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In
law Law is a system A system is a group of Interaction, interacting or interrelated elements that act according to a set of rules to form a unified whole. A system, surrounded and influenced by its environment, is described by its boundari ...
, liable means "responsible or answerable in law; legally obligated". Legal liability concerns both
civil law Civil law may refer to: * Civil law (common law) Civil law is a major branch of the law.Glanville Williams. ''Learning the Law''. Eleventh Edition. Stevens. 1982. p. 2. In common law legal systems such as England and Wales and the law of the United ...
and
criminal law Criminal law is the body of law Law is a system A system is a group of Interaction, interacting or interrelated elements that act according to a set of rules to form a unified whole. A system, surrounded and influenced by its env ...
and can arise from various areas of law, such as
contract A contract is a legally binding agreement that defines and governs the rights and duties between or among its parties Image:'Hip, Hip, Hurrah! Artist Festival at Skagen', by Peder Severin Krøyer (1888) Demisted with DXO PhotoLab Clearview ...

contract
s,
tort A tort, in jurisdiction, is a (other than ) that causes a claimant to suffer loss or harm, resulting in for the person who commits the tortious act. It can include intentional infliction of emotional distress, negligence, financial losses, ...

tort
s,
tax A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity In law Law is a system A system is a group of Interaction, interacting or interrelated elements that act accord ...
es, or fines given by
government agencies A government or state agency, sometimes an appointed commission, is a permanent or semi-permanent organization in the machinery of government that is responsible for the oversight and administration of specific functions, such as an Administration ...
. The
claimant A plaintiff ( Π in legal shorthand) is the party who initiates a lawsuit A lawsuit is a proceeding by a party or parties against another in the civil Civil may refer to: *Civic virtue, or civility *Civil action, or lawsuit *Civil affai ...
is the one who seeks to establish, or prove, liability.


Theories of Liability

Claimants can prove liability through a myriad of different theories, known as theories of liability. Which theories of liability are available in a given case depends on nature of the law in question. For example, in case involving a contractual dispute, one available theory of liability is breach of contract; or in the
tort A tort, in jurisdiction, is a (other than ) that causes a claimant to suffer loss or harm, resulting in for the person who commits the tortious act. It can include intentional infliction of emotional distress, negligence, financial losses, ...

tort
context,
negligence Negligence (Lat. ''negligentia'') is a failure to exercise appropriate and/or ethical ruled care expected to be exercised amongst specified circumstances. The area of tort A tort, in common law jurisdiction, is a civil wrong (other than br ...

negligence
, negligence per se,
respondeat superior ''Respondeat superior'' (Latin Latin (, or , ) is a classical language belonging to the Italic languages, Italic branch of the Indo-European languages. Latin was originally spoken in the area around Rome, known as Latium. Through the power of th ...
,
vicarious liability Vicarious liability is a form of a strict In mathematical Mathematics (from Greek Greek may refer to: Greece Anything of, from, or related to Greece Greece ( el, Ελλάδα, , ), officially the Hellenic Republic, is a country l ...
,
strict liability In criminal law, criminal and Civil law (common law), civil law, strict liability is a standard of Public liability, liability under which a person is legally responsible for the consequences flowing from an activity even in the absence of Tort, ...
, or intentional conduct are all valid theories of liability. Each theory of liability has certain conditions, or elements, that must be proven by the claimant before liability will be established. For example, the theory of negligence requires the claimant to prove that (1) the defendant had a duty; (2) the defendant breached that duty; (3) the defendant's breach caused the injury; and (4) that injury resulted in recoverable damages. Theories of liability can also be created by legislation. For example, under
English law English law is the common law List of national legal systems, legal system of England and Wales, comprising mainly English criminal law, criminal law and Civil law (common law), civil law, each branch having its own Courts of England and Wales, ...
, with the passing of the
Theft Act 1978 The Theft Act 1978 (c 31) is an Act of Parliament, Act of the Parliament of the United Kingdom. It supplemented the earlier Deception (criminal law), deception offences contained in sections 15 and 16 of the Theft Act 1968 by reforming some aspe ...
, it is an offense to evade a liability dishonestly. Payment of
damages At common law In law, common law (also known as judicial precedent or judge-made law, or case law) is the body of law created by judges and similar quasi-judicial tribunals by virtue of being stated in written opinions. ''Black's Law Dictionary ...
usually resolves the liability. A given liability may be covered by
insurance Insurance is a means of protection from financial loss. It is a form of risk management Risk management is the identification, evaluation, and prioritization of risk In simple terms, risk is the possibility of something bad happening. ...

