Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning Chapter 38 Third Persons in Agency Twomey Jennings Anderson’s Business Law and the Legal Environment, Comprehensive 20e Anderson’s Business Law and the Legal Environment, Standard 20e Business Law: Principles for Today’s Commercial Environment 2e

Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 2 Liability of Agent to Third Person Agent who makes a contract with a third person within the scope of authority has no personal liability on the contract. A person purporting to act as an agent for a principal warrants by implication that there is an existing principal with legal capacity and that the principal has authorized the agent to act. –If the person acting as an agent is not authorized, he is liable for any loss caused the third person for breach of these warranties.

Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 3 AUTHORIZED ACTION No liability on the contract Disclosed Principal Agent Makes Contract Third Party Liable Liability of Agent to Third Person

Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 4 Unauthorized Action Or Principal Without Capacity Third Party Principal Unauthorized Action Unless all material facts are made known to third party Unless agreement made with third party that agent shall not be liable Liable Third Party Principal Without Capacity Agent Liability of Agent to Third Person

Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 5 Disclosure of Principal Disclosed Principal. Partially Disclosed Principal: –An agent of a partially disclosed or an undisclosed principal is a party to the contract with the third person. The agent may enforce the contract against the third person and is liable for its breach.

Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 6 Disclosure of Principal Partially Disclosed Principal (cont’d) –To avoid problems of interpretation, an agent should execute a contract “Principal, by Agent.” –Agents are liable for harm caused to third persons by their fraudulent, malicious, or negligent acts.

Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 7 Disclosure of Principal Undisclosed Principal: –If third person is not told that a principal exists. –Third Party believes the agent is a principal and is liable on the contract.

Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 8 Agent’s Signatures

Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 9 Liable Partially Disclosed Principal Agent Makes Contract Third Party Undisclosed Principal Agent Makes Contract Third Party Liability of Agent to Third Person

Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 10 Liability of Principal to Third Person Assumption of Liability. Execution of Contract. –To avoid personal liablity, agent should sign the principal’s name “by” or “per” agent’s name. Torts and Crimes .

Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 11 Liability of Principal to Third Person Agent’s Contracts. –Contract with disclosed principal. Binding contract between principal and third person. Agent is not liable on the contract. –Contract with partially-disclosed principal. Both principal and agent are liable. –Simple contract with undisclosed principal. In most jurisdictions both principal and agent are liable.

Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 12 Liability of Principal to Third Person Agent’s Statements. –Principal is bound by statements made while acting within actual or apparent authority. Agent’s Knowledge. –Principal is bound by knowledge gained while acting within actual or apparent authority.

Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 13 Liability of Pricipal For Torts and Crimes An undisclosed or a partially disclosed principal is liable to a third person on a simple contract made by an authorized agent. A principal or an employer is vicariously liable under the doctrine of respondeat superior for the torts (and some crimes) of an agent or an employee committed within the scope of authority or the course of employment.

Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 14 Liability of Principal for Torts and Crimes Negligent Hiring: Employer may be liable for employee’s torts because the employer was negligent in the hiring process. –This theory has been used to hold an employer liable for intentional tort. –Employer knew or should have known that the employee was violent or dangerous. Negligent Supervision.

Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 15 Liability for Independent Contractor’s Acts Generally, the employer is not liable for a contractor’s injury to third persons. Exceptions to immunity. –Work is inherently dangerous. –Owner controls the work of the contractor.

Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 16 Status of PrincipalAuthority of AgentLiability Fully Disclosed Principal Full AuthorityPrincipal Fully Disclosed Principal No AuthorityAgent Partially Disclosed Principal Full AuthorityAgent/Principal Undisclosed PrincipalFull Authority Agent/Principal Partially Disclosed Principal No AuthorityAgent Undisclosed PrincipalNo AuthorityAgent Liability Overview