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1. Jack is the principal. Mary is Jack's agent. Mary enters into
a contract with Peter whereby Peter sells his house to Mary.
a. Under what circumstances will Jack be liable for this contract
with Peter. That is, under what circumstances will Jack be
required to pay Peter for the house?
b. Under what circumstances will Mary be liable for this
contract with Peter. That is, under what circumstances will
Mary be required to pay Peter for the house?.
2. Principal and agent are in principal's car. Principal is driving
the car. Principal negligently injures a pedestrian who is
lawfully crossing the street. Whom should the pedestrian sue?
That is, who is likely liable to the pedestrian? Explain.
3. Principal and agent are in principal's car. Agent is driving
the car. Agent negligently injures a pedestrian who is lawfully
crossing the street. Whom should the pedestrian sue. That is,
who is likely liable to the pedestrian? Explain.
4. Agent enters into a contract with Peter on behalf of principal
whereby Agent purchases a house from Peter. Principal did not
authorize this contract.
a. Should Peter sue principal to obtain payment for the purchase
of the house? Explain.
b. Should Peter sue agent to obtain payment for the purchase of
the house? Explain.
Chapter 33
Agency Liability
and Termination
Acct352 Sections 012, 015, 017
SPRING 2021
Clarkson/Miller, Business Law: Text and Cases, Fifteenth
Edition. © 2021 Cengage. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a
publicly accessible website, in whole or in part.
Clarkson/Miller, Business Law: Text and Cases, Fifteenth
Edition. © 2021 Cengage. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a
publicly accessible website, in whole or in part.
§1: LEARNING OBJECTIVES
• Describe how agency relationship is terminated
• Describe the duty of loyalty agents owe to principals
• Describe the principal’s liability to third parties for tortious
conduct of agent
and independent contractors
• Describe the agent’s liability to third parties stemming from
breach of
contract
• Describe how independent contractor status is created
• Describe the principal’s liability for the tortious conduct of
an independent
contractor
• Describe the principal’s liability for the contracts created by
an independent
contractor
Clarkson/Miller, Business Law: Text and Cases, Fifteenth
Edition. © 2021 Cengage. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a
publicly accessible website, in whole or in part.
§2: Liability of Agent to Principal
Agents owe to their principals a duty of loyalty. This is a
fiduciary duty to not act
adversely to the interests of the principal
• An agent acts adversely to the interests of her principal when
she does any of the
following
• Self-dealing
• Usurps an opportunity of the principal
• Competes with the principal
• Misuses the principal’s confidential information
• Dual agency
• A breach of the duty of loyalty results in the agent’s liability
to the principal for any
resulting damages
Copyright © 2016 Pearson Education, Inc. Publishing as
Prentice Hall.
Clarkson/Miller, Business Law: Text and Cases, Fifteenth
Edition. © 2021 Cengage. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a
publicly accessible website, in whole or in part.
§2: Liability of Agent to Principal –
Agent's Breach of Duty of Loyalty
Self-dealing - Action taken by the agent that is done for the
benefit of the agent
instead of the benefit of the principal
• No breach of duty of loyalty if self-interest is disclosed
• In cases involving self-dealing the principal can elect to
rescind or ratify the
agent’s action
• Example: Mary is an agent for real estate deals for her
principal Jane, a land
developer. Mary and her husband own property in Dover,
Delaware that Mary
sells to Jane without disclosing Mary’s ownership = self-
dealing?
• Bottom Line: Agent is not supposed to personally benefit
from a transaction done on
behalf of the principal. Agent, of course, is paid by the
principal for the agent’s
efforts on behalf of the principal, but the agent should not
directly profit from the
transaction, unless principal approves
Clarkson/Miller, Business Law: Text and Cases, Fifteenth
Edition. © 2021 Cengage. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a
publicly accessible website, in whole or in part.
§2: Liability of Agent to Principal –
Agent's Breach of Duty of Loyalty
Usurping an opportunity - taking a business opportunity
intended for the principal
• No breach if the agent takes the business opportunity after the
principal rejects it after the
agent’s full disclosure of the opportunity to the principal
• Example: Mary is an agent who searches nationwide for real
estate deals for her principal
Jane, a land developer. Mary learns of property available at a
site where a mall will soon be
built. Mary purchases the land for Mary and her husband Jim
without informing Jane =
usurping an opportunity?
• What if Mary tells Jane about the property but not the mall
and Jane refuses to buy property
and Mary buys it?
