Chapter 33

Macro Company employs Nero as an agent. To terminate Nero's authority, Macro must notify a. Nero and third parties who know of the agency relationship. b. only Nero. c. only third parties who know of the agency relationship. d. the public generally.

A

Ron orally engages Dian to act as his agent. During the agency, Ron knows that Dian deals with Mary. Ron also knows that Pete and Brad are aware of the agency but have not dealt with Dian. Ron decides to terminate the agency. Regarding notice of termination a. Dian need not be notified in writing. b. Dian's actual authority terminates without notice to her of Ron's decision. c. Dian's apparent authority terminates without notice to Mary. d. Pete and Brad must be directly notified.

A

Quality Products Company requires its customers to pay by check. Ray, a Quality agent, tells customers that they can pay him with cash. Quality learns of Ray's collections, but takes no action to stop them. Ray steals some of the cash. Quality may be liable for the loss under the doctrine of a. apparent authority. b. express authority. c. imagined authority. d. implied authority.

A Apparent authority exists when a principal causes a third party reasonably to believe that an agent has the authority to act, even if the agent does not otherwise have the authority to do so. If the third party changes positions in reliance on the principal's representation, the principal may be estopped from denying the authority. Thus, here, the principal could not hold the customers liable for failing to pay.

10. Green Grocers, Inc., employs Francesca to buy and install a computer system for Green's distribution network. When the system is set up and running, the agency a. terminates automatically. b. terminates after fourteen days. c. continues for one year. d. continues indefinitely.

A When an agent is employed to accomplish a particular objective, the agency automatically terminates when the objective is accomplished.

Disclosed Principal

A disclosed principal is a principal whose identity is known by the third party at the time the contract is made by the agent

Partially Disclosed

A partially disclosed principal is a principal whose identity is not known by the third party, but the third party knows that the agent is or may be acting for a principal at the time the contract is made

Implied Authority

An agent has the implied authority to do what is reasonably necessary to carry out express authority and accomplish the objectives of the agency. Authority can also be implied by custom or inferred from the position the agent occupies

Notice of Dangerous Conditions

An employer is charged with knowledge of dangerous conditions that concern the employment situation and that an employee discovers.

Undisclosed Principal

An undisclosed principal is a principal whose identity is totally unknown by the third party, and the third party has no knowledge that the agent is acting in an agency capacity at the time the contract is made

Apparent Authority

Apparent authority when the principal, by either word or action, causes a third party reasonably to believe that the agent has authority to act, even though the agent has no express or implied authority. Apparent authority usually comes into existence through a principal's pattern of conduct over time

Unauthorized Acts. Janell Arden is a purchasing agent-employee for the A&B Coal Supply partnership. Arden has authority to purchase the coal needed by A&B to satisfy the needs of its customers. While Arden is leaving a coal mine from which she has just purchased a large quantity of coal, her car breaks down. She walks into a small roadside grocery store for help. While there, she encounters Will Wilson, who owns 360 acres back in the mountains with all mineral rights. Wilson, in need of cash, offers to sell Arden the property for $1,500 per acre. On inspection of the property, Arden forms the opinion that the subsurface contains valuable coal deposits. Arden contracts to purchase the property for A&B Coal Supply, signing the contract "A&B Coal Supply, Janell Arden, agent." The closing date is August 1. Arden takes the contract to the partnership. The managing partner is furious, as A&B is not in the property business. Later, just before closing, both Wilson and the partnership learn that the value of the land is at least $15,000 per acre. Discuss the rights of A&B and Wilson concerning the land contract.

As a general rule, a principal and third party are bound only to a contract made by the principal‟s agent within the scope of the agent‟s authority. An agent‟s authority to act can come from actual authority given to the agent (express or implied), apparent authority, or authority derived from an emergency. Express authority is directly given by the principal to the agent. Implied authority is deemed customary or inferred from the agent‟s position. Apparent authority is created when a principal gives a third person reason to believe the agent possesses authority not truly possessed. In this case, no express authority was given, and certainly no implied authority exists for a purchasing agent of goods to acquire realty. Moreover, A & B did nothing to lead Wilson to believe that Arden had authority to purchase land on its behalf. In addition, there was no emergency creating a need for Arden to purchase the land. Therefore, although Arden indicated in the contract that she was an agent, she acted outside the scope of her authority. Because of this, the contract between Arden and Wilson is treated merely as an unaccepted offer. As such, neither Wilson nor A & B is bound unless A & B ratifies (accepts) the contract before Wilson withdraws (revokes) the offer. Ratification can take place only when the principal is aware of all material facts and makes some act of affirmation. If A & B affirms the contract before Wilson withdraws, A & B can enforce Arden‟s contract. If Wilson withdraws first, Arden‟s contract cannot be enforced by A & B.

