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in whole or in part.
2 UNIT TWO: AGENCY AND EMPLOYMENT
in whole or in part.
principal’s ethical duty to notify a third party could depend on the specific circumstances. But if a
third party changes positions in reliance, it seems fair to impose legal liability on the principal. It
seems likewise fair to hold the principal to an ethical responsibility to inform an unsuspecting
third party in those same circumstances that no agency actually exists.
principal is liable to a third party for a contract made by the agent. If the principal is disclosed,
the agent has no contractual liability for the nonperformance of the principal.
THE LEGAL ENVIRONMENT DIMENSION
Is Henderson entitled to be compensated by Pike for any amount of the judgment that he
CASE 9.3—LEGAL REASONING QUESTIONS (PAGE 164)
1A. What conduct was at the center of the dispute in this case? Whether a real estate
salesperson’s fraud in connection with the purchase of certain real estate fell within the
salesperson’s scope of employment was the dispute in this case.
rented.
2A. Who did the plaintiff allege was liable for this conduct? Which of these parties was
the principal and which was the agent? The plaintiff in this case was Torri Auer. She filed a
suit in an Ohio state court against Jamie Paliath, a real estate salesperson for Home Town
in whole or in part.
in whole or in part.
2A. Key factor
of employment, then Buy-Mart would be liable.
4A. Employer’s knowledge
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
The doctrine of respondeat superior should be modified to make agents solely
liable for 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
ANSWERS TO ISSUE SPOTTERS IN THE EXAMPREP FEATURE
AT THE END OF THE CHAPTER
1A. Davis contracts with Estee to buy a certain horse on her behalf. Estee asks Davis
CHAPTER 9: AGENCY LIABILITY TO THIRD PARTIES AND TERMINATION 5
in whole or in part.
words, the employer-principal would be liable for the note in this problem on ratifying it. Whether
the employer-principal ratifies the note or not, the unauthorized agent is most likely also liable
for it.
ANSWERS TO BUSINESS SCENARIOS AND BUSINESS CASE PROBLEMS
authority given to the agent (express or implied), apparent authority, or authority derived from an
emergency. Express authority is directly given by the principal to the agent. Implied authority is
deemed customary or inferred from the agent’s position. Apparent authority is created when a
principal gives a third person reason to believe the agent possesses authority not truly
possessed. In this case, no express authority was given, and certainly no implied authority
before Wilson withdraws (revokes) the offer. Ratification can take place only when the principal
is aware of all material facts and makes some act of affirmation. If A & B affirms the contract
before Wilson withdraws, A & B can enforce Arden’s contract. If Wilson withdraws first, Arden’s
contract cannot be enforced by A & B.
not be effective. If Springer knew that the printed materials had been ordered by his campaign
workers without his authorization and used the materials in spite of this knowledge, such use
would constitute ratification of the unauthorized purchase agreement. In such a case, Dubychek
6 UNIT TWO: AGENCY AND EMPLOYMENT
© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website,
in whole or in part.
could successfully sue to recover the purchase price of the campaign materials. If Springer was
unaware that the materials had been purchased without his authorization, his use of the ma-
terials would not constitute ratification. A good point for discussion is whether the campaign
worker was impliedly authorized or had apparent authority to contract for the printing of the
promotional material. There is no question that there was no express authorization. Springer’s
prohibition, unknown to Dubychek, may not relieve Springer of liability, however. If the
campaign worker is one who is placed in a position of a person who usually orders campaign
printing, or if this campaign worker had previously ordered campaign materials from Dubychek,
(Chapter 9—Page 162)
As a general rule, an employer (principal) is liable for the negligent actions of the employee
(agent), if such acts are committed while the employee (agent) is acting within the scope of
employment. This theory of liability is based on the doctrine of respondeat superior, which holds
that the liability of the master is imposed even though the tort was committed by a servant. The
effect on this decision. The question to be decided is whether Arnez’s visit to his friend
constituted a substantial departure from the performance of his employer’s business. Points
that should be discussed are:
(a) All travel time of a traveling salesperson on a business trip is usually considered
within the scope of employment.
injuries to Thomas. If Arnez had been on a frolic of his own, only Arnez would have been liable
to Thomas.
9–4A. Undisclosed principal
(Chapter 9—Page 159)
8 UNIT TWO: AGENCY AND EMPLOYMENT
in whole or in part.
Hall may be held personally liable. Hall could not be an agent for House Medic because it was a
fictitious name and not a real entity. Moreover, when the contract was formed, Hall did not
disclose his true principal, which was Hall Hauling, Ltd. Thus, Hall may be held personally liable
as a party to the contract.
is ratified, the ratification must be in writing. An agent has the implied authority to do what is
reasonably necessary to carry out express authority. For example, authority to manage a
business implies authority to do what is reasonably required to operate the business. But an
agent’s implied authority cannot contradict his or her express authority. Thus, if a principal has
limited an agent’s express authority, then the fact that the agent customarily would have such
ads with cash in advance. Thus, Icebox did not have the authority—express or implied—to buy
ads on Basic's credit. And Basic did not ratify the contracts that represented purchases on
credit.
