Liability of Principal and Agent; Termination of Agency
Liability for Non-Employees: Beware Apparent Authority any agency or employment relationship by explaining that providers in identified. This material discusses an agent's liability to third parties with whom she deals on Even if the agent exceeds her express authority, her implied authority may that the agent must act on behalf of the principal and disclose that relationship to. Principal's Contract Liability Requires That Agent Had Authority There are three types of authority: express, implied, and apparent (see Figure But the law permits authority to be “implied” by the relationship of the parties, the nature.
The business would be obligated to T even if A acted outside the scope of its authority. Ratification Ratification happens when the principal approves the deal after the fact, even though the agent did not have any actual or apparent authority to make the deal. The extent to which the principal ratified the act and thus is bound is defined by what the principal approves of either expressly or impliedly after the agent acted outside the scope of its authority.
For example, the principal tells agent to sell property A, but the agent actually makes a sales contract for property B. When the principal finds out that the agent has actually made a contract to sell B instead of A, the principal agrees to continue with the sale. The agent did not have the actual or apparent authority to make the sale, however the principal ratified the sale by continuing with it and thus is bound. Understanding agency relationships and limits on the authority of an agent is important when having an agent act on your behalf.
Because employees and contractors are often agents of your business, you should ensure your agents act under proper authority and that you do not inadvertently ratify acts. If you are an employee, you should ensure you act within the authority you have been granted or know the consequences, including your personal liability. Another example involves the sale of adulterated or short-weight foodstuffs: A principal will, however, be liable if the principal directed, approved, or participated in the crime.
There is a narrow exception to the broad policy of immunity. These include pure food and drug acts, speeding ordinances, building regulations, child labor rules, and minimum wage and maximum hour legislation. Misdemeanor criminal liability may be imposed upon corporations and individual employees for the sale or shipment of adulterated food in interstate commerce, notwithstanding the fact that the defendant may have had no actual knowledge that the food was adulterated at the time the sale or shipment was made.
This is the master-servant doctrine or respondeat superior. It imposes vicarious liability on the employer: Special cases of vicarious liability arise in several circumstances. For example, the owner of an automobile may be liable for torts committed by one who borrows it, or if it is—even if indirectly—used for family purposes. Similarly by statute, the sellers and employers of sellers of alcohol or adulterated or short-weight foodstuffs may be liable.
The employer of one who commits a crime is not usually liable unless the employer put the employee up to the crime or knew that a crime was being committed. Exercises What is the difference between direct and vicarious employer tort liability?
Under what circumstances will an employer be liable for intentional torts of the employee? Recognize the ways the agency relationship is terminated. A person is always liable for his or her own torts unless the person is insane, involuntarily intoxicated, or acting under extreme duress. The agent is personally liable for his wrongful acts and must reimburse the principal for any damages the principal was forced to pay, as long as the principal did not authorize the wrongful conduct.
The agent directed to commit a tort remains liable for his own conduct but is not obliged to repay the principal. Liability as an agent can be burdensome, sometimes perhaps more burdensome than as a principal.
In the absence of insurance, an agent is at serious risk in this lawsuit-conscious age. The risk is not total. The agent is not liable for torts of other agents unless he is personally at fault—for example, by negligently supervising a junior or by giving faulty instructions. For example, an agent, the general manager for a principal, hires Brown as a subordinate.
Brown is competent to do the job but by failing to exercise proper control over a machine negligently injures Ted, a visitor to the premises. The principal and Brown are liable to Ted, but the agent is not.
Contract Liability It makes sense that an agent should be liable for her own torts; it would be a bad social policy indeed if a person could escape tort liability based on her own fault merely because she acted in an agency capacity. No public policy would be served by imposing liability, and in many cases it would not make sense.
The agent personally could not reasonably perform such contract, and it is not intended by the parties that she should be liable. Although the rule is different in England, where an agent residing outside the country is liable even if it is clear that he is signing in an agency capacity. But there are three exceptions to this rule: We consider each situation.
Agent for Undisclosed or Partially Disclosed Principal An agent need not, and frequently will not, inform the person with whom he is negotiating that he is acting on behalf of a principal.
