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

I. AGENCY

GENERALLY

Principle/agent.

PRINCIPAL’S RELATIONS WITH THIRD PARTIES

a. 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:

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.

3. Third party has received notification.
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.
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(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.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?
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)
b. 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
b. Contracts greater than one year, sale of land, marriage, etc.
K.S.A. § 33-105; orK.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
b. Lease of goods for more than $1,000.
K.S.A. § 84-2-201; or 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).

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).

a. Creating apparent authority. P’s manifestations can be made by:

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:

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 t

; employee manual not common today b/c manuals have been rewritten to avoid.)

ii. Implied duty of good faith/fair dealing. Covenant of good faith and fair dealing forbids termination without good cause.

vi. Termination of agent’s power to bind principal.
1. General rule. Terminable at will by the consensual definition of agency. If termination is contractually forbidden, there still is power to terminate but possible liability for breach.

a. Exception. Non-agency relationships; the power-holder’s power cannot be terminated (e.g., power given as security, such as a mortgage).

R2d § 442 (power and right)R2d Contracts § 205 Not recognized in Kansas. Morriss v. Coleman, pcopy 20
iii. Retaliatory discharge. Discharge is tortious and employee has cause of action if employer fires employee in retaliation for conduct that is protected by public policy (e.g., work comp claim, whistleblower).
Murphy v. City of Topeka, pcopy 20
2. Term employment/specific undertaking. If the principal has contracted to employ the agent for a specified time, he has a duty not to terminate the employment.

a. Power not right. Both parties have the power to terminate prematurely, but do not have the legal right and may be liable for damages.
R2d §§ 14H, 138
2. Voluntary termination.
a. Actual authority. Revoked by principal’s manifestation to the agent.

b. Apparent authority. Terminates when third party has notice of principal’s termination.

R2d § 118
i. Also can be renounced by agent.
R2d § 118
ii. Principal’s manifestation to agent is binding if:

1. Agent knows of termination.
2. Agent has reason to know of termination.
3. Principal gives agent actual notification either by oral statement or delivery of written statement.
R2d § 125
i. Notice of termination. Third party has notice of termination when:
R2d § 135
1. Third party knows.
2. Third party has reason to know or should know.
R2d § 136 (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.