Question

RCD Ltd. sells household appliances, including washers, dryers, dishwashers, stoves, and refrigerators. Most of RCD’s customers are developers of apartment buildings and condominium complexes. RCD’s sales representative is Alastair Du. He is authorized to make contracts with buyers, provided the value of each contract does not exceed $100 000. Alastair ignored the restriction on his authority and concluded a contract to sell 50 sets of washers and dryers to BES Developers at a price of $500 000. BES placed its order on RCD’s application form, which states that contracts over $100 000 require written approval of RCD’s vice president of sales, and Alastair on behalf of RCD accepted the order. RCD delivered the 50 sets of washer and dryers, and received payment from BES. Within a month of delivery of the washers and dryers, BES complained that the washers vibrate excessively and the dryers overheat, and they have caused damage to the apartments in which they were installed. RCD claimed to be protected from any liability for the faulty machines because Alastair had no authority to bind RCD to this contract. Does RCD’s argument constitute a valid legal defence to a claim against RCD by BES? Explain.

CLR 1: Compare strategies used to manage risks in an organization's business activities

CLR 2: Synthesize substantive laws that may impact businesses

CLR 4: Explain the relevance of internal controls in a business that could mitigate business and legal risks and promote compliance with laws

Answer 1

1. In my views, RCD’s argument of putting the blame on Alastair is not a valid legal defence. This is so because RCD will have vicarious liability for the acts of Alastair, which was done under his course of employment with RCD. Vicarious liability is basically the responsibility of an employer, for the acts of an employee, under the course of his employment with the employer’s company.

Let us evaluate the presence of elements of vicarious liability in the given case:

• The negligent person (Alastair) was employed by the company RCD
• Negligent person was acting within the scope of his employment with the company
• Employer had authorized the negligent person to act tortuously
• There is a definite amount of damages associated with this act

As all these elements are valid in the given case, we can say that RCD has vicarious liability for the acts of Alastair and cannot get rid of its responsibility in the case. RCD can be held equally responsible for the defective machines delivered to BES.

CLR 1: There are different strategies used by companies to manage risks:

• Avoid the risk: If the risk does not have a major impact on core business, it can be ignored and avoided
• Share the risk: The risk management gets distributed among the primary stakeholders of business
• Reduce the risk: The company employs several techniques to decrease or minimalize the impact of the risk
• Retain the risk: Some risks prove to be good for business. Such risks are usually retained by companies

CLR 2: Substantive law is the type of law or rules which defines the basic rights of business. Some of the common substantive laws are:

• Contract law
• Negligence torts
• Criminal law

CLR 4: Internal controls are the policies, procedures and norms, which a company follows to keep the business on track and aligned to ethics. The importance of internal controls in business are as follows:

• Ensures compliance adherence by business
• Risk assessment gets done comprehensively and prepares the business for any kind of emergency
• Contingency and emergency plans are kept ready
• The rights and interests of stakeholders gets protected