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Chapter 36 - Third-Party Relations of the Principal and the Agent
36-8
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
employee’s act is outside the scope of employment when it occurs within an
independent course of conduct not intended by the employee to serve any purpose of
the employer. This test is not appreciably different from the Restatement (Second) test.
Examples: Problem Cases ## 8, 9, and 10.
With regard to the kind-of-act-authorized question, you might note the following
possibility. Why can't employers just insulate themselves from respondeat superior
liability by giving their employees a blanket command not to commit torts? It would
be too easy for employers to evade their responsibility to protect victims of their
behavior in question. Thus, a delivery driver who exceeds the speed limit while on a
rush job probably is covered, but a driver who shoots another driver after a traffic
altercation almost certainly is not.
d. You might add that additional problems sometimes arise when the tort was committed
tools from the second employer, and/or serves that employer for a substantial period of
time.
3. Direct Liability
a. Be sure the class understands that it is the principal's culpability that is the basis of
negligence. See Restatement (Third) section 7.05.
b. Where the principal directed the agent's conduct and intended that it occur, note that
the agent to engage in an ultrahazardous activity.
c. Discuss the various ways that the principal can be directly liable for his negligence
regarding the agent. Another possibility is failure to warn.
d. Note that direct liability and respondeat superior liability can arise at the same time.
e. Millan v. Dean Witter Reynolds, Inc. (p. 981). Here both direct liability and
respondeat superior are at issue. The case excerpt focuses on the latter.
36-9
forging his mother’s signature on numerous occasions, stealing statements from his
mother’s mailbox, creating and sending bogus statements to his mother, and opening a
authority as a broker.
In the dissent (which is not included in the text), Justice Stone noted that Miguel was
entrusted by Dean Witter with the power to open brokerage accounts for clients,
receive deposits, make purchases of securities as directed by clients, and sell them as
directed. His general scope of authority comprised these acts. His misuse of
defraud a customer.
Additional Point for Discussion: Ask your students whether and why they agree with
Justice Angelini or Justice Stone. It is relevant that both justices were willing to find
Dean Witter 15% liable for direct liability? Isn’t that the right grounds to make Dean
Witter responsible, for its failure to supervise Miguel to discover and prevent his
Angelini disagreed.
f. Ethics in Action (p. 981): There is no question that the doctrine of respondeat
superior encourages employers to do a better job selecting, training, and supervising
employees. That is one of purpose of tort law: deterrence. Respondeat superior in its
present form probably discourages some businesses from using some employees, at
the cost to society of imposing liability on innocent businesses outweighs the benefits
to tort victims, especially if the effect is to drive innocent businesses from the field.
The categorical imperative would suggest that we would not want a universal rule of
absolute employer liability for employees’ torts. A believer in justice theory may
protection from liability.
g. Log On (p. 981): This website provides good advice to help employers avoid direct
and vicarious liability for acts of an employee.
4. Liability for Torts of Nonemployee Agents (Independent Contractors). Principals are
liable for the torts of a nonemployee agent. In addition, a principal may ratify a
nonemployee agent's torts. See Restatement (Third) section 7.04.
Example: Problem Case # 8.
5. Liability for Agent's Misrepresentations
Chapter 36 - Third-Party Relations of the Principal and the Agent
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a. Begin by noting that this is a problem that straddles contract and tort, and that its
resolution depends in part on the agent's authority.
b. In this context, the principal may be subject to direct liability (based on his own
importance.
c. When discussing the principal's imputed liability for the agent's misrepresentations,
d. Emphasize why both honest and dishonest principals may desire to put exculpatory
clauses in form contracts the agent completes. Also, stress that the principal's interests
E. Tort Liability of the Agent: After stating the general rule that agents are liable for their own
torts, discuss the fairly simple exceptions in the text and the relevant examples. Note that the
Example: Problem Cases ## 11 and 12.
F. Note that in many cases both principal and agent will be liable. In the battle between the
principal and agent, the text provides some guidance on who will ultimately bear
responsibility.
