MGMT 271 Ch. 8 Study Guide

Be able to identify and describe three circumstances in which an agent may be personally liable for a contract.

1)Unauthorized Contract- the agent lacked authority to make contract with the third party. 2) Partially Disclosed or Undisclosed Principal 3)Nonexistent Principal-there is no legally capable principal

b.**Principal and Agent: Identify and describe the three ways an agency relationship can be terminated.

1)termination by will of parties (either the principal or the agent can terminate the contract at will), 2)termination by contract provision (if the agency contract has a set time period when the term is up the contract is done) 3)termination by change in circumstances (if either party dies, becomes incompetent or bankrupt or if the purpose of the agency agreement becomes impossible or illegal the agency terminates).

**Respondeat Superior: Be able to state the three questions regarding agent/employee conduct or circumstances that are asked by the "zone of risk" test. What impact does this have on a principal/employer if the answers are all "yes?"

1. did the employee commit the tort during the general time frame of his employment? 2. did the tort arise in some way from the employment? 3. did it occur in the general area where the employee was expected to be (if a search party had been sent to look for him, would they have looked there)? If the answer to these questions is yes, then the employer is "in the zone of risk" and may be found liable.

Respondeat Superior: Be able to describe the three rationales for the reason an employer should be liable for the action of an employee.

1. the employer hires and trains employees and should be expected to take care that good people are employed and that they receive proper training. 2. Because the employer gets the benefit of the labor when everything goes well, the employer should reasonably be expected to pay the cost when, as is bound to happen eventually, the employee commits a tort. 3. The employer is the one with the money - with the "deep pockets".

Respondeat Superior: Be able to identify three exceptions to the general rule for independent contractors including describing any examples.

1. the employer will be liable for negligence connected with his part of the operation. He is expected to hire competent contractors and to provide them with the proper tools. 2. those who hire independent contractors will be liable for tort connected with "nondelegable duties". Some activities need to be conducted safely as a matter of public policy, and no employer will be allowed to transfer the responsibility to somebody else. EX: duty of carrier to transport its passengers in safety. 3. liability an result from hiring an incompetent independent contractor. EX: Becker v. Interstate Properties; plaintiff was young construction worker whose body was in all probability been ruined for life...he was injured by the negligence of an employee of Windsor, who was a subcontractor of Interstate Properties. blahblahblah

a. RULES OF LAW: What is the Duties of Principal Rule? Be able to identify its elements. Under what circumstances is it applied and what are the possible results? Be able to identify and describe three circumstances in which an agent may be personally liable for a contract.

A principal or employer has the duties to pay an agent or employee for services rendered, to indemnify and reimburse the agent or employee for expenses and costs incurred within the scope of the agency or employment, and to avoid unreasonable interference with the agent's or employee's performance of responsibilities. Application of this rule determines whether the principal is liable to compensate the agent, or some third party, for lost income, expenses, costs, or damages.

RULE OF LAW: What is the Respondeat Superior rule? Be able to identify its elements. Under what circumstances is it applied and whose liability does its application determine? What is this kind of liability known as?

A principal or employer is liable for the torts caused or contracts formed by an agent and/or employee acting within the scope of the agency or employment. Application of this rule determines whether a principal or employer is liable to any third party, such as a customer, for the actions of an agent.

What is the Duties of Agent Rule? Be able to identify its elements. Under what circumstances is it applied and what are the possible results?

An agent or employee has the duties to use due diligence and care when acting within the scope of the agency or employment, and to observe a fiduciary duty to always act with the utmost loyalty and good faith (bona fide) in the best interest of the principal or employer. Application of this rule determines whether the agent is liable to compensate the principal, or some third party, for lost income, expenses, costs, or damages.

**Principal and Agent: Be able to describe each of the three ways an agent's or employee's authority to act on behalf a principal or employer may be created.

An agent's authority to act on behalf of a principal may be created expressly (orally or in writing, may be limited and agents may be general or special), impliedly (when there is an agency relationship between principal and agent but the question is whether the authority extends to a particular transaction), or apparently (arises as a matter of equity, to avoid unjust result with no actual authority, although the 3rd party thinks there is). These are the same three ways any contractual relationship can be created.

