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South Texas College of Law Houston
Ricks, Val D.

Agency and Partnership
Prof. Ricks
Exam: essay and short answers—open book
Jan. 17. 2001
I.                    Introduction: notes and problems—pg. 4.
A.     Fictitious name: needed for more customers and better marketing. Pay a fee for the name, thus no other corporation can have the same name.
B.     If I am a plumber and own a company, can the tort victim have a recourse against the individual, yes, because the sole proprietorship is fictitious. Sole proprietor can be held liable so that is why we have entites, to make it harder to recover against the individual.
C.     Borrow the money or equity participation cannot be given by a sole proprietorship because that makes the person putting in the money a partner.
II.                 The Types of Firms:
A.                Sole Proprietorships: is a business owned by a single individual. While that individual may hire employees or other agents to assist him or her in conducting business operations, the proprietor is the sole owner of the business.
1.      The business has no legal existence independent of the proprietor. There is no entity which can sue or be sued or which can shield the proprietor from personal liability for debts arising out of the business.
2.      A sole proprietorship will be subject to general state laws and regulations such as those governing the operation of the business under a fictitious name and those requiring licenses and permits for the operation of certain types of business. It will also be governed by general principles of agency and employment law whenever the sole proprietor hires agents or employees to assist with buisness operations.
3.      The proprietor has sole control over the business and all decisions relating to the operations unless that control has been delegated to agents. All debts of the business are also debts of the proprietor, and in fact, business assets can be seized to pay for personal debts of the proprietor.
4.      Becausee the business has no separate legal existence, the proprietor will be able to use the business assets for personal purposes and personal assets to meet business obligations. There is no need to segregate the assets or income. All earnings or losses are attributed or taxed directly to the proprietor.
5.      A sole proprietorship as no separate tax status. It is just treated as an extention of the owner. The owner is required to report all items of income and expense on his or her personal income tax return.
6.      There is a separate schedule on which to calculate profit and losses from a business, but there is no separate tax on income earned from such an enterprise. The income is added to any other taxable income of the owner.
7.      If there is a loss from the business, such loss can generally be deducted from other taxable income earned by the owner.
III.               Formation of Agency Relationship:
A.                Generally:
1.      Rest. 2d §1èAgency; Principal; Agentè (1) Agency is the fiduciary relation which results from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control, and consent by the other so to act; (2) the one for whom the action is  to be taken is the principal; and (3) the one who is to act is the agent.
2.      Rest. 2d § 15èManifestations of Consentè An agency relation exists only if there has been a manifestation by the principal to the agent that the agent may act on his account, and consent by the agent so to act.
B.                 Green v. H & R Block:
1.    Facts: involves the tax participation and refund services provided by H & R to thousands of Maryland residents. The issue here was whether H & R may have a duty to disclose to customers the benefits it receives from lending institutions to which it refers customers who are seeking a bank loan in the amount of their anticipated tax refund. The trial court granted H & R motion to dismiss finding that H &R had no duty to disclose the benefits because no fiduciary obligation exists between H & R and its customers. Court of Appeals reverses finding that sufficient facts have been alleged to warrant a factual determination regarding the existence of a principal-agent relationship that gives rise to fiduciary duty to disclose any conflict of interest.
2.    Whether an agency relationship exists btween H & R and its taxpayers customers, in particular those customers who choose to participate in H & R’s RAL program? the creation of an agency is determined by the parties agreements and actions.
3.    Whiles the agent and the principal must both consent to the relationship, an agency relationship can be created by express agreement or by inference from the acts of the agent and principal. Thus, the relationship may be implied from the words or conduct of the parties and the circumstances.
4.    this class action lawsuit was filed on behalf of all those in Maryland for whom H & R block prepared taxes and who participated in its “Rapid Refund” program by obtaining an Rapid Anitcipation Loan any time from Jan 1992 to present. H & R’s tax filing services allow customers to obtain faster tax refunds than would otherwise occur by simply mailing the return to the IRS.
5.    What is the rule? The predominate issue here is whether an agency relationship exists between H & R and its taxpayers customers, in particular those who participated in its program.
6.    Rest of Agency –“Agency is the fiduciary relation which results from the manifestitation of consent by one person to another that the other shall act on his behalf and subject to his control, and consent by the other so to act.
7.    The creation of agency relationship ultimately turns on the parties intentions as manifested by their agreements or action.
8.    Three characteristics to the existence of the principal-agent relationship: (a) the agent’s power to alter the legal relations of the principal; (b) the agent’s duty to act primarily for the b

to control the end result of his agent’s actions and that is all. Therefore, it is reasonable to conclude that H & R customer’s retain control over H & R’s ultimate actions and representations with respect to filing the tax return. This is enough to make them an agent of the customers.
f.        What about altering the relations? The t.c. stated that because H & R customers actually sign the loan application, and not H & R themselves, H & R does not have the ability to alter the legal relations of its customers. Appellate court disagrees and states: when the facts otherwise demonstrate an agency relationship, that relationship cannot be negated simply because the principal’s and not the agent’s signature appears on a document otherwise preparted and negotiated by the agent. Therefore although it is the customer’s signature on the application, it is H & R’s roles in implicitly endorsing the contents of the loan application that lowers the perceived risk to the abkc of providing the loan—thus H & R plays an intergral part between its customers and the bank—affecting their customers legal realtions with a third party (the bank).
9.    Rest 2d §12è An agent of apparent agent holds a power to alter the legal relations between the principal and third person and between the principal and himself.
10.Rest. 2d § 13è an agent is a fiduciary with respect to matters within the scope of his agency.
11.Rest. 2d § 14èa principal has the right to control the conduct of the agent with respect to matters entrusted to him.
12.The party asserting that there is an agency relationship created by inference has the burden and if only one inference may drawn from the evidence, the court may find the relationship as a matter of law.
13.Pg. 24—manifestation of consent—how did Block show that they were acting on behalf of the customers. Manifestation of consent by the principal that the agent acts on the behalf of them. This is just consent—no formalities like that with contracts are is needed to form such a relationship to subject liability. H & R promotes themselves as an agent. There role is similar to that of an insurance broker who acts as the agent for its customers seeking insurance. Here the facts show that H & R’s objective manifestatiosn mutually consented to and intended to form a principal-agent relationship, the scope of which included obtaining the tax refund quickly.
Courts do not understand