, the partnership had the following debts:

Matco Tools

Balance due on tools

$ 93,000

The Advocate

Advertising

$ 12,000

Channel 2

Advertising

$ 21,345

Real Yellow PagesAdvertising

$ 9,800

Bell South

Telephone service and equipment$ 2,300

Entergy

Electric Bills

$ 4,380

Auto Zone

Wholesale parts

$ 18,580

Napa Parts

Wholesale parts

$ 14,050

Dewey

Unsecured loan

$ 15,000

________

Total$190,455

As of yesterday, the partnership had the following assets:

Market value of building

$140,000

Value of tools and equipment

$ 54,000

Cash on hand and in partnership checking account

$ 1,250

________

$195,250

PLEASE ANSWER THE FOLLOWING:

The building, tools and equipment will be sold for the amounts shown above. Simply distribute the proceeds according to law, stating who gets how much and why. Discuss fully your reasoning.

A. The rule on distribution

Creditors of partnership are paid before creditors of the partners

First, secured creditors in accordance with security rights

Second, unsecured creditors who are not partners

Third, unsecured creditors who are partners

Fourth, capital contributions restored to partners

Fifth, surplus divided according to interests in partnership

B. The partners still owe unpaid capital contributions

Partners owe balance of what they agreed to contribute

Billum owes partnership $40,000

Howe owes partnership $30,000

Commendam owes partnership $25,000

When paid, $95,000 (owed by partners) + $195,250 (current assets) = $290,250 available for distribution

C. These monies will be paid out as follows:

Matco tools gets paid first

Deweys loan gets repaid last

When contributions received and debts paid, $99,795 remains for partners

D. The monies left for partners will be distributed as follows:

The $99,795 gets distributed according to capital contributions made:

Dewey, Billum and Howe each get 10/28 or 26.3%, or $26,262

Commendam gets 8/38, or 21%, or $21,009

La. C.C. Art. 2804 does not apply to capital contributions

Were there a surplus over capital, it would go 25% to each partner

E. At the end of the day, the bottom line is as follows:

Dewey receives the full $26,262, plus the $15,000 loan

Billum owes $40,000 less $26,262 must pay partnership $13,738

Howe owes $30,000 less $26,262 must pay partnership $3,738

Commendam receives $21,009 less $25,000 must pay partnership $3,991

2. (2001) (2000) (1998) (1997)

A. "You've told us all about agency. Tell me the ways in which an agency terminates."

When revoked by principle

When the agent resigns or renounces the power

Upon death of the principle or agent

Upon bankruptcy of principle or of agent

Upon interdiction of the agent

Upon interdiction and appointment of curator for principle

Upon occurrence of resolutory condition specified in power

When the purpose of the power becomes impossible

When the purpose of the power is accomplished.

B. "I heard once about a limited partner who was held by the court to have unlimited liability. How might that have happened?"

May not manage or conduct business with third parties

Name may not appear in firm name

Unless also the name of general partner

Or of a predecessor firm

C. "What is a Limited Liability Partnership?"

LLP is an add-on feature to an existing partnership

May be added to either a general or a limited partnership

Must file annually with Secretary of State

Costs $100 per year

Confers limited liability as to torts

But leaves unlimited liability (virile share) as to contract debts

D. "You talked about the three 'wicked sisters' that employers' liability statutes and workers' compensation statutes were intended to eliminate. What did you mean?"

The fellow servant doctrine

Assumption of the risk

Contributory negligence

E. "In workers' compensation in Louisiana, what is a 'statutory employer'?"

Employees of contractor

Engaged to perform work that is part of the principles trade

F. "What things will a court consider in determining whether a person is an 'employee' or an independent contractor? Tell me the most important factor first, and then tell me the others."

Extent of control the master may exercise over the details of the work

Whether the one employed is engaged in distinct occupation or business

Whether the employer or workman supplies tools

Length of time for which the person is employed

The skill required in the particular occupation

Whether the work is a part of the regular business of the employer

The method of payment, whether by the job or by the hour

Whether the principle is or is not in business

G. List those activities that a limited partner may do without losing limited status

May serve as non-managerial employee

Commendam partner may consult and advise

Commendam partner may be surety

May vote on admission or expulsion

May vote on continuation or termination

Each other item on which may vote

5. (2000) (1997)

sole proprietorshipgeneral partnershiplimited partnership [partnership in commendam]limited liability partnershiplimited liability companysubchapter S corporation

Which one of the above business forms is characterized by a need to renew its status yearly? Limited Liability PartnershipWhich one of the above business forms may have as few as just one general partner? Limited Partnership or Partnership in Commendum.