Competing with principal - Agent acts as an agent for someone
engaged in, or agent
personally does business in, a line of work that competes with
the principal’s
• Example: Mary is an agent for real estate deals for her
principal Jane, a land developer.
Mary is also an agent for Sally, another land developer. And,
Mary and her husband Jim are
also land developers = competing with principal?
Clarkson/Miller, Business Law: Text and Cases, Fifteenth
Edition. © 2021 Cengage. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a
publicly accessible website, in whole or in part.
§2: Liability of Agent to Principal –
Agent's Breach of Duty of Loyalty
Misuse of confidential information - Agent discloses to third-
party, or uses for her own
benefit, information about the principal’s business (such as
trade secrets, customer lists,
business plans)
• No breach if agent uses skills and knowledge acquired
independently by agent
• Example: Mary discloses to third party Jane’s plan to buy
vacant property near a soon
to be built mall = misuse of information?
Dual agency - Agent acts as an agent for two unrelated
principals in the same transaction
• Not a breach of duty of loyalty if dual agency is disclosed and
everyone involved in the
transaction agrees to it
• Example: Mary is an agent purchasing land for Jane, a land
developer. In the same
transaction Mary is selling agent for the owner of the property =
dual agency?
Clarkson/Miller, Business Law: Text and Cases, Fifteenth
Edition. © 2021 Cengage. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a
publicly accessible website, in whole or in part.
§3: Contract Liability of Principals and Agents
to Third Parties
Liability of Principals on Contracts Entered Into by Agents
• If principal authorizes agent to enter into a contract with third
party, the
principal is always ultimately liable to the third party on the
contract because
the agent had actual (expressed or implied) authority.
• So if an agent is sued by a third party for a breach of a
contract that the agent
entered into with the third party on behalf of the principal, the
agent might be
required to pay the third party, but the agent will receive
reimbursement from the
principal because the principal is ultimately liable for the
contracts the principal
authorizes the agent to enter into
• Example: Principal refuses to pay for the house that principal
authorized
agent to purchase. If seller sues agent and wins, agent can
obtain
reimbursement from principal because the principal is always
ultimately
liable on an authorized contract
Clarkson/Miller, Business Law: Text and Cases, Fifteenth
Edition. © 2021 Cengage. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a
publicly accessible website, in whole or in part.
§3: Contract Liability of Principals and Agents
to Third Parties
Liability of Principals on Contracts Entered Into by Agents
• If principal does not authorize agent to enter into a contract
with third party,
only the agent is liable to the third party
• The principal is not liable. Only the agent is liable
• Example: Principal refuses to pay for the house that principal
did not authorize agent
to purchase. If seller sues principal seller will lose because only
the agent is
ultimately liable when the contract is unauthorized
• If principal does not authorize agent to enter into a contract
with third party,
the principal (and agent) would be liable to third party if agent
had
apparent authority, but principal can receive indemnification
from agent
(reimbursement for any payments principal is required to make
to third party)
• Example: If seller sues principal and wins because the court
determines the agent acted
under apparent authority, the principal can obtain
reimbursement from agent because
only agent is ultimately liable on an unauthorized contract
Clarkson/Miller, Business Law: Text and Cases, Fifteenth
Edition. © 2021 Cengage. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a
publicly accessible website, in whole or in part.
§3: Liability of Agents Contracts That are
Authorized by Principal
If a principal authorizes an agent to enter into a contract with a
third party on
behalf of principal:
• Agent is not liable when the agency is FULLY DISCLOSED.
• Fully Disclosed Agency means the third party knows, through
the principal,
agent, or some other source:
• That agent is acting for a principal
• Actual identity of the principal
• Agent is liable only if she guarantees that the principal will
perform the contract.
• But agent can obtain reimbursement (indemnification) from
principal
• To clearly establish agency, agent should sign the contract in a
way that conveys
agent/principal relationship (e.g., “Mary agent for Jane”)
Clarkson/Miller, Business Law: Text and Cases, Fifteenth
Edition. © 2021 Cengage. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a
publicly accessible website, in whole or in part.
§3: Liability of Agents Contracts That are Authorized
by Principal (Cont.)
If a principal authorizes an agent to enter into a contract with a
third
party on behalf of principal
• Agent (and principal) are liable to the third party for
principal’s breach of the
contract if agency is Partially Disclosed or Undisclosed
• Partially Disclosed means the third party:
• Knows that agent is acting for a principal
• But does not know the identity of the principal
• Undisclosed Agency means third party is unaware of:
• Existence of an agency
• Identity of principal
• Example: Principal refuses to pay for the house that principa l
authorized partially disclosed or
undisclosed agent to purchase. If home seller sues agent, seller
will win. Agent can obtain
reimbursement from principal
Clarkson/Miller, Business Law: Text and Cases, Fifteenth
Edition. © 2021 Cengage. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a
publicly accessible website, in whole or in part.
