Business Law Chapter 33 Homework When Employer Lends Employees Services Another Employer

812 INSTRUCTOR’S MANUAL TO ACCOMPANY BUSINESS LAW, TWELFTH EDITION

ADDITIONAL BACKGROUND—

Scope of Employment

The phrase scope of employment is used for determining the liability of an employer for employees’ acts. Acts

within the scope of employment include only acts of a kind authorized by an employer, done within the time and at

the place of employment. An employee is authorized to do anything that is reasonably regarded as incidental to the

work or that is ordinarily done with the work. Not all acts of the kind authorized and done within the time and at the

place of employment are within the scope of employment—only those which an employee does in some part for the

purpose of giving service to the employer are included—but the scope of employment includes acts that, as between

employer and employee, an employee is not privileged to do.

The limits of the scope of employment depend on the facts of each case. The ultimate question is whether or not

it is just that harm resulting from an employee’s acts should be considered as a normal risk to be borne by the business

in which the employee is employed. The factors to be considered in determining whether an unauthorized act is within

the scope of employment are listed in the Restatement (Second) of Agency, Section 229. The following hypotheticals

accompany the Restatement (Second) of Agency, Sections 229, 230, and 231, and illustrate the factors.

Illustrations:

1. P directs his woodchoppers to cut down specific trees, his directions being such that A, a woodchopper, mistakenly

cuts an unspecified tree. While cutting, A negligently injures T. P is subject to liability to T.

2. P employs A as a general farm hand, B as a milker of cows. He directs A not to do any mowing until instructed to do

from being within the scope of A’s employment. It is not within the scope of B’s employment.

3. A has been employed by P as a general assistant in a machine shop to do odd jobs around the place. As he develops

The fact that A has not been directed to assist the other operative does not prevent his act in doing so from being

within the scope of the employment.

4. P operates a small store employing two clerks and a delivery boy. One of the clerks, during the absence of P and of

conduct of the clerk was within the scope of employment.

5. Same facts as in Illustration 4, except that P has no delivery boy, makes no deliveries, and A uses his own bicycle.

The act was not within the scope of 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 directs A, the new

7. Same facts as in Illustration 6, except that the janitor has in mind chiefly the punishment of a particular boy whom

8. P, an engraver, requires all [employees] employed in finishing work to wash their hands in his wash room before

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 retaining no

11. P employs A as a chauffeur, requesting him to drive the car to A’s own garage for the night at the termination of

12. P employs A, who lives two miles from P’s office. Because A has difficulty in getting to the office on time, he

13. P employs men to do logging five miles from the nearest habitation. In order to be certain that they arrive on

support a verdict that in driving to and from work, the driver is within the scope of employment.

[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 position to commit

814 INSTRUCTOR’S MANUAL TO ACCOMPANY BUSINESS LAW, TWELFTH EDITION

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.

• Occurrence of a specific event. An agency may terminate if it is subject to a specific event that occurs (or

doesn’t occur).

• Mutual agreement. An agency may terminate if the parties agree to end it.

• Termination by one party. Either party can terminate an agency—the agent by renunciation of authority,

the principal by revocation of authority. Both parties have the power, but they may not possess the right.

1. Wrongful Termination

Wrongful termination may subject an agent or principal to a suit for damages for breach.

2. Agency Coupled with an Interest

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. An agent’s actual authority continues until the agent

receives notice of termination; an agent’s apparent authority continues until the third person learns that the

authority has been terminated.

B. TERMINATION BY OPERATION OF LAW

An agency relationship may be terminated by—

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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 for Mark from Jane? The answer to the first question is no; the

answer to the second question is yes. The Restatement (Second) of Agency, Section 8, Comment a, says,

“Apparent authority results from a manifestation by a person that another is his agent, the manifestation being

made to a third person and not, as when authority is created, to the agent. It is entirely distinct from authority,

either express or implied.”

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

2. The different policy considerations involved in contract and tort law may be underscored to explain the differences

3. It may be useful to compare the events that terminate an agency with the events that discharge a contract

(Chapter 17) or the events that terminate an offer (Chapter 11).

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 principal’s liability? If a

2. What happens if a principal does not ratify an agent’s unauthorized act? Absent ratification, a principal is not bound.

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

4. Are undisclosed principals and their agents liable under contracts made by the agents with third parties? If an agent

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 to persons or property injured

6. Is an employer liable for an employee’s torts? Most employees’ torts are not related to their employment, and

7. Is an employer liable for an independent contractor’s torts? An employer generally is not liable for an independent

8. Is a principal liable for a subagent’s acts? If an agent is authorized to hire subagents, the principal is liable for the

9. 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 parties terminate an

agency, the principal must inform any third parties who are aware of the agency that it has terminated. A principal is expected

to notify directly any third person who the principal knows has dealt with an agent. For third persons who have heard about the

EXPLANATIONS OF SELECTED FOOTNOTES IN THE TEXT

Footnote 4: Principals are classified as disclosed, partially disclosed, or undisclosed. These classifications are

explained in the Restatement (Second) of Agency, Section 4. The following is the text of the section with selected comments.

§ 4. Disclosed Principal; Partially Disclosed Principal; Undisclosed Principal

(1) If, at the time of a transaction conducted by an agent, the other party thereto has notice that the agent is acting for

a principal and of the principal’s identity, the principal is a disclosed principal.

identity, the principal for whom the agent is acting is a partially disclosed principal.

