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AGENCY TEST QUESTIONS AND ANSWERS

1995-2001
PROFESSOR FRANKS

1. (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
Billum
Howe
Commendum

$100,000
$100,000
$100,000
$ 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
The Advocate
Channel 2
Real Yellow Pages

Balance due on tools


Advertising
Advertising
Advertising

$
$
$
$

93,000
12,000
21,345
9,800

Bell South
Entergy
Auto Zone
Napa Parts
Dewey

Telephone service and equipment


Electric Bills
Wholesale parts
Wholesale parts
Unsecured loan
Total

$ 2,300
$ 4,380
$ 18,580
$ 14,050
$ 15,000
________
$190,455

As of yesterday, the partnership had the following assets:


Market value of building
Value of tools and equipment
Cash on hand and in partnership checking account

$140,000
$ 54,000
$ 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 proprietorship
general partnership
limited partnership [partnership in commendam]
limited liability partnership
limited liability company
subchapter S corporation
Which one of the above business forms is characterized by a need to renew its status
yearly? Limited Liability Partnership

Which 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 Corporation
Which 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 Commendam
6 ( 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 directsales 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 business
F. 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

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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

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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

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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

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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

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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

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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)

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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

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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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