1996 Agency & Partnership Final Examination

AGENCY & PARTNERSHIP

Section I, Professor Franks

Final Examination, Fall 1996

GENERAL INSTRUCTIONS

1. Carefully analyze the facts and grasp the issues in each question before beginning to write. Spend time reading the question slowly and carefully.

2. State the issues and answers to each question concisely. Lengthy answers are not necessary.

3. Do not repeat questions in your answers. Write neatly and legibly on only one side of each page.

4. Number your answers to correspond with the question, e.g., "II-B."

5. If you feel it necessary to assume additional facts in any of the questions, give the facts that must be added and state why.

6. Do not write in the margin of the book.

7. All major questions are equally weighted unless otherwise indicated. Subparts are approximately equal but may be weighted slightly differently according to the number of issues involved in that subpart.

8. Write your pin number and the name and section number of the course on which you are being examined on the cover of each examination book.

9. If you use more than one book, indicate "Book One," "Book Two" and so forth on the cover of each book and write your fictitious name and number and the name and section number of the course on the cover of each examination book.

10. A GOOD ANSWER IS NOT NECESSARILY A LONG ANSWER.

QUESTION I

seventy per cent of test

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.

I-A. How can the structure that the 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.

I-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.

I-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.

I-D. Jonsetti wants to keep her job with Domino's 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.

I-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.

QUESTION II

thirty per cent of test

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.

II-A. Discuss Baton Rouge Pizza Shack's defenses to Ms. Simpson's compensation claim.

II-B. Discuss Baton Rouge Pizza Shack's rights, if any, in the tort matter.

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