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Business associations Section 1b: Agency: external relationships Prof. Amitai Aviram University of Illinois College of Law Copyright.

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Presentation on theme: "Business associations Section 1b: Agency: external relationships Prof. Amitai Aviram University of Illinois College of Law Copyright."— Presentation transcript:

1 Business associations Section 1b: Agency: external relationships Prof. Amitai Aviram University of Illinois College of Law Copyright © Amitai Aviram. All Rights Reserved F14D

2 Agency: external relationships Overview of Section 1b 1.As external relationships – Ps duties to agent – As liability to T in contracts – As liability to T in torts 2.Ps liability to T in contracts 3.Ps liability to T in torts © Amitai Aviram. All rights reserved. 2

3 Ps duties to A Contractual duties Ps duties to A are contractual in nature (Rest. 8.13, 8.14(1)) In addition to express terms of the agreement between P & A, P is liable to A for: – Implied terms (Rest. 8.13) – Breach of duty to deal in good faith (Rest. 8.15) – Default terms re indemnification (Rest. 8.14(2)) Implied terms – Terms that a reasonable person would infer from the express language of the agreement © Amitai Aviram. All rights reserved. 3

4 Ps duties to A Duty of good faith & fair dealing Duty to deal fairly and in good faith (Rest. 8.15) – Protects agreed common purpose & As justified expectations Common application (1): frustrating As justified expectations – P must avoid unreasonable conduct that harms A, when: Contract lacks specific language governing the issue; and Conduct frustrates purposes reflected in contracts express language – E.g., Prof agrees with RA that he will get an extra $100 if he shows up at profs office at 8am. Prof later changes mind, locks office doors so RA cant enter office at 8am. Common application (2): duty to warn – P breaches duty if P fails to provide A with info about unreasonable risks involved in the agency, if risk is foreseeable to P & A is unlikely to become aware of risk on his own – Risks include physical harm, pecuniary loss, and possibly also harm to business reputation & reasonable self-respect E.g., P sends A to sign up investors for an investment that P knows (but A doesnt know) is a Ponzi scheme. When A is implicated in the Ponzi scheme, his business reputation is tarnished and he cannot get another job. P may be liable to A for the harm suffered by A. © Amitai Aviram. All rights reserved. 4

5 Ps duties to A Duty to indemnify Indemnifying agents – default rule (Rest. 8.14(2)) – When the agent makes a payment within the scope of the agent's actual authority, or that is beneficial to the principal, unless the agent acts officiously in making the payment – Officious (voluntary) payments are ones in which the agent has a reasonable opportunity to receive Ps authorization, but makes a payment without seeking authorization – When the agent suffers a loss that fairly should be borne by the principal in light of their relationship While this is vague, a duty to indemnify typically arises when As loss is: – In connection with the agency relationship; and – Not a result of A's own negligence, illegal acts, or other wrongful conduct © Amitai Aviram. All rights reserved. 5

6 Ps duties to A Review: changes to Section 1a mini-case The buyer of Anns book turned out to be Tom. When Tom received the book, he noticed that its the exact same copy he saw at SPL (he did not know that the seller was the volunteer he spoke with at the sale). He went to Patrick to inquire how the book ended up sold online, and only then realized that Ann was the person who priced the book (at what seemed to be) prohibitively high, then took the book for herself. Outraged, he told Patrick that he was going to go to Anns home and shoot her. Patrick tried to discourage Tom from doing so, but Tom stormed out of the library. Two days later, Tom rang the doorbell at Anns home. When she opened the door, Tom shot Ann and ran away. Fortunately, Ann only suffered a minor injury from the shot, but medical expenses amounted to $5,000. SPL sued Ann for her pricing and purchase of the book. Ann counter-claimed against SPL for $5,000 in medical expenses. Discuss Anns counter-claim. © Amitai Aviram. All rights reserved. 6

