Chapter 30

Independent Ontractor

"A person who contracts with another to do something for him who is not controlled by the other nor subject to the other's right to control with respect to his physical conduct in the performance of the undertaking" (Restatement (Second) of Agency). Principals often employ outsiders - that is, persons and businesses that are not employees - to perform certain tasks on their behalf. Ex: lawyers, doctors, dentists, architects, CPAs, real estate brokers, and plumbers. The party that employs an independent contractor is called a principal.

Self Dealing

Agents are generally prohibited from undisclosed self-dealing with the principal. An agent who commits this act has violated his or her duty of loyalty to the principal. The principal can then rescind the purchase and recover the money paid to the agent. An an alternative, the principal can ratify the purchase.

Competing with the Principal

Agents are prohibited from competing with the principal during the course of an agency unless the principal agrees. The reason for this rule is that an agent cannot meet his or her duty of loyalty when his or he r personal interests conflict with the principal's interests. The principal may recover the profits made by the agent as well as damages caused by the agent's conflict, such as lost sales. An agent is free to compete with a principal when an agency has ended unless the parties have entered into an enforceable covenant-not-to-compete.

Undisclosed Agency

An agency in which a contracting third party does not know of either the existence of the agency or the principal's identity. Principal is called an undisclosed principal.Undisclosed agency are lawful. They are often used when the principal feels that the terms of the contract would be changed if his or her identity were known. For example, a wealthy party may use an undisclosed agency to purchase property if she thinks that the seller would raise the price of the property if her identity were revealed. Both the principal and the agent are liable on the contract with the third party because the agent, by not divulging that he or she is acting as an agent, becomes a principal to the contract. The third party relies on the reputation and credit of the agent in entering into the contract. If the principal fails to perform the contract, the third party can recover against the principal or the agent. If the agent is made to pay the contract, he or she can recover indemnification from the principal. An undisclosed agency can be created either expressly or by mistake.

Fully Disclosed Agency

An agency in which a contracting third party knows (1) that the agent is acting for a principal and (2) the identity of the principal. The third party has the requisite knowledge if the principal's identity is disclosed to the third party by either the agent or some other source. In a fully disclosed agency, the contract is between the principal and the third party. Thus, the principal, who is called a fully disclosed principal, is liable on the contract. The agent is not liable on the contract, however, because the third party relied on the principal's credit and reputation when the contract was made. The agent's signature on a contract entered into on the principal's behalf is important. It can establish the agent's status and therefore his or here liability. For instance, in a fully disclosed agency, the agent's signature must clearly indicate that he or she is acting as an agent for a specifically identified principal. Ex: "Catherine Adams, agent for Juan Perez" Agent is not liable unless the agent (1) acts as a principal or (2) guarantees the performance of a contract.

Partially Disclosed Agency

An agency in which a contracting third party knows the agent is acting for a principal but does not know the identity of the principal. The nondisclosure may be because the principal instructs the agent not to disclose his or her identity to the third party or the agent forgets to tell the third party the principal's identity. Principal is called a partially disclosed principal. Both the principal and the agent are liable on third-party contracts. This is because the third party must rely on the agent's reputation, integrity, and credit because the principal is unidentified. If the agent is made to pay the contract, the agent can sue the principal for indemnification. The third party and the agent can agree to relieve the agent's liability.

Usurping an Opportunity

An agent cannot personally usurp an opportunity that belongs to the principal. A third party offer to an agent must be conveyed to the principal. The agent cannot appropriate the opportunity for him or herself unless the principal rejects it after due consideration. If the agent does so, the principal can recover the opportunity from the agent.

Liability of an Independent Contractor's Torts

Generally, a principal is not liable for the torts of its independent contractors. Independent contractors are personally liable for their own torts. The rationale behind this rule is that principals do not control the means by which the results are accomplished. Principals cannot avoid liability for inherently dangerous activities that they assign to independent contractors. For example, the use of explosives, clearing land by fire, crop dusting and other inherently dangerous activities involve special risks. In these cases the principal is liable for the negligence of the independent contractor that the principal hired to perform the dangerous task.

Agent Exceeding the Scope of Authority

If the agent exceeds the scope of his or her authority, the principal is not liable on the contract. The agent, however, is liable to the third party for breaching the implied warranty of authority. To recover the third party must show (1) reliance on the agent's reputation and (2) ignorance of the agent's lack of status. A principal is bound to a contract only if she ratifies the contract - that is, accepts it as her own.

Misuse of Confidential Information

In the course of an agency, an agent often acquires confidential information about the principal's affairs (business plans, technological innovations, customer lists, trade secrets). The agent is under exclusive duty not to disclose or misuse this information either during or after the course of the agency. If the agent violates this duty, the principal can recover damages, lost profits, and any remuneration thr agent received from another party to obtain the confidential information. The principal can also obtain an injunction ordering the third party to return the confidential information and to not use such information; There is not prohibition against using general information, knowledge, or experience acquired during the course of an agency in later employment.

Factors for Determining Independent Contractor Status

Independent contractors usually work for a number of clients, have their own offices, hire employees, and control the performance of their work. The crucial factor in determining whether someone is an independent contractor or an employee is the degree of control the principal has over the party. Critical factors in determining independent contractor status include: 1. Whether the worker is engaged in a distinct occupation or an independently established business 2. The length of time the agent has been employed by the principal 3. The amount of time that the agent works for the principal 4. Whether the principal supplies the tools and equipment used in the work 5. The method of payment, whether by time or by job 6. The degree of skill necessary to complete the task 7. Whether the worker hires employees to assist him or her 8. Whether the employer has the right to control the manner and means of accomplishing the desired result If an examination of these factors shows that the principal asserts little control, the person is an independent contractor. Substantial control indicates an employer-employee relationship. Labeling someone as an independent contractor is only one factor in determining whether independent contractor status exists.

