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

South Texas College of Law — Fall 2015 — LEAHY
1. Introduction
1.    Agency is: (Res 2d §1)
a.    an agreement that one person (agent) will act;
b.    primarily on behalf of; and
c.     subject to the control of the another (principal).
2.    Dual Agency is not allowed. An agent cannot serve two principals. Except when there’s:
a.    full disclosure to both principals; and
b.    consent by both principals.
3.    Sub-Agency exists when an agent hires a second agent and the second agent is both the agent to the first agent (the immediate principal), and to the principal at the top (the remote principal). For sub-agency to exist there must be consent.
a.    Principal’s consent—Principal authorizes Agent 1 to hire Agent 2 as an agent to Principal. (Without this element, relationship is agent’s agent.)
b.    Agent 1’s consent—Agent 1 must agree to be responsible for actions of Agent 2. So, Agent 2 must be acting on behalf of Agent 1. (Without this element, relationship is co-agents.)
2. Duties—Principal to Agent
4.    Duty of Indemnification.
a.    Principal must indemnify Agent for any losses/liability resulting from authorized goo faith performance of Agent’s duties if:
                                         i.    Necessarily incurred in the transaction of his Principal’s affair;
                                        ii.    Which are reasonable/foreseeable.
b.    Exception:
                                         i.    Agent acts beyond the scope of his duties; or
                                        ii.    Agent’s acts are wrongful/negligent/tortious.
c.     Exception to Exception:
                                         i.    Agent was following Principal’s orders in good faith.
d.    Law Suit Rule: If an Agent is compelled to defend in a law suit which was grounded upon acts on behalf of the Principal’s business, then Agent may recover the expenses of his defense from the Principal.
e.    Sub-Agency Rule: A sub-agent is entitled to indemnity from both Immediate Principal and Remote Principal.
5.    Duty of Exoneration.
a.    Rather than reimbursement, Principal must step in and defend lawsuit.
6.    Duty to Pay Compensation.
a.    Generally contractual, but if there’s no contract then one who requests or permits another to perform services for him as his agent promises to pay him reasonable compensation.
b.    TEST: Is it reasonable for Principal to expect to pay Agent and Agent expect to get paid?
c.     Sub-Agent Rule: As between Remote Principal and Sub-Agent, there is no duty of compensation. Duty of compensation lies in the Immediate Principal.
7.    Duty of Good Faith/Fair Dealing.
a.    Generally, Principal must deal with Agent both objectively and subjectively in good faith.
b.    Disclosure Rule: Principal must maintain a standard of conduct which will not harm Agent’s business reputation or reasonable self-respect.
                                         i.    Principal must not harm Agent’s reputation or embarrass Agent.
                                        ii.    Principal must reasonably provide information that Agent needs for his job.
8.    Duty of Due Care.
a.    General Rule: Master owes servant a duty of reasonable care arising from its control over the work environment.
                                         i.    Duty can be discharged by:
1.    providing reasonably safe working conditions.
2.    warning servant of the risks of unsafe conditions that the master should realize may not be discovered by the servant in the exercise of due care.
b.    Non-delegable Duty: Master may arrange for performance of the duty by someone else but liability of fault-worthy acts remains with the Master.
                                         i.    Fellow Servant Rule: Co-workers cannot hold Master liable for harm to them by a fellow servant who is working with them side by side.
1.    Vice Principal Doctrine Exception:
a.    Fellow Servant Rule does not include any servant who represented the Master in his responsibility to Principal.
3. Duties—Agent to Principal
9.    Commencement: Duties of Agent do not arise until agency relationship is created.
a.    Exception: Duties can arise before agency relationship is created if facts indicate trust and confidence was imposed before relationship actually began.
b.    Fiduciary: Person who has a duty, created by his undertaking, to act primarily for the benefit of another in matters connected with his undertaking.
10.  Duty of Good Conduct.
a.    RULE: Agent must not embarrass Principal and must obey all reasonable orders.
b.    “Don’t be a jackass” and all is good.
11.  Duty to Indemnify Principal.
a.    Agent must indemnify Principal for:
                                         i.    damage cause by negligence or other misconduct and fraud;
                                        ii.    violations of duty of loyalty;
                                      iii.    exceeding the scope of authority.
b.    Note: An agent generally is not made to indemnify Principal for small losses.
12.  Duty to Account.
a.    RULE: Agent must keep and render to Principal an account of money or items paid out or received on behalf of Principal.
                                         i.    INCLUDES: keeping an accurate record of the persons involved, of payments made, and taking receipts.
13.  Duty of Due Care.
a.    RULE: Agent must make reasonable efforts to accomplish the directed results.
                                         i.    Did you do your job non-negligently for your principal?
1.    You don’t have to guarantee the results.
b.    Level of Skill Required.
                                         i.    Paid Agents: Under a duty to act with the ordinary/average skill of persons performing similar work.
                                        ii.    Gratuitous Agents: Applicable standard of care is what is reasonable to expect under the circumstances.
                                      iii.    Higher Standard is only required if an Agent promises, contracts, or otherwise holds himself out as having a special level of skill and Principal can expect this special level o

                           v.    Supply of instrumentalities, tools, and place of work;
                                       vi.    Length of time of employment;
                                     vii.    Method of payment;
                                   viii.    Work as part of the regular business of the Master;
                                       ix.    Parties subjective belief of M/s relationship; and
                                        x.    What business the Principal is in.
c.     Spot Control vs. Economic Issues.
                                         i.    Spot Control (narrow focus): Did Principal have the right to control task at hand?
                                        ii.    Economic Factors (broader focus): Is Agent a full-time employee of Principal or an independent business person?
19.  Limits on IC Exception. Generally, a Principal is not liable for the torts of an IC, but Principal can be held liable in the following circumstances.
a.    Inherently Dangerous.
                                         i.    When the IC is hired to do inherently dangerous work, the person who hired the IC is vicariously liable for the negligence of the contractor.
1.    Inherently Dangerous Work:
a.    In its nature will create;
b.    A peculiar risk of injury;
c.     Unless special precautions are taken.
b.    Negligent Hiring of Independent Contractor.
                                         i.    There’s no duty to do extensive research of IC’s competence, but if there are apparent red flags, then it might be negligent not to look into it and taking it into consideration when hiring.
c.     Non-Delegable Duties.
                                         i.    Duty is non-delegable when the responsibility is so important to the community that the Employer should not be permitted to transfer it to another.
                                        ii.    TEST: Balance incentives with the cost of spreading liability.
1.    Court trying to figure out whether this is actually a IC or a hack to avoid liability.
                                      iii.    PROF NOTE: Courts are creating non-delegable duties because of “hack” IC, but the answer is to make the “hack” IC an employee, not creating non-delegable duties.
d.    Inherent Servancy.
                                         i.    Even if Principal hires IC, if Principal holds out IC as apparent servant, Principal can be held strictly liable for torts of apparent servant.