insurance
. In general, however, insurance providers only cover liabilities arising from negligent torts rather than intentional wrongs or
breach of contract Breach of contract is a legal Law is a system A system is a group of Interaction, interacting or interrelated elements that act according to a set of rules to form a unified whole. A system, surrounded and influenced by its environme ...
.


Liability in Business

In
commercial law Commercial law, also known as mercantile law or trade law, is the body of law that applies to the rights, relations, and conduct of Legal person, persons and business engaged in commerce, merchandising, trade, and sales. It is often considered ...
,
limited liability Limited liability is a legal status where a person's financial liability Liability may refer to: Law * Legal liability, in both civil and criminal law ** Public liability, part of the law of tort which focuses on civil wrongs ** Product liab ...
is a method of protection included in some business formations that shields its owners from certain types of liability and that amount a given owner will be liable for. A limited liability form separates the owner(s) from the business. This means that when a business is found liable in a case, the owners are not themselves liable; rather, the business is. Thus, only the funds or property the owner(s) have invested into the business are subject to that liability. If, for example, a limited liability business goes
bankrupt Bankruptcy is a legal process through which people or other entities who cannot repay debts to creditors may seek relief from some or all of their debts. In most jurisdictions, bankruptcy is imposed by a court order, often initiated by the debtor. ...

bankrupt
, then the owner(s) will not lose unrelated assets, such as a personal residence (assuming they do not give
personal guaranteeA personal guarantee is a promise made by a person or an organization (the guarantor) to accept responsibility for some other party's debt Debt is an obligation that requires one party, the debtor, to pay money or other agreed-upon value to ...
s). Forms of businesses that offer the limited liability protection include
limited liability partnership A limited liability partnership (LLP) is a partnership in which some or all partners (depending on the jurisdiction) have limited liabilities. It therefore can exhibit elements of partnerships and corporations. In an LLP, each partner is not ...
s,
limited liability companies A limited liability company (LLC) is the US-specific form of a private limited company A private limited company is any type of business entity in Privately held company, "private" ownership used in many jurisdictions, in contrast to a Pub ...
, and
corporation A corporation is an organization—usually a group of people or a company—authorized by the State (polity), state to act as a single entity (a legal entity recognized by private and public law "born out of statute"; a legal person in legal ...

corporation
s.
Sole proprietorship A sole proprietorship , also known as a sole tradership, individual entrepreneurship or proprietorship, is a type of enterprise owned and run by one person and in which there is no legal distinction between the owner and the business entity I ...
s and
partnership A partnership is an arrangement where parties, known as business partner A business partner is a commercial entity with which another commercial entity has some form of Business alliance, alliance. This relationship may be a contractual, exclus ...

partnership
s do not include limited liability. This is the standard model for larger businesses, in which a shareholders will only lose the amount invested (in the form of stock value decreasing). For an explanation, see
business entity In law, a legal person is any person or 'thing' (less ambiguously, any legal entity) that can do the things a human person is usually able to do in law – such as enter into contracts, lawsuit, sue and be sued, ownership, own property, and so on ...
. There is an exception to this rule, however, which allows a claimant to litigate against the owner(s) of a limited liability business, if the owner(s) have engaged in conduct that justifies the claimant's recovery from the owner(s): This exception is called "
piercing the corporate veil Piercing the corporate veil or lifting the corporate veil is a legal decision to treat the rights or duties of a corporation A corporation is an organization—usually a group of people or a company—authorized by the State (polity), state ...
." Courts generally try not to utilize this exception unless there have been serious transgressions. Limited liability aids entrepreneurs, businesses, and the economy in growing and innovating. Therefore, if courts often chose to pierce the veil, that innovation would be restricted. The exact test a court will use to determine if the veil needs to pierced vary by state in the United States, but generally courts will look to see if there is a separation between the company's and its owners' affairs, the company's actions were fraudulent, and if the company's creditors were subject to an unjust cost. For sole proprietorships and general partnerships, the liability is unlimited. Unlimited liability means that the owner(s) of the business have the full responsibility of assuming all the business's debts. This can include seizure of personal assets in the face of bankruptcy and liquidation. Professionals in limited liability partnerships and limited liability companies will have unlimited liability for their own torts and malpractices. The limited liability of the business will no longer apply for these wrongdoings. For business owners, there are main categories of liability exposure to be aware of in order to protect their businesses from liability and financial troubles and issues. The first is employment-related issues where the larger the work force, and the more turnover there is, the larger the likelihood of liability lawsuits such as
wrongful termination In law, wrongful dismissal, also called wrongful termination or wrongful discharge, is a situation in which an employee's contract of employment has been terminated by the employer, where the termination breaches one or more terms of the contra ...
claims. Another area is accidents and/or injuries on the premises. Next, vehicle-related liability if employees are allowed to drive company cars since this could lead to accidents while they use the company cars. Product-related liability (also called manufacturer's liability) details poor manufacturing of products that results in injuries and/or accidents, which is discussed in more detail in the following section. Errors/omissions is another category where a lawsuit can result from a mistake on the part of the company such as in a contract or paperwork. Finally, the last major category relates to holding directors and officers personally liable for actions taken by the company, as seen in piercing the corporate veil. Overall, as businesses get larger and more successful, their chances of liability lawsuits increase, but small businesses are not completely immune to them. Entrepreneurs and business owners need to be aware of these types of liability exposures to ensure their businesses are protected.


Product Liability

Product liability Product liability is the area of law Law is a system A system is a group of Interaction, interacting or interrelated elements that act according to a set of rules to form a unified whole. A system, surrounded and influenced by its envir ...
governs civil lawsuits between a plaintiff and defendant who furnishes defective goods that caused loss or injur
11
Product liability and its prevalence in the law has changed throughout history. In the 19th century, it worked to both the manufacturers' and other sellers' advantages. "Caveat emptor" ("let the buyer beware") reigned supreme in this area of the law. In this era, the seller had no liability unless they had made an express promise to the customer that was not received. The 19th century was also when the
Industrial Revolution The Industrial Revolution was the transition to new manufacturing processes in Great Britain, continental Europe Continental Europe or mainland Europe is the contiguous continent A continent is any of several large landmasse ...
was beginning and changing the business world. In order to promote this rise in industrialization and manufacturing, the law avoided allowing damage recoveries that would weaken new industries. In the 20th and 21st centuries, there was no longer this need to protect manufacturers from liability. If anything, there was more of need to impose liability standards on industries because consumers had less power to freely bargain with corporations and other business forms. Furthermore, the complexities and intricacies of goods was increasing, making it harder for the average buyer to determine manufacturing issues when purchasing these goods. Now a new phrase dominates liability: "caveat venditor" or "let the seller beware." The law finds that sellers and manufacturers can face more liability for defects with the help of insurance and socializing the damages by raising prices and forcing the consumer to pay for it. If a manufacturer is found to be
negligent Negligence (Lat. ''negligentia'') is a failure to exercise appropriate and/or ethical ruled care expected to be exercised amongst specified circumstances. The area of tort A tort, in common law jurisdiction, is a civil wrong (other than br ...

negligent
, that means they breached their duty to the customer by not eliminating a reasonably foreseeable risk caused by the product. The manufacturer can be seen as negligent if there are problems in the manufacturing process, do not properly inspect their products, do not give a reasonable warning to the customer when the product has a foreseeable risk of harm, and/or the design lends itself to risk of harm. The magnitude and severity of the foreseeable harm are also assessed when looking at negligence.


