Vicarious Liability of Principal for Acts of Agent

Vicarious liability in the context of the principal-agent relationship means an imposition of responsibility on the principal on the acts of the agent. This form of liability finds its basis on the common agency law principle of respondeat superior ­or “let the master answer,” imputing the actions of the servant agent) on the master (principal).

On the assumption that there is indeed a general liability on the part of principals for the tortious acts of their agents, it is necessary to compare the rationale for this type of liability against the rationale for vicarious liability.

In the agency context, Dal Pont has identified three reasons underlying the imposition of liability on a principal for the tortious acts of his or her agent.[71] First, the principal selects the agent and has better means of ascertaining the quality, strengths and weaknesses of the person.[72] Secondly, as the principal has delegated the performance of a certain class of acts to the agent, it is not unjust that the principal, who will derive the benefit of the agent’s efforts, should bear the risk of the agent exceeding his or her authority.[73] Thirdly, the principal has given the agent general authority to commit the wrongs.[74]

Employers are vicariously liable, under the respondeat superior doctrine, for negligent acts or omissions by their employees in the course of employment (sometimes referred to as ‘scope of employment’).[1] For an act to be considered within the course of employment it must either be authorised or be so connected with an authorised act that it can be considered a mode, though an improper mode, of performing it.

Liability incurred by a business for acts other than those of its own employees. This particular situation may arise when an Independent Contractor is hired. The business can be held liable for negligent acts of the contractor to the extent that its representatives give directions or exercise control over the contractor’s employees.

Courts sometime distinguish between an employee’s “detour” or “frolic”. For instance, an employer will be held liable if it is shown that the employee had gone on a mere detour in carrying out their duties, whereas an employee acting in his or her own right rather than on the employer’s business is undertaking a “frolic” and will not subject the employer to liability.

The owner of an automobile can be held vicariously liable for negligence committed by a person to whom the car has been loaned, as if the owner was a principal and the driver his or her agent, if the driver is using the car primarily for the purpose of performing a task for the owner. Courts have been reluctant to extend this liability to the owners of other kinds of chattel. For example, the owner of a plane will not be vicariously liable for the actions of a pilot to whom he or she has lent it to perform the owner’s purpose. In the United States, vicarious liability for automobiles has since been outlawed with respect to car leasing and rental in all 50 states.

In some situations, a person may be held liable for the actions of another that is in their employ or following their directions. Vicarious liability is the legal concept which allows for one party to be held liable for injuries or damages sustained by another party, despite having had no active involvement in the incident. People or legal entities that are typically charged with vicarious liability include individuals in supervisory positions or companies. This is because these two groups bear the responsibility for the actions of their employees.

Like any legal concept, there are a variety of situations where vicarious liability can apply. One of these instances is in the event that a contractor’s subcontractor fails to complete a job, performs a job inadequately, or is found guilty of some other contract violation. The contractor, since he or she hired the subcontractor, is held liable for the subcontractor’s actions because the contractor was employing the subcontractor.

Business Associations > Agency and Partnership > Fiduciary duties between principal and agent

The law of agency creates a fiduciary relationship between the principal and the agent. A fiduciary relationship means that the principal is placing trust or confidence in the agent to be faithful and loyal and to conduct the principal’s business with care. When you deposit money with a stockbroker with instructions to buy stock in your name, the broker is in a position of trust and confidence, or a fiduciary position, with respect to your stock purchase transaction. Consequently, when a fiduciary relationship exists, the law implies certain duties that both parties must perform on behalf of the other, which may be amplified or supplemented by a written agreement.

An individual in whom another has placed the utmost trust and confidence to manage and protect property or money. The relationship wherein one person has an obligation to act for another’s benefit.

A fiduciary relationship encompasses the idea of faith and confidence and is generally established only when the confidence given by one person is actually accepted by the other person. Mere respect for another individual’s judgment or general trust in his or her character is ordinarily insufficient for the creation of a fiduciary relationship. The duties of a fiduciary include loyalty and reasonable care of the assets within custody. All of the fiduciary’s actions are performed for the advantage of the beneficiary.

Agents generally owe their principals the duties of obedience, care and loyalty. An agent has a duty to obey a principal and to perform all tasks the principal has directed, as long as those tasks are consistent with the engage of the agent.

The principal also has obligations of the agent that are implied by law and that may be amplified or supplemented by an agreement. Generally, a principal is obligate to compensate an agent, according to the reasonable value of the agent’s services, unless the agent has agreed to act without pay. The principal has a further obligation to provide the agent with the means to perform the agent’s services, such as an office, samples of products the agent is expected to sell, transportation, or clerical assistance. The principal may be obligated under an agreement with the agent to provide other benefits for the agent’s service.

The principal has an additional obligation to indemnify the agent for any payments or liabilities incurred by the agent whenever the agent is performing a transaction on behalf of the principal. Since the agent is acting for the principal, any expenses or liabilities incurred belong to the principal, and the principal must pay them.

The principal is also expected not to embarrass the agent or act in a manner that is harmful to the agent’s reputation or self-esteem, and the principal must not interfere with the agent’s performance by making the tasks more difficult or by sabotaging the agent’s ability to perform the job.

Business Associations > Agency and Partnership > Fiduciary duties between principal and agent > Duty of care

Agents have a duty to use as much care and to act as prudently as they would if managing their own affairs. Agents must take the time and effort to perform their principals’ assigned tasks. For example, officers of corporations must base their decisions on information, not guesses, and must ensure that their decisions are carried out by employees. An agent who does not use reasonable care is liable to the principal for any damages resulting from a lack of care. When an agent does not make adequate travel arrangements for a speaker, the agent is liable to the speaker for damages that result from the speaker’s nonappearance at an engagement (Jennings, 2005).

