Chapter 3-11 Agency Actions—Agent's Action Binding on the Principal

• Jurisdiction: United States

3-11 Agency Actions—Agent's Action Binding on the Principal

3-11:1 Overview

In this context, whether a person is an agent is not a cause of action in itself, but is rather a means to ascertain whether the agent, principal or both are liable on an obligation. As a general rule, the principal is bound to the contracts an agent enters into on the principal's behalf. Moreover, a principal may be liable for its agent's tortious conduct.

3-11:1.1 Related Causes of Action

Agency Actions: Agent's Liability to Third Parties, Agency Actions: Agent's Breach of Duty of Duty, Respondeat Superior

MUST READ CASES

In re Merrill Lynch Tr. Co. FSB, 235 S.W.3d 185 (Tex. 2007)

Celtic Life Ins. Co. v. Coats, 885 S.W.2d 96 (Tex. 1994)

Nears v. Holiday Hospitality Franchising, Inc., 295 S.W.3d 787 (Tex. App.—Texarkana 2009, no pet.)

3-11:2 Elements

3-11:2.1 Contractual Liability

(1) An agency relationship exists

• An agency exists when the principal manifests assent to the agent that the agent shall act on the principal's behalf and subject to the principal's control, and the agent consents.³⁸⁴
• The law does not presume agency.³⁸⁵
• The party alleging agency has the burden of proving it.³⁸⁶
• Agency formation does not require consideration.³⁸⁷
• For an agency agreement to be enforceable as between the principal and agent, there must be consideration.³⁸⁸

(2) The agent enters into an agreement with a third party

• The agent must enter into an agreement on the principal's behalf to bind the principal.³⁸⁹

(3) The agent acts with:

(3)(a) Actual Authority

• Actual authority is found when a principal:

• Intentionally confers authority upon an agent;
• Intentionally allows the agent to believe that he possesses authority; or
• Negligently allows the agent to believe that he possesses authority.³⁹⁰

• Actual authority may be either express or implied.³⁹¹
• Express authority is delegated through words that expressly authorize the agent to do an act or series of acts on behalf of the principal.³⁹²
• Implied authority is that which is proper, usual and necessary to exercise the agent's express authority.³⁹³

• Implied authority cannot exist without express authority.³⁹⁴

• Parol evidence may be used to prove an agent's authority.³⁹⁵

(3)(b) Apparent Authority

• Apparent authority exists when:

• The principal, by its conduct;
• Caused the third party to reasonably believe that the putative agent was an employee or agent of the principal; and
• The third party justifiably relied on the appearance of agency.³⁹⁶

• Apparent authority ordinarily does not exist when an agent is attempting to sell real estate.³⁹⁷
• Texas has expressly rejected the approach taken by the Restatement (Second) of Torts Section 429.³⁹⁸

(3)(c) Substitute for Authority

• Ratification:

• A principal ratifies an unauthorized contract when:

(1) He gives approval by act, word or conduct;
(2) With full knowledge of the facts of the earlier contract; and
(3) With the intention of giving validity to the earlier contract.³⁹⁹

3-11:2.2 Tort Liability

(1) An agency relationship exists

• An agency exists when the principal manifests assent to the agent that the agent shall act on the principal's behalf and subject to the principal's control, and the agent consents.⁴⁰⁰
• The law does not presume agency.⁴⁰¹
• The party alleging agency has the burden of proving it.⁴⁰²
• Agency formation does not require consideration.⁴⁰³
• For an agency agreement to be enforceable as between the principal and agent, there must be consideration.⁴⁰⁴

(2) The agent commits a tort

• The agent commits a tort.⁴⁰⁵
• A principal is vicariously liable for an intentional tort if the action was within the scope of the agent's authority.⁴⁰⁶
• A principal is vicariously liable for an intentional tort even if the principal has no knowledge of it.⁴⁰⁷

(3) Within the scope and course of his agency

• A principal is liable for an agent's misconduct which is within the course and scope of his agency.⁴⁰⁸
• It does not matter whether the principal authorized the specific wrongful act.⁴⁰⁹
• An agent is acting within the scope and course of his agency when the action is:

• Within the scope of the agent's general authority;
• In furtherance of the principal's business; and
• For the accomplishment of the object for which the agent is employed.⁴¹⁰

• A plaintiff is afforded a rebuttable presumption that the tortfeasor was acting within the scope and course of his agency if he can prove:

• The tortfeasor was the principal's agent; and
• The tortfeasor was driving the principal's vehicle.⁴¹¹

3-11:3 Damages and Remedies

3-11:3.1 Generally

The damages and remedies available will be determined by the underlying contractual obligation or tort liability.

3-11:3.2 Exemplary Damages

Exemplary damages are available when it can fairly be said that the principal engaged in the requisite level of wrongdoing.

A principal is only liable for exemplary damages if:

(1) The principal authorized the doing and the

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