Respondeat Superior ABC Tire Corp. hires Arnez as a traveling salesperson and assigns him a geographic area and time schedule in which to solicit orders and service customers. Arnez is given a company car to use in covering the territory. One day, Arnez decides to take his personal car to cover part of his territory. It is 11:00 A.M., and Arnez has just finished calling on all customers in the city of Tarrytown. His next appointment is at 2:00 P.M. in the city of Austex, twenty miles down the road. Arnez starts out for Austex, but halfway there he decides to visit a former college roommate who runs a farm ten miles off the main highway. Arnez is enjoying his visit with his former roommate when he realizes that it is 1:45 P.M. and that he will be late for the appointment in Austex. Driving at a high speed down the country road to reach the main highway, Arnez crashes his car into a tractor, severely injuring Thomas, the driver of the tractor. Thomas claims that he can hold ABC Tire Corp. liable for his injuries. Discuss fully ABC's liability in this situation.

As a general rule, an employer (principal) is liable for the negligent actions of the employee (agent), if such acts are committed while the employee (agent) is acting within the scope of employment. This theory of liability is based on the doctrine of respondeat superior, which holds that the liability of the master is imposed even though the tort was committed by a servant. The key to whether the doctrine applies is whether the servant was an employee at the time the tort was committed and whether the negligent actions were committed while the employee was acting within the scope of employment. Certainly, Arnez is an employee, hired by ABC, which controls Arnez‟s physical conduct in soliciting orders and servicing customers. The only issue in this case is whether Arnez was acting within the scope of his employment at the time the tort was committed or whether he was on a frolic of his own. The use of his personal car has no effect on this decision. The question to be decided is whether Arnez‟s visit to his friend constituted a substantial departure from the performance of his employer‟s business. Points that should be discussed are: (a) All travel time of a traveling salesperson on a business trip is usually considered within the scope of employment. (b) At the time the tort was committed, Arnez was on his way to an appointment on behalf of ABC (whereas the negligent act could have taken place on the way to visit his friend). (c) Because of the time between appointments and the distance, this is probably not a substantial departure from ABC‟s business. On the basis of these factors, ABC is liable for Arnez‟s tort of negligence and the resulting injuries to Thomas. If Arnez had been on a frolic of his own, only Arnez would have been liable to Thomas.

Contract Liability

Authorized & Disclosed -> Principal is liable: end of the day the principal will pay Employee or Contractor acting on the part of an architectural firm and purchase some materials and disclose you work for the firm - the firm will be liable to pay or satisfy that contract Authorized & Not Disclosed -> Principal and Agent are liable: end of day principal will pay Employee or Contractor acting on the part of an architectural firm and purchase some materials and FAILED disclose you work for the firm - the firm and you will be liable to pay or satisfy that contract - but since you are authorized you can seek reimbursement from the firm Not Authorized & Agency by Estoppel -> Principal and Agent are Liable: end of the day agent will pay Broker was told not to enter into a certain transaction, but did so any way on t behalf of the firm Not Authorized & Not Apparent -> Agent is Liable: but the principal has the option to ratify the contract

Gurney Makers, Inc., employs Hap as an assembly worker. While attempting, without Gurney's knowledge, to steal a forklift from its property, Hap has an accident, negligently injuring Irene. Irene can recover from a. Gurney Makers only. b. Hap only. c. Gurney Makers and Hap. d. neither Gurney Makers nor Hap.

