Law of agency

From Wikipedia, the free encyclopedia

For other senses of the word "agency", see Agency (disambiguation).

The law of agency is an area of commercial law dealing with a contractual or quasi-contractual, or non-
contractual set of relationships when a person, called the agent, is authorized to act on behalf of another
(called the principal) to create a legal relationship with a third party.[1] Succinctly, it may be referred to as the
relationship between a principal and an agent whereby the principal, expressly or impliedly, authorizes the
agent to work under his control and on his behalf. The agent is, thus, required to negotiate on behalf of the
principal or bring him and third parties into contractual relationship. This branch of law separates and regulates
the relationships between:

 Agents and principals;

 Agents and the third parties with whom they deal on their principals' behalf;
and

 Principals and the third parties when the agents purport to deal on their behalf.

The common law principle in operation is usually represented in the Latin phrase, qui facit per alium, facit per
se, i.e. the one who acts through another, acts in his or her own interestsand it is a parallel concept to vicarious
liability and strict liability in which one person is held liable in criminal law or tort for the acts or omissions of
another.

In India, section 182 of the Contract Act 1872 defines Agent as “a person employed to do any act for another or
to represent another in dealings with third persons”.[2]

Contents
[hide]

• 1 The concepts

• 2 Brief statement of legal

principles

• 3 Authority

○ 3.1 Actual authority

○ 3.2 Apparent authority

○ 3.3 Watteau v Fenwick

○ 3.4 Liability of agent to

 third party

○ 3.5 Liability of agent to

principal

○ 3.6 Liability of

principal to agent

○ 3.7 Duties

○ 3.8 Termination

• 4 Agency relationships

• 5 See also

• 6 Notes

• 7 References

[edit]The concepts

The reciprocal rights and liabilities between a principal and an agent reflect commercial and legal realities. A
business owner often relies on an employee or another person to conduct a business. In the case of a
corporation, since a corporation is a fictitious legal person, it can only act through human agents. The principal
is bound by the contract entered into by the agent, so long as the agent performs within the scope of the
agency.

A third party may rely in good faith on the representation by a person who identifies himself as an agent for
another. It is not always cost effective to check whether someone who is represented as having the authority to
act for another actually has such authority. If it is subsequently found that the alleged agent was acting without
necessary authority, the agent will generally be held liable.

[edit]Brief statement of legal principles

There are three broad classes of agent

1. Universal agents hold broad authority to act on behalf of the principal,

e.g. they may hold a power of attorney (also known as a mandate in civil
law jurisdictions) or have a professional relationship, say, as lawyer and
client.

2. General agents hold a more limited authority to conduct a series of

transactions over a continuous period of time; and
 3. Special agents are authorized to conduct either only a single transaction
or a specified series of transactions over a limited period of time.
[edit]Authority

An agent who acts within the scope of authority conferred by her principal binds the principal in the obligations
she creates against third parties. There are essentially two kinds of authority recognized in the law: actual
authority (whether express or implied) and apparent authority.

[edit]Actual authority
Main article: Actual authority

Actual authority can be of two kinds. Either the principal may have expressly conferred authority on the agent,
or authority may be implied. Authority arises by consensual agreement, and whether it exists is a question of
fact. An agent, as a general rule, is only entitled to indemnity from the principal if she has acted within the
scope of her actual authority, and may be in breach of contract, and liable to a third party for breach of the
implied warranty of authority.

Express actual authority

Express actual authority means an agent has been expressly told she may act on behalf of a principal.

 Ireland v Livingstone (1872) LR 5 HL 395

Implied actual authority

Implied actual authority, also called "usual authority", is authority an agent has by virtue of being reasonably
necessary to carry out his express authority. As such, it can be inferred by virtue of a position held by an agent.
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.

 Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549

[edit]Apparent authority
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.
[3]

 Rama Corporation Ltd v Proved Tin and General Investments Ltd [1952] 2 QB
147, Slade J, "Ostensible or apparent authority... is merely a form of estoppel,
indeed, it has been termed agency by estoppel and you cannot call in aid an
estoppel unless you have three ingredients: (i) a representation, (ii) reliance
on the representation, and (iii) an alteration of your position resulting from
such reliance."

 Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB

480

 The Raffaella or Egyptian International Foreign Trade Co v Soplex Wholesale

Supplies Ltd and PS Refson & Co Ltd [1985] 2 Lloyd's Rep 36
[edit]Watteau v Fenwick
In the case of Watteau v Fenwick,[4] Lord Coleridge CJ on the Queen's Bench concurred with an opinion by
Wills J that a third party could hold personally liable a principal who he did know about when he sold cigars to
an agent that was acting outside of its authority. 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." This decision is heavily criticised and doubted,
[5]
though not entirely overruled in the UK. 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.[6]

For example, partners have apparent authority to bind the other partners
in the firm, their liability being joint and several (see below), and in
a corporation, all executives and senior employees with decision-making
authority by virtue of their declared position have apparent authority to
bind the corporation.

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.g. if the
agent has purported to act in a number of situations and the principal
has knowingly acquiesced, the failure to notify all concerned of the
agent's lack of authority is an implied ratification to those transactions
and an implied grant of authority for future transactions of a similar
nature.

[edit]Liability of agent to third party

If the agent has actual or apparent authority, the agent will not be liable
for acts performed within the scope of such authority, so long as the
relationship of the agency and the identity of the principal have been
disclosed. 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 authority.

[edit]Liability of agent to principal

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.

[edit]Liability of principal to agent

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.

[edit]Duties

An agent owes the principal a number of duties. These include:

 a duty to undertake the task or tasks specified by the terms of the

agency (that is, the agent must not do things that he has not been
authorised by the principal to do);

 a duty to discharge his duties with care and due diligence; and

 a duty to avoid conflict of interest between the interests of the

principal and his own (that is, the agent cannot engage in conduct
 where stands to gain a benefit for himself to the detriment of the
principal).

An agent must not accept any new obligations that are inconsistent
with the duties owed to the principal. 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 also must not engage in self-dealing, or otherwise unduly

enrich himself from the agency. 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
and pay the agent either a prearrangedcommission, or a reasonable
fee established after the fact.

[edit]Termination

An agent's authority can be terminated at any time. If the trust between

the agent and principal has broken down, it is not reasonable to allow
the principal to remain at risk in any transactions that the agent might
conclude during a period of notice.

As per sections 201 to 210 of the Indian Contract Act 1872, an agency
may come to an end in a variety of ways:

1. Withdrawl 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.g., where the goods are consigned by an upcountry
constituent to a commission agent for sale, with poor to
recoup himself from the sale proceeds, the advances made
by him to the principal against the security of the goods; in
such a case, the principal cannot revoke the agent’s authority
till the goods are actually sold, nor is the agency terminated
by death or insanity (illustrations to section 201);

2. By the agent renouncing the business of agency;

 3. By the business of agency being completed;

4. By the principal being adjudicated insolvent (section 201).

The principal also cannot revoke the agent’s authority after it has been
partly exercised, so as to bind the principal (section 204), though he
can always do so, before such authority has been so exercised
(section 203).

Further, as per section 205, if the agency is for a fixed period, the
principal cannot terminate the agency before the time expired, except
for sufficient cause. 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 (section 206). As per section 207, the revocation or
renunciation of an agency may be made expressly or impliedly by
conduct. The termination does not take effect as regards the agent, till
it becomes known to him and as regards third party, till the termination
is known to them (section 208).

When an agent’s authority is terminated, it operates as a termination of

subagent also (section 210).[7]

This has become a more difficult area as states are not consistent on
the nature of a partnership. Some states opt for the partnership as no
more than an aggregate of the natural persons who have joined the
firm. Others treat the partnership as a business entity and, like
a corporation, vest the partnership with a separate legal personality.
Hence, for example, inEnglish law, a partner is the agent of the other
partners whereas, in Scots law where there is a separate personality, a
partner is the agent of the partnership. This form of agency is inherent
in the status of a partner and does not arise out of a contract of agency
with a principal. The English Partnership Act 1890 provides that a
partner who acts within the scope of his actual authority (express or
implied) will bind the partnership when he does anything in the ordinary
course of carrying on partnership business. Even if that implied
authority has been revoked or limited, the partner will have apparent
authority unless the third party knows that the authority has been
compromised. Hence, if the partnership wishes to limit any partner's
authority, it must give express notice of the limitation to the world.
However, there would be little substantive difference if English law was
amended:[8] partners will bind the partnership rather than their fellow
partners individually. For these purposes, the knowledge of the partner
acting will be imputed to the other partners or the firm if a separate
personality. The other partners or the firm are the principal and third
parties are entitled to assume that the principal has been informed of
all relevant information. This causes problems when one partner acts
fraudulently or negligently and causes loss to clients of the firm. In
most states, a distinction is drawn between knowledge of the firm's
general business activities and the confidential affairs as they affect
one client. Thus, there is no imputation if the partner is acting against
the interests of the firm as a fraud. There is more likely to be liability
in tort if the partnership benefited by receiving fee income for the work
negligently performed, even if only as an aspect of the standard
provisions of vicarious liability. Whether the injured party wishes to sue
the partnership or the individual partners is usually a matter for the
plaintiff since, in most jurisdictions, their liability is joint and several.

[edit]Agency relationships

Agency relationships are common in many professional areas.

 employment.

 real estate transactions (real estate brokerage, mortgage

brokerage). In real estate brokerage, the buyers or sellers are the
principals themselves and the broker or his salesperson who
represents each principal is his agent.

 financial advice (insurance agency, stock brokerage, accountancy)

 contract negotiation and promotion (business management) such

as for publishing, fashion model, music, movies, theatre, show
business, and sport.
 An agent in commercial law (also referred to as a manager) is a
person who is authorised to act on behalf of another (called
the principal or client) to create a legal relationship with a third party.

[edit]See also

Find more about Law on Wikipedia's sister

projects:

Principal (commercial law)

From Wikipedia, the free encyclopedia

For other uses, see Principal (disambiguation).

The examples and perspective in this article may not represent

a worldwide view of the subject. Please improve this article and
discuss the issue on the talk page. (October 2010)

In commercial law, a principal is a person legal or natural–who authorizes an agent to act to create one or
more legal relationships with a third party. This branch of law is called agencyand relies on the common
law proposition qui facit per alium, facit per se (Latin "he who acts through another, acts personally").

It is a parallel concept to vicarious liability and strict liability (in which one person is held liable for the acts or
omissions of another) in criminal law or torts.

Contents
[hide]

• 1 Concepts

• 2 Summary of law

○ 2.1 Authority

○ 2.2 Liability

 2.2.1 Agent to

Principal

 2.2.2 Principal to

Agent

 2.2.3 Third Party

 to Principal

○ 2.3 Duties

○ 2.4 Undisclosed principal

○ 2.5 Termination

• 3 Economic analysis

• 4 See also

• 5 References

[edit]Concepts

In a busy commercial world, the smooth flow of trade depends on the use of agents. This may be because
in business entities such as:

 sole traders, their ability to conduct business will always be limited unless other people are used to work on
their behalf;

 a partnership, the natural persons who are involved cannot be present to conduct business in multiple
locations simultaneously, so they must rely on others to make agreements or deliver services on their
behalf; or

 a corporation is only a legal entity or fictitious legal person and so can only act through the agency of
human beings to get anything done.

In the majority of cases, it is impossible for agents to seek specific authority for every deal or detail within a
deal. Agents must, of necessity, be allowed some degree of discretion in the conduct of routine transactions.
But, for the purposes of ascribing legal responsibility to the Principal, when the Agent acts with actual or
apparent authority, all the Agent's knowledge will be imputed to the Principal. If Principals were allowed to hide
behind their agents' own ignorance, mistakes or failures to communicate, a Principal could, by using an Agent,
achieve a better result than if they acted personally. For example, if the particular deal turned out well, the
Principal could adopt the transaction. But, if it turned out badly, the Principal could disavow it. Indeed, if not for
imputation, there would be a perverse incentive to conduct business through Agents rather than personally.
Consequently, the Principal cannot exploit ignorance to their advantage by instructing the Agent to withhold key
information or by appointing an Agent known to be secretive.