§4: Liability of Agents Contracts That are NOT Authorized by
Principal
As noted previously, the agent is ultimately liable when the
agent enters into
an unauthorized contract.
• Beach of Implied warranty of authority - The legal theory
under which a third party would sue
an agent who enters into an unauthorized contract
• An agent who enters into a contract on behalf of another party
warrants to third party that
she has the authority to do so. An agent breaches that implied
warranty of authority if she
enters into a contract that is not authorized by the principal
• This is a breach of the implied warranty of authority NOT
breach of contract
• Agent, alone, is liable for breaching the implied warranty of
authority
• The principal is liable only if she ratifies the contract. That
is, the principal accepts the
agent’s unauthorized contract
• Example: Mary is authorized by Jane to find land deals in the
US. Mary travels to Australia because she
learns of a potentially very lucrative opportunity for Jane. She
travels without obtaining Jane’s approval
to seek business in foreign countries. Mary fully discloses her
agency to an Australian land owner and
thereafter signs a contract to purchase land located in Australia
from that person. Does Jane have to
perform this contract?
Clarkson/Miller, Business Law: Text and Cases, Fifteenth
Edition. © 2021 Cengage. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a
publicly accessible website, in whole or in part.
§5: Tort Liability of Principals and Agents
to Third Parties
Principal and agent are each individually and personally liable
for their own
tortious conduct
• When is Principal liable to Third Parties for Tortious acts of
Agent?
• Principal is liable for tortious conduct of agent when agent is
acting
within the scope of authority (scope of employment)
• When is Agent liable to third parties for Tortious acts of
Principal?
• Agent is liable for tortious conduct of principal only if agent
directly or
indirectly, aids and abets the principal’s conduct
Clarkson/Miller, Business Law: Text and Cases, Fifteenth
Edition. © 2021 Cengage. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a
publicly accessible website, in whole or in part.
§5: Principal's Liability for Agent's Tort (Cont.)
Why is the Principal Liable for Tortious Conduct of Agent:
Respondeat Superior
• Respondeat Superior: Principals are liable for negligent
conduct of agents acting within
the scope of the agent’s employment
• Respondeat superior (“let the master answer"), is based on the
theory of vicarious
liability which states that liability should run to any person
(master) who had the ability
and duty to control the actions of the servant (agent)
• So respondeat superior is a form of strict liability because it is
akin to liability without
fault. That is, the principal did not do anything wrong, the
agent did, but the principal is
liable by virtue of the principal’s control of the agent through
their contractual
(agent/principal) relationship.
• Rationale: Principal controls the agent's behavior and should
assume responsibility for the
agent's actions. Moreover, if the principal benefits through the
agent, the principal should be
liable through, and bear the cost of, agent’s negligence
Clarkson/Miller, Business Law: Text and Cases, Fifteenth
Edition. © 2021 Cengage. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a
publicly accessible website, in whole or in part.
§5: Principal's Liability for Agent's Tort (Cont.)
What Work is Within an Agent’s Scope of Employment (or
scope of authority)? -
any work that is expressly authorized by the principal or that
can be implied because it
is customarily connected with or reasonably necessary for the
performance of the
authorized work and is done for the benefit of the principal
• In other words, any work within the agent’s express or implied
authority
• Example #1: Mary crashes into another car while driving to
meet the owner of land
the principal is interested in purchasing = Who is liable to the
injured person?
• Example #2: Mary is authorized by Jane to locate land for
development in the US.
Mary travels to Australia because she learns of a potentially
very lucrative
opportunity for Jane. She travels without obtaining Jane’s
approval to seek
business in foreign countries. Mary injures a person while
driving her rental car in
Australia = Who is liable to injured party?
Clarkson/Miller, Business Law: Text and Cases, Fifteenth
Edition. © 2021 Cengage. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a
publicly accessible website, in whole or in part.
§5: Principal's Liability for Agent's Tort (Cont.)
When is an Agent not Acting Within the Scope of the Agent’s
Employment?
• Frolic vs. Detour
• Frolic- agent briefly but substantially strays from authorized
activities to
engage in fun/entertaining personal activities such that she can
be said to be
engaged in conduct that is completely unrelated to the
authorized work
• Example: Mary, while scouting land deals for Jane in NY,
stops at a museum to browse
its art collection. She accidentally destroys artwork =
Negligence for whom?
