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

1.       1/14/09
a.        Agency Relationship (agent)- relationship where principal and agent agree that agent will act on behalf of the principal subject to the principals control
a.        Elements- 1)relationship between A &P, 2)A acts on behalf of P (“On behalf of”- means primarily on behalf of), 3) subject to P’s control (look at type of control vs. amount of control)
                                                              ii.      Agency governed by: 1) K, 2) exit rights, 3) fiduciary duties
b.       Business Organizations
                                                               i.      Reasons: get investments, cheaper than borrowing , labor without capital to invest, but can hire them
                                                              ii.      The corporation
1.       Limited Liability Company/Partnership –
2.       Can protect owner from wrong doing of agent
Unincorporated Businesses
                                                               i.      Sole Proprietorship – (Default, if only one person performing business)- principal is agent and thus not protected
                                                              ii.      Business Trust – assets of corp. are placed in trust, trustees manages for holders of shares in trust.
                                                            iii.      Partnership – two or more persons are co-owners of a business for profit.- default for more than one person
1.       Defined as 1)two or more persons, 2)agree to carry on business, 3)as co-owners, 4) for profit
                                                            iv.      Limited Liability Business Orgs.-
1.       Limited Partnership – has general and limited partners.
a.        General Partners – liable for debts, and get to manage
b.       Limited Partners – not liability for debt, and no management
2.       Limited Liability Partnership – shields partners from liability for acts of others
a.        General partnership where general partners have no liability
b.       Participants in organization have no liability for, entity has all liability
                                                                                                                                       i.      Acts of agents
c.        Limits personal liability
3.       Limited Liability Limited Partnership – limited liability to extended to all general partnership members as in a LLP.
a.        Limited partnership function
4.       Limited Liability Company – liability is limited because owners are not liable for debts of business
a.        Best thing ever, everyone has limited liability
Four questions to determine what entities to take
                                                               i.      1)Who has the right to manage?, 2)Is there limited liability?, 3)Is it single or double taxation?, 4)Exit rights?
1.       Favors do not create an agency relationship auto, based on facts in considering elements of agency
a.        Consent- does not mean that parties must have knowledge of agency and ramifications of such relationship
                                                                                                                                       i.      Consent to “on behalf of” and “subject to control”
1.       Ex. A consents to act “on behalf of” P “subject to control” of P
                                                                                                                                      ii.      Agency may be implicit through course of dealing between alleged P and A
b.       Hypos- can change based on facts
                                                                                                                                       i.      Landlord tenancy relationship gen. is not inherently an agency relationship
1.       Why- it is an arm’s length transaction, primary benefit is with tenant
                                                                                                                                      ii.      Interpreter- Interpretee- gen. is an agency relationship
1.       Why- subject to control and on behalf of interpretee
                                                                                                                                    iii.      Husband-wife- generally not an agency relationship
1.       Why- no control
                                                                                                                                    iv.      Neighbor running errand- generally yes
1.       Ex. I will go get nails for you if you tell me what type
a.        Primarily on behalf of another subject to control with agreement to get nails
                                                              ii.      Determining Relationships- burden of proof is on party advocating agency relationship
1.       Agency vs. Sale
2.       Agency or Debtor-Creditor Relationship
a.        ROL: creditor who assumes control of his debtor’s business for the mutual benefit of himself and debtor may become liable as principal for the acts of the debtor in connection with the business.
                                                                                                                                       i.      Not considered principal by merely having veto power over business decisions.
1.       Factors: Receipt of fixed price for property, acts in his own name receives property in his own name, independent business.
3.       Agency or Bailment
a.        ROL: negligence of bailee does not bar recovery of bailor unless there is some element of agency, master-servant, or partnership
b.       If bailor is safeguarding asset through control does not amount to agency
4.       Agency and Law of Trusts
a.        Trust- is a fiduciary relationship with respect to property, subjecting the person by whom the title to the property is held to equitable duties to deal with property for the benefit of another person, which arises as a result of a manifestation of an intention to create it.
b.       Power of termination is not alone sufficient to infer control and must look at how much control is agreed upon not amount of control that has been exercised.