7 Agents liability to T in contract Types of principals [Rest. § 1.04(2)] Determined at time that A & T interact Principal TypeT has notice that A acts on behalf of someone else T has notice of Ps identity Disclosed Unidentified Undisclosed © Amitai Aviram. All rights reserved. 7

8 Agents liability to T in contract Status based on Ps type Disclosed principal [Rest. 6.01] – P & T are parties to the contract; by default, A isnt a party (unless A & T agree otherwise) Unidentified principal [Rest. 6.02] – P & T are parties to the contract; by default, A is a party (unless A & T agree otherwise) Undisclosed principal [Rest. 6.03, 2.06] – If A acted with actual authority A & T are parties to the contract; by default: P is a party (unless excluded by the contract) – If A acted without actual authority A is liable to T under Rest. § 6.10 (see next slide) Ps liability to T discussed in Section 1b2 (special rule for undisclosed P) Non-existent principal [Rest. 6.04] – P doesnt exist (or has no capacity to contract), so P cannot be a party – By default, A & T are parties, if A knows/had reason to know that P did not exist/lacked capacity – If A doesnt know that P doesnt exist then no contract exists, but A may be liable for breach of implied warranty of authority (see next slide) © Amitai Aviram. All rights reserved. 8

9 Rest. § 6.10: If A purports to act as an agent, A gives T an implied warranty of authority Result: if P is not bound to T, A is liable to T for lacking power to bind P, unless: – P ratifies the act; – A gives notice to T that no warranty is given; or – T knows that A lacks actual authority Agents liability to T in contract Liability for exceeding authority © Amitai Aviram. All rights reserved. 9

10 Rest. §7.01: Agency relationship does not absolve agent from liability for As tortuous conduct Rest. §7.02: As breach of a duty to P doesnt make A liable to T Agents liability to T in torts Restatement principles [Rest ] © Amitai Aviram. All rights reserved. 10

11 Agency: external relationships Overview of Section 1b 1.As external relationships 2.Ps liability to T in contracts – Actual authority – Ratification (retroactive creation of actual authority) – Apparent authority – Special rule for undisclosed principals (virtual apparent authority) – Estoppel 3.Ps liability to T in torts © Amitai Aviram. All rights reserved. 11

12 Principals liability in contract Framework P is liable to T for a contract that A made with T on Ps behalf, if: Track 1 – P & A have an agency relationship; and – A had authority to undertake the specific act Actual authority Apparent authority Ratification (retroactive creation of actual authority) Special rule for undisclosed principals (virtual apparent authority) Track 2: Estoppel © Amitai Aviram. All rights reserved. 12

13 Agency: external relationships Overview of Section 1b 1.As external relationships 2.Ps liability to T in contracts – Actual authority – Ratification (retroactive creation of actual authority) – Apparent authority – Special rule for undisclosed principals (virtual apparent authority) – Estoppel 3.Ps liability to T in torts © Amitai Aviram. All rights reserved. 13

14 Actual authority Elements [Rest. § 2.01/3.01] 1.A reasonably believes that s/he is authorized to act in a certain way; 2.This reasonable belief is traceable to manifestations by P Rest. 2.02(1): A has actual authority for acts that are necessary or incidental to achieving the principals objectives – Practical tip: if you find theres actual authority for act Z under Rest. 2.01, you can use Rest. 2.02(1) to expand actual authority to other acts that are necessary or incidental to act Z Hypo: Patty owns an apartment building & hires Andy to manage it – P tells A to hire someone to fix the elevators – A invites Tim to the managers office of the building, tells T he is Pattys apartment manager & hires T to fix the elevators – A also hires T to clean the apartment building (P said nothing about it) – T does jobs & bills P $60 for fixing the elevators, $40 for cleaning – P refuses to pay – T sues P for breach of contract. Discuss Ts suit. © Amitai Aviram. All rights reserved. 14

