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Lynne Meyer, on her way to a business meeting and in a hurry, stopped by a Buy-Mart store for a new car charger for her smartphone. There was a long line at one of the checkout counters, but a cashier, Valerie Watts, opened another counter and began loading the cash drawer. Meyer told Watts that she was in a hurry and asked Watts to work faster. Watts, however, only slowed her pace. At this point, Meyer hit Watts. It is not clear whether Meyer hit Watts intentionally or, in an attempt to retrieve the car charger, hit her inadvertently. In response, Watts grabbed Meyer by the hair and hit her repeatedly in the back of the head, while Meyer screamed for help. Management personnel separated the two women and questioned them about the incident. Watts was immediately fired for violating the store’s no-fighting policy. Meyer subsequently sued Buy-Mart, alleging that the store was liable for the tort (assault and battery) committed by its employee. Using the information presented in the chapter, answer the following questions.
Under what doctrine discussed in this chapter might Buy-Mart be held liable for the tort committed by Watts?
What is the key factor in determining whether Buy-Mart is liable under this doctrine?
The doctrine of respondeat superior should be modified to make agents solely liable for some of their own tortious (wrongful) acts
sturti/Getty Images
27
Learning Objectives
The six Learning Objectives below
are designed to help improve your
understanding. After reading this chapter,
you should be able to answer the
following questions:
1. What is the difference
between an employee and an
independent contractor?
2. How do agency relationships
arise?
3. What duties do agents and
principals owe to each other?
4. How does a person acquire
apparent authority to act as
someone’s agent?
5. When is a principal liable for
an agent’s negligence?
6. What are some of the ways in
which an agency relationship
can be terminated?
Agency Relationships in Business
“[It] is a universal
principle in the law
of agency, that the
powers of the agent
are to be exercised
for the benefit of the
principal only, and
not of the agent or of
third parties.”
One of the most common, important, and pervasive legal
relationships is that of agency. In an agency relationship
between two parties, one of the parties, called the agent, agrees
to represent or act for the other, called the principal. The principal has the right to control the agent’s conduct in matters
entrusted to the agent. The agent must exercise his or her powers “for the benefit of the principal only,” as Justice Joseph
Story indicated in the chapter-opening quotation.
Agency relationships are crucial to the business world.
Indeed, the only way that some business entities—including
corporations and limited liability companies—can function
is through their agents. Using agents provides clear beneJoseph Story
fits to principals, but agents can also create liability for their
1779–1845
principals.
(Associate justice of the United
Amelia works as the on-site leasing agent for an apartment
States Supreme Court, 1811–1844)
complex owned by Premier Properties. As part of her job, she
signs leases with tenants and accepts rent on behalf of Premier.
She also contracts with companies that do routine maintenance and landscaping at the complex. Is Amelia, as an agent, liable if a maintenance worker is injured while working at the
apartment complex? Is Premier (the principal) liable if Amelia makes fraudulent statements
to tenants? What happens if Amelia signs a contract for a major renovation of the complex
that Premier did not authorize? These are just a few of the legal issues that can arise in
agency relationships.
638
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Section 1(1) of the Restatement (Third) of Agency1 defines agency as “the fiduciary relation
which results from the manifestation of consent by one person to another that the other shall
act in his [or her] behalf and subject to his [or her] control, and consent by the other so
to act.” In other words, in a principal-agent relationship, the parties have agreed that the
agent will act on behalf and instead of the principal in negotiating and transacting business
with third parties.
The term fiduciary is at the heart of agency law. The term can be used both as a noun and
as an adjective. When used as a noun, it refers to a person having a duty created by her or
his undertaking to act primarily for another’s benefit in matters connected with the undertaking. When used as an adjective, as in “fiduciary relationship,” it means that the relationship involves trust and confidence.
Agency relationships commonly exist between employers and employees. Agency relationships may sometimes also exist between employers and independent contractors who
are hired to perform special tasks or services.
Agency A relationship between two
27–1
Agency Law
parties in which one party (the agent)
agrees to represent or act for the
other (the principal).
Fiduciary As a noun, a person
having a duty created by his or her
undertaking to act primarily for another’s benefit in matters connected with
the undertaking. As an adjective, a
relationship founded on trust and
confidence.
27–1a Employer-Employee Relationships
leezsnow/Getty Images
Normally, all employees who deal with third parties are deemed to be agents. A salesperson
in a department store, for instance, is an agent of the store’s owner (the principal) and acts
on the owner’s behalf. Any sale of goods made by the salesperson to a customer is binding on
the principal. Similarly, most representations of fact made by the salesperson with respect
to the goods sold are binding on the principal.
Because employees who deal with third parties are generally deemed
to be agents of their employers, agency law and employment law overlap considerably. Agency relationships, however, can exist outside an
employer-employee relationship, so agency law has a broader reach than
employment law. Additionally, agency law is based on the common law,
whereas much employment law is statutory law.
Note that employment laws (state and federal) apply only to the
employer-employee relationship. Statutes governing Social Security, withholding taxes, workers’ compensation, unemployment compensation,
workplace safety, and employment discrimination are applicable only if
employer-employee status exists.
27–1b Employer–Independent Contractor Relationships
The person on the left works for the owner of this
fabric store. Is she an agent of the owner?
Independent contractors are not employees because, by definition, those who hire them have
no control over the details of their physical performance. Section 2 of the Restatement (Third)
of Agency defines an independent contractor as follows:
[An independent contractor is] a person who contracts with another to do something
for him [or her] but who is not controlled by the other nor subject to the other’s right
to control with respect to his [or her] physical conduct in the performance of the
undertaking. He [or she] may or may not be an agent. [Emphasis added.]
Building contractors and subcontractors are independent contractors. A property owner
does not control the acts of either of these professionals. Truck drivers who own their equipment and hire themselves out on a per-job basis are independent contractors, whereas truck
drivers who drive company trucks on a regular basis are usually employees.
1. The Restatement (Third) of Agency is an authoritative summary of the law of agency and is often referred to by judges and other legal
professionals.
30301_ch27_hr_637-665.indd 639
Independent Contractor One who
works for, and receives payment
from, an employer but whose working
conditions and methods are not controlled by the employer. An independent contractor is not an employee
but may be an agent.
Learning Objective 1
What is the difference
between an employee and
an independent contractor?
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UNIT FOUR: Agency and Employment Law
The relationship between a person or firm and an independent contractor may or may not
involve an agency relationship. To illustrate: A homeowner who hires a real estate broker to
sell the property has contracted with an independent contractor (the broker). The homeowner also has established an agency relationship with the broker for the specific purpose
of selling the property. Another example is an insurance agent, who is both an independent
contractor and an agent of the insurance company for which she or he sells policies. (Note
that an insurance broker, in contrast, normally is an agent of the person obtaining insurance
and not of the insurance company.)
Ethical Issue
Is it fair to classify Uber and Lyft drivers as independent
contractors? Uber services are available in about sixty countries
and over three hundred cities worldwide. Its main competitor, Lyft, operates in more than two hundred
U.S. cities. Drivers for Lyft, Uber, and similar companies present new challenges for a system of categorizing workers as employees or independent contractors. Drivers get to choose when and where
they work, but not how much they will be paid. They have no benefits and are not entitled to protections provided by employment law statutes. They must electronically accept the companies’ platform
terms to obtain work assignments. For them, employment is a take-it-or-leave-it proposition.
A number of former and current Uber and Lyft drivers have pursued legal remedies to change their
job classification and to obtain better benefits. In California, for instance, two federal court judges
allowed separate lawsuits to go before juries on the question of whether on-demand drivers should
be considered employees rather than independent contractors.2 In a similar case, rather than go to
court, Lyft settled a worker-misclassification lawsuit for $12.25 million.3 The settlement did not reclassify Lyft drivers as employees, however. Instead, Lyft agreed to change its terms of service to conform
to California’s regulations governing independent-contractor status. Even though the lawsuit and the
agreement were California based, the new terms of service will apply to all Lyft drivers nationwide.
27–1c Determining Employee Status
The courts are frequently asked to determine whether a particular worker is an employee
or an independent contractor. How a court decides this issue can have a significant effect
on the rights and liabilities of the parties. For instance, employers
are required to pay certain taxes, such as Social Security and unemployment insurance taxes, for employees but not for independent
contractors.
MikeDotta/Shutterstock.com
Criteria Used by the Courts In determining whether a worker has
Why would drivers working for Uber or Lyft want to be reclassified as employees?
the status of an employee or an independent contractor, the courts
often consider the following questions:
1. How much control can the employer exercise over the details of the
work? (If an employer can exercise considerable control over the details
of the work, this indicates employee status. The employer’s degree of
control is perhaps the most important factor weighed by the courts in
determining employee status.)
2. Is the worker engaged in an occupation or business distinct from that of
the employer? (If so, this points to independent-contractor status.)
2. Cotter v. Lyft, Inc., 60 F.Supp.3d 1067 (N.D.Cal. 2015); O’Connor v. Uber Technologies, Inc., et al., Case No. C-13-3826 EMC (N.D.Cal. 2015), and
201 F.Supp.3d 1110 (2016).
3. Cotter v. Lyft, Inc., 193 F.Supp.3d 1030 (N.D.Cal. 2016); and Cotter v. Lyft, Inc., 2017 WL 1033527 (N.D.Cal. 2017).
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4. Does the employer supply the tools at the place of work? (If so,
this indicates employee status.)
5. For how long is the person employed? (If the person is employed
for a long, continuous period, this indicates employee status.)
6. What is the method of payment—by time period or at the completion of the job? (Regular payment by time period, such as
once a month, indicates employee status.)
