CHAPTER 30: LIABILITY OF PRINCIPALS, AGENTS, AND INDEPENDENT CONTRACTORS
Ex. of Negligence Liability
Harriet is driving her automobile to attend a meeting with a client on behalf of her employer. On her way to the meeting, Harriet is involved in an automobile accident that is caused by her negligence and several people are seriously injured. In this example, => Harriet is personally liable to the injured parties. => In addition, Business Unlimited Corporation is liable as the principal because Harriet was acting within the scope of her employment when she caused the accident.
Burlarley v. Wal-Mart Stores, Inc.
In our view, the court properly concluded that throwing a full bag of heavy items at an unsuspecting customer's face as a "joke" is not commonly done by a cashier and, indeed, substantially departs from a cashier's normal methods of performance. Moreover, the cashier's actions arose not from any work-related motivation, but rather her desire to pass the time and relieve mounting frustration with her job. => applying the motivation test, the Appellate Court held that Wal-Mart was not vicariously liable for the intentional tort of its cashier
an agent owes a Fiduciary Duty
NOT to act adversely to the interest of the principal; if this duty is breached, the agent is liable to the principal
Three Main Sources of Tort of Liability:
Negligence Intentional Torts Misrepresentation
a principal and an agent are each personally liable for their own Tortious Conduct
Principals are liable for tortious conduct committed by agents while they're acting within the scope of authority given to them by the principal The Agent is liable for tortious conduct of the principal ONLY if he directly or indirectly participates in or aids and abets the principal's conduct
the Courts rely on the following factors to determine whether an agent's conduct occurred within the scope of employment:
Was the act specifically requested or authorized by the principal? Was it the kind of act that the agent was employed to perform? Did the act occur substantially within the time period of employment authorized by the principal? Did the act occur substantially within the location of employment authorized by the employer? Was the agent advancing the principal's purpose when the act occurred?
Critical factors in determining independent contractor status include:
Whether the worker is engaged in a distinct occupation or an independently established business the length of time the agent has been employed by the principal the amount of time that the agent works for the principal whether the principal suppliers the tools and equipment used in the work the method of payment, whether by time or by the job the degree of skill necessary to complete the task whether the worker hires employees to assist him whether the employer has the right to control the manner and means of accomplishing the desired result
Degree of Control
a crucial factor in determining whether someone is an independent contractor or an employee
Independent Contractor
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
a principal is NOT liable for the intentional torts of agents and employees that are outside the principal's scope of business; however,
a principal is liable under the doctrine of vicarious liability for intentional tort of agents and employees committed within the agent's scope of employment
ex. of undisclosed self-deailng
a real estate agent who is employed to purchase real estate for a principal cannot secretly sell his own property to the principal; however, the deal is lawful if the principal agrees to buy the property after the agent discloses ownership of the property
Coming and Going Rule (going and coming rule)
a rule that says a principal is generally not liable for injuries caused by its agents and employees while they are on their way to or from work => applies even if the principal supplies the agent's automobile or other transportation or pays for gasoline, repairs, and other automobile operating expenses
Frolic and Detour
a situation in which an agent does something during the course of his employment to further his own interests rather than the principal's
Implied Warranty of Authority
a warranty of an agent who enters into a contract on behalf of another party that he has the authority to do so => if the agent exceeds the scope of his authority, the principal is not liable on the contract => the agent is liable to the third party for breaching the implied warranty of authority
in a Dual-Purpose Mission, the agent is
acting party for him and partly for the principal => most jurisdiction hold both the principal and the agent liable if the agent injures someone while on such a mission
Agents are prohibited from Competing with the Principal during the course of an agency unless the principal agrees
agent cannot meet the duty of loyalty when 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 conduct, such as lost sales
in an Undisclosed Agency, the principal is called
an Undisclosed Principal
Dual Agency occurs when
an agent acts for TWO or more different principals in the same transaction; generally prohibited unless all parties involved in the transaction agree to it
Ex. of Usurping an Opportunity
an agent, without informing the principal, purchasing the land for personal use => violation of the agent's duty of loyalty
Dual-Purpose Mission
an errand or another act that a principal requests of an agent while the agent is on his own personal business
Intentional torts include acts such as:
