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Agency & Partnership Professor Donald J. Kochan Class 16.

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Presentation on theme: "Agency & Partnership Professor Donald J. Kochan Class 16."— Presentation transcript:

1 Agency & Partnership Professor Donald J. Kochan Class 16

2 Todays Materials Pages 393-417 Pages 393-417 Liability of Agents to Third Parties Liability of Agents to Third Parties

3 Introduction If you are an aggrieved third party, If you are an aggrieved third party, Who can you sue? Who can you sue? Who should you sue? – Agent or principal? Who should you sue? – Agent or principal? What can you sue for? What can you sue for? What must you prove? What must you prove? What is yje difference between actual, apparent, actual, and non authority? What is yje difference between actual, apparent, actual, and non authority? Always analyze next steps – if an agent is held liable to a third party can he sue for indemnification from the principal or join the principal? If the principal is held liable can he sue the agent or join the agent in the third party lawsuit ? Always analyze next steps – if an agent is held liable to a third party can he sue for indemnification from the principal or join the principal? If the principal is held liable can he sue the agent or join the agent in the third party lawsuit ?

4 Introduction (cont.) When it Comes to Liability, Always Remember How Would I Argue This if I Reprented X? How would I Argue for Y? How Might I Argue for Z? And on an Exam, Tell Me All – Wear All the Hats. Then tell me who should win and why.

5 Liability When Unintentionally Undisclosed Principal Unwitting failures to disclose; why does that matter versus... Unwitting failures to disclose; why does that matter versus... Intentional failures to disclose Intentional failures to disclose 1) At the direction of the principal 1) At the direction of the principal 2) Unilateral decision by the agent 2) Unilateral decision by the agent Why does the distinction between 1&2 above matter in the end? Why does the distinction between 1&2 above matter in the end?

6 Liability When Unintentionally Undisclosed Principal From the Text: [A]n agent for an undisclosed principal is liable as a party to the contract in recognition of the expectations of of the person contracting with the agent. This is true even when the agent did not intend such liability and had unintentionally failed to to disclose the principal. (emphasis added, at p. 396 Note 1)

7 Jensen v. Alaska Valuation Service Appraisal Case Appraisal Case Ordinarily, the question of whether a corporate agents acts for a disclosed or an undiclosed principal is one of fact. Ordinarily, the question of whether a corporate agents acts for a disclosed or an undiclosed principal is one of fact. Use of corporate checks and notice – is that sufficient disclosure?; only one factor and not necessarily determinative in an inherently factual inquiry Use of corporate checks and notice – is that sufficient disclosure?; only one factor and not necessarily determinative in an inherently factual inquiry Focuses on notice and knowledge of the party and duty to inform Focuses on notice and knowledge of the party and duty to inform

8 Restatement on Principal Disclosure § 4. Disclosed Principal; Partially Disclosed Principal; Undisclosed Principal § 4. Disclosed Principal; Partially Disclosed Principal; Undisclosed Principal (1) If, at the time of a transaction conducted by an agent, the other party thereto has notice that the agent is acting for a principal and of the principal's identity, the principal is a disclosed principal. (1) If, at the time of a transaction conducted by an agent, the other party thereto has notice that the agent is acting for a principal and of the principal's identity, the principal is a disclosed principal. (2) If the other party has notice that the agent is or may be acting for a principal but has no notice of the principal's identity, the principal for whom the agent is acting is a partially disclosed principal. (2) If the other party has notice that the agent is or may be acting for a principal but has no notice of the principal's identity, the principal for whom the agent is acting is a partially disclosed principal. (3) If the other party has no notice that the agent is acting for a principal, the one for whom he acts is an undisclosed principal. (3) If the other party has no notice that the agent is acting for a principal, the one for whom he acts is an undisclosed principal.

9 Restatement sec. 4 Comment c Whether a principal is a disclosed principal, a partially disclosed principal or an undisclosed principal depends upon the manifestations of the principal or agent and the knowledge of the other party at the time of the transaction. The disclosure of the existence or identity of the principal subsequently has no bearing upon the relations created at the time of the transaction. [Emphasis added].