B

Smith Petroleum, Inc., contracts to sell oil to Jones Petrochemicals, telling Jones that it is acting on behalf of "a rich Saudi Arabian who doesn't want his identity known." Smith signs the contract, "Smith, as agent only." In fact, Smith is acting on its own. If the contract is breached, Smith may a. not be liable, because Smith signed the contract as an agent. b. not be liable, unless Jones knew Smith did not have authority to act. c. be liable, unless Jones knew Smith did not have authority to act. d. be liable, because Smith signed the contract as an agent.

C

Swifty Delivery Company employs Taesha as a driver. While acting within the scope of employment, Taesha causes an accident in which Vaughn is injured. Vaughn can recover from a. neither Swifty nor Taesha. b. Swifty only. c. Swifty or Taesha. d. Taesha only

C An agent (or employee) is liable for his or her own torts, whether or not they were committed within the scope of a principal's employment. The principal is also liable under the doctrine of respondeat superior when a tort is within the scope of the employment. One of the important factors in determining liability is whether the agent was on the principal's business or on a "frolic of his or her own."

Security Guns & Ammo, Inc., directs its salespersons never to load a gun during a sale. Bert, a salesperson, loads a gun during a sale. The gun fires, negligently injuring Kathy, who is in the store. Security is a. not liable, because Bert was not acting within the scope of employment. b. not liable, because employers are not responsible for their employees' torts. c. liable under the doctrine of respondeat superior. d. liable under the doctrine of res ipsa loquitur.

C Under the doctrine of respondeat superior, an employer (or principal) is vicariously liable for the wrongful acts of his or her employee (or agent) committed within the scope of employment (or agency). I have a question out for answer A - since the employee did not have the authorization to load the gun, I would think you could argue he was not acting in the scope of employment

Java Company hires Keith to manage one of its kiosks. Their employment agreement says nothing about Keith being able to hire employees to work in the kiosk, but Keith has this authority. This is a. apparent authority. b. express authority. c. imaginary authority. d. implied authority.

D Implied authority can be conferred by custom, inferred from the agent's position, or inferred as reasonably necessary to carry out express authority. In determining whether an agent has the implied authority to do a specific act, the question is whether it is reasonable for the agent to believe that he or she has the authority.

Ratification by Principal Springer was a political candidate running for Congress. He was operating on a tight budget and instructed his campaign staff not to purchase any campaign materials without his explicit authorization. In spite of these instructions, one of his campaign workers ordered Dubychek Printing Co. to print some promotional materials for Springer's campaign. When the printed materials arrived, Springer did not return them but instead used them during his campaign. When Springer failed to pay for the materials, Dubychek sued for recovery of the price. Springer contended that he was not liable on the sales contract because he had not authorized his agent to purchase the printing services. Dubychek argued that the campaign worker was Springer's agent and that the worker had authority to make the printing contract. Additionally, Dubychek claimed that even if the purchase was unauthorized, Springer's use of the materials constituted ratification of his agent's unauthorized purchase. Is Dubychek correct? Explain.

Dubychek may very well be correct in his claim. Implied ratification by a principal of an agent‟s unauthorized action occurs when a principal accepts the benefits of the unauthorized transaction and/or does not object to or repudiate the action within a reasonable time. It is essential, however, that the principal be aware of all material facts; otherwise, the ratification will not be effective. If Springer knew that the printed materials had been ordered by his campaign workers without his authorization and used the materials in spite of this knowledge, such use would constitute ratification of the unauthorized purchase agreement. In such a case, Dubychek could successfully sue to recover the purchase price of the campaign materials. If Springer was unaware that the materials had been purchased without his authorization, his use of the materials would not constitute ratification. A good point for discussion is whether the campaign worker was impliedly authorized or had apparent authority to contract for the printing of the promotional material. There is no question that there was no express authorization. Springer‟s prohibition, unknown to Dubychek, may not relieve Springer of liability, however. If the campaign worker is one who is placed in a position of a person who usually orders campaign printing, or if this campaign worker had previously ordered campaign materials from Dubychek, Dubychek can claim that the campaign worker had either implied authority to act or that previous conduct led Dubychek to believe that the worker had (apparent) authority to contract for the printing. If either is applicable, ratification is not necessary, as the worker‟s contract is authorized, and the principal, Springer, is liable

Equal Dignity

Equal dignity rule requires that if the contract being executed is or must be in writing, then the agent's authority must also be in writing.