In the actual case on which this problem is based, on Basic’s appeal from a judgment in
Rainbow’s favor, the U.S. Court of Appeals for the Tenth Circuit reversed that judgment and
regard to the principal's property. Although this circumstance did not apparently exist in the
Jones case, the court recognized that the language of a power of attorney “should be
interpreted as intending only to confer those . . . powers necessary to accomplish objects as to
which express authority has been given to the attorney-in-fact” to avoid any abuse of that power.
CHAPTER 9: AGENCY LIABILITY TO THIRD PARTIES AND TERMINATION 9
in whole or in part.
“That abuse of the agent's power is particularly dangerous in a case involving a durable power
monitoring the agent's conduct.”
But “[u]ndoubtedly,” the court reasoned, “provisions granting broad general power to the
agent are intended by the principal to become applicable so as to avoid any potential
unintended limitation in the authority expressly granted.” Based on this reasoning, the court
interpreted the language of the power of attorney in this case to authorize Ansell to act on
situation underscored the need for strictly interpreting the power of attorney because “the
danger is too obvious to require discussion.”
(b) Davis’s daughters asserted that without express language in the power of attorney
granting Ansell the authority “to change the beneficiary of the certificate of deposit,” Ansell's act
in doing so was “a nullity.”
court pointed out that a certificate of deposit is an instrument for deposit, which the power of
attorney specifically authorized Ansell to “sign, endorse or assign.” The court also reasoned that
a certificate of deposit “including the designation of the beneficiary POD is a contract between
the depositor and the bank relating to personal property.” Referring to the provision in the power
of attorney granting Ansell the authority to act “as fully and effectively as I could do as part of my
Ansell to act as his agent in changing the beneficiary to Brandt, and Davis, when Ansell advised
him that the instruction had been carried out, accepted it without objection. There was no
question of Davis’s capacity to authorize Ansell to act.
This set of facts satisfies the requirements for ratification: (1) the agent’s act on a
principal’s behalf, (2) the principal’s affirmance of the agent’s act, (3) the principal’s affirmance
in whole or in part.
2 UNIT TWO: AGENCY AND EMPLOYMENT
in whole or in part.
principal’s ethical duty to notify a third party could depend on the specific circumstances. But if a
third party changes positions in reliance, it seems fair to impose legal liability on the principal. It
seems likewise fair to hold the principal to an ethical responsibility to inform an unsuspecting
third party in those same circumstances that no agency actually exists.
principal is liable to a third party for a contract made by the agent. If the principal is disclosed,
the agent has no contractual liability for the nonperformance of the principal.
THE LEGAL ENVIRONMENT DIMENSION
Is Henderson entitled to be compensated by Pike for any amount of the judgment that he
CASE 9.3—LEGAL REASONING QUESTIONS (PAGE 164)
1A. What conduct was at the center of the dispute in this case? Whether a real estate
salesperson’s fraud in connection with the purchase of certain real estate fell within the
salesperson’s scope of employment was the dispute in this case.
rented.
2A. Who did the plaintiff allege was liable for this conduct? Which of these parties was
the principal and which was the agent? The plaintiff in this case was Torri Auer. She filed a
suit in an Ohio state court against Jamie Paliath, a real estate salesperson for Home Town
in whole or in part.
in whole or in part.
2A. Key factor
of employment, then Buy-Mart would be liable.
4A. Employer’s knowledge
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
The doctrine of respondeat superior should be modified to make agents solely
liable for 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
ANSWERS TO ISSUE SPOTTERS IN THE EXAMPREP FEATURE
AT THE END OF THE CHAPTER
1A. Davis contracts with Estee to buy a certain horse on her behalf. Estee asks Davis
CHAPTER 9: AGENCY LIABILITY TO THIRD PARTIES AND TERMINATION 5
in whole or in part.
words, the employer-principal would be liable for the note in this problem on ratifying it. Whether
the employer-principal ratifies the note or not, the unauthorized agent is most likely also liable
for it.
