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

BUSINESS ASSOCIATIONS I
HECKER

-Agency: -involves 2 people – P and A Restatement of Agency § 1
-mutually consensual
-fiduciary (A fiduciary of P)
-A acts on behalf of P
-subject to P’s control.

-broad applicability of situations where agency is created: hired as employee; if p/ship has  employees; law firm hires associates; corporation or p/ship can be principal or agent.

-3 main areas of inquiry:
1. circumstances where A causes P to be liable in tort
2. circumstances where A causes P to be liable in K
3. mutual rights and duties b/t P and A      

I. Agency – The legal rules that apply when two people agree that one is to act in place of the other.

A. Tort Liability
1. Vicarious Liability/Respondeat Superior – Liability on faultless person – Rationale is cost allocation

a) Actual tortfeasor remains primarily liable to the victim.

b) Employer is also liable if
(1) employment relationship is “master-servant” and
(2) tortious conduct occurred while in the scope of employee’s employment. Restatement § 219(1).

1) Master/Servant relationship
a) Rst. 2 – Master – controls physical conduct of another. Servant – conduct is controlled by another. Every master is a             principal and every servant is an agent.

b) Difference between employee/servant & Independent contractor             Rst. § 2(3): An independent contractor is a person who             contracts with another to do something for him, but who             is not subject to the other’s 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.

-Servant or Independent contractor? — consider Rst. 220(2):
a) extent of control by master over details of work
b) whether or not the one employed is engaged in a             distinct occupation or business
c) Kind of occupation which is usually done under             direction of employer or by specialist w/o             supervision.
d) Skill required in the particular occupation
e) Whether employer or workman supplies the             instrumentalities, tools, and place of work.
f) length of time for which person is employed
g) Whether method of payment is by time or by the job
h) Whether or not the work is a part of the regular             business of the employer
i) Whether or not the parties believe they are creating a             master-servant relationship
j) whether principal is or is not in business.

-note: “servant” the key (includes most employees) — employer liable; if employer no rt 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 clients ctrl.
-other ex: real estate agent, stock broker, independent             bldg contractor = nonservant agents = indep.             k’er.

2) 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.


-Rst. 228 – Is w/in 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 that authorized.       See section 229(1)

b) Substantially within authorized limits of time and space.
-note: commuting is not w/in 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 go home early enough motive.

d) Use of force must not be wholly unexpected by employer (if             intentional force is used). (If intentional, considered w/in             scope only if intentional force is a part of the job:             bouncer, repo man, security guard).


(3) Situations where there is direct liability for the principal:

1.            Principal intends conduct                                   
a. Authorization of Tort by P – Servant/Scope status irrelevant if employer authorizes the commission of a tort. Rst. 212.
-ex: hire a “hit-man”; Hecker hires Shapiro                                                                    to punch Prater. Hecker liable.

b. Ratification of Authority to commit tort: Rst. 218. Servant/Scope    irrelevant. A retroactive conferral of authority for a tort             previously unauthorized. 
-ex: Shapiro punches Prater; Hecker says he liked it and                                                pays Shapiro $20. Hecker liable.

2. Negligent or Reckless conduct by P: P liable for his own negligent or                                reckless conduct. Rst. 219(2)(b).
-Negligent Employment – hiring unfit agents. Personal fault from                                             unreasonably hiring or failing to fire a human dangerous                                                   condition with notice. Rst. 213.
ex: -delivery driver w/ DUI’s — co. knows or should                                                       know — co. liable regardless of servant/scope                                                     considerations. 
-pre-school hires convicted child molester w/out                                      background check (negligent).
-sexual harassment reports but co. does not fire the employee or investigate and then another incident occurs (negligent).           

3. Performance of non-delegable duty. Rst. 214.    
-Inherently dangerous/Ultrahazardous Activities: P liable for any harm that occurs even if hired an independent contractor to do it. If an employer 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).


B. K Liability.
-Issue: Power = ability of A to bind P to T
-power to make, break and modify K’s.

1. 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

2. 2 types of agents.  Rst. 3.
1. general agent: continuity of service
2. special agent: not involving continuity of service


3. 3 types of principals. Rst. 4.

a. Disclosed principal
1. third party knows agent works for principal and T knows the identity of the principal
2. agent is facilitator
3. K between: principal and third party
4. Can have both apparent & actual authority

b. Partially disclosed principal
1. third party knows agent is or may be acting for a principal, but third             party does not know principal’s identity
2. Can have both apparent and actual authority

c. Undisclosed principal
1. third party is not aware the agent is acting for a principal
2. agent represents that he is acting alone
3. K between: agent and third party
4. can be no apparent authority

4. Creation of Agency
a. does not have to be formal

b. only need reciprocal indication that one wants the other to act on his behalf 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 materials):
1. Leases or estates exceeding 1 year in duration, or
2. K greater than 1 year (i.e. land, marriage, etc.)
Do not have to have a second writing when:
1. Sale of goods for less than $500
2. Lease of goods for less than $1000

5. Power (only need one of the following):

A. Actual authority: P’s manifestations of consent to A
1. words: express (actual) authority.
a. written or
b. oral; or (SOF may apply – see above)
2. conduct: implied (actual) authority, based on:
a. acquiescence
1. past conduct w/ no objection from P
2. conduct of P that leads A to believe A can do it again,                                                        b. position (incidental: usually accompanies or is rea.                                                              necessary to A in this busi

arranties.
– A has apparent authority to T b/c:
1) conduct was incidental/usual/customary to T, and
2) clear acquiescence by P
6.         Back to 1. Custom = 90 days, but A always gave 6 month warranties. P always honored 6 month warranties. T was previous customer. 6 month warranty?
– A has actual authority b/c:
1) previous acquiescence
-no custom though, b/c custom was for 90 days not 6 months.
– A has apparent authority to T b/c:
1) previous acquiescence
-no custom though, b/c custom was for 90 days not 6 months.
7.         Like 6, but P®A “no longer any warranties”. Is there 6 month warranty?
– A has no actual authority b/c P expressly said so.
– A has apparent authority to T b/c:
1) previous acquiescence
-no custom though, b/c custom was for 90 days not 6 months.
8.         New business, 1st day. 90 day custom. 6 month warranty?
– A has no authority at all. 6 month is not the trade custom, and no acquiescence.
9.         Same as 8. 90 day warranty?
– A has actual authority b/c:
1)            Trade custom.
no acquiescence.
– A has apparent authority to T b/c:
1)            Trade custom.
no acquiescence.


5. Ratification
a. Definition – The legal conclusion of treating the agent’s act as if he had power             (i.e., the retroactive conferral of authority). 
1. after the fact conferral of actual authority
2. must be a complete lack of power by the agent
3. but P likes what A did and wants to ratify
4. like authority was given from the beginning (relates back)

b. Elements:
Ratification is (Rst. 82):
1. Affirmance (by words or conduct, including acquiescence (caveat:                                     S.O.F.))
2. by a purported principal
3. with knowledge of all material facts
4. of an act by a purported agent
5. that did not bind P at the time
Provided:
6. P had capacity at both times
7. act was legal at both times
8. T (3rd party) did not w/draw in interim
9. circumstances did not materially change adversely to T in the interim.

-becomes an issue when A lacked power to bind P, and A made a deal with T.
-turns nonbinding/nonprivileged act into a binding/privileged one.

-Elements explained:
1. “Affirmance by P”
a. manifestation of P that the unauthorized act is now       “authorized”:
1. words
a. written
b. spoken
2. 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)
3. 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 purportedP”
Cannot 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!