Lecture Dynamic business law - Chapter 34: Liability to third parties and termination

After studying this chapter you will be able to understand: Under what circumstances might a principal be held liable to a third party on a contract negotiated by an agent? Under what circumstances might a principal be held liable for the tortious behavior of its agent or independent contractor? How can an agency relationship be terminated?

Chapter 34 Liability to Third  Parties and Termination Copyright © 2015 McGraw­Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw­Hill Education Authority of Agent and Liability of Principal  Express Authority:  Principal explicitly instructed agent to  perform act  Implied Authority:  Relationship inferred from actions/conduct  of parties; authority inferred from nature of relationship  Apparent Authority and Estoppel:  Third party reasonably  believes (based on actions of principal) that agency  relationship exists between principal and another individual 34­2 Contractual Liability of Principal and Agent For  Authorized Agent Acts “Authorized” Acts:  Agent acts within scope of agent’s authority;   Classification of Principal:  Must be classified as either disclosed, partially  disclosed, or undisclosed  Disclosed Principal—Agent not liable, principal liable  Partially Disclosed Principal—Agent possibly liable, principal liable  Undisclosed Principal—Agent liable, principal liable 34­3 Contractual Liability of Principal and Agent for  Unauthorized Agent Acts “Unauthorized” Acts:  Acts that go beyond scope of agent’s authority   Third Party Reasonably Believes Agent Has Authority:  Agent liable  Principal not liable Third Party Believes Agent Mistaken About His/Her Authority:  Agent not liable  Principal not liable 34­4 Tort Liability and the Agency Relationship  Agent’s Tortious Conduct—Principle directly responsible if:  Principal directs agent to commit tortious act; or  Principal fails to provide proper instruments, tools, or adequate  instructions  Agent Misrepresentation—If agent misrepresents himself/herself to third  party, principal may be tortiously liable for agent’s misrepresentation  Respondeat Superior—Principal/employer liable if employee wrongfully  injures third party (not because he/she personally at fault, but because  he/she negligently hired agent) 34­5 Questions Regarding “Course and Scope” of Employment  Did employer authorize employee’s act?  Did act occur within time and space limits of employment?  Was act performed (at least in part) on behalf of employer?  To what extent were employer’s interests advanced by act?  To what extent were private interests of employee involved?  Did employer provide the means by which act occurred?  Did employee use force that employer did not expect?  Did employer know that act would involve commission of crime? 34­6 Principal’s Liability and the  Independent Contractor General Rule:  Individual who hires independent  contractor not liable for independent contractor’s  tortious actions under doctrine of “respondeat  superior”, unless contractor engages in hazardous  activities 34­7 Crime and Agency Relationships  If agent commits crime, agent liable for crime  If agent commits crime in scope of employment without  authorization of principal, principal not liable for agent’s  crime  Principal liable for agent’s crime if principal authorized  agent’s criminal act 34­8 Termination of Agency Relationship Termination By Acts of Parties  Lapse of Time  Fulfillment of Purpose  Occurrence of Specific Event  Mutual Agreement  Revocation of Authority  Renunciation By Agent 34­9 Termination of Agency Relationship Termination By Operation of Law  Death (Of either principal or agent)  Insanity (Of either principal or agent)  Bankruptcy (Of either principal or agent)  Change in Circumstances  Change in Law  Impossibility of Performance  Disloyalty of Agent  War 34­10 ... Principal directs agent to commit tortious act; or  Principal fails to provide proper instruments, tools, or adequate  instructions  Agent Misrepresentation—If agent misrepresents himself/herself to third ... Did employer know that act would involve commission of crime? 34­6 Principal’s Liability and the  Independent Contractor General Rule:  Individual who hires independent  contractor not liable for independent contractor’s  tortious actions under doctrine of “respondeat ... Apparent Authority and Estoppel:  Third party reasonably  believes (based on actions of principal) that agency  relationship exists between principal and another individual 34­2 Contractual Liability of Principal and Agent For