15 Actual authority Express & implied actual authority Discussion of hypo – T knows A is acting for P, so P is a disclosed principal (Rest. 1.02(2)(a)). As a disclosed principal, Patty is liable if Andy was her agent & acted with authority (Rest. 6.01) a)Is Andy Pattys agent? (Rest. § 1.01) b)Was the contract between A & T within As authority? 1.Actual authority? (Rest. § 2.01/3.01, 2.02) 2.Apparent authority – relevant; will be discussed later 3.Irrelevant (dont discuss): ratification; rule for undisclosed P; estoppel Some case law calls 1 st situation (fixing elevators) express actual authority or express authority, and 2 nd situation (cleaning) implied actual authority or implied authority – This is an unnecessary distinction; both are actual authority © Amitai Aviram. All rights reserved. 15

16 Actual authority Mill Street Church v. Hogan [Ky. 1990] Church hires Bill Hogan to paint the church building – Bill hires his brother Sam to help – Sam is injured while painting & seeks workers compensation This depends on whether Sam was a church employee, which in turn depends on whether Bill had authority to hire Sam Figuring out the players & their roles – Principal: Mill Street Church – Agent: Bill – Third Party: Sam Did Bill have actual authority to hire Sam? Suppose that Sam believes that Bill was authorized to hire him. Does this affect actual authority? © Amitai Aviram. All rights reserved. 16

17 Agency: external relationships Overview of Section 1b 1.As external relationships 2.Ps liability to T in contracts – Actual authority – Ratification (retroactive creation of actual authority) – Apparent authority – Special rule for undisclosed principals (virtual apparent authority) – Estoppel 3.Ps liability to T in torts © Amitai Aviram. All rights reserved. 17

18 Ratification Elements [Rest. § , 8.06] 1.Appropriate approver 2.As behavior can be approved – Attributed to beneficiary – Appropriate scope 3.Appropriate approval – Unambiguous – Informed – Timely Each of these elements was explained in detail in Section 1a3 © Amitai Aviram. All rights reserved. 18

19 Ratification Effect on future authority Ratification without notice to T that A was unauthorized may result in A having apparent authority in future similar acts – Modifying Hogan: Suppose that Mill St. Church told Bill expressly, in front of Sam, that Bill may not hire Sam. Nonetheless, Bill hires Sam & they paint the church together. – The church observes the job they did & realizes that hiring Sam was a good idea. The church tells Bill and Sam that it is ratifying the act of hiring Sam. – Later, Bill hires Sam for another job. This time the church objects. – Did Bill have apparent authority to hire Sam the second time? Similarly, lack of notice to A that the act was unauthorized may result in implied actual authority – Assume that the church is forced to pay Sam for the second job. It sues Bill for acting without actual authority. – Can Bill argue that he had actual authority to hire Sam the second time? © Amitai Aviram. All rights reserved. 19

20 Agency: external relationships Overview of Section 1b 1.As external relationships 2.Ps liability to T in contracts – Actual authority – Ratification (retroactive creation of actual authority) – Apparent authority – Special rule for undisclosed principals (virtual apparent authority) – Estoppel 3.Ps liability to T in torts © Amitai Aviram. All rights reserved. 20

21 Apparent authority Hypo Patty hired Andy to manage her apartment building. She specifically told him not to hire anyone to clean the building. Nonetheless, Andy hires Tim to do so. – It is customary in that region that apartment managers have the power to hire janitors to clean the buildings they manage – Is Patty bound by the contract with Tim? Is Andy Pattys agent? Yes Does Andy have actual authority? Does Andy have apparent authority? PattyAndy Tim © Amitai Aviram. All rights reserved. 21

