1. Liability of Principals, Agents, and Independent Contractors
Chapter 30
Liability of Principals, Agents, and Independent Contractors

2. 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
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3. 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
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4. 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
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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
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Negligence
Agent’s conduct
Agent liable
Principal liable
Frolic and detour
Yes
Yes/No
Coming and going rule No
Dual-purpose mission
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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
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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
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9. 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?
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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
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11. 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
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12. 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
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13. 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
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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
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15. 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
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16. 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.
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17. 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.
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18. 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
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19. Case 30.2 : Independent Contractor
Lewis v. D. Hays Trucking, Inc.
701 F.Supp.2d 1300, Web 2010 U.S. Dist. Lexis (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?
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20. 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
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21. Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.
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