LAW FINAL - THE LAST FRONTIER AND THE RETURN OF LORD FARQUAD
Frequently, an agency relationship is formed by an explicit agreement; that is, the parties
"express" their agreement and such an arrangement may be referred to as an express agency.
Suppose, for example that Michael is a friend of Milly and he becomes aware of a very good deal on potted petunias at a wholesale house in Idaho. He buys 300 petunias in the name of Milly, even though he does not work for Milly, and he is not authorized to buy the flowers. Obviously, Milly is not responsible to pay for the flowers because
(1) Michael is not her agent, and (2) she has not created the appearance that Michael is her agent. Nevertheless, further suppose that Michael contacts Milly and tells her what he has done. Milly agrees to the deal even though it was not authorized. Consistent with that, Milly contacts the wholesale house and tells them to send her the bill. This act of expressing her intent to be bound to the agreement is called ratification and this arrangement is thus called agency by ratification.
Suppose, for example, that (1) Robert purchases the 100 floral pots and that (2) while at Bruce's business, Robert negligently hits and injures Bruce with the business truck. Because Robert is acting as Andrea's agent and is operating under her control, Andrea is
(1) bound by the contract entered into on her behalf by Robert and (2) financially responsible for Bruce's injuries under a liability doctrine called respondeat superior.
Normally, an employee (for example, an employee in a bakery) is
(1) provided all necessary tools and products, (2) paid by the hour, and (3) Internal Tax, Social Security, and benefits withholding is provided. These items are evidence of an employee-employer relationship, not an independent contractor relationship
Course and Scope of Employment
A principal is liable for the authorized conduct of an agent only so long as the agent is acting within the course and scope of his employment.
Authority
A principal is liable when the agent has acted with express, implied, or apparent authority.
Independent Contractor
A principal is not liable for the torts of an independent contractor who contracts only to accomplish a result.
Punitive Damages
A principal may be liable for punitive damages associated with torts committed by an agent (respondeat superior).
The Duty of a Principal
A principal must compensate and cooperate with his or her agent.
Indemnity
A principal must indemnify his or her agent for losses caused by the agent when acting within the course and scope of his employment.
As we will learn later in more detail, many people resist being described as a principal. Why is this so? As described in the lesson, why does a principal often resist that description?
A principal often tries to avoid being described as a principal because in an agency relationship the principal is liable for the wrongdoing of his or her agent.
Normally, employees who deal with third parties are agents, and for the sake of simplicity we will usually refer to these employees or agents as just
agents
In simple terms, an agency relationship exists when one person
(called a principal) directs another person (called an agent) to perform various tasks for her, and the agent agrees.
In Ginn v. Renaldo, Inc. (discussed in this lesson), suppose that the manager called out, "Help me!" and Joe stepped forward and slammed the door, causing the injury to Ginn. If there was an agency relationship between the nightclub and Joe (the person who slammed the door), that agency relationship would be best described as an express agency. an implied agency. a relationship based on apparent authority. none of these.
an implied agency.
Explain (1) what is meant by duty of loyalty, and (2) who owes the duty: principal or agent?
A duty of loyalty is a duty in which a person owes a responsibility of trust and confidence to another and must put that other person's interests before his own. This duty is owed by an agent to a principal.
There are many ways to form an agency relationship and those many ways are the subject of this lesson. Sometimes, however, a court will say that a person is not an agent because he or she is
an independent contractor.
Apparent Authority
An agent has (apparent) authority to do those things the principal has caused others to reasonably believe are within his authority. Thus, Andrea might have made Robert the general manager of the outdoor landscaping department, but explicitly told him that he cannot deliver lawn sod, even though she has given him a delivery truck. However, the purchasing public would not know that the general manager of the outdoor landscaping department is not authorized to deliver lawn sod. Accordingly, if Robert delivers lawn sod and runs into a customer's Cadillac, Andrea is liable if her conduct (1) making Robert general manager and (2) giving Robert a delivery truck has caused the public to reasonably believe in the existence of Robert's authority. In the Andrea/Robert/Bruce story, it is clear that Andrea explicitly sent Robert to Bruce's place of business with instructions to purchase 100 large flowerpots. Therefore, Robert has express authority to travel to Bruce's and to enter into a contract for the purchase of 100 large flowerpots.
Implied Authority
An agent has the (implied) authority to do those things which are necessary to accomplish his assignments. Thus, if Robert is assigned to paint the front office, he has implied authority to buy paint.
Express Authority
An agent has the authority that his principal has expressly given him, which authority may be given to him orally or in writing. Thus, if Robert is told to buy 100 flowerpots, he has—to say the obvious—express authority to buy 100 flowerpots.
Disclosure
An agent is personally liable on a contract he or she entered into without disclosing the fact of agency and the identity of the principal.
The Duty of an Agent
An agent owes duties of 1. performance, 2. notification, 3. accountability, 4. and a duty of loyalty.
Respondeat superior applies to which of the following? A principal and agent relationship created by express agreement. A principal and agent relationship based on implied agency. A principal and agent relationship based on apparent authority. All of these are correct.
all. Respondeat superior is an old rule of law that provides that a master is responsible for the conduct of his agents. This rule applies no matter how the agency relationship is created.
Agency by Ratification
Agency by ratification occurs when a person who is not a principal agrees (after the fact) to be bound as a principal.
At the beginning of a lawsuit, the attorneys usually know that they are not completely sure of all of the facts. Because they are not completely sure about what happened, they will put all of the propositions in the case at issue and wait for the relevant facts to reveal themselves. In this context, the routine questions are as follows:
Agency. Is there an agency relationship between Andrea and Robert? Independent Contractor. Is Robert an independent contractor? Course and Scope. Was Robert acting within the course and scope of his employment, or was he off on a "wild goose chase" for which Andrea is not responsible?
Agency Defined
An agency is the fiduciary relationship that arises where one person (a principal) manifests assent to another person (an agent) that the agent shall act on the principal's behalf and subject to the principal's control, and the agent manifests assent or otherwise consents so to act. Emphasis on control
In Torres v. Reardon, the plaintiff, Torres, claimed that he was an employee of Reardon so that Reardon would be financially responsible for his (Torres's) injuries. an independent contractor so that Reardon would be financially responsible for his (Torres's) injuries. neither of these.
an employee of Reardon so that Reardon would be financially responsible for his (Torres's) injuries. As an employer, Reardon would be financially responsible for Torres's injuries. That would not be true if Torres was an independent contractor.
Independent Contractor
An independent contractor is a person who 1. contracts with another to do something for him 2. but 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. 3. He may or may not be an agent.
Apparent Authority.
Apparent authority is created by the conduct of the purported principal in which he or she creates the appearance that a non-agent is a real agent.
In lesson 16, there was a story of Andrea, an employer or principal who operated a flower shop, and Robert, an employee or agent who worked for her. In one example, Robert was sent to do business with Bruce, a wholesale flower dealer. While performing his duties, Robert hit and injured Bruce with a company car and purchased 100 flower pots. From time to time we will continue to use that same story in this lesson. In this lesson, we will take the next step in the Andrea, Robert, and Bruce story. We will consider what happens when Bruce (the third person) actually files suit against Andrea and Robert for damages for Robert's (negligently caused) personal injuries and for failure to pay for the flower pots.
As noted above, the lawsuit filed by Bruce has two parts: one is a tort claim based on Robert's alleged negligence, and the other is a contract claim based on the contract negotiated by Robert in behalf of Andrea.
The following case, Estate of Saliba v. Dunning, gives a slight twist to the rules above. Mr. Dunning attempted to lease a warehouse to be used by the R. B. Dunning Company where he was a principal officer. According to Saliba's story, Saliba knew that the R. B. Dunning Company was in financial difficulties and refused to rent the building until Mr. Dunning said that he "would personally take care of the rent if anything happens." On the other hand, the Defendant, Mr. Dunning denied making this statement and claimed that he was simply acting as an agent for the Company. The R. B. Dunning Company failed to pay the rent and Saliba sued Mr. Dunning personally.
At trial, the heart of the dispute was whether Mr. Dunning was acting merely as an agent for the R. B. Dunning Company (which was the principal) or whether he became personally liable for the rent because he (allegedly) said he would pay the rent if the Company did not. The evidence in the case was slim, leaving a practical problem for the court: is Mr. Dunning an agent unless it is proved he is not, or is Mr. Dunning not an agent unless he proves he is? That is the practical problem faced by the court. The Dunning case affirms that in contract negotiations, a person claiming to be the agent of a principal must fully disclose the identity of the principal and his capacity as an agent, and not otherwise. Failure to do this leaves the agent personally liable for the debt. With respect to this requirement, the evidence before the trial court was ambiguous whether or not Dunning had fully disclosed his status as an agent of the corporation. The burden to prove his status as an agent was on Dunning, and he failed to meet that burden. In other words, Dunning was not an agent unless he proved he was. Emphasis on him disclosing his authority Failure to do this leaves the agent personally liable for the debt. Failure to do this leaves the agent personally liable for the debt. Failure to do this leaves the agent personally liable for the debt. Failure to do this leaves the agent personally liable for the debt. Failure to do this leaves the agent personally liable for the debt. Failure to do this leaves the agent personally liable for the debt.
Tort Liability
Both the principal and the agent are liable for the negligent harm and the intentional harm caused by an agent who is acting within the course and scope of his employment.
Brigham Young University and the University of Utah combine (as they often do) to solicit donations of food for the poor. Which of them is the principal, and which is the agent?
By definition, an agency relationship is one wherein one party agrees to act on the behalf of another and subject to that party's control. In this matter, the agreement is to act in behalf of the poor and not in behalf of the other, and neither has agreed to be subject to the other's control.
Andrea sends a message to Robert, a BYU student, in which she concludes: "As part of your summer internship responsibilities, you will deliver flowers to customers, make bank deposits, and dispose of outdated products." He responds with a message that says, "I'll do it. Sounds great—I'll be in town on June 1." This exchange of messages creates an agreement according to the terms she has outlined, and Robert is her employee/agent. It is
an express agreement.
Following are some general duties that a principal owes an agent:
Compensation. A principal must compensate the agent by paying the agent for services rendered. Reimbursement and Indemnification. A principal must reimburse an agent for authorized expenses incurred in the scope of performing the agency agreement; and the agent must be indemnified for losses suffered by the agent because of the misconduct of the principal. Cooperation. A principal must cooperate with the agent. The principal must provide agreed information and (safe) working conditions and agreed equipment. The principal cannot work to defeat the approved tasks of the agent.
If one day the plant starts running low on steel, can Robert, one of these employees who works on the assembly line, pick up the phone and enter into a contract for more steel on behalf of the company?
The answer to this question depends on what authority Robert has been given by Andrea. It seems unlikely that given Robert's position as an assembly line worker that Andrea would authorize him to enter into these types of contracts. If presented with a scenario in which a third party is suing a principal based on a contract entered into with an "agent," whether the principal is bound by the contract depends on whether the employee has been given the authority to form the contract. emphasis on authority
In the following case, CSX Transp., Inc. v. Recovery Express, Inc., it is clear that a man by the name of Arillotta was not a bona fide agent of Recover Express, Inc. (Arillotta had neither actual nor implied authority.) Nevertheless, CSX, the plaintiff, claimed that Arillotta was made to appear (apparent authority) to be an agent of Recovery Express and, therefore, Recovery Express should be responsible for his actions. It will be observed that the key to the lawsuit is whether Recovery Express represented that Arillotta was its agent or whether Arillotta represented that he was its agent.
CSX loses. The focus in an apparent authority case is on the conduct of the principal and not the purported agent. Thus, Robert may claim to be an agent of Ford Motor Company, but that does not make him an agent and it does not create apparent authority. On the other hand, if Ford Motor says that Robert is their agent (even though he is not), that conduct creates apparent authority. In the case above, Recovery said nothing about Arillotta being their agent; the claims to that effect came from Arillotta, and that does not equal apparent authority.
An express agency agreement may be in writing or it may simply be expressed orally. In instances where the contracts entered into must be in writing, such as contracts for the purchase of real estate, the agency agreement
must also be expressed in writing.
the doctrine that describes this vicarious liability of a principal is
respondeat superior, which literally means "let the master answer."
In Edgewater Motels, Inc. v. Gatzke, Walgreens was held liable for harms caused by Mr. Gatzke while smoking in bed at night. Change the facts and suppose that Gatzke was at work and grew angry at a Walgreens customer who said that Walgreens's pharmacy department was operated by the Italian Mafia. Acting in defense of Walgreens's reputation, Gatzke criminally assaulted the customer. (emphasis on "criminally")
Walgreens is not criminally liable for the assault committed by Gatzke. A principal is not liable for crimes committed by an agent unless the principal participated in the crime.
Doctrine of Estoppel
If a person makes a promise or statement that is justifiably relied on to the detriment of another, the person making the promise or statement may not thereafter avoid the legal consequences of the promise or statement. Thus, Andrea may not, for example, tell Bruce (the floral wholesaler) to please work with Robert, her agent, and then later, when presented with a bill, claim that Robert is not her agent.
In Ginn, the appellate court immediately recognized that the nightclub and the unidentified patron had never expressed an agreement of agency. But, did the patron impliedly (by unspoken mutual consent) become an agent of the nightclub even though no there was no express agreement of agency?
The answer of the court was, of course, that the plaintiff's case failed for lack of evidence. The unknown patron was apparently an unrequested volunteer who was acting out his own frustrations. There was no evidence of an unspoken understanding between the manager and the patron, nor was there any evidence that the patron was attempting to further the interests of the nightclub. Based on this lack of affirmative evidence it was concluded that there was no implied agency. Thus, Ginn could not recover money damages from the nightclub.
Agency by Agreement (Express).
Frequently, an agency relationship is formed by agreement; that is, the parties express their agreement.
Suppose that Milly hires her neighbor, Jed, to mow the lawn around her house once each week, for which she pays him $25. Which of the statements below is true? Jed is the agent of Milly. Jed is an employee of Milly. Jed is an independent contractor. Two of these options are correct.
IC. Jed is hired by the job and is paid a fixed fee on completion. There is no withholding for taxes and there are no benefits. Neither is there any indication that Milly controlled Jed in how he will complete the job. Therefore, it is most likely that Jed is an independent contractor. Control, again, is key in this situation. She does not control how he acts, therefore he is not an agent.
Partial Disclosure
If an agent enters into a contract and (1) discloses that he or she is acting in behalf of a principal but (2) does not disclose the identity of the principal, then the third party has the option to hold either the principal (when he is disclosed) or the agent liable on the contract.
What is the difference between express and implied?
In a non-agency example, if a man formally asks a woman to marry him, and she agrees, their agreement has been expressed. On the other hand, if a man (who is seriously lacking in personality) merely hands a woman an engagement ring, and she accepts it and walks away, it may be said that their agreement is implied.