Which one of the above business forms is an unincorporated entity that can be structured to offer all of its members limited liability as to torts and contracts and can be structured to qualify for partnership tax treatment? Limited Liability Company.

Which two of the above business forms generally can cross state lines without qualifying to do business? Sole proprietorship may cross state lines. General partnership may cross state lines.

Which one of the above business forms is simply an add-on feature that may be added to either a general partnership or a limited partnership? Limited Liability Partnership

Which one of the above business forms invariably protects each member of the firm from tort liability (not contract liability) for those torts committed by other members of the firm? Limited Liability Partnership Which one of the above business forms is a true corporation of not more than 35 shareholders who have filed with the IRS an election to be taxed similarly to a partnership? Subchapter S CorporationWhich one of the above business forms must have at least one member (perhaps more) subject to unlimited contractual and tort liability? Limited Partnership or Partnership in Commendam6 ( 1999)

Keisha Washington makes an appointment to visit your law office. When she arrives, she tells you that she has been self-employed for ten years as an independent sales rep for Mary Kay Cosmetics, selling the company's products door to door through a local sales team she organized.

Ms. Washington tells you she has been dissatisfied with the Mary Kay line of cosmetics. She explains: "Mary Kay is a great brand, and they do have some cosmetics for African Americans, but the selection of shades of, for example, face powders, is in my opinion too limited. The same is true of Avon. And there's really not much else of quality for the direct-sales market. Other companies have only 'token integration' in their catalogs, with dozens of shades for whites to choose from, and only a handful for blacks."

She continues, "Sure, there are fine product lines for the black community -- products like Fashion Fair -- but they sell only through department stores and not through 'direct marketing,' which as you know means door-to-door sales. There's room in the market for a direct-sales company specializing in cosmetics for women of color."

Your would-be client goes on to explain: "I'd thought about starting my own company, but I know absolutely nothing about cosmetics manufacture or chemistry, and I haven't the foggiest idea how to get FDA (Food and Drug Administration) approval on new cosmetics. My skill is in sales and advertising. I could easily see myself as the African-American answer to Mary Kay."

Ms. Washington then tells you that while flying home from a recent sales meeting in Dallas, she sat next to a man in the 'Business Class' section of the plane, and he introduced himself as Vincent Joseph Ruggerio. She had never met him before; only chance brought them together on the flight. "He told me he is tired of working as a chemist for Exxon, since petroleum chemistry is not his specialty field. Then he told me that he really would like to form a cosmetics company -- he has a master's degree in chemical engineering with a specialty in cosmetics manufacture! -- but he said he knows nothing about cosmetics sales. He said he knows all about making the stuff and getting federal approval, but he hasn't a clue how to sell it, and that's all that has kept him from going into the business!"

"We've met quite a few times, and we've decided we want to go into partnership. We'll be equal partners, but the company obviously needs a black female image, and we both agree that the products will be called 'Keisha Gold.'"

Please explain to your client in detail the formation and operation of each of the following four types of business organization and the relative advantages and disadvantages of each, making a recommendation and explaining the reasons for your recommendation.

A. General Partnership

Two or more general partners

To combine efforts or resources

Agreement need not be in writing

Sharing of profits and losses

Equal unless otherwise agreed

Participation in management

Unlimited liability

Partnership taxation

Further excellent discussion

B. Limited Partnership

Add-on feature

To general or limited partnership

Limited torts liability only

Must be renewed annually and pay $100

Register with Secretary of State

C. Limited Liability Partnership

LLP is an add-on feature to an existing partnership

May be added to either a general or a limited partnership

Must file annually with Secretary of State

Costs $100 per year

Confers limited liability as to torts

But leaves unlimited liability (virile share) as to contract debts

D. Limited Liability Company

May or may not have centralized management

May or may not have continuity

Liability limited as to all members

Minimum of two members

May have free transferability

May elect partnership tax status

E. Recommendation

A limited liability company

Works like general partnership

In which everyone has limited liability

Both as to tort

And as to contract

But it also enjoys flow through taxation

Its the best of all possible worlds for the small businessF. Your client, Keisha Washington, learns that Vincent Ruggerio has an employment contract with Exxon that provides: "After termination of employment, Mr. Ruggerio will not engage in any business requiring or utilizing his skills as a chemist or chemical engineer for a period of ten years." Exxon has heard rumors that Mr. Ruggerio is thinking of forming a new company, and threatens to sue if he leaves Exxon's employ. Advise your client, Ms. Washington, as to the effect of the covenant not to compete.

