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Agency and Partnerships
South Texas College of Law Houston
Leahy, Joseph K.

Agency and Partnership

Leahy Spring 2011

Introduction to Agency Relationship

I. Defined:

a. Consent that one person (agent) will act

b. On “Behalf of”

c. Subject to the Control of the principle

II. An agency relationship is created when a principal gives authority to another to act for his or her behalf and the agent consents to do so.

III. FACTUAL QUESTION (whether agency exists or not)

a. No presumption/assumption of agency- burden is on person trying to prove agency relationship

b. Written disclaimers are not dispositive- but some evidence of intent

c. A K is not dispositive (just bc you have a K that says u have an agency relationship doesn’t mean that you do)

d. One or more of the parties just saying that there is or is not a relationship is not dispositive.

IV. A favor may create an agency relationship WHEN the definition of agency is satisfied.

V. Important b/c it links the shallow pockets to the deep pockets

VI. 3 elements: “acting on behalf of” “consent” and “control”

a. Agreement (consent)

i. No such thing as an “unwitting agent”

ii. Can be implied or expressed

iii. Can exist even if parties do not recognize that they created an agency relation. (agency is a factual question); denial of agency doesn’t mean anything if the facts of agency are satisfied

iv. Agents have a duty to conduct the affairs of the principal with a certain level of diligence, skill and competence. (have reasonable efforts been shown?)

b. Acting on behalf of (not just merely benefiting another)

i. A is acting on behalf of P

ii. You can be an agent even if all you think about is the money bc still serving employer’s ends

iii. Have to act “primarily” for principal’s benefit, but doesn’t have to be solely for his benefit

iv. Merely benefiting another by one’s conduct does not qualify (i.e. mall restaurant tenant and mall landlord are not agent/principal and thus liability of restaurant cannot be imputed to mall, even if mall is benefitted by restaurant).

c. Control

i. Subservience

ii. Control over result: Don’t have to have control of the detail or means of the work

1. Don’t have to tell A how to do their job, still agency relationship (lawyer-client ex.)

VII. Untangling co-agency

a. Prez of C corp, Anna, and her assistant, Bill, are co-agents of C Corp.

b. Bill is not necessarily Anna’s agent, for any purpose.

i. Don’t be confused by hieracrchy! They both work for C corp!

ii. AS a general matter, absent other facts, we should normally expect Annas loyalties to lie with the person who pays her salary—not necessarily her boss or supervisor on the job.

c. Implied or inferred agency: Agency relationship and authority can be implied by proof of facts, circumstances, words, acts and the conduct of the party to be charged with the agency.

i. Key to Authority implied from course of conduct: is the knowing acquiescence of the principal in the past acts.

ii. When you have a company, president, and a secretary. What is their relationship?

1. All employees to the company, all agents…. President and secretary are “co-agents”; also “subservient co-agents” and both agents of one principal (the company)

2. No- they are not inherently an agent of their supervisor (default situation)

d. But a special (limited) agency relationship can nonetheless arise between co-agents if the fact support it (M&D v. Sears assoc case)

VIII. Cases:

a. Case: Carrier v. McLlarky

i. Facts: D installed a replacement hot water heater. Told P would see if old one was under warranty and would give him a credit for any payment he could get from the manufacturer. D did not give P any credit bc manufacturer had yet to issue any credit.

ii. Holding: There was an agency relationship. The D agreed to return the heater on behalf of the P and the D accepted the authority to act for the P. Held that there was not a breach of that relationship bc there were reasonable efforts to accomplish the desired result (he tried to get a refund for the D). D did not guarantee that a credit would be obtained.

b. Case: Violette v. Shoup

i. When V asked S, his neighbor, about if he knew anyone who sold aggressive tax shelters and S recommends M and M gives S money for the referral and M becomes insolvent, S is not an agent to V and thus owes no duty of care to V bc this is only a favor and if every favor in the world was an agency it would be a nightmare.