Exceptions to the Equal Dignity Rule

Executive Officer Doing Ordinary Business - A corporate executive doing ordinary business does not need written authority from the corporation. Agent Acting in the Presence of the Principal - In this case, the agent does not need written authority.

Express Authority

Express authority is authority declared in clear, direct, and definite terms. Express authority can be given orally or in writing

T/F - When an agent enters into an authorized contract on behalf of a principal, the principal must ratify the contract to be bound.

F - Already bound and liable

T/F - An e-agent is a person.

F - An e-agent is a semi-autonomous computer program that is capable of executing specific tasks, including responding to e-mail or other electronic communication without review by an individual.

T/F - An employer is liable for any harm caused to a third party by an employee acting within the scope of employment.

F - Criminal acts by an agent are not the responsibility of the principal, who will not thus be liable to a third party for any consequent harm.

T/F - A principal is not liable for an agent's torts committed within the scope of his or her employment.

F - Principal exerts heavy control

T/F - Both parties to an agency have the right to terminate the agency at any time.

F - The parties to an agency may always have the power to terminate the agency at any time, but they may not always have the right. If a party who terminates an agency does not have the right to do so, he or she may be liable for breach of contract.

Partnership

Formation: "At Will" Commencement and Termination may be by as little as "actions of the parties" and may be modified by agreement Management: Shared Management; Can vary by agreement Liability: Unlimited *BUY INSURANCE* Legal Position / Personality: Some states say "separate entity" from Partners Taxation: Single Tax that flows through to the partners. Partnership and Partners File a Return Duration: Terminate by Agreement or Withdrawal Unilateral Transfer: Can't transfer full partnership interest to another party, but can assign value of the partnership to another person

Sole Proprietorship

Formation: "At Will" Start & Terminate at Your Own Discretion Management: Autonomous Liability: Unlimited *BUY INSURANCE* Legal Position / Personality: One Entity Taxation: Single tax Duration: Terminate at Will Unilateral Transfer: Sell/give away business, but that terminates your interest and transfers that interest to the new owner

Limited Liability Company LLC

Formation: File Documents with the Secretary Of State And Register in Other Jurisdictions Management: Shared Management; Can vary by agreement Liability: Limited to the Assets (But PCV) Legal Position / Personality: Separate Entity from its Members Taxation: Single Tax that flows through to members. LLC and Members File a Return Duration: May be Perpetual Unilateral Transfer: Freely transferable - depending upon the state

Corporation

Formation: File documents with the Secretary Of State - articles of incorporation And Register in Other Jurisdictions Management: Board of Directors that are elected by shareholders Liability: Limited to Corp Assets (But PCV) Legal Position / Personality: Separate Entity from the shareholders Taxation: Double Tax (tax on the actual corp. and shareholders taxed on dividends) Duration: Perpetual Unilateral Transfer: Full ownership interest is freely transferable May be varied by Articles or Bylaws

"Detours" and "Frolics"

If a servant takes a detour from his master's business, the master is liable for any ensuing tort. If the servant is on a frolic of his or her own, however, the master is not responsible.

Tort Liability

Independent Contractor & No Control by Principal -> Independent Contractor Hired a courier and the courier is an accident during the act of delivering the package Independent Contractor & Heavy Control by Principal -> Independent Contractor & Engager If there is are heavy control is in place - like dictating routes, processes be executed in a certain way Employee & Within Scope of Employment -> Employer & Employee Hired delivery person at a pizza place and get in an accident in route to make a delivery Employee & Out of Employment Scope -> Employee Off duty employee who gets in an accident

JOB DESCRIPTION (MANAGER) Take care of horses Pressure wash barn NO new employees Proper Accounting EVENTS you notice when you return Invoice for $30k for horse feed - Manager went to horse feed place without where shirt designating he was the manager $15k Pressure wash invoice - Manager was clearly acting as the manger 2 new interns looking for their paycheck Manager entered into a contract to sell one of the horses Manager entered into a contract to sell the entire farm Is the Principal Liable?

