Vicarious Liability Analysis

In a principal-agent relationship, a partnership is vicariously liable for wrongs of its partners and employees and other agents acting in the course of their partnership’s business. Additionally, vicarious liability extends to individual partners as well, regardless of their individual culpability. The latter principle of spinoff liability is, naturally, highly detested among members of the partnership, in particular members of professional service firms. Intriguingly, the principle of vicarious liability has over time attracted different justifications, each with its own strengths and weaknesses. In the context of a partnership, two forms of vicarious liability are substantial: the vicarious liability of the partnership itself and the secondary
The inherent problem within this justification is that the diffusion of agency authority in a partnership means that in a hierarchically structured control on organizational units, such as in corporations, are not feasible. In a partnership setting, the repressed fault justification implies that partners individually have duties to supervise fellow partners and other agents of the partnership. This type of justification does not extend to explain why legal doctrine encompasses separate independent torts of negligent selection, hiring, supervision and retention. Additionally, nor does it explain why the principal’s demonstrable innocence is no defence. For example, the principal is still liable even if she/he employed a state of the art monitoring system to prevent and detect her agent’s misconduct. In addition, the repressed fault justification fails to consider that if partners individually have duties to monitor fellow partners, liability for breach of these duties would be direct and not vicarious. In summarization, the repressed fault justification is not sufficient to invoke the principals’ liability of the conduct of their agents whom act negligently within the course of their
The particular consequences to consider are the changes in behaviour of the partners and the third parties who conduct business with the partnership. In the context of the absence of vicarious liability, third parties who knowingly deal with individual partners would have increased motives to investigate the said partner’s reputation for competence and probity and their monetary ability to compensate the third parties incurred losses. In addition, the third parties would also have increased motives to insure themselves against losses – including the risk of involuntary or unknowingly becoming the creditor of a judgment-proof person. These incentives, in general, are present otherwise, but to a lesser degree as vicarious liability of the principal, would hold the partnership liable. Subsequently, since the partnership would be held vicariously liable, the partners would have reduced motives to monitor other partners – since individual assets were no longer at risk. The monitoring of partners costs resources and additional expenditure, thus, reduced monitoring would result in saving costs associated with