7. What degree of skill is required of the worker? (Independent
contractors are more likely to be highly skilled or to have unique
skills than to be unskilled, so these types of skills may indicate
independent-contractor status.)
Dean Vietor/The New Yorker Collection/The Cartoon Bank
3. Is the work usually done under the employer’s direction or by a
specialist without supervision? (If the work is usually done under
the employer’s direction, this indicates employee status.)
Sometimes, workers may benefit from having employee status—for tax purposes and to be
protected under certain employment laws, for instance. As mentioned earlier, federal statutes
governing employment discrimination apply only when an employer-employee relationship
exists. Protection under antidiscrimination statutes provides a significant incentive for workers to claim that they are employees rather than independent contractors.
An employer normally is not responsible for the actions of an independent contractor.
Case Example 27.1 AAA North Jersey, Inc., contracted with Five Star Auto Service to perform
towing and auto repair services for AAA. One night, Terence Pershad, a Five Star tow-truck
driver, responded to an AAA call for assistance by the driver of a car involved in an accident.
While at the scene, Pershad got into a fight with Nicholas Coker, a passenger in the disabled
car, and assaulted him with a knife.
Coker filed a suit against Pershad, Five Star, and AAA, alleging that AAA was responsible
for Pershad’s tortious conduct. The court ruled that Pershad was Five Star’s employee and
that Five Star was an independent contractor, not AAA’s employee. An appellate court
affirmed the ruling. Because AAA did not control Five Star’s work, it was not liable for a tort
committed by Five Star’s employee.4 ■
Criteria Used by the IRS The Internal Revenue Service (IRS) has established its own
criteria for determining whether a worker is an independent contractor or an employee. The
most important factor in this determination is the degree of control the business exercises
over the worker.
The IRS tends to closely scrutinize a firm’s classification of its workers because employers can avoid certain tax liabilities by hiring independent contractors instead of employees.
Even when a firm classifies a worker as an independent contractor, the IRS may decide that
the worker is actually an employee. If the IRS decides that an employee is misclassified, the
employer will be responsible for paying any applicable Social Security, withholding, and
unemployment taxes due for that employee.
Employee Status and “Works for Hire” Ordinarily, a person who creates a copyrighted
work is the owner of it—unless it is a “work for hire.” Under the Copyright Act, any copyrighted work created by an employee within the scope of her or his employment at the
request of the employer is a “work for hire.” The employer owns the copyright to the work.
In contrast, when an employer hires an independent contractor—a freelance artist, writer,
or computer programmer, for instance—the independent contractor normally owns the copyright. An exception is made if the parties agree in writing that the work is a “work for hire”
and the work falls into specified categories, including audiovisual and other works.
4. Coker v. Pershad, 2013 WL 1296271 (N.J.App. 2013).
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UNIT FOUR: Agency and Employment Law
New Africa/Shutterstock.com
Case Example 27.2 As a freelance (independent) contractor, Brian Cooley created two sculptures of dinosaur eggs for the National Geographic Society to use in connection with an
article in National Geographic magazine. Cooley spent hundreds of hours researching, designing, and constructing the sculptures. National Geographic hired Louis
Psihoyos to photograph Cooley’s sculptures for the article. Cooley and
Psihoyos had separate contracts with National Geographic in which
each transferred the copyrights in their works to National Geographic
for a limited time.
The rights to the works were returned to the artists at different
times after publication. Psihoyos then began licensing his photographs of Cooley’s sculptures to third parties in return for royalties.
He digitized the photographs and licensed them to various online
stock photography companies, and they appeared in several books
published by Penguin Group. Cooley sued Psihoyos for copyright
infringement. A federal district court held that Psihoyos did not have
an unrestricted right to use and license the photos. When Psihoyos
reproduced an image of a Cooley sculpture, he reproduced the sculpHow are copyrights on artwork and photographs affected
ture, which infringed on Cooley’s copyright. Therefore, the court
by a person’s employee status?
granted a summary judgment to Cooley.5 ■
27–2
Learning Objective 2
How do agency relationships
arise?
Formation of an Agency
Agency relationships normally are consensual. They come about by voluntary consent and
agreement between the parties. Normally, the agreement need not be in writing, and consideration is not required.
A person must have contractual capacity to be a principal. Those who cannot legally enter
into contracts directly generally are not allowed to do so indirectly through an agent. (In
some states, however, a minor can be a principal.) Any person can be an agent regardless of
whether he or she has the capacity to enter a contract (including minors).
An agency relationship can be created for any legal purpose. An agency relationship
that is created for an illegal purpose or that is contrary to public policy is unenforceable. Example 27.3 Sharp (as principal) contracts with McKenzie (as agent) to sell illegal
narcotics. The agency relationship here is unenforceable because selling illegal narcotics
is a felony and is contrary to public policy. ■ It is also illegal for physicians and other
licensed professionals to employ unlicensed agents to perform professional actions.
Generally, an agency relationship can arise in four ways: by agreement of the parties, by
ratification, by estoppel, or by operation of law.
27–2a Agency by Agreement
Most agency relationships are based on an express or implied agreement that the agent will
act for the principal and that the principal agrees to have the agent so act. An agency agreement can take the form of an express written contract or be created by an oral agreement,
such as when a person hires a neighbor to mow his lawn on a regular basis.
An agency agreement can also be implied by conduct.
Spotlight Case Example 27.4 Gilbert
Bishop was admitted to Laurel Creek Health Care Center suffering from various physical
ailments. During an examination, Bishop told Laurel Creek staff that he could not use his
hands well enough to write or hold a pencil, but he was otherwise found to be mentally competent. Bishop’s sister offered to sign the admissions forms, but it was Laurel Creek’s policy
to have the patient’s spouse sign the admissions papers if the patient was unable to do so.
5. Cooley v. Penguin Group (USA), Inc., 31 F.Supp.3d 599 (S.D.N.Y. 2014).
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Bishop’s sister then brought his wife, Anna, to the hospital to sign the paperwork,
which included a mandatory arbitration clause. Later, when the family filed a lawsuit
against Laurel Creek, the nursing home sought to enforce the arbitration clause.
Ultimately, a state appellate court held that Bishop was bound by the contract and the
arbitration clause his wife had signed. Bishop’s conduct had indicated that he was
giving his wife authority to act as his agent in signing the admissions papers.6 ■
On occasion, a person who is in fact not an agent (or who is an agent acting outside
the scope of her or his authority) may make a contract on behalf of another (a principal). If the principal affirms that contract by word or by action, an agency relationship
is created by ratification. Ratification involves a question of intent, and intent can be
expressed by either words or conduct. The basic requirements for ratification will be
discussed later in this chapter.
27–2c Agency by Estoppel
sshepard/Getty Images
27–2b Agency by Ratification
When a principal causes a third person to believe that another person is his or her
agent, and the third person deals with the supposed agent, the principal is “estopped
Can a new hospital patient designate
to deny” the agency relationship. In such a situation, the principal’s actions create the
someone else to sign all of the
appearance of an agency that does not in fact exist.
“paperwork”?
The third person must prove that she or he reasonably believed that an agency
relationship existed. Facts and circumstances must show that an ordinary, prudent person
familiar with business practice and custom would have been justified in concluding that the Ratification A party’s act of accepting or giving legal force to a contract
agent had authority.
or other obligation entered into on his
Note that the acts or declarations of a purported agent in and of themselves do not create or her behalf by another that previan agency by estoppel. Rather, it is the deeds or statements of the principal that create an ously was not enforceable.
agency by estoppel. The question in the following case was whether this exception applied
to a hospital whose emergency room physician was an independent contractor.
6. Laurel Creek Health Care Center v. Bishop, 2010 WL 985299 (Ky.App. 2010).
Case 27.1
Reidel v. Akron General Health System
Ohio Court of Appeals, Eighth District, 2018 -Ohio- 840, 97 N.E.3d 508 (2018).
Background and Facts Akron General Health System owns not liable because Kalapodis was not the hospital’s employee or
and operates health-care centers, including Lodi Community
Hospital, in Ohio. Aaron Reidel was experiencing severe back
pain when he visited the emergency room at Lodi. Attending physician Chris Kalapodis failed to timely diagnose the problem—a
spinal epidural abscess—in spite of the presence of an active
methicillin-resistant staphylococcus aureus (MRSA) infection.
Reidel filed a suit in an Ohio state court against the hospital,
alleging that the physician’s negligence was the proximate cause
of Reidel’s subsequent paraplegia and seeking to recover medical expenses and the cost of future care. Lodi argued that it was
agent. Based on the findings of a jury, the court ordered an award
of damages to Reidel of $5.2 million. Lodi appealed.
In the Words of the Court
Anita Laster MAYS, J. [Judge]:
****
* * * A hospital may be held liable under the doctrine of agency
by estoppel for the negligence of independent medical practitioners
practicing in the hospital if it holds itself out to the public as a provider of medical services and in the absence of notice or knowledge
(Continues)
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UNIT FOUR: Agency and Employment Law
to the contrary, the patient looks to the hospital, as opposed to the
individual practitioner, to provide competent medical care.
Lodi argues that both prongs of the requirements must be met
and that the evidence was insufficient to meet the second prong
of the test because Riedel did not testify that he “looked to the
hospital, as opposed to the individual practitioner, to provide competent medical care” and that he admitted that he was “going to
be treated by a doctor” upon his arrival at the hospital.
