Agent agency relationship and liability

agent agency relationship and liability

Recognize the ways the agency relationship is terminated. The agent is not liable for torts of other agents unless he is personally at fault—for example. Generally, in a business relationship, the principal and agent relationship Also, the CPA would be liable to 3rd parties relying on the CPA's work (but paid by. The liability of an agent in an agency relationship is best discussed under the following outline: Liability if the principal is disclosed; Liability if.

For example, partners have authority to bind the other partners in the firm, their liability being joint and several, and in a corporation, all executives and senior employees with decision-making authority by virtue of their position have authority to bind the corporation. Other forms of implied actual authority include customary authority. This is where customs of a trade imply the agent to have certain powers.

In wool buying industries it is customary for traders to purchase in their own names. This must be no more than necessary [4] Main articles: Apparent authority and Estoppel Apparent authority also called "ostensible authority" exists where the principal's words or conduct would lead a reasonable person in the third party's position to believe that the agent was authorized to act, even if the principal and the purported agent had never discussed such a relationship.

For example, where one person appoints a person to a position which carries with it agency-like powers, those who know of the appointment are entitled to assume that there is apparent authority to do the things ordinarily entrusted to one occupying such a position.

If a principal creates the impression that an agent is authorized but there is no actual authority, third parties are protected so long as they have acted reasonably.

This is sometimes termed "agency by estoppel " or the "doctrine of holding out", where the principal will be estopped from denying the grant of authority if third parties have changed their positions to their detriment in reliance on the representations made. Wills J held that "the principal is liable for all the acts of the agent which are within the authority usually confided to an agent of that character, notwithstanding limitations, as between the principal and the agent, put upon that authority.

It is sometimes referred to as "usual authority" though not in the sense used by Lord Denning MR in Hely-Hutchinson, where it is synonymous with "implied actual authority". It has been explained as a form of apparent authority, or "inherent agency power". Authority by virtue of a position held to deter fraud and other harms that may befall individuals dealing with agents, there is a concept of Inherent Agency power, which is power derived solely by virtue of the agency relation.

Even if the agent does act without authority, the principal may ratify the transaction and accept liability on the transactions as negotiated. This may be express or implied from the principal's behavior, e. Liability[ edit ] Liability of agent to third party[ edit ] If the agent has actual or apparent authority, the agent will not be liable for acts performed within the scope of such authority, as long as the relationship of the agency and the identity of the principal have been disclosed.

Law of agency

When the agency is undisclosed or partially disclosed, however, both the agent and the principal are liable. Where the principal is not bound because the agent has no actual or apparent authority, the purported agent is liable to the third party for breach of the implied warranty of.

Liability of agent to principal[ edit ] If the agent has acted without actual authority, but the principal is nevertheless bound because the agent had apparent authority, the agent is liable to indemnify the principal for any resulting loss or damage. Liability of principal to agent[ edit ] If the agent has acted within the scope of the actual authority given, the principal must indemnify the agent for payments made during the course of the relationship whether the expenditure was expressly authorized or merely necessary in promoting the principal's business.

An agent owes the principal a number of duties. An agent can represent the interests of more than one principal, conflicting or potentially conflicting, only after full disclosure and consent of the principal. An agent must not usurp an opportunity from the principal by taking it for himself or passing it on to a third party. In return, the principal must make a full disclosure of all information relevant to the transactions that the agent is authorized to negotiate.

Termination[ edit ] Mutual agreement also through the principal responding his authority. Through renouncing when agent hm self stop being an agent.

The internal agency relationship may be dissolved by agreement. Under sections to of the Indian Contract Actan agency may come to an end in a variety of ways: Withdrawal by the agent — however, the principal cannot revoke an agency coupled with interest to the prejudice of such interest.

An agency is coupled with interest when the agent himself has an interest in the subject-matter of the agency, e. Alternatively, agency may be terminated by operation of law: If he does, he is liable to compensate the agent for the loss caused to him thereby.

The same rules apply where the agent, renounces an agency for a fixed period. Notice in this connection that want of skill, continuous disobedience of lawful orders, and rude or insulting behavior has been held to be sufficient cause for dismissal of an agent. Further, reasonable notice has to be given by one party to the other; otherwise, damage resulting from want of such notice, will have to be paid s.

