Agency & Partnership Professor Donald J. Kochan

1. Agency & PartnershipProfessor Donald J. Kochan Class 28 Last Class for Semester

2. Come to the Review Session Prepared with Questions The Review portion of the class will begin with an overview, and then proceed with your questions.

3. Know the Syllabus • Copy Your Table of Contents • Outline • Know, Among Other Things, the Restatement of Agency, the UPA, and the RUPA • Review the 2010 Practice MidTerm, the 2009 Practice Exam, and the 2009 Final Exam

4. Know the Approach to the Exam SUGGEST YOU READ – “THINKING” THROUGH THE LAW SCHOOL EXAM: ONE PROFESSOR’S VIEW FROM A DEWEYAN PERSPECTIVE(available on TWEN0Some Highlights: Show Your Work Line by Line Analysis – do not focus only on the pinpoints – remember the intake attorney approach, constantly thinking what could I argue and what might the other side argue; you must have an ability to do both and then predict the resolution. AND, you must then think about alternative options to satisfy the preferences of the parties. Argue one side Argue the Other Side Then be the Judge Then, importantly, ask What’s Next? Analysis is key Do not be conclusory – I do not want you to jump to an answer/conclusion but instead work through it and explain WHY there is a dispute, WHAT is the dispute, and then WHY this is the answer Do NOT Outline Dump – Your ability to identify relevance is part of the grade. Do not assume I know anything/This is not about what I know, it is about demonstrating that YOU know

5. 2010 Practice Midterm • See TWEN

6. 2009 Practice Exam Agency & Partnership Professor Donald J. Kochan Chapman University School of Law 2009 Practice Exam INSTRUCTIONS: This practice examination is a 1.5-hour ungraded modified open book examination – each student may use his/her text, any assigned supplemental materials, any notes or outlines which that student prepared, and any group notes or outlines to which he/she made a significant contribution in preparation.  No commercial outlines, treatises, or similar materials will be permitted for use during the examination. Other than ExamSoft, no electronic materials or devices may be used during this exam. Remember that you should identify the entire situation from every affected individual’s standpoint before, during, and after any litigation may emerge as a result of the factual scenario. As explained in class, the entire question includes graded points, not simply the pinpoint issues presented at the end of the question. • This practice exam should be taken under exam conditions for a 1.5 hour period. • Total points = 50

7. 2009 Practice Exam Agency & Partnership Professor Donald J. Kochan Chapman University School of Law 2009 Practice ExamTotal points = 50 ESSAY 1 (35 points): • Steve and Tom are at a bar. Steve has a great idea for a new computer application. Tom says, “You have the brains and I have the money – let’s be partners.” Steve says, “I agree, but we’ll need investors.” • Was a partnership created? • Steve says, “To get investors we need to arrive in style, so let’s hire Rick from Acme Limo Services to take us to meetings.” Tom says, “agreed.” They call Rick and he agrees to help them. • What is the nature of the relationship between Steve, Tom, and Rick? • Neither Tom nor Steve knew anything about Rick, they just heard from Paul, Rick’s employer and already on retainer from Tom, that he was a reliable driver. • So Tom and Steve are ready to make their pitch to a potential investor, Vega. They pick up Vega at his hotel and head to dinner. On the way, while Rick, Steve, Tom and Vega are in the town car owned by Paul, Rick hits another car and is then arrested for DUI. The driver of the other car, Xerox, is killed. Tom and Steve are fine, but Vega is seriously injured and now paraplegic. • Focusing only on the issues of agency and partnership, analyze the claims and defenses of the parties in the following suits: • Xerox’s estate sues Rick, Steve, Tom, Vega, Paul, and Acme Limo Services • Tom sues Paul and Acme Limo • Tom and Steve sue Rick and Acme Limo • Vega sues Steve, Tom, Rick, Paul, and Acme Limo • During all of this, Tom goes bankrupt and the computer application never get’s financed so Steve sues Tom • Rick sues Steve, Tom, and Paul • Paul sues Rick

8. 2009 Practice Exam Agency & Partnership Professor Donald J. Kochan Chapman University School of Law 2009 Practice Exam ESSAY 2 (15 points): Please briefly assess the meaning of the following statements in the context of what you’ve learned about the formation and enforcement of property law and the paradigms, policies, principles, foundations, and rules involved: “We define an agency relationship as a contract under which one or more persons (the principal(s)) engage another person (the agent) to perform some service on their behalf which involves delegating some decision making authority to the agent. If both parties to the relationship are utility maximizers, there is good reason to believe that the agent will not always act in the best interests of the principal. The principal can limit divergences from his interest by establishing appropriate incentives for the agent and by incurring monitoring costs designed to limit the aberrant activities of the agent. In addition in some situations it will pay the agent to expend resources (bonding costs) to guarantee that he will not take certain actions which would harm the principal or to ensure that the principal will be compensated if he does take such actions. However, it is generally impossible for the principal or the agent at zero cost to ensure that the agent will make optimal decisions from the principal’s viewpoint. In most agency relationships the principal and the agent will incur positive monitoring and bonding costs (non-pecuniary as well as pecuniary), and in addition there will be some divergence between the agent’s decisions8 and those decisions which would maximize the welfare of the principal. The dollar equivalent of the reduction in welfare experienced by the principal as a result of this divergence is also a cost of the agency relationship, and we refer to this latter cost as the “residual loss.”” Jensen and Meckling, Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure, Journal of Financial Economics, October, 1976, V. 3, No. 4, pp. 305-360.

