agency: liability to third parties and termination
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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?
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§ 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.
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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).
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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.
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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.
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Emergency Powers
Arises when: Agent should protect Principal. Agent cannot communicate with Principal.
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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.
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§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.
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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).
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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.
12© 2004 West Legal Studies in BusinessA Division of Thomson Learning
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.
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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.
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§ 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.
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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.”
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“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
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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.
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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.
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§ 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).
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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
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§ 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.
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§ 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.
23© 2004 West Legal Studies in BusinessA Division of Thomson Learning
§ 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.
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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.
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Termination By Operation of Law
Death or Insanity of either Principal or Agent: automatic.
Impossibility.Changed Circumstances.Bankruptcy.War.
26© 2004 West Legal Studies in BusinessA Division of Thomson Learning
Law on the Web
Agency at Cornell U.Agency at ‘Lectric Law Library.
Legal Research Exercises on the Web.
27© 2004 West Legal Studies in BusinessA Division of Thomson Learning
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.
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