whole or in part.
§ 304. Statutory designation of secretary of state as agent for service of process
(a) The secretary of state shall be the agent of every domestic corporation and every authorized foreign
corporation upon whom process against the corporation may be served.
(b) No domestic or foreign corporation may be formed or authorized to do business in this state under this
chapter unless in its certificate of incorporation or application for authority it designates the secretary of state
as such agent.
(c) Any designation by a domestic or a foreign corporation of the secretary of state as such agent, which
designation is in effect on the effective date of this chapter, shall continue. Every domestic or foreign
effective date of this chapter.
(d) Any designated post-office address to which the secretary of state shall mail a copy of process served
upon him as agent of a domestic corporation or a foreign corporation, shall continue until the filing of a
certificate under this chapter directing the mailing to a different post-office address.
§ 305. Registered agent for service of process
(b) Any such designation of a registered agent may be made, revoked or changed as provided in this chapter.
(c) A registered agent may resign as such agent. A certificate, entitled “Certificate of resignation of registered
agent of ………….…. (name of designating corporation) under section 305 of the Business Corporation Law”,
shall be signed, verified by him and delivered to the department of state. It shall set forth:
(2) The date the certificate of incorporation or the application for authority of the designating corporation was
filed by the department of state.
12 INSTRUCTOR’S MANUAL FOR BUSINESS LAW: COMMERCIAL LAW FOR ACCOUNTANTS
§ 402. Certificate of incorporation; contents
(a) A certificate, entitled “Certificate of incorporation of ………… (name of corporation) under section 402 of
the Business Corporation Law”, shall be signed by each incorporator, with his name and address stated
beneath or opposite his signature, acknowledged and delivered to the department of state. It shall set forth:
* * * *
(8) If the corporation is to have a registered agent, his name and address within this state and a statement
that the registered agent is to be the agent of the corporation upon whom process against it may be served.
III. Duties of Agents and Principals
An agency relationship is fiduciary.
A. AGENT’S DUTIES TO THE PRINCIPAL
An agent’s duties are implied from the agency relationship whether or not the identity of the principal is
disclosed to a third party.
the agent’s duty.
b. Gratuitous Agents
An agent who does not act for money may be subject to the same standards of care, but
cannot be liable for breach of contract because there is no contract.
An agent cannot represent two principals in the same transaction unless both know of the dual
capacity and consent.
a. Maintain Confidentiality
Knowledge acquired through an agency relationship is confidential.
whole or in part.
CASE SYNOPSIS—
Case 8.3: Taser International, Inc. v. Ward
Taser International, Inc., develops and makes electronic control devices and accessories, including video
and audio recording devices. Steve Ward was Taser’s vice president of marketing when he began to explore
the possibility of developing and marketing devices of his own design, including a clip-on camera. He talked to
patent attorneys and a product development company and completed most of a business plan before he
resigned from Taser. Ward then formed Vievu, LLC to market a clip-on camera. Taser filed a suit in an
Arizona state court against Ward, alleging a breach of the duty of loyalty. The court issued a summary
judgment in Taser’s favor. Ward appealed.
A state intermediate appellate court reversed and remanded. “An agent is under the duty to act with entire
good faith and loyalty for the furtherance of the interests of his principal in all matters concerning or affecting
the subject of his agency.” Under this principle, “an employee is precluded from actively competing with his or
her employer during the period of employment.” In this case, “substantial design and development efforts by
Ward during his employment would constitute direct competition with the business activities of Taser and
would violate his duty of loyalty.” But summary judgment was inappropriate “because a genuine issue of
material fact exists as to the extent of Ward’s pretermination design and development efforts.”
………………….………….………………………….………………..………..………….………………..…………….
Notes and Questions
Short of resigning his employment based on no more than a desire to work for himself, could
Ward have taken any steps towards starting his own firm without breaching his duty of loyalty? Yes.
Taking steps that any businessperson might make before initiating a business could be permissible—Taser’s
counsel shrugs off “investigating computer software, acquiring a line of credit, securing office space, or getting
prices on telephones.” And any steps taken in furtherance of an enterprise that in no way would have
competed with Taser would also likely have been acceptable.
