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Agency and Partnerships
Southern Illinois University School of Law
Brittingham, Mark A.

1.      Elements of the Agency Relationship (OCC):
a.      On behalf of: A must be acting “on behalf of” P.
1)      Doesn’t have to necessarily be $ changing hands.
2)      More than just a mere benefit: agent’s function must be the carrying out of the principal’s affairs.
3)      Offering to help: don’t become an agent simply by offering to help or making a suggestion.
b.      Control: P must have control over A.
1)      Loss avoidance: whoever’s in a better position to avoid loss is key element to determine control.
c.       Consent: P must give authority and A must agree to do so (both parties).
1)      Implied Consent: consent can exist where the parties fail to recognize that they created an agency.
a)      Circumstances: consent may be implied from the circumstances.
2)      Capacity: don’t have to have contractual capacity to consent to agency relationship.
2.      Reasonable Efforts (Rest. § 377): promise to be agent is a promise to make reasonable efforts to accomplish the result.
3.      Proof of Agency: BOP is on person asserting agency.
a.       Question of fact: existence of agency is a question of fact.
1)      Review: Courts determination wont be disturbed unless clearly erroneous.
1.      Generally (Rest. § 14 J): one who receives goods from another for resale to a 3rd person isn’t the other’s agent.
a.      Exception: unless both agree that his duty is to act primarily for the benefit of the one delivering the goods.
2.      Determining if sale or agency: no agency but buyer-seller where:
a.       Title changes hands (control): P has no control over A
b.      Agent isn’t accountable for profits (behalf of): A isn’t working on behalf of P.
1.      Trust (Rest. of Trusts §2): fiduciary relationship with property, subjecting the person holding title to deal with the property for the benefit of another.
a.       Beneficiary: equitable interest in property.
2.      Key Element of Control: A is subject to P’s control in agency; but document is what controls in a trust.
a.       Beneficiary’s Control: trustee isn’t subject to control of beneficiary, except to deal with the trust in accordance with the document for beneficiary’s benefit.
b.      Agency by grantor’s control: grantor may reserve so much control over trustee that there is an agency.
1.      Nature of escrow (Rest. § 14 D): property delivered to the holder by another and the holder retains until the happening or non-happening of an event.
a.      Agreement: all parties have to agree to be part of an escrow agreement.
2.      Escrow holder distinguished from agency: before condition occurs escrow holder isn’t an agent of either (bound by agreement).
a.       Succeeds: if event happens escrow holder becomes the agent in possession of the property or the holder of title for the new owner.
b.      Fails: if doesn’t happen before specified time the escrow is ended and the holder becomes the agent for each party as to the deposited property.
3.      Third Party Beneficiary: even if no escrow agreement, an agent acting on behalf of one person may be held liable to a third person for failure to perform a contract intended to benefit third person.
1.      Dual Agency Rule: A cannot act on behalf of the adverse party to a transaction without permission of P.
a.      Consequences: if two principals are unaware of the double employment, the transaction is voidable.
1)      If one knows: other can rescind or go through with it and sue for damages.
2.      The Ambiguous Principal Problem: where it is hard to find who is the agent and who is the principal.
a.       Insurance Case: no agency where employer is acting only for the benefit of its employees and the employer’s own benefit in promoting better relations with employees.
1)      Exception: where employer, with insurer’s consent, performs the functions of an insurer, it may be considered the insurer’s agent.
3.      Subagency:
a.       Agents authority to hire: agent may be given express or implied authority to hire a subagent.
b.      Compensation: subagent has no right to compensation against remote principal.
1)      Solution: subagent must sue agent who must get indemnification from remote P.
c.       How to determine if subagent or agent: not obvious but have to look to:
1)      Terms of the agreement:
a)      Who does agent/subagent report to.
b)     Who pays him.
2)      If not in agreement look to industry standards.
1.      Duty to Pay Compensation: unless it appeared to be gratuitous, principal must pay agent agreed amount.
a.       Interpretation: ordinarily defined contractually, but can involve the problem of interpretation.
b.      May be Implied: absent express agreement, it’s inferred that one who has another work for him promises to him.
2.      Duty of Exoneration and Indemnification:
a.       Indemnity: P must indemnify A for all expenditures or losses incurred by A in discharge of her authorized duties.
1)      Agent commits wrong: A is entitled to indemnity where he acts in obedience to P’s instructions and in good faith without realizing he was committing a wrong.
b.      Baseless suit: A may recover from P the expenses of his defense, where he has to defend a baseless suit, on behalf of P.
c.       Limitation on the indemnity of P (Rest. § 440): unless otherwise agreed, P doesn’t have to indemnify an agent for:
1)      Loss not of benefit to the P and
2)      Resulting solely from the agent’s negligence

oth a breach of the agency contract and a tort.
a)      Damages: A may be accountable for all damages proximately caused to P including attorney fees.
b)     Forfeiture: Courts are split on whether the P has a right to recover whatever compensation was paid to the agent during the period of disloyalty.
4)      Confidential information: duty not to use confidential information in competition with or to the injury of the P.
5)      Post-Termination Competition: employer may take steps to protect himself, but not help his own position solely at expense of employee:
a)      Trade Secrets: former employee may not solicit the employer’s customers.
b)     Covenants Not to Compete: enforceable if drawn to protect legitimate interests of the employer (not to limit competition), and reasonable in time and space.
1.      Vicarious Liability: master is vicariously liable for the authorized acts of his servant. 
a.      Joint and Several Liability: 3rd person can proceed against the employee (vicarious) and the employer (direct).
B.     2 ISSUES WITH RESPONDEAT SUPERIOR: in order for employee to be held liable there must be (need both):
1.      Master-servant relationship (Rest.): like agency but additional aspect that master controls details of agents work.
a.       No Employment Relationship Necessary: person volunteering service may be a servant of the one accepting the services, if subject to the other’s control.
1)      Control of driver: driver’s negligence isn’t imputable to passenger unless passenger has ability to control driver’s operation of the vehicle.
2)      Owner of vehicle: owner will be held liable for the negligence of the friend who drove the car.
b.      Right to supervise: doesn’t constitute sufficient control.
c.       No need for actual control: liability can be imposed when actual control over tortfeasor at the time is absent.
d.      Negligent in hiring: negligently hiring an employee is often a claim in vicarious liability cases.
1)      Rebuttable presumption that an employer uses due care in hiring an employee.
2)      More trusted employee: employer is chargeable with information concerning the more trusted employee’s background (reasonable inquiry).
2.      Scope of Employment:
a.      Frolic or Detour: