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DAVIDSON, KNOWLES & FORSYTHE Business Law: Cases and Principles in the Legal Environment (8th Ed.)
Parties to agency relationship must be cognizant of liability of agent, principal, and third party for proper performance. Rule of law in agency relationships uses reasonable expectation of third party standard when determining liability. Distinction between servant and nonservant not significant.
2004 West Legal Studies in Business A Division of Thomson Learning
Prime issue is whether principal authorized agent to enter into contract. Important factor is whether principals identity revealed to third party. Principals may be disclosed, partially disclosed, or undisclosed. Status of principal may affect parties legal rights and duties.
2004 West Legal Studies in Business A Division of Thomson Learning
Principals liable on contracts only when agents have authority to contract. Types of authority include:
Express Authority: principal tells agent to do
an act. Ratification Authority: agent does something unauthorized and principal later approves either by expressed statement or implied by conduct.
2004 West Legal Studies in Business A Division of Thomson Learning
reasonable and necessary to complete task. Implied Authority: based on agents position or past dealings with third party. Emergency Authority: allows agent to respond to emergencies if principal cannot be reached. Apparent Authority: principal creates appearance agency exists or third party reasonably believes agent has broader powers than actually exist.
2004 West Legal Studies in Business A Division of Thomson Learning
misled third party from denying agents authority. Imputing the Agents Knowledge to the Principal: principal may be legally responsible for information known to the agent but not actually known by principal.
2004 West Legal Studies in Business A Division of Thomson Learning
DISCLOSED PRINCIPAL
Agents indicate they are acting on behalf of principal. Agent identifies the principal. Principal is disclosed and bound to the contract by any types of authority.
DISCLOSED PRINCIPAL
Agent fails to represent agents capacity. Agent bound if agent intends to be bound.
DISCLOSED PRINCIPAL
to sue either agent or principal. Modern approach allows third party to sue principal and agent together. Either defendant can require third party to make an election before judgement.
DISCLOSED PRINCIPAL
Warranty of Authority.
Whenever agent of disclosed principal creates
contract. Agent assumed to make the following implied warranties to third party:
Disclosed principal exists and is competent. Agent is agent of the principal. Agent authorized to enter into contract for principal.
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DISCLOSED PRINCIPAL
Warranty of Authority.
Third party may sue agent for losses caused by
breach of warranty of authority. Agent liable for fraud if agent intentionally misrepresents authority.
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DISCLOSED PRINCIPAL
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DISCLOSED PRINCIPAL
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UNDISCLOSED PRINCIPAL
Principal whose existence and identity not known to third party. Reasons principal undisclosed:
Able to negotiate a deal.
Negotiate a better deal. Conceal an investment in project or donation to
charity.
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UNDISCLOSED PRINCIPAL
agent is dealing alone. Third party can sue agent if default on contract. Third party believes only two parties to the contract.
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UNDISCLOSED PRINCIPAL
discovers identity of principal if agent authorized to make agreement. Third party must elect to sue agent or principal. If third party sues agent and loses before discovery of principal, third party not considered to have made an election and permitted to sue principal.
2004 West Legal Studies in Business A Division of Thomson Learning
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UNDISCLOSED PRINCIPAL
be sued by agent and undisclosed party. Principal can sue if contract is assignable. Principal can arrange for agent to sue in agents name if contract not assignable or principal wishes to keep identity a secret.
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One whose existence is known to the third party but whose identity is not. Rules applied to partially disclosed principals are similar to those applied to undisclosed principals. General rule is when agent works for partially disclosed principal, agent personally liable for contract.
2004 West Legal Studies in Business A Division of Thomson Learning
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type/types of authority used? Hiring party disclosed, undisclosed, or partially disclosed principal? Did third party elect to sue agent/principal? Is agent liable for contractual promises?
2004 West Legal Studies in Business A Division of Thomson Learning
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contracts evidenced by a writing. Equal Dignities Rule requires some agency agreements be in writing.
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agent will not work for a competing firm. Contract may provide:
Agent will not moonlight with competition. Agent will not compete with principal after employment is terminated.
area.
2004 West Legal Studies in Business A Division of Thomson Learning
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