Business Law Chapter 33 Homework Sclafani Testified That Referred All Credit Questions

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.

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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

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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

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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).

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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