University:
Indiana University Bloomington
Course:
Financial and Managerial Accounting: Information for Decisions - John J. Wild
Academic year:

2024
Views:

354

Pages:

2
Author:

bratrochanter

Summary: Principal's Tort Liability in Agency Relationships Respondeat Superior (Vicarious Liability)    Definition: A principal (employer) is liable for torts committed by an agent (employee) acting within the scope of employment. Scope of Employment: Courts determine scope using these criteria: 1. The act was of the kind the employee was hired to perform. 2. It occurred within the authorized time frame. 3. It took place at a location authorized or reasonably close to it. 4. The act was motivated, at least partially, by a desire to serve the employer. Rationale for Liability: 1. Employers can distribute the economic burden through insurance or passing costs to consumers. 2. Encourages employers to prevent employee misconduct via better training and supervision. Direct Liability   Definition: A principal is directly liable for their own negligence, such as: 1. Improperly instructing agents. 2. Failing to implement/enforce safety rules. 3. Hiring or retaining unsuitable agents. 4. Providing defective tools or inadequate supervision. Distinct from Respondeat Superior: No need for the agent to be an employee or act within the scope of employment. Liability for Nonemployee (Independent Contractor) Torts   General Rule: Principals are not liable for independent contractors' torts. Exceptions: 1. Direct liability for negligent selection of a nonemployee agent. 2. Harm arising from the failure to perform nondelegable duties (e.g., ensuring public safety). 3. Liability for inherently dangerous activities. Misrepresentation Liability    Direct Liability: Principal is liable if they intended or negligently allowed the agent to make false statements. Vicarious Liability: If an agent has actual or apparent authority to make true statements on a topic but misrepresents facts, the principal can be liable. Exculpatory Clauses: These clauses can shield the principal from liability for agent misrepresentations but do not prevent third parties from rescinding the contract. Tort Liability of Agents   General Rule: Agents are personally liable for their own torts. Exceptions: 1. If acting under a principal's privilege (e.g., using a right-of-way granted to the principal). 2. If unaware of defects in tools or materials provided by the principal. Key Case Example: Millan v. Dean Witter Reynolds, Inc.   Facts: Miguel Millan, a broker, fraudulently opened an account and stole from his mother. Dean Witter (employer) failed to follow its verification policies. Ruling: Dean Witter was 15% directly liable for negligence but not vicariously liable since Miguel's fraudulent acts were outside the scope of his employment. Summary of Principal’s Tort Liability 1. 2. 3. 4. 5. Respondeat Superior: Principal liable for employee acts within scope. Direct Liability: Principal liable for their own negligence. Nonemployee Agent Torts: Generally no liability, with exceptions. Misrepresentation: Liability depends on agent's authority and intent. Agent’s Liability: Agents remain personally liable for their torts unless specific exceptions apply.