c.        Differences from agency:
                                                                                                                                       i.      Title
1.       Agent – not title
2.       Trustee – has title
                                                                                                                                      ii.      Control
1.       Agent – acts on behalf of P
2.       Trustee – acts on his own behalf, and not subject to control of trustee, just in accordance with terms of trust
                                                                                                                                    iii.      Liability
1.       Agent – P is liable for agents actions
2.       Trustee – beneficiary is not liable for trustees actions
                                                                                                                                    iv.      Consent
1.       Agency –requires both parties consent
2.       Trustee – no consent from trustee required
                                                                                                                                      v.      Termination
1.       Agency – can be terminated by either party
2.       Trust – not terminable at will of either party or by death of either
                                                                                                                                    vi.      Agent may be both trustee and agent – if agent is entrusted w/ title to property for his principal he is trustee of that property
                                                                                                                                   vii.      Determining difference
1.       Look at control – if no control over person it’s a trust.
2.       Agency principles predominate where it is a agent-trustee relationship (e.g. agency law controls)
5.       Agent of Escrow Holder
a.        Escrow holders are not agents – they are not subject to control of either party, but rather act on the occurrence of a specified event
                                                                                                                                       i.      Escrow holder – is liable to parties for not following instructions of escrow
b.       Escrow requires two parties to be in the K – e.g. sign agreement w/ bank to give money to X and state, but X is not party then X changes terms by telling by to give him all money no escrow
Agency Distinguished from Other Relationship
                                                               i.      Franchise Relationship
1.       Franchise- license from the owner of a trademark or trade name permitting another to sell a product or service under that name or mark
2.       Generally, not an agency… franchisee does most of critical work/determinations to run the business
                                                              ii.      Marriage relationship
1.       Consens ual relationship involving trust and confidence between H&W and neither spouse is acting on behalf and subject to control of the other spouse.
                                                            iii.      Property Relationships
1.       Co-ownerships- Not agency because one cannot infer that one co-owner consents to another acting on his behalf
2.       Landlord-Tenant
a.        Not agency b/c Lessee cannot act on behalf of landlord
                                                                                                                                       i.      Improvements do not create agency unless required to under terms of lease
3.       Corporate
a.        Agency status of corp directors
                                                                                                                                       i.      Directors powers originate as legal consequence of their election not under control of shareholders.  Also they do not have power to act by themselves.
b.       Mere Instrumentality or Alter Ego Doctrine
                                                                                                                                       i.      Two corps with common directors and owners and affiliated with one another are not agency does not exist.  Parent-subsidiary
The Ambiguous Principal Problem-Dual Agency
                                                               i.      Dual Agency- An agent cannot act on behalf of the adverse party to a transaction connected with the agency without permission of the principal, through full disclosure
1.       Transaction voidable if 2 P’s are unaware of A’s double employment
2.       If only one aware, defrauded P can rescind or choose to affirm transaction and recover damages from other P or knowing A
3.       Exception: A can deal with other party if such dealing is not inconsistent w/his duties to P
a.        When acting with knowledge and consent of all parties can be agent of both
                                                                                                                                       i.      Consent may be implied
                                                              ii.      Ambiguous Principal Rule- cannot serve two P’s without full disclosure and consent
1.       Employer’s admin. of a group insurance plan does not create an agency relationship between the employer and the insurance carrier since the employer is acting only for the benefit of its employees and the employer’s own benefit in promoting better relations between itself and its employees.
2.       ROL- To determine agency must focus on which specific and relevant admin functions are performed by the employer on behalf of the insurer.
                                                               i.      Sells Agent
1.       Selling broker or salesperson in real estate transaction is an agent of the listing broker unless written agreement conveys otherwise
                                                              ii.      Sub-Agent
1.       Elements:
a.        P has to consent to hiring of Sub-Agent, or empower A to do so
                                                                                                                                       i.      P consents to on behalf of and subject to control
b.       A agrees with P to be primarily responsible for A2s conduct
2.       Person w/o capacity can be agent but one w/o capacity may not be held liable to the same fiduciary duties
                                                            iii.      Subagency
1.       1) principal has to implicitly or expressly authorize agent to hire second agent, 2) agent one must be willing to accept responsibility for actions of agent two
2.       If principal does not agree to agent hiring then the relationship is agent’s agent
3.       If agent one not willing to accept responsibility for actions of agent two then relationship is co-agency
Rights and Duties between Principal and Agent
Duties of Principal to Agent
                                                               i.      Duty of Exoneration and Indemnification
1.       Source of law:
a.        agent’s right to indemnity, unless expressly agreed to, dpends on reasonable inferences drawn from circumstancesà the principal bears the burdens to the extent that courts believe to be just, considering the customs of the business and the nature of the particular relation.
2.       Indemnification
a.        ROL: An agent compelled to defend a baseless suit, grounded upon acts performed in his principals business, may recover from the principal the expenses of his defense.
