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Agency and Partnerships
South Texas College of Law Houston
McGovern, Bruce A.

 
A&P McGovern Summer 2015
 
Part 1: The Firm and its Agents:
 
Ch. 1: Contractual Dealings by Agents:
A.      Agents, Servants and Strangers (The Agency Relationship)
1.       Agency Generally:
                                    i.      Definition:
1.       R2A §1:
a.       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.       R3A §1.01:
a.       Agency is the fiduciary relationship that arises when one person (a “principal”) manifests assent to another person (an “agent”) that the agent shall act on the principal's behalf and subject to the principal's control, and the agent manifests assent or otherwise consents so to act.”
                                  ii.      Elements:
1.       Mutual consent
2.       That one person will act on behalf of another; and
3.       The person acting is acting subject to the others control
4.       Can be created without the intention of the parties:
a.       Created unwittingly
                                                                                                i.      Ex: Jennifer buys pants and decides she doesn’t like them. Keesha offers to return the pants for her on her way to the mall. J agrees and tells Keesha to have the store credit her account.
                                iii.      Creation:
1.       Agency if formed when there is
a.       Some manifestation by the principal that the agent act on his behalf and subject to his control; and
b.       Some manifestation of consent by the agent to do so
                                                                                                i.      Consent can be inferred from words or conduct
                                                                                              ii.      Starts with the principal who gives authority to the agent, who in turn gives the principal loyalty à the agent can now engage in actions with 3rd parties and the result of the agent engaging in actions with 3rd parties is that the agency can construct a K that binds the principal
2.       KEY is the intentions of the parties:
a.       Creation of an agency relationship ultimately turns on the parties intentions as manifested by their agreement or actions (expressed or implied)
                                                                                                i.      i.e., the agency can be created by a written agreement or by the actions of the entities
1.       EX: working together, agent representing himself as one who has authority, etc.
3.       Principal and agent must both consent to the relationship:
a.       The agency relationship can arise ONLY when there is mutual consent:
                                                                                                i.      From an express agreement or
                                                                                              ii.      By inference from the acts of the agent and principal
1.       Infer from words or conduct, including acquiescence, of the parties and the circumstances
b.       Where some manifestation of the principal’s consent must actually come to the attention of the agent, the agent need not necessarily communicate his consent to the principal if, under the CC, embarking on the purpose of the agency is, itself, a sufficient indication of consent
                                iv.      Characteristics of an Agency Relationship
1.       General:
a.       Factor test;
                                                                                                i.      Weigh them by arguing either for or against by applying the facts of the situation
                                                                                              ii.      Do not need to satisfy all 3
2.       3 Characteristics: (use to determine existence of an agency relationship)
a.       The agent’s power to alter the legal relations of the principal;
                                                                                                i.      An agent (or apparent agent) hold a power to alter the legal relations between the principal and 3rd persons and between the principal and himself
1.       Ex: the agent binding a principal to a contract
2.       Ex: Respondeat superior
                                                                                              ii.      Agent is playing an integral role
1.       Facilitating the relationship btw principal and 3rd party
                                                                                            iii.      Agent does not always have the power to bind P to a K
1.       Attorney/client relationship
2.       Real estate agent
b.       The agent’s duty to act primarily for the benefit of the principal; and
                                                                                                i.      Derives from agent’s status as a fiduciary with respect to matters within the scope of his agency
1.       Fiduciary:
a.       One who acts primarily on behalf of and for the benefit of another person
b.       Owe a duty of loyalty to the agent in matters related to the A&P relationship
2.       An agent cannot become an adverse party to the principal without notifying the principal and getting the P’s consent
c.       The principal’s right to control the conduct of the agent with respect to matters entrusted to him
                                                                                                i.      A principal need not exercise physical control over the actions of its agent in order for an agency relationship to exist:
1.       P doesn’t have to control minute details
2.       Minimal level of control necessary for an agency relationship
                                                                                              ii.      The agent must be subject to the principal’s control over the result or ultimate objectives of the agency relationship
1.       Even when a principal has contracted with the agent not to exercise control and to permit the agent the free exercise of his discretion, the P still has the power to give lawful directions which the agent is under a duty to obey
B.      Formalities of Formation: 
1.       Formalities General Rule:
                                    i.      R2A §26: General Rule for Formalities in creating agency relationship:
1.       No formalities are required for a principal to create an agency relationship or to grant authority to an agent    
a.       Authority to do an act can be created by:
                                                                                                i.      Written or spoken words/ other conduct of the principal,
                                                                                              ii.      When reasonably interpreted,
                                                                                            iii.      Causes the agent to believe that the principal desires him to act on the principals behalf
2.       Exceptions:
a.       Execution of instruments under seal OR
b.       For the performance of transactions required by statue to be authorized in a particular way
                                                                                                i.      Statute requires the grant of au

                                i.      The agents power to affect the legal relations (bind) the principal by acts done in accordance with the principals manifestation of consent
2.       Exception:
a.       When an agent exceeds his authority, his principal is bound by his authorized acts so far only as they can be plainly separated from those which are unauthorized
                                                                                                i.      i.e., if principal does not authorize or says only authorized to a certain extent and the agent exceeds, then the Agent is liable for any excess that exceeds the scope of authority (see ch. 3)
                                  ii.      Common Law:
1.       A person who assumes to act as agent for another impliedly warrants that he has authority to do so; and
a.       If therefore he in fact lacks authority he renders himself personally liable on the warranty to one who deals with him in good faith in reliance thereon (liable to 3rd party)
                                                                                                i.      This action may be sound on tort or K law
2.       The common law of agency attributes the legal consequences of one person’s action to another person
a.       These doctrines attribute legal consequences but do not create free-standing or independent causes of action that a 3rd person may assert against a principal
                                iii.      R3A §605(1): Contract that is authorized in Part or that Combines Orders of Several Principals
1.       If an agent makes a K with a 3rd party that differs form the K that the A had actual or apparent authority to make only in an amount or by the inclusion or exclusion of a separable part, the P is subject to liability to the 3rd party to the extent of the K that the A had actual or apparent Authority to make if:
a.       The 3rd party seasonably makes a manifestation of the P of willingness to be bound; and
b.       The P has not changes position in reasonable reliance on the belief that no K bound the P and the 3rd party
2.       When an agents authorized actions can be plainly separated from those that are unauthorized, the P is only bound by the authorized
3.       Capacity
                                    i.      Capacity of the Principal:
1.       A principal must have capacity to give a legal consent, as well as capacity to do the act that he or she is authorizing the agent to do.        
a.       Capacity to consent to an agent AND
b.       Capacity to enter into underlying transaction
                                                                                                i.      So long as both are met the Principal can be held to the contracts or agreements
                                  ii.      Capacity of an Agent
1.       To be an agent, a person needs only the physical or mental capability to do the ting he or she has been appointed to do
a.       Low standard à Almost anyone can be an agent