Non-competition covenants must be reasonable as to scope of activity.

And duration

And geographic area

Duration in Louisiana is 2 years.

Unreasonable as to scope Exxon not in cosmetics business.

Unreasonable as to duration

Unreasonable as no geographic area specified.

This agreement is simply void in its entirety.

G. With regard to starting up the new company, advise your client what she and Mr. Ruggerio may and may not do while still employed by Exxon and while still selling Mary Kay products, respectively

Ms. Washington is an independent contractor not an employee of Mary Kay and as such she is free to deal in other lines unless specifically prohibited.

Mr. Ruggiero is an employee and owes a duty not to compete while still employed but he may lay groundwork.

Cosmetics, however, does not compete with petroleum.

Employees have duty not to steal trade secrets, but her customer lists are her own property as an independent dealer.

Must see contract to determine if employee or dealer.

H. Now, actually form the company for Ms. Washington, structuring it as you recommend it be structured. Do not actually draft any documents. Instead, tell what documents you must prepare, discussing generally what they should contain and where they should be filed, to enable the company to begin marketing Keisha Gold and to protect the company as best you can. Do not discuss tax filings or FDA cosmetics approvals.

Articles of organization need to be prepared

And name must contain limited liability company or LLC

And articles must state purposes, e.g. any lawful activity

And must state any limitation on ability of members to bind LLC

And if and to what extent LLC will be managed by managers

The articles of organization must be filed with the Secretary of State together with an initial report

Appointing a registered agent for service of process

And designating the companys registered office

An operating agreement needs to be prepared

But does not need to be filed

Centralized management would be absurd in this small of a company

Structure it like a partnership

Default condition is that management is reserved to members

Restrictions on transfer would seem appropriate

Perpetual duration would seem appropriate

Add additional members to prevent sole taxation on death

Do the client a trademark registration with the Secretary of State

A trade name affidavit will not be needed

7. (2000) (1997)

You have now graduated from Southern University Law Center with a Juris Doctor degree, passed the Louisiana bar exam on first try, and gone into practice sharing offices with two other Southern graduates here in Baton Rouge.

The Baton Rouge organization of Americorps has invited you to give a lecture to a group calling itself "Seniors for Success," consisting of retirees interested in learning how to organize a small business. Anxious to network among potential clients, you gladly will go.

After you deliver your brilliant talk, the following questions are asked from the audience. Answer them, and discuss each item.

A. What is a partnership?

Two or more general partners

Each must have proprietary interest

To combine efforts or resources

Sharing of profits and losses

Equal unless otherwise agreed

Participation in management

Partnership agreement need not be in writing

Unlimited liability

Any further excellent discussion

B. Briefly, what is the difference between a general partnership, a limited partnership, a limited liability partnership, and a limited liability company? Do not discuss tax considerations.

Limited partnership

At least one general, one limited partner

Liability limited

Except for contribution

One general partners only is okay

Assumed name is fine

If commendam, firm name must so state

Articles must be in writing

And filed with Secretary of State

Limited liability partnership

Add-on feature

To general or limited partnership

Limited torts liability only

Must be renewed annually

Limited liability company

May or may not have centralized management

May or may not have continuity

Liability limited as to all members

Minimum of two members

8. (2000) (Similar hypo on 1997)

Smith, Brown and Jones orally formed a general partnership on 1 November 2000, calling it "Baton Rouge Enchilada Co." On 5 November 2000, they purchased an abandoned Pancho's on Nicholson Drive (the Nicholson site), and the act of sale shows the purchaser and new owner to be Baton Rouge Enchilada Co.

On 10 November 2000, Smith, Brown and Jones executed a written partnership agreement.