The emergency room has become the community medical
center, serving as the portal of entry to the myriad of services
available at the hospital. As an industry, hospitals spend enormous
amounts of money advertising in an effort to compete with each
other for the health care dollar, thereby inducing the public to rely
on them in their time of medical need. The public, in looking to the
hospital to provide such care, is unaware of and unconcerned with
the technical complexities and nuances surrounding the contractual and employment arrangements between the hospital and the
various medical personnel operating therein. Indeed, often the very
nature of a medical emergency precludes choice. Public policy dictates that the public has every right to assume and expect that the
hospital is the medical provider it purports to be. [Emphasis added.]
****
Unless the patient merely viewed the hospital as the situs
where [his] physician would treat [him], [he] had the right to
assume and expect that the treatment was being rendered through
hospital employees and that any negligence associated therewith
would render the hospital liable.
There is no evidence in the record that Riedel had a doctorpatient relationship with Dr. Kalapodis prior to the Lodi emergency
room encounter. Riedel testified that Lodi was close to his daughters’ home and he was seeking emergency medical care. Riedel
had no information that Dr. Kalapodis was not directly employed
by Lodi. We agree with [Reidel] that it is hardly unusual for a person seeking emergency medical care to expect to be treated by a
physician employed by a hospital.
Decision and Remedy A state intermediate appellate court
affirmed the order of the trial court. The court stated, “The record
contains substantial competent evidence to support the jury’s finding of liability by estoppel.” As for the remedy, the amount of the
damages fell within the range of estimates in expert analyses
submitted by the parties supporting the cost of the life care plan
for Riedel’s permanent disability.
Critical Thinking
tLegal Environment An unconscious individual transported
to a hospital would be unable to demonstrate that he or she was
seeking care from the hospital and not a particular physician.
Would the public policy considerations stated in the Reidel case
apply? Why or why not?
tWhat If the Facts Were Different? Suppose that a sign
had been posted in the Lodi emergency room spelling out the legal
relationship between the hospital and the attending physician.
Would the result have been different? Explain.
27–2d Agency by Operation of Law
The courts may find an agency relationship in the absence of a formal agreement in other
situations as well. This can occur in family relationships, such as when one spouse purchases
certain necessaries and charges them to the other spouse’s account. The courts will often
rule that a spouse is liable for necessaries purchased by the other spouse because of either a
social policy or a legal duty to supply necessaries to family members.
Agency by operation of law may also occur in emergency situations. If the agent is unable to
contact the principal and failure to act would cause the principal substantial loss, the agent may
take steps beyond the scope of her or his authority. For instance, a railroad engineer may contract on behalf of her or his employer for medical care for an injured motorist hit by the train.
Duties of Agents and Principals
Learning Objective 3
27–3
What duties do agents and
principals owe to each
other?
Once the principal-agent relationship has been created, both parties have duties that govern
their conduct. Because an agency relationship is fiduciary (one of trust), each party owes the
other the duty to act with the utmost good faith. In general, for every duty of the principal,
the agent has a corresponding right, and vice versa.
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CHAPTER 27: Agency Relationships in Business
27–3a Agent’s Duties to the Principal
Generally, the agent owes the principal five duties—performance, notification, loyalty,
obedience, and accounting (see Exhibit 27–1).
Performance An implied condition in every agency contract is the agent’s agreement to use
reasonable diligence and skill in performing the work. When an agent fails to perform her
or his duties, liability for breach of contract may result. The degree of skill or care required
of an agent is usually that expected of a reasonable person under similar circumstances.
Generally, this is interpreted to mean ordinary care. If an agent has claimed to possess special
skill, however, failure to exercise that degree of skill constitutes a breach of the agent’s duty.
Not all agency relationships are based on contract. In some situations, an agent acts
gratuitously—that is, not for monetary compensation. A gratuitous agent cannot be liable for
breach of contract, as there is no contract, but he or she can be subject to tort liability. Once
a gratuitous agent has begun to act in an agency capacity, he or she has the duty to continue
to perform in that capacity. In addition, a gratuitous agent must perform in an acceptable
manner and is subject to the same standards of care and duty to perform as other agents.
Example 27.5 Bryan’s friend Alice is a real estate broker. Alice offers to sell Bryan’s vacation
home at no charge. If Alice never attempts to sell the home, Bryan has no legal cause of action
to force her to do so. If Alice does attempt to sell the home, but then performs
so negligently that the sale falls through, Bryan can sue Alice for negligence. ■
“If God had an agent,
the world wouldn’t be
built yet. It’d only be
about Thursday.”
Jerry Reynolds
1944–present
(National Basketball Association
executive)
come to her or his attention concerning the subject matter of the agency.
This is the duty of notification, or the duty to inform. Example 27.6 Lang, an
artist, is about to negotiate a contract to sell a series of paintings to Barber’s
Art Gallery for $25,000. Lang’s agent learns that Barber is insolvent and will
be unable to pay for the paintings. The agent has a duty to inform Lang of
this fact because it is relevant to the subject matter of the agency—the sale of
Lang’s paintings ■
Generally, the law assumes that the principal knows of any information
acquired by the agent that is relevant to the agency—regardless of whether
the agent actually passes on this information to the principal. It is a basic
tenet of agency law that notice to the agent is notice to the principal.
Steve Debenport/Getty Images
Notification An agent is required to notify the principal of all matters that
If a friend who is a licensed real estate broker
agrees to sell your house at no charge, can you sue
for nonperformance?
Exhibit 27–1 Duties of the Agent
Duties of the Agent
Performance
Notification
Loyalty
Obedience
Accounting
Agent must use
reasonable diligence
and skill when
performing duties.
Agent is required to
notify the principal
of all matters that
concern the subject
of the agency.
Agent has a duty to
act solely for the
principal’s benefit.
Agent must follow
all lawful and stated
instructions from
the principal.
Agent must provide
records of all property
and funds received
or paid out on the
principal’s behalf.
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UNIT FOUR: Agency and Employment Law
Know This
Loyalty Loyalty is one of the most fundamental duties in a fiduciary relationship. Basically,
An agent’s disclosure of
confidential information
could constitute the business tort of misappropriation of trade secrets.
the agent has the duty to act solely for the benefit of the principal and not in the interest of
the agent or a third party. For instance, an agent cannot represent two principals in the same
transaction unless both know of the dual capacity and consent to it.
The duty of loyalty also means that any information or knowledge acquired through the
agency relationship is considered confidential. It would be a breach of loyalty to disclose such
information either during the agency relationship or after its termination. Typical examples
of confidential information are trade secrets and customer lists compiled by the principal.
In short, the agent’s loyalty must be undivided. The agent’s actions must be strictly for the
benefit of the principal and must not result in any secret profit for the agent. Example 27.7 Don
contracts with Leo, a real estate agent, to negotiate the purchase of an office building. Leo
discovers that the property owner will sell the building only as a package deal with another
parcel, so he buys the two properties, intending to resell the building to Don. Leo has breached
his fiduciary duty. As a real estate agent, Leo has a duty to communicate all offers to his principal and not to purchase the property secretly and then resell it to his principal. Leo is required
to act in Don’s best interests and can become the purchaser in this situation only with Don’s
knowledge and approval. ■
In the following case, an employer alleged that a former employee had breached his duty
of loyalty by planning a competing business while still working for the employer.
Spotlight on Taser International: Case 27.2
Taser International, Inc. v. Ward
Court of Appeals of Arizona, Division 1, 224 Ariz. 389, 231 P.3d 921 (2010).
Background and Facts Taser International, Inc., develops
and makes electronic control devices—stun guns—as well as
accessories for them, including a personal video and audio recording device called the TASER CAM.
Steve Ward was Taser’s vice president of marketing when
he began to explore the possibility of developing and marketing
devices of his own design, including a clip-on camera. Ward talked
to patent attorneys and a product development company and completed most of a business plan.
After he resigned from Taser, Ward formed Vievu, LLC, to market
his clip-on camera. Ten months later, Taser announced the AXON, a
product that provides an audio-video record of an incident from the
visual perspective of the person involved. Taser then filed a suit in
an Arizona state court against Ward, alleging that he had breached
his duty of loyalty to Taser. The court granted Taser’s motion for a
summary judgment in the employer’s favor. Ward appealed.
In the Words of the Court
PORTLEY, Judge.
****
* * * An agent is under the duty to act with entire good faith
and loyalty for the furtherance of the interests of his principal in all
matters concerning or affecting the subject of his agency.
30301_ch27_hr_637-665.indd 646
One aspect of this broad principle is that an employee is precluded from actively competing with his or her employer during
the period of employment.
Although an employee may not compete prior to termination,
the employee may take action during employment, not otherwise
wrongful, to prepare for competition following termination of the
agency relationship. Preparation cannot take the form of acts in
direct competition with the employer’s business. [Emphasis added.]
****
It is undisputed that, prior to his resignation, Ward did not
solicit or recruit any Taser employees, distributors, customers, or
vendors; he did not buy, sell, or incorporate any business; he did
not acquire office space or other general business services; he
did not contact or enter into any agreements with suppliers or
manufacturers for his proposed clip-on camera; and he did not
sell any products. However, Ward did begin developing a business
plan, counseled with several attorneys, explored and abandoned
the concept of an eyeglass-mounted camera device, and engaged,
to some extent, in the exploration and development of a clip-on
camera device.
Ward argues that his pre-termination activities did not constitute active competition but were merely lawful preparation for
a future business venture. Taser contends, however, that “this
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CHAPTER 27: Agency Relationships in Business
case is * * * about developing a rival design during employment,
knowing full well TASER has sold such a device and continues to
develop a second-generation product.”