This rule in favour of imputation relates to the duties an Agent owes a Principal, in particular the Agent's duty to
communicate material facts to the Principal. Since the purpose of the law is to offer protection to Third Parties
who have acted in good faith, it is reasonable to allow them to believe that, in most cases, the Agents have
fulfilled this duty. After all, the Principal selects the Agents and has the power to control their actions both
through express instructions and incentives intended to influence their behaviour which will include laying down
routines for how Agents should handle information, and the extent to which Agents will be rewarded for
transmitting information of commercial value. The result is a form of strict liability in which the legal
consequences of an Agent's acts or omissions are attributed to a Principal even when the Principal was without
fault in appointing or supervising the Agent. Borrowing parallel concepts from Tort and Equity, this means that
the Principal owes the Third Party a duty of care to ensure that the Agent is honest and efficient, and that a
Principal is estopped from denying that an Agent was authorised to act as they did.

[edit]Summary of law

There are three classes of Principal:

3 classes of principal

Class Description

at the time of the transaction made by the Agent with the Third Party, the latter
Disclosed knows that the person he is dealing with is acting as an Agent and also knows
the Principal’s identity.

at the time of the transaction, the Third Party knows that the person he is
Partially
dealing with is acting as an Agent acting but does not know the Principal’s
disclosed
identity.

The person acting as an Agent represents they are acting on their own behalf
Undisclose and does not disclose the existence of the agency relationship. This is usually
d because the Principal is wealthy and believes that money can be saved on the
proposed deal if their involvement is hidden.

[edit]Authority

For these purposes, the Principal must give, or be deemed to give, the Agent authority to act.

 Actual authority

This arises where the Principal's words or conduct reasonably cause the Agent to believe they have
been authorised to act. This may be expressed as a contract or implied because what is said or done
make it reasonably necessary for the person to assume the powers of an Agent. If it is clear that the
Principal gave actual authority to Agent, all the Agent's actions falling within the scope of the authority
given bind the Principal. This results even if, having actual authority, the Agent in fact
 acts fraudulently for his own benefit, unless the Third Party was aware of the Agent's personal agenda.
If there is no contract but the Principal's words or conduct reasonably led the Third Party to believe
that the Agent was authorised to act, or if what the Agent proposes to do is incidental and reasonably
necessary to accomplish an actually authorised transaction or a transaction that usually accompanies
it, then the Principal is bound.

 Apparent or ostensible authority

If the Principal's words or conduct would lead a reasonable person in the Third Party’s position to
believe that the Agent was authorised to act, say by appointing the Agent 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 authorised 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 is stopped from denying the grant of authority if
Third Parties have changed their positions to their detriment in reliance on the representations made.

 Authority by virtue of a position held

For example, partners have apparent 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 declared position have apparent authority to bind the corporation.

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 behaviour, e.g. if the Agent has purported to act in a number of situations and the
Principal has knowingly acquiesced, the failure to notify all concerned of the Agent's lack of
authority is an implied ratification to those transactions and an implied grant of authority for
future transactions of a similar nature.

[edit]Liability

[edit]Agent to Principal

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.

[edit]Principal to Agent

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 authorised or merely necessary in promoting the Principal’s
business.

[edit]Third Party to Principal

The Third Person is liable to the Principal on the terms of the agreement made with the Agent
unless the Principal was undisclosed and there is clear evidence that either the Agent or the
Principal knew that the Third Party would not have entered into the agreement if they had
known of the Principal's involvement.

[edit]Duties

The relationship between a Principal and an Agent is fiduciary which requires the Agent to be
loyal to the Principal. This involves duties:

 not to accept any new obligations that are inconsistent with the duties owed to the
Principal. Agents can represent the interests of more than one Principal, conflicting or
potentially conflicting, only on the basis of full and timely disclosure or where the different
agencies are based on a limited form of authority to prevent a situation where the Agent's
loyalty to the any one of the multiple Principals is compromised. For this purpose, express
clauses in the agreement signed by each Principal with the Agent may identify specific
types or categories of activities that do not breach the duty of loyalty and so long as these
exceptions are not unreasonable, they bind the Principals.

 not to make a private profit or unjustly enrich himself from the agency relationship.
Principals usually include a power in their contract with the Agents allowing them to
inspect the Agents' accounts if reasonable suspicion of improper behavior emerges.

In return, the Principal must make a full disclosure of all information relevant to the
transactions that the Agent is authorized to negotiate and pay the Agent either
the commission or fee as agreed, or a reasonable fee if none were previously agreed on.

