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Chapter 38 THIRD PERSONS IN AGENCY. 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.

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Chapter 38THIRD PERSONSIN AGENCY


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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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Liability of Agent to Third Person

Disclosed Principal

Agent

Makes

Contract

No liability on the contract

Liable

Third Party

AUTHORIZED ACTION


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Liability of Agent to Third Person

Third

Party

Principal

Unauthorized Action

Liable

Principal Without

Capacity

Third

Party

Agent

Unless all material facts are made known to third party

Unless agreement made with third party that agent shall not be liable

Unauthorized Action Or Principal Without Capacity


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Liability of Agent to Third Person

  • 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.

    • 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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Liability of Agent to Third Person

  • 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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Liability of Agent to Third Person

Partially Disclosed Principal

Undisclosed Principal

Agent

Makes

Contract

Agent

Makes

Contract

Liable

Liable

Third Party

Third Party



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Liability of Principal For Torts and Crimes of Agent

  • 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 for Torts and Crimes

  • 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.


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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 Overview

Liability Issues

Status of Principal

Authority of Agent

Liability

Fully Disclosed

Full Authority

Principal

Principal

Fully Disclosed

No Authority

Agent

Principal

Partially Disclosed

Full Authority

Agent/Principal

Principal

Undisclosed Principal

Full Authority

Agent/Principal

Partially Disclosed

No Authority

Agent

Principal

Undisclosed Principal

No Authority

Agent


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Transactions with Sales Personnel

  • A salesperson is ordinarily an agent whose authority is limited to soliciting offers (orders) from third persons and transmitting them to the principal.

    • The principal is not bound until he or she accepts the order.

    • The customer may withdraw an offer at any time prior to acceptance.


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