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Agency and Partnerships
South Texas College of Law Houston
Rosin, Gary S.

Agency & Partnership_Rosin_2012
Note: periodically the word factor will appear in this compilation and update outline for items which are not actually factor tests. This was used to search for key terms quickly to help study.
–          *** Agency ***
I Formation of Firms – Agency Relationships
1.      Rest §1 Agency is the fiduciary relation which results from the manifestation of consent by principal to agent that the agent shall act on his behalf and subject to his control, and consent by the agent to so act.
a.    Mutual Consent – Principal must manifest consent and the agent just must consent.  By the agent taking on the task, it is sufficient to indicate consent.
b.    One person will act on behalf of another, and
i.    E.g., restaurants in Houston Center are not agents of HC because they only comply with lease requirements in the way they operate the restaurants; they do not act on behalf of HC.
c.    That person will act subject to the principal’s control
d.    Intent or awareness of the creation of an agency relations IS NOT required (“the fiduciary relation which results from” not “is intended” to result from)
2.      Attributes of the agency relationship (MO says these attributes are required; MD says these attributes are factors only and not determinative)
a.      Rest §12 Agent has the power to alter the legal relations between the principal and 3rd persons and between the principal and himself.
i.      E.g., power to bind principal to contract, power to settle
ii.     P is generally not liable for the agent’s incidental torts, VL for agent’s torts
iii.   can do this by acting negligently on his behalf, entering a contract, etc. – the signature on a K is not dispositive – This can be compared to an attorney client relationship. – often power to alter can be satisfied by consultants who negotiate for P
b.      Rest §13  Agent is a fiduciary with respect to matters within the scope of his agency – for the primary benefit of principal: agent is to act on behalf of principal and primarily/principally for his benefit (agent cannot benefit itself).
c.       Rest §14 The principal has the right to control the conduct of the agent with respect to the matters entrusted to the agent.  – translator problem – is translator a servant?
i.      Control the result (ultimate outcome or objective) but not the minutia of achieving the result.
ii.     right to set the task, like atty-client
A.      See Green v. H&R Block – viewed the above underlined factors to determine if agency existed – was agent
•          Basille – did not stipulate like in Green that tax preparer was agent – confidential relationships can include business-related advisors, advisees where
–        disparity in position between the parties and inferior party places primary trust in other's counsel
(i)       Block actively encouraged taxpayers to trust in their services:
(A)    no significant taxpayer expertise
(B)    taxpayers did not understand “Rapid Refund” really a loan
(C)    taxpayers primarily interested in getting their refunds quickly
(ii)     limited holding – tax consultant/client is not per se confidential
3.      Rest § 26 Creation of (Actual) Authority; General Rule: Except for the execution of instruments under seal or for the performance of transactions required by statute to be authorized in a particular way,  authority to do an act can be created by written or spoken words or other conduct of the principal which, reasonably interpreted, causes the agent to believe that the principal desires him so to act on the principal's account.
a.      The principal’s authorization of the agent need not be in any particular form. Written, spoken, or conduct, reasonably interpreted by the agent such that he believes the principal desires him to act on his behalf. Exceptions (Equal Dignities Rule) (the formalities of the proposed action also apply to the formalities to P’s authorization of A.)
A.      Estate of Giannopoulos – sometimes even when there appears to be equal dignity it may not exist – if a PoA for example does not meet statutory reqs, it can invalidate all subsequent acts by the purported agent because it fails to satisfy SoF
ii.     For instruments under seal executed by agent (e.g., CL instruments required to bear the seal of the principal; principal’s authorization to agent must be granted in a sealed instrument) or
A.      But no equal dignities rule at CL
iii.   When a statute requires the principal’s authorization to be in a particular form (not a statute that requires the underlying transaction to be in a particular form)  (e.g., statutory requirement when agent is executing a deed for the conveyance of land on behalf of the principal, the principal must authorize the agent in a written instrument that complies with same formalities as a deed). E.g., Power of attorney
II Contractual Dealings by Agents
A. Firm’s liability in contract for acts of its agent
1.      Authority is the agent’s power to bind the principal “by acts done in accordance with the principal’s manifestations of consent” to the agent (authorized acts).
2.      Agent sometimes has power to bind the principal even though the agent is not authorized, such as where the agent has apparent authority, or inherent agency power or where the principal is estopped from denying the agent’s authority.
3.      An agent who acts beyond the scope of his authority is liable for the acts beyond the authority. Principal is bound by the authorized acts, as far as they can be plainly separated from the unauthorized acts for which AG had no power to bind.
4.      When an agent deals with a 3rd party, the agent gives an implied warranty that the agent is authorized to do what he is doing; if the agent has no such authority, then the agent becomes liable for breach of the implied warranty of authority to the 3P. Rest § 329
5.      A principal without the capacity to give legal consent to the agency relationship/enter into the underlying transaction or to do the act he is authorizing the agent to do cannot be bound by the acts of the agent.
