MGMT 101 Chapter 35

Identify a true statement about the liability of an agent.

An agent is liable for harm caused to third persons by the agent's fraudulent, intentional, or negligent acts

Liability for Agent's Crimes

An agent is liable for his or her own crimes. An principal or employer is not liable for an agent's or employee's crimes simply because the agent or employee committed the crime while otherwise acting within the scope or authority of employment

Which of the following is true of the liability of an agent to a third person?

An agent is necessarily the other contracting party if the principal is not disclosed

Undisclosed Principal

At the time the contract is made, the third party does not know that there is a principal and does not know the identity of the principal. In this case, the agent is a party to the contract.

Disclosed Principal

At the time the contract is made, the third party knows that there is a principal and the identity of the principal. In this case, the agent is not a party to the contract.

Partially Disclosed Principal

At the time the contract is made, the third party knows that there is a principal but does not know the identity of the principal. In this case, the agent is a party to the contract.

Caleb is an agent for the very wealthy Mr. Arrington and is authorized to seek out and purchase rare antiques for Mr. Arrington's home. Mr. Arrington wishes to remain anonymous to maintain his privacy. Caleb visits Angel Antiques and tells that he is shopping on behalf of someone else. After negotiating with Angel Antiques, Caleb makes a purchase of an antique table. When the table arrives, Mr. Arrington does not like it and refuses to pay. Angel Antiques demands payment from Caleb. Caleb claims he is not a party to the contract because he bought it on behalf of Mr. Arrington. Which of the following is true of this scenario?

Caleb is a party to the contract because the identity of the principal was not disclosed

In which of the following scenarios is an agent exposed to the least risk of liability?

Disclosed principal and authorized contract

Southern Development Company is building an additional 25 apartment units onto an existing apartment building at Lake Landing Apartments. Southern Development hires Harris Plumbing to do all the plumbing work in the new units, including installing pipes that would connect to the existing units. During the installation, Harris Plumbing accidentally breaks a water line that floods several of the existing, rented units causing more than $75,000 in damages. Who is liable for the damages?

Harris Plumbing

Owner's Liability for Acts of an Independent Contractor

If work is done by an independent contractor rather than an employee, the owner is not liable for harm caused by the contractor to the third persons or their property. Also owners are not bound by contracts made by the independent contractor. The owner is ordinarily not liable for harm caused to third persons by the negligence of the employees of the independent contractor.

Jennifer Moore was a property manager for Woodhill Properties, which was owned by Anthony Woodhill. As an agent of the company, she signed a contract with North Contractors to renovate a large group of apartments. She signed the contract ″Anthony Woodhill of Woodhill Properties, per Jennifer Moore.″ After the work was completed, Woodhill still owed North Contractors approximately $76,000 for the work. Woodhill refused to pay the remaining balance, and North Contractors sued both Woodhill Properties and Jennifer Moore as its agent, for the money. Which of the following is true of this scenario?

Jennifer is not liable for the payment because she signed as an authorized agent, not as a principal.

Lucas and Kyle are agents and employees for Liberty Manufacturing. At lunch, Lucas sees his girlfriend, Victoria, talking to Kyle. Later that day, Lucas confronts Kyle in the bathroom at the Liberty facility and beats him up. Kyle is taken to the hospital to treat severe bruises and several broken bones. Kyle sues both Lucas and Liberty Manufacturing. Which of the following is true of this scenario?

Liberty manufacturing is not liable because the fight had nothing to do with the scope of the jobs of Kyle and Lucas.

Midway Processing Company was a large facility that processed recycled materials into usable materials. Justin has been a shift supervisor at Midway for the past five years and, in that time, he has been disciplined several times for harsh treatment of employees including screaming at them, throwing chairs, and kicking over trashcans. Last year, he was suspended for a week for throwing a clipboard at an employee and hitting the employee in the back. The employee did not suffer any injuries. Recently, Justin got angry because the processing line was moving too slow, and he picked up a chair and threw it at Monique, an employee working on the line. He hit Monique in the face with the chair, which caused bruising to her face and lacerations to her eye. Monique then filed a lawsuit against Justin and Midway Processing Company. Which of the following is true of this scenario?

Midway Processing can be held liable because it should have known that Justin could create undue risk for others

Liability for Fraud

Modern decisions hold the employer liable for fraudulent acts or misrepresentations of the employee. This rule is commonly applied to the principal-agent relationship

Liability for Agent's Intentional Torts

Most intentional torts that employees commit have not relation to their employment; thus, the employers would not be liable under the common law. Modern law holds the employer liable for an intentional tort committed for the purpose of furthering the employer's business. An employer who knows or should know that an employee has a propensity for committing tortious acts is liable for the employee's acts.

Andy Roust hired Clear-it, Inc., a demolition company, to level an old building on a busy downtown lot. Clear-it, Inc. was given full rein to decide on the amount of explosives needed and the placement of the charges. Security for the site on the day of the explosion was contracted out to a private security firm. When the appointed day arrived, the building was brought down. However, the building fell in a slightly different direction than that anticipated by Clear-it, Inc. and numerous pieces of adjoining property, both real and personal, were severely damaged. Roust claimed that the use of an independent contractor such as Clear-it, Inc. insulated him from liability. Is Roust liable for the acts of the independent contractor?

Roust is liable because of the inherently dangerous nature of the work.