Liability as it Relates to Employers/Employees

There is a form of liability that exists between employers and their employees. This is called
vicarious liability Vicarious liability is a form of a strict In mathematical Mathematics (from Greek Greek may refer to: Greece Anything of, from, or related to Greece Greece ( el, Ελλάδα, , ), officially the Hellenic Republic, is a country l ...
. For it to apply, one party has responsibility for a third party, and the third party commits an unlawful action. An employer may be held liable for the actions of an employee if it is unlawful (i.e. harassment or discrimination), or the employee's negligent actions while working causes damages to property or injury. Respondeat superior ("Let the superior answer") is a legal principle that dictates when an employer is responsible for the actions of an employee. Employers should worry about this rule when the employee commits a
tort A tort, in jurisdiction, is a (other than ) that causes a claimant to suffer loss or harm, resulting in for the person who commits the tortious act. It can include intentional infliction of emotional distress, negligence, financial losses, ...

tort
or harmful act when the employee was acting within the course and scope of employment at the time of the incident. The term " scope of employment" is when an employee is doing work assigned by their employer or is completing a task that is subject to the employer's control. To test whether the conduct that led to the incident is within the scope of employment, one must determine: # If it was the type of task the employee was employed to perform # It occurred flexibly within the authorized work time period # The incident was not unreasonably far away from the employer authorized location # The incident was motivated, at least in part, for the purpose of serving the employer If these four factors are found to be true, the employer will have to answer for the tort. The reasoning behind this legal principle is because it is thought that the employer is best suited for bearing the financial burden, employers can protect themselves against this burden with insurance, and the cost can be passed to customers by raising prices. On the other hand, if the employee was found to have either detoured or frolicked then defining the scope of employment becomes trickier. The rule of frolic and detour changes how the liability applies. A frolic is when the employee causes a tort when completing an activity that is unrelated to their job. If it is found that the employee had frolicked, the employee would then be liable for damages. For example, if a delivery driver does not complete his deliveries for a few hours so he can do some personal shopping, and on his way to the store, he hits a pedestrian. A detour is more minor. The employee is still participating in a non-work related activity, but the activity is not a major disregard for work duties. An example of a detour would be if on the way to deliver a package, a delivery driver stops at a drive-thru to grab something to eat. When pulling away from the restaurant to continue with deliveries, the driver hits a pedestrian. Here, the employer could still be liable for these damages because the detour was minor. An employer can also be liable for a legal principle called negligent hiring. This happens when in the process of hiring a new employee, the employer does not check criminal pasts, backgrounds, or references to ensure the applicant did not pose a potential danger if hired as an employee. An employer can also face liability and repercussions if they know that the worker poses a potential danger but keeps them on the job. This is called negligent retention. To avoid claims regarding negligent hiring or retention, employers should be diligent when hiring employees who will have a lot of contact with customers and the public (especially if they will have access to vulnerable members of the public, go to customers' homes, and/or have access to weapons), and dismiss any employees who pose a potential danger. It is important for employers to note whether someone working for them is an
independent contractor Employment is the relationship between two parties Image:'Hip, Hip, Hurrah! Artist Festival at Skagen', by Peder Severin Krøyer (1888) Demisted with DXO PhotoLab Clearview; cropped away black border edge.jpg, 300px, ''Hip, Hip, Hurrah!'' ...
or an employee. An employee is someone who is a paid worker for the employer. An independent contractor, on the other hand, contracts with a principal to produce a result and in the process, gets to determine how that result will be completed. The difference lies in how much control the principal/employer can wield on the agent. Employees are subjected to more control while nonemployee agents, like independent contractors, have more freedom in how they do their job. A principal is not ordinarily liable for torts committed by nonemployee agents since the principal does not fully control the method of work done. However, there are exceptions to this. There can be direct liability if the principal hired an incompetent agent, if harm resulted from nonemployee agent's failure to perform a
duty of care In tort law A tort, in common law jurisdiction, is a civil wrong (other than breach of contract) that causes a claimant to suffer loss or harm, resulting in legal liability for the person who commits the tortious act. It can include intenti ...
that the principal bestowed on them (a duty of care is an action whose successful performance is so important that if it is delegated to an agent and not accomplished, the principal is still liable), and a principal is liable if the nonemployee agent did not take the correct precautions required to complete very dangerous activities. An employer should also be aware on how the extent of their liability can change based on the agreements their agents make. An agent is a person who has the power to act on behalf of another party (typically the principal). Usually, a principal is liable for a
contract A contract is a legally binding agreement that defines and governs the rights and duties between or among its parties Image:'Hip, Hip, Hurrah! Artist Festival at Skagen', by Peder Severin Krøyer (1888) Demisted with DXO PhotoLab Clearview ...