22 Apparent authority Elements [Rest. § 2.03/3.03] 1.T reasonably believes that A is authorized to act in a certain way; and 2.This reasonable belief is traceable to manifestations by P Mirrors the elements of actual authority, except that apparent authority is concerned with Ts reasonable belief (not As) – Actual Authority [P»A] – Apparent Authority [P»T] Justifications – Access to evidence (fairness to T) – Preventing abuse by P Apparent authority binds P to T, but P can sue A if A exceeded actual authority (E.g., Patty can sue Andy for hiring Tim) PA T © Amitai Aviram. All rights reserved. 22

23 Apparent authority Manifestations by A Manifestations by A dont create actual or apparent authority, but can be circumstances in interpreting Ps manifestations Hypo: Pete & Angela talk with Tessa. Angela tells Tessa that she is Petes agent and has authority to hire Tessa. Pete hears this and says nothing. – Assume that an agency relationship exists between P&A Does Angela have apparent authority to hire Tessa? 1.T reasonably believes that A is authorized 2.Ts reasonable belief is traceable to manifestations by P If Pete later sues Angela for his loss from having to honor the contract, does he win? – Assume earlier P told A that she isnt authorized to hire anyone © Amitai Aviram. All rights reserved. 23

24 What was the main issue in Lind? Issue 1: Agency relationship (Rest. §1.01) Issue 2: Authority – Actual authority? – Apparent authority? 1.T reasonably believes that A is authorized 2.This reasonable belief is traceable to manifestations by P Apparent authority Lind v. Schenley [CA3 1960] Parties in LindRole (P/A/T)? LindPromoted to District Manager Park & TilfordLinds company HerrfeldtP&Ts VP & General Sales Manager KaufmanN.Y. Sales manager; Linds new boss © Amitai Aviram. All rights reserved. 24

25 Agency: external relationships Overview of Section 1b 1.As external relationships 2.Ps liability to T in contracts – Actual authority – Ratification (retroactive creation of actual authority) – Apparent authority – Special rule for undisclosed principals (virtual apparent authority) – Estoppel 3.Ps liability to T in torts © Amitai Aviram. All rights reserved. 25

26 Undisclosed principal Whats the problem? 1.Tricking T into dealing with P – T is entitled not to deal with P, yet P can trick T by dealing through A, without A disclosing shes dealing on Ps behalf Solution - Rest. § 6.11(4): If A falsely represents to T that he is not acting on behalf of a principal, T is not liable if P or A had notice that T would not have dealt with P © Amitai Aviram. All rights reserved. 26

27 Undisclosed principal Whats the problem? 2.Involuntarily asymmetrical relationship (T is bound; P is not) Hypo – P hires A to buy Ts Apple shares; agency agreement says A cant pay >$1 – A signs deal with T to buy shares for $200K (market price), not mentioning shes buying on Ps behalf Ps option – If Apple shares increase in price, P ratifies & closes the deal – If Apple shares decrease in price, P claims no liability (no actual authority & apparent authority is not possible) But A is a party to the contract (since it was w/undisclosed P) – Given that A is liable, is it a problem that P is not? – Windfall for P vs. windfall for T © Amitai Aviram. All rights reserved. 27

28 Undisclosed principal Solution under Restatement (2 nd ) Inherent authority – A minimum level of authority inherent in an agent regardless of Ps manifestations This concept was eliminated in Restatement (3 rd ) © Amitai Aviram. All rights reserved. 28

29 Undisclosed principal Solutions under Restatement (3 rd ) Restatement (3 rd ) § 2.06(1): – Undisclosed P liable to T, if T was justifiably induced to make a detrimental change in position by As unauthorized acts, and P had notice & didnt take reasonable steps to notify T – This is estoppel (will be discussed later in this section) Restatement (3 rd ) § 2.06(2): – Undisclosed P may not rely on instructions given an agent that [limit As] authority to less than the authority [T] would reasonably believe [A has] under the same circumstances if [P] had been disclosed. – I call this virtual apparent authority: acts that would have had apparent authority if T knew A was an agent are considered part of the actual authority © Amitai Aviram. All rights reserved. 29