Priscilla was the agent in charge of distribution and collections for Savvy Cheese Shopper. Rex operated a grocery store and purchased cheese products from Savvy. Priscilla made false invoice sheets, showing delivery to Rex of greater quantities than Rex actually had ordered or received. Priscilla collected from Rex on the basis of these increased amounts and then kept for herself the difference between the increased amounts and the amounts that should have been charged. When Rex learned of this, he sued Savvy for the excess payments he had made. Savvy denied that Priscilla was its agent in making excess collections. Which of the following is true of this scenario?

Savvy can be held responsible for an agent under its control

Raegan was a cashier at a convenience store. She was given specific instructions by the store owner to check the ID on anyone buying alcohol, regardless of how old they looked, and to use the store's verification system to enter customers' birthdate in the cash register. On Friday night, Raegan was the only employee working and the store got very busy. Customers were lined up and complaining about the wait. So, Raegan did not ask to see the ID for several customers who purchased alcohol and just entered variations of her own birthday. One of the customers she sold alcohol to was Adam, a 16-year-old minor, who was later stopped by the police for drunk driving. Adam told the police that he had purchased the alcohol from the convenience store where Raegan worked. Criminal charges were then filed against Raegan and the store. Is the convenience store ownership liable in this scenario?

The convenience store is criminally liable because there was a violation of liquor sales laws.

What issue did the court address in its ruling in the Liberty Mutual Ins. Co. v. Enjay Chemical Co. case?

The court examined whether payment to an authorized agent negated the debt to the principal when the agent embezzled the money

Negligent Hiring and Retention of Employees

The negligent hiring theory, unlike the respondeat superior theory is based on the negligence of the employer in the hiring process. The hiring of an individual with a criminal record does not by itself establish the tort of negligent hiring. The negligent retention theory exists when the employer knew or should have known that the employee would create an undue risk of harm to others in carrying out job responsibilities.

Negligent Supervision and Training

The theory of negligent supervision and training holds the principal directly liable for its negligence in regard to training and supervision of its employees and agents.

Liability for Agent's Negligence

Under the doctrine of respondeat superior, the principal-employer is liable for any harm caused to a third party by an agent-employee within the scope of employment. This doctrine imposes vicarious liability on the employer, which is liability without regard to the personal fault of the employer for torts committed by an employee in the course of the scope of employment.

Which issue did the court examine in the Walton v. Mariner Health case ?

Was a daughter personally liable for her mother's care in a nursing home after signing a ″Resident's Agent Financial Agreement″?

Liability of Principal to Third Persons

When a third person makes payments to an authorized agent, the payment is deemed made to the principal. A principal is bound by a statement made by an agent while transacting business within the scope of authority The principal is bound by the knowledge or notice of any fact that is acquired by an agent while acting within the scope of actual or apparent authority

Bob worked as the agent for Anne. Anne was in the business of buying antique watches and selling them to the public. She became so successful at this that people became reluctant to sell to her, feeling that if she bought a watch, it probably could be sold for more. Anne instructed Bob to purchase several watches but not to reveal to the sellers that the purchases were being made on her behalf. Bob contracted to buy several watches and gave his own checks as down payment to keep Anne's identity concealed. Although Anne had authorized the contracts, she reneged on the contracts. Bob thereupon told the sellers what had happened and stopped payment on the down payment check. The sellers of the watches sued Anne on the bounced check and for breach of contract. Bob was sued on the same causes of action. Is Bob liable?

Yes, Bob is liable since he contracted in his own name

The principal is bound by knowledge or notice of any fact that is acquired by an agent while acting within the scope of:

apparent or actual authority.

If an agent exceeds his actual and apparent authority, the contract:

does not ordinarily bind the principal

An agent making a proper contract with a third person on behalf of an undisclosed principal:

is personally liable to both the principal and the third person on the contract.

A principal is bound by a statement made by an agent if:

it is made while transacting business within the scope of agency authority

The liability of a buyer for the purchase price of goods is:

not terminated by the fact that the buyer gave the buyer's agent the purchase price to remit to the seller.

The rule of law imposing vicarious liability on an innocent employer for the wrong of an employee is known as:

respondeat superior

When a tort or crime is committed by an agent acting in the course of his or her work for the principal, then

vicarious liability could be imposed on the principal.

The main issue in the Ralls v. Mittlesteadt case was:

whether an employee or agent was liable for torts committed by the agent or employee.

The issue before the court in the Bryant v. Livigni case was:

whether employers are liable when they wrongfully retain unfit employees after learning of a wrongful act perpetrated by the employee

Liability for Agent's Torts

-An agent is liable for his or her own torts. -A principal may also be liable for an agent's torts if they result from the following: -The principal's own tortious conduct; or -The principal's authorization of a tortious act; -Additionally, if the agent is an employee whose conduct the principal-employer controls, the employer may be liable for negligent or intentional torts committed by the employee.

Determining whether Conduct is within the Scope of Employment

1. Whether the employee's act was authorized by the employer. 2. The time, place, and purpose of the act. 3. Whether the act was one commonly performed by employees on behalf of their employers. 4.The extent to which the employer's interest was advanced by the act. 5. The extent to which the private interest of the employee was involved. 6. Whether the employer furnished the means or instrumentality by which injury was inflicted. 7. Whether the employer had reason to know that the employee would perform the act in question and whether the employee had done it before.