LIABLE Yes - for horse feed - Manager will also be liable because he didn't disclose his agency Yes - Pressure wash barn Yes - Interns - but since the manager went rogue, so we can go after the manager for the damages - doc his pay Probably No on the horse - because equal dignity doctrine - written authority must equal the written requirements for the contract No - to sell farm - irrational for a buyer to rely on the managers authority without the written notarize authority

Termination of Agency

Lapse of Time - The agency specifies a specific time period Purpose Achieved - The agency was formed to accomplish a specific goal (buy property) Occurrence of a Specific Event - IE: Agency to take care of things while away, upon return agency is over Mutual Agreement - Both parties agree to end the relationship Termination by One Party - Termination by Operation of Law - Only one that doesn't require notice to third parties

From the throne room in your base station on Alpha Centauri—in the video game "Galactic Empire"—you dispatch your loyal, obedient minions to use their diligence and skill to loot the universe on your behalf and return with the treasure for its accounting and their compensation. Applying the agency principles outlined in this chapter, answer the following questions. One minion, Delilah, does not return with gems and gold, but brings back three contracts. Acting within the scope of her authority, she contracted with Evon, who knew your identity at the time; Felipe, who knew that Delilah was acting on behalf of someone but not whom; and Giorgio, who did not know that Delilah was acting on anyone's behalf. For which contracts, if any, are you liable? For which contracts, if any, is Delilah liable?

Of course, an agency relationship can only be created for a legal purpose, and one created for an illegal purpose is unenforceable. Assuming an agency relationship exists, an agent can enter into binding contracts on behalf of the principal. When an agent acts within the scope of his or her authority in entering into a contract, the principal is bound, whether the principal's identity was disclosed, partially disclosed, or undisclosed to the other party to the contact. The agent is also bound if the principal's identity was only partially disclosed or not disclosed to the other party. Thus, in this problem, you are bound to all three contracts and your agent is also bound to the second and third contracts (but not the first).

Power of Attorney

Power of attorney is a written document and is usually notarized. (A document is notarized when a notary public—a public official authorized to attest to the authenticity of signatures—signs and dates the document and imprints it with her or his seal of authority.) Most states have statutory provisions for creating a power of attorney. A power of attorney can be special (permitting the agent to perform specified acts only), or it can be general (permitting the agent to transact all business for the principal).

Ratification Ratification

Ratification Ratification occurs when the principal affirms, or accepts responsibility for, an agent's unauthorized act. When ratification occurs, the principal is bound to the agent's act, and the act is treated as if it had been authorized by the principal from the outset

Employee Travel Time

The travel of those whose jobs require it is considered within the scope of employment for the duration of the trip, including the return. An employee going to and from work or meals is usually considered outside the scope of employment.

Principal's Liability for Contracts In 1998, William Larry Smith signed a lease for certain land in Chilton County, Alabama, owned by Sweet Smitherman. The lease stated that it was between "Smitherman, and WLS, Inc., d/b/a [doing business as] S&H Mobile Homes," and the signature line identified the lessee as "WLS, Inc. d/b/a S&H Mobile Homes . . . By: William Larry Smith, President." The amount of the rent was $5,000, payable by the tenth of each month. All of the checks that Smitherman received for the rent identified the owner of the account as "WLS Corporation d/b/a S&H Mobile Homes." Nearly four years later, Smitherman filed a suit in an Alabama state court against William Larry Smith, alleging that he owed $26,000 in unpaid rent. Smith responded, in part, that WLS was the lessee and that he was not personally responsible for the obligation to pay the rent. Is Smith a principal, an agent, both a principal and an agent, or neither? In any event, in the lease, is the principal disclosed, partially disclosed, or undisclosed? With the answers to these questions in mind, who is liable for the unpaid rent, and why? Discuss.

Smith was, in this case, the agent of WLS. In the lease, the identity of the principal was disclosed, Smith was identified as WLS‟s agent, and under those circumstances, WLS, not Smith, was liable to Smitherman for the unpaid rent. An agent who signs a contract on behalf of his or her principal is presumed to intend to bind the principal only and incurs no personal liability unless an intention to substitute or add the agent‟s personal liability is clear. Also, here, the signature line of the lease contained the names of both the principal and agent and otherwise indicated the fact of the agency. The principal‟s name was followed by the agent‟s name, which was preceded by the preposition "By" and followed by the title "President."

