LIABILITIES OF PRINCIPALS, AGENTS, AND INDEPENDENT CONTRACTORS CHAPTER 30 LIABILITIES OF PRINCIPALS, AGENTS, AND INDEPENDENT CONTRACTORS © 2010 Pearson Education, Inc., publishing as Prentice-Hall

Agent’s Duty of Loyalty Fiduciary duty not to act adversely to the interests of the principal. Common breaches Self-dealing Usurping an opportunity Competing with principal Misuse of confidential information Undisclosed dual agency

Tort Liability to Third Parties Principal and agent each personally liable for their own tortious conduct. Principal liable for tortious conduct of agent acting within the scope of authority. Agent liable for tortious conduct of principal only if agent directly or indirectly participates in or aids and abets the principal’s conduct.

Scope of Authority Was act specifically requested or authorized by principal? Was it kind of act agent employed to perform? Did act occur within time period of employment? Did act occur at place of employment? Was agent advancing principal’s purpose?

Negligence Principals liable for negligent conduct of agents acting within the scope of their employment. Principal derives benefits from acting through agent, and therefore should also bear liability. Liability based on the common law doctrine respondeat superior.

Negligence (continued) Frolic and Detour: Principal may not be liable. Coming and Going: Principal generally not liable for injuries caused by agents and employees on their way to or from work. Dual-Purpose Mission: Principal generally liable.

Intentional Torts Principal not liable for intentional torts of agents and employees that are committed outside the principal’s scope of business. Two tests determine scope of employment boundaries: Motivation Test Work-Related Test

Motivation Test If agent’s motivation in committing intentional tort is to promote principal’s business, principal is liable for injuries caused by the tort. If agent’s motivation is personal, principal not liable, even if tort occurs during business hours or on premises.

Work-Related Test Only applied in some jurisdictions. If agent commits intentional tort within a work-related time or space, the principal is liable. Agent’s motivation immaterial.

Misrepresentation Principal is liable for intentional and innocent 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 to Third Parties 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 also can be held liable in some circumstances.

Fully Disclosed Agency Third party entering into the contract knows: That agent is acting as an agent for a principal, and Actual identity of the principal. Principal is liable to the third party. Agent is not liable.

Partially Disclosed Agency Agent discloses agency status but does not reveal the principal’s identity, and Third party does not know the principal’s identity from another source. 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, and Principal’s identity Both principal and agent are liable to the third party if the principal fails to perform.

Agent Exceeding Scope of Authority Agent who enters into a contract on behalf of another party impliedly warrants that he or she has the authority to do so. If agent exceeds the scope of his or her authority, principal is not liable on the contract unless the principal ratifies it. Agent is liable to the third party for breaching implied warrant of authority.

Tort Liability of Principals and Agents to Third Parties (1 of 2) Agent’s Conduct Agent Liable Principal Liable 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 Principal is liable under doctrine of respondeat superior if agent’s negligent act was committed within scope of employment.

Tort Liability of Principals and Agents to Third Parties (2 of 2) Agent’s Conduct Agent Liable Principal Liable Intentional Tort Yes Motivation Test: Principal is liable if agent’s motivation in committing the tort was to promote the principal’s business. Work-Related Test: Principal is liable if agent committed the tort within work-related time and space.

Independent Contractor Person not subject to principal’s control. E.g., outside counsel, building contractor. Factors in determining independent contractor status: Worker engaged in distinct occupation or independent business. Worker engaged only for short time. Worker supplies own tools. Etc.

Liability for Independent Contractor’s Contracts Principal liable if contractor authorized to act as agent. Principal bound on authorized contracts. Contractor not liable for authorized contracts.

Liability for Independent Contractor’s Torts Principal generally not liable for torts of independent contractors. Principal may be liable for: Contractor’s inherently dangerous activities; E.g., repossessing cars. Negligent selection of contractor. Independent contractors personally liable for their own torts.