FACT PATTERN

Paul is interested in opening a new branch of his health supplement store in a neighboring town.
Because he is unfamiliar with the real estate market in the area, he hires Randy, a real estate
agent, to represent him in acquiring retail space in the neighboring town. Paul describes his
requirements for the retail space and authorizes Randy to enter into a real estate contract on his
behalf for up to $1,000,000.
Randy finds the perfect retail space several weeks later. Randy enters into a contract to purchase
the retail space for $950,000. Randy did not inform Sam (the seller) that he was working for
Paul because he was concerned that Sam might try to increase the price if he knew he was
interested in the retail space.
While Randy is leaving the parking lot after signing the contract, he negligently hits and injures a
pedestrian.
INSTRUCTIONS
Please explain who is liable on the contract for the retail space (e.g., Paul, Randy, both). If you
believe both Paul and Randy might be liable, please describe the type of shared liability rules
applicable to them. Your response to this question should be between 100 and 200 words.
Please explain who is liable for the injuries suffered by the pedestrian (e.g., Paul, Randy, both).
Your response to this question should be between 75 and 150 words.

TO:

Professor Marrs

FROM:

Yun Fu

DATE:

June 12, 2015

SUBJECT:

Agency Law Problem

RESPONSES
Contract Liability per Retail Space
As illustrated, Randy was hired by Paul and had neither disclosed the existence nor the
identity of Paul, his principal, upon the initiation of the contract. Under the traditional doctrine of
election, Sam the defendant may elect to hold either the principal or the agent liable on the
contract (Legal Environment of Business, page 736) after discovering the existence and identity
of the principal. Hence, were the identity of Paul to remain undiscovered, no election can be
made and therefore leaving Randy solely liable.
Alternatively, some states have resorted to the joint and several approach in which the
third party may recover judgements against both the principal and the agent, may attempt to
collect its judgement against either party, and, to the extent that the judgement remains
unsatisfied, may subsequently pursue collection from the other party (Crowns Controls, Inc. v.
Smiley, 756) upon discovery of the principals existence and identity.
As such, both Randy and Paul are liable on the contract because Randy was authorized
and Paul was undisclosed.
Liability for Injury
Under most circumstances, a person is always liable for his or her own torts despite two
circumstances: first, an agent is expressly directed by the principal to cause harm and, secondly,
the tort occurred under the respondeat superior doctrine. While it is clear that Paul had not
directed Randy to commit such tort and that Randy caused the tort during the scope of
employment, it is critical to examine whether a master-servant relationship existed to determine
if respondeat superior liability can be imposed.
In determining the role of Randy in the agency, several characteristics of the agency are
examined such as nature of work, method of payment, duration of employment, and right of
control. Given that Randy is specialized in real estate transactions, is paid for a completed job,
does not work regularly and continuously for Paul, and works without Pauls supervision, it can
be asserted that Randy is an independent contractor. Therefore, Randy is solely liable for the
negligence and injury suffered by the pedestrian.