10 Restatement on Undisclosed Principals § 322. Principal Undisclosed § 322. Principal Undisclosed An agent purporting to act upon his own account, but in fact making a contract on account of an undisclosed principal, is a party to the contract. An agent purporting to act upon his own account, but in fact making a contract on account of an undisclosed principal, is a party to the contract. Comment: Comment: a. As stated in Section 186, an undisclosed principal as well as the agent, is liable upon a contract made on his account by an agent acting within his powers, unless the contract is negotiable or sealed; hence, with the same exceptions, the other party to the contract has the option of holding the agent or the principal. The effect upon the agent's liability if the other party, after the discovery of the principal, deals with the principal, looks to his credit or gets judgment against him is stated in Sections 335, 337. a. As stated in Section 186, an undisclosed principal as well as the agent, is liable upon a contract made on his account by an agent acting within his powers, unless the contract is negotiable or sealed; hence, with the same exceptions, the other party to the contract has the option of holding the agent or the principal. The effect upon the agent's liability if the other party, after the discovery of the principal, deals with the principal, looks to his credit or gets judgment against him is stated in Sections 335, 337.186 335337186 335337 b. If an agent purports to act for another but intends to act for himself in a transaction in which he is authorized by the other so to do, he becomes a party as the undisclosed principal of the other. If he has no power to bind the other, the agent is normally liable on his warranty of authority (see § 329), unless the other ratifies (see § 87, Comment b), in which case the agent is no longer liable (see § 100) and is not a party, unless the purported principal is willing. b. If an agent purports to act for another but intends to act for himself in a transaction in which he is authorized by the other so to do, he becomes a party as the undisclosed principal of the other. If he has no power to bind the other, the agent is normally liable on his warranty of authority (see § 329), unless the other ratifies (see § 87, Comment b), in which case the agent is no longer liable (see § 100) and is not a party, unless the purported principal is willing.§ 329§ 87§ 100§ 329§ 87§ 100

11 Restatement on Principal Partially Disclosed § 321. Principal Partially Disclosed § 321. Principal Partially Disclosed Unless otherwise agreed, a person purporting to make a contract with another for a partially disclosed principal is a party to the contract.

12 Restatement on Notice of A/P Relationship § 9. Notice § 9. Notice (1) A person has notice of a fact if he knows the fact, has reason to know it, should know it, or has been given notification of it. (1) A person has notice of a fact if he knows the fact, has reason to know it, should know it, or has been given notification of it. (2) A person is given notification of a fact by another if the latter (2) A person is given notification of a fact by another if the latter (a) informs him of the fact by adequate or specified means or of other facts from which he has reason to know or should know the facts: or (a) informs him of the fact by adequate or specified means or of other facts from which he has reason to know or should know the facts: or (b) does an act which, under the rules applicable to the transaction, has the same effect on the legal relations of the parties as the acquisition of knowledge or reason to know. (b) does an act which, under the rules applicable to the transaction, has the same effect on the legal relations of the parties as the acquisition of knowledge or reason to know. (3) A person has notice of a fact if his agent has knowledge of the fact, reason to know it or should know it, or has been given a notification of it, under circumstances coming within the rules applying to the liability of a principal because of notice to his agent. (3) A person has notice of a fact if his agent has knowledge of the fact, reason to know it or should know it, or has been given a notification of it, under circumstances coming within the rules applying to the liability of a principal because of notice to his agent.

13 From Jensen: Although officers of a corporation will not ordinarily be held personally liable for contracts they make as agents of the corporation, they must disclose their agency and the existence of the corporation before they will be absolved from liability.. An agent who makes a contract for an undisclosed or partially disclosed principal will be liable as a party to the contract. Restatement (Second) of Agency, §§ 321, 322 (1958). Thus, Jensen can avoid liability only if his use of corporate checks disclosed the existence of Arthur Jensen, Inc. and Jensen's intention to contract on its behalf. Although officers of a corporation will not ordinarily be held personally liable for contracts they make as agents of the corporation, they must disclose their agency and the existence of the corporation before they will be absolved from liability.. An agent who makes a contract for an undisclosed or partially disclosed principal will be liable as a party to the contract. Restatement (Second) of Agency, §§ 321, 322 (1958). Thus, Jensen can avoid liability only if his use of corporate checks disclosed the existence of Arthur Jensen, Inc. and Jensen's intention to contract on its behalf.Restatement (Second) of Agency, §§ 321322 (1958)Restatement (Second) of Agency, §§ 321322 (1958)