A real estate developer known for building amusement parks wants to acquire several parcels of land to construct a new park. He wants to keep his identity secret to hold down the land cost. If the landowners realized that a major building project was about to be launched, their asking price would be quite high.
So the developer obtains two options to purchase land by using two secret agents—Betty and Clem. Betty does not mention to sellers that she is an agent; therefore, to those sellers the developer is an undisclosed principal.
Thus the developer is, to the latter sellers, a partially disclosed principal. Suppose the sellers get wind of the impending construction and want to back out of the deal. Who may enforce the contracts against them? The developer and the agents may sue to compel transfer of title. The undisclosed or partially disclosed principal may act to enforce his rights unless the contract specifically prohibits it or there is a representation that the signatories are not signing for an undisclosed principal.
Now suppose the developer attempts to call off the deal. Whom may the sellers sue? Both the developer and the agents are liable. If the sellers first sue agent Betty or Clemthey may still recover the purchase price from the developer as long as they had no knowledge of his identity prior to winning the first lawsuit. The developer is discharged from liability if, knowing his identity, the plaintiffs persist in a suit against the agents and recover a judgment against them anyway.
Similarly, if the seller sues the principal and recovers a judgment, the agents are relieved of liability. Lack of Authority in Agent An agent who purports to make a contract on behalf of a principal, but who in fact has no authority to do so, is liable to the other party. The theory is that the agent has warranted to the third party that he has the requisite authority.
The principal is not liable in the absence of apparent authority or ratification. But the agent does not warrant that the principal has capacity. Thus an agent for a minor is not liable on a contract that the minor later disavows unless the agent expressly warranted that the principal had attained his majority.
In short, the implied warranty is that the agent has authority to make a deal, not that the principal will necessarily comply with the contract once the deal is made. Generally, a person signing a contract can avoid personal liability only by showing that he was in fact signing as an agent. This can be troublesome to agents who routinely indorse checks and notes. There are special rules governing these situations. Termination of Agency The agency relationship is not permanent.
Either by action of the parties or by law, the relationship will eventually terminate. By Act of the Parties Certainly the parties to an agency contract can terminate the agreement.
As with the creation of the relationship, the agreement may be terminated either expressly or implicitly.
Express Termination Many agreements contain specified circumstances whose occurrence signals the end of the agency. Mutual consent between the parties will end the agency.
Even a contract that states the agreement is irrevocable will not be binding, although it can be the basis for a damage suit against the one who breached the agreement by revoking or renouncing it. As with any contract, a person has the power to breach, even in absence of the right to do so. If the agency is coupled with an interest, however, so that the authority to act is given to secure an interest that the agent has in the subject matter of the agency, then the principal lacks the power to revoke the agreement.
Implied Termination There are a number of other circumstances that will spell the end of the relationship by implication. Unspecified events or changes in business conditions or the value of the subject matter of the agency might lead to a reasonable inference that the agency should be terminated or suspended; for example, the principal desires the agent to buy silver but the silver market unexpectedly rises and silver doubles in price overnight.
Other circumstances that end the agency include disloyalty of the agent e. By Operation of Law Aside from the express termination by agreement of both or upon the insistence of oneor the necessary or reasonable inferences that can be drawn from their agreements, the law voids agencies under certain circumstances. The most frequent termination by operation of law is the death of a principal or an agent.
The death of an agent also terminates the authority of subagents he has appointed, unless the principal has expressly consented to the continuing validity of their appointment. Similarly, if the agent or principal loses capacity to enter into an agency relationship, it is suspended or terminated. The agency terminates if its purpose becomes illegal. Even though authority has terminated, whether by action of the parties or operation of law, the principal may still be subject to liability.
It is imperative for a principal on termination of authority to notify all those who may still be in a position to deal with the agent. Key Takeaway A person is always liable for her own torts, so an agent who commits a tort is liable; if the tort was in the scope of employment the principal is liable too. Unless the principal put the agent up to committing the tort, the agent will have to reimburse the principal.
An agent is not generally liable for contracts made; the principal is liable. But the agent will be liable if he is undisclosed or partially disclosed, if the agent lacks authority or exceeds it, or, of course, if the agent entered into the contract in a personal capacity. Agencies terminate expressly or impliedly or by operation of law. An agency terminates impliedly by any number of circumstances in which it is reasonable to assume one or both of the parties would not want the relationship to continue.