• Detour - agent briefly but insubstantially strays from
authorized activities to
tend to a personal matter
• Agent is always personally liable during frolic and during
detour
• Principal is liable for detour NOT frolic
• Example: Mary, while scouting land deals for Jane in NY,
stops at a museum to use the
bathroom and eat lunch in its cafeteria. While there she
accidentally destroys causes a fire =
Negligence for whom?
Clarkson/Miller, Business Law: Text and Cases, Fifteenth
Edition. © 2021 Cengage. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a
publicly accessible website, in whole or in part.
§5: Principal's Liability for Agent's Tort (Cont.)
Coming and Going - principal is not liable for tortious acts
committed by agent on
the way to work from home and from work to home, even if the
means of
transportation and related expenses are provided for and paid by
the principal
• The agent has not "clocked in" or has “clocked out” so such
conduct is not within
the scope of employment”
• But principal is liable if employee is on a "dual purpose
mission." That is, agent
is detouring from "home trip" to run an errand for principal
• Example #1: Mary on her way home from work negligently
injured Tom in a car
accident = liability for whom?
• Example #2: Mary on her way home is asked by Jane to stop at
Bloomingdale’s
to pick up Jane’s mink coat. Mary negligently injures Tom in a
car accident =
liability for whom?
Clarkson/Miller, Business Law: Text and Cases, Fifteenth
Edition. © 2021 Cengage. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a
publicly accessible website, in whole or in part.
§5: Principal's Liability for Agent's Tort (Cont.)
Agent’s conduct Agent liable Principal liable
Frolic Yes No
Detour Yes Yes
Coming and going rule Yes No
Dual-purpose mission Yes Yes
Clarkson/Miller, Business Law: Text and Cases, Fifteenth
Edition. © 2021 Cengage. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a
publicly accessible website, in whole or in part.
§6: Liability of Principal for Torts of Independent Contractor
Independent contractors - outsiders employed by principals to
perform tasks on the
principal's behalf and over whom the principal has no control
• Independent contractors are personally liable for their own
TORTS
• A principal is not generally liable for the torts of its
independent contractors because the
principal has no control over the independent contractor. Why?
Because there is no
master servant relationship (so no control) to create respondeat
superior liability
• It is the level of control the principal exerts over the
independent contractor that
determines the principal’s liability. Even if an independent
contractor is referred to
as such, if the principal controls the time, manner and method
of the independent
contractor's work, then the independent contractor might be
deemed to be an employee
and the principal is liable
• Is there a way the person who hired the independent contractor
could be found liable even if the IC is not
deemed to be an employee? Answer = no. Principal is never
liable for the torts of IC! Because there is
no master servant relationship (so no control) to create
respondeat superior liability
Clarkson/Miller, Business Law: Text and Cases, Fifteenth
Edition. © 2021 Cengage. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a
publicly accessible website, in whole or in part.
§7: Liability of Principal for Contracts entered into by
Independent Contractors
A principal is not liable on a CONTRACT an independent
contractor enters into with a
third party UNLESS the principal expressly or impliedly
authorizes the independent
contractor to enter into the contract
• If the principal does provide such authorization, the rules we
have discussed
regarding contracts authorized by the principal will apply
Clarkson/Miller, Business Law: Text and Cases, Fifteenth
Edition. © 2021 Cengage. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a
publicly accessible website, in whole or in part.
§8: Termination of Agency by Act of Parties
Agency can be terminated by the following acts
•Mutual agreement of the parties
•If a time stated in the contract has lapsed
• Example: Page lists her property for sale with Alex, a real
estate agent, for six
months. The agency ends when that six month period ends
•If a specified purpose is achieved
• Example: Calvin, a cattle rancher, hires Abe as his agent in
the purchase of
fifty breeding stock. The agency ends when the cattle have been
purchased
•Occurrence of a stated event
• Example: Meredith appoints Allen to handle her business
affairs while she is
away on vacation. The agency terminates when Meredith returns
Clarkson/Miller, Business Law: Text and Cases, Fifteenth
Edition. © 2021 Cengage. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a
publicly accessible website, in whole or in part.
§8: Termination of Agency by Act of Parties –
Notice of Termination
Notice of Termination of Agency – Principal must provide
• Direct notice – to persons who have dealt with agent
• Constructive notice – to persons aware of agency but who
have not dealt with the
agent
• Constructive notice is, for example, placement of a notice in a
newspaper of general circulation in the place where agent does
business or in a place that is reasonably likely to inform third
parties, such as posting the notice in public places or on
websites
likely to be visited by relevant third parties.