Viacarious Liability

Liability without fault. Occurs where a principal uis liable for an agent's tortious conduct because of the employment contract between the principal and agent, not because the principal was personally at fault.

Two Tests for for Determining Whether an Agent's Intentional Torts were Committed Within the AGent's Scope of Employment

Motivation test and work-related tets

The Three Main Sources of Tort Liability for Principals and Agents

Negligence, intentional torts, and misrepresentation.

Dual Agency

Occurs when an agent acts for two or more different principals in the same transaction. This practice is generally prohibited unless all of the parties involved in the transaction agree to it. If an agent acts as an undisclosed dueal agent, He or she must forfeit all compensation received in the transaction. Some agents, such as middlemen and finders, are not considered dual agents. This is because they only bring interested parties together; they do not take part in any negotiations.

Innocent Misrepresentation

Occurs when an agent negligently makes a misrepresentation to a third party (Forgot?)

Liability for Intentional Torts

Intentional torts include acts such as assault, battery, false imprisonment, and other intentional conduct that caused injury to another person. A principal is not liable for the intentional torts of agents and employees that are committed outside the principal's scope of business. However, a principal is liable under the doctrine of vicarious liability for intentional torts of agents and employees committed within the agent's scope of employment.

Negligence

Principals are liable for the negligent conduct of agents acting within the scope of their employment. This liability is based on the common law doctrine of respondeat superior ("let the master answer").

Common Types of Breaches of Loyalty

Self dealing, usurping an opportunity, competing with the principal, misuse of confidential information, and dual agency.

Intentional Misrepresentation (Fraud or Deceit)

A deceit in which an agent makes an untrue statement in which he or she knows is not true. A principal is liable for the intentional and innocent misrepresentations made by an agent acting within the scope of employment. The third party can either (1) rescind the contract with the principal and recover any consideration paid or (2) affirm the contract and recover damages.

Agent's Duty of Loyalty

A fiduciary duty owed by an agent not to act adversely to the interests of the principal. Agency relationship is based on trust and confidence. If this duty is breached, the agent is liable to the principal.

Tort Liability of Principals and Agents to Third Parties

A principal and an agent are each personally liable for their own n=tortious conduct. The principal is liable for the tortious conduct of an agent who is acting within the scope of his or her authority. The agent, however, is liable for the tortious conduct of the principal only if he or she directly or indirectly participates in or aids and abets the principal's conduct. The following factors determine whether an agent's conduct occurred within the scope of his or her employment? 1. Was the act specifically requested or authorized by the principal? 2. Was it the kind of act that the agent was employed to perform? 3. Did the act occur substantially within the time period of employment authorized by the principal? 4. Did the act occur substantially within the location of employment authorized by the employer? 5. Was the agent advancing the principal's purpose when the act occurred? Where liability is found, tort remedies are available to the injured party. These remedies include recover for medical expense, lost wages, pain and suffering, emotional distress, and in some cases, punitive damages.

Liability for an Independent Contractor's Contracts

A principal can authorize an independent contractor to enter into contracts. Principals are bound by the authorized contracts of their independent contractors. If an independent contractor enters into a contract with a third party on behalf of the principal without express or implied authority from the principal to do so, the principal is not liable on the contract.

Coming and Going Rule

A rule stating that a principal is generally not liable for injuries caused by its agents and employees while they are on their way to or from work. This rule applies even if the employer pays for the vehicle or vehicle expenses for the employee. Quite logical: Because principals do not control where their agents and employees live, they should not be held liable for tortious conduct of agents on their way to and from work.

Respondent Superior

A rule stating that an employer is liable for the tortious conduct of its employees or agents while they are acting within the scope of the employer's authority. Based on the theory of vicarious liability (liability without fault).

Ratification of a Contract

A situation in which a principal accepts an agent's unauthorized contract.

Dual-Purpose Mission

A situation that occurs when a principal requests an employee or agent to run an errand or do another act for the principal while the agent is on his or her own personal business. The employee or agent would be acting partly for him or herself and partly for the principal. Most jurisdictions hold both the principal and the agent liable if the agent injures someone while on such a mission.

Frolic and Detour

A situation where an agent does something during the course of his or her employment to further his or her own interests rather than the principal's. An agent might take a detour and run a personal errand while on assignment for the principal. Negligent actions stemming from frolic and detour are examined on a case-by-case basis.Agents are always personally liable for their tortious conduct is such situations. Principal's are generally relieved of liability if the agent's frolic and detour is substantial. If the deviation is minot, however, the principal is liable for the injuries caused by the agent's tortious conduct.

Work-Related Test

A test that determines whether an agent committed an intentional tort within a work-related time or space; if so, the principal is liable for any injury caused by the agent's intentional tort. Some jurisdictions have rejected the motivation test as being too narrow. The agent's motivation is immaterial.

Motivation Test

A test that determines whether an agent's motivation in committing an intentional tort is to promote the principal's business; if so, the principal is liable for any injury caused by the tort. If an agent's motivation for committing the intentional tort was personal, however, the principal is not liable, even if the tort takes place during business hours or on business premises.

Implied Warranty of Authority

A warranty of an agent who enters into a contract on behalf of another party that he or she has the authority to do so.

Contract Liability of Principals and Agents to Third Parties

Agency law imposes contract liability on principals and agents depending on the circumstances. A principal who authorizes an agent to enter into a contract with a third party is liable on the contract. Thus, the third party can enforce the contract against the principal and recover damages from the principal if the principal fails to perform it. The agent agent can also be held liable on the contract in certain circumstances. Imposition of such liability depends on whether the agency is classified as fully disclosed, partially discloses, or undisclosed.