The thought was that one could never infer authority to commit a willfully wrongful act. See the very disturbing Lyon v. Carey in Section But a principal cannot be responsible for every act of an agent. If an employee is following the letter of his instructions, it will be easy to determine liability. But suppose an agent deviates in some way from his job. The classic test of liability was set forth in an English case, Joel v.

Liability of Principal and Agent; Termination of Agency

The plaintiff was run over on a highway by a speeding cart and horse. The driver was the employee of another, and inside was a fellow employee. There was no question that the driver had acted carelessly, but what he and his fellow employee were doing on the road where the plaintiff was injured was disputed. For weeks before and after the accident, the cart had never been driven in the vicinity in which the plaintiff was walking, nor did it have any business there. The suggestion was that the employees might have gone out of their way for their own purposes.

agent agency relationship and liability

The test is thus one of degree, and it is not always easy to decide when a detour has become so great as to be transformed into a frolic. For a time, a rather mechanical rule was invoked to aid in making the decision.

agent agency relationship and liability

This test is not always easy to apply. If a hungry deliveryman stops at a restaurant outside the normal lunch hour, intending to continue to his next delivery after eating, he is within the scope of employment.

But suppose he decides to take the truck home that evening, in violation of rules, in order to get an early start the next morning. Suppose he decides to stop by the beach, which is far away from his route.

Does it make a difference if the employer knows that his deliverymen do this? That is, the employer is within the zone of risk if the servant is in the place within which, if the master were to send out a search party to find a missing employee, it would be reasonable to look.

See Section 4, Cockrell v. Special Cases of Vicarious Liability Vicarious liability is not limited to harm caused in the course of an agency relationship.

It may also be imposed in other areas, including torts of family members, and other torts governed by statute or regulation. We will examine each in turn. Use of Automobiles A problem commonly arises when an automobile owner lends his vehicle to a personal friend, someone who is not an agent, and the borrower injures a third person. Is the owner liable? In many states, the owner is not liable; in other states, however, two approaches impose liability on the owner.

The first approach is legislative: The second approach to placing liability on the owner is judicial and known as the family purpose doctrine A doctrine under which an owner of an automobile is liable for damages to others incurred while members of his family are driving the vehicle, under the theory that the vehicle is owned for family purposes.

Under this doctrine, a family member who negligently injures someone with the car subjects the owner to liability if the family member was furthering family purposes. These are loosely defined to include virtually every use to which a child, for example, might put a car.

In a Georgia case, Dixon v. Phillips, the father allowed his minor son to drive the car but expressly forbade him from letting anyone else do so. Nevertheless, the son gave the wheel to a friend and a collision occurred while both were in the car.

The court held the father liable because he made the car available for the pleasure and convenience of his son and other family members. Torts of Family Members At common law, the husband was liable for the torts of his wife, not because she was considered an agent but because she was considered to be an extension of him.

Holmes, Agency, 4 Harvard Law Rev. However, they can be held liable for failing to control children known to be dangerous. Most states have statutorily changed the common-law rule, making parents responsible for willful or malicious tortious acts of their children whether or not they are known to be mischief-makers. Thus the Illinois Parental Responsibility Law provides the following: Several other states impose a monetary limit on such liability.

Liability of Agents in an Agency Relationship - The Jet Lawyer

Other Torts Governed by Statute or Regulation There are certain types of conduct that statutes or regulation attempt to control by placing the burden of liability on those presumably in a position to prevent the unwanted conduct. 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. Often Brown would tell Kanavos that he had to check an aspect of a loan transaction with Kelley, but Kelley always backed Brown up on those occasions.

That offer was contained in a writing, dated July 16,on bank letterhead, which read as follows: The basis of exclusion was that the plaintiff had not established the authority of Brown to make with Kanavos the arrangement memorialized in the July 16,letter. Whether Brown had apparent authority to make the July 16,modification is a question of how, in the circumstances, a third person, e.

Titles of office generally do not establish apparent authority. Trappings of office, e. Apparent authority is drawn from a variety of circumstances.