Question

 

Crash agrees to have Steve represent him in various transactions as an agent to secure him performance contracts and endorsement deals.

Crash writes a letter to Bob that Steve is his agent. Unbeknownst to Bob, Crash specifically instructed Steve to only make endorsement deals with Bob. However, Steve signs a contract for Crash to attend a birthday party performance.

In all other cases, Steve has express authority to enter into any contract on behalf of Crash. So Steve makes a contract with Jimmy for a performance at a bar. Jimmy knows Steve is an agent, but he doesn’t know who Steve is an agent for.

Finally, Steve makes an endorsement contract with Fred.

Fred has no idea whether Steve is representing anyone.

Is Crash liable for any of these contracts?

Is Steve liable for any of these contracts?

Answer 1

It’s important to note that in contract of agency the agent owes duties to the principle “which are set forth in the agency agreement or arise by operational law” (Hollowell, 2017). The five duties owed by an agent are performance, notification, loyalty, obedience and accounting. The principal also owes duties to the agent and those are compensation, reimbursement and indemnification, as well as cooperation. “These obligations bring forth a fiduciary relationship of trust and confidence between Principal and Agent” (Schuler, 2002). The relationship is built on trust and can be terminated by the acts of the parties.

Let’s just start by saying that agents should be liable for their actions. According to our textbooks it would be it a bad social policy to let agents escape tort liability based on their own fault merely because they acted in an agency capacity (Miller & Hollowell 2014).

Business law states that no person irrespective of their mandate or duty can be held liable for acts committed by another person who assumes to represent them (Miller & Hollowell, 2014).

If the agent has entered into contract in his own name without representing that he is acting as an agent then he would be personally liable for performance of obligation under the contract.

In this scenario, Crash is the principal and Steve is the agent. Crash agrees to have Steve represent him in various transactions to secure him performance contracts and endorsement deals.

Case 1- Crash writes a letter to Bob that Steve is his agent. Unbeknownst to Bob, Crash specifically instructed Steve to only make endorsement deals with Bob. However, Steve signs a contract for Crash to attend a birthday party performance. In this case Crash is liable for this contract because Bob does not know that Steve has acted outside of his authority. Steve is not liable for this contract as he merely acts as an agent however Crash may terminate contract of agency due to breach of authority.

Case 2- Jimmy knows Steve is an agent, but he doesn’t know who Steve is an agent for. In this case as well Crash is responsible to perform his obligation however Steve not responsible as he mere acted as an agent.

Case 3 - Steve makes an endorsement contract with Fred and he has no idea whether Steve is representing anyone. So here Steve is not acting as an agent whereas he is acting as a principle. In this case Crash would not be liable whereas Steve would be liable for performance of obligation.