© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. C HAPTER 29: R ELATIONSHIP WITH T HIRD P ARTIES

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. I. Relationship of Principal and Third Persons. A. Contract Liability of the Principal. A. Contract Liability of the Principal. B. Tort Liability of the Principal. B. Tort Liability of the Principal. C. Criminal Liability of the Principal. C. Criminal Liability of the Principal. II. Relationship of Agent and Third Persons. A. Contract Liability of Agent. A. Contract Liability of Agent. B. Tort Liability of Agent. C. Rights of Agent Against Third Person. C. Rights of Agent Against Third Person. T OPICS C OVERED C HAPTER 30: R ELATIONSHIPS WITH T HIRD P ARTIES 2

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. C ONTRACT L IABILITY OF THE P RINCIPAL  Types of Principals. Disclosed Principal – principal whose existence and identity are known. Unidentified Principal – principal whose existence is known but whose identity is not known. Undisclosed Principal – principal whose existence and identity are not known. 3

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. C ONTRACT L IABILITY OF THE P RINCIPAL  Types of Authority. Actual Express Authority – derived from written or spoken words of the principal. Actual Implied Authority – inferred from words or conduct of the principal.  4

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. C ONTRACT L IABILITY OF THE P RINCIPAL  Types of Authority. Apparent Authority –conduct of the principal that reasonably leads a third party to believe that the agent has power. S CHOENBERGER V C HICAGO T RANSIT A UTHORITY (1980). S CHOENBERGER V C HICAGO T RANSIT A UTHORITY (1980). 5

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. C ONTRACT L IABILITY OF THE P RINCIPAL  Delegation of Authority. Usually not permitted unless actually authorized by the principal; if the agent is authorized to appoint other subagents, the acts of these subagents are as binding on the principal as those of the agent. 6

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. C ONTRACT L IABILITY OF THE P RINCIPAL  Effect of Termination of Agency on Authority. Termination of authority ends actual authority, but not apparent authority. Second Restatement. If the termination is by operation of law, apparent authority also ends without notice to third parties;  7

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. C ONTRACT L IABILITY OF THE P RINCIPAL  Effect of Termination of Agency on Authority. Second Restatement. Apparent authority ends when third parties have actual knowledge or when appropriate notice is given to third parties;  8

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. C ONTRACT L IABILITY OF THE P RINCIPAL  Effect of Termination of Agency on Authority. Second Restatement. Actual notice must be given to third parties with whom the agent had previously dealt on credit, has been specially accredited, or has begun to deal;  9

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. C ONTRACT L IABILITY OF THE P RINCIPAL  Effect of Termination of Agency on Authority. Second Restatement. Apparent authority ends when it is no longer reasonable for the third party with whom an agent deals to believe that the agent continues to act with actual authority 10

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. C ONTRACT L IABILITY OF THE P RINCIPAL  Effect of Termination of Agency on Authority. Second Restatement. All other third parties as to whom there was apparent authority need only be given constructive notice. 11

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. C ONTRACT L IABILITY OF THE P RINCIPAL  Effect of Termination of Agency on Authority. Third Restatement. Termination of actual authority does not by itself end any apparent authority held by an agent;  12

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. C ONTRACT L IABILITY OF THE P RINCIPAL  Effect of Termination of Agency on Authority. Third Restatement. Apparent authority ends when it is no longer reasonable for the third party to believe the agent has actual authority. P ARLATO V. E QUITABLE L IFE A SSURANCE S OCIETY OF THE U NITED S TATES (2002). 13

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. C ONTRACT L IABILITY OF THE P RINCIPAL  Ratification. Affirmation by one person of a prior unauthorized act that another has done as her agent or purported agent. Effect: retroactively creates the effect of actual authority, which essentially approves agent’s previous conduct. 14

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. C ONTRACT L IABILITY OF THE P RINCIPAL  Fundamental Rules of Contract Liability. Disclosed Principal – is contractually bound with the third party if the agent acts within her actual or apparent authority in making the contract.  15

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. C ONTRACT L IABILITY OF THE P RINCIPAL  Fundamental Rules of Contract Liability. Unidentified Principal – is contractually bound with the third party if the agent acts within her actual or apparent authority in making the contract. Undisclosed Principal – is contractually bound with third party if the agent acts within her actual authority in making the contract. 16

