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

I. AGENCY
GENERALLY
a.       Principle/agent. (1) Fiduciary relationship between two people; (2) that requires mutual assent or consent (either party can terminate at anytime despite contrary contract); (3) in which one person (agent) acts on behalf of another person (principal); and (4) is subject to the principal’s right of control.
PRINCIPAL’S RELATIONS WITH THIRD PARTIES
In Tort.
i.      Tortfeasor’s liability. Tortfeasor always is liable for tortious conduct.
ii.      Vicarious liability / respondeat superior. Employer is liable for employee’s tortious conduct if: R2d § 219
1.        Employment relationship. Employment relationship must be “master/servant.”
a.        Master/servant. A master is a principal who has the right to control the physical conduct of the other. R2d § 2(1). A servant is an agent whose physical conduct is controlled or subject to the right to control by the master. R2d § 2(2). Every master is a principal; every servant is an agent.
b.       Independent contractor. A person who contracts to do something for another but is not subject to the other’s right to control of his physical conduct. May or may not be an agent. R2d § 2(3).
i.      Factors. Crucial factor is whether principal has right to control physical activity. Other considerations to determine M/S or IC include: extent of control master may exercise over details of work, length of time for which person is employed, method of payment (by time or job), etc. R2d § 220.
ii.      Non-liability. A principal or contractee is not liable for physical harm caused by an IC unless the principal/contractee was under a duty of due care. R2d § 250.
2.        Scope of employment. Tortious conduct occurred within the scope of employment. Factors to consider: R2d § 228
a.        Is the conduct of the kind the servant is employed to perform? R2d § 229
b.       Did it occur substantially within the authorized time and space limits?
i.      Commuting is not within scope; considered personal time.
c.        Is it motivated, at least in part, by a purpose to serve the master?
i.      Mixed motive is enough to justify liability (“at least in part”).
ii.      Independent frolic vs. slight detour. Employer is still liable for conduct on slight detours (vs. conduct obviously outside the scope).
d.       For intentional torts, is the use of force expectable given the scope of employment?
iii.      Direct liability. Situations in which there is direct liability for the master even when the servant is outside the scope of employment.
1.        Master intends conduct. R2d § 219(2)(a)
a.        Authorization. Employer authorizes commission of a tort (usually comes up in the context of contracts—e.g., pie contract). R2d § 212 (pcopy. 12)
b.       Ratification. Retroactive conferral of authority for a tort previously unauthorized. R2d § 218 (pcopy. 15)
2.        Master’s conduct is negligent or reckless. E.g., hiring improper persons or giving improper orders. R2d §§ 219(2)(b), 213 (pcopy. 13)
3.        Conduct violated master’s non-delegable duty. If master delegates duty of care to servant, master is liable for harm (e.g., highly dangerous situations). R2d §§ 219(2)(c), 214 (pcopy. 14)
4.        Reliance on apparent authority. Servant purported to act or speak on behalf of the principal and/or was aided in accomplishing the tort by the existence of the agency relation. R2d § 219(2)(d)
In Contract.
i.      Generally. Question is the ability of an agent to bind a principal to a third party. Contract liability includes all agents (servants and nonservants).
ii.      Classification of principals. Distinction depends on what the third party has notice of at the time he interacts with the agent.
1.        Disclosed. Third party has notice of a principal and knows the principal’s identity. Most common form of principal. R2d § 4(1)
2.        Partially disclosed (unidentified). Third party has notice of a principal but does not know the principal’s identity (e.g., stock broker, where the brokers are not the ultimate parties but the parties’ identities are not known). R2d § 4(2)
3.        Undisclosed. Third party believes the agent is the real party in interest. R2d § 4(3)
iii.      Statute of Frauds.Pcopy. 19.
1.        Two writings required (written contract and A must have separate written authority to sign for P) for:
a.        Leases or estates exceeding one year in duration K.S.A. § 33-105; or
b.       Contracts greater than one year, sale of land, marriage, etc. K.S.A. § 33-106
2.        At least one writing (but not a separate, written grant of authority) is required for:
a.        Sale of goods for more than $500 K.S.A. § 84-2-201; or
b.       Lease of goods for more than $1,000. K.S.A. § 84-2a-201
iv.      Power to bind principal to third party.
1.        Actual authority. P’s manifestation of consent to A to act on P’s behalf (seen from A’s perspective). R2d § 7
a.        Creating actual authority. P’s manifestations can be made by: R2d § 26
i.      Words (express actual authority).
