Who Can Be Sued? Principal Or Agent?

The principal-agent relationship is a fiduciary one, where the agent acts on behalf of the principal with the principal's consent and within the scope of their authority. While the principal is generally liable for the agent's actions, there are situations where the agent can be held personally liable. This includes when the agent acts for an undisclosed or partially disclosed principal, exceeds their authority, or enters into a contract in a personal capacity. In the case of Tecchia v. Bellati, for example, Bellati was sued for breach of contract despite claiming to act as an agent for Canova Inc., as he failed to disclose Canova as the principal during the contract signing. Understanding the legal implications of being an agent for a disclosed, undisclosed, or partially disclosed principal is crucial for agents and principals alike to navigate potential liabilities and disputes.

Characteristics and Values

Agent's liability on contracts

In general, an agent is not personally liable for contracts they sign on behalf of a principal. This is because the agent is not a party to the contract, and the principal is liable for the consequences of the acts that the agent has been authorized to perform. However, there are several exceptions to this rule, and agents may be held liable in certain situations.

Firstly, if the agent is serving an undisclosed or partially disclosed principal, the agent may be held liable. This is because, without full disclosure of the principal's status, the agent may appear to be acting on their own behalf, and therefore, the agent is a party to the contract. It is important to note that merely suspecting that an individual is acting as an agent is insufficient to relieve them from liability. The test is actual knowledge of the principal's identity.

Secondly, an agent may be held liable if they lack authority or exceed their authority. The agent's authority can be acquired expressly, impliedly, or apparently. Apparent authority refers to situations where the principal leads a third party to reasonably believe that the agent has the authority to bind the principal, even if the agent lacks actual authority. In such cases, the principal may still be liable if they ratify or adopt the agent's acts before the third party withdraws from the contract.

Thirdly, an agent may be held liable if they enter into the contract in a personal capacity. This means that the agent has indicated that they are personally responsible for the obligations under the contract.

To avoid disputes, it is recommended that contracts clearly state the identities of the transacting parties and specify who will be responsible for any breaches of the agreement. A well-written contract can help protect both the principal and the agent from liability in the event of a dispute.

Agent's liability for torts

An agent is generally not liable on contracts made on the principal's behalf. This is because the agent is not a party to the contract. However, there are exceptions to this rule. An agent will be liable if they are undisclosed or partially disclosed, if they lack authority or exceed it, or if they entered into the contract in a personal capacity.

A person is always liable for their own torts, so an agent who commits a tort is liable. If the tort was committed within the scope of employment, the principal is also liable. The principal can be held directly or indirectly liable. Direct liability can occur when the principal gives faulty instructions to the agent, for example. Indirect liability can occur through the doctrine of respondeat superior, which means 'let the superior respond'. This doctrine holds the principal liable for the agent's acts committed within the scope of the agent's authority. To determine whether the principal can be held indirectly liable, the courts use a four-pronged test:

• The agent was employed to perform that particular type of act
• The agent's act occurred at an authorized place and during an authorized time of employment
• The agent's act was inspired by an intent to assist the principal
• The agent's method could have been anticipated by the principal

If the agent commits a tort outside of their scope of authority, the principal may recover from the agent any damages incurred.

Principal's liability for agent's actions

A principal's liability for an agent's actions depends on the nature of the agency relationship and the jurisdiction in which the case is being heard. In English and American law, the liability of a principal for his agent's torts depends on the existence of a master-servant relationship. If such a relationship exists, the master is vicariously liable for the servant's tortious conduct committed within the course of their employment, irrespective of any personal fault on the master's part. This is known as the doctrine of respondeat superior, or the master-servant doctrine.

However, there are exceptions to this rule. A principal may not be held vicariously liable under the doctrine of respondeat superior in the following three instances:

• When the agent has been exonerated by an adjudication of non-liability
• When the right of action against the agent is extinguished by operation of law
• When the injured party extinguishes the agent's liability by conferring an affirmative, substantive right upon the agent that precludes the assessment of liability against the agent

Furthermore, a principal is not liable for the harm caused by the negligent physical conduct of a non-servant agent. However, the principal is liable for any other torts of his agent that are authorized or that are made possible by the agent's position. An example of such conduct is tortious misrepresentation by the agent.

In the case of an undisclosed or partially disclosed principal, the agent may be held personally liable on contracts. This is because the agent is acting on behalf of an undisclosed principal, and the third party may not be aware of the principal's existence. In such cases, the agent is responsible for any breaches of the agreement and will be held liable.

Additionally, an agent can be personally liable for contracts if they lack the authority to make the contract or if they exceed their authority. If the agent personally guarantees repayment of a debt, they can also be held liable.

It is important to note that the agency relationship is not permanent and can be terminated by mutual consent, express or implied agreement, revocation by the principal, renunciation by the agent, or operation of law in certain circumstances, such as the death of the principal or agent.

Agent's liability for undisclosed principals

In the context of agency law, an undisclosed principal refers to a person who employs an agent to negotiate with a third party without revealing the principal's identity. In such cases, the agent may give the impression that they are acting independently. Consequently, the third party remains unaware of the principal's involvement and, in the event of a dispute, does not know to involve the principal.

The concept of an undisclosed principal often arises in real estate transactions, where a buyer may wish to conceal their identity or purpose to avoid the seller becoming less inclined to sell, demanding a higher price, or holding out for a better offer. For example, when purchasing the land for Walt Disney World in Florida, agents of Walt Disney Productions kept their principals undisclosed while acquiring 27,400 acres of land over 18 months.

An agent acting on behalf of an undisclosed principal may be held personally liable for any breaches of contract or agreement with a third party. This is because the third party has no knowledge of the principal's existence and, therefore, considers the agent as the contracting party. To avoid personal liability, the agent must fully disclose the principal's status, and the third party must have actual knowledge of the principal. Mere suspicion or reason to suspect the existence of a principal is insufficient to relieve the agent of liability.

To mitigate the risks associated with undisclosed principals, well-written contracts can be used to clearly identify the transacting parties and specify their respective responsibilities in the event of a breach. This involves drafting agreements that explicitly state the involvement of a principal and ensuring that all parties provide their consent. By doing so, potential disputes between principals, agents, and third parties can be effectively avoided or resolved.

Agent's liability for partially disclosed principals

In general, an agent is not personally liable for contracts they have signed on behalf of a principal. However, there are exceptions to this rule, and an agent can be sued in their private capacity if:

• The agent is serving an undisclosed or partially disclosed principal: An undisclosed principal is a "secret principal" whose existence is not revealed to the third party. A partially disclosed principal occurs when the agent discloses they are acting as an agent but does not reveal the principal's name or identity. In both cases, the agent is considered a party to the contract and can be held liable.
• The agent lacks authority or exceeds their authority: If an agent acts without the consent or knowledge of the principal, they can be held personally liable.
• The agent entered into the contract in a personal capacity: If the agent intends to be bound by the contract as an individual, they can be held liable.

It is important to note that the agent's liability for wrongs committed against a third party depends on various factors, including the disclosure of the principal's existence and identity. A disclosed principal is one whose existence and identity are known to the third party, either explicitly or through authorized actions. In such cases, any contract between the agent and the third party is deemed to be a contract between the principal and the third party, and the principal is liable for the agent's authorized actions.

To avoid disputes, it is recommended that contracts clearly specify the transacting parties and their respective responsibilities in the event of a breach.

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