c. Case: MD v. Sears

i. Facts: LL sued D for unlawful possession after expiration of the lease. D claims that they extended the lease. LL says notice was sent to wrong address and never received. The notice was sent to the same address that the rent payments were sent. A return receipt with the P’s co-worker (Fraley) was also sent back. MD&A and Hogg are suing sears for unlawful possession of leashold premises. Hogg is President of MD&A’ Fraley “worked with Hogg” for MD7A and McLane Investment Co. Dr. McLane is their employer and owner of McLane investment.

ii. Issue: Whether D gave timely notice of its option to extend the term of the lease? Whether Ms. Fraley was P’s agent? Whether she is working on the company’s behalf or on presidents?

iii. Holding: Yes. Fraley had regularly picked up Hogg’s mail (regular procedure). As P’s agent, the returned signed receipt signed by her could be seen as sufficient.

Agency Distinguished from Buyer/Seller Relationship (usually not agency)

I. Intro

a. One who receives goods from another for resale to a 3P is not thereby the other’s agent in the transaction: whether he is an agent for this purpose or is himself a buyer depends upon whether the parties agree that his duty is to act primarily for the benefit of the one delivering the goods to him or is to act primarily for his own benefit.

II. Issue: On behalf of element is usually not satisfied in buyer/seller relationship- reseller issue

a. Ask to distinguish distributor relationship from agency:

i. Who has title?

1. Is the seller of the good selling them as if they were his own, or selling for another (property of the P)?

ii. Who takes the credit risk?

1. Who remains the owner of the goods?

2. Is reseller in business for himself or for the man?

3. Is reseller just doing the bidding of the manufacturer?

a. Ex: drugdealer/kingpin relationship- agency

iii. Who has the right to control the sale?

iv. Who can fix the price and the terms of the sale?

v. Who can recall the goods?

vi. Does the seller get a commission?

vii. Who gets the proceeds?

b. Cases

i. Case: Hunter Mining Lab v. Management Assistance Inc.

1. Facts: P signed contracts with Data Doctros and Hubco and is suing D which manufactured the products that the P sold. MAI manufacturer of the software that sold to Hubco. Neither Dadta Doctors nor Hubco complete the installation. Hubco/DD are licensed distributors for MAI. Hunter sues MAI

2. Holding: No agency relationship. D did not have power to control business expenditures, fix customer rates, demand a share of profits. No control, not acting for the benefit of. All companies acted independently and in their own names. There is only a seller/buyer relationship here.

c. Case: United States v. General Electric Co.

i. Title can be manipulated. GE was trying to say that they hold title to all of the light bulbs. Title is not necessarily determinative (it’s a factor) see quote on p. 25.

ii. Title passing is not outcome determinative. If there was little control by GE over their resellers for price/who they sell it to/what profit they make/reporting profit to GE and there is a fraud but title doesn’t pass, this is not an agency relationship. Ultimate test: whether actor is acting primarily for his own benefit or for the benefit of other party when acting pursuant to the arrangement btw the parties.

iii. GE did this to escape anti-trust prosecution.

III. Hypos

a. Hypo: a president exercising considerable control over a secretary is still not an agency relationship.

b. Hypo: is a car dealership an agent of the car manufacturer? No. “On behalf of” element is not met.

Agency distinguished from Debtor/Creditor

I. Case: Gay Jenson Farms v. Cargill

a. Facts: The plaintiffs were farmers that sold grain crops and extended credit to Warren, a local grain elevator grain operator. Cargill was an international grain dealer. According to Cargill, Warren bought grain from farmers and sold it to Cargill. According to the plaintiffs, Warren bought grain as an agent for Cargill. Cargill had provided financing for Warren for many years. During those years, evidence shows that Cargill was very involved in Warren’s business. Warren became insolvent and didn’t pay the farmers for the grain, and they sued Cargill for Warren’s default on their contracts.

b. Issue: Whether Cargill, by its course of dealing with Warren became liable as a principal on contracts made by Warren with plaintiffs?

