Chapter 10: Agency

Week 10. Chapter content to be written. The description below sets out what the chapter will cover.

A business can act only through people: salespeople, managers, officers, and contractors. Agency law decides when the business is bound by what those people say and do. This chapter is the link between contract and tort law on one side and employment law and business organizations on the other.

10.1 Planned Sections

Agency Relationships. Principal–agent and employer–employee relationships, and the factors for distinguishing an employee from an independent contractor. Why classification matters for tax, liability, and employment law, including recent gig-economy disputes and tests such as the ABC test.

Formation of Agency. Agency by agreement, by ratification, by estoppel, and by operation of law. The equal dignity rule and powers of attorney.

Duties of Agents and Principals. The agent's duties of performance, notification, loyalty, obedience, and accounting. The principal's duties of compensation, reimbursement and indemnification, cooperation, and safe working conditions. Remedies when either side breaches.

Contract Liability. Express, implied, and apparent authority, and ratification. Liability for disclosed, partially disclosed, and undisclosed principals, and when the agent is personally liable. E-agents and automated systems that enter into contracts.

Tort and Crime Liability. Respondeat superior and the scope of employment, frolic and detour, travel and commuting, notice of dangerous conditions, liability for an agent's misrepresentation, and liability for independent contractors' torts. Criminal liability for agents' acts.

Termination of Agency. Termination by act of the parties (lapse of time, purpose achieved, mutual agreement, revocation or renunciation) and by operation of law (death, insanity, bankruptcy, impossibility). Why third parties must be notified of the termination.

10.2 Featured Case

Ira S. Bushey & Sons, Inc. v. United States, 398 F.2d 167 (2d Cir. 1968). A drunken Coast Guard sailor, returning at night to his ship in a private drydock, turned some wheels on the drydock wall. The drydock flooded, and the ship slid off and damaged the drydock. The sailor's act did nothing to serve the Coast Guard, but Judge Friendly held the government liable under respondeat superior anyway. The question is not whether the employee meant to serve the employer. It is whether the conduct was a foreseeable risk of the employer's enterprise, and sailors returning from shore leave in uncertain condition were a risk that came with running a ship.

Why this case: It moves past the traditional "motive to serve" test to a modern rationale for employer liability based on enterprise risk. The facts are memorable and lead to good discussion.

Discussion question: Should employers pay for harm their employees cause when the employees are acting for their own reasons? Which business-planning or insurance choices does this rule encourage?

10.2.1 Short Case Summaries

• Watteau v. Fenwick, [1893] 1 Q.B. 346. A tavern owner who did not disclose that he was a manager and not the owner bought cigars on credit, in violation of the real owner's instructions. The undisclosed owner was still liable for the purchase. (Contract liability: undisclosed principals)

10.3 Planned Features

• An exercise classifying a series of workers as employees or independent contractors.
• A chart of authority types showing who is bound in each situation.
• Key terms: agency, principal, agent, independent contractor, fiduciary, actual authority, implied authority, apparent authority, ratification, undisclosed principal, respondeat superior, scope of employment, frolic and detour.