30 Undisclosed principal Virtual apparent authority Reconsider hypo: P hires A to buy Ts Apple shares; agency agreement says A cant pay >$1; A signs deal to buy Ts shares for $200K (market price), not mentioning shes acting on Ps behalf – Rest. 2.06(2): Undisclosed P may not rely on instructions given an agent that [limit As] authority to less than the authority [T] would reasonably believe [A has] under the same circumstances if [P] had been disclosed. If T knew that A was acting on Ps behalf, would T reasonably believe that A had authority to offer $200K? – Probably yes – it would be reasonable for T to believe A was authorized to offer the market price for the house Now change the hypo, so that A offers $2M (x10 market price) – If T knew that A was acting on Ps behalf, would T reasonably believe that A had authority to offer $1M? – Maybe not – would at least raise a red flag as to agents authority (similar to Lind) © Amitai Aviram. All rights reserved. 30

31 Agency: external relationships Overview of Section 1b 1.As external relationships 2.Ps liability to T in contracts – Actual authority – Ratification (retroactive creation of actual authority) – Apparent authority – Special rule for undisclosed principals (virtual apparent authority) – Estoppel 3.Ps liability to T in torts © Amitai Aviram. All rights reserved. 31

32 Estoppel Why do we have estoppel? Hypo: Patty owns an apartment building; she doesnt hire Andy as an agent Nonetheless, Andy meets with Tim in the managers office of the building, represents himself as Pattys apartment manger & hires Tim to clean the building Tim does the job. Andy disappears. Tim sues Patty to recover the promised payment. Is Patty liable to Tim? – Can Tim claim liability based on apparent authority? © Amitai Aviram. All rights reserved. 32

33 Estoppel The rule Restatement §2.05: In a transaction between an actor (A) and a third party (T), which the actor purportedly did on behalf of another person (P), P is liable to T if: – T justifiably is induced to make a detrimental change in position because the transaction is believed to be on [Ps] account and either: P intentionally or carelessly caused such belief or Having notice of such belief and that it might induce others to change their positions, P did not take reasonable steps to notify them of the facts Estoppel can only bind P (T is not bound) © Amitai Aviram. All rights reserved. 33

34 Estoppel The hypo reconsidered Patty owns an apartment building; she doesnt hire Andy as an agent Nonetheless, Andy meets with Tim in the managers office of the building, represents himself as Pattys apartment manger & hires Tim to clean the building Tim does the job. Andy disappears. Tim sues Patty to recover the promised payment. Is P liable to T due to estoppel? – T makes detrimental change in position An expenditure of money or labor, incurrence of a loss, or subjection to legal liability, but not loss of the benefit of a bargain – Ts change in position is due to being justifiably induced – P either intentionally or carelessly caused such belief? had notice of Ts inducement & didnt take reasonable steps to notify T © Amitai Aviram. All rights reserved. 34

35 Estoppel Hoddeson v. Koos Bros. [N.J. Super. 1957] Hoddeson went to the Koos Brothers furniture store – At the store, she was helped by a tall man with dark hair frosted at the temples and clad in a gray suit – He accepted her order & received money The man was not an employee of Koos Brothers – When Hoddeson discovered the fraud, she sued the store – Is the store liable due to apparent authority? – Is the store liable due to estoppel? T makes detrimental change in position Ts change in position is due to being justifiably induced P either – intentionally or carelessly caused such belief? – had notice of Ts inducement & didnt take reasonable steps to notify T © Amitai Aviram. All rights reserved. 35

36 Estoppel Best Buy prank – ~ 80 fake employees © Amitai Aviram. All rights reserved. 36

37 Agency: external relationships Overview of Section 1b 1.As external relationships 2.Ps liability to T in contracts 3.Ps liability to T in torts – Direct liability – Vicarious liability: employee – Vicarious liability: scope of employment – Vicarious liability: torts involving apparent authority © Amitai Aviram. All rights reserved. 37

