12 UNIT SEVEN: AGENCY AND EMPLOYMENT
6. P is the owner of an apartment house in a district in which the boys constantly annoy the janitor and
interfere with his work. P discharges one janitor who had punished a neighbor’s boy for such interference and
7. Same facts as in Illustration 6, except that the janitor has in mind chiefly the punishment of a particular boy
8. P, an engraver, requires all [employees] employed in finishing work to wash their hands in his wash room
9. P, employing ball players, requires them to eat what he directs and under his supervision. The conduct of
the players during meals while under P’s control is within the scope of employment.
10. P furnishes a lavatory in which employees may wash, if they wish, before or after working hours, P
11. P employs A as a chauffeur, requesting him to drive the car to A’s own garage for the night at the
12. P employs A, who lives two miles from P’s office. Because A has difficulty in getting to the office on time,
13. P employs men to do logging five miles from the nearest habitation. In order to be certain that they arrive
on time, P habitually supplies and keeps in repair a truck which his workmen, who live in the nearest town,
[14.] P directs his salesman, in selling guns, never to insert a cartridge while exhibiting a gun. A, a
[15.] A, P’s chauffeur, to avoid a rough spot in the road while upon an errand for P, unlawfully drives upon
the sidewalk. This conduct is within the scope of employment.
E. LIABILITY FOR AGENT’S INTENTIONAL TORTS
The doctrine of respondeat superior can also apply to these torts. The principal is liable if he or she
knows, for example, that an employee has a propensity for tortious acts and places the employee in a
CHAPTER 33: AGENCY LIABILITY AND TERMINATION 13
position to commit those acts. A principal may also be liable for allowing an agent to commit reckless
acts. Insurance may cover the potential liability.
CASE SYNOPSIS—
Case 33.3: M.J. v. Wisan
The United Effort Plan Trust was formed by members of the Fundamentalist Church of Jesus Christ of
Latter–Day Saints to further church doctrines, including the practice of marriage involving underage girls. At
one time, Warren Jeffs was president of both the church and the trust. Later, Bruce Wisan was appointed to
take charge. M.J., a former member of the church, filed a suit in a Utah state court against Wisan, as the head
of the trust. M.J. alleged that when she was fourteen years old, Jeffs forced her to marry Allen Steed. She
claimed that Steed repeatedly sexually assaulted and raped her, and that Jeffs refused to permit her to
separate from or divorce Steed. M.J. sought to hold the trust liable under the doctrine of respondeat superior
for Jeffs’s allegedly tortious conduct, including intentional infliction of emotional distress. The trust’s motion for
summary judgment was denied. The trust appealed.
……………………….……………………………………………………………….………………………………………
Notes and Questions
risk.
In some jurisdictions, work space and time limits are no longer considered significant. This is because
How does the court’s opinion in this case illustrate the evolving nature of the law? The court’s
opinion in the M.J. case illustrates the evolving nature of the law through a discussion of the different
14 UNIT SEVEN: AGENCY AND EMPLOYMENT
When Jeffs was the head of the trust, none of the other trustees on its board questioned his
actions. Was this a breach of ethics? Yes, when Warren Jeffs was head of the trust, the other trustees on
the board of the United Effort Plan Trust who did not question Jeffs’s actions committed a breach of ethics.
F. LIABILITY FOR INDEPENDENT CONTRACTOR’S TORTS
A principal is generally not responsible for an independent contractor’s torts (unless exceptionally
hazardous activities are involved, in which case strict liability is imposed.
G. LIABILITY FOR AGENT’S CRIMES
IV. Termination of an Agency
A. TERMINATION BY ACT OF THE PARTIES
An agency relationship may be terminated by—
• Lapse of time. An agency may terminate if it is limited to a specific time and the time passes.
• Purpose achieved. An agency may terminate if it is limited to a particular purpose and the purpose
is achieved.
CHAPTER 33: AGENCY LIABILITY AND TERMINATION 15
1. Wrongful Termination
Wrongful termination may subject an agent or principal to a suit for damages for breach.
2. Agency Coupled with an Interest
16 UNIT SEVEN: AGENCY AND EMPLOYMENT
3. Notice of Termination
• If the parties terminate an agency, the principal must directly inform any third parties who the
principal knows has dealt with an agent. For third persons who have heard about the agency
but who have not dealt with the agent, constructive notice is sufficient.
B. TERMINATION BY OPERATION OF LAW
An agency relationship may be terminated by—
• Death or insanity. Either party’s death or insanity terminates an agency. Some states require the
agent’s knowledge of the principal’s death to terminate the agency.
TEACHING SUGGESTIONS
1. Hypotheticals that may be used to illustrate and discuss the principles of actual and apparent authority
include the following.
Mark writes to Tom directing Tom to act as Mark’s agent for the purchase of grain. Mark
adds a postscript telling Tom to make no purchase until after communicating with Mark. Mark
sends a copy of the letter without the postscript to Jane, a farmer and prospective seller. Does
Tom have actual authority to buy grain for Mark? Does Tom have apparent authority to buy grain
Imagine that in the previous question Tom never receives the letter from Mark. Jane,
however, does receive the letter, without the postscript. Under those circumstances, does Tom
have actual authority to buy grain for Mark? Does Tom have apparent authority to buy grain for
Mark from Jane? The answers to these questions are the same as the answers to the same questions
CHAPTER 33: AGENCY LIABILITY AND TERMINATION 17
whether or not to contract; when a party is the victim of a tort, he or she often had no choice in the matter.
