Agency: Liability to Third Parties and Termination

1© 2004 West Legal Studies in Business

A Division of Thomson Learning

Chapter 32Agency: Liability to Third Parties and Termination

2© 2004 West Legal Studies in BusinessA Division of Thomson Learning

IntroductionIs Principal liable for contracts entered into by his

Agent?Is Agent liable for contracts entered into for

Principal?When is a third party liable to Principal and to

Agent?When is Principal liable for the torts of his Agent? When is Agent liable for torts committed while

working for Principal?


§ 1: Scope of Agent’s Authority

Principal is liable for acts entered into by Agent when she gives Agent either actual or apparent authority: Actual Authority: express or implied. Apparent Authority: estoppel, emergency and

ratification.


Express Authority

Can be oral or written.“Equal Dignity Rule.”

If law requires written contract, Agent’s authority must be in writing. Failure to comply with the rule renders contract voidable.

Exceptions:• Officer acting for Corporation.• Agent acts in Principal’s presence.

Power of Attorney (ordinary v durable).


Implied Authority

Inferred or conferred by custom, Agent’s position or what is reasonably necessary to carry out express authority.

What the Agent reasonably thinks the Principal means.


Apparent Authority and Estoppel

Principal, by either word or act, causes 3rd party to reasonably believe that Agent has authority to act for Principal.

If 3rd party changes legal position by relying on Principal’s representations, Principal is estopped from denying Agent had authority to contract.


Emergency Powers

Arises when: Agent should protect Principal. Agent cannot communicate with Principal.


Ratification1. Agent must act on behalf of Principal.2. Principal must affirm entire deal. 3. Principal must affirm before 3rd party

withdraws from transaction. 4.Principal and 3rd party must have legal

capacity to contract when Agent made the deal.

5. Principals must know all the material facts involved in the transaction.


§2: Liability for ContractsPrincipals are classified as:

Disclosed: identity known to 3rd P. Partially Disclosed: 3rd P knows he is dealing

with Agent, but doesn’t know Principal’s identity.

Undisclosed: 3rd party does not know he is dealing with an Agent, and Principal’s identity is totally unknown.


Authorized Acts

Disclosed or partially disclosed Principal is liable to 3rd party if Agent acts within scope of authority.

Agent has no liability to 3rd P for disclosed Principal’s non-performance. (Agent may be liable if Principal is partially disclosed).

Case 32.1: McBride v. Taxman Corp. (2002).


Liability: Authorized Acts

If undisclosed Principal, no liability unless: Principal expressly excluded. Contract is a negotiable instrument. Agent’s performance is personal. 3rd party would have contracted if he knew the

Principal’s identity.


Liability: Unauthorized Acts

Unauthorized acts outside of Agent’s express, implied or apparent authority.

If Agent has no authority, Principal is not liable, but Agent is liable.


Actions by E-Agents

An “e-agent” is a semi-autonomous computer program capable of executing specific tasks on behalf of a principal.

E-commerce uses e-agents to create contracts every day.


§ 3: Liability For Agent’s TortsAgent is liable to 3rd party for his own torts. Principal may be liable for Agent’s torts if

they result from: Principal’s own tort. Principal’s authorization of tort. Agent’s unauthorized but fraudulent conduct

made within scope of agency.


Liability for Agent’s Negligence

Applies only to Employer-Employee relationships.

Doctrine of Respondeat Superior: Employer is vicariously liable for Employee’s negligent torts committed within the Agent’s “course and scope of employment.”


“Course and Scope of Employment”Factors Employer

LiableEmployer NOT Liable

Was Employee’s act authorized by Employer? Yes No

The Time place and purpose of act (factually based) ? ?

Was act commonly performed by Employees? Yes No

Did act advance Employer’s interests? Yes No

Did Employer furnish instrumentality (tools)? Yes No

Did Employer have reason to know Employee would do the act?

Yes No

Did the act involved a serious crime? No No


Employer Liability

Departures from the Employer’s Business: was departure minor or substantial?

Case 32.2: Joel v. Morrison (1834).Borrowed Servants.Notice of Dangerous Conditions.


Liability for Agent’sIntentional Torts

Principal liable for intentional torts committed with the scope of employment.

Employee is a tortfeasor as well. Employer is liable for Employee’s acts, which

Employer knew or should have known the Employee had a propensity to commit.


§ 4: Liability for Independent Contractor’s TortsFirst determine whether worker is employee

or independent contractor (factors p. 573).General rule: Employer is not liable for acts

of independent contractors because Employer has no right to control.

Exception: hazardous activitiesIndependent Contractor is liable for her own

torts. Case 32.3: Haag v. Bongers (1999).

http://caselaw.findlaw.com/scripts/getcase.pl?court=ne&vol=sc/5-19990212&invol=1

http://caselaw.findlaw.com/scripts/getcase.pl?court=ne&vol=sc/5-19990212&invol=1


Review: P’s Liability Analysis

Worker

P Generally Not Liable (unless strict liability)

Outside CSE-P Not Liable

Within CSE -P Liable

“Course and Scope of Employment”

Independent Contractor

Employee

Factors


§ 5: Liability for Agent’s Crimes

General Rule: Agent is liable, Principal is not, unless: Principal authorized or participated in crime. Some jurisdictions hold Principal liable for violating

statutes.


§ 6: Liability for Subagent’s Acts

If Agent is authorized to hire subagents, Principal is liable for the acts of the subagent.

If Principal undisclosed, Agent is responsible for wages and Principal liable for torts.


§ 7: Termination of An Agency

Agency can be terminated by: An Act of the Parties; or By Operation of Law.

Once agency terminated Agent has no actual authority to bind the Principal, but may have apparent authority to bind Principal.


Termination By Act of the Parties

Lapse of Time.Purpose Achieved.Occurrence of a Specific Event.Mutual Agreement.Termination by One Party.Notice of Termination.


Termination By Operation of Law

Death or Insanity of either Principal or Agent: automatic.

Impossibility.Changed Circumstances.Bankruptcy.War.


Law on the Web

Agency at Cornell U.Agency at ‘Lectric Law Library.

Legal Research Exercises on the Web.

http://www.law.cornell.edu/topics/agency.html

http://www.lectlaw.com/d-a/htm



http://wbl.westbuslaw.com/


Return

Emerging TrendsIntelligent Agents: autonomous or semi-

autonomous internet programs that interact with people or other programs to execute specific tasks, including the searching, ordering and delivery of goods via “point and click” electronic contracts on the internet.

Generally, these agents have at least apparent authority to act for and bind Principal who is estopped.

Agency: Liability to Third Parties and Termination

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