Business Entities

Sole Proprietorship Corporation Partnership Limited Liability Company LLC

T/F - A disclosed principal is liable to a third party for a contract by an agent within the scope of authority.

T

T/F - A principal is not bound to an unauthorized contract that he or she does not ratify.

T

T/F - An undisclosed principal is liable to a third party for a contract by an agent within the scope of authority.

T

T/F - In an ordinary agency relationship, the agency terminates automatically on the death of the principal.

T

T/F - When the specific subject matter of an agency is destroyed or lost, the agency terminates.

T

Requirements for Ratification

The agent must have acted on behalf of an identified principal who subsequently ratifies the action. The principal must know all of the material facts involved in the transaction. If a principal ratifies a contract without knowing all of the facts, the principal can rescind (cancel) the contract. The principal must affirm the agent's act in its entirety. The principal must have the legal capacity to authorize the transaction at the time the agent engages in the act and at the time the principal ratifies. The third party must also have the legal capacity to engage in the transaction. The principal's affirmation (ratification) must occur before the third party withdraws from the transaction. The principal must observe the same formalities when ratifying the act as would have been required to authorize it initially.

Apparent Authority Lee Dennegar and Mark Knutson lived in Dennegar's house in Raritan, New Jersey. Dennegar paid the mortgage and other household expenses. With Dennegar's consent, Knutson managed their household's financial affairs and the "general office functions concerned with maintaining the house." Dennegar allowed Knutson to handle the mail and "to do with it as he chose." Knutson wrote checks for Dennegar to sign, although Knutson signed Dennegar's name to many of the checks with Dennegar's consent. AT&T Universal issued a credit card in Dennegar's name in February 2001. Monthly statements were mailed to Dennegar's house, and payments were sometimes made on those statements. Knutson died in June 2003. The unpaid charges on the card of $14,752.93 were assigned to New Century Financial Services, Inc. New Century filed a suit in a New Jersey state court against Dennegar to collect the unpaid amount. Dennegar claimed that he never applied for or used the card and knew nothing about it. Under what theory could Dennegar be liable for the charges? Explain.

The court held Dennegar liable for the debt plus interest, and on Dennegar‟s appeal, a state intermediate appellate court affirmed this judgment. "The general rule is that a principal is accountable for the conduct of his agent acting within the scope of his authority even though the conduct is unauthorized and the principal receives no benefit from it, The reason for the rule is that though the agent may have deceived the principal as well as the victim, since the principal placed the agent in the position where he had the power to perpetuate the wrong, the principal rather than the innocent third party should bear the loss." Dennegar "either expressly applied for the card, or authorized his roommate—to whom he ceded authority over his finances—to apply for and use the card." Dennegar, "as principal, had appointed Knutson as his agent for the conducting of his financial affairs," which in this case included the authority "to borrow funds or make purchases based on defendant's credit. . . . Knutson was authorized to open defendant's mail, to attend to the mail as he saw fit, to make out checks on defendant's checking account, and to even sign defendant's names to those checks." The court also cited the periodic payments made on the statements mailed to Dennegar‟s house

Undisclosed Principal Homeowners Jim and Lisa Criss hired Kevin and Cathie Pappas, doing business as Outside Creations, to undertake a landscaping project. Kevin signed the parties' contract as "Outside Creations Rep." The Crisses made payments on the contract with checks payable to Kevin, who deposited them in his personal account—there was no Outside Creations account. Later, alleging breach of contract, the Crisses filed a suit in a Georgia state court against the Pappases. The defendants contended that they could not be liable because the contract was not with them personally. They claimed that they were the agents of Forever Green Landscaping and Irrigation, Inc., which had been operating under the name "Outside Creations" at the time of the contract and had since filed for bankruptcy. The Crisses pointed out that the name "Forever Green" was not in the contract. Can the Pappases be liable on this contract? Why or why not?

