chapter 30 liability of principals, agents, and independent contractors

Chapter 30

Liability of Principals, Agents, and Independent

Contractors

Agent’s Duty of Loyalty

Duty of loyalty: A fiduciary duty owed by an agent, not to act adversely to the interests of the principal

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. 30-2

Agent’s Duty of Loyalty

Common types of breaches of loyalty Self-dealing Usurping an opportunity Competing with principal Misuse of confidential information Dual agency


Tort Liability of Principals and Agents to Third Parties

Principal is liable for tortious conduct of agent acting within the scope of authority

Agent is liable for tortious conduct of principal only if agent directly or indirectly, aids and abets the principal’s conduct

The three sources of tort liability for principals and agents are negligence, intentional torts, and misrepresentation


Negligence

Liability for negligence is based on: Respondeat superior: Principals are liable for

negligent conduct of agents acting within the scope of their employment

Vicarious liability: Principal is liable because of employment contract with agent, not due to personal fault


Negligence

Agent’s conduct Agent liable Principal liable

Frolic and detour Yes Yes/No

Coming and going rule Yes No

Dual-purpose mission Yes Yes


Intentional Torts

It includes assault, battery, false imprisonment and other intentional conduct that causes injury to another person

Principal not liable for intentional torts of agents and employees that are committed outside the principal’s scope of business


Intentional Torts

Tests to determine whether an agent’s intentional torts were committed within the scope of employment: Motivation test: Determines whether an agent’s

motivation in committing an intentional tort is to promote the principal’s business

Work-related test: Determines whether an agent committed an intentional tort within a work-related time or space


Case 30.1: Employee’s Intentional Tort

Case Burlarley v. Walmart Stores, Inc. 904 N.Y.S.2d 826, Web 2010 N.Y.App. Div. Lexis 6278 (2010) Appellate Division of the Supreme Court of New York

Issue Is Walmart vicariously liable for the personally

motivated acts of its cashier?


Misrepresentation

Principal is liable for any misrepresentations made by agent within scope of employment Intentional misrepresentation: occurs when an

agent makes statements that he or she knows are untrue

Innocent misrepresentation: occurs when an agent negligently makes misrepresentation


Contract Liability of Principals and Agents to Third Parties

Agency law imposes contract liability on principals and agents

Principal who authorizes agent to enter into a contract with third party is liable on the contract

Third party can enforce and recover damages from principal

Agent can also be held liable in certain circumstances


Fully Disclosed Agency

Third party entering into the contract knows: That agent is acting for a principal Actual identity of the principal

Principal is liable on the contract Agent is liable, only if he or she guarantees that the

principal will perform the contract


Partially Disclosed Agency

Third party entering into the contract: Knows that agent is acting for a principal Does not know the identity of the principal

Both principal and agent are liable to the third party if principal fails to perform the contract


Undisclosed Agency

Third party is unaware of: Existence of an agency Identity of principal

Both principal and agent are liable to the third party if the principal fails to perform the contract


Agent Exceeding Scope of Authority

Implied warranty of authority: agent who enters into a contract on behalf of another party warrants that he or she has the authority to do so

Ratification of a contract: A situation in which a principal accepts an agent’s unauthorized contract

Agent is liable for breaching the implied warranty of authority

Principal is liable, only if he or she ratifies



Agent’s Conduct

Agent Liable

Liability of the Principal

Misrepre-

sentation

Yes Principal is liable for the intentional and innocent misrepresentations made by agent acting within the scope of his or her authority.

Negligence Yes Principal is liable under doctrine of respondeat superior if agent’s negligent act was committed within scope of employment.



Agent’s Conduct

Agent Liable

Liability of the Principal

Intentional Tort

Yes Motivation Test: Principal is liable if agent’s motivation in committing the tort was to promote the principal’s business.

Intentional Tort

Yes Work-Related Test: Principal is liable if agent committed the tort within work-related time and space.


Liability for an Independent Contractor’s Torts

Independent contractors: outsiders employed by principals to perform tasks on their behalf

Independent contractors are personally liable for their own torts

A principal is not liable for the torts of its independent contractors

Principals cannot avoid liability for inherently dangerous activities that they assign to independent contractors


Case 30.2 : Independent Contractor

Case Lewis v. D. Hays Trucking, Inc. 701 F.Supp.2d 1300, Web 2010 U.S. Dist. Lexis 28035 (2010) United States District Court for the Northern District of Georgia

Issue Is D. Hays Trucking, Inc., an independent

contractor or an employee of Hercules?


Liability for Independent Contractor’s Contracts

A principal can authorize an independent contractor to enter into contracts

The principal is not liable on the contract, if the independent contractor enters a contract without the principal’s authority


chapter 30 liability of principals, agents, and independent contractors

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