• Example of a Public Notice Section of a Newspaper
• Notice is not required if a third party is unaware of the agency
./Public%20Notice%20Section%20of%20Newspaper.jpgSlide
1§1: LEARNING OBJECTIVES§2: Liability of Agent to
PrincipalSlide 4Slide 5Slide 6Slide 7Slide 8Slide 9Slide 10Slide
11§5: Tort Liability of Principals and Agents to Third
Parties§5: Principal's Liability for Agent's Tort (Cont.)§5:
Principal's Liability for Agent's Tort (Cont.)§5: Principal's
Liability for Agent's Tort (Cont.)§5: Principal's Liability for
Agent's Tort (Cont.)§5: Principal's Liability for Agent's Tort
(Cont.)§6: Liability of Principal for Torts of Independent
ContractorSlide 19§8: Termination of Agency by Act of
PartiesSlide 21
1. Jack is the principal.  Mary is Jacks agent.  Mary enters into

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1. Jack is the principal.  Mary is Jacks agent.  Mary enters into

  • 1. 1. Jack is the principal. Mary is Jack's agent. Mary enters into a contract with Peter whereby Peter sells his house to Mary. a. Under what circumstances will Jack be liable for this contract with Peter. That is, under what circumstances will Jack be required to pay Peter for the house? b. Under what circumstances will Mary be liable for this contract with Peter. That is, under what circumstances will Mary be required to pay Peter for the house?. 2. Principal and agent are in principal's car. Principal is driving the car. Principal negligently injures a pedestrian who is lawfully crossing the street. Whom should the pedestrian sue? That is, who is likely liable to the pedestrian? Explain. 3. Principal and agent are in principal's car. Agent is driving the car. Agent negligently injures a pedestrian who is lawfully crossing the street. Whom should the pedestrian sue. That is, who is likely liable to the pedestrian? Explain. 4. Agent enters into a contract with Peter on behalf of principal whereby Agent purchases a house from Peter. Principal did not authorize this contract. a. Should Peter sue principal to obtain payment for the purchase of the house? Explain. b. Should Peter sue agent to obtain payment for the purchase of the house? Explain. Chapter 33 Agency Liability and Termination Acct352 Sections 012, 015, 017
  • 2. SPRING 2021 Clarkson/Miller, Business Law: Text and Cases, Fifteenth Edition. © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Clarkson/Miller, Business Law: Text and Cases, Fifteenth Edition. © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. §1: LEARNING OBJECTIVES • Describe how agency relationship is terminated • Describe the duty of loyalty agents owe to principals • Describe the principal’s liability to third parties for tortious conduct of agent and independent contractors • Describe the agent’s liability to third parties stemming from breach of contract • Describe how independent contractor status is created • Describe the principal’s liability for the tortious conduct of an independent contractor • Describe the principal’s liability for the contracts created by an independent contractor
  • 3. Clarkson/Miller, Business Law: Text and Cases, Fifteenth Edition. © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. §2: Liability of Agent to Principal Agents owe to their principals a duty of loyalty. This is a fiduciary duty to not act adversely to the interests of the principal • An agent acts adversely to the interests of her principal when she does any of the following • Self-dealing • Usurps an opportunity of the principal • Competes with the principal • Misuses the principal’s confidential information • Dual agency • A breach of the duty of loyalty results in the agent’s liability to the principal for any resulting damages Copyright © 2016 Pearson Education, Inc. Publishing as Prentice Hall. Clarkson/Miller, Business Law: Text and Cases, Fifteenth Edition. © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
  • 4. §2: Liability of Agent to Principal – Agent's Breach of Duty of Loyalty Self-dealing - Action taken by the agent that is done for the benefit of the agent instead of the benefit of the principal • No breach of duty of loyalty if self-interest is disclosed • In cases involving self-dealing the principal can elect to rescind or ratify the agent’s action • Example: Mary is an agent for real estate deals for her principal Jane, a land developer. Mary and her husband own property in Dover, Delaware that Mary sells to Jane without disclosing Mary’s ownership = self- dealing? • Bottom Line: Agent is not supposed to personally benefit from a transaction done on behalf of the principal. Agent, of course, is paid by the principal for the agent’s efforts on behalf of the principal, but the agent should not directly profit from the transaction, unless principal approves Clarkson/Miller, Business Law: Text and Cases, Fifteenth Edition. © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