Terms of being independant
In addition, uncontradicted evidence established that (1) Torres performed services for the Reardons, including both general gardening services and the special project of trimming the Reardons' tree, in the course of his independently established business, Jose Torres Gardening Service, a business in which he customarily engaged; (2) it appears that Torres supplied the equipment he used in the job; (3) Torres was not hired by the day or hour, but contracted with the Reardons to produce the specified result of trimming the tree for the specified price of $350, a price quoted by Torres and accepted by the Reardons; (4) the work that Torres contracted to perform was not work ordinarily done in the course of the Reardons' business, but was maintenance work done on their home; (5) Torres had a substantial investment in his gardening business, including a truck and equipment; (6) Torres had employees who assisted him both in his general gardening business and in the tree-trimming project.
Agency Simplified
In simple terms, an agency relationship exists when one person (called a principal) directs another person (called an agent) to perform various tasks for her and the agent agrees.
Implied Agency.
In some cases, a principal and agent simply act out an agency arrangement without actually discussing it. In this case their arrangement is implied.
At this point you may be thinking that it is strange that Robert can be held liable for a contract that Andrea has authorized him to enter and that she breached. How is this fair?
It's fair for two reasons: first, from the perspective of a non-breaching injured third party, the law tries to ensure that this third party has a remedy somewhere. If the third party does not know who the principal is, then it logically follows that if the third party is to have any recovery at all, the third party should be allowed to look to the agent for such a remedy. Next, remember the concept of a principal's duty to indemnify an agent. The above example is a perfect example of how this rules works. If Robert is found liable for a contract that Andrea actually breached, Andrea has the duty to indemnify Robert for any losses he incurs. What could those "losses" be? Well, if he is sued by Bruce, Robert is probably going to have to hire an attorney to defend him—and attorneys cost money. Additionally, if Bruce wins the case against Robert, a judgment will be entered against Robert that he will be required to pay personally. As long as Robert was acting within the authority granted to him by Andrea when he entered the contract, Andrea's duty to indemnify Robert against these losses means that she is liable to him for the cost of defending the lawsuit and for a judgment if Robert loses the case.
Milly is an agent of Jed and while on an errand for Jed, she negligently causes an injury to Alice. Which of the following is correct? Indemnification does not apply under these facts. Jed is not required to indemnify Milly for the money Milly must pay to Alice for her injuries. Jed must indemnify Milly for the money Milly must pay to Alice for her injuries.
Jed must indemnify Milly for the money Milly must pay to Alice for her injuries. A principal must indemnify his agents for losses they incur while acting for the principal.
Following are some general duties that an agent owes to a principal:
Loyalty. An agent is a fiduciary, which means that he has an obligation of trust and confidence that he owes in favor of his principal. Performance. An agent has a duty to perform his assignment with the skill, care and diligence that a reasonable person would under the same circumstances. Notification. An agent must notify his principal of important information. Accountability. An agent must keep reasonable records and account to his principal for money and property that come within his control.
Milly is an agent of Jed, and while on an errand for Jed, she negligently causes an injury to Alice. Which of the following is correct? Only Milly is liable to Alice for her injuries. Only Jed is liable to Alice for her injuries. Milly and Jed are both liable to Alice for her injuries.
Milly and Jed are both liable to Alice for her injuries. Milly caused an injury and is liable for it. A principal is liable for the wrongful actions of his agent committed within the scope of the agency, and Jed is therefore liable to Alice. They are both liable to Alice.
Change the facts in Dunning. Suppose that John Dunning is an agent for the Smith Corporation (a wealthy national company). To keep Saliba from asking too much money in lease payments, Dunning leases the warehouse in his own name and does not disclose that he is acting for Smith. When Saliba later learns that Dunning was acting for Smith, can Saliba get out of the contract?
No, Saliba cannot get out of the contract. Not having disclosed that he was an agent, Mr. Dunning is personally liable on the contract. Thereafter, there is no bar to him assigning his interest in the contract to the Smith Corporation.
suppose that another person, Harry, contracts to provide Andrea, the florist, with 1,000 petunia plants no later than April 15. Harry grows the plants at his own farm, using his own employees, and charges Andrea $2,000 for the plants. If Harry injures a person while driving his tractor, does that person have a valid claim against Andrea on the theory that Harry is her agent?
The answer to the question above is that Harry is an independent contractor, meaning that Andrea does not control the activities at Harry's farm. Because Andrea does not control the activities at Harry's farm, she is not liable for the harm he causes.
With an independent contractor, a principal may control
the result but not the method. Coral, for example, wants a new business building constructed. She contracts to have the RSD Construction Company build the new building for $450,000 and according to her architect's plans. In this context, she does not have the right to instruct the construction workers; she is only entitled to the agreed result. Because she does not control the construction workers, she is not liable if one of them is injured or injures another.
As we will discuss in the next chapter, a principal is vicariously liable for
the wrongdoing of her agent.
Milly runs a large electronics store. Unknown to Milly, Jed dresses like a professional and wanders around the store selling expensive computers and televisions to customers who pay him in cash. Which best describes the relationship between Milly and Jed? This is an express agency relationship. This is an implied agency relationship. Jed has apparent authority to act in behalf of Milly. None of these are correct.