****
* * * Assuming Taser was engaged in the research and development of a recording device during Ward’s employment, assuming
Ward knew or should have known of those efforts, and assuming Taser’s device would compete with Ward’s concept, substantial design and development efforts by Ward during his
employment would constitute direct competition with the business activities of Taser and would violate his duty of loyalty. In the
context of a business which engages in research, design, development, manufacture, and marketing of products, we cannot limit
“competition” to just actual sales of competing products.
Decision and Remedy A state intermediate appellate court agreed with Taser that an employee might not
647
actively compete with his employer before his employment
is terminated. But the parties disputed the extent of Ward’s
pre-termination efforts, creating a genuine issue of material
fact that could not be resolved on a motion for summary
judgment. The appellate court thus reversed the lower court’s
decision in Taser’s favor and remanded the case for further
proceedings.
Critical Thinking
tLegal Environment Did Ward breach any duties owed to his
employer in addition to his alleged breach of the duty of loyalty?
Discuss.
t What If the Facts Were Different? Suppose that Ward’s
pre-termination activities focused on a product that was not
designed to compete with Taser’s products. Would these efforts
have breached the duty of loyalty? Why or why not?
Obedience When acting on behalf of a principal, an agent has a duty to follow all lawful
and clearly stated instructions of the principal. Any deviation from such instructions is a
violation of this duty. During emergency situations, however, when the principal cannot be
consulted, the agent may deviate from the instructions without violating this duty. Whenever instructions are not clearly stated, the agent can fulfill the duty of obedience by acting
in good faith and in a manner reasonable under the circumstances.
Accounting Unless an agent and a principal agree otherwise, the agent has the duty to keep
and make available to the principal an account of all property and funds received and paid out
on behalf of the principal. This includes gifts from third parties in connection with the agency.
Example 27.8 Marta is a salesperson for Roadway Supplies. Knife River Construction gives
Marta a new tablet as a gift for prompt deliveries of Roadway’s paving materials. The tablet
belongs to Roadway. ■ The agent has a duty to maintain separate accounts for the principal’s funds and for the agent’s personal funds, and the agent must not intermingle these
accounts.
27–3b Principal’s Duties to the Agent
The principal also owes certain duties to the agent (as shown in Exhibit 27–2). These duties
relate to compensation, reimbursement and indemnification, cooperation, and safe working
conditions.
Compensation In general, when a principal requests services from an agent, the agent
reasonably expects payment. The principal therefore has a duty to pay the agent for services
rendered. For instance, when an accountant or an attorney is asked to act as an agent, an
agreement to compensate the agent for service is implied. The principal also has a duty to
pay that compensation in a timely manner.
Unless the agency is gratuitous and the agent does not act in exchange for payment, the
principal must pay the agreed-on value for the agent’s services. If no amount has been expressly
agreed on, the principal owes the agent the customary compensation for such services.
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UNIT FOUR: Agency and Employment Law
Exhibit 27–2 Duties of the Principal
Duties of the Principal
Compensation
Reimbursement and
Indemnification
Cooperation
Safe Working
Conditions
Principal must pay the
agreed-on (or reasonable)
value for the agent’s
services.
Principal must reimburse
the agent for any funds
paid out at the principal’s
request, as well as for
necessary expenses.
Principal must cooperate
with and assist an agent
in performing his or
her duties.
Principal must provide a
safe working environment
for agents and employees.
ESB Professional/Shutterstock.com
Case Example 27.9 Keith Miller worked as a sales representative for Paul M. Wolff Company,
a subcontractor specializing in concrete finishing services. Sales representatives at Wolff are
paid a 15 percent commission on projects that meet a 35 percent gross profit threshold. The
commission is paid after the projects are completed. When Miller resigned, he asked for
commissions on fourteen projects for which he had secured contracts but which had not yet
been completed. Wolff refused, so Miller sued.
The court found that “an agent is entitled to receive commissions on sales that result from
the agent’s efforts,” even after the employment or agency relationship ends. Miller had met
the gross profit threshold on ten of the unfinished projects, and therefore he was entitled to
more than $21,000 in commissions.7 ■
A salesperson works for commission based on concretefinishing services sold. If that salesperson quits, is she or
he still entitled to commissions owed on previous sales?
Reimbursement and Indemnification Whenever an agent disburses funds at the request of the principal, the principal has the duty
to reimburse the agent. The principal must also reimburse the agent
for any necessary expenses incurred in the court of the reasonable
performance of agency duties. Agents cannot recover for expenses
incurred through their own misconduct or negligence, however.
Subject to the terms of the agency agreement, the principal has
the duty to compensate, or indemnify, an agent for liabilities incurred
because of authorized acts and transactions. For instance, if the principal fails to perform a contract formed by the agent with a third party
and the third party then sues the agent, the principal must compensate
the agent for any costs incurred in defending against the lawsuit.
Additionally, the principal must indemnify the agent for the value
of benefits that the agent confers on the principal. The amount of
indemnification is usually specified in the agency contract. If it is
not, the courts will look to the nature of the benefits and the type
of expenses to determine the amount. Note that this rule applies
to acts by gratuitous agents as well. Suppose that a person finds a
dog that becomes sick, takes the dog to a veterinarian, and pays
7. Miller v. Paul M. Wolff Co., 178 Wash.App. 957, 316 P.3d 1113 (2014).
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CHAPTER 27: Agency Relationships in Business
for the veterinarian’s services. The finder is a gratuitous agent and is entitled to be reimbursed
by the dog’s owner for those costs.
Cooperation A principal has a duty to cooperate with the agent and to assist the agent in
performing her or his duties. The principal must do nothing to prevent that performance.
When a principal grants an agent an exclusive territory, for instance, the principal creates
an exclusive agency and cannot compete with the agent or assign or allow another agent to
compete. If the principal does so, he or she violates the exclusive agency and can be held
liable for the agent’s lost profits.
Example 27.10 Penny (the principal) creates an exclusive agency by granting Andrew
(the agent) an exclusive territory within which Andrew may sell Penny’s organic skin
care products. If Penny starts to sell the products herself within Andrew’s territory—or
permits another agent to do so—Penny has failed to cooperate with the agent. Because
she has violated the exclusive agency, Penny can be held liable for Andrew’s lost sales
or profits. ■
“Let every eye negotiate
for itself and trust no
agent.”
William Shakespeare
1546–1616
(English poet and playwright)
Safe Working Conditions A principal is required to provide safe working premises,
equipment, and conditions for all agents and employees. The principal has a duty to inspect
the working conditions and to warn agents and employees about any hazards. When the
agent is an employee, the employer’s liability is frequently covered by state workers’ compensation insurance, and federal and state statutes often require the employer to meet
certain safety standards.
27–4
Agent’s Authority
An agent’s authority to act can be either actual (express or implied) or apparent. If an agent
contracts outside the scope of his or her authority, the principal may still become liable by
ratifying the contract.
27–4a Express Authority
Express authority is actual authority declared in clear, direct, and definite terms. Express
authority can be given orally or in writing.
Equal Dignity Rule In most states, the equal dignity rule requires that if the contract
being executed is or must be in writing, then the agent’s authority must also be in writing.
Failure to comply with the equal dignity rule can make a contract voidable at the option of
the principal. The law regards the contract at that point as a mere offer. If the principal
decides to accept the offer, the agent’s authority must be ratified, or affirmed, in writing.
Example 27.11 Parker (the principal) orally asks Austin (the agent) to sell a ranch that
Parker owns. Austin finds a buyer and signs a sales contract on behalf of Parker to sell the
ranch. Because a contract for an interest in realty must be in writing, the equal dignity rule
applies here. Thus, the buyer cannot enforce the contract unless Parker subsequently ratifies
Austin’s agency status in writing. Once Austin’s agency status is ratified, either party can
enforce rights under the contract. ■
Modern business practice allows several exceptions to the equal dignity rule. An executive officer of a corporation normally is not required to obtain written authority from
the corporation to conduct ordinary business transactions. The equal dignity rule also
does not apply when an agent acts in the presence of a principal or when the agent’s act
of signing is merely a formality. Thus, if the principal negotiates a contract but is called
out of town the day it is to be signed and orally authorizes his or her assistant to act as
agent to sign the contract, the oral authorization is sufficient.
30301_ch27_hr_637-665.indd 649
Equal Dignity Rule A rule requiring
that an agent’s authority be in writing
if the contract to be made on behalf
of the principal must be in writing.
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UNIT FOUR: Agency and Employment Law
Power of Attorney Authorization
for another to act as one’s agent or
attorney either in specified circumstances (special) or in all situations
(general).
Power of Attorney Giving an agent a power of attorney confers express authority on the
Notary Public A public official
authorized to attest to the authenticity
of signatures.
agent.8 The power of attorney is a written document that is usually notarized. (A document
is notarized when a notary public—a person authorized by the state to attest to the authenticity of signatures—signs and dates the document and imprints it with his or her seal of
authority.) Most states have statutory provisions for creating a power of attorney.
A power of attorney can be special (permitting the agent to do specified acts only), or it
can be general (permitting the agent to transact all business for the principal). Because a
general power of attorney grants extensive authority to an agent to act on behalf of the principal in many ways, it should be used with great caution. Ordinarily, a power of attorney
terminates on the incapacity or death of the person giving the power.9
27–4b Implied Authority
An agent has the implied authority to do what is reasonably necessary to carry out his or her
express authority and accomplish the objectives of the agency. Actual authority can also be
implied by custom or inferred from the position the agent occupies.