1.        Written
2.        Oral
ii.      Conduct (implied actual authority). Based on:
1.        History (acquiescence). Past conduct without objection from P. (E.g., auto salesperson always gives 90-day warranty; principal always honors.) R2d § 35
2.        Position (usual/customary). A reasonably believes he has authority because of the position he holds.
3.        If A is told he cannot do something, there can be no implied actual authority.
2.        Apparent authority. Principal’s manifestations to third party causing third party to reasonably believe that P had authorized A to act and A is acting for P (seen from third party’s point of view). R2d § 8 Not inferior to actual authority; can be just as binding.
a.        Creating apparent authority. P’s manifestations can be made by: R2d § 27
i.      Words
1.        Written
2.        Oral
ii.      Conduct. Based on:
1.        Past individual history (acquiescence). If the third party has dealt with this particular A in the past, his continued presence is a manifestation by P that he still has power to represent P.
2.        Position (usual/customary). Created by appointing a person to a position that carries with it generally recognized duties in the trade or profession. T must know it is usual or customary before he can rely on it.
b.       Undisclosed. Apparent authority is impossible if principal is undisclosed. (There can be no manifestation from an unknown P upon which third party can rely.)
3.        Imposter/Agency by estoppel. A principal who is not otherwise liable as a party to a transaction purported to be done on his account, is subject to liability to persons who have changed their positions because of their belief that the transaction was entered into by or for him, if: R2d § 8B (Imposter example: Imposter valet at hotel would result in liability of hotel by estoppel because of reliance. Contrast this with apparent authority where there would be no liability for the hotel because it cannot be traced back to something the hotel did as the P.)
a.        He intentionally or carelessly caused such belief; or
b.       Knowing of such belief and that others might change their positions because of it, he did not take reasonable steps to notify them of the facts.
4.        Estoppel of undisclosed principal. An undisclosed P is bound by what is usual and customary in the type of the transaction the A is undertaking on P’s behalf. Secret limitations to restrict A’s authority are ineffective. R3d § 2
5.        Ratification. After-the-fact, retroactive actual authority. Election by a principal who was not previously bound to treat the act by the purported agent as binding. R2d § 82
a.        Elements. Four elements required:
i.      Affirmance (spoken or written or conduct) by P (cannot be undisclos

: R2d § 135
1.        Third party knows.
2.        Third party has reason to know or should know.
3.        Third party has received notification. R2d § 136
a.        Notification. Prior credit dealers are entitled to actual notification by written or oral statement. R2d § 136(2) All other parties are entitled only to constructive notification. R2d § 136(3)
3.        Termination by operation of law. Death or disability of principal terminates actual and apparent authority. If A and T do not know about death of the P, the P’s estate is not bound, but the agent will be liable to the third party for breach of an implied warranty of authority.  R2d § 120
4.        Durable/non-durable power of attorney. Rules apply only to a written manifestation (“power of attorney”).
a.        Durable. Writing which says the agency survives the death/disability of principal.
i.      Death. Actual/apparent authority terminated when A/third party knows.
ii.      Incapacity. Power survives principal’s incapacity regardless of knowledge; this is the point of durability.
iii.      Revocation. Actual/apparent authority terminated when A/third party knows.
iv.      Springing/presently effective. Presently effective powers take effect immediately and are not affected by the disability. Springing powers take effect upon the incapacity.
b.       Non-durable. Written document providing agency power that does NOT survive death/disability of principal.
i.      Death/incapacity/revocation. Actual/apparent authority terminated when A/third party knows.
AGENT’S FIDUCIARY DUTIES TO PRINCIPAL
Agent-principal relationship as fiduciary. An agent is a fiduciary with respect to matters within the scope of his agency. R2d § 13 All duties owed by agent to principal are fiduciary.
Loyalty-related duties. Agent must be honest and loyal to the principal.
i.      Duty of loyalty. Unless otherwise agreed, an agent must act solely for the benefit of the principal in all matters connected with the agency. R2d § 387
ii.      Duty to account for profits. Unless otherwise agreed, an agent who makes a profit in connection with the agency relationship must turn all profits over to the principal. R2d § 388
1.        Anything of value that comes to the agent must be turned over to the principal, regardless of good faith.
iii.      Self-Dealing/Conflict of interest. Unless otherwise agreed, an agent cannot deal with his principal as an adverse party in a transaction connected with his agency without the principal’s knowledge.
1.        Knowledge of conflict by principal.
a.        No knowledge/no consent. Contract is rescindable if:
i.      Agent is acting AS adverse party WITHOUT principal’s consent. R2d § 389
ii.      Agent is acti