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Business Organizations
University of Kansas School of Law
Harper Ho, Virginia

Business Organizations
Harper Ho
Fall 2011
a.       Restatement (Third) of Agency – § 1.01
                                                               i.      Agency is the fiduciary relationship (anyone in the position of trust) that arises when one person (a “principal”) manifests assent to another person (an “agent”) that the agent shall act on the principal’s behalf and subject to the principal’s control, and the agent manifests assent or otherwise consents so to act.
b.       Elements
                                                               i.      Control
1.       The principal controls the agent
                                                             ii.      Benefits
1.       The agent works for the principal’s benefit
                                                           iii.      Mutual Assent
1.       Both parties agree so to the above elements
c.        § 1.02 – Parties’ labeling and popular usage not controlling
                                                               i.      If the elements of § 1.01 (control, benefit, and mutual assent) are present, then an agency relationship exists even if the parties say they do not intend to form an agency
                                                             ii.      U.S. v. Cyberheat
1.       Courts examine three factors in determining whether an agency relationship exists
a.       The principal’s right to control the agent
b.       The agent’s duty to act primarily for the benefit of the principal
c.        The agent’s power to alter the legal relations of the principal (the agent’s power to bind the principal to third parties)
2.       Courts assume that Congress has built statutes upon the common law, thus the statutes are assumed to include common law notions like agency
d.       § 1.03 Manifestation
                                                               i.      A person manifests assent or intention through written or spoken words or other conduct
e.        § 1.04 Terminology
                                                               i.      Disclosed principal – §1.04 (2)(a)
1.       A principal is disclosed if, when an agent and a third party interact, the third party has notice that the agent is acting for the principal and has notice of the principal’s identity
                                                              ii.      Undisclosed principal – §1.04 (2)(b)
1.       A principal is undisclosed if, when an agent and a third party interact, the third party has no notice that the agent is acting for the principal.
                                                            iii.      Unidentified Principal – §1.04 (2)(c)
1.       A principal is unidentified if, when an agent and a third party interact, the third party has notice that the agent is acting for a principal but does not have notice of the principal’s identity.
                                                           iv.      Notice – Restatement (Third) of Agency – §1.04 (4)
1.       A person has notice of a fact if the person knows the fact, has reason to know the fact, has received an effective notification of the fact, or should know the fact to fulfill a duty owed to another person.
2.       Notice of a fact that an agent knows or has reason to know is imputed to the principal as stated in §§ 5.03 and 5.04.
3.       A notification given to or by an agent is effective as notice to or by the principal as stated in § 5.02.
                                                             v.      Person – Restatement (Third) of Agency – §1.04 (5)
1.       A person is
a.       An individual
b.       An organization or association that has legal capacity to posses rights or incur obligations
c.        A government, political subdivision, or instrumentality or entity created by the government
d.       Any other entity that has legal capacity to possess rights or incur obligations
                                                           vi.      Power of Attorney – Restatement (Third) of Agency – §1.04 (7)
1.       A power of attorney is an instrument that states an agent’s authority.
                                                          vii.      Legal consequences of agency
1.       Inward-looking consequences
a.       Relate to the relationship between the principal and the agent
b.       Governed by the contracts between the parties and the laws of fiduciary duties
2.       Outward-looking consequences
a.       Relate to the relationship among the principal, the agent, and a third party
b.       Governed by the principals of attribution
1.       INWARD-LOOKING CONSEQUENCES – Duties of the Agent and the Principal to Each Other
a.       Definition of Fiduciary
                                                               i.      Fiduciary – anyone in a position of trust
                                                              ii.      All duties owed by agent to the principal are fiduciary
b.       Scope of Fiduciary Duties
                                                               i.      Fiduciary duties extend to the bounds of the agency relationship and no further
                                                              ii.      Noncompete agreements
1.       The employee’s fiduciary duty to the employer ends the day the agency relationship ends, but employers can further limit competition by having employees sign noncompete agreements
2.       The test for noncompete agreements: are they reasonable?  Consider:
a.       Duration
b.       Scope
c.        Geographic coverage
                                                            iii.      Confidentiality
1.       Can extend beyond the agency relationship
                                                            iv.      Types of Restrictive Covenants
1.       Noncompetition obligation
a.       Don’t compete with the principal during the scope of the agency relationship
2.       Nondisclosure obligation
a.       Default rule: can’t disclose the principal’s confidential information during the scope of the agency relationship and beyond noncompete agreements
c.        In general
                                                               i.      Agency law is mandatory, but we can contract around the default rules and modify them, because the fiduciary duties are inward-looking
                                                              ii.      Any waiver of rights is strictly personal and does not involve the third party
d.       Agent’s Duties to the Principal
                                                               i.      Loyalty
1.       §8.01 – Duty of Loyalty
Food Lion v. Capital Cities/ABC
-Employees are disloyal when their acts are inconsistent with promoting the best interest of their employer at the time when they were on the payroll.