Example 27.12 Adam is employed by Pete’s Supermarket to manage one of its stores. Pete’s
has not expressly stated that Adam has authority to contract with third persons. Nevertheless, authority to manage a business implies authority to do what is reasonably required
(as is customary or can be inferred from a manager’s position) to operate the business. It is
reasonable to infer that Adam has the authority to form contracts to hire employees, to buy
merchandise and equipment, and to advertise the products sold in the store. ■
27–4c Apparent Authority
Apparent Authority Authority that
is only apparent, not real. An agent’s
apparent authority arises when the
principal causes a third party to
believe that the agent has authority,
even though she or he does not.
Learning Objective 4
How does a person acquire
apparent authority to act as
someone’s agent?
Actual authority (express or implied) arises from what the principal manifests to the agent.
An agent has apparent authority when the principal, by either words or actions, causes a third
party to reasonably believe that an agent has authority to act, even though the agent has no
express or implied authority. If the third party changes his or her position in reliance on the
principal’s representations, the principal may be estopped (prevented) from denying that
the agent had authority.
Apparent authority usually comes into existence through a principal’s pattern of conduct over time.
Spotlight Case Example 27.13 Gilbert Church owned Church Farm, Inc., a
horse breeding farm in Illinois managed by Herb Bagley. Church Farm’s advertisements for
the breeding rights to one of its stallions, Imperial Guard, directed all inquiries to “Herb
Bagley, Manager.” Vern and Gail Lundberg contacted Bagley and executed a preprinted contract giving them breeding rights to Imperial Guard “at Imperial Guard’s location.” Bagley
handwrote a statement on the contract that guaranteed the Lundbergs “six live foals in the
first two years.” He then signed it “Gilbert G. Church by H. Bagley.”
The Lundbergs bred four mares, which resulted in one live foal. Church then moved Imperial Guard from Illinois to Oklahoma. The Lundbergs sued Church for breaching the contract
by moving the horse. Church claimed that Bagley was not authorized to sign contracts for
Church or to change or add terms, but only to present preprinted contracts to potential
buyers. The jury found in favor of the Lundbergs and awarded $147,000 in damages. A state
appellate court affirmed. Church was bound by Bagley’s actions because Church had allowed
circumstances to lead the Lundbergs to believe Bagley had the authority. In other words,
Bagley had apparent authority to modify and execute the contract on behalf of Church.10 ■
8. An agent who holds the power of attorney is called an attorney-in-fact for the principal. The holder does not have to be an attorney-at-law
(and often is not).
9. A durable power of attorney, however, continues to be effective despite the principal’s incapacity. An elderly person, for example, might grant
a durable power of attorney to provide for the handling of property and investments or specific health-care needs should she or he become
incompetent.
10. Lundberg v. Church Farm, Inc., 502 N.E.2d 806, 151 Ill.App.3d (1986).
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CHAPTER 27: Agency Relationships in Business
Sometimes, an unforeseen emergency demands action by the agent to protect or preserve the
principal’s property or rights, but the agent is unable to communicate with the principal. In
that situation, the agent has emergency power. Example 27.14 Rob Fulsom is an engineer for
Pacific Drilling Company. While Fulsom is acting within the scope of his employment, he is
severely injured in an accident on an oil rig many miles from home. Acosta, the rig supervisor, directs Thompson, a physician, to give medical aid to Fulsom and to charge Pacific for
the medical services.
Acosta, an agent, has no express or implied authority to bind the principal, Pacific Drilling, for Thompson’s medical services. Because of the emergency situation, however, the law
recognizes Acosta as having authority to act appropriately under the circumstances. ■
27–4e Ratification
Ratification occurs when the principal affirms an agent’s unauthorized act. When ratification
occurs, the principal is bound to the agent’s act, and the act is treated as if it had been authorized by the principal from the outset. Ratification can be either express or implied.
If the principal does not ratify the contract, the principal is not bound, and the third
party’s agreement with the agent is viewed as merely an unaccepted offer. Because the
third party’s agreement is an unaccepted offer, the third party can revoke the offer at any
time, without liability, before the principal ratifies the contract.
The requirements for ratification can be summarized as follows:
1. The agent must have acted on behalf of an identified principal who subsequently ratifies the action.
2. The principal must know of all material facts involved in the transaction. If a principal ratifies a contract without knowing all of the facts, the principal can rescind (cancel) the contract.
3. The principal must affirm the agent’s act in its entirety.
4. The principal must have the legal capacity to authorize the transaction at the time the agent engages
in the act and at the time the principal ratifies. The third party must also have the legal capacity to
engage in the transaction.
Somogyvari/E+/Getty Images
27–4d Emergency Powers
Can the manager of a horsebreeding farm make guarantees
about foals on the owner’s
behalf?
Know This
An agent who exceeds
his or her authority
and enters into a contract that the principal
does not ratify may
be liable to the third
party on the ground of
misrepresentation.
5. The principal’s affirmation (ratification) must occur before the third party withdraws from the transaction.
6. The principal must observe the same formalities when approving the act done by the agent as would
have been required to authorize it initially.
27–5
Liability in Agency Relationships
Frequently, a question arises as to which party, the principal or the agent, should be held
liable for contracts formed by the agent or for torts or crimes committed by the agent. We
look here at these aspects of agency law.
27–5a Liability for Contracts
Liability for contracts formed by an agent depends on how the principal is classified and on
whether the actions of the agent were authorized or unauthorized. Principals are classified
as disclosed, partially disclosed, or undisclosed.11
A disclosed principal is a principal whose identity is known by the third party at the time
the contract is made by the agent. A partially disclosed principal is a principal whose identity
is not known by the third party, but the third party knows that the agent is or may be acting
for a principal at the time the contract is made. Example 27.15 Sarah has contracted with a real
11. Restatement (Third) of Agency, Section 1.04(2).
30301_ch27_hr_637-665.indd 651
Disclosed Principal A principal
whose identity is known to a third
party at the time the agent makes a
contract with the third party.
Partially Disclosed Principal A
principal whose identity is unknown
by a third party, but the third party
knows that the agent is or may be
acting for a principal at the time
the agent and the third party form a
contract.
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Undisclosed Principal A principal
whose identity is unknown by a third
party, and the third party has no
knowledge that the agent is acting for
a principal at the time the agent and
the third party form a contract.
UNIT FOUR: Agency and Employment Law
estate agent to sell certain property. She wishes to keep her identity a secret, but the agent
makes it clear to potential buyers of the property that the agent is acting in an agency
capacity. In this situation, Sarah is a partially disclosed principal. ■ An undisclosed principal
is a principal whose identity is totally unknown by the third party, and the third party
has no knowledge that the agent is acting in an agency capacity at the time the contract
is made.
Authorized Acts If an agent acts within the scope of her or his authority, normally the
principal is obligated to perform the contract regardless of whether the principal was disclosed, partially disclosed, or undisclosed. Whether the agent may also be held liable under
the contract, however, depends on the status of the principal.
Disclosed or Partially Disclosed Principal. A disclosed or partially disclosed principal is
liable to a third party for a contract made by an agent who is acting within the scope of her
or his authority. (See this chapter’s Business Law Analysis feature for illustration.) If the
principal is disclosed, an agent has no contractual liability for the nonperformance of
the principal or the third party. If the principal is partially disclosed, in most states the agent
is also treated as a party to the contract, and the third party can hold the agent liable for
contractual nonperformance.12
Case Example 27.16 Stonhard, Inc., makes epoxy and urethane flooring and installs it in
industrial and commercial buildings. Marvin Sussman contracted with Stonhard to install
flooring at a Blue Ridge Farms food-manufacturing facility in Brooklyn, New York. Sussman
did not disclose at that time that he was acting as an agent for the facility’s owner, Blue Ridge
Foods, LLC.
12. Restatement (Third) of Agency, Section 6.02.
Liability of Disclosed Principals
T
o display desserts in restaurants,
Mario Sclafani ordered refrigeration
units from Felix Storch, Inc. Felix faxed a
credit application to Sclafani. The application was faxed back with a signature
that appeared to be Sclafani’s. Felix delivered the units, but Sclafani did not pay for
them. Felix sued Sclafani to collect, but
Sclafani denied that he saw the credit
application or signed it. Sclafani claimed
that he referred all credit questions to “the
woman in the office.” Who was liable on
the contract?
principal and “the woman in the office”
was his agent. Who is liable for contracts
formed by an agent depends on how the
principal is classified and on whether
the actions of the agent were authorized.
If the agent acts within the scope of
authority, normally the principal is obligated to perform the contract. If the principal is disclosed—that is, if the principal’s
identity is known by the third party at
the time the contract is made—the agent
has no contractual liability for the principal’s nonperformance.
Analysis: First, you need to identify Result and Reasoning: Sclafani
the agent and the principal. In this situation, with respect to the refrigeration-unit
contract with Felix, Sclafani was the
30301_ch27_hr_637-665.indd 652
referred all credit questions to “the
woman in the office.” Sclafani’s referral of
credit matters to this woman established
Business Law
Analysis
that she was his agent. He gave her the
authority to enter into legally binding credit
contracts on his behalf. Thus, if Sclafani
or “the woman in the office” signed Felix’s
credit application to guarantee payment,
Sclafani is bound to the contract. Sclafani
was a disclosed principal—Felix knew his
identity at the time the contract was made.
Therefore, Sclafani is liable on the contract
and his agent is not.
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When Stonhard was not paid for the installed flooring, it filed a suit against the Blue Ridge
Farms facility, its owner, and Sussman to recover damages for breach of contract. The lower
court dismissed the complaint against Sussman personally, but on appeal a reviewing court
reversed that decision. The contract had been signed by Sussman “of Blue Ridge Farms.”