None of these are correct. To have an agency relationship, Milly must agree or imply or suggest by words or conduct that Jed is empowered to act in her behalf. Jed cannot unilaterally create agency liability.
Explain how the facts in Ginn must change for a court to conclude that there was an agency relationship between the unknown patron and the nightclub.
Note the definition of agency earlier in this chapter. It requires "assent" (agreement) on the part of the principal (the manager) and the patron (agent) that the agent will act for the principal. There are no magic words, but the following would suffice: the manager says, "John, help me get this drunk out of here," and the patron responds, "Okay."
he owners of Wiedmaier, Inc. were Marsha and Jerry Wiedmaier. Their son, Michael, was not an owner of his parents' corporation, but when Michael submitted a credit application, his mother (who signed as "Secretary-Owner" of Wiedmaier, Inc.) falsely indicated that Michael was one of the owners of the corporation to make the credit application more credible. When Michael did not pay for the goods and ran off to Ohio, Motorsport sued Wiedmaier for the unpaid bill. Although Michael Wiedmaier was not, in fact, an owner of Wiedmaier Inc., Motorsport claimed that Wiedmaier Inc. had made it appear that he was an owner and would thus have sufficient assets to pay his bills.
Notice that in truth, there was neither an express nor an implied agency relationship between Michael Wiedmaier and Wiedmaier, Inc. However, the corporation (acting through Marsha, the mother, who was a "Secretary-owner" of the corporation) made it appear (apparent authority) that there was such a relationship, and Motorsport, the vendor, believed the representation. Suppose, however, that Marsha, the mother, had not signed the credit application and that it was Michael who had indicated that he was a part owner of Wiedmaier, Inc. Under these circumstances, would Wiedmaier, Inc. be liable to Motorsport? The answer is that with respect to apparent authority, a principal is liable for understandings that he, the principal, has created. An innocent principal is not responsible for the misrepresentations of a would-be agent.
No Disclosure
On the other hand, if an agent enters into a contract and does not disclose (1) that he or she is acting in behalf of a principal or (2) the identity of the principal, then the third party has the option to hold either the principal (when he is disclosed) or the agent liable on the contract.
Milly is an independent contractor doing work for Jed, and while doing that work, she negligently causes an injury to Alice. Which of the following is correct? Only Milly is liable to Alice for her injuries. Only Jed is liable to Alice for her injuries. Milly and Jed are both liable to Alice for her injuries.
Only Milly is liable to Alice for her injuries. Milly caused an injury and is liable for it. A principal is liable for the wrongful actions of his employee but is not liable for the wrongful acts of his independent contractors.
Contract Liability
Only the principal (and not an agent) is liable on a contract entered into by an agent if (1) the existence of the principal is disclosed, and (2) the agent is acting within his authority.
Full Disclosure.
Only the principal (and not an agent) is liable on a contract entered into by an agent if the agent discloses (1) that the agent is acting in behalf of a principal, and (2) the identity of the principal.
Jed was the agent of Milly. Jed purchases a truck of corn from Orville. Jed was acting for Milly. Orville knew that Jed was acting for a principal but Orville did not know the identity of the principal. Which of the following is correct? Jed is liable to Orville on the contract. If Orville later learns that Jed was acting for Milly, he may choose to hold her liable on the contract. Options a and b are both correct.
Options a and b are both correct. An agent contracting for a partially disclosed principal is liable on the contract. If the third party learns of the identity of the principal, he may choose to hold the principal liable.
The employer was Newspaper Agency Corporation (NAC) and the employee was Donald Rogers. Rogers was under the influence of alcohol while driving a truck for NAC, and in that condition he negligently struck and injured Ray Johnson and killed Johnson's son. There is no question that NAC was liable in damages for personal injuries based on the conduct of Rogers; the only question is whether NAC could be held liable for punitive damages arising from Roger's conduct.
Punitive damages are often claimed but not commonly awarded because this remedy applies only to extreme and egregious behavior. NAC acknowledged that a principal can be held liable for actual damages caused by an agent, but claimed that a principal should not be vicariously liable for punitive damages. In short, the court held that in addition to being liable for damages for injuries, as is the common practice, a principal may also be held liable for punitive damages if a jury finds that the principal authorized the conduct of the agent or was reckless in employing or retaining him. Because the trial court had dismissed the punitive damages claim without a trial, the case was sent back to the trial court (reversed) for a jury trial on that issue.
What does the phrase respondeat superior mean?
Respondeat superior literally means "let the master speak." In application, it means that a principal will be held liable for the tortious conduct of his or her agent.
Suppose, in the case above, that Torres (negligently) cut down the tree for Mr. and Mrs. Reardon and it landed on the new car of a third person named Thomas. Are the Reardons responsible for the negligence of Mr. Torres when a third person suffers a loss?
The answer to the question above is that Mr. Torres would be responsible for his negligent conduct; the Reardons would not share that responsibility because they did not control his conduct. Obviously, if the Reardons controlled the conduct of Mr. Torres, he would be their employee or agent and then they would be responsible for his conduct.
Returning to the Andrea, Robert, and Bruce story, is Robert personally liable for the personal injuries he caused Bruce when he negligently hit Bruce while driving Andrea's truck?