G. Log On (p. 984): Students may be surprised how extensively sports agents are regulated. You
might want to ask students whether it is fair that a college athlete cannot sign a contract with
IV. RECOMMENDED REFERENCES
See the references for Chapter 35.
V. ANSWERS TO PROBLEMS AND PROBLEM CASES
1. No on the loan, but yes on the Enron purchase. There is no actual (express or implied)
authority to purchase Enron shares or borrow from Wells Fargo, as Bravario did not expressly
manifest or communicate to Hermano that she could buy Enron shares or borrow money to do
Chapter 36 - Third-Party Relations of the Principal and the Agent
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© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
whoever sold the Enron shares to believe that Hermano had the authority to buy the Enron
shares for Bravario. There is nothing necessarily unusual about buying Enron, even though it
is selling for only 7 cents per share. Also, investing $70,000 is only 10% of Bravario’s
portfolio, which is not unusual for investors, even thought it exceeds Hermano’s normal 5%
limit.
2. No. There was no express authority for Mr. Opp to limit the carriers’ liability to Mrs. Opp,
because there was no evidence that Ms. Opp explicitly granted authority to Mr. Opp to bind
him the authority to reduce the carriers’ liability. This conclusion is bolstered by the court’s
acceptance of Ms. Opp’s testimony that she was never informed by the carriers that the person
replacement value protection on her goods. Soraghan’s form lacked any indication that Mr.
Opp was her agent, as Ms. Opp left blank the “lawful representative” space on the form. The
discussed her property valuation with Mr. Opp. Opp v. Wheaton Van Lines, Inc., 231 F.3d
1060 (7th Cir. 2000).
3. No. This case covers a common context: a temporary employment agency provides workers to
a business. Since the temporary employment agency (Work Connection in this case) does not
responsibility to Universal. Work Connection relied on ratification of the contract because it
never expressly got Universal’s agreement to assume responsibility for the employees.
showing that Universal accepted the benefits of the contract, that is, the services of the
employee covered by the contract. The court found that ratification was lacking, because
4. No. Although the court found that any notice or knowledge received by an officer or agent
authorized to receive the same is imputed to the corporation itself, the court applied an
Chapter 36 - Third-Party Relations of the Principal and the Agent
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© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
as to practically destroy the agency relationship, there is no imputation of knowledge to the
principal. The court found it clear that Drutchal acted inconsistently with his duty of loyalty to
Adventure Quest in this case. The sexual assaults on a customer of Adventure Quest, if
discovered, could destroy Adventure Quest's ability to function. Drutchal acted adversely to
A.2d 607 (Md. Ct. App. 1994).
from its failure to perform. Cain v. State, 882 S.W.2d 515 (Tex. App. 1994).
7. The court held for Bradshaw in a suit based on the theory that the agent had breached his
implied warranty of authority. Reed was not successful. The documents that Reed signed but
agent may say, but can control what the third party thinks by disclosing limitations on the
agent’s authority in documents that the third party should read before signing. Reed v.
1996).
by performing the work assigned to him subject to Tube Art’s control. Massey v. Tube Art
Display, Inc., 551 P.3d 1387 (Wash. Ct. App. 1976).
retail representative who drives from store to store, the location of the conduct is within the
scope of his employment as well.
10. No. The court held that the franchisor could not be held liable because it had no control over
(Ky. 2008).
escape liability for a false statement that she intended the agent to make.
12. Possibly. QGM is liable, and its agent Schimberg may be liable also. The court found that
Chapter 36 - Third-Party Relations of the Principal and the Agent
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© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Texas law permits corporate agents to be liable for their own torts in many instances. A
corporate agent is personally liable for his own fraudulent or tortious acts. A corporation's
employee is personally liable for tortious acts which he directs or participates in during his
employment. An employee may be held individually liable for an employer's tortious acts if he
trial court to determine the facts, especially whether Schimberg acted only at the behest of his
superiors, which might release him from liability. Thule Drilling ASA v. Schimberg, 290 Fed.
Appx., 745 (5th Cir. 2008).
