Agent Liability to Third Parties - Explained
When can an Agent be Sued?
Written by J. Mance Gordon
Updated at April 20th, 2024
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When is an Agent Liable for Actions Taken for the Principal?
Someone who commits a tort, even if on behalf of a principal, is liable for the tort. The rule is different for contracts. An agent acting within the scope of her authority to contract is not liable to third parties on contracts or obligations entered into on behalf of the principal.
What is the Authority of the Agent to Act on Behalf of the Principal?
Even if the agent exceeds her express authority, her implied authority may bind the principal to the agreement and relieve her from any contractual liability to the third party. The important point is that the agent must act on behalf of the principal and disclose that relationship to the third party.
If the agent is acting on behalf of a principal, but fails to disclose her agency status, it may subject her to liability to the third party. In some cases, it may also serve to bind the principal once the agency relationship is determined.
- Note: If the agent goes beyond her express authority, she may be liable to the principal for any obligations binding the principal to third parties. That is, the principal may be able to recover damages suffered because of the agent exceeding her authority.
- Example: I work for ABC Corp. I enter into an agreement with 123 Corp on behalf of ABC Corp. I am not personally obligated to perform the contract. If I fail to tell 123 Corp that I work for ABC Corp (123 Corp believes that I have my own business), I am liable to 123 Corp if ABC Corp does not perform the contract. ABC Corp is obligated to perform the contract if my entering the contract was in my express, implied, or apparent authority. If I did not have express or implied authority, but 123 Corp realized I was acting on behalf of an agent, ABC Corp may be liable if I had apparent authority. In such a situation, ABC Corp may be able to sue me for any losses suffered.
Related Topics
- What is an Agency relationship?
- What are the types of agents?
- Employee vs. Independent Contractor
- What are the types of principals?
- What is required to form a principal-agent relationship?
- What are the duties of a principal?
- What are the duties of an agent?
- What is the authority of an Agent to Bind Business in Contract?
- When are Agents liable to principals and third parties?
- What is Respondeat Superior?
- What is a Frolic and Detour?
- When does the Agency Relationship Terminate?