Chapter 24: Liability of Principals and agents to Third Parties

A requirement that frequently causes disputes is that the principal must have had...

"knowledge of all material facts" at the time of ratification. It is not necessary, however, that the principal filly understand the legal significance of those facts.

SUBAGENT

An agent of an agent

Apparent Authority

Created by words or actions of principal causing third parties to believe agent has authority.

Justifiable Belief of the Third Party

Test used for determining the extent of an agent's apparent authority

rights and liabilities of Principal: Because the principal RATHER the agent is the intended party to the contract, can the principal enforce?

Yes the principal may enforce it. Example: Suppose the goods you have ordered from the Avon agent are shipped and you fail to pay. Avon, NOT the agent will be able to recover from you. If Avon fails to deliver, you may recover from Avon NOT the agent.

Inherent Agency Power

agents have implied power to act in emergencies.

Can agents have employees?

yes, they can have employees.

Rights and liability of Principal when principal is undisclosed:

Because the contract was made for his benefit, an undisclosed principal is permitted to enforce it. If the third party learns of the principals identity, she may elect to sue the principal instead of the agent. If the third person elects to recover from the agent, the principal is then required to indemnify the agent.

Payments to the Agent

Payments to the agent of a debt owed to the principal discharges the debt if the agent has authority to receive such payment.

CAPACITY

The ability to incur legal obligations and acquire legal rights.

general agent

a person who acts for the principal in a number of transactions over a period of time.

Unauthorized actions is...

a person who represent that he or she is making a contract on behalf of the principal, but who has no authority to do so does not bing the principal. Therefore, the agent is liable to the third person for damages suffered if the principal refuses to perform the contract.

if the agent justifiably believed she had authority =, her authority would be

implied not apparent.

ATTORNEY-IN-FACT

is the technical label given to an agent whose authority is in writing.

What are the effects of ratification?

it releases the agent from liability to both the principal and then third person for having exceeded his or her authority. Gives the agent the same right to compensation would have there been prior authorization, and simultaneously, the principal is entitled to the full benefit of the contract.

DIRECT LIABILITY

the principal basically is liable because of its own tort. They may be because the principal personally directed conduct that caused the injury.

What are several facts considered when deicing if the tort the agent committed, actually makes the principal liable, even when it was the principal who instructed to commit the crime....

1, was the act committed within the time and space limit of the agency? 2. Was the action leading to the injury incidental to, or the same general nature as, the responsibilities the agent is authorized to perform? 3. Was the agent motivated at least in part, to benefit the principal when the injury occurred?

To avoid liability an agent acting for herself or for the principal, the agent should sign all documents carefully and...

1. fully disclose the identity of the principal. 2. Clearly indicate her capacity as an agent.

An agent is not liable for the agreement between a principal and the third party in special situations:

1.Unauthorized actions by the agent. 2. Nonexistent or incompetent principals. 3. Agreements by the agent to assume liability. 4. An undisclosed principal. 5. A partially disclosed principal.

Exculpatory Clauses

A clause that releases a contractual party from liability in the event of monetary or physical injury, no matter who is at fault.

Apparent Agent

A person may have apparent authority although he never has been appointed an agent by the principal. The apparent authority arises from the principals failure to inform third persons that the relationship is not what it appears to be.

disclosed Principal

A principal whose identity is known to a third party at the time the agent makes a contract with the third party.

Undisclosed Principal

A principal whose identity is unknown by a third person, and the third person has no knowledge that the agent is acting for a principal at the time the agent and the third person form a contract.

agreements by the Agent to assume liability

An agent may make a contract in her own name while being employed as an agent. An agent may also become a party to a contract along with the principal, thus assuming joint liability.

Effect of notice to agent

Known as the imputation doctrine, notice to the agent is notice to the principal if it relates to the business of the agency. However, if the information doe snot relate to the scope of the agent's responsibilities and authority, the principals bound only by the information that is actually passes on by the agent.

rights and liabilities of Agent: When the principal is disclosed, all parties intend that the contract is between whom?

The principal and the third party. If the agent has acted within his or her authority, the agent has no liability on the contract. Exception: if the agent can bring an action on a negotiable instrument payable to her unless it is endorsed to the principal. Also, by custom an auctioneer is permitted to sue a beer for breach of contract.

RESPONDAET SUPERIOR AKA

VICARIOUOS LIABILITY " MEANING LET THE MASTER ANSWER"

Criminal Liability

When a principal instructs her agent to commit a crime, the agent is under no legal obligation to do so. In fact, an agent who commits a criminal act under instruction from her principal is guilty of that crime.

special agent

a person who is authorized by the principal to do a special act or to handle one or a few of certain types of business transactions.

Nonexistent or Incompetent Principal

a person who purports to act as agent for a principal whom the agent knows to be nonexistent or completely incompetent is personally liable on a contract entered into with a third person on behalf of such a principal

Ratification of a contract must be done, when?

before cancellation by the third party

ratification

for an unauthorized act that was done by an agent. It's basically a question of the "intent" of the principal. However the principal not need express that intent; it may be implied by his acts or failure to act.

implied warranty of authority

liability is imposed on an agent who has exceeded his authority.

RESPONDEAT SUPERIOR is the theory

of liability makes the principal responsible without regard to whether the principal was actually at fault. As long as the agent was acting within the scope of the agency when the tort occurred, the principal is liable.

When an agent commits a tort or crime while working for the principal, the agent is

personally liable for the consequences of his actions. This is also true when the agent is acting at the direction of the principal. An agent has no duty to comply with orders that are wrongful, because his duty to society I greater than the duty to the principal.

A principal is bound on a contract entered into on his behalf by the agent if...

the agent had authority to act for the principal.

What are the requirements for ratification?

the agent or purported agent must have "acted on behalf of the principal", (this requires that the principal has been disclosed to the third party)

Principal's Liability for the agent representations

the principal is bound by representation that the agent is expressly authorized to make. Likewise, the principal also is liable for representations that are reasonably necessary for the agent to make to accomplish the purpose of the agency since they would fall within the agent's implied authority.Finally the principal is bound by representations that are customary in the kind of business being transacted by the agent.

Effect of Conflicts of Interest

the principal is not bound if the agent colludes with the third person to withhold knowledge or money from the principal or if the third person should otherwise be aware that the agent is likely to withhold such information or money.

Justifiable Belief of the Agent

the test used by court in determining the extent of the agent's implied authority.

Rights and liability of Agent when principal is undisclosed:

the third party who deals with the agent believed the agent is acting personally and accordingly expects the agent to be a party to the contract. Therefore, the agent is held liable on contracts entered into on behalf of an undisclosed principal.

What is actual authority?

the true authority granted to the agent by the principal.

PARTIALLY DISCLOSED

third party knows he is dealing with an agent, but doesn't know principal's identity

what is implied authority?

to do whatever else is reasonably necessary to accomplish the objectives of the agency. This authority is limited by any specific prohibitions or other indications of the principals wishes.

Before ratification, the third person may, what?

usually withdraw from an unauthorized transaction.

MINISTRERIAL ACTS

when an agent delegates to employees acts for the principal that involve no judgement or discretion.

What is expressed authority?

when the principal specifically describes the extend of the agent's powers.

POWER OF ATTORNEY

written authorization to an agent to perform specified acts on behalf of his or her principal. the writing by which the authority is evidenced is termed a letter of attorney and is dictated by the convenience and certainty of business.