On 14 November 2000, the trio purchased an abandoned Taco Bell on Airline Highway (the Airline site), and the act of sale once again shows the purchaser and new owner to be Baton Rouge Enchilada Co.

On 20 November 2000, the trio registered their written partnership agreement in the proper place.

On 25 November 2000, the trio purchased an abandoned Little Caesars Pizza on Florida Boulevard (the Florida site), and the act of sale yet again shows the purchaser and new owner to be Baton Rouge Enchilada Co.

The acts of sale on each of the three immovables were recorded with the East Baton Rouge Parish Clerk of Court, each act being recorded on the very day of that particular sale.

Please answer the following six questions directly and without discussion:

A. Where did the three partners filed their contract of partnership for registry, assuming they filed it in the proper place?

Secretary of State

B. Who now owns the Nicholson site?

The partners individually

C. Who now owns the Airline site?

The partnership owns the site

D. Who now owns the Florida site?

The partnership owns the site

E. Assume further details that one of the partners (Jones) was sued on personal and individual debts unrelated to the partnership, and that on 28 November 2000 a judgment was rendered against Jones for $250,000. Which property or properties can the judgment creditor seize directly without any necessity for first seizing the partners interest in the partnership?

Creditor may seize only the Nicholson site

F. Assume the partnership, Baton Rouge Enchilada Co., now wishes to sell spaghetti as well, to that end buying a vacant Burger Tyme site on Government Street. They wish to call this one restaurant Baton Rouge Spaghetti Co. Looking for the simples solution to their need, simply state (without discussion) what document they must file and where they must file it in order to be able to use this name.

File a trade name affidavit with Parish Clerk

9. (1996) (Similar hypo 1995)

Smithers, Browning and Jonsetti wish to develop a new business venture. Smithers owns a parcel of undeveloped property in East Baton Rouge Parish, which the parties agree would be an ideal location for a Pizza Shack. Browning, who recently inherited a fortune from a wealthy aunt, has the funds required to build the restaurant. Jonsetti is currently employed by Domino's, and she is fully qualified to operate a pizzeria. The parties would like to operate the venture as follows:

Smithers will own a 50% interest in the venture. In return he will contribute the property.

Browning will own a 35% interest in the venture. In return, he will contribute the funds required to build and furnish the restaurant and to start up the operation.

Jonsetti will own a 15% interest in the venture. In return, she will manage the business, including construction of the building. All of the parties must approve the construction plans and budget. After the facilities are constructed, Jonsetti will have complete management authority over every aspect of the day-to-day operations, except that all of the parties must approve the content of all advertising that the restaurant will conduct.

Smithers, Browning and Jonsetti ask your advice regarding the following. In your answers, discuss the consequences that would result from structuring the entity as a general partnership, as a partnership in commendam, and as a limited liability company. For purposes of this examination only, ignore for the moment any conflict of interest or ethical concern that in real life would prohibit you from advising all three persons. Do not discuss tax issues unless the particular subpart specifically asks for tax consequences.

A. How can the structure that he parties have agreed to be implemented in each context? Consider specifically how the parties can achieve the agreed upon management and voting requirements with respect to the construction of the restaurant and the approval of advertising content? Discuss.

All general partners have management rights

But the partnership may give a partner a power of attorney

Partnership agreement may recognize Jonsettis authority

Limited (commendam) easy: make Jonsetti a general partner

Commendam partners may approve construction plans and budget

Approval of advertising by commendam partner presents a problem

Consultation with commandam partners may be required

Any other creative solution to permit limited partners to approve

Limited liability company operating agreement may set out powers

B. The parties desire that none of them shall have the right to withdraw from the venture prior to the opening of the restaurant. How can this desire be achieved in the context of a general partnership, a partnership in commendam and a limited liability company? Discuss.

In partnership, by constituting it for a term

Or by an express provision against withdrawal prior to opening

A commendam partner is in any case liable for agreed contribution

The LLC operating agreement could specify a term

Or prohibit withdrawal prior to opening of the restaurant

C. Advise each of the parties separately as to his or her exposure for personal liability for business debts in the partnership, partnership in commendam, and limited liability company. Discuss.

