Select Page

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

*** Agency ***

I Formation of Firms – Agency Relationships
1. Rest §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 to so act.
a. Mutual 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 other person’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, VL for agent’s torts
b. Rest §13 Agent is a fiduciary with respect to matters within the scope of his agency
c. Rest §14 The principal has the right to control the conduct of the agent with respect to the matters entrusted to the agent.
i. Control the result (ultimate outcome or objective) but not the minutia of achieving the result.
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):
i. 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
ii. 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).
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 – 3rd party has notice of the existence and identity of the principal; principal can enforce contract against 3rd party
b. Rest § 292 Partially disclosed – 3rd party has notice of the existence of a principal but not his identity; principal can enforce contract against the 3rd party
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,
i. Rest § 302 General Rule: A person who makes a contract with an agent of an undi

against the agent unless the agent took possession of the chattels he is disposing of with the 3P or the principal otherwise misled the 3P into extending credit to the agent.
5. Generally an undisclosed principal can substitute his performance for that of the agent unless doing so would substantially change the nature of the transaction from the perspective of the 3rd party.
a. E.g., agent contracts to convey real property and contracts to give the agent’s warranty deed; principal steps in and says agent was acting for him and that the buyer will be getting the principal’s warranty deed
b. E.g., attorney contracts to perform services; another attorney steps in and says the first attorney was acting as his agent and the other attorney is going to provide the services
6. An undisclosed principal can generally require the 3rd party to render the contracted services to the principal instead of the agent unless the contract deals with personal services § 310
C. Agent’s Liability for Contractual Dealings
a). Agent’s duty to fully disclose principal/Problems with D.B.A.
1. An Agent can become a party to the contract (making him liable):
a. Rest § 320 – Unless otherwise agreed, an agent does not become a party to the contract he makes for disclosed principal.
b. Rest § 321 – Unless otherwise agreed, an agent does become a party to the contract he makes for a partially disclosed principal.
c. Rest § 322 – An agent purporting to act upon his own account, but in fact making a contract on account of an undisclosed principal, is a party to the contract.
d. But must also consider the agreement of the parties: language of the contract and the conduct of the parties and the circumstances.
2. Problem areas for businesses – Trade Names (DBA)
a. Sign contracts as the principal d/b/a the trade name Example
i. “Principal” d/b/a “trade name”
ii. By: “person”, “title” (agent)
b. Filing an assumed name certification may constitute sufficient notice to the third party (not in all jurisdictions)