                                                                                                                                       i.      Does not matter if agent loses case, however, it does not extend to losses that result from agent’s own negligence, illegal acts, or other wrongful conduct
                                                                                                                                      ii.      Theory is that venture is P’s and if profits belong to him so should expenses
                                                                                                                                    iii.      Principal is liable for expenses that are foreseeable to agent
                                                                                                                                    iv.      Reasonable foreseeability or natural consequence
3.       Exoneration
a.        Principal has duty to intervene or pay for legal expenses in court
b.       Exoneration is better because principal steps in
                                                              ii.      Duty of Care
1.       An employer is subject to a common law duty of care toward its servants, arising from its control over the work environment.
2.       ROL:Must provide reasonably safe working conditions
a.        Duty discharged by 1) providing safe working conditions, or 2) warn employees of risks
b.       Non-delegable
c.        Does not extend to negligent actions involved in operation of business that is not connected with creating safe conditions for workers
                                                                                                                                       i.      Fellow servant rule- person in employment of another takes upon himself the risks incident to performance of specific services, and is compensated accordingly.  Each employee can give notice of misconduct and leave service if common employer will not take precautions.
1.       This was overruled by workman’s compensation laws and other social legislation
2.       Exception: Vice P Doctrine- if supervisor is one who is negligent then employer is responsible
                                                            iii.      Duty to Deal Fairly and in GF- Not fiduciary its K duty
1.       P has duty to deal fairly and in GF with A and provide A with any info which might subject A to physical or pecuniary loss in dealing with product
2.       ROL: P’s GF duty to agent demands that P maintain stnd of conduct which will not harm A’s business rep or reasonable self respect.
3.       Duty to inform of product defects only attaches when defects pose a threat of harm to consumers and a concomitant threat to prof. rep of sales agent.
                                                            iv.      Compensation
1.       ROL: an agent whom P made revocable offer of compensation for accomplishing specific act is entitled to compensation if P, to avoid payment, revokes offer and result is accomplished b/c of A’s prior efforts
a.        Elements: 1) principal is doing to avoid payment, 2) then revokes offer, 3) the result is accomplished through agents efforts
2.       Agent’s lien- unpaid A may be in rightful possession of property of principal until compensated, subject to contrary agreement
3.       Subagent agreements to compensation
a.        If subagent is employed the principal is not party to K and thus not required to pay negotiated compensation
b.       For indemnification a subagent is entitled against either the immediate or the remote principal for appropriate expenses or losses.
4.       Implied K for Compenstation
a.        Implied K based on relationship of parties, specificity of services, or circumstances indicating parties have agreed otherwise, one who requests/permits another to perform as agent promises to pay them
Duties of Agent to Principal
                                                               i.      Duty of Good Conduct and Obey
1.       Agent subject to duty not to act in manner  that makes continued relations with principal impossible and not bring disrepute to principal
2.       Agent must obey reasonable directions of P.
a.        No duty to perform illegal, unethical, or unreasonable acts
                                                              ii.      Duty to Indemnify P for Loss Caused by misconduct
1.       P has tort action or K action against A who wrongfully causes it loss
a.        Based on scope of employment
                                                            iii.      Duty to Account
1.       Duty to keep record of money and other things received including keeping accurate record of persons involved, payments made, taking receipts in customary fashion
                                                            iv.      Fiduciary Duties of Agents
1.       Commencement of Fiduciary Relationship
a.        Relationship limited to actions occurring within the scope of agency and creation of relationship is not within that scope… but facts could show fiduciary duty in pre-agency Ks
2.       Duty of care-fiduciary- r2d 377- A promise to act is promise to make reasonable efforts on P’s beha

           iii.      Scope of Employment
1.       ROL: master is liable for servants torts if acting within scope of employment
a.        219-1
2.       Scope of employment or “on the master’s business”
a.        Detour- when still on master’s business or within scope
                                                                                                                                       i.      Slight diversion
b.       Frolic- not at all on master’s business and outside scope
3.       Restatement 228 Factors- 1) is it of kind of work employee hired to perform, 2) occur substantially within authorized time and space limits, 3) it is actuated at least in part by purpose to serve the master, and, 4) if force is intentionally used by servant against another the use of force is not unexpectable by master
4.       Restatement 3d- an employee acts within scope of employment when performing work assigned by employer or engaging in course of conduct subject to the employer’s control. An employee’s act is not within scope of employment when it occurs within an independent course of conduct not intended by employee to serve any purpose of employer.