3. Principal and Agent (p. 212-218). What does principal agent theory concern?

The first part (respondeat superior) concerns tort liability. The second part, the principle-agent theory, concerns contract liability.

**Respondeat Superior: For purposes of determining liability, how is the employer of a loaned employee identified?

Whoever was exercising control over the employee at the time will be deemed the employer.

Principal and Agent: What is a franchise? Is whether an agency relationship exists in a franchise a question of law or fact? What is the critical issue in determining the existence of an agency relationship in a franchise?

a franchise is a contract under the terms of which one party, the franchisor, allows another, the franchisee, to sell a product, or to sell a product in a specific manner, controlled by the franchisor. It is a question of fact. The critical issue is the degree of control maintained by the franchise.

Respondeat Superior: Be able to describe the general rule for independent contractors.

a person hired to accomplish a result; the person hiring him has no direct say in how the result is to be accomplished and is not usually liable for the independent contractor's torts.

**Principal and Agent: For an agent or employee to clearly avoid personal liability for a contract, what must there actually be? Additionally, what three things must an agent or employee communicate to a third party in order to avoid liability?

a principal. The other 3 things are: 1. the agent must have communicated his status as an agent to the other party. 2. the agent must have disclosed the identity of the principal. 3. the agent must have had the authority to enter into the contract.

Intro: What may the term agency also be used to refer to? How does this relate to the acts performed on behalf of some government entity as discussed in Chapter 3?

agency may also be used to refer to the office or function of the agent, or the place where the agent carries on the business. Thus, Ch. 3 discussed administrative agencies, where an organized group of people (the administration) acts on behalf of some government entity.

1. Introduction (pp. 204-205). Be able to describe the special relationship to which agency refers.

agency refers to the special relationship that arises when one person, the principal, manifests consent that another person, the agent, should act on the former's behalf and subject to the former's control.

**Principal and Agent: What is the general rule regarding duties owed by an agent to a third party?

if a principal-agent relationship exists, the agent has no contract liability to the third party, only the principal does.

Respondeat Superior: Identify any ways a principal/employer could also be found guilty of a crime committed by an agent/employee.

if an employee commits a crime under instructions from her employer (for example, murder or price fixing in violation of the Sherman Act) the employee is guilty, and the fact that the act was done under instruction is no defense to personal criminal liability.`

**Principal and Agent: What is the general rule regarding contracts entered into by an authorized agent?

it binds the principal, but the agent is not liable. EX: an agent who is authorized to purchase Rolls-Royce jet engines on behalf of the Boeing Corp. would have no personal liability if Boeing defaulted on the contract.

Respondeat Superior: What is the conjoined liability of an employer and employee known as?

joint and several liability

2. Respondeat Superior (p. 205-212). What does the Latin respondeat superior mean? What other "un-modern" term is this doctrine also known by?

means "let the superior, the boss, be responsible". It is also known by the master-servant doctrine.

b. Respondeat Superior: What is the historical context of the classic "frolic of his own" test? What factual issue can it be difficult to determine under this test? Has any test of the scope of agency or employment recently replaced the "frolic of his own" test?

said in 1834 by the English judge Baron Parke; whether the employee was really frolicking on his own or merely doing his job in a roundabout way; it has been replaced by the zone of risk test (the test determines whether the employer is in the zone of risk, not whether the employee is).

c. **Respondeat Superior: What is the modern rule regarding principal/employer liability for agent/employee intentional tort or crime?

the employer is liable for any tort, so long as its purpose, however misguided, is to further the employer's interest - in other words, so long ass the tort is committed within the scope of employment.

a. **Respondeat Superior: What are the two common contexts in which figuring out who the employer is can be problematic?

the independent contractor and the loaned employee.

Respondeat Superior: What was an employer and an employee called until the early 19th Century?

until the early 19th century, any employer was called a "master" and any employee was called a "servant".

**Principal and Agent: What is determined by the application of principal and agent theory?

when the law of agency should impose liability for a breach of contract upon a person who did not directly enter into the contract - that is, should vicarious liability be imposed.