1. Chapter 32 Agency Liability to Third Parties and Termination BUSINESS LAW: Text & Cases — Legal, Ethical, International, and E-Commerce Environment 11 th Ed. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning.

2. 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. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 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.Officer acting for Corporation. Agent acts in Principal’s presence.Agent acts in Principal’s presence.  Power of Attorney (ordinary v durable).

4. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 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. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 5 Apparent Authority and Estoppel  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.  CASE 32.1 Ermoian v. Desert Hospital (2007).

6. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 6 Emergency Powers  Arises when: –Agent should protect Principal. –Agent cannot communicate with Principal.

7. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 7Ratification 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. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 8 §2: Liability for Contracts  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. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 9 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. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 10 Liability: Undisclosed Principal  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. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 11 Liability: 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. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 12 Actions by E-Agents  An “e-agent” is a semi-autonomous computer program capable of executing specific tasks on behalf of a principal.  E-commerce uses e-agents to create contracts every day.

13. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 13 § 3: Liability For Torts and Crimes  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 tortious conduct. –Principal’s own authorization of tortious conduct. –Liability for Agent’s Misrepresentation. Apparent Implied Authority.Apparent Implied Authority. CASE 32.2 In re Selheimer & Co. (2005).CASE 32.2 In re Selheimer & Co. (2005).

14. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 14 Liability for Agent’s Negligence  Applies only to Employer-Employee relationships.  Doctrine of Respondeat Superior: Employer is vicariously liable for Employee’s negligent torts committed within the Agent’s “course and scope of employment.” 

15. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 15 “Course and Scope of Employment” Employer NOT Liable No Did the act involved a serious crime? NoYes Did Employer have reason to know Employee would do the act? NoYes Did Employer furnish instrumentality (tools)? NoYes Did act advance Employer’s interests? ?? The Time place and purpose of act (factually based) NoYes Was Employee’s act authorized by Employer? Employer Liable Factors (p. 663) NoYes Was act commonly performed by Employees?

16. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 16 Employer Liability  Departures from the Employer’s Business: Detour vs. Frolic?  Borrowed Servants. –CASE 32.3 Galvao v. G.R. Robert Construction Co. (2004).  Notice of Dangerous Conditions.

17. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 17 Liability for Agent’s Intentional Torts  Principal liable for intentional torts committed within 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.

18. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 18  First determine whether worker is employee or independent contractor.  General rule: Employer is not liable for acts of independent contractors because Employer has no right to control.  Exception: hazardous activities  Independent Contractor is liable for her own torts. Liability for Independent Contractor’s Torts

19. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 19 Review: P’s Liability Analysis Worke r P Generally Not Liable (unless strict liability) Outside CSE-P Not Liable Within CSE -P Liable “ Course and Scope of Employment” Independent Contractor Employee Factors

20. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 20 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.

21. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 21 § 4: 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.

22. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 22 Termination By Act of the Parties  Lapse of Time.  Purpose Achieved.  Occurrence of a Specific Event.  Mutual Agreement.  Termination by One Party.  Notice of Termination.

23. Copyright © 2009 South-Western Legal Studies in Business, a part of South-Western Cengage Learning. 23 Termination By Operation of Law  Death or Insanity of either Principal or Agent: automatic.  Impossibility.  Changed Circumstances.  Bankruptcy.  War.