assault, battery, false imprisonment, and other intentional conduct that causes injury to another person
in an undisclosed agency,
both the principal and the agent are liable on the contract with the third party because the agent, by not divulging agency status, becomes a principal to the contract => the third party relies on the reputation and credit of the agent in entering into the contract => can be created either expressly or by mistake
in a partially disclosed agency,
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
because the agency relationship is based on trust and confidence, an agent owes the principal a
duty of loyalty in all agency-related matters;
Substantial control indicates an
employer-employee relationship => labeling someone an independent contract is only one factor in determining whether independent contractor status exists
Principals cannot avoid liability for Inherently Dangerous Activities that they assigned to independent contractors
ex. the use of explosives, clearing land by fire, crop dusting, and other inherently dangerous activities involve special risks => in these cases, a principal is liable for the negligence of the independent contractor the principal hired to perform the dangerous task
Negligence Actions stemming from Frolic and Detour are
examined on a case by case basis; agents are always personally liable for their tortious conduct in such situations => principals are generally relieved of liability if the agent's frolic and detour is substantial => if the deviation is minor, however, the principal is liable for the injuries caused by the agent's tortious conduct
Intentional Misrepresentations are also known as
fraud or deceit;
the 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 disclosed or undisclosed
if an agent acts as an undisclosed dual agent,
he must forfeit all compensation received in the transaction => but some agents, such as a middlemen and finders, are not considered dual agents, because they only bring interested parties together and do not take part in any negotiations
Court's tests in determining whether an agent's intentional torts were committed within the agent's scope of employment: => 2. Work-related test under the jurisdictions that have rejected the motivation test as being too narrow, Work-related test is applied
if an agent commits an intentional tort within a work-related time or space ex. during working hours or on the principal's premises, the principal is liable for any injuries cause by the agent's intentional torts => under this rule, agent's motivation is immaterial
Partially Disclosed Agency occurs
if an agent discloses agency status but does not reveal the principal's identity and the third party does not know the principal's identity from another source
the doctrine of negligence rests on the principle that,
if someone (principal) expects to derive certain benefits from acting through others (agent) that person should also bear the liability for injuries caused to the third persons by the negligent conduct of an agent who is acting within the scope of employment
Court's tests in determining whether an agent's intentional torts were committed within the agent's scope of employment: => 1. Motivation Test
if the agent's motivation for committing an intentional tort is to promote the principal's business, the principal is liable for any injury caused by the tort; if an agent's motivation for committing the intentional tort is PERSONAL, the principal is not liable, even if the tort takes place during business hours or on business premises
generally, a principal is not liable for the torts of its independent contractors;
independent contractors are personally liable for their own torts => principals do not control the means of how the results are accomplished
the party that employs an independent contractor
is called a principal
the agent's signature on contract entered into on the principal's behalf is important because
it can establish the agent's status and therefore his liability => ex. in a full disclosed agency, the agent's signature must clearly indicate that the agent is acting as an agent for a specifically identified principal
Examples of Independent Contractors
lawyers, doctors, dentists, consultants, stockbrokers, architects, certified public accountants, real estate brokers, and plumbers
Contract Liability
liability of principals and agents for contracts entered into with third parties
a principal can authorize an independent contractor to enter into contracts. thus,
principals are bound by the authorized contracts of their independent contractors => if he enters into a contract with a third party on behalf of the principal without express or implied authority from the principals to do so, the principal is not liable on the contract
Three Main Sources of Tort of Liability: => Negligence
principals are liable for the negligent conduct of agents acting within the scope of their employment
FedEx v. Employees
the US court of appeals held that FedEx drivers were employees of FedEx and not independent contractors => "Direct evidence of the right to control is the most important factor under Oregon law; we can find no difference at all between FedEx driver's actual situation in so far as control is concerned and the situation of one hired to drive a delivery truck owned and operated by FedEx"
an agent is free to compete with the principal when
the agency has ended unless the parties have entered into an enforceable covenant-not-to-compete
if in a partially disclosed agency, 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
