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Business Associations/Corporations
University of Kansas School of Law
Hecker Jr., Edwin W.




. AGENCY – The legal rules that apply when two people agree that one is to act in place of the other
Tort Liability
32786. Vicarious liability/Respondent Superior – Liability on faultless person – Rationale is cost allocation
. Actual tortfeasor remains primarily liable to the victim
Employer is also liable if: employment relationship is “master-servant” tortious conduct occurred while in the scope of employee’s employment. (R.2d §219(1))
(32806) Master/Servant Relationship
(a) R.2d – Master – controls physical conduct of another
(b) Difference between employee/servant and Independent contractor – R.2d §2(3): An independent contractor is a person who contracts with another to do something for him but who is not subject to the others right to control his physical conduct in the performance of the undertaking (i.e. NOT a servant). He may or may not be an agent
– Conduct is controlled by another. Every master is a principal and every servant is an agent
-Servant or Independent contractor?—consider R.2d 220(2):
) extend of control by master over details of work
) whether or not the one employed is engaged in a distinct occupation or business
) Kind of occupation which is usually done under direction of employer or by specialist w/o supervision
) Skill required in the particular occupation
) Whether employer or workman supplies the instrumentalities, tools, and place of work
) length of time for which person is employed
) whether method of payment is by time or by the job
) whether or not the work is a part of the regular business of the employer
) whether or not the parties believe they are creating a master-servant relationship
) whether principal is or is not in business
-Note: “servant” the key (includes most employees) – employer liable; if employer not to control physical conduct, employer not liable. Only look at scope of employment question if “servant”.
Ind. K’er ex: Atty in private practice has clients – ind. K relationship! Not thought of as employer-employee. Even though client can tell Atty. what to do (Atty. an agent), Atty.’s physical conduct not subject to client control.
-other ex: real estate agent, stock broker, independent bldg contractor = nonservant agent = indep. K’er
(32807) Servant acted within the scope of his employment when tort was committed used to separate personal from “on the job” torts; employer not liable for personal torts of an employee
-R.2d 228 – Is within the scope of employment if:
(a) Is kind of conduct that the servant employed to perform – does not have to be the exact conduct employed to perform – enough if of the same general nature as the authorized – R.2d 229(1)
(b) Substantially within authorized limits of time and space.
***note: commuting is not within scope – considered personal
(c) Actuated at least in part by a purpose to serve the master (motive of furthering the employer’s business); mixed motive enough – does not have to be exclusive motive; delivery man speeding b/c wants to get done so he can get home early enough motive
(d) Use of force must not be wholly unexpected by employer (if intentional force is used). (If intentional, considered w/I scope only if intentional force is part of the job; bouncer, repo man, security guard)
(32808) Situations where there is direct liability for the principal:
(a) Principal intends conduct
i) Authorization of tort by P – Servant/scope status irrelevant if employer authorizes the commission of a tort. R.2d 212 (photocopy)
ex) If you hire a “hit man” to do your tort, you are still liable for the tort
ii) Ratification of authority to commit tort. R.2d 218. Servant/Scope irrelevant. A retroactive conferral of authority for a tort previously unauthorized
(b) Negligent or Reckless conduct by P: P liable for his own negligent or reckless conduct. R.2d 219(2)(b)
i) Negligent Employment – Hiring unfit agents. Personal fault from unreasonably hiring or failing to fire a human dangerous condition with notice. R.2d 213
ex) Delivery driver w/ DUI’s – co. knows or should know – co. liable regardless of servant/scope considerations
ex) Pre-school hires convicted child molester w/o back ground check (negligent)
(c) Performance of non-delegable duty. R.2d 214
i) Inherently dangerous/Ultra hazardous Activities: P liable for any harm that occurs even if hired an independent contractor to do it. If an employee causes such activities to be engaged in, he is liable for the resulting injuries period. (Fact re: what is an inherently dangerous activity: building demolition, crop dusting)
a. Issue: Power = ability of A to bind P to T
b. power to make, break and modify K’s
2. In General
a. Contract liability includes all agents
(1) servant and non-servant
b. Problems occur when agent creates contract between third party and principal
3. Two types of Agents – R.2d 3
a. General Agent: continuity of service — performs all/continuous duties as agent
b. Special Agent: not involving continuity of service — One time K to perform
4. Three types of principals – R.2d 4
a. Disclosed Principal
(1) 3rd party knows agent works for principal and knows identity of principal
(2) agent is facilitator
(3) K between: principal and 3rd party
(4) Can have both apparent and actual authority
b. Partially disclosed principal
(1) 3rd party knows agent is or may be acting for a principal, but 3rd party does not know principal’s identity
(2) Can have both apparent and actual authority
c. Undisclosed principal
(1) 3rd party is not aware the agent is acting for a principal
(2) agent represents that he is acting alone
(3) K between: agent and 3rd party
(4) can be no apparent authority
5. Creation of Agency
a. does not have to be formal
b. only need reciprocal indication that one wants the other to act on his be half and the other person accepts
c. Statute of Frauds exceptions: A must have written authority (a second writing) to sign for P when (pg. 15 photocopy):
(a) Leases or estate exceeding 1 year in duration, or
(b) K greater than 1

y P”
(a) Manifestation of P that the unauthorized act is now “authorized”
i) Words
a) written
b) Spoken
ii) Non-verbal conduct/acquiescence
a) retention of benefits (i.e. P keeps the goods, $, etc; so P must perform), or
b) Acquiescence – knowledge of the act and failure to repudiate w/in a reasonable time (i.e. do not need a series of acts – 1 is enough if P knows and does not object – affirm by knowing silence)
iii) Caveat – S.O.F.: to the extent that K must be in writing, if A needs written authority to sign for the P
(2) “By a purported P”
(a) Can not have ratification on behalf of an undisclosed P; A must be acting on behalf of a purported P. P must be at least partially disclosed
(3) “Knowledge of all material facts”
(a) Test is whether P knows all material facts prior to ratification
ex) A makes material misrepresentation about the quality of goods when K w/T; P like the price A got, but P does not know about the misrepresentation; P can not ratify b/c not a knowing election by P of all material facts about the K
(4) “By Purported agent”
(a) A must have purported to act on behalf of the ratifying P; not just any P can come along and ratify (No. 2 above)
(5) “That did not bind P at the time”
(a) K must not have initially bound P; i.e., if A had actual, apparent, or inherent authority then P was already bound
(6) “P had capacity at both times”
(a) Must have legal capacity (competency, of age) at the time A made the initial K w/ T, and
i) Only an issue for pre-incorporation transactions – A signs for a corp. that is not created yet; corp cannot later ratify b/c it had no legal capacity at the time the initial K was made;
(b) Must also have legal capacity at the time of affirmance/ratification
(7) “Act was legal at both times”:
(a) K must be legal at time initially made and at time of affirmance/ratification:
i) if lawful then, but not now – cannot affirm/ratify (ex) initial K for assault weapons made 2 yrs ago cannot be ratified now
ii) if unlawful then, but not now – cannot affirm/ratify
(8) “T did not w/draw in the interim”:
(a) T did not w/draw from the K before P affirms; P cannot ratify if T w/draws first. T has the option to opt out prior to ratification/affirmance.
(9) “Circumstances did not materially change adversely to T in the interim”
(a) i.e., circumstances did not materially change before P’s affirmance. T must do this within a reasonable time.
ex) day 1: A K w/T