General partner liable for virile share of business debts

And solidarily liable for tort debts

Limited partner liable for stated contribution only

Unless he permits name to be used in the business

Or participates in management or deals with the public

Articles must be properly filed with Secretary of State

Exception where name the same as that of a general partner

Or where firm is successor to a prior firm

In LLC properly drafted, there is no personal liability

Above limitations are ineffective against a sophisticated creditor

D. Jonsetti wants to keep her job with Dominos until the new Pizza Shack is open and operating. Advise her whether she should do so and of the legal consequences that could result if she does. Discuss.

Does she have a covenant not to compete?

If so, it is reasonable as to geographic area?

And scope?

And duration?

And limited in Louisiana to two years?

If no covenant, she still has duty not to compete while employed

She may lay groundwork

But building restaurant appears to go beyond just groundwork

She should resign before actually supervising construction

E. If the parties opt for a limited liability company, and if they wish it to have both limited liability and partnership tax treatment, what are their options as to other features of the organization? Discuss.

Must choose note more than two of four:

Limited liability

Continuity of existence

Free transferability of interests

Centralized management

A Louisiana default LLC satisifies non-continuity requirement

10. (1996)

Baton Rouge Pizza Shack, a partnership, entered into a written contract with Sherry Simpson, an eighteen-year-old high school student, to deliver pizzas. The contract states that Ms. Simpson is an independent contractor and must provide her own car and automobile insurance. Independent delivery agents are required to report for work when directed, and to remain in and about the premises until closing, except when delivering pizzas. Independent delivery agents are also required to participate in janitorial and cleanup duties at the pizza parlor.

After closing and cleaning up one night, the manager realized one pizza had not been delivered. Turning to Ms. Simpson, the manager said, "You live in the Sherwood Forest area. Would you mind dropping off this one last pizza on your way home?"

Right after dropping off the pizza at 1:16 am, while driving home -- a distance of three blocks from the customer's home to her own -- Ms. Simpson sustained injuries from a passing bulet. One of the local residents had gotten into a domestic quarrel with her spouse and had aimed a Smith & Wesson .38 at the man, missing. The bullet exited the quarrelsome couple's home via the picture window, entering Ms. Simpson's car and lodging itself in Ms. Simpson's left thumb, incapacitating her for six solid months. She claims worker's compensation from Baton Rouge Pizza Shack, and also has filed a tort suit against the neighborly sharpshooter.

A. Discuss Baton Rouge Pizza Shacks defenses to Ms. Simpsons compensation claim.

Defense that Ms. Simpson is not an employee

Control of physical conduct is the principle test

Employer will be unsuccessful

Is Pizza Shack a statutory employer?

Delivering pizzas is business of employer

Defense Ms. Simpson was not injured in course of employment

Going and coming to work rule

Being shot at is not a risk of employment

Late night deliveries are a part of the job

Articulate expression of an unequivocal opinion

B. Discuss Baton Rouge Pizza Shacks rights, if any, in the tort matter.

Subrogation if compensation is paid

Suit for loss of employees services

Correct statement of the Louisiana rule (NEED TO LOOK THIS UP)11. (1995)

What documents, if any must be prepared, and where, if anywhere, must they be filed in order to form:

A. A general partnership.

Articles of Partnership

Need not be in writing unless immovable property involved

Record with Secretary of State

And Parish Clerk

Trade Name affidavit

With Parish Clerk

B. A partnership in commendam.

Articles of limited partnership

Stating who is limited partner and who is general partner

And stating contribution of each

Which may be money, things or nonmanagerial services

Must have limited partnership or commendam in name

File articles with Secretary of State

And also with Parish Clerk

Failure to file with Secretary of State is fatal

C. A limited liability company.

Articles of organization

Filed with Secretary of State

Stating limitation on ability of members to bind the LLC

Whether and to what extent LLC will be managed by managers

Date LLC is to dissolve

Initial report

Address of registered office

Designation of registered agent

Operating agreement

12. (1995)

You also represent the Smalltown Bank, They are planning on lending money to Worldwide Wigets, LLC, a limited liability company with two members: Jane Doe and Robert Roe. Doe is the manager. Without any discussion, please simply draft just the signature line for the promissory note, and prepare it so as to bind all three (Worldwide Widgets, Doe, and Roe).

WORLDWIDE WIDGETS, LLC

By: _____________________________

Jane Doe, Manager

And by: __________________________

Robert Roe, Member

And: ____________________________

Jane Doe, Individually

And: ____________________________

Robert Roe, Individually

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