978-0134004006 Chapter 30 Lecture Note

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Oliver Wendell Holmes Jr.

I. Teacher to Teacher Dialogue

agents for which the principal may be liable. The ironic aspect of all this is that the very same

people who help a business grow can lead that same enterprise to financial ruin.

Every agency liability question having an involvement with third parties has three subquestions

that must be answered in order to come to a final resolution of the issues at hand. They are:

1. What are the responsibilities of the principal and agent vis-à-vis each other?

2. What are the responsibilities of the agent vis-à-vis the third-party?

3. What are the responsibilities of the principal vis-à-vis the third-party?

Invariably, a certain fact pattern emerges. First there is some sort of principal–agent

relationship established. This relationship may be based on actual, implied, apparent, or ratified

Once the first subquestion is resolved, the rights, duties, and obligations of the agent and

principal, respectively, must then be examined vis-à-vis the third-party. Often there will be some

sort of wrongful and unauthorized act committed by the agent. That act will result in probable

II. Chapter Objectives

1. Describe the duty of loyalty owed by an agent to a principal.

LIABILITY OF PRINCIPALS, AGENTS,

AND INDEPENDENT CONTRACTORS

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Liability of Principals, Agents, and Independent Contractors

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4. Describe how an independent contractor status is created.

III. Key Question Checklist

 What are the principal and agent’s duties to each other?

 What are the most common types of breaches of loyalty by an agent?

IV. Text Materials

Introduction to Liability of Principals, Agents, and Independent

Contractors

Agent’s Duty of Loyalty

Self-Dealing – Agents are generally prohibited from undisclosed self-dealing with the principal.

Usurping an Opportunity – A third-party offer to an agent must be conveyed to the principal.

Competing with the Principal – Agents are prohibited from competing with the principal during

Misuse of Confidential Information – In the course of an agency, the agent often acquires

Dual Agency – Dual agency occurs when an agent acts for two or more different principals in the

Tort Liability of Principals and Agents to Third Parties

Both principal and agent are liable for their own tortious conduct. The principal is liable for the

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Negligence – Principals are liable for acts performed by agents acting within the scope of their

Case 30.1 Scope of Employment: Matthews v. Food Lion, LLC

Issue: Was the cashier within the scope of her employment during the incident?

Decision: Surprisingly, she was not within the scope of her employment.

Critical Legal Thinking – The law recognizes these concepts because people act on behalf of

agents or employees.

Frolic and Detour – Agents sometimes do things during the course of their employment that

furthers their personal interests, such as running personal errands. This is referred to as frolic and

The “Coming and Going” Rule – Under the coming and going rule, principals are generally not

of employment.

Case 30.2 Employer’s Intentional Tort: Burlarley v. Wal-Mart Stores, Inc.

904 N.Y.S.2d 826, 2010 N.Y. App. Div. Lexis 6278 (2010), Appellate Division of the Supreme

Court of New York

face. Michael sued Wal-Mart Stores, Inc., to recover damages. Walmart filed a motion for

summary judgment, alleging that the cashier’s actions were personally motivated and that

Walmart was not liable under the state’s motivation test. The trial court granted summary

judgment to Walmart. Michael appealed.

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summary judgment in favor of Walmart.

the situation.

Misrepresentation – Principals are liable for both the intentional and innocent

misrepresentations made by an agent acting within the scope of employment. Intentional

misrepresentation occurs when the agent makes statements that he knows are false. Innocent

and recover damages.

Contract Liability of Principals and Agents to Third Parties

Principals that authorize agents to enter into contracts with a third-party will be liable on the

Fully Disclosed Agency – This is the result of the third-party knowing that the agent is acting as

such for an identified principal. In a fully disclosed agency, the contract is between the principal

agent’s liability.

Undisclosed Agency – This is when the third-party is unaware of both the existence of the

agency or of the principal. Both the principal and the agent are liable on the contract. The agent

commercial real estate transactions regularly.

Agent Exceeding the Scope of Authority – When an agent enters into a contract on behalf of a

principal, there is an implied warranty of authority. If the agent exceeds the scope of their

Independent Contractor Liability

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degree of skill needed, and who controls the manner and means of accomplishing the tasks.

Critical Legal Thinking – The plaintiff who is injured usually wants a principal–agency

relationship to be found. A court is usually pretty good at applying these standards.

accomplished.

Case 30.3 Independent Contractor: Glenn v. Gibbs

746 S.E.2d 658, 2013 Ga. App. Lexis 639 (2013), Court of Appeals of Georgia

Facts: Frankie and Trena Gibbs and Joel and Madeira Glenn were members of the Creek Baptist

Glenn climbed to the very top of an A-type ladder, straddled the ladder—one foot on each side—

and began trimming the tree. However, after making a cut on a limb, the limb snapped off and hit

the top of the ladder, knocking the ladder backward. Glenn fell forward, head first, and landed on

his back. Glenn died from the fall. Madeira Glenn sued the Gibbs to recover damages, alleging

Issue: Was Joel Glenn an independent contractor?

Decision: The court of appeals upheld the trial court’s finding that Glenn was an independent

contractor and not an agent of Gibbs, and affirmed the trial court’s judgment in favor of

defendant Gibbs.

Ethical Questions: Students’ answers will vary as to whether it was ethical for Glenn to sue the

and means of trimming the tree.

Liability for an Independent Contractor’s Contracts – Principals are bound by authorized

V. Key Terms and Concepts

Liability of Principals, Agents, and Independent Contractors

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establishes liability for the principal.

 “Coming and going” rule—A rule that says a principal is generally not liable for

 Competing with the principal—Agents are prohibited from competing with the

depending on the circumstances.

 Degree of control—The crucial factor in determining whether someone is an

 Dual agency—Dual agency occurs when an agent acts for two or more different

principals in the same transaction.

interests of the principal.

 Fiduciary duty—A duty based on confidence or trust.

 Fully disclosed agency—An agency in which a contracting third party knows (1) that

agent is not.

 Implied warranty of authority—An agent who enters into a contract on behalf of

 Imputed knowledge—Information that is learned by the agent that is attributed to the

principal.

(Second) of Agency].

 Inherently dangerous activity—Principals cannot avoid liability for inherently

 Innocent misrepresentation—Occurs when an agent makes an untrue statement that

he or she honestly and reasonably believes to be true.

 Motivation test—A test to determine the liability of the principal; if the agent’s

 Negligence—The doctrine of negligence rests on the principle that if someone (i.e.,

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principal.

 Principal–independent contractor relationship—Principals often employ outsiders—

that is, persons and businesses that are not employees—to perform certain tasks on

their behalf.

contract.

 Respondeat superior—A rule that says an employer is liable for the tortious conduct

 Right to control—A critical factor in determining whether independent contractor

accomplishing the desired result.

 Scope of employment—Principals are liable for the negligent conduct of agents

acting within the scope of their employment.

 Self-dealing—Agents are generally prohibited from undisclosed self-dealing with the

principal.

negligence, intentional torts, and misrepresentation.

 Tortious conduct—A principal and an agent are each personally liable for their own

tortious conduct.

 Undisclosed agency—An agency in which a contracting third-party does not know of

either the existence of the agency or the principal’s identity.

belongs to the principal.

 Vicarious liability—Liability without fault.

 Work-related test—A test to determine the liability of a principal; if an agent