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Understanding Agency Liability: Agent's Role in Contracts and Third-Party Liability

This chapter delves into the complexities of agency liability, focusing on an agent's responsibilities and liabilities in contracts with third parties. It covers topics such as an agent's authority, warranties, liability for unauthorized actions, and the role of disclosed and undisclosed principals. The text sheds light on the legal implications of an agent's actions, including fraudulent, malicious, or negligent conduct, and explains when a principal may be held liable under the doctrine of respondeat superior. Additionally, it discusses the duties and limitations of sales agents in soliciting and transmitting offers on behalf of a principal. Gain a comprehensive understanding of the intricate web of agency relationships and their legal consequences in this informative chapter.

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Understanding Agency Liability: Agent's Role in Contracts and Third-Party Liability

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  1. Chapter 40: Third Persons in Agency

  2. 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.

  3. 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.

  4. Agents’ Signatures

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

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

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

  8. 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.

  9. Liability Issues

  10. 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.

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