ANSWERS TO LEGAL REASONING
QUESTIONS AT THE END OF CASE 8.3
1. Why was it unclear whether Ward’s pretermination actions constituted direct competition with his
employer or were mere planning activities? The court found it difficult to draw the line between “mere
preparation” and “active competition” in this case because of the nature of Taser’s business. Taser was not
just in the business of selling electronic devices, including audio/video devices, but also in researching and
developing such products. Coming up with ideas for new products was thus part of Ward’s job at Taser. As
Taser argued, Ward had been “developing a rival design during employment, knowing full well Taser has sold
such a device and continues to develop a second generation product.” Thus, the question was not clear cut.
In the eyes of the court, there were several questions of fact that precluded summary judgment. For example,
to what extent, if any, did Ward use Taser’s time, facilities, or resources in his pre-termination efforts?
Although an employee may, in the absence of a noncompete covenant, prepare to compete with a current
employer, the tactics that an agent may use are subject to limits. According to Section 8.04, comment b, of
whole or in part.
the Restatement (Third) of Agency, “an agent has a duty (1) not to use property of the principal for the agent’s
own purposes” and “(2) not to use or communicate confidential information of the principal for the agent’s own
purposes or those of a third party.” Because questions of fact remained to be decided, the court held that
summary judgment was improper and remanded the case for trial.
2. Suppose that Ward’s planning and development efforts were focused on a product that would in
no way compete with Taser’s products. Would such efforts have breached his duty of loyalty to Taser
in any way? Explain fully. In these circumstances, assuming that Ward’s activities did not involve the
improper use any of Taser’s resources (including Ward’s work time), there would be no basis for concluding
that Ward had breached his duty of loyalty to his employer by planning a new and noncompetitive business
venture.
3. Are there other duties to his employer that Ward might have breached in addition to the duty of
loyalty as Taser alleged here? Discuss. In the Taser case, if Taser can prove its case, Ward was in breach
of the agent’s duty of loyalty. Taser might also allege that Ward breached the agent’s duty of notification.
Under the duty of loyalty, an agent has the duty to act solely for the benefit of his or her principal. Under the
duty of notification, an agent is required to notify the principal of all matters that come to her or his attention
concerning the subject matter of the agency. “Assuming Taser was engaged in the research and development
of a recording device during Ward’s employment, assuming Ward knew or should have known of those
efforts, and assuming Taser’s device would compete with Ward’s concept, substantial design and
development efforts by Ward during his employment” without informing Taser would constitute a violation of
the duty of notification.
Under the duty of obedience, when acting on behalf of the principal, an agent has a duty to follow all
lawful and clearly stated instructions of the principal. Any deviation from such instructions is a violation of the
duty. Depending on the scope of Ward’s employment—what he was instructed to do—he might also have
violated this duty. And under the duty of accounting, an agent has a duty to keep and make available to the
principal an account of all property and funds received and paid out on behalf of the principal. If Ward
expended any of Taser’s resources on research and development of his own projects,, he might also have
violated this duty.
4. If the judgment in the case of remand is again in Taser’s favor, what might be an appropriate
remedy? A principal has contract remedies for an agent’s breach of fiduciary duties. The principal also has
tort remedies if the agent engages in a tort—misappropriation, misrepresentation, negligence, or deceit, for
example. In addition, any breach of a fiduciary duty by an agent may justify the principal’s termination of the
agency.
Any of these remedies could be appropriate in the right circumstance. If Ward were held to have violated
the agent’s fiduciary duties, Taser could seek to impose a constructive trust. Or Taser might seek to avoid the
contract with Ward, or seek damages for the commission of a tort.
4. Obedience
An agent must follow the principal’s instructions (except during an emergency or when instructions
whole or in part.
5. Accounting
1. Compensation
Except in a gratuitous agency, a principal must pay an agent for services rendered and to do so in a
timely manner. The amount is the agreed-on value, the customary value, or, if no amount has been
agreed on or established by custom or law, the reasonable value.
