Chapter 32 Liability to Third Parties and Termination

2 § 1: Scope of Agent’s Authority Principal is liable for acts entered into by Agent when she gives Agent either actual or apparent authority: Actual Authority: express or implied. Apparent Authority: estoppel, emergency and ratification.

3 Express Authority Can be oral or written. “Equal Dignity Rule”: if law requires written contract, Agent’s authority must be in writing. Failure to comply with the rule renders contract voidable. Exceptions: Officer acting for Corporation. Agent acts in Principal’s presence. Power of Attorney (ordinary v durable).

4 Implied Authority Inferred or conferred by custom, Agent’s position or what is reasonably necessary to carry out express authority. What the Agent reasonably thinks the Principal means.

5 Apparent Authority Principal, by either word or act, causes 3rd party to reasonably believe that Agent has authority to act for Principal. If 3rd party changes legal position by relying on Principal’s representations, Principal is estopped from denying Agent had authority to contract.

6 Emergency Powers Arises when: Agent should protect Principal. Agent cannot communicate with Principal.

7 Ratification Requirements: 1. Agent must act on behalf of Principal. 2. Principal must affirm entire deal. 3. Principal must affirm before 3rd party withdraws from transaction. 4.Principal and 3rd party must have legal capacity to contract when Agent made the deal. 5. Principals must know all the material facts involved in the transaction.

8 §2: Liability for Contracts Principal’s liability for Agent’s contract depends on whether Agent’s actions were authorized or unauthorized. Principals are classified as: Disclosed: identity known to 3rd P. Partially Disclosed: 3rd P knows he is dealing with Agent, but doesn’t know Principal’s identity. Undisclosed: 3rd party does not know he is dealing with an Agent, and Principal’s identity is totally unknown.

9 Liability: Authorized Acts Disclosed or partially disclosed Principal is liable to 3rd party if Agent acts within scope of authority. Agent has no liability to 3rd P for disclosed Principal’s non-performance. (Agent may be liable if Principal is partially disclosed).

10 Liability: Authorized Acts If undisclosed Principal, no liability unless: Principal expressly excluded. Contract is a negotiable instrument. Agent’s performance is personal. 3rd party would have contracted if he knew the Principal’s identity.

11 Unauthorized Acts Unauthorized acts outside of Agent’s express, implied or apparent authority. If Agent has no authority, Principal is not liable, but Agent is liable.

12 § 3: Liability For Agent’s Torts Agent is liable to 3rd party for his own torts. Principal may be liable for Agent’s torts if they result from: Principal’s own tort. Principal’s authorization of tort. Agent’s unauthorized but fraudulent conduct made within scope of agency.

13 Respondeat Superior Applies only to Employer-Employee relationships. Principal/Employer is vicariously liable for Agent/Employee’s negligent torts. committed within the Agent’s “course and scope of employment.”

14 “Course and Scope of Employment” Factors (p. 644) For Principal to Be Liable, Agent’s Act must have occurred within the Course and Scope of Employment. Employer Liable Employer NOT Liable Was Employee’s act authorized by Employer?YesNo The Time place and purpose of act (factually based)?? Was act commonly performed by Employees?YesNo Did act advance Employer’s interests? YesNo Did Employer furnish instrumentality (tools)?YesNo Did Employer have reason to know Employee would do the act? YesNo Did the act involved a serious crime? No

15 Liability for Employee’s Negligence Departures from the Employer’s Business: was departure minor or substantial? Borrowed Servants. Notice of Dangerous Conditions.

16 Liability for Employee’s Intentional Torts Principal liable for intentional torts committed with the scope of employment. Employee is a tortfeasor as well. Employer is liable for Employee’s acts which Employer knew or should have known the Employee had a propensity to commit.

17 § 4: Liability for Independent Contractor’s Torts First determine whether worker is employee or independent contractor (factors p. 573). General rule: Employer is not liable for acts of independent contractors because Employer no right to control. Exception: hazardous activities Independent Contractor is liable for her own torts.

18 Review: P’s Liability Analysis Agent P Generally Not Liable (unless strict liability) Outside CSE-P Not Liable Within CSE -P Liable “ Course and Scope of Employment” p. 644 Independent Contractor Employee Factors p. 623

19 § 5: Liability for Agent’s Crimes General Rule: Agent is liable, Principal is not, unless: Principal authorized or participated in crime. Some jurisdictions hold Principal liable for violating statutes.

20 § 6: Liability for Subagent’s Acts If Agent is authorized to hire subagents, Principal is liable for the acts of the subagent. If Principal undisclosed, Agent is responsible for wages and Principal liable for torts.

21 §7: E-Agents Electronic Agents are computer programs that form contracts in business transactions. Standard for web-based transactions (e.g., Amazon.com) Usually express or implied agency is used. Impact by UCITA (Ch. 23)?

