Principal-Agent, Employer-Employee, and Third-Party Relationships CHAPTER TWENTY-FIVE Principal-Agent, Employer-Employee, and Third-Party Relationships

Contract Liability of Principal Usually, a principal is bound by a contract if the agent acts within the scope of authority. Scope of authority: includes the agent’s express, implied, and apparent authority. Express authority: authority the principal actually gives to the agent orally or in writing Implied authority: authority not expressly stated in contract but considered necessary to carry out the agency An agent does have implied authority to act in the event of an emergency if the agent is unable to contact the principle. Copyright © Houghton Mifflin Company. All rights reserved.

Contract Liability of Principal (continued) Scope of Authority (continued) – Apparent authority: authority that exists because the principal has led third parties to believe the agent possesses authority to act on the principal’s behalf. Even though the agent does not possess the authority to contract for the principal, the principal will be bound to contracts the agent enters. Copyright © Houghton Mifflin Company. All rights reserved.

Tort Liability of Principal and Employer A principal or an employer may be held responsible for torts committed by an agent or employee. This is known as vicarious liability: legal responsibility for acts of the agent is placed upon the principal. When dealing with an employee vicarious liability is known as the doctrine of respondeat superior. Generally, a principal will be liable for the torts of an agent only when the agent is acting in the scope of his/her agency. Copyright © Houghton Mifflin Company. All rights reserved.

Tort Liability of Principal and Employer (continued) Generally, an employer will be liable for the torts of an employee only when the employee is acting within the scope of his or her employment. – If the agent or employee is pursuing his or her own interests, the principal or employer will not be held liable. – If the agent or employee commits an intentional tort, the principal or the employer will not be held liable. Copyright © Houghton Mifflin Company. All rights reserved.

Contract Liability of Agent An agent will be liable to third parties if: The agent enters into the contract without authority. An agent is not a party to the contract when acting within his or her authority. The agent acts for an undisclosed principal. When third parties deal with an agent who has not disclosed his or her principal, the agent is as liable on the contract as if the agent were the principal. Copyright © Houghton Mifflin Company. All rights reserved.

Contract Liability of Agent (continued) The agent is careless in signing a contract. The agent must be sure to sign the name of the principal to the written contract and then sign his or her name as agent. If the agent does not include the principal’s name on the contract, only the agent will be bound by the contract. Copyright © Houghton Mifflin Company. All rights reserved.

Contract Liability of Agent (continued) The agent voluntarily agrees to personal liability. If the agent accepts liability on the contract, the agent, along with the principal, will be liable for any breach of contract. A person pretends to be an agent. If a person pretends to be an agent of another, that person will be personally liable for any contracts made with a third party. Copyright © Houghton Mifflin Company. All rights reserved.

Tort Liability of Agent and Employee An agent or employee acting within the scope of his or her agency or employment is personally liable for torts committed against third persons. – The agent or the employer is also liable, as it is in the scope of agency or employment. If the third party is successful in suing the principal or employer, the principal or employer can sue the agent or employee for the wrongful act. Copyright © Houghton Mifflin Company. All rights reserved.

Criminal Liability of Principal, Agent, Employer and Employee Generally, neither a principal or employer is criminally liable for acts committed by an agent or an employee. The principal or employer may be held criminally liable if he/she authorizes the criminal act. Copyright © Houghton Mifflin Company. All rights reserved.