That evidence indicated that Sussman was acting as an agent for a partially disclosed principal, in that the agency relationship was known, but not the principal’s identity. As an agent
for a partially disclosed principal, Sussman became personally liable under the contract.13 ■
Undisclosed Principal. Sometimes, neither the fact of agency nor the identity of the
principal is disclosed, and the agent is acting within the scope of his or her authority. In this
situation, the undisclosed principal is bound to perform just as if the principal had been fully
disclosed at the time the contract was made.
The agent is also liable as a party to the contract. When a principal’s identity is undisclosed
and the agent is forced to pay the third party, however, the agent is entitled to be indemnified
(compensated) by the principal. The principal had a duty to perform, even though his or
her identity was undisclosed, and failure to do so will make the principal ultimately liable.
Once the undisclosed principal’s identity is revealed, the third party generally can elect
to hold either the principal or the agent liable on the contract. At the same time, the undisclosed principal can require the third party to fulfill the contract, except under any of the
following circumstances:
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CHAPTER 27: Agency Relationships in Business
Is an agent for a partially disclosed principal liable when the
installer of food-plant flooring is
not paid?
1. The undisclosed principal was expressly excluded as a party in the contract.
2. The contract is a negotiable instrument signed by the agent with no indication of signing in a representative capacity.
3. The performance of the agent is personal to the contract, allowing the third party to refuse the principal’s performance.
Unauthorized Acts If an agent has no authority but nevertheless contracts with a third
party, the principal cannot be held liable on the contract. It does not matter whether the
principal was disclosed, partially disclosed, or undisclosed.
In general, the agent is liable on the contract. Example 27.17 Scranton signs a contract for
the purchase of a truck, purportedly acting as an agent under authority granted by Johnson.
In fact, Johnson has not given Scranton any such authority. Johnson refuses to pay for the
truck, claiming that Scranton had no authority to purchase it. The seller of the truck is entitled to hold Scranton liable for payment. ■
If the principal is disclosed or partially disclosed, the agent is liable to the third party only
if the third party relied on the agency status. The agent’s liability here is based on the breach
of an implied warranty of authority, not on the breach of contract itself.14 If the third party
knows at the time the contract is made that the agent does not have authority—or if the
agent expresses to the third party uncertainty as to the extent of her or his authority—then
the agent is not personally liable.
27–5b Liability for Torts and Crimes
Obviously, any person, including an agent, is liable for her or his own torts and crimes.
Whether a principal can also be held liable for an agent’s torts and crimes depends on several
factors. In some situations, a principal may be held liable for the torts of an agent.
Principal’s Tortious Conduct A principal conducting an activity through an agent may
be liable for harm resulting from the principal’s own negligence or recklessness. Thus, a principal may be liable for giving improper instructions, authorizing the use of improper materials or tools, or establishing improper rules that resulted in the agent’s committing a tort.
Know This
An agent who signs a
negotiable instrument
on behalf of a principal
may be personally liable
on the instrument. Liability depends, in part,
on whether the identity
of the principal is disclosed and whether the
parties intend the agent
to be bound by her or his
signature.
13. Stonhard, Inc. v. Blue Ridge Farms, LLC, 114 A.D.3d 757, 980 N.Y.S.2d 507 (2 Dept. 2014).
14. The agent is not liable on the contract because the agent was never intended personally to be a party to the contract.
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Example 27.18 Paul knows that Audra is not qualified to drive large trucks. Paul nevertheless tells her to use the company truck to deliver some equipment to a customer. If Audra
causes an accident that injures someone, Paul (the principal) will be liable for his own negligence in giving improper instructions to Audra. ■
TDKvisuals/Shutterstock.com
Principal’s Authorization of Agent’s Tortious Conduct A principal who authorizes an
agent to commit a tort may be liable to persons or property injured thereby, because the act
is considered to be the principal’s. Example 27.19 Preston directs his agent, Ames, to cut the
corn on specific acreage, which neither of them has the right to do. The harvest is therefore
a trespass (a tort), and Preston is liable to the owner of the corn. ■
Note also that an agent acting at the principal’s direction can be
liable as a tortfeasor (one who commits a tort), along with the principal, for committing the tortious act even if the agent was unaware
of the wrongfulness of the act. Assume in Example 27.19 that Ames,
the agent, was unaware that Preston had no right to harvest the corn.
Ames can nevertheless be held liable to the owner of the field for
damages, along with Preston.
Liability for Agent’s Misrepresentation A principal is exposed
to tort liability whenever a third person sustains a loss due to the
agent’s misrepresentation. The principal’s liability depends on
whether the agent was actually or apparently authorized to make
A principal instructs an agent to harvest corn on land that
representations and whether the representations were made within
the principal does not own. Is the agent liable to the legal
owner of the land?
the scope of the agency. The principal is always directly responsible
for an agent’s misrepresentation made within the scope of the agent’s
authority.
Example 27.20 Arnett is a demonstrator for Moore’s products. Moore sends Bassett to
a home show to demonstrate the products and to answer questions from consumers.
Moore has given Arnett authority to make statements about the products. If Arnett makes
only true representations, all is fine, but if she makes false claims, Moore will be liable for any injuries or damages sustained by third parties in reliance on Arnett’s false
representations. ■
Learning Objective 5
When is a principal liable for
an agent’s negligence?
Respondeat Superior A doc-
trine under which a principal or
an employer is held liable for the
wrongful acts committed by agents
or employees while acting within the
course and scope of their agency or
employment.
Vicarious Liability Indirect liability
imposed on a supervisory party (such
as an employer) for the actions of a
subordinate (such as an employee)
because of the relationship between
the two parties.
Liability for Agent’s Negligence A principal may also be liable for harm an agent caused
to a third party under the doctrine of respondeat superior,15 a Latin term meaning “let the
master respond.” This doctrine, which is discussed in this chapter’s Landmark in the Law
feature, is similar to the theory of strict liability. It imposes vicarious liability, or indirect liability, on the employer—that is, liability without regard to the personal fault of the employer—
for torts committed by an employee in the course or scope of employment.
When an agent commits a negligent act, both the agent and the principal are liable.
Example 27.21 BDI Communications hires Pinnacle to provide landscaping services for its
property. An herbicide sprayed by Pinnacle employee David Hoggatt enters BDI’s building
through the air-conditioning system and caused Catherine Warner, an BDI employee, to suffer
a heart attack. If Warner sues, both Pinnacle (principal) and Hoggatt (agent) can be held liable
for negligence. As Pinnacle’s agent, Hoggatt is not excused from responsibility for tortious
conduct just because he is working for a principal. ■
Determining the Scope of Employment. The key to determining whether a principal
may be liable for an agent’s torts under the doctrine of respondeat superior is whether
the torts are committed within the scope of employment. In determining whether a
15. Pronounced ree-spahn-dee-uht soo-peer-ee-uhr.
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particular act occurred within the course and scope of employment, the courts consider
the following factors:
1. Whether the employee’s act was authorized by the employer.
2. The time, place, and purpose of the act.
3. Whether the act was one commonly performed by employees on behalf of their employers.
4. The extent to which the employer’s interest was advanced by the act.
5. The extent to which the private interests of the employee were involved.
6. Whether the employer furnished the means or instrumentality (for instance, a truck or a machine) by
which the injury was inflicted.
7. Whether the employer had reason to know that the employee would do the act in question
and whether the employee had ever done it before.
8. Whether the act involved the commission of a serious crime.
The Distinction between a “Detour” and a “Frolic.” A useful insight into the “scope of
employment” concept may be gained from the judge’s classic distinction between a “detour”
and a “frolic” in the case of Joel v. Morison.16 In this case, the English court held that if a
servant merely took a detour from his master’s business, the master is responsible. If, however, the servant was on a “frolic of his own” and not in any way “on his master’s business,”
the master is not liable.
16. 6 Car. & P. 501, 172 Eng.Rep. 1338 (1834).
The Doctrine of Respondeat Superior
T
he idea that a master (employer) must
respond to third persons for losses negligently caused by the master’s servant
(employee) first appeared in Lord Holt’s
opinion in Jones v. Hart (1698).a By the early
nineteenth century, this maxim had been
adopted by most courts and was referred to
as the doctrine of respondeat superior.
Theories of Liability The vicarious
(indirect) liability of the master for the acts
of the servant has been supported primarily
by two theories. The first theory rests on
the issue of control, or fault—the master
has control over the acts of the servant and
is thus responsible for injuries arising out
of such service. The second theory is economic in nature—the master receives the
benefits or profits of the servant’s service
and therefore should also suffer the losses.
Moreover, the master is better able than
the servant to absorb such losses.
a. K.B. 642, 90 Eng.Rep. 1255 (1698).
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The control theory is clearly recognized
in the Restatement (Third) of Agency,
which defines a master as “a principal
who employs an agent to perform service
in his [or her] affairs and who controls, or
has the right to control, the physical conduct of the other in the performance of the
service.” Accordingly, a servant is defined
as “an agent employed by a master to perform service in his [or her] affairs whose
physical conduct in his [or her] performance
of the service is controlled, or is subject to
control, by the master.”
Landmark
in the Law
have occurred within “authorized time
and space limits,” and it must have been
“activated, at least in part, by a purpose to
serve the master.”
Application to Today’s World The
courts have accepted the doctrine of
Limitations on the Employer’s respondeat superior for some two centuLiability There are limitations on the ries. This theory of vicarious liability has
master’s liability for the acts of the servant. As discussed in the text, an employer
(master) is responsible only for the wrongful conduct of an employee (servant) that
occurs in “the scope of employment.”
Generally, the act must be of a kind that
the servant was employed to do, it must
practical implications in all situations in
which a principal-agent (master-servant,
employer-employee) relationship exists.
