Rafael and Alex own and operate an accounting business together. Rafael instructs a new associate, Isabel, to review the previous quarter's financial records for a client and then prepare a report. Rafael usually reads these reports in great depth before filing a tax return. However, Rafael has many clients to get through, so he quickly skims Isabel's report. He misses critical information that affects the amount of taxes the client must pay to the government because Isabel, being new to the company, put the information in a different section of the report then associates usually do. The client must now pay penalties for its underpayment of taxes.

First, classify Rafael and Alex's scenario as a principal-agent relationship or partnership. Then, determine who is liable for the loss suffered by the client.

Principal-agent; Rafael and Isabel are liable for the loss.

Principal-agent; Only Rafael is liable for the loss.

Partnership; Rafael and Alex are liable for the loss.

Partnership; Only Rafael is liable for the loss.