5.       ROL: if work was A reason for travel it is within scope, if it is not a reason it’s not within scope.
6.       How much do you have to be in master’s business after frolic to be on master’s business?
a.        ROL: once left master’s business must be dominant purpose of master to determine whether in scope
                                                            iv.      Coming and Going Rule- employer not liable for employees during commute to and from work unless they are running a special errand for the employer
1.       Exceptions
a.        Special errand- EE is in scope of employment when the primary purpose of the errand is for the employers benefit (own words def.)- must be unusual location from work
b.       When employee drives own car to work for employer purposes
c.        When employee is on call
Intentional Torts
                                                               i.      Gen. ROL- employer not liable for intentional tort when act is committed solely for benefit of employee
                                                              ii.      Majority view- conduct that caused harm must be intended at least in part to serve master for intentional torts to be assigned to master
                                                            iii.      Assault on 228 1c- MINORITY VIEWS
1.       Foreseability Test: employer should be held to expect risks, to the public also, which arise out of and in course of employment of labor
a.        Incidents cannot arise out of personal life
b.       Enterprise liability- cost of doing business
2.       Restatement 3rd rejects foreseeability- 2 tests
a.        Employee’s motivation- is employee’s tort engendered by the employment or an outgrowth of it or whether the tort arose out of a personal dispute or other causative factor unrelated to employment
b.       Does employer furnish the specific impetus for a tort or increased the general risk that the tort would occur
                                                                                                                                       i.      ROL: employee need not have intended to further the employer’s interest, the employer not liable for intentional tort that did not have a causal nexus to employee’s work.
1.       Employee motive still relevant
2.       Link- injury must be outgrowth of employment, risk of injury must be inherent
                                                                                                                                      ii.      Mere fact that employee has opportunity to abuse facilities necessary for performance does not render employer vicariously liable
3.       Implied contract liability
a.        Where employer is a common carrier for hire to public, and the tort or attach is by an employee upon a passenger while the contract for transport is being accomplished
4.       219(2)(d)- a master is not subject to liability for the torts of his servants acting outside the scope of their employment, unless
a.        The servant purported to act or speak on behalf of the principal and there was reliance upon apparent authority, or he was aided in accomplishing the tort by the existence of the agency relation
                                                                                                                                       i.      Requires apparent authority or deceit by servant to facilitate the tort
5.       Other Vicarious Liability Doctrines
a.        Vicarious liability by estoppels- even though no relationship that gives rise to vicarious liability, the purported master may be estopped from denying relationship
b.       Family Car Doctrine
                                                                                                                                       i.      Family/parents not liable for their children’s negligent or intentional tort in the absence of parent’s negligence
1.       Exception: owner of family car that permits family members to drive for their own pleasure, owner is viewed as master/servant relationship for vicarious liability
Contractual Powers of Agents- agents can bind P’s in K’s
Authority- not every agent can bind every principal to any contract, must have authority
                                                               i.      Authority- power of agent to affect legal relations of P where there are manifestations of consent
1.       How is authority created
a.        Written or spoken words or any other conduct of P
b.       Reasonably interpreted by A that P desires him to act on his account
                                                              ii.      Types
1.       Actual Authority
a.        Express Authority- P manifests desire to agent, specifically instructed to do something
                                                                                                                                       i.      ROL: power of atty lack the power to make gift of P’s property unless that power 1) is expressly conferred, 2) arises as a necessary implication from the conferred powers, or 3) is clearly intended by the parties, as evidenced by the surrounding facts and circumstances
b.       Implied authority- actual authority either 1) to do what is necessary to accomplish or perform an agent’s express responsibilities, or 2) to act in a manner in which an agent believes the principal wishes the agent to act based on the agent’s reasonable interpretation
                                                                                                                                       i.      Types of Implied
1.       Incidental authority- Restatement 3rd
a.        Unless otherwise agreed, authority to conduct a transaction includes authority to do acts which are incidental to it, usually accompany it, or are reasonably necessary to accomplish it.
2.       Delegated Authority
a.        Agent’s powers cannot be delegated in the absence of authority to do so; it carries particular weight when the agent’s undertaking calls for judgment or discretion
c.        Prior dealings- must be more than one other time
                                                                                                                                       i.      Element’s: prior dealings must be 1) similar to the one at issue and there must be a degree of repetitiveness
d.       Letterhead- Depending on facts could suggest authority
2.       Apparent Authority- Power of agent to bind P to unauthorized contract