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

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 30-3 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

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 30-4 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. 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 30-5 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. Negligence Agent’s conduct Agent liable Principal liable Frolic and detour Yes Yes/No Coming and going rule No Dual-purpose mission 30-6 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. 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 30-7 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. 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 30-8 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Case 30.1: Employee’s Intentional Tort 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? 30-9 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. 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 30-10 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

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 30-11 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

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 30-12 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

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 30-13 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. 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 30-14 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

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 30-15 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Tort Liability of Principals and Agents to Third Parties 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 Principal is liable under doctrine of respondeat superior if agent’s negligent act was committed within scope of employment. 30-16 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Tort Liability of Principals and Agents to Third Parties 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. Work-Related Test: Principal is liable if agent committed the tort within work-related time and space. 30-17 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

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 30-18 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Case 30.2 : Independent Contractor 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? 30-19 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

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 30-20 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. 30-21 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.