38 Ps liability to T in torts Types of tort liability Principals direct liability (P liable because of a combination of As acts & Ps acts) [7.03(1)] – A acted w/actual authority or P ratified As conduct [7.04] – P negligent in selecting/supervising/controlling agent [7.05] Principals vicarious liability (P liable solely because of As acts + agency relationship) [7.03(2)] – Tort committed by employee acting within scope of employment [SoE] [7.07] – Tort committed by A acting with apparent authority [7.08] © Amitai Aviram. All rights reserved. 38

39 Ps liability to T in torts Ps tort liability for As acts Is A an agent of P? – No - P is not liable in agency law for As tort – Yes - Is A liable to T in torts? No – P is not liable on an agency theory, unless P would be liable if he committed As acts [7.04(2)] Yes – Is P directly liable for As conduct? » A acted with actual authority [7.04] » P ratified As conduct [7.04] » P negligent in selecting, supervising or controlling agent [7.05] – Yes – P is liable to T in torts – No – Is P vicariously liable for As conduct? » See next slide © Amitai Aviram. All rights reserved. 39

40 Ps liability to T in torts Ps tort liability for As acts Is P vicariously liable for As conduct? – Yes – Is A an employee of P? [7.07(3)] Yes – Was the tort committed within As scope of employment? [7.07(2)] – Yes – P is liable for As tort [2.04, 7.07(1)] – No – Go to next bullet [] No – Did acts that A took with apparent authority constitute a tort or enable A to conceal a torts commission? – Yes - P is liable for As tort [7.08] – No - P is not liable in agency law for As tort © Amitai Aviram. All rights reserved. 40

41 Agency: external relationships Overview of Section 1b 1.As external relationships 2.Ps liability to T in contracts 3.Ps liability to T in torts – Direct liability – Vicarious liability: employee – Vicarious liability: scope of employment – Vicarious liability: torts involving apparent authority © Amitai Aviram. All rights reserved. 41

42 Direct liability Grounds for direct liability P is directly liable to T in torts for As conduct when: 1.As conduct within As actual authority/ratified by P [7.04(1)] E.g.: P gave instructions that A believed, and a reasonable agent would also believe, authorized the tortuous conduct 2.Harm was due to Ps negligence in selecting or controlling agent Rest. 7.05(1) – Liable to whom: any T who foreseeably could be harmed by As behavior – For what: hiring/retaining an A who P knew/should have known was unfit for the job in the sense that employment placed A in position where his unfitness would create a foreseeable danger to others (MacDonald v. Hinton, [Ill.App., 2005]) Rest. 7.05(2) – Liable to whom: T who has a special relationship with P. Recognized special relationships (Iseberg v. Gross [Ill., 2007]): common carrier- passenger, innkeeper-guest, business invitor-invitee & voluntary custodian- protectee. Draft of Rest. (3 rd ) of Torts adds employer-employee, school- student & landlord-tenant. – For what: foreseeable harm from As behavior © Amitai Aviram. All rights reserved. 42

43 Agency: external relationships Overview of Section 1b 1.As external relationships 2.Ps liability to T in contracts 3.Ps liability to T in torts – Direct liability – Vicarious liability: employee – Vicarious liability: scope of employment – Vicarious liability: torts involving apparent authority © Amitai Aviram. All rights reserved. 43

44 Vicarious liability Why do we have it? Rest. §2.04 (respondeat superior): An employer is subject to liability for torts committed by employees while acting within the scope of their employment. What is the justification for vicarious liability? (explained in Patterson v. Blair) © Amitai Aviram. All rights reserved. 44

45 Employee Rest. §7.07(3) An employee is an agent whose principal controls or has the right to control the manner and means of the agents performance of work [7.07(3)(a)] – A gratuitous agent may be an employee [7.07(3)(b)] Modern term (Rest. 3 rd ) Traditional term (Rest. 2 nd ) A has power to act on Ps behalf P controls results P controls physical conduct Non-agent [service provider] Independent contractor (non-agent) Non-employee agent Independent contractor (agent-type) EmployeeServant © Amitai Aviram. All rights reserved. 45