(3) If the other party has no notice that the agent is acting for a principal, the one for whom he acts is an undisclosed

principal.

Comment:

818 INSTRUCTOR’S MANUAL TO ACCOMPANY BUSINESS LAW, TWELFTH EDITION

a. The classification of principals into disclosed, partially disclosed, and undisclosed is for the purpose of simplifying the

statement of the rules determining the legal relations of third persons with respect to the principal and the agent, since

many of these relations are dependent upon whether or not the third person has notice of the existence and identity of

the principal. The other party has notice of the existence or identity of the principal if he knows, has reason to know,

or should know of it, or has been given a notification of the fact. * * *

b. Intent of agent. A disclosed principal is a party to a contract made by an authorized agent who purports to act on

the principal’s account, regardless of the agent’s intent. Thus if the principal authorizes him to borrow and he borrows

in the principal’s name, the principal is liable on the contract even if the agent intended to embezzle money received

on account of it. * * * However, it is only because the agent intends to act on account of another that the doctrine of

undisclosed principal exists. Thus, an agent authorized to buy a specific automobile in his own name who purchases

the automobile, causes the principal to be a purchaser only if the agent so intended. The fact that it would be wrongful

for him to purchase it for himself and that he would become a constructive trustee of it for the principal, does not

make the latter a party to the transaction. * * *

Illustrations:

1. A contracts with T in his own name, T reasonably believing that A is acting for himself. After the execution of the

contract, A reveals to T that he was acting as agent for P. P is an undisclosed principal.

2. A, acting as agent for P and so stating to T, executes a memorandum of the contract which he signs with his own

name. P is a disclosed principal.

* * * *

g. Usage of terms. There has been no uniform usage by the courts with respect to the terms here defined. The one

here described as a “partially disclosed principal” has been called by some courts an “unidentified principal”, which is a

Footnote 5: In most states, if a principal is partially disclosed, the principal and agent are treated as parties to the

contract, and a third party can sue either for contractual nonperformance. This is explained in the Restatement (Second) of

Agency, Section 321. The following is the text of the section with a selected comment.

§ 321. Principal Partially Disclosed

Unless otherwise agreed, a person purporting to make a contract with another for a partially disclosed principal is a

party to the contract.

Comment:

* * * *

b. Separate liability of agent. Unless agreed otherwise, the agent is subject to separate liability and may be sued

individually without the jointer of the principal. As where the principal is fully disclosed, however, the parties can

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.

ANSWERS TO ESSAY QUESTIONS IN

STUDY GUIDE TO ACCOMPANY BUSINESS LAW, TWELFTH EDITION

BY HOLLOWELL & MILLER

1. Identify and describe the categories of authority by which an agent can bind a principal and a third party in contract.

Actual authority—express authority. Express authority is authority expressly given by a principal to an agent. It is embodied in

what a principal engages an agent to do. Express authority may be oral or written, although in some cases—a grant of a power

of attorney or a grant under the equal dignity rule—it must be in writing. A principal may ratify in writing an act done without

written authority. Actual authority—implied authority. Implied authority is authority implied by custom, inferred from the

authority, has authority.

2. What are some of the situations is a principal liable for an agent’s torts? Principal’s tortious conduct. A principal is

820 INSTRUCTOR’S MANUAL TO ACCOMPANY BUSINESS LAW, TWELFTH EDITION

who authorizes an agent to commit a tort is liable for harm to persons or property (for instance, if a principal authorizes an

agent to cut timber on specific property, which neither owns nor has the right to, the cutting is a trespass, and the principal is

liable to the owner). Misrepresentation within the scope of the agency and the agent’s scope of authority. A principal is liable

for harm caused by an agent’s misrepresentation if the misrepresentation is made within the scope of the agency and the

agent’s scope of authority (for example, a bank is liable if its loan officer defrauds a borrower by falsely requiring additional

collateral that the officer steals). The misrepresentation may be fraudulent or non-fraudulent (a principal who authorizes an

agent to answer customers’ questions is liable, for example, if the agent intentionally or innocently makes false claims that

result in harm). Other torts within the scope of employment. Under the doctrine of respondeat superior, a principal–employer

REVIEWING—

 AGENCY LIABILITY AND TERMINATION 

Lynne Meyer, on her way to a business meeting and in a hurry, stopped by a Buy-Mart store for a new pair of

nylons to wear to the meeting. There was a long line at one of the checkout counters, but a cashier, Valerie Watts,

opened another counter and began loading the cash drawer. Meyer told Watts that she was in a hurry and asked

Watts to work faster. Watts, however, only slowed her pace. At this point, Meyer hit Watts. It is not clear from the

record whether Meyer hit Watts intentionally or, in an attempt to retrieve the nylons, hit her inadvertently. In

response, Watts grabbed Meyer by the hair and hit her repeatedly in the back of the head, while Meyer screamed for

help. Management personnel separated the two women and questioned them about the incident. Watts was

immediately fired for violating the store’s no-fighting policy. Meyer subsequently sued Buy-Mart, alleging that the

store was liable for the tort (assault and battery) committed by its employee. Ask your students to answer the

following questions, using the information presented in the chapter.

1. Under what doctrine discussed in this chapter might Buy-Mart be held liable for the tort committed by Watts? The

employees, would apply in this situation. The concept of respondeat superior is based on the assumption that

2. What is the key factor in determining whether Buy-Mart is liable under this doctrine? Under the doctrine of

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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

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 acts.

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.

for any part of a damage award as a result of their tortious acts.

