A delivery driver runs a red light on the way to a client meeting and totals a pedestrian's car. The pedestrian sues the company that employs the driver. Whether the company pays depends on a doctrine that has nothing to do with what the company itself did wrong.
Five duties run from agent to principal by operation of law in every agency, written or oral.
- Loyalty. No self-dealing, no competing during the agency, no secret profits. An agent buying property for the principal cannot secretly buy it for themselves.
- Obedience. Follow reasonable instructions. Carve-outs: instructions that are illegal or would cause serious harm.
- Care. Act with the skill and diligence a reasonable person would use in similar circumstances.
- Accounting. Keep the principal's funds separate from personal funds. Commingling is itself a breach, even if no money is lost.
- Notification. Material information the agent learns must be communicated. The law imputes that knowledge to the principal once the agent knows, even if never relayed.
Common mistakes
- Treating disclosed and partially disclosed the same. Disclosed = agent off the contract, only principal liable. The trap "both are liable" is correct only when the principal is partially disclosed or undisclosed. Read for what the third party knew about the principal's identity.
- Forgetting that knowledge is imputed without communication. The notification duty makes the principal legally aware of what the agent learned, full stop. "The principal had no actual knowledge" misses the imputation rule. The exam loves facts where the agent learns of a defect and never tells the principal.
- Treating intentional employee torts as automatically outside scope. Default is outside scope, but exceptions apply when conduct serves the employer (a bouncer ejecting a customer). "Intentional torts are never within scope" is too absolute.
Bottom line
- Agent owes five duties to the principal: loyalty, obedience, care, accounting, notification (LOCAN). Knowledge is imputed to the principal once the agent knows.
- Principal owes the agent four duties: compensation, reimbursement, indemnification, cooperation. Indemnification covers authorized, lawful acts only, not the agent's own breach.
- Disclosed principal means the agent is off the contract. Partially disclosed or undisclosed means both are liable. The principal is always liable for authorized acts.
- Respondeat superior makes the employer vicariously liable for an employee's torts within scope of employment. Independent contractors are the general exception.
Exam shortcut
For contract liability, ask one question first: did the third party know the principal's identity at signing? Yes = disclosed, agent off the contract. Partial or no = both liable. For tort liability, ask the relationship: employee within scope = respondeat superior, both liable. Independent contractor = no vicarious liability unless you spot inherently dangerous, nondelegable, or negligent hiring in the facts.
The full lesson (about 2,169 words, 14 min read) adds 2 worked examples, all 6 common mistakes, a self-check, free in the app.
Learning objectives
- II.A2
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