2. The different policy considerations involved in contract and tort law may be underscored to explain the
3. It may be useful to compare the events that terminate an agency with the events that discharge a contract
or the events that terminate an offer.
Cyberlaw Link
How can the problems of anonymity and accountability, in terms of agency law, be dealt with in
cyberspace?
DISCUSSION QUESTIONS
1. What effect do a principal’s representations giving apparent authority to an agent have on the princi–
pal’s liability? If a third party changes position in reliance on a principal’s representations, the principal may be
estopped from denying that the agent had authority. When a principal goes beyond mere statements to “clothe” an
2. What happens if a principal does not ratify an agent’s unauthorized act? Absent ratification, a principal
is not bound. An agent’s unauthorized agreement with a third party is an unaccepted offer, which the third party can
3. Are disclosed principals or partially disclosed principals liable under contracts made by their agents
with third parties? A disclosed or partially disclosed principal is liable to a third party for a contract made by an
agent acting within the scope of authority. If a principal is disclosed, an agent is not ordinarily liable for
4. Are undisclosed principals and their agents liable under contracts made by the agents with third
parties? If an agent signs a contract without revealing the agency relation or the principal, and the principal does not
perform, the third party can hold the agent liable, although if the agent acted within the scope of authority, he or she is
18 UNIT SEVEN: AGENCY AND EMPLOYMENT
5. How can a principal be liable for an agent’s torts? A principal acting through an agent may be liable for
harm resulting from the principal’s negligence or recklessness (for example, giving the agent improper instructions or
authorizing the use of improper materials or tools). A principal who authorizes an agent to commit a tort may be liable
personal fault.
6. Is an employer liable for an employee’s torts? Most employees’ torts are not related to their employment,
and employers are not liable. If an employee commits a tort while acting within the scope of employment, however, a
person injured by the tort can sue the employee or the employer. When an employer lends an employee’s services to
7. Is an employer liable for an independent contractor’s torts? An employer generally is not liable for an
8. What is the ethical basis for imposing vicarious liability on a principal for an agent’s tort? The ethical
basis for imposing vicarious liability on a principal, or employer, for the tort of an agent, or an employee (and in some
cases an independent contractor) is similar to the rationale for the doctrine of respondeat superior. Each is based on
9. Is a principal liable for a subagent’s acts? If an agent is authorized to hire subagents, the principal is liable
for the subagents’ acts. An agent who hires for an undisclosed principal is responsible to the subagent in contract for
CHAPTER 33: AGENCY LIABILITY AND TERMINATION 19
10. What notice is required to third parties when an agency terminates? When an agency terminates by
operation of law, there is no duty to notify third persons, unless the agent’s authority is coupled with an interest. If the
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
discussed in this chapter. Have the students share what they learn with the class.
EXPLANATIONS OF SELECTED FOOTNOTES IN THE TEXT
Footnote 6: Marvin Sussman entered into a contract with Stonhard, Inc., to install flooring at Blue Ridge
Farms, a food manufacturing facility in Brooklyn, New York. Sussman did not disclose that he was acting as an agent
In Stonhard, Inc. v. Blue Ridge Farms, LLC, a state intermediate appellate court reversed the dismissal and
issued a summary judgment in Stonhard’s favor. As indicated by the “documentary evidence” presented in this case,
“at best * * * Sussman was acting as an agent for a partially disclosed principal, in that the agency relationship was
known, but the identity of the principal remained undisclosed. As an agent for an undisclosed principal, Sussman
became personally liable under the contract.”
Suppose that at the time of the contract Stonhard had known that Sussman was acting on behalf of
Blue Ridge Foods, and Sussman had proved it. Would the result have been different? Yes, if Stonhard had
In this case, what did the “documentary evidence” most likely consist of to indicate Sussman acted
as an agent for a partially disclosed principal in contracting with Stonhard? There are a number of possibilities
as to what the documentary evidence in this case might have consisted of. For example, either party might have
20 UNIT SEVEN: AGENCY AND EMPLOYMENT
What could an agent offer as evidence to establish that the agent acted on behalf of a disclosed
principal, and the plaintiff knew it, in defense to an action for breach of contract? In defense to an action for
The court cited “documentary evidence,” which is evidence contained in or on documents, such as a
contract offered to prove its terms. Could this include a printout of e-mail exchanged between the parties?
Yes, documentary evidence can include a printout of e-mail exchanged between parties. As a matter of fact, the
Footnote 7: Bobby Williams bought a car at Sherman Henderson’s auto repair business in Monroe,
Louisiana, for $3,000. Although the car’s owner was Joe Pike, the owner of Justice Wrecker, Henderson negotiated
In Williams v. Pike, a state intermediate appellate court affirmed. A state permit to sell the car had been
issued to Pike and showed that Justice Wrecker was the owner. The car was displayed for sale at Henderson’s
business and he actually sold it. This made Pike the principal and Henderson his agent. The fact that their agency
relationship was not made clear to Williams made Pike an undisclosed principal. Williams could thus choose to hold
either Pike or Henderson liable for the condition of the car, which was a breach of warranty because it did not fulfill the
purpose for which it was intended.
If Henderson had disclosed the fact of his agency relationship but not the identity of the principal,
If an apparent agent does not in fact have the authority to act on the principal’s behalf, does the
principal have an ethical responsibility to inform an unaware third party? A principal’s ethical duty to notify a
Is Henderson entitled to be compensated by Pike for any amount of the judgment that he pays to
CHAPTER 33: AGENCY LIABILITY AND TERMINATION 21
Suppose that Henderson had fully disclosed the fact of his agency relationship and the identity of his