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



FALL 2017


Agency – R2d §1 à 3 Basic Elements

Agreement that (consent)

Parties do NOT have to agree that they are Agent and Principal
Only matters that ONE person agreed to act on behalf of and subject to the control of the other

Agent will act on behalf of the Principal (having already agreed to this)

On behalf of does NOT need to 100% on behalf of the Principal, acting primarily on behalf of is enough
On behalf of is NOT the same as incidentally benefitting (ej: having a restaurant in a mall; the restaurant isn’t there to benefit the mall, but it ends up happening)

Agent is subject to Principal’s control

Only need control over the result, not the means to achieve that result i.e. only need a modicum (little) bit of control

Details of Agency

FACT question for the jury to decide

Judge only decides on a summary judgment motion or bench trial/small claims court

Plaintiff à burden of proof (the person who is claiming that there is an agency relationship
Favors do NOT always lead to an agency relationship, but gratuitous favors can lead to an agency relationship
Written disclaimers are NOT dispositive; they are only evidence of an agreement
Agreement does not need to be explicit and parties do NOT have to agree to legal status of Agent and Principal

Need ONLY agree to factual predicates i.e. Agent needs to agree to act on behalf of Principal, subject to Principal’s control

Carrier and Violette Cases

Favors lead to an agency relationship when:

The definition of agency is satisfied
Giving advice might NOT be enough to satisfy the “on behalf of” element

NOT present in Violette case


CEO of a corp., A, and her assistant, B, are co-agents of the corp.

Subordinate co-agents are NOT necessarily the agents of the superior agent

B is a subordinate co-agent of A, meaning he is not inherently A’s agent
B’s loyalties lie with the corp. because that is who pays his salary

Limited agency can arise between co-agents if supported by the facts

Ej: running a person errand for a supervisor

Agency v. Sale

Distributor relationships are NOT typically agencies

“On behalf of” element is often missing

Look at certain types of control as a proxy for (lack) of “on behalf of”:

Did the reseller take title to the goods?
Does reseller pay a fixed price?
Does reseller set the selling price?
Does reseller take the credit risk?

YES to all proxies à isn’t the reseller really acting on his own behalf???

Agency v. Debtor/Creditor

Usually, debtor/creditor relationships are NOT agencies
Ej: law student taking out loans
Cargill Case:

Warren was never going to repay Cargill
Cargill and Warren viewed themselves as in business together indefinitely and both understood that the loan would never be repaid

** Too much control can blind a court to “on behalf of” so pay attention!!

Agency v. Bailment

Bailor/Bailee relationships are NOT typically agency relationships, unless the agency elements are satisfied
Jones Case:

No acting on behalf of because the driver drove for himself and not for the owner of the car

Paid a flat fee to rent the car for the day

Driver still has the opportunity to earn more money

Driver set his own rates and hours
Driver paid for his own gas
Driver kept his own profits

Agency v Other Relationships

Franchisor/Franchisee — NOT usually an agency relationship

Franchisee makes money for Franchisor as an INCIDENTAL effect of making his own money and Franchisee is NOT doing Franchisor’s business
Lacking “on behalf of”

Co-owners of property – NOT usually an agency relationship

Each has his own interests

Corporate directors – NEVER agency

Control element is lacking
CEO’s are agents

Ambiguous Principal

Dual Agency – Thayer Case

Rule – an agent cannot serve 2 adverse Principal’s UNLESS:

Full disclosure to both parties; and
Consent from both parties (could be implied)

Need clear evidence (any ambiguity – reject dual agency)

Dual Agency Exceptions:

Agent’s job suggests implied consent/disclosure
Agent’s work for Principal that is ministerial à NOT adverse

More on Dual Agency:

If Agent’s job description for Principal requires Agent to work regularly on behalf of T, such that consent to dual agency may be implied

ALWAYS ask: whom is the Agent really working for???

Ej: is the customer service person at GAP really your temporary agent?