  • 5. §2: Liability of Agent to Principal – Agent's Breach of Duty of Loyalty Usurping an opportunity - taking a business opportunity intended for the principal • No breach if the agent takes the business opportunity after the principal rejects it after the agent’s full disclosure of the opportunity to the principal • Example: Mary is an agent who searches nationwide for real estate deals for her principal Jane, a land developer. Mary learns of property available at a site where a mall will soon be built. Mary purchases the land for Mary and her husband Jim without informing Jane = usurping an opportunity? • What if Mary tells Jane about the property but not the mall and Jane refuses to buy property and Mary buys it? Competing with principal - Agent acts as an agent for someone engaged in, or agent personally does business in, a line of work that competes with the principal’s • Example: Mary is an agent for real estate deals for her principal Jane, a land developer. Mary is also an agent for Sally, another land developer. And, Mary and her husband Jim are also land developers = competing with principal? Clarkson/Miller, Business Law: Text and Cases, Fifteenth
  • 6. Edition. © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. §2: Liability of Agent to Principal – Agent's Breach of Duty of Loyalty Misuse of confidential information - Agent discloses to third- party, or uses for her own benefit, information about the principal’s business (such as trade secrets, customer lists, business plans) • No breach if agent uses skills and knowledge acquired independently by agent • Example: Mary discloses to third party Jane’s plan to buy vacant property near a soon to be built mall = misuse of information? Dual agency - Agent acts as an agent for two unrelated principals in the same transaction • Not a breach of duty of loyalty if dual agency is disclosed and everyone involved in the transaction agrees to it • Example: Mary is an agent purchasing land for Jane, a land developer. In the same transaction Mary is selling agent for the owner of the property = dual agency? Clarkson/Miller, Business Law: Text and Cases, Fifteenth Edition. © 2021 Cengage. All Rights Reserved.
  • 7. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. §3: Contract Liability of Principals and Agents to Third Parties Liability of Principals on Contracts Entered Into by Agents • If principal authorizes agent to enter into a contract with third party, the principal is always ultimately liable to the third party on the contract because the agent had actual (expressed or implied) authority. • So if an agent is sued by a third party for a breach of a contract that the agent entered into with the third party on behalf of the principal, the agent might be required to pay the third party, but the agent will receive reimbursement from the principal because the principal is ultimately liable for the contracts the principal authorizes the agent to enter into • Example: Principal refuses to pay for the house that principal authorized agent to purchase. If seller sues agent and wins, agent can obtain reimbursement from principal because the principal is always ultimately liable on an authorized contract Clarkson/Miller, Business Law: Text and Cases, Fifteenth Edition. © 2021 Cengage. All Rights Reserved.
  • 8. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. §3: Contract Liability of Principals and Agents to Third Parties Liability of Principals on Contracts Entered Into by Agents • If principal does not authorize agent to enter into a contract with third party, only the agent is liable to the third party • The principal is not liable. Only the agent is liable • Example: Principal refuses to pay for the house that principal did not authorize agent to purchase. If seller sues principal seller will lose because only the agent is ultimately liable when the contract is unauthorized • If principal does not authorize agent to enter into a contract with third party, the principal (and agent) would be liable to third party if agent had apparent authority, but principal can receive indemnification from agent (reimbursement for any payments principal is required to make to third party) • Example: If seller sues principal and wins because the court determines the agent acted under apparent authority, the principal can obtain reimbursement from agent because only agent is ultimately liable on an unauthorized contract
  • 9. Clarkson/Miller, Business Law: Text and Cases, Fifteenth Edition. © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. §3: Liability of Agents Contracts That are Authorized by Principal If a principal authorizes an agent to enter into a contract with a third party on behalf of principal: • Agent is not liable when the agency is FULLY DISCLOSED. • Fully Disclosed Agency means the third party knows, through the principal, agent, or some other source: • That agent is acting for a principal • Actual identity of the principal • Agent is liable only if she guarantees that the principal will perform the contract. • But agent can obtain reimbursement (indemnification) from principal • To clearly establish agency, agent should sign the contract in a way that conveys agent/principal relationship (e.g., “Mary agent for Jane”) Clarkson/Miller, Business Law: Text and Cases, Fifteenth Edition. © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a
