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236
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.
239
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
241
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