Court looked at:
                -Directly competes – 8.03/8.04
-Misappropriates her employer’s profits, property, business opportunities, or receives kick-backs – 8.05
-Breaches employer’s confidences – 8.05
Cmt 8.01d(1)- An agent’s breach or threatened breach of fiduciary duty can result in monetary and nonmonetary damages, and it may also allow principal to rescind the K. A breach subjects the agent to liability for loss that the breach causes the principal
2.       §8.02 – Material Benefit Arising from Condition
3.       §8.03 – Adverse Party (acting on or on behalf of)
4.       §8.04 – Competition
5.       §8.05 – Use of P’s Property/Confidentiality
                                                              ii.      Performance
1.       §8.07 – Contract Duties
2.       §8.08 – Care, Competence, and Diligence
3.       §8.09 – Act within the Scope of Authority
4.       §8.10 – Good Conduct
5.       §8.11 – Duty to Provide info
6.       §8.12 – P’s Property
e.        Principal’s Duties to the Agent
                                                               i.      §8.13 – Duty Created by Contract
                                                              ii.      §8.14 – Duty to Indemnify
                                                            iii.      §8.15 – Fairness and Good Faith
2.       OUTWARD-LOOKING CONSEQUENCES – Principles of Attribution                          
a.       Authority Hierarchy
                                                               i.      Express Authority – Gold Standard
                                                              ii.      Implied Authority – Silver Standard
1.       Reasonable belief
                                                            iii.      Apparent Authority – Bronze Standard
1.       Requires even less to tie the authority back to whatever the principal manifested
b.       Actual Authority
                                                               i.      Restatement (Third) of Agency – §2.01
1.       An agent acts with actual authority when, at the time of taking action that has legal consequences for the principal, the agent reasonably believes, in accordance with the principal’s manifestations to the agent, that the principal wishes the agent so to act.
a.       Elements:
                                                                                                                                       i.      Belief that is reasonable
                                                                                                                                      ii.      P’s manifestations to A
                                                                                                                                    iii.      A’s belief

y under the definition of agent
2.       Where agent acts beyond the scope of his actual authority
d.       §7.03 (p86)– Principal’s Liability – In general
                                                               i.      A principal is subject to direct liability to a third party harmed by an agent’s conduct when
1.       As stated in §7.04, the agent acts with actual authority or the principal ratifies the agent’s conduct and
a.       The agent’s conduct is tortuous, or
b.       The agent’s conduct, if that of the principal, would subject the principal to tort liability, or
c.        As stated in 7.05, the principal is negligent in selecting, supervising, or otherwise controlling the agent or
d.       As stated in 7.06, the principal delegates performance of a duty to use care to protect other persons or their property to an agent who fails to perform the duty.
2.       A principal is subject to vicarious liability to a third party harmed by an agent’s conduct when
a.       As stated in 7.07, the agent is an employee who commits a tort while acting within the scope of employment or
b.       As stated in 7.08, the agent commits a tort when acting with apparent authority in dealing with a third party on or purportedly on behalf of the principal.
e.        Respondeat Superior-
                                                               i.      §7.00s – are tort claims
                                                              ii.      §7.01 – An agent is liable for their own torts – DON”T FORGET THIS
                                                            iii.      §2.04 – Respondeat superior
1.       An employer is subject to liability for torts committed by employees while acting within the scope of their employment.
                                                            iv.      For tort liability to attach, we have to show a higher degree of control
a.       Ware v. Timmons (RS case)
                                                                                                                                       i.      Two step analysis to determine tort liability – the manner and means test?
1.       Whether the purported principal had control and whether the degree of control reached the point where tort liability attached?
2.       Whether there was a right of selection?
                                                             v.      §7.07 – Employee acting within the scope of employment
a.       (1)Employer subject to VL, when employee commits a tort acting (2)within the scope of their employment.
b.       In course of employment if performing work assigned, or engaging in a course of conduct subject to ERs control.
c.        Factors to consider:
                                                                                                                                       i.      Is this conduct of the kind the servant is employed to perform?
                                                                                                                                      ii.      Did it occur substantially within the authorized time and space limits?
                                                                                                                                    iii.      Is it motivated, at least in part, by a purpose to serve the master?
1.       Independent frolic vs. slight detour – employer is still liable for conduct on slight detours
                                                                                                                                    iv.      For intentional torts, is the use of force expectable given the scope of employment?
f.        Ratification – Retroactive Actual Authority p68
                                                               i.      Restatement (Third) of Agency
1.       §4.01 – Ratification defined