Question

Desmond, obeying the instructions of his employer, Bigger Company, sells Harry a computer system that is not capable of being expanded. Harry is now suing Desmond asserting fraud, but Desmond defends that Harry did not request an expandable system. What responsibility if any, does Bigger Company owe Desmond?

1) Bigger has no responsibilities, since Desmond has a defense to fraud.
2) As Bigger's agent following instructions, Desmond is entitled to indemnification.
3) Bigger's only duty is to cooperate while Desmond defends the lawsuit.
4) Bigger's responsibility is to support Harry's lawsuit against Desmond.

Answer 1

When an agent acts within their authority for a principal and faces legal action as a result, the principal typically owes indemnification to the agent. In this case, Desmond was following Bigger Company's instructions, so Bigger Company should cover legal expenses and any damages (Option 2).

Step-by-step explanation:

The question concerns the legal concepts of fraud, agency, and indemnification within the business context. In the given scenario, Desmond, as an employee and agent of Bigger Company, sold Harry a computer system that was not capable of expansion. Harry is suing Desmond for fraud, but Desmond claims that there was no request for an expandable system. The issue at hand is about the responsibility Bigger Company owes to Desmond. As per legal principles of agency, when an agent, in this case Desmond, is acting within the scope of their authority on behalf of the principal (Bigger Company), and they face a claim or lawsuit as a result of acting on the principal's directions, the principal is generally responsible for indemnifying the agent.

This means Bigger Company would be obligated to cover legal costs and any potential damages that may arise out of Desmond's actions, provided that he was following the company's instructions and there was no intentional wrongdoing or misrepresentation on his part.Addressing Counterclaims: While making a defense, it's important to consider the view that if Desmond knowingly misled Harry or acted outside the bounds of his authority, then the indemnification by Bigger Company might be compromised. However, based on the information provided, it seems that Desmond followed instructions, suggesting that Option 2, which states Desmond is entitled to indemnification, would be the appropriate answer.