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
Chapter 38
Third Persons in Agency
Copyright © 2008 by West Legal Studies in Business
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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.
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Copyright © 2008 by West Legal Studies in Business
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Liability of Agent
to Third Person
AUTHORIZED ACTION
Disclosed Principal
Liable
Agent
Makes
Contract
No liability on the contract
Third Party
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Liability of Agent
to Third Person
Unauthorized Action Or Principal Without Capacity
Principal
Unauthorized Action
Third
Party
Liable
Principal
Without
Capacity
Agent
Third
Party
Unless all material facts are
made known to third party
Unless agreement made with third
party that agent shall not be liable
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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.
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Copyright © 2008 by West Legal Studies in Business
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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.
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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.
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Agent’s Signatures
Signature
Responsible Party
a.
P Company, Art Smith, agent
P Company (probably i is better)
b.
Art Smith, agent for P
Company
P Company (probably)
c.
Art Smith on behalf of P
Company
P Company
d.
P Company, per Art Smith
P Company
e.
P Company, Art Smith
P Company and Art Smith
f.
Art Smith
Art Smith
g.
P Company by Art Smith
P Company (i is better)
h.
P Company
P Company
i.
P Company by Art Smith,
agent
P Company
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Liability of Agent
to Third Person
Partially Disclosed Principal
Undisclosed Principal
Agent
Agent
Makes
Liable
Makes
Contract
Liable
Third Party
Copyright © 2008 by West Legal Studies in Business
A Division of Thomson Learning
Contract
Third Party
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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 .
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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.
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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.
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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.
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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.
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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.
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Liability
Liability Overview
Overview
Status of Principal
Authority of Agent
Liability
Fully Disclosed
Principal
Full Authority
Principal
Fully Disclosed
Principal
No Authority
Agent
Partially Disclosed
Principal
Full Authority
Agent/Principal
Undisclosed Principal
Full Authority
Agent/Principal
Partially Disclosed
Principal
No Authority
Agent
Undisclosed Principal
No Authority
Agent
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