Today, the small-town grocer with one
clerk and the multinational corporation
with thousands of employees are equally
subject to the doctrine.
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UNIT FOUR: Agency and Employment Law
Example 27.22 While driving his employer’s vehicle to call on a customer, Mandel decides
to stop at a store—which is one block off his route—to take care of a personal matter.
Mandel then negligently runs into a parked vehicle owned by Chan. In this situation,
because Mandel’s detour from the employer’s business is not substantial, he is still acting
within the scope of employment, and the employer is liable.
But suppose instead that Mandel decides to pick up a few friends for cocktails in another
city and in the process negligently runs into Chan’s vehicle. In this situation, the departure
from the employer’s business is substantial—Mandel is on a “frolic” of his own. Thus, the
employer normally is not liable to Chan for damages. ■
RobertCrum/Getty Images
Employee Travel Time. The time an employee spends going
to and from work or to and from meals is usually considered
outside the scope of employment. If travel is part of a person’s position, however, as it is for a traveling salesperson or
a regional representative of a company, then travel time is normally considered within the scope of employment. Thus, for
such an employee, the duration of the business trip, including the return trip home, is within the scope of employment
unless there is a significant departure from the employer’s
business.
Notice of Dangerous Conditions. The employer is
charged with knowledge of any dangerous conditions
discovered by an employee and pertinent to the employment situation. Example 27.23 Brad, a maintenance employee
in Martin’s apartment building, notices a lead pipe proWhen can an employer be held liable for an employee’s negligence
truding from the ground in the building’s courtyard. Brad
while driving?
neglects either to fix the pipe or to inform Martin of the
danger. John trips on the pipe and is injured. The employer
is charged with knowledge of the dangerous condition regardless of whether or not Brad
actually informed him. That knowledge is imputed to Martin by virtue of the employment
relationship. ■
Liability for Agent’s Intentional Torts Most intentional torts that employees commit
Know This
An agent-employee going
to or from work or meals
usually is not considered
to be within the scope of
employment. An agentemployee whose job
requires travel, however,
is considered to be within
the scope of employment
for the entire trip, including the return.
30301_ch27_hr_637-665.indd 656
have no relation to their employment. Thus, their employers will not be held liable. Nevertheless, under the doctrine of respondeat superior, the employer can be liable for an employee’s intentional torts that are committed within the course and scope of employment, just
as the employer is liable for negligence. For instance, a department store owner is liable
when a security guard who is a store employee commits the tort of false imprisonment
while acting within the scope of employment. Similarly, a nightclub owner is liable when a
“bouncer” commits the tort of assault and battery while on the job.
In addition, an employer who knows or should know that an employee has a propensity for committing tortious acts is liable for the employee’s acts even if they ordinarily
would not be considered within the scope of employment. For instance, if the employer
hires a bouncer knowing that he has a history of arrests for assault and battery, the
employer may be liable if the employee viciously attacks a patron in the parking lot
after hours.
An employer may also be liable for permitting an employee to engage in reckless actions
that can injure others. Example 27.24 The owner of Bates Trucking observes an employee
smoking while filling containerized trucks with highly flammable liquids. Failure to stop the
employee will cause the owner to be liable for any injuries that result if a truck explodes. ■
(See this chapter’s Beyond Our Borders feature for a discussion of another approach to an
employer’s liability for an employee’s acts.)
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CHAPTER 27: Agency Relationships in Business
Beyond Our Borders
Islamic Law and Respondeat Superior
T
he doctrine of respondeat superior is
well established in the legal systems of
the United States and most Western countries. As you have already read, under this
doctrine employers can be held liable for
the acts of their employees. The doctrine
of respondeat superior is not universal,
however. Most Middle Eastern countries,
for example, do not follow this doctrine.
Codification of Islamic Law
Islamic law, as codified in the sharia, holds
to a strict belief that responsibility for
human actions lies with the individual and
cannot be vicariously extended to others.
This belief and other concepts of Islamic
657
law are based on the writings of Muhammad, the seventh-century prophet whose
revelations form the basis of the Islamic
religion and, by extension, the sharia.
Muhammad’s prophecies are documented
in the Koran (Qur’an), which is the principal
source of the sharia.
An Exception under Islamic Law
Islamic law does allow for an employer to
be responsible for an employee’s actions
when the actions result from a direct order
given by the employer to the employee.
This principle also applies to contractual
obligations. Note that the employer is
responsible only if direct orders were given.
Otherwise stated, unless an employee is
obeying a direct order of the employer, liability for the employee’s actions does not
extend to the employer.
Critical Thinking
How would U.S. society be affected if
employers could not be held vicariously
liable for their employees’ torts?
Whether an agent’s allegedly intentional tort fell within the scope of the agent’s
employment, making the principal vicariously liable, was at the heart of the dispute in the
following case.
Case 27.3
M.J. v. Wisan
Utah Supreme Court, 2016 UT 13, 371 P.3d 21 (2016).
Background and Facts M.J. was a member of the claiming that it could not be vicariously liable for Jeffs’s conduct,
Fundamentalist Church of Jesus Christ of Latter-Day Saints (FLDS)
and a beneficiary of the church’s United Effort Plan Trust. The trust
was formed for the express purpose of furthering the church’s doctrines, including the practice of marriage involving underage girls.
When M.J. was fourteen years old, Warren Jeffs—who headed the
church and the trust at that time—forced her to marry Allen Steed,
her first cousin. M.J. claimed that Steed repeatedly raped her and
that Jeffs refused to permit her to separate from or divorce Steed.
Later, M.J. filed a lawsuit in a Utah state court against Bruce
Wisan, who was the trust’s current leader. M.J. sought to hold the
trust liable under the doctrine of respondeat superior for Jeffs’s
allegedly tortious conduct, including intentional infliction of emotional distress. The trust filed a motion for summary judgment,
which the court denied. The trust appealed.
In the Words of the Court
Associate Chief Justice LEE * * *:
****
* * * Under [Utah Code Section 75–7–1010, Utah’s version of
Section 1010 of the Uniform Trust Code,] a trust is liable for the
trustee’s acts performed “in the course of administering the trust.”
* * * The terms of the statute, in context, are quite clear. “In
the course of” is the traditional formulation of the standard for
vicarious liability under the doctrine of respondeat superior. We
accordingly interpret the Uniform Trust Act as incorporating the
established standard of respondeat superior liability. Thus, under
(Continues )
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UNIT FOUR: Agency and Employment Law
[Section 75–7–1010] a trust is liable for the acts of a trustee when
the trustee was acting within the scope of his responsibility as a
trustee. [Emphasis added.]
****
The difficult question for the law in this field has been to define
the line between a course of conduct subject to the employer’s
control and an independent course of conduct not connected to
the principal. An independent course of conduct is a matter so
removed from the agent’s duties that the law, in fairness, eliminates the principal’s vicarious liability. Such a course of conduct
is one that represents a departure from, not an escalation of, conduct involved in performing assigned work or other conduct that
an employer permits or controls. [Emphasis added.]
Our cases have identified three factors of relevance to this
inquiry: (1) whether the agent’s conduct is of the general kind the
agent is employed to perform; (2) whether the agent is acting within
the hours of the agent’s work and the ordinary spatial boundaries
of the employment; and (3) whether the agent’s acts were motivated,
at least in part, by the purpose of serving the principal’s interest.
* * * In the case law of a number of states, spatial and time
boundaries are no longer essential hallmarks of an agency relationship. Instead, the law now recognizes that agents may interact
on an employer’s behalf with third parties although the employee
is neither situated on the employer’s premises nor continuously or
exclusively engaged in performing assigned work.
A number of courts have also questioned the viability of the
requirement that an agent’s acts be motivated in some part by an
intention to serve the principal’s purposes.
****
* * * To resolve this case we need not choose * * * between
the purpose or motive test * * * and the alternative formulations
* * * because we find that the Trust’s attempts to defeat its liability on summary judgment fail under any of the * * * formulations.
We [also specifically find] * * * that an agent need not be acting within the hours of the employee’s work and the ordinary spatial boundaries of the employment in order to be acting within the
course of his employment. * * * We acknowledge that in today’s
business world much work is performed for an employer away
from a defined work space and outside of a limited work shift.
And we accordingly reject the Trust’s attempt to escape liability
on the ground that Jeffs’s acts as a trustee were not performed
while he was on the Trust’s clock or at a work space designated
for his work for the Trust. Instead we hold that the key question is
whether Jeffs was acting within the scope of employment when
performing work assigned by the employer or engaging in a course
of conduct subject to the employer’s control.
Decision and Remedy The Utah Supreme Court affirmed
the lower court’s denial of the trust’s motion for summary judgment. Because Jeffs was the church’s leader, “a reasonable fact
finder could conclude that Jeffs was acting within the scope of
his role as a trustee in directing Steed to engage in sexual activity
with M.J.”
Critical Thinking
tLegal Environment Why do some courts apply a standard
for imposing vicarious liability that does not rely on motive or
purpose to determine whether an agent’s tortious conduct falls
within the scope of employment?
tEthical When Jeffs was the head of the trust, none of the
other trustees on its board questioned his actions. Was this a
breach of ethics? Discuss.
Liability for Independent Contractor’s Torts Generally, an employer is not liable for
physical harm caused to a third person by the negligent act of an independent contractor
in the performance of the contract. This is because the employer does not have the right to
control the details of an independent contractor’s performance.
Courts make an exception to this rule when the contract involves unusually hazardous
activities, such as blasting operations, the transportation of highly volatile chemicals, or the
use of poisonous gases. In such situations, strict liability is imposed, and an employer cannot
be shielded from liability merely by using an independent contractor.
