Chapter 32: Agency Liability Concepts

Business Law, Sixth Edition
© 2019 BVT Publishing. All rights reserved.
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Chapter 32:
Agency Liability Concepts

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Learning Objectives
• Describe actual authority.
• Discuss apparent authority.
• Understand contract liability of principals.
• Explain tort liability principles.
• Understand tort liability of employers.
• Recognize independent contractors’ torts.

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32.0 In the News
Top 10 points on vicarious liability
http://bvtlab.com/6D6Nc
A principal is generally liable for an agent’s
negligent acts performed within the scope of its
authority under respondent superior. There are,
however, distinctions between vicarious liability or
actions by agents who are independent contractors
versus those who are employees.
• Should employers be just as responsible for
independent contractors as they are employees?
Explain.

S-4
32.1a Actual Authority
Express actual authority
– Authority explicitly given to the agent through
the principal’s written or oral instructions
Implied actual authority
– Authority that is necessarily incidental to the
express authority
– Arises because of business custom and prior
practices of the parties
– Implied authority cannot be derived from the
words/conduct of the agent.

S-5
32.1a Critical Thinking
CASE: Delray Beach
Defendant appealed from a denial of its motion to
compel arbitration. Appellee alleged its agent
Adams lacked authority to bind the City to
arbitration. The Board expressly authorized Adams
to negotiate the contract.
• Does the majority or dissent have the stronger
argument? Why?
• Based on the rationales provided, what factors can
be employed to determine the existence and extent
of implied authority?

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32.1b Apparent or Ostensible Authority
The authority that a principal leads a third
party to believe exists, when there is no actual
authority granted by the principal to the agent
Doctrine of estoppel
• Created by some conduct of the principal that leads
the third party to believe that a person is the
principal’s agent
• Or believe that an actual agent possesses the
requisite authority
• Essential elements include: conduct, reliance, &
injury.

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32.1c Ratification
Principal may become bound by ratifying
an unauthorized contract.
• Conditions must exist before ratification will
be effective:
– Both principal and agent have capacity.
– Agent must have professed to act as an agent.
– Principal must have full knowledge.
• Ratification may be either express or implied.

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32.2a&b Disclosed Principal’s Liability to
Agents and Third Parties
• If the agent acted within the authority
given, principal is liable for agent.
• If agent exceeds the authority granted, the
principal is not liable to the agent.
• If principal ratifies the unauthorized
actions, principal is liable.
• Liable to third parties who enter into
contracts with authorized agents.

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32.2c Undisclosed Principal’s
Liability to Agents
• May become liable for breach of a
fiduciary duty owed to agents
• Liable to agents who enter into
contracts within their actual authority
• Neither apparent authority nor
ratification can occur.
• No liability to an agent who exceeds the
actual authority granted

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32.2d Undisclosed Principal’s Liability
to Third Parties
• Liable to third parties only when the
agent acted within actual authority
• Contract entered into by authorized
agent must be the type that can be
assigned.

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32.3a Introduction to Tort Liability
Concepts
• Agents, employees, and independent
contractors: personally liable for their
own torts
• Employer: liable under respondeat
superior for torts of employee acting
within scope of employment
• Principal, proprietor, employer, or
contractee: not liable for torts of
independent contractor

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32.4a Respondeat Superior (Slide 1 of 2)
Employer is liable to third persons for the
torts committed by employees within the
scope of employment.
• Imposes vicarious liability on employers as a
matter of public policy
• Applicable to negligence and intentional torts
• Deep pocket theory
– Employer is in a better position to pay for the
wrong than is the employee.

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32.4a Respondeat Superior (Slide 2 of 2)
Vicarious liability rule
• Employer is liable for punitive damages.
Complicity rule
• Injured third party must be able to prove:
- Employer authorized the employee to commit the
tort.
- Employer was reckless in employing or retaining
the employee.
- Employee was employed in a managerial
position.
- Employer ratified the employee’s tortious
conduct.

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32.4b Expanding Vicarious Liability
Person engaged in some endeavor
gratuitously may still be an employee within
the scope of the employer-employee
doctrine.
Key elements for determination:
• Whether the actor has submitted to the
directions and to the control of the one for
whom the service is done
• Whether the primary purpose of the underlying
act was to serve another

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32.4c Exceptions: Frolics and Detours
Employer is not liable when the
employee is on a frolic.
• Employee pursues personal interests
while neglecting the employer’s business.
Employer is not liable when the
employee has detoured in a substantial
manner from the employer’s instructions.

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32.4c Critical Thinking
CASE: Riley
A driver ran a family errand while working for his
employer. After completing the errand and before
getting back on the path that he should have
travelled for his employer, he caused an injury.
• Why did the court find the employee was acting
within the course of employment?
• Discuss whether this a fair result for the
employer.

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32.4d Intentional Torts
• Not as likely to occur within the scope
of the employee’s employment.
• If not related to employment, employer
not liable.

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32.4d Critical Thinking
CASE: Bodin
Doctor is accused of an assault on a patient.
Question as to whether facility is liable for the
assault under the theory of respondeat
superior.
• What standard did the court use to determine
whether the employer was liable?
• Is the result here fair to the plaintiff?
To the employer? Why or why not?

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32.4e Tort Suits: Procedures
• Allows joinder of the employer and
employee as defendants in one cause of
action
• Permits them to be sued separately
• Employer and employee are jointly and
severally liable.
• Employer’s liability is predicated on the
fault of the employee.

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32.5a Control over
Independent Contractors
• An independent contractor has power
to control the details of the work.
• Employer of an independent contractor
retains a broad general power of
supervision of the work.

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32.5b General Rule: No Liability
• Doctrine of respondeat superior and
the concept of vicarious liability in tort
are not applicable to independent
contractors.
• Courts usually hold that respondeat
superior be applied to professional
persons.

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32.5c Exceptions: Where Liability
Is Created
Employer is not insulated from liability
of an independent contractor if:
• Work is inherently dangerous.
• Work is illegal.
• Duties cannot be delegated.
• Torts have been ratified.

Chapter 32: Agency Liability Concepts

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