Comprehensive Volume, 18 th Edition Chapter 40: Third Persons in Agency

Liability of Agent to Third Person An agent of a disclosed principal 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.

Liability of Agent to Third Person 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 third persons by their fraudulent, malicious, or negligent acts.

Agents’ Signatures

Liability of Agent to Third Person AUTHORIZED ACTION No liability on the contract Disclosed Principal Agent Makes Contract Third Party Liable

Liability of Agent to Third Person Unauthorized Action Or Principal Without Capacity Third Party Principal Unauthorized Action Unless all material facts are made known to third party Unless agreement made with third party that agent shall not be liable Liable Third Party Principal Without Capacity Agent

Liable Liability of Agent to Third Person Partially Disclosed Principal Agent Makes Contract Third Party Undisclosed Principal Agent Makes Contract Third Party

Liability of Principal 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.

Liability Issues

Sales Agents 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.