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CHAPTER 33
AGENCY LIABILITY AND TERMINATION
ANSWER TO CRITICAL THINKING QUESTION
IN THE FEATURE
GLOBAL INSIGHT—CRITICAL THINKING
How would U.S. society be affected if employers could not be held vicariously liable for
ANSWERS TO QUESTIONS
AT THE ENDS OF THE CASES
CASE 33.1—CRITICAL THINKING
LEGAL ENVIRONMENT
The court held that Church had allowed the Lundbergs to believe that Bagley was his
agent. What steps could Church have taken to protect himself against a finding of
apparent authority? Church might have left Bagley’s name out of the ad for the farm. Or
ETHICAL
Does a principal have an ethical responsibility to inform an unaware third party that an
apparent agent does not in fact have the authority to act on the principal’s behalf? A
2 UNIT SEVEN: AGENCY AND EMPLOYMENT
CASE 33.2—CRITICAL THINKING
ECONOMIC
Why did ACS contend that Johnson was not its employee? Discuss. ACS contended that
CASE 33.3—LEGAL REASONING QUESTIONS
1. Why do some courts apply a standard for imposing vicarious liability that does not
rely on motive or purpose to determine whether an agent’s tortious conduct falls within
the scope of employment? A principal can be held liable for a tort committed by an agent
under the doctrine of respondeat superior if the commission of the tort falls within the scope of
employment. To fall within this scope, an agent’s act must have been subject to the principal’s
2. Why, in some states, are the boundaries of work time and space no longer essential
factors in determining the scope of employment in an agency relationship? A principal
can be held liable for a tort committed by an agent under the doctrine of respondeat superior if
CHAPTER 33: AGENCY LIABILITY TO THIRD PARTIES AND TERMINATION 3
the commission of the tort falls within the scope of employment. To fall within this scope, an
agent’s act must have been subject to the principal’s permission or control, not an independent
course of conduct.
3. Who does the result in this case benefit? Why? The result in the M.J. case generally
benefits the plaintiff, M.J. because it allows her case to proceed to trial, or for the parties to enter
into a settlement, or otherwise resolve the dispute at least partially in favor of M.J.
4 UNIT SEVEN: AGENCY AND EMPLOYMENT
ANSWERS TO QUESTIONS IN THE REVIEWING FEATURE
AT THE END OF THE CHAPTER
1A. Doctrine
The doctrine of respondeat superior, under which employers may be held liable for the actions
2A. Key factor
Under the doctrine of respondeat superior, an employer is responsible for torts committed by
agents or employees in the course and scope of their employment.
3A. Potential liability
Buy-Mart would be liable in either case under the doctrine of respondeat superior, which does
4A. Employer’s knowledge
An employer who knows or should know that an employee has a propensity for committing
ANSWER TO DEBATE THIS QUESTION IN THE REVIEWING FEATURE
AT THE END OF THE CHAPTER
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 repondeat superior, some agents may act more recklessly because
they know that the principal will pay all damages for their irresponsible behavior. If all agents
CHAPTER 33: AGENCY LIABILITY TO THIRD PARTIES AND TERMINATION 5
ANSWERS TO ISSUE SPOTTERS
AT THE END OF THE CHAPTER
1A. 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
2A. 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 note in Vivian’s name. In what circumstance is Vivian liable on
the note? When a person enters into a contract on another’s behalf without the authority to do
ANSWERS TO BUSINESS SCENARIOS
AT THE END OF THE CHAPTER
33-1A. Unauthorized acts
As a general rule, a principal and third party are bound only to a contract made by the principal’s
agent within the scope of the agent’s authority. An agent’s authority to act can come from actual
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
6 UNIT SEVEN: AGENCY AND EMPLOYMENT
33-2A. Respondeat superior
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
key to whether the doctrine applies is whether the servant was an employee at the time the tort
ANSWERS TO BUSINESS CASE PROBLEMS
AT THE END OF THE CHAPTER
33–3A. Liability based on apparent authority
The subcontractors should have filed liens before the church made its final payment to NCS.