[edit]Undisclosed principal
An Undisclosed principal is an unrevealed one, in a situation involving an
undisclosed agency.[1] It is "a person who uses an agent for his/her negotiations with a third
party, often when the agent pretends to be acting for himself/herself." [2] In a real
estate transaction, this could be any "major party to a transaction, such as a seller or
purchaser of property," who wishes to remain anonymous.[3]

Some taxing authorities have created rules regarding tax liability for actions of an undisclosed
principal.[4] The undisclosed agency may also effect tort liability.[5]
 [edit]Termination

The Principal can terminate an Agent's authority at any time without having to give notice. If
the trust between the Agent and Principal has broken down, it is not reasonable to allow the
Principal to remain at risk in any transactions that the Agent might conclude during a period of
notice.

[edit]Economic analysis

(main article Principal-Agent problem)

The analysis of principal-agent relationships is an important topic in economics. The main

focus of analysis is on the information asymmetry between the agent, who is assumed to be
well informed, and the principal who may not be.
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A consensual relationship created by contract or by law where one party, the

principal, grants authority for another party, the agent, to act on behalf of
and under the control of the principal to deal with a third party. An agency
relationship is fiduciary in nature, and the actions and words of an agent
exchanged with a third party bind the principal.

An agreement creating an agency relationship may be express or implied, and

both the agent and principal may be either an individual or an entity, such as a
corporation or partnership.

Under the law of agency, if a person is injured in a traffic accident with a

delivery truck, the truck driver's employer may be liable to the injured person
even if the employer was not directly responsible for the accident. That is
because the employer and the driver are in a relationship known as principal-
agent, in which the driver, as the agent, is authorized to act on behalf of the
employer, who is the principal.
The law of agency allows one person to employ another to do her or his work,
sell her or his goods, and acquire property on her or his behalf as if the
employer were present and acting in person. The principal may authorize the
agent to perform a variety of tasks or may restrict the agent to specific
functions, but regardless of the amount, or scope, of authority given to the
agent, the agent represents the principal and is subject to the principal's
control. More important, the principal is liable for the consequences of acts
that the agent has been directed to perform.

A voluntary, GOOD FAITH relationship of trust, known as a fiduciary

relationship, exists between a principal and an agent for the benefit of the
principal. This relationship requires the agent to exercise a duty of loyalty to
the principal and to use reasonable care to serve and protect the interests of
the principal. An agent who acts in his or her own interest violates the
fiduciary duty and will be financially liable to the principal for any losses the
principal incurs because of that breach of the fiduciary duty. For example, an
agent who accepts a bribe to purchase only the goods from a particular seller
breaches his fiduciary duty by taking the money, since it is the agent's duty to
work only for the best interests of the principal.

An agency relationship is created by the consent of both the agent and the
principal; no one can unwittingly become an agent for another. Although a
principal-agent relationship can be created by a contract between the parties,
a contract is not necessary if it is clear that the parties intend to act as
principal and agent. The intent of the parties can be expressed by their words
or implied by their conduct.

Perhaps the most important element of a principal-agent relationship is the

concept of control: the agent agrees to act under the control or direction of the
principal. The extent of the principal's control over the agent distinguishes an
agent from anINDEPENDENT CONTRACTOR, over whom control and
supervision by the principal may be relatively remote. An independent
contractor is subject to the control of an employer only to the extent that she
or he must produce the final work product that she or he has agreed to
provide. Independent contractors have the freedom to use whatever means
they choose to achieve that final product. When the employer provides more
specific directions, or exerts more control, as to the means and methods of
doing the job—by providing specific instructions as to how goods are to be sold
or marketed, for example—then an agency relationship may exist.

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The agent's authority may be actual or apparent. If the principal intentionally
confers express and implied powers to the agent to act for him or her, the
agent possesses actual authority. When the agent exercises actual authority, it
is as if the principal is acting, and the principal is bound by the agent's acts
and is liable for them. For example, if an owner of an apartment building
names a person as agent to lease apartments and collect rents, those functions
are express powers, since they are specifically stated. To perform these
functions, the agent must also be able to issue receipts for rent collected and to
show apartments to prospective tenants. These powers, since they are a
necessary part of the express duties of the agent, are implied powers. When
the agent performs any or all of these duties, whether express or implied, it is
as if the owner has done so.

