Chapter 3-12 Agency Actions—Agent Personally Liable on Contract Between Principal and Third Party

• Jurisdiction: United States

3-12 Agency Actions—Agent Personally Liable on Contract Between Principal and Third Party

3-12:1 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, agents are not liable to third parties based upon contracts entered into on the principal's behalf. However, agents are liable to third parties for their own tortious conduct.

3-12:1.1 Related Causes of Action

Agency Actions: Agent's Liability to Third Parties, Agency Actions: Agent's Actions Binding upon Principal, Breach of Formal Fiduciary Duty, Breach of Formal Fiduciary Duty from Special Relationship

MUST READ CASES

Davis v. Chaparro, 431 S.W.3d 717, 721-24 (Tex. App. El Paso 2014).

Gordon v. Leasman, 365 S.W.3d 109 (Tex. App.—Houston [1st Dist.] 2011, no pet.)

3-12:2 Elements

3-12:2.1 Partially Disclosed or Undisclosed Principal

(1) An agent acting for a principal

• 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.⁴²⁰
• The law does not presume agency.⁴²¹
• The party alleging agency has the burden of proving it.⁴²²
• Agency formation does not require consideration.⁴²³
• For an agency agreement to be enforceable as between the principal and agent, there must be consideration.⁴²⁴

(2) Enters into an agreement with a third party

• The agent must enter into an agreement with a third party.⁴²⁵

(3) Without fully disclosing his agency.

• To avoid liability on a contract, an agent must disclose his status as an agent and the identity of his principal.⁴²⁶
• Full disclosure of the principal's identity requires disclosure of the principal's legal name or designation; trade names do not suffice.⁴²⁷
• Whether an agent fully disclosed his agency depends on whether the third party knew or should have known of the principal's existence and identity at the time of agreement.⁴²⁸

• It does not matter how the third party learns of the existence and identity of the principal.⁴²⁹

• A contractual provision seeking to disclaim the agent's liability is not effective unless the agent also discloses the name of his principal.⁴³⁰

3-12:2.2 Disclosed Principal

• An agent acting within the scope of his authority for a fully disclosed principal is not contractually liable to a third party.⁴³¹
• Whether an agent fully disclosed his agency depends on whether the third party knew or should have known of the principal's existence and identity at the time of agreement.⁴³²

• It does not matter how the third party learns of the existence and identity of the principal.⁴³³

• However, this general rule may be altered by agreement and an agent may expressly bind himself to the contract.⁴³⁴

3-12:2.3 Nonexistent or Legally Incompetent Principal

• Agent is liable for a contract when he purports to be an agent for a nonexistent or legally incompetent principal.⁴³⁵
• The relevant time period is the time the agreement between the agent and third party is made.⁴³⁶

3-12:2.4 Assumption of Liability

An agent may assume an obligation under a contract.⁴³⁷ Such consent can be express, or it can arise impliedly from the circumstances.⁴³⁸

3-12:2.5 Agent's Breach of the Warranty of Authority

(1) A person acts as an agent without authority from his principal

• Any person who acts as an agent without authority from his principal may be liable.⁴³⁹
• The agent's good faith belief that he possesses the requisite authority is immaterial. It only matters that the agent exceeded his authority.⁴⁴⁰

(2) A third party relied on the agent

• The third party must reasonably rely upon the agent's representation of authority.⁴⁴¹
• If the third party knows the agent lacks authority, there can be no reasonable reliance.⁴⁴²
• If the third party knows all of the facts surrounding the agent's authority so that the third party may make an assessment of the scope of the agent's authority, there can be no reasonable reliance.⁴⁴³

(3) Proximately causes damages.

• Liability is not on the contract itself, but for a breach of warranty.⁴⁴⁴
• There can be no liability if the principal ratified the contract.
• 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.⁴⁴⁵

3-12:2.6 Tort Liability

• An agent is always liable for his own tortious conduct.⁴⁴⁶
• When both the principal and agent are

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