An agency will terminate by operation of law when one or the other party dies or becomes incompetent, or if the object of the agency becomes illegal. However, an agent may have apparent lingering authority, so the principal, upon termination of the agency, should notify those who might deal with the agent that the relationship is severed.
Exercises Pauline, the owner of a large bakery business, wishes to expand her facilities by purchasing the adjacent property. She engages Alice as an agent to negotiate the deal with the property owner but instructs her not to tell the property owner that she—Alice—is acting as an agent because Pauline is concerned that the property owner would demand a high price.
A reasonable contract is made. When the economy sours, Pauline decides not to expand and cancels the plan. Who is liable for the breach?
Alice buys an antique bed set. Who is liable, Peter or Alice? What happens when Peter discovers he owes the seller for the set? Under what circumstances will the agency terminate expressly? Agent is hired by Principal to sell a new drug, Phobbot. Six months later, as it becomes apparent that Phobbot has nasty side effects including deaththe Food and Drug Administration orders the drug pulled from the shelves. Principal engages Agent to buy lumber, and in that capacity Agent deals with several large timber owners.
Who is liable and why? Upon review of the record we are of opinion that there was evidence which, if believed, warranted a finding that the bank officer had the requisite authority or that the bank officer had apparent authority to make the agreement in controversy. We therefore reverse the judgment. Brown was also the chief loan officer for the Bank, which had fourteen or fifteen branches in addition to its head office.
If the principal has led others to believe that the agency relationship exists, he will be bound by the acts that an agent in that situation would customarily have the authority to do.
Agency Law | Legal Centre for Business & Technology | University of Calgary
The agency relationship would be used by the courts when the principal has a duty to deny the relationship but fails to do so. For example, if May in Cathy's presence tells others that she is Cathy's agent, Cathy has a duty to deny the relationship.
If she fails to, then any third persons present might consider that May is, in fact, an agent of Cathy's. An agency relationship may also be found when the principal negligently allows another person to act as his agent. For example, a stranger comes into a store when no one is present, waits on a customer, sells a product, and pockets the money. Because it was reasonable for the customer to assume that the stranger was a clerk, the owner cannot force the customer to pay for the merchandise a second time.
If the owner does this, he or she is bound by the act of the unauthorized agent.
Apparent authority - Wikipedia
To ratify the act, the principal must know of the material facts involved in the transaction and accept the entire transaction. He cannot approve the part favourable to him and deny the unfavourable portion. A principle can ratify only legal acts. The ratification of an agent's unauthorized acts may be by express approval, by acceptance of the benefits of the act, or by silence when the principal had a duty to speak. The third person can withdraw from the transaction if he notifies the principal before the principal ratified the transaction.
Exceptions to this rule may occur when the agent, for example, fails to disclose that he or she is acting on behalf of a principal, or when there is a clear intent by the agent to be bound to the terms of the contract.
Who is liable, me or the business? Agency liability issues your business should know:
If the third person knows the principal, and the agent acted within his or her authority, the principal is bound by the contract. If the principal's identity was unknown when the contract was entered into, then both the agent and the principal will be bound on the contract and the third person can sue either or both. If the agency relationship is for a specific period of time, it will terminate at the end of that period.
If no time period is agreed upon between the agent and his principal, then the courts will imply termination within a reasonable time. In many cases the agency will terminate when a certain event occurs.
For example, if an agent is hired to sell property for you, the agency terminates when the property is sold. A change of circumstances that materially changes the relationship will also terminate the agency. For example, closing of the business associated with the agency or the insolvency of either the principal or agent. A major breach of an agent's fiduciary duty will also terminate the relationship as will the death of either party or the loss of the capacity to enter into a contract, e.
When corporations or partnerships are involved, dissolution will also terminate the agency. Either party can terminate the agency by informing the other party. The power to terminate exists even in those cases when there is a contractual agreement not to terminate. In this case, the party breaching the contract might be liable for breach of contract, but he or she still has the right to cancel the agency.