That is, Robert is personally liable for violating his duty to act as a reasonable and prudent person would under the same or similar circumstances, thereby causing harm to another. On the other hand, a principal must normally indemnify his or her agents. To indemnify means to protect another against loss, damage, or liability, and, as we have noted, a principal must normally indemnify his or her agents. Therefore, although Robert is personally liable to Bruce, Andrea (as a principal) must indemnify him (as her agent) from this loss. Andrea's obligation to indemnify Robert is the end of the story unless Andrea is broke. In that unfortunate circumstance, Robert remains liable to Bruce and must pay the claim. In that case, Robert retains his right to be reimbursed (indemnified) by Andrea, but it is an empty right unless Andrea acquires some new assets.
These so-called "Reid factors," which are culled from the federal common law of agency, are as follows: [1] the hiring party's right to control the manner and means by which the product is accomplished; [2] the skill required; [3] the source of the instrumentalities and tools; [4] the location of the work; [5] the duration of the relationship between the parties; [6] whether the hiring party has the right to assign additional projects to the hired party; [7] the extent of the hired party's discretion over when and how to long to work; [8] the method of payment; [9] the hired party's role in hiring and paying assistants; [10] whether the work is part of the regular business of the hiring party; [11] whether the hiring party is in business; [12] the provision of employee benefits; and [13] the tax treatment of the hired party. . . .
The Eisenberg decision (again) makes clear that control is the single most important factor to be considered in deciding whether a person is an agent or an independent contractor.
suppose that Robert (in the Andrea and Robert story) is traveling to Bruce's business to purchase flower pots. En route, Robert (without authorization) drives to another town and visits his girlfriend, Amy. While eating lunch, Robert negligently tosses Amy a bottle of root beer when she is not looking and she is injured when it hits her face. Can she successfully bring suit against Andrea based on the theory that Andrea (as principal) is liable for Robert's misconduct?
The answer is no because a principal is only liable for the conduct of an agent, while the agent is acting within the course and scope of his employment. The rule the courts apply to determine whether an employee is acting within the scope of employment is how substantially the employee departs from his or her regularly assigned duties. In the example above, Robert has driven to an entirely different town. This is a substantial departure from Robert's regularly assigned duties and is considered a "frolic." On the other hand, if on his way to purchase flower pots, Robert simply stopped at a gas station to pick up a donut, the court would probably consider this a "detour." In other words, because Robert hasn't substantially departed from his regularly assigned duties, he is still considered to be acting within the scope of his employment.
This lesson has discussed a principal's liability in the context of tort and contract claims. What about liability in the criminal context? Can a principal be held criminally liable for a crime that is committed by an agent or employee?
The answer is no. A principal can only be held criminally liable (that is, charged with a crime) if the principal in some way participated in the crime.
With respect to the rules above, suppose that Robert is a stranger to Bruce when he contracts to buy 100 flowerpots. Who is liable on the flowerpot contract?
The answer is straightforward: if (1) Robert tells Bruce that he is buying for Andrea, and (2) Robert indeed has authority to act for Andrea, then Andrea (and not Robert) is liable on the contract. On the other hand, if Robert does not tell Bruce that he is buying for Andrea, it is Robert that is liable on the contract.
Thereafter, in June, suppose that Robert disposes of some old Christmas decorations in trade for some newer patriotic decorations that he thinks will sell well for the Fourth of July. Can Andrea avoid this agreement and get the Christmas decorations back by claiming that Robert was not authorized to make the trade?
The answer is that Andrea cannot avoid the contract, because she is bound by the authorized conduct of her employee. If Robert hits a pedestrian with the company car on the way to make the trade, is Andrea liable to the pedestrian? The answer is yes because Robert is her agent and she has the right to control his conduct and, in fact, does control his conduct.
The obligation to notify also needs a second comment. Suppose, for example, that Robert is an agent who handles financial affairs for Andrea, the florist. In the course of his work, Robert learns that Pete, the partner of Bruce, the floral wholesaler, has died and that Bruce is desperate for money and will sell an interest in his wholesale business at a very attractive price. Must Robert inform Andrea of this opportunity, or can he invest for himself (and not Andrea)?
The answer is that Robert owes Andrea a duty of loyalty which requires him to put her interests first, and in that context he must inform her of important information relevant to his agency.
Return to the version of the Andrea and Robert story where he is a summer intern. Assume that Andrea intends to operate a summer fruit stand in addition to her flower store and that the message to Robert includes the following: "As we discussed on the telephone, I will also operate a summer fruit stand, and it will be your obligation to visit local farmers and buy apples and peaches which I will sell at my fruit stand. I will not sell tropical fruit like bananas because they deteriorate too quickly." Robert agrees. However, in the weeks that follow, Andrea tells her business friends—contrary to the understanding above—that Robert will be working for her and buying and selling "all kinds of fruit." If Robert thereafter buys some bananas from one of Andrea's business friends (contrary to his agreement with Andrea) is she bound by the banana contract?