c. Holding: Yes, Cargill was a principal of Warren within the definitions of agency. The court held that Cargill (the international dealer) was liable because it exercised control and influence over Warren (the local operator). The basis for their conclusion is that there were several factors that indicated Cargill’s control over Warren. Cargill was an active participant in Warren’s operation, rather than simply a financer. All portions of Warren’s operation were financed by Cargill and Warren sold almost all of its market grain to Cargill. That is, Cargill tried to play too many roles, and it backfired on them – they were held to be an agent.

d. Rule: A creditor who assumes control of his debtor’s business may become liable as a principal for the acts of the debtor in connection with the business.

hayer v. Pacific Electric Railway

i. Facts: P purchased a precision grinding machine and hired the D for the shipping. The machine was in good condition from the originating carrier but then arrived damaged. P inspected it, and then D’s agent: Hillman inspected it and noted the damage. The bill of lading required that a claim be made within nine months of delivery. Hillman went to collect on the freight charges. P did not want to pay in fear that this would not allow him to collect on the damages. Hillman said each matter was separate and that P had to pay. Hillman wrote that there was damage done on the bill and P paid the freight charges. D claims that this wasn’t enough since the claimant did not fill out the form or write this himself.

ii. Issue:

1. Was there an agency relationship between Hillman and P by noting on the form?

iii. Holding: Yes. It can be inferred by the conduct of the parties. The notice requirement does not specify the form. Therefore, the annotated bill would qualify as notice. Hillman signed the bill on Thayer’s insistence and was therefore acting like his agent in that regard. Leahy doesn’t really see how there is an agency relationship here. It wasn’t the supreme courts call to overrule, it was a jury opinion.

b. Case: Kilbourn v. Henderson (looked to “on behalf of”)

i. Facts: P, employee of OTC was covered by OTC health insurance plan. Health insurance was provided by CAN through Henderson insurance agency (D). Fitgerald assured P that inpatient treatment for his alcoholism would be covered by the plan,. But the coverage was denied after P already checked into the treatment center. P contends that Fitzgerald acted as agent to bind Henderson and CAN by her statements.

ii. Holding: Fitzgerald is not the agent of Henderson or CAN. Plain meaning in the contract that inpatient treatment was not covered.

iii. Reasoning: An employer’s administration of a group insurance plan does not create an agency relationship between the employer and the insurance carrier since the employer is acting only to the benefit of its employees and the employers own benefit in promoting better relations between itself and its employees. Fitz was not acting for the benefit of the D’s. She was acting for the benefit of OTC.

c. Case: Norby v. Bankers Life Co. (looked to control)

i. Facts: Hoffman, P’s employer was a member of an association which was the policyholder for a group accident and sickness policy issued by Bankers Life Co (D). The policy included partial reimbursement for medical expenses incurred by covered employees for illness or accidents, including dependents. P’s initial app was not transmitted to D from Hoffman. So P submitted a second app. This second one was not effective till jan 20, 1971. P’s kid was injured on Jan 19, 1971. Banker denied the claim. Initial ct held that the first app was binding on D bc Hoffman was acting as the agent of D in accepting the initial app.

ii. Issue: Will an employer be considered the insurers agent to the extent that the employer, with the insurers consent, performs the functions of the insurer in the administration of a group policy?

iii. Holding: Yes. To the extent that employer, with the consent of the insurer, performs the functions of the insurer, it may properly be considered the insurer’s agent. Unreasonable and inequitable to frustrate the employees expectations bc of an employers negligence in administering the insurance agreement. 8

iv. Look to control here rather than on behalf of.

IV. How to decide trick ambiguous principal cases

a. Often, A is arguably on behalf of two adverse Ps

i. Unless dual agency is to become the default…one P is a principal and one is not (cant just assume dual agency.. so how to decide?)

1. Split Approach:

a. On whose behalf is A really working? (killbourn/majority approach)

b. A better approach? Who really controls A? (Norby looks to control)

c. Remember these are factual questions!!