The disclosure of a principal by an agent who is acting within the scope of his or her authority when entering into a contract with a third party absolves the agent of liability for the nonperformance of the contract. This is the principle that the Pappases cited in their defense to the Crisses‟ suit. If a principal is partially disclosed or undisclosed, the principal and the agent may both be liable for nonperformance. These are the principles that the Crisses might cit to make their case. Even if Kevin Pappas might arguably have disclosed that he was acting on behalf of a principal named Outside Creations, there is no indication that he was acting on behalf of an entity named Forever Green. He signed the contract as Outside Creations‟ "rep," but the payments on the contract were by checks payable to him personally, which he deposited in his personal account. There was no Outside Creations account. The contract did not mention Forever Green, the Pappases did not mention Forever Green, the Crisses knew nothing about Forever Green, and there was no Forever Green account. The court in the actual case on which this problem is based issued a summary judgment in the homeowners‟ favor, finding that the contract was between the homeowners and the Pappases personally, not Kevin Pappas as the agent of Forever Green. A state intermediate appellate court affirmed

Doctrine of Agency by Estoppel

The doctrine of agency by estoppel may be applied in situations in which a principal has given a third party reason to believe that an agent has authority to act. If the third party changes position to his or her detriment in good faith reliance on the principal's representations, the principal may be estopped (prevented) from denying that the agent had authority

Agent's Authority Adam is a traveling salesperson for Peter Petri Plumbing Supply Corp. Adam has express authority to solicit orders from customers and to offer a 5 percent discount if payment is made within thirty days of delivery. Petri has said nothing to Adam about extending credit. Adam calls on a new prospective customer, John's Plumbing Firm. John tells Adam that he will place a large order for Petri products if Adam will give him a 10 percent discount with payment due in equal installments thirty, sixty, and ninety days from delivery. Adam says he has authority to make such a contract. John calls Petri and asks if Adam is authorized to make contracts giving a discount. No mention is made of payment terms. Petri replies that Adam has authority to give discounts on purchase orders. On the basis of this information, John orders $10,000 worth of plumbing supplies and fixtures. The goods are delivered and are being sold. One week later, John receives a bill for $9,500, due in thirty days. John insists he owes only $9,000 and can pay it in three equal installments, at thirty, sixty, and ninety days from delivery. Discuss the liability of Petri and John only.

The general rule in agency law is that contracts made within the scope of authority of the agent are binding on the principal and the third party. Authority of an agent can be express, implied, or apparent. Express authority is directly given by the principal. Implied authority is derived from the custom of the trade, or inferred from the agent‟s position, or authority that is deemed necessary to carry out an agent's express authority. Apparent authority exists when the principal leads a third person reasonably to believe that the agent possesses authority not truly possessed. In this situation, Adam unquestionably has express authority to solicit orders and to give a discount. This authority is reaffirmed by Petri telling John that Adam has authority to give discounts. Therefore, Adam has express and apparent authority to give a discount. Because a third person is not bound by secret limitations imposed by the principal, John is definitely entitled to a 10 percent discount as contracted for with Adam. The only other issue is the terms of the payment period. If it is customary in the plumbing trade for sales to be paid on a thirty-sixty-ninety-day basis or for credit to be extended on such purchases, Adam will be said to have implied authority to make such a contract and Petri will be so bound. If such is not customary, the authority to sell will be said to imply on the authority to sell for cash; and unless Petri agrees to the thirty-sixty-ninety-day terms, John will owe the lump sum of $9,000 payable within thirty days.

THE SCOPE OF EMPLOYMENT

The key to determining whether a principal may be liable for the torts of an agent under the doctrine of respondeat superior is whether the torts are committed within the scope of the agency or employment. Courts may consider the following factors in determining whether a particular act occurred within the course and 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 interests of the employee were involved. 6. Whether the employer furnished the means or instrumentality (for example, a truck or a machine) by which an 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. 8. Whether the act involved the commission of a serious crime.