  • 10. publicly accessible website, in whole or in part. §3: Liability of Agents Contracts That are Authorized by Principal (Cont.) If a principal authorizes an agent to enter into a contract with a third party on behalf of principal • Agent (and principal) are liable to the third party for principal’s breach of the contract if agency is Partially Disclosed or Undisclosed • Partially Disclosed means the third party: • Knows that agent is acting for a principal • But does not know the identity of the principal • Undisclosed Agency means third party is unaware of: • Existence of an agency • Identity of principal • Example: Principal refuses to pay for the house that principa l authorized partially disclosed or undisclosed agent to purchase. If home seller sues agent, seller will win. Agent can obtain reimbursement from principal Clarkson/Miller, Business Law: Text and Cases, Fifteenth Edition. © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. §4: Liability of Agents Contracts That are NOT Authorized by Principal
  • 11. As noted previously, the agent is ultimately liable when the agent enters into an unauthorized contract. • Beach of Implied warranty of authority - The legal theory under which a third party would sue an agent who enters into an unauthorized contract • An agent who enters into a contract on behalf of another party warrants to third party that she has the authority to do so. An agent breaches that implied warranty of authority if she enters into a contract that is not authorized by the principal • This is a breach of the implied warranty of authority NOT breach of contract • Agent, alone, is liable for breaching the implied warranty of authority • The principal is liable only if she ratifies the contract. That is, the principal accepts the agent’s unauthorized contract • Example: Mary is authorized by Jane to find land deals in the US. Mary travels to Australia because she learns of a potentially very lucrative opportunity for Jane. She travels without obtaining Jane’s approval to seek business in foreign countries. Mary fully discloses her agency to an Australian land owner and thereafter signs a contract to purchase land located in Australia from that person. Does Jane have to perform this contract?
  • 12. Clarkson/Miller, Business Law: Text and Cases, Fifteenth Edition. © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. §5: Tort Liability of Principals and Agents to Third Parties Principal and agent are each individually and personally liable for their own tortious conduct • When is Principal liable to Third Parties for Tortious acts of Agent? • Principal is liable for tortious conduct of agent when agent is acting within the scope of authority (scope of employment) • When is Agent liable to third parties for Tortious acts of Principal? • Agent is liable for tortious conduct of principal only if agent directly or indirectly, aids and abets the principal’s conduct Clarkson/Miller, Business Law: Text and Cases, Fifteenth Edition. © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. §5: Principal's Liability for Agent's Tort (Cont.) Why is the Principal Liable for Tortious Conduct of Agent:
  • 13. Respondeat Superior • Respondeat Superior: Principals are liable for negligent conduct of agents acting within the scope of the agent’s employment • Respondeat superior (“let the master answer"), is based on the theory of vicarious liability which states that liability should run to any person (master) who had the ability and duty to control the actions of the servant (agent) • So respondeat superior is a form of strict liability because it is akin to liability without fault. That is, the principal did not do anything wrong, the agent did, but the principal is liable by virtue of the principal’s control of the agent through their contractual (agent/principal) relationship. • Rationale: Principal controls the agent's behavior and should assume responsibility for the agent's actions. Moreover, if the principal benefits through the agent, the principal should be liable through, and bear the cost of, agent’s negligence Clarkson/Miller, Business Law: Text and Cases, Fifteenth Edition. © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. §5: Principal's Liability for Agent's Tort (Cont.) What Work is Within an Agent’s Scope of Employment (or
  • 14. scope of authority)? - any work that is expressly authorized by the principal or that can be implied because it is customarily connected with or reasonably necessary for the performance of the authorized work and is done for the benefit of the principal • In other words, any work within the agent’s express or implied authority • Example #1: Mary crashes into another car while driving to meet the owner of land the principal is interested in purchasing = Who is liable to the injured person? • Example #2: Mary is authorized by Jane to locate land for development in the US. Mary travels to Australia because she learns of a potentially very lucrative opportunity for Jane. She travels without obtaining Jane’s approval to seek business in foreign countries. Mary injures a person while driving her rental car in Australia = Who is liable to injured party? Clarkson/Miller, Business Law: Text and Cases, Fifteenth Edition. © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. §5: Principal's Liability for Agent's Tort (Cont.) When is an Agent not Acting Within the Scope of the Agent’s Employment?