Liability for Agent’s Crimes An agent is liable for his or her own crimes. A principal or
employer is not liable for an agent’s crime even if the crime was committed within the scope
of authority or employment, unless the principal participated by conspiracy or other action. In
some jurisdictions, under specific statutes, a principal may be liable for an agent’s violation in the
course and scope of employment. For instance, a principal might be liable when an agent, during
work, violates criminal regulations governing sanitation, prices, weights, or the sale of liquor.
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CHAPTER 27: Agency Relationships in Business
27–6
659
Termination of an Agency
Agency law is similar to contract law in that both an agency and a contract can be terminated
by an act of the parties or by operation of law. Once the relationship between the principal
and the agent has ended, the agent no longer has the right (actual authority) to bind the
principal. For an agent’s apparent authority to be terminated, third persons may also need to
be notified that the agency has been terminated.
27–6a Termination by Act of the Parties
An agency may be terminated by certain acts of the parties. Bases for termination by acts of
the parties include lapse of time, achievement of the purpose of the agency, occurrence of a
specific event, mutual agreement, and at the option of one party (see Exhibit 27–3).
When an agency agreement specifies the time period during which the agency relationship will exist, the agency ends when that time period expires. If no definite time is stated,
then the agency continues for a reasonable time and can be terminated at will by either party.
What constitutes a reasonable time depends on the circumstances and the nature of the
agency relationship.
The parties can, of course, mutually agree to end their agency relationship. In addition,
as a general rule, either party can terminate the agency relationship without the agreement
of the other. The act of termination is called revocation if done by the principal and renunciation if done by the agent. Note, however, that the terminating party may face liability if the
termination is wrongful.
Learning Objective 6
What are some of the ways
in which an agency relationship can be terminated?
Wrongful Termination Although both parties have the power to terminate an agency relationship, they may not always possess the right to do so. Wrongful termination can subject
the canceling party to a suit for breach of contract. Case Example 27.25 Smart Trike, Ltd., a
Singapore manufacturing company based in Israel, contracted with a New Jersey firm, Piermont Products, LLC, to distribute its products in the United States and Canada. The parties’
contract required six months’ notice of termination, during which time Smart Trike was to
continue paying commissions to Piermont for products that were sold. When Smart Trike
Exhibit 27–3 Termination by Act of Parties
METHOD
RULES
ILLUSTRATION
1. Lapse of time
Agency terminates automatically at the end
of the stated time.
Page lists her property for sale with Alex, a
real estate agent, for six months. The agency
ends in six months.
2. Purpose achieved
Agency terminates automatically on the
completion of the purpose for which it was
formed.
Calvin, a cattle rancher, hires Abe as his
agent in the purchase of fifty head of breeding stock. The agency ends when the cattle
have been purchased.
3. Occurrence of a specific event
Agency normally terminates automatically on
the event’s occurrence.
Meredith appoints Allen to handle her
business affairs while she is away. The
agency terminates when Meredith returns.
4. Mutual agreement
Agency terminates when both parties consent
to end the agency relationship.
Linda and Greg agree that Greg will no longer
be her agent in procuring business equipment.
5. At the option of one party
(revocation, if by principal;
renunciation, if by agent)
Either party normally has a right to terminate
the agency relationship. Wrongful termination
can lead to liability for breach of contract.
When Patrick becomes ill, he informs
Alice that he is revoking her authority to be
his agent.
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UNIT FOUR: Agency and Employment Law
terminated the agreement without providing the required notice, Piermont sued for breach
of contract. The court held in favor of Piermont. Under the terms of the agreement, Piermont
was entitled to receive commissions for products of Smart Trike that it had sold during the
six months after the notice of termination.17 ■
Agency Coupled with an
Interest An agency, created for
the benefit of the agent, in which the
agent has some legal right (interest)
in the property that is the subject of
the agency
Agency Coupled with an Interest A special rule applies to an agency coupled with an
interest, in which the agent has some legal right (an interest) in the property that is the
subject of the agency. Because the agent has an additional interest in the property beyond
the normal commission for selling it, the agent’s position cannot be terminated until the
agent’s interest ends.
An agency coupled with an interest is not an agency in the usual sense because it is created
for the agent’s benefit instead of for the principal’s benefit. Example 27.26 Sylvia owns Harper
Hills. She needs some cash right away, so she enters into an agreement with Rob under which
Rob will lend her $10,000. In return, she will grant Rob a one-half interest in Harper Hills
and “the exclusive right to sell” it. The loan is to be repaid out of the sale’s proceeds. Rob is
Sylvia’s agent, and their relationship is an agency coupled with an interest. The agency was
created when the loan agreement was made for the purpose of securing the loan. Therefore,
Rob’s agency power is irrevocable. ■
An agency coupled with an interest should not be confused with a situation in which the
agent merely derives proceeds or profits from the sale of the subject matter. Many agents are
paid a commission for their services, but the agency relationship involved does not constitute
an agency coupled with an interest. For instance, a real estate agent who merely receives a commission from the sale of real property does not have a beneficial interest in the property itself.
Notice of Termination No particular form is required for notice of agency termination
to be effective. If the agent’s authority is written, however, it normally must be revoked in
writing. The principal can personally notify the agent, or the agent can learn of the termination through some other means.
When an agency is terminated by act of the parties, it is the principal’s duty to inform
any third parties who know of the existence of the agency that it has been terminated. If
the principal knows that a third party has dealt with the agent, the principal is expected to
notify that person directly.
Although an agent’s actual authority ends when the agency is terminated, an agent’s
apparent authority continues until the third party receives notice (from any source) that
such authority has been terminated. Example 27.27 Manning bids on a shipment of steel, and
Stone is hired as an agent to arrange transportation of the shipment. When Stone learns
that Manning has lost the bid, Stone’s authority to make the transportation arrangement
terminates. ■
27–6b Termination by Operation of Law
Termination of an agency by operation of law occurs in the circumstances discussed here. Note
that when an agency terminates by operation of law, there is no duty to notify third persons.
1. Death or insanity. The general rule is that the death or mental incompetence of either the principal
or the agent automatically and immediately terminates an ordinary agency relationship. Knowledge
of the death is not required. Example 27.28 Gary sends Tyron to China to purchase a rare painting.
Before Tyron makes the purchase, Gary dies. Tyron’s agent status is terminated at the moment of
Gary’s death, even though Tyron does not know that Gary has died. ■ (Some states have enacted
statutes that change this common law rule to require an agent’s knowledge of the principal’s death
before termination.)
17. Smart Trike, MND, PTE, Ltd. v. Piermont Products, LLC, 147 A.D.3d 477, 48 N.Y.S.3d 23 (2017).
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2. Impossibility. When the specific subject matter of an agency is destroyed or lost, the agency terminates. Example 27.29 Blake employs Pedro to sell Blake’s house, but before any sale takes place,
the house is destroyed by fire. In this situation, Pedro’s agency and authority to sell Blake’s house
terminate. ■ Similarly, when it is impossible for the agent to perform the agency lawfully because of
a change in the law, the agency terminates.
3. Changed circumstances. When an event occurs that has such an unusual effect on the subject matter of the agency that the agent can reasonably infer that the principal will not want the agency to
continue, the agency terminates. Example 27.30 Robert hires Miles to sell a tract of land for $40,000.
Subsequently, Miles learns that there is oil under the land and that the land is worth $1 million. The
agency and Miles’s authority to sell the land for $40,000 are terminated. ■
4. Bankruptcy. If either the principal or the agent petitions for bankruptcy, the agency is usually terminated. In certain circumstances, as when the agent’s financial status is irrelevant to the purpose of
the agency, the agency relationship may continue. Insolvency (the inability to pay debts when they
become due or when liabilities exceed assets), as distinguished from bankruptcy, does not necessarily terminate the relationship.
5. War. When the principal’s country and the agent’s country are at war with each other, the agency is
terminated. In this situation, the agency is automatically suspended or terminated because there is
no way to enforce the legal rights and obligations of the parties.
Practice and Review
Lynne Meyer, on her way to a business meeting and in a hurry, stopped by a Buy-Mart store for a
new car charger for her smartphone. There was a long line at one of the checkout counters, but
a cashier, Valerie Watts, opened another counter and began loading the cash drawer. Meyer told
Watts that she was in a hurry and asked Watts to work faster. Watts, however, only slowed her
pace. At this point, Meyer hit Watts.
It is not clear whether Meyer hit Watts intentionally or, in an attempt to retrieve the car charger, hit
her inadvertently. In response, Watts grabbed Meyer by the hair and hit her repeatedly in the back of the
head, while Meyer screamed for help. Management personnel separated the two women and questioned
them about the incident. Watts was immediately fired for violating the store’s no-fighting policy. Meyer
subsequently sued Buy-Mart, alleging that the store was liable for the tort (assault and battery) committed
by its employee. Using the information presented in the chapter, answer the following questions.
1. Under what doctrine discussed in this chapter might Buy-Mart be held liable for the tort committed
by Watts?
2. What is the key factor in determining whether Buy-Mart is liable under this doctrine?
3. Did Watts’s behavior constitute an intentional tort or a tort of negligence? How would this difference affect Buy-Mart’s potential liability?
4. Suppose that when Watts applied for the job at Buy-Mart, she disclosed in her application that she
had previously been convicted of felony assault and battery. Nevertheless, Buy-Mart hired Watts
as a cashier. How might this fact affect Buy-Mart’s liability for Watts’s actions?
Debate This
The doctrine of respondeat superior should be modified to make agents solely liable for some of
their own tortious (wrongful) acts.
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