§77.2 Circumstances When Principal is Not Liable for Acts of Agent

The Case:  Creech v. Addington, 281 S.W.3d 363 (Tenn. 2009).

The Basic Facts:  Eleven plaintiffs sued Mr. and Mrs. Links, real estate agents, for negligent misrepresentation concerning a land transaction.  Also sued was Parker and Flowers, the owners of the land in question and the principles of the Links.  The court dismissed the claims against the agents and no appeal was sought.  A jury later found that the Links had made misrepresentations and that while doing so they were agents of Parker and Flowers.  The issue before the Tennessee Supreme Court was whether the order of dismissal in favor of the agents precluded any adjudication of vicarious liability as to the principals. 

The Bottom Line:

·       “When an agency relationship has been established, the principal may be bound by the acts of the agent performed on the principal’s behalf and within the actual or apparent scope of the agency.  Boren ex rel. Boren v. Weeks, 251 S.W.3d 426, 432 (Tenn.2008); White v. Revco Disc. Drug Ctrs., Inc., 33 S.W.3d 713, 723 (Tenn. 2000).  The law does not require that the principal either expressly direct or have knowledge of the agent’s tortious act; rather, it is enough that the agent was acting in the business of his superior.  White, 33 S.W.3d at 724.”  281 S.W.3d at 373.

·       “A principal’s vicarious liability for the tortious acts of his agent is not without limitation.  It is well-established, for example, that vicarious liability for the principal is extinguished when the agent himself is exonerated for the actions giving rise to the liability.  See D.B. Loveman Co. v. Bayless, 128 Tenn. 307, 160 S.W. 841, 843 (1913) (‘If the immediate actor is free from responsibility ... can his employer[—]one taking no direct part in the transaction[—]be held responsible?...  The question carries its own answer ....’  (quoting New Orleans & N. E. R. Co. v. Jopes, 142 U.S. 18, 27, 12 S.Ct. 109, 35 L.Ed. 919 (1891))); [Restatement (Second) of Judgments] § 51(1) (1982).  We most recently considered this issue in Johnson v. LeBonheur Children’s Medical Center, which involved a claim against a hospital for the negligence of two resident physicians who were employed by the University of Tennessee through a training program.  Johnson, 74 S.W.3d at 341.  The hospital asserted that it could not be held vicariously liable because the physicians, as state employees, were immune from personal liability for negligent acts under Tennessee Code Annotated section 9-8-307. Id. at 342.”  Id.  

·       “In Johnson, this Court, after conducting an analysis of prior case law, concluded that a principal could not be held vicariously liable for the acts of an agent in three instances.  Initially, ‘when an action is filed against an employer based solely upon the tortious actions of its employee under the doctrine of respondeat superior, a verdict in favor of the employee entitles the employer to a discharge from liability.’  Id. at 344 (citing Bayless, 160 S.W. at 842).  Secondly, a defendant, as the owner of a vehicle, could not be held liable to his daughter-in-law for his son’s negligent operation of the vehicle; because the marital unity rule extinguished the daughter-in-law’s right of action against her husband, the defendant father-in-law could not be held vicariously liable under the doctrine of respondeat superior.  Raines v. Mercer, 165 Tenn. 415, 55 S.W.2d 263, 264 (1932).  Finally, when a plaintiff has executed a covenant not to sue the driver of a vehicle, the plaintiff cannot then bring a suit for negligence against the employer of the driver based solely upon vicarious liability.  Stewart v. Craig, 208 Tenn. 212, 344 S.W.2d 761, 763 (1961).  Combining the holdings of these three cases, this Court set forth the following rule of law:

[A] principal may not be held vicariously liable under the doctrine of respondeat superior based upon the acts of its agent in three instances: (1) when the agent has been exonerated by an adjudication of non-liability, (2) when the right of action against the agent is extinguished by operation of law, or (3) when the injured party extinguishes the agent’s liability by conferring an affirmative, substantive right upon the agent that precludes assessment of liability against the agent.

Johnson, 74 S.W.3d at 345.  We ultimately held in Johnson that the plaintiff could maintain her action against the hospital because, unlike the marital unity rule, the statute conferring immunity did not extinguish a claimant’s right of action against the State of Tennessee by operation of law, but merely immunized the physicians in residence at the hospital from individual monetary liability.  Id. at 345-46.”  Id. at 373-74.

·       “We have described the categories established in Johnson to be exhaustive, setting forth the only three instances in which a principal may not be held vicariously liable for his agent’s tortious acts under the doctrine of respondeat superior.  Shelburne v. Frontier Health, 126 S.W.3d 838, 844 (Tenn.2003).”  Id. at 374.

·       “We find that the order of dismissal in regard to the Links has become final, was on the merits, and involves the same cause of action as the pending fraudulent misrepresentation claims. The doctrine of res judicata applies.  Because the Plaintiffs’ right of action against the agents has been extinguished by operation of law, the Plaintiffs are not entitled to a judgment against Parker and Flowers based solely upon the fraudulent misrepresentations by the Links as agents.  Moreover, the Plaintiffs did not properly preserve for appeal their claims of direct liability against Parker and Flowers.  The judgment of the Court of Appeals is, therefore, reversed, the jury’s verdict assigning vicarious liability to Parker and Flowers is vacated, and the case is dismissed.”  Id. at 366.