46 Employee Brooks v. Grams, Inc. [Ky. App., 2008] Apryl, who works for Grams Grocery, asked her husband Ferand to drive to WalMart to buy sausage for the grocery – Ferand causes an accident that kills him & injures Brooks – Brooks sues Grams; trial court finds Ferand was not an agent Appelate court: Ferand may have been an agent – If Apryl had authority to employ Ferand – Or by ratification, if Fitzgerald ratified Apryls acts (e.g., by warning Ferand about the weather) But Grams liability depends on Ferand being Grams employee – Rest. §7.07(3)(a): Did P control the manner & means of As performance of work? – Court suggests several criteria to determine whether Ferand was an employee © Amitai Aviram. All rights reserved. 46

47 Employee Brooks v. Grams, Inc. Court: Ferand was not an employee [Green=non-emp.; Red=emp.] a)Extent of control which P may exercise over details of the work Telling Ferand to drive carefully because of weather isnt much control; specific attention to control over instrumentality that caused the harm (car & driving) b)Is A engaged in a distinct occupation/business? Neither a distinct occupation of driver, nor same occupation (grocer) c)Is work usually done under Ps direction, or by a specialist wo/ supervision? Task normally would have been done by Fitzpatrick or Apryl d)Skill required in the particular occupation [less skill = employee] Only driving skills required e)Who supplies the instrumentalities, tools & place of work for A? Ferand supplied the car, but Apryl supplied the money; specific attention to supplying instrumentality that caused the harm (car) f)Length of time for which A is employed [long = employee] Short period of time (one trip to WalMart) g)Method of payment, whether by the time or by the job [by time = emp.] No payment at all; Ferand acted gratuitously h)Is the work a part of the regular business of P? [yes = employee] Yes i)Do the parties believe they are creating an employment relationship? No © Amitai Aviram. All rights reserved. 47

48 Agency: external relationships Overview of Section 1b 1.As external relationships 2.Ps liability to T in contracts 3.Ps liability to T in torts – Direct liability – Vicarious liability: employee – Vicarious liability: scope of employment – Vicarious liability: torts involving apparent authority © Amitai Aviram. All rights reserved. 48

49 Scope of employment Rest. §7.07 (2) An employee acts within the scope of employment when performing work assigned by the employer or engaging in a course of conduct subject to the employer's control. – But an act may be within SoE even if: It is forbidden or done in a forbidden manner It is consciously criminal or tortuous An employee's act is not within the scope of employment when it occurs within an independent course of conduct not intended by the employee to serve any purpose of the employer. © Amitai Aviram. All rights reserved. 49

50 Scope of employment Patterson v. Blair [Ky. 2005] Patterson buys car from car dealer Courtesy Autoplex – Owes them $3K, but doesnt pay – When employees try to repossess car, Patterson threatens to kill them – Blair (Courtesys service manager & son of owner) encounters Patterson on the road. When Patterson refuses to exit the car, Blair draws a gun & shoots cars tires, disabling it & allowing Courtesy to repossess it – Patterson sues Blair & Courtesy – Is Courtesy liable for Blairs actions? Was Blair Courtesys employee? Was the shooting within Blairs SoE? – Rest. §7.07(2) positive tests performing work assigned by the employer? engaging in a course of conduct subject to the employer's control? – Rest. §7.07(2) negative test not intended by the employee to serve any purpose of the employer © Amitai Aviram. All rights reserved. 50