A more complicated situation arises when the agent possesses apparent

authority. In this case, the principal, either knowingly or even mistakenly,
permits the agent or others to assume that the agent possesses authority to
carry out certain actions when such authority does not, in fact, exist. If other
persons believe in good faith that such authority exists, the principal remains
liable for the agent's actions and cannot rely on the defense that no actual
authority was granted. For instance, suppose the owner of a building offers it
for sale and tells prospective buyers to talk to the rental agent. If a buyer
enters into a purchase agreement with the agent, the owner may be liable for
breaching that contract if she later agrees to sell the building to someone else.
The first purchaser relied on the apparent authority of the agent and will not
be penalized even if the owner maintains that no authority was ever given to
the agent to enter into the contract. The owner remains responsible for acts
done by an agent who was exercising apparent authority.

The scope of an agent's authority, whether apparent or actual, is considered in

determining an agent's liability for her or his actions. An agent is not
personally liable to a third party for a contract the agent has entered into as a
representative of the principal so long as the agent acted within the scope of
her or his authority and signed the contract as agent for the principal. If the
agent exceeded her or his authority by entering into the contract, however, the
agent is financially responsible to the principal for violating her or his
fiduciary duty. In addition, the agent may also be sued by the other party to
the contract forFRAUD. The principal is generally not bound if the agent was
not actually or apparently authorized to enter into the contract.

With respect to liability in TORT (i.e., liability for a civil wrong, such as driving
a car in a negligent manner and causing an accident), the principal is
responsible for an act committed by an agent while acting within his or her
authority during the course of the agent's employment. This legal rule is based
on respondeat superior, which is Latin for "let the master answer." The
doctrine of RESPONDEAT SUPERIOR, first developed in England in the late
1600s and adopted in the United States during the 1840s, was founded on the
theory that a master must respond to third persons for losses negligently
caused by the master's servants. In more modern terms, the employer is said
to be vicariously liable for injuries caused by the actions of an employee or
agent; in other words, liability for an employee's actions is imputed to the
employer. The agent can also be liable to the injured party, but because the
principal may be better able financially to pay any judgment rendered against
him or her (according to the "deep-pocket" theory), the principal is almost
always sued in addition to the agent.

A principal may also be liable for an agent's criminal acts if the principal either
authorized or consented to those acts; if the principal directed the commission
of a crime, she or he can be prosecuted as an ACCESSORY to the crime. Some
state and federal laws provide that a corporation may be held criminally liable
for the acts of its agents or officers committed in the transaction of corporate
business, since by law a corporation can only act through its officers.

An agent's authority can be terminated only in accordance with the agency

contract that first created the principal-agent relationship. A principal can
revoke an agent's authority at any time but may be liable for damages if the
termination violates the contract. Other events—such as the death, insanity,
or BANKRUPTCY of the principal—end the principal-agent relationship by
operation of law. (Operation of law refers to rights granted or taken away
without the party's action or cooperation, but instead by the application of law
to a specific set of facts.) The rule that death or insanity terminates an agent's
authority is based on the policy that the principal's estate should be protected
from potential fraudulent activity on the part of the agent. Some states have
modified these common-law rules, allowing some acts of the agent to be
binding upon other parties who were not aware of the termination.

FURTHER READINGS
Gregory, William A. 2001. The Law of Agency and Partnership. 3d ed. St.
Paul, Minn.: West Group.

Hynes, J. Dennis. 2001. Agency, Partnership, and the LLC in a Nutshell. 2d

ed. St. Paul, Minn.: West Group.

Undisclosed principal
From Wikipedia, the free encyclopedia

This article does not cite any references or sources.

Please help improve this article by adding citations to reliable sources. Unsourced
material may be challenged and removed. (November 2007)

In the field of law, the term undisclosed principal relates mainly to the liability of an agent for obligations
incurred on behalf of a principal. If the agent does not disclose the nature of his agency (the fact that he acts on
behalf of another), and thus does not disclose the name of the principal, the agent may be held personally
liable for his actions. If however, the agent disclosed his agency and the name of the principal (disclosed
principal), he will normally not be held liable for commitments undertaken within his authorized agency.
A dummy buyer may sometimes have an undisclosed principal.