  • 15. • Frolic vs. Detour • Frolic- agent briefly but substantially strays from authorized activities to engage in fun/entertaining personal activities such that she can be said to be engaged in conduct that is completely unrelated to the authorized work • Example: Mary, while scouting land deals for Jane in NY, stops at a museum to browse its art collection. She accidentally destroys artwork = Negligence for whom? • Detour - agent briefly but insubstantially strays from authorized activities to tend to a personal matter • Agent is always personally liable during frolic and during detour • Principal is liable for detour NOT frolic • Example: Mary, while scouting land deals for Jane in NY, stops at a museum to use the bathroom and eat lunch in its cafeteria. While there she accidentally destroys causes a fire = Negligence for whom? Clarkson/Miller, Business Law: Text and Cases, Fifteenth Edition. © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
  • 16. §5: Principal's Liability for Agent's Tort (Cont.) Coming and Going - principal is not liable for tortious acts committed by agent on the way to work from home and from work to home, even if the means of transportation and related expenses are provided for and paid by the principal • The agent has not "clocked in" or has “clocked out” so such conduct is not within the scope of employment” • But principal is liable if employee is on a "dual purpose mission." That is, agent is detouring from "home trip" to run an errand for principal • Example #1: Mary on her way home from work negligently injured Tom in a car accident = liability for whom? • Example #2: Mary on her way home is asked by Jane to stop at Bloomingdale’s to pick up Jane’s mink coat. Mary negligently injures Tom in a car accident = liability for whom? Clarkson/Miller, Business Law: Text and Cases, Fifteenth Edition. © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. §5: Principal's Liability for Agent's Tort (Cont.)
  • 17. Agent’s conduct Agent liable Principal liable Frolic Yes No Detour Yes Yes Coming and going rule Yes No Dual-purpose mission Yes Yes Clarkson/Miller, Business Law: Text and Cases, Fifteenth Edition. © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. §6: Liability of Principal for Torts of Independent Contractor Independent contractors - outsiders employed by principals to perform tasks on the principal's behalf and over whom the principal has no control • Independent contractors are personally liable for their own TORTS • A principal is not generally liable for the torts of its independent contractors because the principal has no control over the independent contractor. Why? Because there is no master servant relationship (so no control) to create respondeat superior liability • It is the level of control the principal exerts over the independent contractor that determines the principal’s liability. Even if an independent
  • 18. contractor is referred to as such, if the principal controls the time, manner and method of the independent contractor's work, then the independent contractor might be deemed to be an employee and the principal is liable • Is there a way the person who hired the independent contractor could be found liable even if the IC is not deemed to be an employee? Answer = no. Principal is never liable for the torts of IC! Because there is no master servant relationship (so no control) to create respondeat superior liability Clarkson/Miller, Business Law: Text and Cases, Fifteenth Edition. © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. §7: Liability of Principal for Contracts entered into by Independent Contractors A principal is not liable on a CONTRACT an independent contractor enters into with a third party UNLESS the principal expressly or impliedly authorizes the independent contractor to enter into the contract • If the principal does provide such authorization, the rules we have discussed regarding contracts authorized by the principal will apply
  • 19. Clarkson/Miller, Business Law: Text and Cases, Fifteenth Edition. © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. §8: Termination of Agency by Act of Parties Agency can be terminated by the following acts •Mutual agreement of the parties •If a time stated in the contract has lapsed • Example: Page lists her property for sale with Alex, a real estate agent, for six months. The agency ends when that six month period ends •If a specified purpose is achieved • Example: Calvin, a cattle rancher, hires Abe as his agent in the purchase of fifty breeding stock. The agency ends when the cattle have been purchased •Occurrence of a stated event • Example: Meredith appoints Allen to handle her business affairs while she is away on vacation. The agency terminates when Meredith returns Clarkson/Miller, Business Law: Text and Cases, Fifteenth Edition. © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
  • 20. §8: Termination of Agency by Act of Parties – Notice of Termination Notice of Termination of Agency – Principal must provide • Direct notice – to persons who have dealt with agent • Constructive notice – to persons aware of agency but who have not dealt with the agent • Constructive notice is, for example, placement of a notice in a newspaper of general circulation in the place where agent does business or in a place that is reasonably likely to inform third parties, such as posting the notice in public places or on websites likely to be visited by relevant third parties. • Example of a Public Notice Section of a Newspaper • Notice is not required if a third party is unaware of the agency ./Public%20Notice%20Section%20of%20Newspaper.jpgSlide 1§1: LEARNING OBJECTIVES§2: Liability of Agent to PrincipalSlide 4Slide 5Slide 6Slide 7Slide 8Slide 9Slide 10Slide 11§5: Tort Liability of Principals and Agents to Third Parties§5: Principal's Liability for Agent's Tort (Cont.)§5: Principal's Liability for Agent's Tort (Cont.)§5: Principal's Liability for Agent's Tort (Cont.)§5: Principal's Liability for Agent's Tort (Cont.)§5: Principal's Liability for Agent's Tort (Cont.)§6: Liability of Principal for Torts of Independent ContractorSlide 19§8: Termination of Agency by Act of PartiesSlide 21