14 From Jensen: An agent who attempts to avoid liability on a contract has the burden of proving that the agency relationship and the identity of the principal were in fact disclosed. A third party with whom the agent deals is not required to inquire whether the agent is acting for another. The third party will be held to have notice of the agency relationship, however, if he knows [about it], has reason to know [about] it, should know [about] it, or has been given notification of it. Restatement (Second) of Agency § 9 (1958). An agent who attempts to avoid liability on a contract has the burden of proving that the agency relationship and the identity of the principal were in fact disclosed. A third party with whom the agent deals is not required to inquire whether the agent is acting for another. The third party will be held to have notice of the agency relationship, however, if he knows [about it], has reason to know [about] it, should know [about] it, or has been given notification of it. Restatement (Second) of Agency § 9 (1958).Restatement (Second) of Agency § 9 (1958)Restatement (Second) of Agency § 9 (1958)

15 From the Text: Disclosure and Binding the Principal In general, an agent for a disclosed principal is not liable on the contract arranged by the agent. In general, an agent for a disclosed principal is not liable on the contract arranged by the agent. Page 397 There is a presumption that it was the agents intention to bind his principal and not to incur personal liability... There is a presumption that it was the agents intention to bind his principal and not to incur personal liability... Page 397

16 Copp v. Breskin Attorney/Expert Witness Case Attorney/Expert Witness Case Proof of Custom Issues Proof of Custom Issues Reliance/Reasonable Expectations Issues Reliance/Reasonable Expectations Issues Intention Issues Intention Issues Disclaimer Issues Disclaimer Issues

17 Copp v. Breskin (cont.) Justification for the disclosed agency rule is the probable intention of the parties, objectively manifested. Restatement (Second) of Agency § 320, Comments a-c; § 321, Comment a; § 328, Comment a (1958). Restatement (Second) of Agency § 320Restatement (Second) of Agency § 320

18 Copp v. Breskin (cont.) We hold that in these circumstances an attorney owes an expert or other litigation service provider an express disclaimer of responsibility if the attorney intends not to be bound by a contract for litigation services. This reflects the modern trend, which is to hold the attorney liable in the absence of an express disclaimer or other clear indication not to be bound. Putting the burden on the attorney promotes public trust and confidence in the legal profession, the supervision of which is the exclusive province and responsibility of the courts.... 3 (1984). Public trust in the profession and the courts would be greatly endangered and jeopardized by a technical defense of disclosed agency. 3 (1984)3 (1984)

19 Notes Following Copp Consider Restatement sec 6.01 Comment c regarding knowledge and reliance and disclaimers Consider Restatement sec 6.01 Comment c regarding knowledge and reliance and disclaimers Understanding such, how would you draft the contract? Understanding such, how would you draft the contract? Focus on the importance of the drafting and signature issue on page 401 Focus on the importance of the drafting and signature issue on page 401 Focus on why the agent should avoid personal gurantees Focus on why the agent should avoid personal gurantees When must an agent identify himself as an agent and for who When must an agent identify himself as an agent and for who

20 Van D. Costas, Inc. v. Rosenberg Mechanics Lien, Foreclosure, and Breach of Contract Case – Also focus on monthly rental issues Mechanics Lien, Foreclosure, and Breach of Contract Case – Also focus on monthly rental issues What does purporting to act mean? What does purporting to act mean? What is the consequence of a knew or should have known standard? What is the consequence of a knew or should have known standard? Regarding Liability, Why Does Awareness Go Both Ways? Regarding Liability, Why Does Awareness Go Both Ways? Look at the notes following the case regarding the concept of awareness Look at the notes following the case regarding the concept of awareness Look at the Notes after the case regarding drafting and avoidance of personal liability Look at the Notes after the case regarding drafting and avoidance of personal liability Custom and Usage issues affect the definitions of authority and liability Custom and Usage issues affect the definitions of authority and liability Is there an affirmative duty to disclose the identity of a principal? Is there an affirmative duty to disclose the identity of a principal?

