18 INSTRUCTOR’S MANUAL FOR BUSINESS LAW: COMMERCIAL LAW FOR ACCOUNTANTS
differences in the parties’ contract and tort liability. When a party enters into a contract, he or she decides
whole or in part.
whole or in part.
20 INSTRUCTOR’S MANUAL FOR BUSINESS LAW: COMMERCIAL LAW FOR ACCOUNTANTS
whole or in part.
Footnote 3: ATM Corp. of America, Inc. (ATM), manages settlement services for national lenders. Francis
credit-card statements, among other duties. Over a seven-year period, Vanek took unauthorized cash advances from
Azur’s credit-card account with Chase Bank. The charges appeared on at least sixty-five monthly billing statements.
When Azur discovered Vanek‘s fraud, he terminated her and closed the account. Azur filed a suit in a federal district
court against Chase, seeking reimbursement. The court issued a judgment in Chase’s favor. Azur appealed. In Azur
v. Chase Bank, USA, the U.S. Court of Appeals for the Third Circuit affirmed. Azur vested Vanek with apparent
express consent. Would the court’s decision have been different? Why or why not? Probably not, because
apparent authority exists when the principal cause a third party reasonably to believe that the agent has the authority
to act. If Azur had not expressly consented to the withdrawals, but had allowed what he might have seen as few in
number to occur—perhaps because he valued Vanek’s services—Chase might have even more reasonably believed
that Vanek acted under apparent authority.
best efforts—including the use of a computerized fraud-detection system known as FALCON, apparently the best
system in the industry, and messages left on three occasions on Azur’s home telephone number’s voicemail (to
which, apparently, Vanek ultimately responded)—Chase was unable to detect Vanek’s fraud. As the court in this case
noted, by including the “apparent authority” provision in the TILA, “Congress recognized that the cardholder is
oftentimes in the best position to identify fraud committed by its employees.” Certainly, in this case the cardholder
for negligence. The court dismissed Hoggatt as a party. A jury found SDI liable and awarded $3,825 in damages to
Warner. She appealed. In Warner v. Southwest Desert Images, LLC, a state intermediate appellate court held that
Hoggatt should not have been dismissed. Hoggatt’s agent status did not excuse him from liability for negligence when
evidence indicated that he ignored the herbicide maker’s instructions. An agent is not excused from responsibility for
tortious conduct just because he is working for a principal.
finding of a duty, or its lack, might be the hinge on which liability in these circumstances would turn. What is the
degree of care that should have been exercised, considering the occupation of the defendants, their
CHAPTER 9: AGENCY LIABILITY TO THIRD PARTIES AND TERMINATION 21
relationship to the plaintiffs, and other factors, including their awareness of the dangers of the herbicide?
How would a reasonable person in the defendants’ position have acted?
Why should Hoggatt be personally liable if he merely followed the instructions of his employer, SDI,
given that the employer is better able financially to pay the judgment and may have insurance that covers the
matter? Like any employee, Hoggatt must assume responsibility for his actions. He had been instructed that the
spray must be applied properly. His not doing so caused serious problems, so from the perspective of other members
of society it is better that employees assume some of the burden of negligent acts rather than just passing the blame
upstairs.
ACTIVITY AND RESEARCH ASSIGNMENT
Ask students to talk to insurance agents, sales representatives, realtors, purchasing agents, and others to
learn of some their experiences in the law of agency, looking particularly for events that relate to the material
whole or in part.
course and scope of their employment.
3. How is Buy-Mart’s potential liability affected by whether Watts’s behavior constituted an
intentional tort or a tort of negligence? Buy-Mart would be liable in either case under the doctrine of
respondeat superior, which does not distinguish between the two types of torts. If Watts’s wrongful conduct
occurred in the scope of employment, then Buy-Mart would be liable.
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 Watt’s actions? 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 would not ordinarily be considered within the scope of employment. Thus, in this scenario, even if
Watts’s actions were not in the scope of employment (for instance, if Watts attacked Meyer in the parking lot),
Buy-Mart would still be liable.
DEBATE THIS
The doctrine of respondeat superior should be modified to make agents liable for some of their
tortious (wrongful) acts committed within the scope of employment. Because of the doctrine of
respondeat superior, some agents may act more recklessly because they know that the principal will pay all
damages for their irresponsible behavior. If all agents knew that they would be financially liable for at least
some of the damages their tortious conduct caused, they would behave in a more responsible manner.
Business owners and other principals take out sufficient insurance to cover damages owed due to their
agents’ tortious acts. It would be unfair to impose any liability on agents, who, in general, are not in a
financial position to pay for any part of a damage award as a result of their tortious acts.
EXAMPREP—
ISSUE SPOTTERS
1. Davis contracts with Estee to buy a certain horse on her behalf. Estee asks Davis not to reveal her
identity. Davis makes a deal with Farmland Stables, the owner of the horse, and makes a down
payment. Estee does not pay the rest of the price. Farmland Stables sues Davis for breach of
contract. Can Davis hold Estee liable for whatever damages he has to pay? Why or why not? Yes. A
principal has a duty to indemnify an agent for liabilities incurred because of authorized and lawful acts and
transactions and for losses suffered because of the principal’s failure to perform his or her duties.
