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Agency, Partnership and the LLC
South Texas College of Law Houston
Rosin, Gary S.


I. Introduction:

§ Corporation:
o Limited liability to those involved
o Double taxation to shareholder
§ Earliest were non-profits.
§ They kept title to property in name of one legal entity (church).

§ Partnership:
o Unlimited liability.
o No double taxation to shareholders.
§ Default: ALL partners are jointly & severally liable.
§ The partnership is not separately taxed.

§ Limited Partnership: (LLP & LLC)
o One GP and numerous limited partners.
§ GP has unlimited liability
§ LP’s liability is limited to his investment
§ Law treat’s LP as a GP if LP acts as a GP.

II. Agency:

· The agency relationship is voluntary. Rooted in law of Master/Servant
o All agents are servants, but not all servants are agents.
· The agency relationship is a special relationship that calls on the agent to prevent doing harm to those in the relationship
· The agent’s fiduciary duties:
o Care: Goes to skillfulness (reasonableness under the circumstances)
o Loyalty: Goes to honesty

· All ambiguities are resolved in favor of the principal.

· Merrill Doctrine: between two innocent parties, the loss should fall on upon the one who created the enabling circumstances = the principle.

· An agent violating any duty is not entitled to compensation.
o Douglas v. Steele: Agent sought by customers to schedule their vacation and make all necessary reservations & payments. She released funds to a company that took money and went insolvent. She did not exercise reasonable diligence in checking on company, and she was in a position where she could have.

· There are 2 approaches to analyzing the agency relationship:
1. The fiduciary relationship is a consequence of agency
a. Restatement 2nd approach
2. Fiduciary relationship may be used to support the position of agency.

· In real estate, the mere fact that you facilitate an offer does not make you an agent for the seller.
· You can be an agent for buyer and seller, but it must be FULLY disclosed, and both parties must consent.
o Why then the old adage that no man may serve 2 masters?
§ This addresses conflict, but one agent representing both sides is only potential conflict.
§ Economic considerations.
§ Efficiency.

· TX Law: Real estate brokers must be expressly clear who they represent.
o In the absence of a contract, real estate brokers are seen as representing the seller, even if working for the buyer.
o Contract trumps default rule b/c of express agreement.
o Where there are conflicts, consent overrides where there is a conflict
1. In both real estate and law

· An Independent Contractor can also be an agent. Look to the circumstances. How much control does the IC have over his duties.
· An IC can end up being a servant. Not all servants are agents.

· The definition of agency requires a degree of control (or dominion) by the principal over the day to day operations.
o ie: a manufacturer that has dominion over quality, sales, and administration for the dealer creates an agency relationship and exposes the manufacturer to liability through the agency relationship.
o The court will look to:
§ Expectations of parties
§ Nature of relationship
· to find existence of fiduciary relationship & existence of agency.
· Edwards v. NSS:
o The NSS national chapter had no control over the local chapter.
o National chapter was not liable to local chapter for hole in property or fence line where person fell in.
o National chapter gained no benefitfrom local & there were no National employees at local.
o Documents supported National.
o Control is the key variable and that remains the case – specific control that would be dispositive as to the subject matter

Agency or Trust

Look to the intent of the parties as manifest to provide guidance.
An agency is not a trust

An agent having title will not make an agency a trust.

Agent as Fiduciary

Arms length standards do not apply when there is an agency relationship.

Meinhard v. Salmon:

M leased property for land owner & then sub-leased to Salmon
Salmon signed a new deal with the land owner & did not disclose to M.
Salmon should have drafted the deal originally, therefore not involving M
The fiduciary is not to put his interests over the interests of those whom he serves as fiduciary.
General declination of fiduciary duty is void as against public policy – if you otherwise would be in a fiduciary relationship – but can except specific duties.

If agent makes a profit in connection w/ transaction conducted by him on behalf of the principal is under a duty to give such profit to principal.

Essential Elements of Agency Relationship

1. Consent by the Principal & Agent (agent’s power to alter the legal relationships of the principle).

2. The fact that the Agent operates on behalf of the Principal.

3. Right of Principal to control the

needs to employ others, those employed bind the principal.

III. Vicarious Liability:

Restatement 2nd § 219: A master is subject to liability for the torts of his servants committed while acting in the scope of their employment.
P May be liable for torts committed outside the scope of their employment, if the servant purports to act or speak on behalf of the P and there was reliance upon apparent authority, or he was aided in accomplishing the tort by the existence of the agency relationship. (RST 2nd 219(2)(d)).

NO evidence of negligent hiring or negligent entrustment need be shown.

Jones v. Hart:

The act of a servant is the act of his master, where he acts by authority of the master.
A servant who is not an agent à principal is to be liable if within the scope of employment.
A servant who is an agent à No Fault à RS à Principal liable.

Cobb v. Corbet:

Theory of liability, here, is that liability flows through the agent to the principal.
To settle with the agent is to hold the principal not liable.
The principal is NOT liable unless the agent is liable.

If the agent settled, the principal is off the hook.
Put another way: When agent is released, the entire claim is relaeased.
SO….the release of an agent who is not a servant does not have the effect of releasing the principal. That is b/c you do not have indivisibility of Respondeat Superior.

Non-servant Agents: Must start with proving the liability of the agent & that flows through to the principal. Negligence is the key with non-servant agents.
The principal has to have a standard which is not met in order to be liable: NEGLIGENCE

Santiago v. Phoenix Newspapers: (FACTOR 3 supra, Right to Control)

Unless there is a concrete IC situation, this is a question of fact for the jury.