21 Van D. Costas, Inc. v. Rosenberg (cont.) The extent to which an agent must make disclosure of his principal in order to avoid personal liability is explained in 3 Am.Jur.2d Agency § 320 (1962): 3 Am.Jur.2d Agency § 320 (1962)3 Am.Jur.2d Agency § 320 (1962) In order for an agent to avoid personal liability on a contract negotiated in his principal's behalf, he must disclose not only that he is an agent but also the identity of his principal, regardless of whether the third person might have known that the agent was acting in a representative capacity. It is not the third person's duty to seek out the identity of the principal; rather, the duty to disclose the identity of the principal is on the agent. The disclosure of an agency is not complete for the purpose of relieving the agent from personal liability unless it embraces the name of the principal; without that, the party dealing with the agent may understand that he intended to pledge his personal liability and responsibility in support of the contract and for its performance. Furthermore, the use of a tradename is not necessarily a sufficient disclosure of the identity of the principal and the fact of agency so as to protect the agent against personal liability.

22 Van D. Costas, Inc. v. Rosenberg (cont.) Section 321 of the Restatement (Second) of the Law of Agency (1957) discusses the liability of the agent under circumstances in which it appears that he is acting for someone else but the identity of his principal is unknown to the other party. Section 321 of the Restatement (Second) of the Law of Agency (1957) discusses the liability of the agent under circumstances in which it appears that he is acting for someone else but the identity of his principal is unknown to the other party. § 321. Principal Partially Disclosed Unless otherwise agreed, a person purporting to make a contract with another for a partially disclosed principal is a party to the contract. Comment: a. A principal is a partially disclosed principal when, at the time of making the contract in question, the other party thereto has notice that the agent is acting for a principal but has no notice of the principal's identity. See § 4. The fact that, to the knowledge of the agent, the other party does not know the identity of the principal is of great weight in ascribing to the other party the intention to hold the agent liable either solely, or as a surety or co-promisor with the principal. The inference of an understanding that the agent is a party to the contract exists unless the agent gives such complete information concerning his principal's identity that he can be readily distinguished. If the other party has no reasonable means of ascertaining the principal, the inference is almost irresistible and prevails in the absence of an agreement to the contrary. a. A principal is a partially disclosed principal when, at the time of making the contract in question, the other party thereto has notice that the agent is acting for a principal but has no notice of the principal's identity. See § 4. The fact that, to the knowledge of the agent, the other party does not know the identity of the principal is of great weight in ascribing to the other party the intention to hold the agent liable either solely, or as a surety or co-promisor with the principal. The inference of an understanding that the agent is a party to the contract exists unless the agent gives such complete information concerning his principal's identity that he can be readily distinguished. If the other party has no reasonable means of ascertaining the principal, the inference is almost irresistible and prevails in the absence of an agreement to the contrary. Restatement (Second) of Agency § 321Restatement (Second) of Agency § 321, at 70. Restatement (Second) of Agency § 321

23 Van D. Costas, Inc. v. Rosenberg (cont.)... Of course, if the contracting party knows the identity of the principal for whom the agent purports to act, the principal is deemed to be disclosed. Potter v. Chaney, 290 S.W.2d 44 (Ky.App.1956). A dispute concerning such knowledge presents an issue of fact. Myers- Leiber Sign Co. v. Weirich, 2 Ariz.App. 534, 410 P.2d 491 (1966).... Of course, if the contracting party knows the identity of the principal for whom the agent purports to act, the principal is deemed to be disclosed. Potter v. Chaney, 290 S.W.2d 44 (Ky.App.1956). A dispute concerning such knowledge presents an issue of fact. Myers- Leiber Sign Co. v. Weirich, 2 Ariz.App. 534, 410 P.2d 491 (1966).Potter v. Chaney, 290 S.W.2d 44 (Ky.App.1956)Myers- Leiber Sign Co. v. Weirich, 2 Ariz.App. 534, 410 P.2d 491 (1966)Potter v. Chaney, 290 S.W.2d 44 (Ky.App.1956)Myers- Leiber Sign Co. v. Weirich, 2 Ariz.App. 534, 410 P.2d 491 (1966) What Consequence? What Consequence?