The answer is yes because she has created the appearance of authority, and it is thus reasonable that she should be responsible for a contract that results from an understanding she created. (Thus the phrase "apparent authority" is sometimes used with respect to agency relationships.) On the other hand, it is important to note that if it is Robert that tells farmers that he can buy bananas (and Andrea knows nothing about it), then Andrea is not liable on the banana contracts; Robert is. (Apparent agency is created by the conduct of the principal and not the conduct of the agent.)
The discussions thus far have dealt with torts of negligence. Thus, for example, we have been concerned whether Andrea is liable when Robert negligently hit Bruce with a company car. But what if the tort was an intentional tort—does respondeat superior also apply to an intentional tort? Suppose, for example, that Mary is a sales representative for the G&P Company. In a grocery store she is building an elaborate display out of boxes of Super Crackers, which are crackers for teenagers. Zack, a 15-year-old boy, deliberately pulls some boxes out of the stack because he wants the excitement of seeing the whole display collapse. Mary reacts by slapping Zack in the face. Is G&P liable to Zack if Zack successfully files suit against Mary and G&P, claiming money damages because of the intentional tort of battery?
The answer to this question is yes, provided that Mary was acting within the course and scope of her employment. In short, respondeat superior applies to torts of negligence and also intentional torts. But NOT to a criminal offense
Change the facts. Suppose that Robert is a real estate agent and not a summer intern. In written documents it is agreed that Robert will negotiate the sale of Andrea's house for any price exceeding $225,000. While driving a client to show Andrea's house, Robert hits and injures a pedestrian. Is Andrea liable to the injured pedestrian?
The answer, of course, is that Robert is a real estate agent and completely free from Andrea's control in the manner in which he conducts his business and he is therefore an independent contractor. He is only responsible to Andrea for the agreed result in selling the house. Because Andrea can only control Robert's result, but not the remainder of his conduct, she is not liable to the injured pedestrian.
In the case below, Desert Hospital contracted with a corporation for the corporation's obstetrical doctors to provide medical services to the poor. The doctors set up their own office across from the hospital. Shahan is the plaintiff, and she claimed that the doctors negligently failed to inform her that her baby would be born with severe (and not preventable) mental impairments. This negligent failure to inform her allegedly deprived her of the option to have an abortion if she had known of the condition, a failure described as "wrongful life." She claimed that (1) the doctors were negligent and that (2) the doctors were employee or agents of the hospital and thus the hospital was liable for their negligence. (A practical question in this and similar cases is why the plaintiff—Shahan, in this case—cares whether the physicians are agents of the hospital. Usually the answer is money, and if the physicians had enough money, personal assets, or insurance to satisfy the plaintiff's successful claims, it is unlikely that the plaintiff would try to prove that the hospital is also responsible.)
The court concluded that the physicians were "apparent" agents of the hospital. That is, the physicians were not really the agents of the hospital, but the hospital had created the appearance of agency, and so the hospital should be held responsible for the picture of things that they had created. This case, however, had a curious result. As we read above, the appellate court reversed the decision of the trial court, deciding that apparent agency existed and that the plaintiff (Shahan) was entitled to believe that the physicians who treated her were employees (agents) of the hospital.
This is a difficult question, but if you understand it, you are really starting to learn. What is the connection between the principle of estoppel and the decision in CSX Transp. to the effect that Arillotta did not have apparent authority to act for CSX?
The doctrine of estoppel prohibits a person from denying the legal effect of statements or promises that he or she makes. In CSX Transp., Inc. v. Recovery Express, Inc., CSX tried to hold Recovery Express liable for statements that another person, Mr. Arillotta, made. In contrast, the doctrine of estoppel would make Recovery Express liable for its statements and Mr. Arillotta liable for his statements.
Explain what facts need to change for CSX (in CSX Transp., Inc. v. Recovery Express, Inc.) to be liable to Recovery on the contract negotiated by Arillotta.
The evidence was that Mr. Arillotta represented that he was an agent of Recovery Express. Apparent authority requires that Recovery Express (and not Mr. Arillotta) make statements representing that Arillotta is an agent of Recovery Express.
In the following case, the issue is whether a man named Gatzke was within the course and scope of his employment. He was staying in a hotel, and after filling out an expense account, he fell asleep while smoking a cigarette and caused a fire at the hotel. Gatzke was on the road working away from home for the Walgreens Company. Being on the road, he was, in a sense, working for Walgreens twenty-four hours a day. But, claimed Walgreens, Gatzke left the scope of his employment while smoking cigarettes in bed; that is, he was not attempting to further the interests of his employer, just like Robert (in the story above) was arguably not within the scope of his employment when he was having lunch with his girlfriend. This was the first time the Minnesota Supreme Court had considered this issue.
The question of whether smoking can be within an employee's scope of employment is a close one, but after careful consideration of the issue we are persuaded by the reasoning of the courts which hold that smoking can be an act within an employee's scope of employment. It seems only logical to conclude that an employee does not abandon his employment as a matter of law while temporarily acting for his personal comfort when such activities involve only slight deviations from work that are reasonable under the circumstances, such as eating, drinking, or smoking. Reversed. As in Ermoian v. Desert Hospital (above) we ask the practical question: Gatzke was negligent, so why does the motel care if he was within the course and scope of his employment when he smoked in bed and caused damage to the motel? Again, the answer is money; that is, Gatzke probably does not have enough money to satisfy the claims of the motel, but Walgreens obviously does, and the hotel is following the money.