3. Cooperation
A principal must cooperate with and assist an agent in performing his or her duties.
4. Safe Working Conditions
A principal must provide safe premises, equipment, and conditions (and warn about unsafe areas).
1. Tort and Contract Remedies
Remedies follow normal contract and tort remedies.
2. Demand for an Accounting
An agent can withhold further performance and demand that a principal give an accounting.
Remedies follow normal contract and tort remedies. Actions available include constructive trust,
avoidance, and indemnification.
1. Constructive Trust
When an agent retains benefits or profits that belong to the principal, a court may impose a con-
whole or in part.
12 INSTRUCTOR’S MANUAL FOR BUSINESS LAW: COMMERCIAL LAW FOR ACCOUNTANTS
§ 402. Certificate of incorporation; contents
(a) A certificate, entitled “Certificate of incorporation of ………… (name of corporation) under section 402 of
the Business Corporation Law”, shall be signed by each incorporator, with his name and address stated
beneath or opposite his signature, acknowledged and delivered to the department of state. It shall set forth:
* * * *
(8) If the corporation is to have a registered agent, his name and address within this state and a statement
that the registered agent is to be the agent of the corporation upon whom process against it may be served.
III. Duties of Agents and Principals
An agency relationship is fiduciary.
A. AGENT’S DUTIES TO THE PRINCIPAL
An agent’s duties are implied from the agency relationship whether or not the identity of the principal is
disclosed to a third party.
the agent’s duty.
b. Gratuitous Agents
An agent who does not act for money may be subject to the same standards of care, but
cannot be liable for breach of contract because there is no contract.
An agent cannot represent two principals in the same transaction unless both know of the dual
capacity and consent.
a. Maintain Confidentiality
Knowledge acquired through an agency relationship is confidential.
whole or in part.
CASE SYNOPSIS—
Case 8.3: Taser International, Inc. v. Ward
Taser International, Inc., develops and makes electronic control devices and accessories, including video
and audio recording devices. Steve Ward was Taser’s vice president of marketing when he began to explore
the possibility of developing and marketing devices of his own design, including a clip-on camera. He talked to
patent attorneys and a product development company and completed most of a business plan before he
resigned from Taser. Ward then formed Vievu, LLC to market a clip-on camera. Taser filed a suit in an
Arizona state court against Ward, alleging a breach of the duty of loyalty. The court issued a summary
judgment in Taser’s favor. Ward appealed.
A state intermediate appellate court reversed and remanded. “An agent is under the duty to act with entire
good faith and loyalty for the furtherance of the interests of his principal in all matters concerning or affecting
the subject of his agency.” Under this principle, “an employee is precluded from actively competing with his or
her employer during the period of employment.” In this case, “substantial design and development efforts by
Ward during his employment would constitute direct competition with the business activities of Taser and
would violate his duty of loyalty.” But summary judgment was inappropriate “because a genuine issue of
material fact exists as to the extent of Ward’s pretermination design and development efforts.”
………………….………….………………………….………………..………..………….………………..…………….
Notes and Questions
Short of resigning his employment based on no more than a desire to work for himself, could
Ward have taken any steps towards starting his own firm without breaching his duty of loyalty? Yes.
Taking steps that any businessperson might make before initiating a business could be permissible—Taser’s
counsel shrugs off “investigating computer software, acquiring a line of credit, securing office space, or getting
prices on telephones.” And any steps taken in furtherance of an enterprise that in no way would have
competed with Taser would also likely have been acceptable.
ANSWERS TO LEGAL REASONING
QUESTIONS AT THE END OF CASE 8.3
1. Why was it unclear whether Ward’s pretermination actions constituted direct competition with his
employer or were mere planning activities? The court found it difficult to draw the line between “mere
preparation” and “active competition” in this case because of the nature of Taser’s business. Taser was not
just in the business of selling electronic devices, including audio/video devices, but also in researching and
developing such products. Coming up with ideas for new products was thus part of Ward’s job at Taser. As
Taser argued, Ward had been “developing a rival design during employment, knowing full well Taser has sold
such a device and continues to develop a second generation product.” Thus, the question was not clear cut.