24 Husky Industries v. Craig Industries Charcoal Manufacturer Case Charcoal Manufacturer Case Misrepresentation of Authority Case Misrepresentation of Authority Case Attorney Involvement Case Attorney Involvement Case Representation Issues Representation Issues Reliance/Purporting to Act – See Note 1 on Page 410 Reliance/Purporting to Act – See Note 1 on Page 410 Principal Monitoring Responsibilities Issues Principal Monitoring Responsibilities Issues Principal Intervention Responsibilties Principal Intervention Responsibilties

25 Husky Industries v. Craig Industries (cont.) Having represented himself as an agent of a disclosed principal, an individual who purports to contract in the name of his principal without or in excess of his authority to do so, becomes personally subject to liability to the other contracting party. Unless the agreement also expressly binds him personally, the liability of the agent is not predicated upon the contract itself, but rather upon the agent's breach of the express or implied covenant or warranty of authority. The individual liability of the agent is fixed unless he manifests that he does not make such a warranty or the other contracting party knows the agent is not so authorized. Griswold v. Haas, 277 Mo. 255, 261, 210 S.W. 356, 357(1) (1919); II Restatement of the Law of Agency, s 329, p. 725; 3 Am.Jur.2d, Agency, s 298, pp. 657-658; 3 C.J.S. Agency ss 372 and 373, pp. 194-197. Having represented himself as an agent of a disclosed principal, an individual who purports to contract in the name of his principal without or in excess of his authority to do so, becomes personally subject to liability to the other contracting party. Unless the agreement also expressly binds him personally, the liability of the agent is not predicated upon the contract itself, but rather upon the agent's breach of the express or implied covenant or warranty of authority. The individual liability of the agent is fixed unless he manifests that he does not make such a warranty or the other contracting party knows the agent is not so authorized. Griswold v. Haas, 277 Mo. 255, 261, 210 S.W. 356, 357(1) (1919); II Restatement of the Law of Agency, s 329, p. 725; 3 Am.Jur.2d, Agency, s 298, pp. 657-658; 3 C.J.S. Agency ss 372 and 373, pp. 194-197. Griswold v. Haas, 277 Mo. 255, 261, 210 S.W. 356, 357(1) (1919) Restatement of the Law of Agency, s 329, p. 7253 Am.Jur.2d, Agency, s 298, pp. 657-6583 C.J.S. Agency ss 372373, pp. 194-197Griswold v. Haas, 277 Mo. 255, 261, 210 S.W. 356, 357(1) (1919) Restatement of the Law of Agency, s 329, p. 7253 Am.Jur.2d, Agency, s 298, pp. 657-6583 C.J.S. Agency ss 372373, pp. 194-197