contract
made by the agent if the agent had actual or apparent authority to make the contract. Actual authority is the ability an agent has to pursue and complete certain activities based on communication and manifestations from the principal. Express authority is when the principal clearly states what the agent has the authority to do while implied authority is based on what is reasonable to assume that the agent is allowed to do based on what the principal wants of the agent. Express and implied authority are both types of actual authority. The second type of authority is apparent authority. This occurs when a principal's actions lead a third party to reasonably assume that the agent can act in a certain way and create contracts with the third party on behalf of the principal. To determine if an agent is liable for a contract, one must look at the type of principal. There are four types of principals. A disclosed principal is known to the third party, and the third party knows that the agent is acting for this principal. The agent is not liable on authorized contracts made for a disclosed principal since all parties are aware of the contract and who is participating in the contract. An unidentified principal is seen when the third party knows the agent is acting for a principal but lacks knowledge on the principal's identity. The agent is typically liable for contracts made for an unidentified principal. An undisclosed principal is seen when the third party does not know the principal's existence and identity and reasonably believes the agent is the other party in the contract. In this instance, the agent can be held liable for the contract. A nonexistent principal refers to when an agent knowingly acts for principal that does not exist, such as an unincorporated association. The agent is liable here if they knew the principal had no capacity to take part in the contract even if the third party knows that the principal does not exist. An agent can also bind themselves to contracts by expressly agreeing to be liable. To avoid this, agents should make no express promises in their own name and should make sure the contract only obligates the principal. An agent may also be liable to a third party if they lack the authority to contract for a principal. The agent may escape liability in this scenario if the third party knows the agent lacks authority, the principal ratifies/affirms the contract, or the agent notifies the third party of his lack of authority.


Additional Concepts

Economists use the term "legal liability" to describe the legal-bound obligation to pay debts.


See also

*
Attribution (law)Doctrines of attribution are legal doctrines by which liability is extended to a defendant A defendant is a person A person (plural people or persons) is a being that has certain capacities or attributes such as reason, morality, consciousness ...
*
Tort A tort, in common law In law, common law (also known as judicial precedent or judge-made law, or ) is the body of law created by judges and similar quasi-judicial by virtue of being stated in written opinions. ' is the most-used legal dict ...

Tort
*
Strict liability In criminal In ordinary language, a crime is an unlawful act punishable by a state State may refer to: Arts, entertainment, and media Literature * ''State Magazine'', a monthly magazine published by the U.S. Department of State * The S ...


References

{{DEFAULTSORT:Legal Liability Debt
Legal terminology {{CatAutoTOC Terms Jargon Terminology Terms Terminology Terminology is a general word for the group of specialized words or meanings relating to a particular field, and also the study of such terms and their use. This is also known as termino ...
Public liability Tort law