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Business Associations/Corporations
University of Kansas School of Law
Hecker, Edwin Webb

Business Associations I: Hecker


I.                     Agency
a.        Definition
i.      Agency: one person has power to act on behalf of another AND is subject to that person’s control. R.2d § 1.
1.        Agency relationship arises when: the principal manifests consent to the agent that the agent shall act on the principal’s behalf and subject to the principal’s control and the agent consents to act. R.3d § 1.01
2.        Mutual consent is required. R.3d § 1.02
3.        Fiduciary relationship. R.2d § 13
4.        Agent must act on behalf of the principle for the principal’s benefit
5.        Principal has right to control the conduct of agent. R.2d § 14
ii.      Agency Problems: Must analyze all three relationships (Agency, Principle, 3rd Party)
iii.      Master: One who controls or has the right to control the physical conduct of another in performance of service. R.2d § 2
1.        All masters are principles
iv.      Servant: One whose physical conduct in the performance of service is subject to control by another. R.2d § 2
1.        All servants are agents of the principal
2.        Factors Determining Servant Status. R.2d 220(2)
a.        Extent of control the master may exercise over details of the work.
b.       Whether or not the one employed is in a distinct profession.
c.        Whether the type of employment is typically unsupervised or not.
d.       The skill required.
e.        Who supplies the instrumentalities and the place of work.
f.         The length of employment.
g.       The method of payment – by time or by job.
h.       Whether the work is part of the employer’s regular business.
i.         Whether the parties believe there is a master-servant relationship.
j.         Whether the principle is or is not in business.
3.        Most employees are servants.
v.      Independent Contractor: One who contracts to do something for another but who is not subject to control with respect to his physical conduct. R.2d § 2.
1.        May or may not be an agent, depending on the degree of control specified by the agreement.
2.        He is not a servant – Thus, no vicarious liability in tort
3.        Examples: real estate agent, stock broker, independent building contractor
a.        Not servants because no physical control
b.       But… are likely to be deemed agents
vi.      The agency can be terminated at any time by agent or principle. R.2d § 118
b.       Principle’s Relation With Third Parties
i.      In Tort
1.        Actual tortfeasor is always subject to liability
2.        Vicarious Liability subjects the principle to liability if…
a.        There is a Master-Servant relationship; AND
b.       The tort occurred during the scope of the servant’s employment R.2d § 219(1). See factors suggesting scope in R.2d § § 228-29:
i.      Includes those things incidental to work (commute from job to job)
ii.      The location and timing of the tort are important
1.        business hours and in the right place
iii.      The employee’s purpose in doing the tort (to further the business) matters
iv.      Intentional torts are typically not within the scope of employment unless they relate to the job (bouncer

                                                  iv.      Failure to prevent negligent acts occurring on premises subject to his control.
e.        Respondeat Superior: Employer liable for the tort by agent. R.3d 2.04
ii.      In Contract (Power to Bind)
1.        Creation of the Agent’s Power to Bind
a.        Classification of Principles R.2d § 4, R.3d § 1.03
i.      Disclosed Principle: Third party knows that the agent works for the principle and third party knows who the principle is.
ii.      Partially Disclosed Principle: The third person knows that the agent is acting on behalf of some principle, but he does not know who the principle is.
iii.      Non-Disclosed Principle: The third party thinks the agent is acting on his own behalf.
b.       Actual Authority R.2d § 7
i.      Principle may manifest actual consent to the agent that the agent has the power to bind.
1.        Express: Consent can be made orally or in writing (subject to statute of frauds).
2.        Implied: Consent can be implied through conduct (subject to statute of frauds)