in a fully disclosed agency,
the agent is not liable on the contract because the third party relied on the principal's credit and reputation when the contract was made
the agent is under a legal duty not to disclose or Misuse Confidential Information either during or AFTER the course of the agency
the agent often acquires confidential information about the principal's affairs (business plans, technological innovations, customer lists, trade secrets)
Matthews v. Food Lion, LLC
the court of appeals held that Hall was not acting within the scope of her employment at the time of the accident as she had already "clocked out" of work; the CoA affirmed the TC's grant of summary judgement for Food Lion
Negligence liability is based on the common law doctrine of respondeat superior ("let the master ansewr"), which is in turn based on
the legal theory of Vicarious Liability (liability without fault) => the principal is liable because of the employment contract with the negligent agent, not because the principal was personally at fault
a principal is bound on the contract an agent enters into with unwarranted authority, ONLY if
the principal RATIFIES the contract => accepts it as his own called Ratification of a Contract
in a fully disclosed agency, the contract is between
the principal and the third party => the principal, who is a Fully Disclosed Principal, is liable on the contract
if an agent violates his legal duty to NOT disclose or misuse confidential information,
the principal can recover damages, lost profits, and any renumeration the agent received from another party to obtain the confidential information => party can also obtain an injunction ordering a third party to return the confidential information and to not use it => there is no prohibition against using general information, knowledge, or experience acquired during an agency in a later employment
if there has been undisclosed dealing by an agent,
the principal can rescind the purchase and recover the money paid to the agent; as an alternative, the principal can ratify the purchase
Undisclosed Agencies are lawful and they are often used when
the principal feels that the terms of the contract would be changed if the principal's identity were known ex. 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
the nondisclosure in a partially disclosed agency may be because
the principal instructs the agent not to disclose his identity to the third party or the agent forgets to tell the third party the principal's identity
if the principal in an Undisclosed Agency 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 can recover indemnification from the principal
where liability is found, tort remedies are available to the injured party:
these remedies include recovery for medical expenses, lost wages, pain and suffering, emotional distress, and in some cases, punitive damages
an agent cannot personally Usurp an Opportunity that belongs to the principal
third-party offer to an agent must be conveyed to the principal and the principal must have the opportunity to accept or reject; => the agent cannot appropriate the opportunity for himself unless the principal rejects it after due consideration => if the agent does so, the principal can recover the opportunity from the agent
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
an Undisclosed Agency occurs
when a third party is unaware of the existence of an agency
Intentional Misrepresentation occur
when an agent makes statements that the agent knows are not true => both the principal and the agent are liable for this misrepresentation
an Innocent Misrepresentation occurs
when an agent negligently makes a misrepresentation to a third party
Self-Dealing
when an agent, a general partner, a director or an officer of a corporation, a partner in a limited liability partnership, certain members of a limited liability company, or anyone else who owes a fiduciary duty to a principal engages in undisclosed self-dealing with their principal, such as undisclosed purchasing, selling, or leasing of property with their principal
Ex. of Competing with the Principal
while working as a salesperson for a principal who owns an automotive parts business, the agent also works as a salesperson for a competing sellers of automotive parts => demonstrates conflict of interest and the agent has violated the duty of loyalty
Proper agent's signature
"Catherine Adams, agent for Juan Perez" and "Juan Perez, by Catherine Adams, agent."
Court's tests in determining whether an agent's intentional torts were committed within the agent's scope of employment:
1. Motivation Test 2. Work-Related Test
To recover from Implied Warranty of Authority, the third party must show
1. reliance on the agent's representation 2. ignorance of the agent's lack of status
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
Full Disclosed Agency results if a third party entering into a contract knows
1. that the agent is acting as an agent for the principal and 2. the actual identify 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
Ex. of Dual Agency
A real estate broker is hired by a homeowner to sell the owner's house. The real estate broker is approached by a person interested in purchasing the house. The broker agrees to accept compensation from the proposed purchaser if the broker can get the seller to agree to a lower price than the asking price. The real estate broker accomplishes this and recovers a fee from both the seller and buyer of the house. The agent has violated her duty of loyalty by acting as a double agent.