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

The Firm and Its Agents and Servants (Assignment 1A)
o        Definition of Agency – Rest2d§1
·         Agency: 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
§         Basically, a fiduciary relationship that results from:
·         Manifestation of consent from one person (principal)
·         That another person (agent) act on behalf of principal and
·         Is subject to the principal’s control
·         With consent by agent to do so.
·         Elements of Agency
§         Mutual consent
·         Can be implied
§         That one person will act on behalf of another and
§         That person (agent) will act subject to the other’s (principal) control
§         (All of these elements must be present)
·         Attributes of “agency”
§         Agent has the power to alter legal relations b/w principal and 3rd parties (§12)
·         Ex, power to bind principal to a contract, vicarious liability on principal for torts that the agent commits
§         Agent is a fiduciary w/ respect to matters w/in the scope of his conduct (§13)
·         Someone who acts primarily for the benefit of another
§         Principal has the right to control the agent w/ respect to matters entrusted to him (§14)
·         Refers to right to control the result or ultimate outcome of the work, rather than to control over the minute details
·         Agent must be subject to result or ultimate objective and does not refer to actual physical control
·         Ex, atty-client: Client controls the outcome but does not control what cases atty should read to get there
·         This differentiates agent/principal from master/servant relationship
·         A principal is not vicariously liable for agents but is for servants  
 
Fiduciary Duties of Agents and Servants (1B)
Fiduciary principle – §13, comment a
The agreement to act on behalf of the principal causes the agent to be a fiduciary, that is, a person having a duty, created by his undertaking, to act primarily for the benefit of another in matters connected with his undertaking
Made up of a couple of things
Primary fiduciary duty is the duty of loyalty
§ 387 – requires that the agent act solely for the benefit of the principle in matters connected w/ the agency
§ 389 – requires agent to not act as an adverse party w/out the principal’s consent
Generally, agents cannot buy from or sell to the principal w/out consent of the principal
HRB violated this by taking the loan from the bank
§ 390 – if they do act as an adverse party, must disclose all relevant facts of the relationship
HRB did not disclose all facts concerning the adverse relationship
§ 388 – Agents have a duty to account for profits
Agent cannot profit from transactions conducted for the principal without the principal’s consent
 
The Firm and Its Agents
Partnership (1C) (UPA and RUPA)
An association
Voluntary or consensual agreement
Of two or more persons
“Person” could mean individual or a corporation or a partnership (UPA §2, RUPA § 101(10)
To carry on as co-owners
Shared control
Ability to control the business is the hallmark of ownership
A business
Must be an activity that rises to the level of being a business
Mere co-ownership of land would not be a business (unless they are dealers) (UPA §2, RUPA §101(1)
For profit
Must have intent to earn profits (so still qualifies even if it is a failing business)
 
 
Characteristics of Employment Relationship
Employer’s right to employees labor and to control employees performance
UPA §18(e) says that all partners have an equal right in the management and conduct of the partnership business
Default rule that could be modified in the partnership agreement
RUPA §401(f)
Employees right to compensation from employer
UPA §15(b) contractual obligation of partnership so partners have liability for the debts/obligations of the partnership
RUPA §306(a)
 
 
·         Theories of Partnership
§         Entity Theory of Partnership
·         Partnership is a separate and distinct legal person with its own rights and obligations that is separate from the individual partners
·         So if two people make up the partnership, then you would have essentially three “persons”
·         RUPA says partnership is an entity §201(a)
·         Comments say that this is not determinative and the focus is more on whether the characteristics of the employment relationship are present
·         They are in the RUPA
·         §401(f) each partner has an equal right in the management and conduct of the partnership business
·         §306(a) in general partners are personally liable for partnership obligations
Aggregate Theory of Partnership
·         Partnership is an aggregate of its partners such that there is no separate and distinct partnership
·         Rather, the term partnership is merely a way of describing the relationship b/w the partners
·         Kind of like referring to a group of people as a family
·         Under UPA, partnerships are part aggregate and par

s liability for both contract and tort liability
§         Still a general partnership, but by filing application and registering as an LLP, it essentially buys the additional feature of limited liability
·         See 1F handout
§         Question 1
·         What steps must be taken for a partnership to become a Limited Liability Partnership?
·         To become a register LLP, Law Firm must file an application with the secretary of state (TBOC §152.802)
·         Must pay application fee as well ($200 per partner)
·         §152.803 says they must include the words “limited liability partnership” or the abbreviation LLP in its name (per §5.063)
·         §152.804(a) requires liability insurance up to at least $100k or if not, they must have a separate fund of at least $100k for satisfaction of any judgments
·         Failing to comply w/ financial responsibility clauses will prevent partnership from gaining the limited liability that protects the partners from being personally liable
·         Registration only last one year so must be renewed annually (§152.802(g))
·         See 161 S.W.3d 137
·         On date 1, Firm registered as an LLP
·         Time passes and Firm fails to renew registration
·         On date 2, the Firm enters a lease and fails to make payments
·         Lessor brings action against partners who were personally liable since they failed to renew LLP status and so were not protected from personal liability
§         Question 2
·         In an LLP, if Partner B entered into a contract with a photocopier company, is Partner A subject to personal liability on that contract?
·         §152.801(a) says that partners in an LLP do not have personal liability for obligations incurred while the partnership is an LLP
·         See also §152.304 general rule for partner liability
·         Says that the partner would be liable jointly and severally
·         However, § 152.801(a) trumps this general rule
§         Question 3
If an LLP and Partner B commits malpractice. Is Partner A subject to personal liability to the victim of malpractice