Liability for Independent Contractor's Torts Dean Brothers Corp. owns and operates a steel drum manufacturing plant. Lowell Wyden, the plant superintendent, hired Best Security Patrol, Inc. (BSP), a security company, to guard Dean property and "deter thieves and vandals." Some BSP security guards, as Wyden knew, carried firearms. Pete Sidell, a BSP security guard, was not certified as an armed guard but nevertheless brought his gun, in a briefcase, to work. While working at the Dean plant on October 31, 2010, Sidell fired his gun at Tyrone Gaines, in the belief that Gaines was an intruder. The bullet struck and killed Gaines. Gaines's mother filed a lawsuit claiming that her son's death was the result of BSP's negligence, for which Dean was responsible. What is the plaintiff's best argument that Dean is responsible for BSP's actions? What is Dean's best defense? Explain.

The plaintiff‟s best argument that Dean is responsible for BSP‟s actions may be that work such as BSP was hired to perform creates a peculiar risk of harm to others. When armed guards are hired to deter vandals and thieves it is foreseeable that someone might be injured by the inappropriate use of a weapon if proper precautions are not taken. Thus, in this case, such an injury is one that might have been anticipated as a direct or probable consequence of the performance of the work contracted for, if reasonable care had not been taken in its performance. Also, the risk created is not a normal, routine matter of customary human activity, such as driving an automobile, but is instead a special danger arising out of the particular situation created and calling for special precautions. Under this reasoning, the plaintiff would argue that Dean could be liable even though the guard responsible was an employee of an independent contractor. To this argument Dean might respond that hiring armed guards to protect property does not create a peculiar risk of harm to others and, therefore, is not inherently dangerous work. On this conclusion, even if Gaines‟s death was the result of BSP‟s negligence, Dean would not be liable because BSP was an independent contractor and an employer is not generally liable for the negligent acts of its independent contractor

Liability Based on Actual or Apparent Authority Summerall Electric Co. and other subcontractors were hired by National Church Services, Inc. (NCS), which was the general contractor on a construction project for the Church of God at Southaven. As work progressed, payments from NCS to the subcontractors were late and eventually stopped altogether. The church had paid NCS in full for the entire project beforehand, but apparently NCS had mismanaged the project. When payments from NCS stopped, the subcontractors filed mechanic's liens for the value of the work they had performed but for which they had not been paid. The subcontractors sued the church, contending that it was liable for the payments because NCS was its agent on the basis of either actual or apparent authority. Was NCS an agent for the church, thereby making the church liable to the subcontractors? Explain your reasoning.

The subcontractors should have filed liens before the church made its final payment to NCS. Their liens were not timely. NCS was not the agent of the church such that the church could be held liable to the subcontractors for costs owed to subcontractors by NCS. NCS did not give the church authority to contract on its behalf, and the church did not exercise any authority over the subcontractors. Apparent authority exists when a reasonably prudent person, having knowledge of the nature and the usages of the business involved, would be justified in supposing, based on the character of the duties entrusted to the agent, that the agent has the power he is assumed to have. Subcontractors did not rely on alleged apparent authority conferred by the church onto NCS to bind the church such as to create an agency relationship in which the subcontractors could hold the church liable for costs owed to subcontractors by NCS, where there was no evidence that any of the subcontractors believed that they were employed by the church or worked on its behalf

From the throne room in your base station on Alpha Centauri—in the video game "Galactic Empire"—you dispatch your loyal, obedient minions to use their diligence and skill to loot the universe on your behalf and return with the treasure for its accounting and their compensation. Applying the agency principles outlined in this chapter, answer the following questions. A different minion, Hotspur, steals the treasure chest of a giant Cyclops from an asteroid orbiting a distant star. Launching quickly to escape from the celestial body, Hotspur's space pod negligently bangs into the Cyclops, who is injured. If the Cyclops files a suit against you, can there be a recovery for the injury?

Under the doctrine of respondeat superior, a principal is liable for any harm caused to another through an agent's negligence as long as the agent was acting within the scope of his or her authority at the time of the harmful act. Here, you instructed your agent to "loot the universe," which he was doing when his negligent escape from the asteroid caused an injury to the Cyclops. Thus, the Cyclops could recover from you for the harm.

Respondeat Superior

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, or indirect liability, on the employer—that is, liability without regard to the personal fault of the employer for torts committed by an employee in the course or scope of employment

Emergency Powers

When an unforeseen emergency demands action by the agent to protect or preserve the property and rights of the principal, but the agent is unable to communicate with the principal, the agent has emergency power