Really a factual question

Trick “Ambiguous Principal Cases”

If dual agency is disfavored, you run into problems where the Agent is (arguably) working on behalf of 2 adverse Principal’s
Kilbourn and Norby Cases:

Where an employer administers an insurance plan for its employees, there are 2 views:

Kilbourn (majority) – employee is the Principal and the employer is the Agent

Insurance is for the benefit of the INSURED
Really ignores the control element
Asks – on whose behalf is the Agent really working on?

Norby (better view/minority) – insurance company is the Principal and the employer is the Agent

Insurance is for the benefit of the EMPLOYER
Asks – which purported Principal really control the Agent?


In order for A2 to be a sub-agent:

(1) P1 (remote P) must agree that A1 may hire A2 and that P1 will be a principal to that A

Absent P1’a consent to be a principal to A2, A2 is an “Agent’s Agent” with regard to P1

(2) A1 also consents to be responsible to A2 as P2 (immediate P)

Absent A1’s consent to be a principal to A2, A2 is a “Co-agent” of A1

Agent’s-agent – only have A1 also agreeing to be responsible for A2
Co-agency – principal hires an agent and tells that agent to go out and hire someone else

Sub-agency + Ambiguous Principal

Stortroen Case

Each side wanted the same showing broker to be the agent of the other side, so notice to her was notice to the other side
Holding à MLS showing broker is the sub-agent of the seller (Majority)

Does NOT reflect the buyer’s expectations

Real estate à agency is CONFUSING; get it in writing!!!
All realtors = Middlemen i.e. not the agent of anyone

CO – new default is that ALL realtors are middlemen

By statute, realtors are NOT agents of either the buyer nor seller, absent a written agreement

TX – no default i.e. it depends on the facts

Some cases still follow the majority approach i.e. broker must provide buyers with a form that discloses various possible relationships


Principal owes an Agent duties, in

nd P involves peculiar trust and confidence and

The prospective P relies on the prospective A to deal fairly with the prospective P
Then the prospect A is subject to a duty to deal fairly in arranging the terms of the A relationship

Duty of Due Care – duty not to be negligent

A’s promise to perform a task à A must make reasonable efforts to complete task
A must perform with ordinary skill
A breaches duty by performing negligently, unless:

A promised P a higher standard of care or
A limited her liability (ej: gross negligence)

Gratuitous agent – use a reasonable effort under the circumstances

Duty of Full Disclosure

A must:

Make a reasonable effort to disclose to P
Material information

Info that would be important to a reasonable P with regard to the transaction at issue i.e. it might affect P’s decision-making)

Known to A

Duty of Loyalty – intended to be strict

Core fiduciary duty – A must always put P’s interests first

A can’t cheat, steal, take a little for himself on the side, etc.

Exception – full disclosure and approval from P


A cannot compete with P during relationship absent explicitly/implied consent
A/EE compete with P/M after termination

Absent, ej,

Non-compete agreement (if reasonable)
A takes unfair advantage


P is a corporation. Who owes a duty of loyalty to P?

CEO, VP, cashier, greeter, janitor
Scope is the only thing that differs among employees

3 common ways to breach:

Self-dealing (most common)

Agent cannot be on both sides of the transaction with P, unless:

Full disclosure + P’s consent or fairness

Ej: getting tips being a waitress; restaurant consents/full disclosure to it, so you get to keep your tips

Stealing a business opportunity (competition)

A cannot steal an opportunity that belongs to P, unless:

A has a defense like P declined the deal

Intending to harm P

A cannot intentionally act against P’s best interests

Confidential Information – only relevant once you finish working

Subclass of competition
A cannot use P’s confidential info while working for P (that would be wrongful competition)

Further, A must keep confidential information secret after A leaves P’s service and not use it, even if info did not relate to A’s job
Moreover, the information need not have been explicitly designated by P as confidential or a trade secret, if A should reasonably know that P would want to keep it secret

Town and Country case