9. 2009 Final Exam AGENCY & PARTNERSHIP  PROFESSOR DONALD J. KOCHAN CHAPMAN UNIVERSITY SCHOOL OF LAW 2009 Final Exam INSTRUCTIONS: This final examination is a 3 hour modified open book examination – each student may use his/her text, any assigned supplemental materials, any notes or outlines which that student prepared, and any group notes or outlines to which he/she made a significant contribution in preparation.  No commercial outlines, treatises, or similar materials will be permitted for use during the examination. Other than ExamSoft, no electronic materials or devices may be used during this exam. Remember that you should identify the entire situation from every affected individual’s standpoint before, during, and after any litigation may emerge as a result of the factual scenario. As explained in class, the entire question includes graded points, not simply the pinpoint issues presented at the end of the question.

10. 2009 Final Exam  Total points = 100 SHORT ANSWER 1 (5 Points): Briefly explain actual, apparent, and no authority and why that determination matters. Who has it and who cares if they do, in both agency and partnership relationships? SHORT ANSWER 2 (10 Points): What is an LLP, how is it different from a general partnership, and why might parties choose to adopt this form rather than enter into a general partnership? SHORT ANSWER 3 (15 Points): In terms of both agencies and partnerships, we have focused on Creation, Scope, Breach, Authority, Reliance, and Liabilities to Third Parties. Briefly explain each of these concepts and why they have uniqueness in the area of Agency and Partnership. Why do we go through this progression of analysis?

11. 2009 Final Exam ESSAY 1 (45 points): Paul and David are friends and meet for lunch, where they orally agree to become partners for purposes of launching a new law firm – P&D. Both Paul and David independently have clients that they will bring to the new firm – Paul has clients A and David has clients B. They jointly hire Luke to set up the papers for their new law firm and assign him the responsibility of informing A&B of the new partnership, investigate any conflicts between A&B that could create problems, and seek retention agreements from A&B with the new firm. What interests/relationships were created and legally enforceable between Paul, David, and Luke? It turns out Luke never contacted A nor executed a new retention agreement on behalf of P&D with A, although he did so with B and otherwise established a general partnership for P&D.

12. 2009 Final Exam ESSAY 1 (cont.) (45 points): So, the P&D partnership has been established at this point. However, a problem arises 2 years later when A contacts Paul and wants to sue B for a breach of a commercial contract. Over the past 2 years, Paul has become intimately aware of B’s business. Paul decides that he should exit the partnership and independently represent A in litigation against B. Both Paul and David assume that Luke completed the assigned task of creating the partnership and obtaining new retention agreements between A, B, and P&D. How does Paul exit and what are the consequences, responsibilities, and obligations? After Paul exits, he goes broke after investing his own funds and some entity (P&D) funds in some highly risky stocks. A loses his litigation against B. Disregarding any professional responsibility issues and in light ONLY of agency and partnership principles, please explain the claims and defenses of the parties in the following: A sues P, D, and P&D B sues P, D, and P&D P, D, and P&D sue Luke P sues D

13. 2009 Final Exam ESSAY 2 (25 points): Please briefly assess the meaning of the following statements in the context of what you’ve learned about the formation and enforcement of agency law and the paradigms, policies, principles, foundations, and rules involved: “[I]t is worthwhile to point out the generality of the agency problem. The problem of inducing an “agent” to behave as if he were maximizing the “principal’s” welfare is quite general. It exists in all organizations and in all cooperative efforts— at every level of management in firms, in universities, in mutual companies, in cooperatives, in governmental authorities and bureaus, in unions, and in relationships normally classified as agency relationships such as those common in the performing arts and the market for real estate. . . .” How can individuals or governments: “structure the contractual relation (including compensation incentives) between the principal and agent to provide appropriate incentives for the agent to make choices which will maximize the principal’s welfare, given that uncertainty and imperfect monitoring exist.” Jensen and Meckling, Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure, JOURNAL OF FINANCIAL ECONOMICS, October, 1976, V. 3, No. 4, pp. 305-360.

14. Concluding Thoughts * * * Good Luck * * *