In the eyes of the court, there were several questions of fact that precluded summary judgment. For example,
to what extent, if any, did Ward use Taser’s time, facilities, or resources in his pre-termination efforts?
Although an employee may, in the absence of a noncompete covenant, prepare to compete with a current
employer, the tactics that an agent may use are subject to limits. According to Section 8.04, comment b, of
whole or in part.
the Restatement (Third) of Agency, “an agent has a duty (1) not to use property of the principal for the agent’s
own purposes” and “(2) not to use or communicate confidential information of the principal for the agent’s own
purposes or those of a third party.” Because questions of fact remained to be decided, the court held that
summary judgment was improper and remanded the case for trial.
2. Suppose that Ward’s planning and development efforts were focused on a product that would in
no way compete with Taser’s products. Would such efforts have breached his duty of loyalty to Taser
in any way? Explain fully. In these circumstances, assuming that Ward’s activities did not involve the
improper use any of Taser’s resources (including Ward’s work time), there would be no basis for concluding
that Ward had breached his duty of loyalty to his employer by planning a new and noncompetitive business
venture.
3. Are there other duties to his employer that Ward might have breached in addition to the duty of
loyalty as Taser alleged here? Discuss. In the Taser case, if Taser can prove its case, Ward was in breach
of the agent’s duty of loyalty. Taser might also allege that Ward breached the agent’s duty of notification.
Under the duty of loyalty, an agent has the duty to act solely for the benefit of his or her principal. Under the
duty of notification, an agent is required to notify the principal of all matters that come to her or his attention
concerning the subject matter of the agency. “Assuming Taser was engaged in the research and development
of a recording device during Ward’s employment, assuming Ward knew or should have known of those
efforts, and assuming Taser’s device would compete with Ward’s concept, substantial design and
development efforts by Ward during his employment” without informing Taser would constitute a violation of
the duty of notification.
Under the duty of obedience, when acting on behalf of the principal, an agent has a duty to follow all
lawful and clearly stated instructions of the principal. Any deviation from such instructions is a violation of the
duty. Depending on the scope of Ward’s employment—what he was instructed to do—he might also have
violated this duty. And under the duty of accounting, an agent has a duty to keep and make available to the
principal an account of all property and funds received and paid out on behalf of the principal. If Ward
expended any of Taser’s resources on research and development of his own projects,, he might also have
violated this duty.
4. If the judgment in the case of remand is again in Taser’s favor, what might be an appropriate
remedy? A principal has contract remedies for an agent’s breach of fiduciary duties. The principal also has
tort remedies if the agent engages in a tort—misappropriation, misrepresentation, negligence, or deceit, for
example. In addition, any breach of a fiduciary duty by an agent may justify the principal’s termination of the
agency.
Any of these remedies could be appropriate in the right circumstance. If Ward were held to have violated
the agent’s fiduciary duties, Taser could seek to impose a constructive trust. Or Taser might seek to avoid the
contract with Ward, or seek damages for the commission of a tort.
4. Obedience
An agent must follow the principal’s instructions (except during an emergency or when instructions
whole or in part.
5. Accounting
1. Compensation
Except in a gratuitous agency, a principal must pay an agent for services rendered and to do so in a
timely manner. The amount is the agreed-on value, the customary value, or, if no amount has been
agreed on or established by custom or law, the reasonable value.
3. Cooperation
A principal must cooperate with and assist an agent in performing his or her duties.
4. Safe Working Conditions
A principal must provide safe premises, equipment, and conditions (and warn about unsafe areas).
1. Tort and Contract Remedies
Remedies follow normal contract and tort remedies.
2. Demand for an Accounting
An agent can withhold further performance and demand that a principal give an accounting.
Remedies follow normal contract and tort remedies. Actions available include constructive trust,
avoidance, and indemnification.
1. Constructive Trust
When an agent retains benefits or profits that belong to the principal, a court may impose a con-
whole or in part.