Recall the facts in Ginn v. Renaldo. The plaintiff did not claim that the nightclub had a formal discussion with the unidentified patron who injured him. Instead, he claimed that there was an unspoken mutual consent between the nightclub and the patron that created
an implied agency relationship even though such a relationship had not been formally discussed.
Agency by ratification is not common, but it deserves a mention. It means that
a principal later expresses her intent to be bound to a contract that she did not authorize when it was formed.
Jed is in possession of a horse named Sunshine, which belongs to Milly. Completely without authority, Jed sells Sunshine to Oscar for $10,000. At first, Milly is angry and demands the return of the horse. Later, however, Milly changes her mind and agrees to the sales transaction. Which best applies? apparent authority express agency agency by ratification
agency by ratification
In an agency relationship, there are the following duties: (1) loyalty, (2) performance, (3) notification, and (4) accountability. These duties must be performed by
agent
The relationship between a principal and an independent contractor looks much like the relationship of a principal and an agent except with respect to the issue of
control. Recall that one of the essentials of an agency relationship is that the agent acts subject to the principal's control. In contrast, the status of independent contractor is defined as follows: "[An independent contractor is] a person who contracts with another to do something for him but 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. He may or may not be an agent."4
The principle in the MDM decision is clear, and it is that an agent owes a fiduciary duty of loyalty to a principal, but a principal
does not owe a fiduciary duty of loyalty to an agent. This is not more complicated than saying, in a medical context, that one party is the doctor and the other is the patient.
The fiduciary obligation, often referred to in the principal-agent context as the
duty of loyalty
In a routine (non-agency) arrangement in which Mr. X contracts to sell his motorcycle to Ms. Y, each of the parties must honestly exchange the money and motorcycle as they have agreed. Apart from that, however, each party simply looks out for his or her own interests. There is no
duty of loyalty.
In the technical definition at the beginning of this lesson, it says that "agency is [a]
fiduciary relationship. That definition means that Robert, as an agent, has a duty of loyalty and must give first place to the interests of Andrea, the principal, and second place to his own interests. That is obviously different than the routine contract above.
In many cases a principal and agent formally discuss and express their agency agreement; but, in other cases, a principal and agent simply act out an agency arrangement without actually discussing the particular authority the agent will have. Many times, the authority arises out of the position, or job title, that the agent holds. For example, if Andrea hires Robert to be the manager of her floral shop but does not discuss with him the authority he has to do particular tasks, it is implied that he will
have the authority that would normally be granted to someone in the position of a manager. In this case their agency agreement is implied.
At the time that a company car driven by Robert hit Bruce, was Robert an independent contractor, like a real estate agent? If Robert was indeed an independent contractor, then Andrea would
not be responsible for his negligent conduct. But customarily an employee in a floral shop works under the immediate control of his employer. Moreover, Robert was driving a company car and not his own. Also, there is no evidence that Robert was working on a "job" basis instead of an hourly basis or that Andrea did not provide withholding for social security and taxes. Thus, we conclude that Robert was an employee or agent and not an independent contractor.
Although contracts are often used to create agency relationships, it is important to note that a formal contract is
not required—only consent. That being said, some contract limitations are imposed by the courts. For example, if either Andrea or Robert is incompetent, there is not an enforceable agency relationship, nor is there an enforceable agency relationship if the object of the agreement is to perform an illegal act, such as defrauding Bruce.
At the time that a company car driven by Robert hit Bruce, was Robert an agent of Andrea? The facts are that, in general, (1) Robert was employed by Andrea and (2) Robert was specifically sent by Andrea to Bruce's place of business. Therefore, we know
that Robert was an agent of Andrea and that he was acting within his express authority when he went to the business place of Bruce.
The law is clear that a principal is liable for harm caused by his agent when the agent is acting within
the course and scope of his employment.
The plaintiff, Ginn, was evicted from a nightclub when he became "silly drunk." Realizing he had left his jacket behind he unsuccessfully asked the manager for permission to re-enter the club. The manager refused, and Ginn persisted in his request, at which point an unidentified patron stepped forward and slammed the door on Ginn's hand, causing serious injuries. Ginn claimed that the unidentified patron was an agent of the nightclub and therefore the nightclub was liable for the misconduct of its agent. The issue for the court is clear: if
the patron was an agent, Ginn may recover damages from the nightclub; but, if the patron was not an agent, Mr. Ginn may not recover damages from the nightclub. "A review of the record in this case persuades us that the unidentified person alleged to have caused plaintiff's injuries was merely an individual patron of defendant's nightclub. Although this person was at the door of the nightclub with the manager, there is no evidence that he had been requested to assist the manager in dealing with plaintiff or that he was in any way concerned with or responsible for the security of the nightclub."
The obvious difference between an agent and an independent contractor is that
the principal does not control the conduct of the independent contractor.