Their liens were not timely. NCS was not the agent of the church such that the church could be
held liable to the subcontractors for costs owed to subcontractors by NCS. NCS did not give the
CHAPTER 33: AGENCY LIABILITY TO THIRD PARTIES AND TERMINATION 7
33–4A. Disclosed principal
In this problem, with respect to the refrigeration-unit contract with Felix, Sclafani was the
principal and “the girl in the office” was his agent. In an agency relationship, one of the parties,
called the agent, agrees to act for the other, called the principal, and the principal agrees to
have the agent so act. Liability for contracts formed by an agent depends on how the principal is
classified and on whether the actions of the agent were authorized. If the agent acts within the
scope of authority, normally the principal is obligated to perform the contract. If the principal is
33–5A. Liability for contracts
Hall may be held personally liable. Hall could not be an agent for House Medic because it was a
33–6A. BUSINESS CASE PROBLEM WITH SAMPLE ANSWER—Agent’s authority
No, Rainbow cannot recoup the unpaid amounts from Basic. Express authority is authority
declared in clear, direct, and definite terms. Express authority can be given orally or in writing. In
most states, if the contract being executed is or must be in writing, then the agent’s authority
must also be in writing. Otherwise, the contract may be avoided (or ratified) by the principal. If it
8 UNIT SEVEN: AGENCY AND EMPLOYMENT
33–7A. Agent’s authority
As Rosie’s agent, Susan owed her a fiduciary duty to act in the utmost good faith on Rosie’s
behalf and in her best interest. An agent’s duty of accounting requires an agent to keep and
make available to the principal an account of all property and funds received and paid out on the
principal’s behalf. The agent has a duty to maintain separate accounts for the principal’s funds
33–8A. Scope of agent’s authority
Yes, Jones can be compelled to submit her claim against Kindred (Whitesburg Gardens) to
arbitration. The liability of a principal to third parties with whom an agent contracted depends on
whether the agent had the authority to enter into a legally binding contract on the principal’s
behalf. This authority can be actual (express or implied) or apparent. Apparent authority arises
when a principal causes a third party reasonably to believe that an agent has the authority to
act. In this problem, Kindred operates Whitesburg Gardens, a rehabilitation facility to which
CHAPTER 33: AGENCY LIABILITY TO THIRD PARTIES AND TERMINATION 9
33–9A. A QUESTION OF ETHICS—Vicarious liability
(a) Yes, Paliath’s representations to Auer about the property were within the scope of
her employment as a real estate agent for Home Town Realty (the real estate broker). Realtors
cannot act except under the authority of their broker (who is the principal), and they are
authorized by the broker to make representations concerning the properties that they are selling.
The court found that Paliath had acted within the scope of her employment under the
factors listed in this text. Because “a real estate salesman has no independent status or right to
Town Realty, which acted as the broker to Paliath’s salesperson.
(b) 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 the social duty that requires
every person to manage his or her affairs so as not to injure another. This duty applies even
when a person acts through an agent (controls the conduct of another).
10 UNIT SEVEN: AGENCY AND EMPLOYMENT
33-10A. SPECIAL CASE ANALYSIS—Liability for torts and crimes
Case No. 33.2
M.J. v. Wisan
Utah Supreme Court, 2016
2016 UT 13, __ P.3d __, 2016 WL 1165669
(a) Issue: What conduct was at the center of the dispute in this case? Who did the
plaintiff allege was liable for this conduct? Which of these parties was the principal, and which
was the agent? The conduct at the center of the dispute in the M.J. case included the actions by
Warren Jeffs, the head of the Fundamentalist Church of Jesus Christ of Latter–Day Saints and
the United Effort Plan Trust at the time, refusing to permit M.J. to separate from or divorce her
(b) Rule of Law: What rule applied to determine the liability of the parties for the
conduct in dispute? The rule that applied to determine the liability of the parties for the conduct
in dispute in the M.J. case was the doctrine of respondeat superior as applied in the context of
an agency relationship—whether an agent’s allegedly tortious conduct falls within the scope of
(c) Applying the Rule of Law: What factors did the court indicate could be
considered in deciding whether to impose liability in this case? The Utah Supreme Court
indicated that there were three factors that have traditionally been considered in determining
whether an act falls within the scope of employment so as to support the imposition of vicarious
CHAPTER 33: AGENCY LIABILITY TO THIRD PARTIES AND TERMINATION 11
To fall within this scope, an agent’s act must have been subject to the principal’s
permission or control, not an independent course of conduct. The traditional factors bearing on
this issue have included the following.
1. “Whether the agent’s conduct is of the general kind the agent is employed to
perform.”
(d) Conclusion: How did the court rule on the question of vicarious liability? In the
M.J. case, the Utah Supreme Court upheld the lower court’s denial of the trust’s motion for
summary judgment and apparently remanded the case for further proceedings.
M.J., a former member of the Fundamentalist Church of Jesus Christ of Latter–Day
Saints and beneficiary of the United Effort Plan Trust, filed a suit in a Utah state court against
12 UNIT SEVEN: AGENCY AND EMPLOYMENT
ANSWERS TO LEGAL REASONING GROUP ACTIVITY QUESTIONS
AT THE END OF THE CHAPTER
33–11A. Liability for independent contractor’s torts
(a) The plaintiff’s best argument that Dean is responsible for BSP’s actions may be
that work such as BSP was hired to perform creates a peculiar risk of harm to others. When
armed guards are hired to deter vandals and thieves it is foreseeable that someone might be
injured by the inappropriate use of a weapon if proper precautions are not taken. Thus, in this
(b) To the plaintiff’s best argument set out in the previous answer, Dean might
respond that hiring armed guards to protect property does not create a peculiar risk of harm to