The agent is bound to the higher standard of a professional in the field which extends the standard of duty to investigate within the means of the profession, to ensure the maximum protection and information be provided the principal.

Must prepare themselves through education and study to competently represent the Seller in all matters.

Each agent is expected to use reasonable care and diligence to accomplish the principal’s objectives. This means that an agent should use personal skill and knowledge to perform all tasks diligently while working for the principal. For example, an attorney would be required to know the law to be applied in the client’s case, and an insurance agent would be expected not to permit a policy of insurance to expire or terminate without appropriate notice to the policy owner. Even if an agent is performing without compensation, the agent owes the principal the obligation to use due care and prudence in performing all duties. Consistent with the duty of care is agent’s duty to act in a manner that will not embarrass the principal or bring the principal into disrepute, and an agent always has a duty to provide full information concerning any matters the principal would want to know in regard to the transaction undertaken by the agent (Moye, 2004).

The agent’s duty to perform is a duty to perform with reasonable care and to obey reasonable direction from the principal. An agent who performs in a careless or negligent manner, causing harm to the principal, may be liable, for the tort of negligence, as well as for breach of contract (Schneeman, 2010).

Put simply, a director owes a duty to exercise good business judgment and to use ordinary care and prudence in the operation of the business. They must discharge their actions in good faith and in the best interest of the corporation, exercising the care an ordinary person would use under similar circumstances.

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Business Associations > Agency and Partnership > Fiduciary duties between principal and agent > Duty of loyalty

An agent is required to act only for the benefit of the principal, and an agent cannot represent both parties in a transaction unless each knows about and consents to the agent’s representation of the other. Further, an agent cannot use the information gained or the offers available to or by the principal to profit personally. For example, an agent hired to find a buyer for a new invention cannot interfere with the principal’s possible sale by demonstrating his own product. Neither can an agent hired to find a piece of property buy the property and then sell it secretly to the principal (Jennings, 2005).

The agent’s duty of loyalty requires that the agent act solely for the interests of the principal while accomplishing the transactions for which the agent is employed. This duty requires the agent to report to the principal the amount of any profits received by the agent on the principal’s behalf and to disclose fully any personal adverse or conflicting interests that would affect the agent’s ability to act for the principal. Therefore, if an agent were engaged by the principal to fund a particular parcel of property for the principal’s business, and the agent also had an interest in acquiring a similar piece of property in the same area, the agent could not use negotiations for the principal to assist the agent in personal negotiations for the property, and the agent must disclose to the principal that the agent is also personally seeking a similar piece of property (Moye, 2004).

The obligations arising the duty of loyalty are more subtle. “An agent’s duties of loyalty stem from the agent’s basic obligation to act loyally for the principal’s benefit in matters connected with the agency relationship. An agent’s more specific duties of loyalty include:

A duty not to acquire a material benefit from a third party in connection with transactions or other actions taken on behalf of the principal or otherwise through the agent’s use of position;

A duty not to deal with the principal as or on behalf of an adverse party;

A duty not to compete with the principal or assist the principal’s competitors during the duration of the agency relationship; and

A duty not to use property of the principal, and not to use or communicate confidential information of the principal, for the agent’s own purposes or those of a third party.”

Loyalty is one of the most fundamental duties in a fiduciary relationship. Basically, the agent has the duty to act solely for the benefit of his or her principal and not in the interest of the agent or a third party. The duty of loyalty also means that any information or knowledge acquired through the agency relationship is confidential. It would be a breach of loyalty to disclose such information during the agency relationship or after its termination. Examples are trade secrets and customer lists (Miller & Jentz, 2008).

Business Associations > Agency and Partnership > Fiduciary duties between principal and agent > Duty of obedience

An agent has the duty to obey reasonable instructions from the principal. The agent is not required to do anything criminally wrong or commit torts, of course; but he is required to operate according to the principal’s standards and instructions. Failure to do so could mean the agent has gone beyond the authority given and is then personally liable for the conduct (Jennings, 2005).

The duty of obedience is often overlooked or included in one of the other two fundamental fiduciary duties, precisely because it is so basic as to be almost invisible. To see why this is so, we need to examine the very foundation of fiduciary duty. The irreducible root of the fiduciary relationship is one person’s acting for another. The duty of obedience derives directly from–indeed, is virtually synonymous with–that basic principle. The root of the fiduciary relationship is this directive from the principal to the fiduciary: Serve the one the principal designates, as the principal designates. The fiduciary must, at the most basic level, obey that directive; that directive is the duty of obedience. (Atkinson, 2008).

When an agent fails entirely to perform her or his duties, liability for breach of contract normally will result.

Obedience as a fiduciary duty requires you as an agent to follow the instructions of your principal. Obedience is sometimes referred to as faithful performance. The only limitation on adhering to the duty of obedience is if the client’s instructions are illegal or unethical. If your sellter client gives you instructions that violate some provision of fair housing laws regarding marketing the property, your fiduciary duty of obedience doesn’t require you to break the law and obey the client’s order.

The obedience requirement also doens’t extend to keeping things confidential regarding problems with the property itself. If your seller client instructs you not to tell potential buyers about a leaky roof, you wouldn’t obey the client, because buyers have a right to have this kind of information.

The agent’s duty of obedience is an obligation to follow the principal’s instructions and directions – essentially, an obligation to do what the principal tells the agent to do. If a principal authorizes an agent to buy goods for the principal’s business and to pay for them with a check from the business checking account, it is a violation of this duty if the agent purchases the goods on credit from the supplier. The principal could recover the interest that the supplier charges on the credit account, since the agent did not precisely follow the principal’s instructions (Moye, 2004).