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Agent Has Actual Authority Principal Third Party Agent Agent Has Apparent Authority But Not Actual Authority Agent Has No Actual or Apparent Authority liable indemnity bound Principal Third Party Agent Principal Third Party Agent C ONTRACT L IABILITY OF D ISCLOSED P RINCIPAL

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. reimbursement bound Agent Has Actual Authority Principal Third Party Agent Agent Has Apparent Authority But Not Actual Authority Agent Has No Actual or Apparent Authority indemnity bound Principal Third Party Agent Principal Third Party Agent bound C ONTRACT L IABILITY OF U NIDENTIFIED P RINCIPAL

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. reimbursement bound Agent Has Actual Authority Principal Third Party Agent Agent Has No Actual or Apparent Authority bound Principal Third Party Agent bound C ONTRACT L IABILITY OF U NDISCLOSED P RINCIPAL

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. T ORT L IABILITY OF P RINCIPAL  Direct Liability of Principal – a principal is liable for his own tortious conduct involving the use of agents. Authorized Acts of Agent – a principal is liable for torts she authorizes another to commit or that she ratifies.  20

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. T ORT L IABILITY OF P RINCIPAL  Direct Liability of Principal. Unuthorized Acts of Agent – a principal is liable for failing to exercise reasonable care in employing agents whose unauthorized acts cause harm. C ONNES V. M OLALLA T RANSPORT S YSTEM, I NC. (1992). C ONNES V. M OLALLA T RANSPORT S YSTEM, I NC. (1992). 21

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. T ORT L IABILITY OF P RINCIPAL  Vicarious Liability of Principal for Unauthorized Acts of Agent. Respondeat Superior – an employer is liable for unauthorized torts committed by an employee in the scope of his employment. R UBIN V. Y ELLOW C AB C OMPANY (1987). R UBIN V. Y ELLOW C AB C OMPANY (1987). 22

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. T ORT L IABILITY OF P RINCIPAL  Vicarious Liability of Principal for Unauthorized Acts of Agent. Agent Acts with Apparent Authority – a principal is liable for torts committed by an agent in dealing with third parties while acting within the agent’s apparent authority.  23

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. T ORT L IABILITY OF P RINCIPAL  Vicarious Liability of Principal for Unauthorized Acts of Agent. Independent Contractor – a principal is usually not liable for the unauthorized torts of an independent contractor. 24

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Authorized Acts –  Authorized Acts – the principal is liable if he directed, participated in, or approved the criminal acts of his agents.  Unauthorized Acts –  Unauthorized Acts – the principal may be liable either for a criminal act of a managerial person or under liability without fault statutes. C RIMINAL L IABILITY OF P RINCIPAL 25

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. C ONTRACT L IABILITY OF A GENT  Disclosed Principal. Authorized Contracts. Agent is not normally a party to the contract she makes with a third party if she is authorized or if the principal ratifies the contract.  26

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. C ONTRACT L IABILITY OF A GENT  Disclosed Principal. Unauthorized Contracts – if agent exceeds actual and apparent authority, principal is not bound, but agent may be liable for breach of warranty or for misrepresentation. Agent Assumes Liability – agent may agree to become liable on a contract between the principal and the third party. 27

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. C ONTRACT L IABILITY OF A GENT  Unidentified Principal –  Unidentified Principal – an agent for a partially disclosed principal is a party to the contract unless otherwise agreed.  28

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. C ONTRACT L IABILITY OF A GENT  Undisclosed Principal. Agent is personally liable on the contract to the third party.  29

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. C ONTRACT L IABILITY OF A GENT  Nonexistent or Incompetent Principal. Person who purports to act as an agent for a principal whom both the agent and the third party know to be nonexistent or wholly incompetent is personally liable on a contract. P LAIN D EALER P UBLISHING V. W ORRELL (2008). P LAIN D EALER P UBLISHING V. W ORRELL (2008). 30

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. T ORT L IABILITY OF A GENT  Authorized Acts – the agent is liable to the third party for his own torts.  Unauthorized Acts – the agent is liable to the third party for his own torts. 31

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. R IGHTS OF A GENT A GAINST T HIRD P ERSONS  Disclosed Principal –  Disclosed Principal – the agent usually has no rights against the third party.  Unidentified Principal –  Unidentified Principal – the agent may enforce the contract against the third party.  32

© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. R IGHTS OF A GENT A GAINST T HIRD P ERSONS  Undisclosed Principal  Undisclosed Principal – the agent may enforce the contract against the third party. 33