51 Scope of employment Patterson v. Blair Purpose test (Rest. 7.07(2)): act is within SoE if A subjectively acted to serve a purpose of the employer – Here, no doubt this was Blairs goal – his purpose in shooting tires was to repossess the car for Courtesy – What facts, if discovered, would make Blairs actions out of SoE? Foreseeability test (Bushey): act is within SoE if P can foresee that A might cause T harm of similar kind – If similar kind of harm is foreseeable, P is liable even if the particular harm was unforeseeable E.g., Courtesy would be liable if physical conflict with Patterson was foreseeable, even if shooting cars tires was not foreseeable – P not liable if As actions do not relate to the employment E.g., no liability if Blair was settling a personal score with Patterson – Is Courtesy liable under the foreseeability test? © Amitai Aviram. All rights reserved. 51

52 Scope of employment Foreseeability vs. purpose Restatement commentary acknowledges the existence of the foreseeability test, and rejects it The Patterson court rules that Kentucky follows purpose test – Most jurisdictions follow the purpose test – On exam apply purpose test only, unless instructed otherwise © Amitai Aviram. All rights reserved. 52

53 Scope of employment Practice questions Manning v. Grimsley [CA1, 1981] – Orioles pitcher Grimsley throws ball at hecklers, injuring Manning – What would Manning argue to hold the Orioles liable? Lyon v. Carey [CADC, 1976] – Furniture delivery person (Carey) told to collect bill upon delivering the furniture & to only accept cash. He got into an argument with a customer (Lyon) who wanted to pay by check. He raped, beat & stabbed her. – What would Lyon argue to hold Careys employer liable? – Tort must be a direct outgrowth of employers instructions or job assignment (its not enough that job provides the opportunity to commit the tort) © Amitai Aviram. All rights reserved. 53

54 Agency: external relationships Overview of Section 1b 1.As external relationships 2.Ps liability to T in contracts 3.Ps liability to T in torts – Direct liability – Vicarious liability: employee – Vicarious liability: scope of employment – Vicarious liability: torts involving apparent authority © Amitai Aviram. All rights reserved. 54

55 Vicarious liability Torts involving apparent authority Restatement §7.08: A principal is subject to vicarious liability for a tort committed by an agent in dealing or communicating with a third party on or purportedly on behalf of the principal when actions taken by the agent with apparent authority constitute the tort or enable the agent to conceal its commission. Typically relevant torts – Tortuous misrepresentation – Conversion of property – Defamation © Amitai Aviram. All rights reserved. 55

56 Vicarious liability Torts involving apparent authority Example: tortuous misrepresentation – A is a salesperson at a bookstore specializing in rare books. T inquires about a particular book, and A misrepresents to him that this is an extremely rare book that is worth twice the prices the store is selling it for. Relying on this, T buys the book, which turns out to be common. – Bookstore is liable to T, if T can show that – based on As position as salesperson (manifestation by P) – he reasonably believed that A was authorized to make representations about books. In that case, act with apparent authority constituted the tort (of tortuous misrepresentation). Example: conversion of property – A is a salesperson at a bookstore specializing in rare books. T wishes to buy a particular, fragile book. A takes the money & persuades T to leave the book with the bookstore to properly store it. A then disappears with the cash and the book. © Amitai Aviram. All rights reserved. 56

57 Vicarious liability Torts involving apparent authority Example: defamation – A is a security guard in a store. A falsely accuses shopper T (with whom he has a private dispute) of shoplifting. Store is liable under §7.08 because T would reasonably believe that A was authorized by the store to act in the way that constituted the tort (As shoplifting accusation), based on the manifestation that A is a security guard there. – Note: outside SoE (personal motivation), so no liability under §7.07 Example: concealing a tort (misrepresentation) – A works at a bookstore specializing in rare books. Certain book has mold on it, reducing its value. A paints over the mold to hide it (but mold still endangers book, so books value still reduced). A sells book to T, not telling T that book has (painted-over) mold. – Bookstore liable to T if A has apparent authority to fix books & the fix concealed the misrepresentation of not disclosing books mold problem © Amitai Aviram. All rights reserved. 57


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