ANSWERS TO BUSINESS SCENARIOS AND BUSINESS CASE PROBLEMS
authority given to the agent (express or implied), apparent authority, or authority derived from an
emergency. Express authority is directly given by the principal to the agent. Implied authority is
deemed customary or inferred from the agent’s position. Apparent authority is created when a
principal gives a third person reason to believe the agent possesses authority not truly
possessed. In this case, no express authority was given, and certainly no implied authority
before Wilson withdraws (revokes) the offer. Ratification can take place only when the principal
is aware of all material facts and makes some act of affirmation. If A & B affirms the contract
before Wilson withdraws, A & B can enforce Arden’s contract. If Wilson withdraws first, Arden’s
contract cannot be enforced by A & B.
not be effective. If Springer knew that the printed materials had been ordered by his campaign
workers without his authorization and used the materials in spite of this knowledge, such use
would constitute ratification of the unauthorized purchase agreement. In such a case, Dubychek
6 UNIT TWO: AGENCY AND EMPLOYMENT
© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website,
in whole or in part.
could successfully sue to recover the purchase price of the campaign materials. If Springer was
unaware that the materials had been purchased without his authorization, his use of the ma-
terials would not constitute ratification. A good point for discussion is whether the campaign
worker was impliedly authorized or had apparent authority to contract for the printing of the
promotional material. There is no question that there was no express authorization. Springer’s
prohibition, unknown to Dubychek, may not relieve Springer of liability, however. If the
campaign worker is one who is placed in a position of a person who usually orders campaign
printing, or if this campaign worker had previously ordered campaign materials from Dubychek,
(Chapter 9—Page 162)
As a general rule, an employer (principal) is liable for the negligent actions of the employee
(agent), if such acts are committed while the employee (agent) is acting within the scope of
employment. This theory of liability is based on the doctrine of respondeat superior, which holds
that the liability of the master is imposed even though the tort was committed by a servant. The
effect on this decision. The question to be decided is whether Arnez’s visit to his friend
constituted a substantial departure from the performance of his employer’s business. Points
that should be discussed are:
(a) All travel time of a traveling salesperson on a business trip is usually considered
within the scope of employment.
injuries to Thomas. If Arnez had been on a frolic of his own, only Arnez would have been liable
to Thomas.
9–4A. Undisclosed principal
(Chapter 9—Page 159)
8 UNIT TWO: AGENCY AND EMPLOYMENT
in whole or in part.
Hall may be held personally liable. Hall could not be an agent for House Medic because it was a
fictitious name and not a real entity. Moreover, when the contract was formed, Hall did not
disclose his true principal, which was Hall Hauling, Ltd. Thus, Hall may be held personally liable
as a party to the contract.
is ratified, the ratification must be in writing. An agent has the implied authority to do what is
reasonably necessary to carry out express authority. For example, authority to manage a
business implies authority to do what is reasonably required to operate the business. But an
agent’s implied authority cannot contradict his or her express authority. Thus, if a principal has
limited an agent’s express authority, then the fact that the agent customarily would have such
ads with cash in advance. Thus, Icebox did not have the authority—express or implied—to buy
ads on Basic's credit. And Basic did not ratify the contracts that represented purchases on
credit.
In the actual case on which this problem is based, on Basic’s appeal from a judgment in
Rainbow’s favor, the U.S. Court of Appeals for the Tenth Circuit reversed that judgment and
regard to the principal's property. Although this circumstance did not apparently exist in the
Jones case, the court recognized that the language of a power of attorney “should be
interpreted as intending only to confer those . . . powers necessary to accomplish objects as to
which express authority has been given to the attorney-in-fact” to avoid any abuse of that power.
CHAPTER 9: AGENCY LIABILITY TO THIRD PARTIES AND TERMINATION 9
in whole or in part.
“That abuse of the agent's power is particularly dangerous in a case involving a durable power
monitoring the agent's conduct.”
But “[u]ndoubtedly,” the court reasoned, “provisions granting broad general power to the
agent are intended by the principal to become applicable so as to avoid any potential
unintended limitation in the authority expressly granted.” Based on this reasoning, the court
interpreted the language of the power of attorney in this case to authorize Ansell to act on
situation underscored the need for strictly interpreting the power of attorney because “the
danger is too obvious to require discussion.”
(b) Davis’s daughters asserted that without express language in the power of attorney
granting Ansell the authority “to change the beneficiary of the certificate of deposit,” Ansell's act
in doing so was “a nullity.”
court pointed out that a certificate of deposit is an instrument for deposit, which the power of
attorney specifically authorized Ansell to “sign, endorse or assign.” The court also reasoned that
a certificate of deposit “including the designation of the beneficiary POD is a contract between
the depositor and the bank relating to personal property.” Referring to the provision in the power
of attorney granting Ansell the authority to act “as fully and effectively as I could do as part of my
Ansell to act as his agent in changing the beneficiary to Brandt, and Davis, when Ansell advised
him that the instruction had been carried out, accepted it without objection. There was no
question of Davis’s capacity to authorize Ansell to act.
This set of facts satisfies the requirements for ratification: (1) the agent’s act on a
principal’s behalf, (2) the principal’s affirmance of the agent’s act, (3) the principal’s affirmance
in whole or in part.