2. Vivian, owner of Wonder Goods Company, employs Xena as an administrative assistant. In
Vivian’s absence, and without authority, Xena represents herself as Vivian and signs a promissory
whole or in part.
whole or in part.
20 INSTRUCTOR’S MANUAL FOR BUSINESS LAW: COMMERCIAL LAW FOR ACCOUNTANTS
whole or in part.
Footnote 3: ATM Corp. of America, Inc. (ATM), manages settlement services for national lenders. Francis
credit-card statements, among other duties. Over a seven-year period, Vanek took unauthorized cash advances from
Azur’s credit-card account with Chase Bank. The charges appeared on at least sixty-five monthly billing statements.
When Azur discovered Vanek‘s fraud, he terminated her and closed the account. Azur filed a suit in a federal district
court against Chase, seeking reimbursement. The court issued a judgment in Chase’s favor. Azur appealed. In Azur
v. Chase Bank, USA, the U.S. Court of Appeals for the Third Circuit affirmed. Azur vested Vanek with apparent
express consent. Would the court’s decision have been different? Why or why not? Probably not, because
apparent authority exists when the principal cause a third party reasonably to believe that the agent has the authority
to act. If Azur had not expressly consented to the withdrawals, but had allowed what he might have seen as few in
number to occur—perhaps because he valued Vanek’s services—Chase might have even more reasonably believed
that Vanek acted under apparent authority.
best efforts—including the use of a computerized fraud-detection system known as FALCON, apparently the best
system in the industry, and messages left on three occasions on Azur’s home telephone number’s voicemail (to
which, apparently, Vanek ultimately responded)—Chase was unable to detect Vanek’s fraud. As the court in this case
noted, by including the “apparent authority” provision in the TILA, “Congress recognized that the cardholder is
oftentimes in the best position to identify fraud committed by its employees.” Certainly, in this case the cardholder
for negligence. The court dismissed Hoggatt as a party. A jury found SDI liable and awarded $3,825 in damages to
Warner. She appealed. In Warner v. Southwest Desert Images, LLC, a state intermediate appellate court held that
Hoggatt should not have been dismissed. Hoggatt’s agent status did not excuse him from liability for negligence when
evidence indicated that he ignored the herbicide maker’s instructions. An agent is not excused from responsibility for
tortious conduct just because he is working for a principal.
finding of a duty, or its lack, might be the hinge on which liability in these circumstances would turn. What is the
degree of care that should have been exercised, considering the occupation of the defendants, their
CHAPTER 9: AGENCY LIABILITY TO THIRD PARTIES AND TERMINATION 21
relationship to the plaintiffs, and other factors, including their awareness of the dangers of the herbicide?
How would a reasonable person in the defendants’ position have acted?
Why should Hoggatt be personally liable if he merely followed the instructions of his employer, SDI,
given that the employer is better able financially to pay the judgment and may have insurance that covers the
matter? Like any employee, Hoggatt must assume responsibility for his actions. He had been instructed that the
spray must be applied properly. His not doing so caused serious problems, so from the perspective of other members
of society it is better that employees assume some of the burden of negligent acts rather than just passing the blame
upstairs.
ACTIVITY AND RESEARCH ASSIGNMENT
Ask students to talk to insurance agents, sales representatives, realtors, purchasing agents, and others to
learn of some their experiences in the law of agency, looking particularly for events that relate to the material
whole or in part.
course and scope of their employment.
3. How is Buy-Mart’s potential liability affected by whether Watts’s behavior constituted an
intentional tort or a tort of negligence? Buy-Mart would be liable in either case under the doctrine of
respondeat superior, which does not distinguish between the two types of torts. If Watts’s wrongful conduct
occurred in the scope of employment, then Buy-Mart would be liable.
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 Watt’s actions? 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 would not ordinarily be considered within the scope of employment. Thus, in this scenario, even if
Watts’s actions were not in the scope of employment (for instance, if Watts attacked Meyer in the parking lot),
Buy-Mart would still be liable.
DEBATE THIS
The doctrine of respondeat superior should be modified to make agents liable for some of their
tortious (wrongful) acts committed within the scope of employment. Because of the doctrine of
respondeat superior, some agents may act more recklessly because they know that the principal will pay all
damages for their irresponsible behavior. If all agents knew that they would be financially liable for at least
some of the damages their tortious conduct caused, they would behave in a more responsible manner.
Business owners and other principals take out sufficient insurance to cover damages owed due to their
agents’ tortious acts. It would be unfair to impose any liability on agents, who, in general, are not in a
financial position to pay for any part of a damage award as a result of their tortious acts.
EXAMPREP—
ISSUE SPOTTERS
1. Davis contracts with Estee to buy a certain horse on her behalf. Estee asks Davis not to reveal her
identity. Davis makes a deal with Farmland Stables, the owner of the horse, and makes a down
payment. Estee does not pay the rest of the price. Farmland Stables sues Davis for breach of
contract. Can Davis hold Estee liable for whatever damages he has to pay? Why or why not? Yes. A
principal has a duty to indemnify an agent for liabilities incurred because of authorized and lawful acts and
transactions and for losses suffered because of the principal’s failure to perform his or her duties.
2. Vivian, owner of Wonder Goods Company, employs Xena as an administrative assistant. In
Vivian’s absence, and without authority, Xena represents herself as Vivian and signs a promissory
whole or in part.