22 § 8: Termination of An Agency Agency can be terminated by: An Act of the Parties; or By Operation of Law. Once agency terminated Agent has no actual authority to bind the Principal, but may have apparent authority to bind Principal.

23 Termination By Action of the Parties Lapse of Time. Purpose Achieved. Occurrence of a Specific Event. Mutual Agreement. Termination by One Party. Notice of Termination.

24 Termination By Operation of Law Death or Insanity of either Principal or Agent: automatic. Impossibility. Changed Circumstances. Bankruptcy. War.

25 Case 32.1: Gravens v. Auto-Owners Insurance (Implied Authority) FACTS: Gravens bought a policy from Auto-Owners Insurance Company to cover his business, Pappy’s Sunoco Service Station. The policy had a $20,000 limit on contents. Pappy’s was burgled, and the loss exceeded the limit. Gravens hired an attorney to pursue a claim against Auto-Owners. When the attorney settled for $18,000 without Gravens’s consent, Gravens repudiated the agreement, hired a different attorney, and sued Auto-Owners. The court granted summary judgment in favor of Auto- Owners. Gravens appealed.

26 HELD: FOR GRAVENS. “[T]he requirement that an attorney must obtain his client’s authority or consent to settle a case is implicit in the client’s right to exercise ultimate authority over the settlement of a case.” Case 32.1: Gravens v. Auto-Owners Insurance (Implied Authority)

27 Case 32.2: Cargil v. Mountain Cement (Apparent Authority) FACTS: Cargill, Inc., hired Mandry to work as a sales representative and gave him an office, a telephone, and an expense account. Through Mandry, Salt Creek Welding ordered steel from Cargill to build a silo for Mountain Cement Company. Mandry arranged to have some of the steel supplied by another company. The other product was defective, and the silo collapsed. Mountain Cement sued Cargill.

28 HELD: FOR MOUNTAIN CEMENT. Mandry had apparent authority. “Cargill provided Mandry with a telephone, an expense account, and office space. These facts indicate that Cargill intended to hold Mandry out as an agent who possessed the authority to bind Cargill. Further, Salt Creek reasonably relied on that apparent authority when it ordered steel from Cargill.” Case 32.2: Cargil v. Mountain Cement (Apparent Authority)

29 Case 32.3: Haag v. Bongers (Liability for Independent Contractor’s Torts) FACTS: Alfred Bongers was appointed as the personal representative of Leo Bongers estate, which included more than 120 antique cars, trucks, and motorcycles. Bongers hired Bauer ‑ Moravec Auctioneers and Dolan Realty and Auction Company, to conduct an auction of the vehicles. The estate required that the auction be held in the winter, that it be heavily advertised, that: it be held in a barn on a farm owned by the estate, that each attendee be charged $25, and that paid assistants move the vehicles through the crowd, towing many with tractors and hitch balls

30 FACTS (cont’d) A hitch ball became detached, flew off its tractor, and seriously injured Joseph Haag. Haag sued the estate and the auctioneers, arguing that the auctioneers’ negligence should be imputed to the estate. The estate responded that it was not liable because the auctioneers were independent contractors. The court ruled in Haag’s favor. The estate appealed. Case 32.3: Haag v. Bongers (Liability for Independent Contractor’s Torts)

31 HELD: FOR HAAG. The estate was liable for the act of the independent contractors because it exercised a great degree of control. Although actual performance of the task of towing the vehicles was to be performed by the independent contractor auctioneers, the facts in this case as to the Estate’s active and considerable control over the activities that led to the accident are sufficient to subject the Estate to liability.” Case 32.3: Haag v. Bongers (Liability for Independent Contractor’s Torts)

32 Case 32.4: E-Bay v. Bidder’s Edge (E-Agents) FACTS: Bidder’s Edge (BE), operates an auction aggregation site that offers buyers the ability to search for items across numerous online auction sites without having to search each site individually. eBay, Inc., gave BE permission to include information regarding some eBay-hosted auctions. Later, BE wanted to increase its coverage, and eBay verbally gave approval to BE to “crawl” eBay’s site for ninety days. Afterward, E-Bay only allowed BE to search in response to a user query. BE refused and continued to crawl the eBay system. eBay sued BE allegin trespass to personal property (the E- Bay servers).

33 HELD: FOR E-BAY. The court ordered BE to stop accessing eBay’s computers with a spider without eBay’s written authorization. The court concluded that eBay showed at least a possibility of suffering irreparable harm and that BE did not show a balance of hardships in its favor. “If BE’s activity is allowed to continue unchecked, it would encourage other auction aggregators to engage in similar recursive searching of the eBay system such that eBay would suffer irreparable harm from reduced system performance, system unavailability, or data losses.” Case 32.4: E-Bay v. Bidder’s Edge (E-Agents)