26 Husky Industries v. Craig Industries (cont.) The agent is personally liable even if he acts in the utmost good faith and honestly believes he was authorized and regardless of whether he has falsely represented his authority with intent to deceive. Robinson v. Pattee, 359 Mo. 584, 588, 222 S.W.2d 786, 788(5) (1949); 3 C.J.S. Agency s 374, p. 197. Although it may not be unlawful for a person to agree to convey and sell property he does not presently own but expects to acquire, yet if he unqualifiedly undertakes to perform that which he later finds he cannot do, he is held to the liability which the law imposes upon the contract breaker. Silliman v. Chrisman, 584 S.W.2d 441, 447 (Mo.App.1979). As stated in the Restatement, supra, Comment a., p. 726: The agent is personally liable even if he acts in the utmost good faith and honestly believes he was authorized and regardless of whether he has falsely represented his authority with intent to deceive. Robinson v. Pattee, 359 Mo. 584, 588, 222 S.W.2d 786, 788(5) (1949); 3 C.J.S. Agency s 374, p. 197. Although it may not be unlawful for a person to agree to convey and sell property he does not presently own but expects to acquire, yet if he unqualifiedly undertakes to perform that which he later finds he cannot do, he is held to the liability which the law imposes upon the contract breaker. Silliman v. Chrisman, 584 S.W.2d 441, 447 (Mo.App.1979). As stated in the Restatement, supra, Comment a., p. 726:Robinson v. Pattee, 359 Mo. 584, 588, 222 S.W.2d 786, 788(5) (1949)3 C.J.S. Agency s 374, p. 197Silliman v. Chrisman, 584 S.W.2d 441, 447 (Mo.App.1979)Robinson v. Pattee, 359 Mo. 584, 588, 222 S.W.2d 786, 788(5) (1949)3 C.J.S. Agency s 374, p. 197Silliman v. Chrisman, 584 S.W.2d 441, 447 (Mo.App.1979) Where an agent purports to make a contract... for a principal, the other party thereto may reasonably assume from such conduct that the agent represents that he has power so to bind the principal. Hence, the rule stated in this Section (i.e., 329) results from the mere fact that the agent purports to act as such, although he makes no express representation as to his authority. Though the agent acts bona fide, yet if he has no authority he still does a wrong to the other party. If that wrong produces damage to the other party, owing to his confidence in the truth of an express or implied assertion of authority by the agent, it is deemed just and proper that the agent who makes such an assertion should be personally liable for the consequences, rather than that the damage should be borne by the other party who has been misled. 3 Am.Jur.2d, Agency, s 299, pp. 658-659. Where an agent purports to make a contract... for a principal, the other party thereto may reasonably assume from such conduct that the agent represents that he has power so to bind the principal. Hence, the rule stated in this Section (i.e., 329) results from the mere fact that the agent purports to act as such, although he makes no express representation as to his authority. Though the agent acts bona fide, yet if he has no authority he still does a wrong to the other party. If that wrong produces damage to the other party, owing to his confidence in the truth of an express or implied assertion of authority by the agent, it is deemed just and proper that the agent who makes such an assertion should be personally liable for the consequences, rather than that the damage should be borne by the other party who has been misled. 3 Am.Jur.2d, Agency, s 299, pp. 658-659.3 Am.Jur.2d, Agency, s 299, pp. 658-6593 Am.Jur.2d, Agency, s 299, pp. 658-659

27 From the Notes Following Husky Reliance Reminder Reliance Reminder Such liability does not come into effect where the third party knows that the agent lacks authority although having reason to know of the agents lack of authority will not prevent a claim based on warranty of authority. What does this mean and how does it affect the parties? Such liability does not come into effect where the third party knows that the agent lacks authority although having reason to know of the agents lack of authority will not prevent a claim based on warranty of authority. What does this mean and how does it affect the parties?

28 From the Notes Following Husky An agent can avoid personal liability by expressly disclaiming it or by fylly laying all the facts concerning his authoritybefore the other partyand letting the other party decide for itself whether the transaction should go forward. An agent can avoid personal liability by expressly disclaiming it or by fylly laying all the facts concerning his authoritybefore the other partyand letting the other party decide for itself whether the transaction should go forward.

29 Coker v. Dollar Harm to the Economic Interests of Others – When is that Actionable Harm to the Economic Interests of Others – When is that Actionable Apartments converted to Condominiums Case Apartments converted to Condominiums Case Escrow Accounts Case Escrow Accounts Case Negligence Issues Negligence Issues It is of course a basic principle of tort law that one cannot be held liable for negligence unless one is deemed to have breached some legal duty owed to the injured party. It is of course a basic principle of tort law that one cannot be held liable for negligence unless one is deemed to have breached some legal duty owed to the injured party. Note fact-specific language on page 415 Note fact-specific language on page 415 Note reliance issues discussed on page 415 Note reliance issues discussed on page 415

30 Concluding Thoughts Do the Problems on Page 416 Do the Problems on Page 416 Revisit the Introductory Comments – They Highlight the Themes for this Reading Revisit the Introductory Comments – They Highlight the Themes for this Reading


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