Hiring an agent to act on behalf of your company has many benefits. It promotes efficiency, and allows others who may have an expertise in certain fields to use that expertise to the company’s advantage. However, when hiring agents, your company may be exposed to more liability. This is because courts often equate an agent to acting on behalf of the company, and therefore extend liability to agents to reflect that fact. The two most common scenarios whereby liability may emerge are tort liability and contract liability. In contract liability, it is important to understand when the company, or principal, is still liable.
In most scenarios, the principal will be solely liable to the third party when the agent enters a contract on behalf of the principal. For example, when the principal is disclosed, the third party knows it is actually transacting with the company, and therefore looks to the company for fulfillment of any obligation. This is true whether or not the third party knew or should have been able to reasonably infer the identity of the principal. In this situation, the principal is solely liable.
In another common scenario, the third party has no notice that the agent is acting for a principal. In essence, the principal is authorizing the agent to act on its behalf, and therefore will be liable regardless of whether the third party knows the principal’s identity. Often times, even when the principal is undisclosed, the principal remains liable.
Finally, another common scenario is when the principal has notice that the agent is or may be acting for a principal, but has no notice of the principal’s identity. This may be the sole saving grace for a principal. In such a scenario, if the third party looked solely to the agent in the case any liability would emerge, then the agent may be solely responsible.
In sum, whether or not the principal is liable for an agent’s contractual liability varies based on a set of facts. In many of these situations, the court seeks to protect the third party, which does not have as much information about the company’s and agent’s dealings as these two parties. Whether you are an agent that acted on behalf of a company, or the company that hired an agent, it is important to understand your rights as it comes to contractual liability. Consulting with the right legal team can help ascertain the rights as between all of the parties. Call the Trembly Law Firm at (305) 431-5678 today to schedule your consultation.