6.      An agent must have the physical or mental capability to do the thing he has been appointed to do. Anyone who can receive and convey information can be an agent, even a minor (infant).
a.      #5 and 6 above are the only two CL reqs for agency as long as it wasn’t for things under seal
B. Firms rights under contracts entered into by its agents-disclosure of principal
1.      Issue: When can a principal enforce a contract against 3P? Rest § 4(1)-(3) (disclosure is assessed at time of contracting)
a.      Rest § 292 Disclosed – when 3rd party has notice of the existence and identity of the principal; principal can enforce contract against 3rd party – the agents liability is also limited if P is disclosed
b.      Rest § 292 Partially disclosed – when 3rd party has notice of the existence of a principal but not his identity; principal can enforce contract against the 3rd party – here the agent may be liable
c.       Rest § 302 Undisclosed – 3rd party has no notice of the existence nor the identity of the principal; 3rd party thinks it is dealing just with the agent; principal can enforce the contract against the 3rd party if agent intended to act on behalf of principal and had power to bind the principal,
A.      At CL when P is not fully disclosed he is a party to K, he is liable on it and can enforce it in his own name
(1)    A is also a party to K when P is not fully disclosed
ii.     Rest § 302 General Rule: A person who makes a contract with an agent of an undisclosed principal, intended by the agent to be on account of his principal and within the power of such agent to bind his principal, is liable to the principal as if the principal himself had made the contract with him, unless he is excluded by the form or terms of the contract, unless P’s existence is fraudulently concealed or unless there is set-off or a similar defense against the agent.
iii.   Exceptions where
A.      Principal is excluded by form/terms of contract
B.      Principal’s existence is fraudulently concealed (related to iv below) Rest § 304
C.      Rest § 306 There is a set-off or similar defense against the agent (protects the interest of the 3rd Party; 3rd party thinks he’s dealing only with the agent, who owes him money so should be able to reduce any liability 3rd party has by the amount owed the 3rd party from the agent)
(1)    Agent must have been authorized to conceal the principal’s existence.
(2)    Agent must have been acting within power to bind the principal.
(3)    The liability of the agent to the 3rd party must exist at the time of contracting (preexisting claim against the agent).
(4)    3rd party can avoid liability to the undisclosed principal up to the amount of the obligation of the agent to the 3rd party
D.     Prête-nom: (“name lending”) The agent was lending their name to the principal when the K was made.

prior transaction (set off), Agent does NOT have any defenses that are personal to the principal – e.g., if 3P owes principal money.
b) Liability of Attorneys
1.      In general, an attorney is not personally liable for the obligations incurred on behalf of his fully disclosed principal (the client), unless there is a specific agreement otherwise. But, courts require attorneys to make clear to 3P that attorney will not be personally liable for the client’s obligations. But…
a.      Copp – Court holds attorney liable for the 3P fee even though the attorney is an agent for a disclosed principal because the attorney did not make clear to 3P that firm would not be personally liable, there was a custom that 3P could expect the attorney to pay the bill whether or not the attorney is paid by the client, and 3P is looking primarily to the attorney for payment of fee (3P provider is primarily relying on the standing of the law firm and expecting payment from the firm, not the client). (modern trend)
b.      Eppler, Guerin 685 sw2d 737 – Texas law is not settled; Dallas Ct. App. says attorney not liable unless otherwise agreed.
c) Agent’s Implied Warranty of Authority
1.      Rest § 329 Agent Who Warrants Authority: A person who purports to make a contract, conveyance or representation on behalf of another who has full capacity but whom he has no power to bind, thereby becomes subject to liability to the other party thereto upon an implied warranty of authority, unless he has manifested that he does not make such warranty or the other party knows that the agent is not so authorized.
a.      Knows – means actual knowledge; not reason to know or should know.
i.      3rd pt has duty to act reasonably in determining A’s authority to bind
ii.     Dealing with A in breach may be implicit waiver
b.      E.g., death terminates agency powers; AG contracting after PR’s death will breach IWoA.
i.      a warranty is a guarantee – a guarantee that A has authority and the P is alive.  To not be personally liable if the P dies, maybe disclaim it to avoid liability
c.       3P can recover actual damages as a result of the breach and any expectation damages (benefit-of-the-bargain damages)
2.      Applicability of § 329 to Disclosed, Partially Disclosed, Undisclosed principals
a.      If the principal’s identity was fully disclosed, agent gives IWoA.
b.      If the principal’s identity was partially disclosed, agent still gives IWoA; agent becomes a party to the contract if he is acting within his authority. Agent has potential liability either way, unless otherwise agreed.
c.       If the principal’s identity is undisclosed, agent does not give IWoA because he does not purport to act on behalf of another, but the agent is a party to the contract.
3.      If agent acts in an unauthorized manner, as long as the agent has power to bind the principal (i.e., through apparent authority, estoppel, or inherent agency power), the agent is not liable to the third party for breach of the implied warranty of authority.
a.      But, whenever the agent binds the principal by acting in an unauthorized way, the agent is liable to the principal for any loss the principal incurs. By acting in an unauthorized way, the agent also breaches his or her duty of obedience to the principal. Rest § 401, an agent is liable to the principal for any loss caused by a breach of duty. Thus, whether the agent binds the principal through apparent authority, estoppel, or inherent agency power, the agent is subject to liability to the principal (even though his liability to 3rd pt is limited)