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Where the agency pays, an indemnity allows it to recover from the salesperson

A worked RES examination question on agency creation authority, from our Paper 1 bank — with the rule it turns on, and why each of the four options is right or wrong.

Paper 1Lesson 8Agency creation authorityFree — no sign-up

The question

A couple who have discovered that their salesperson made a secret profit at their expense are deciding whom to sue. The salesperson is attached to a large agency which received the commission on the transaction, which provided him with his office, his training and his marketing materials, and which requires each of its salespersons to sign an indemnity in the firm's favour on joining. The agency, through its solicitors, argues that its salespersons are independent contractors rather than employees, that it knew nothing of what he did and would never have sanctioned it, and that it is therefore not answerable for any of it.

Which statement is correct?

  1. A. The couple must sue the salesperson alone, the agency having done nothing itself.
  2. B. The couple may sue neither of them, the salesperson being an independent contractor.
  3. C. The couple must sue the buyer, who received the benefit of the underpriced sale.
  4. D. The couple may sue the agency, which may recover from him under the indemnity.

The answer, and why

Answer: D

The rule. An agency may be vicariously liable for torts committed by its salespersons in the course of their work, and the independent-contractor characterisation does not defeat that. Where the agency pays, an indemnity allows it to recover from the salesperson.

Why D is correct. The couple may sue the agency, which then looks to the salesperson.

The other options.

  • A confines the claim to the individual.
  • B accepts the independent-contractor defence.
  • C targets the buyer, who owed the couple nothing.

Exam note. The agency received the commission and carries the exposure. The indemnity moves the loss back afterwards; it does not keep the claimant out.

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