Transcript Property I Fall 2008

Agency & Partnership
Professor Donald J. Kochan
Class 14
Today’s Materials
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Pages 361-391
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Undisclosed Principal
Introduction
Do you or must you know WHO you are really
dealing with? How does that question affect
responsibility and reliance?
 Must an agent disclose the identity of or
existence of a principal?
 How is the agent responsible if or when he
doesn’t disclose a principal?
 What are the monitoring responsibilities of a
principal?
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Restatement (Third) of Agency, sec. 1.04
“(1)
Coagents. Coagents have agency relationships with the same principal. A
coagent may be appointed by the principal or by another agent actually or apparently
authorized by the principal to do so.
(2) Disclosed, undisclosed, and unidentified principals.
(a) Disclosed principal. A principal is disclosed if, when an agent and a third
party interact, the third party has notice that the agent is acting for a principal
and has notice of the principal's identity.
(b) Undisclosed principal. A principal is undisclosed if,
when an agent and a third party interact, the third party
has no notice that the agent is acting for a principal.
(c) Unidentified principal. A principal is unidentified if, when an agent and a third
party interact, the third party has notice that the agent is acting for a principal
but does not have notice of the principal's identity.”
Restatement (Third) of Agency
sec. 6.03
“When an agent acting with actual authority makes a contract on behalf of an
undisclosed principal,
(1) unless excluded by the contract, the principal is a party to the contract;
(2) the agent and the third party are parties to the contract; and
(3) the principal, if a party to the contract, and the third party have the same
rights, liabilities, and defenses against each other as if the principal made the
contract personally, subject to §§ 6.05–6.09.
Comment:
a. Scope and cross-references. This section states the basic principle that, when an agent enters into a
contract on behalf of an undisclosed principal, the third party, the principal, and the agent become parties to
the contract. Comment b discusses the rationales for contractual liability when an agent acts on behalf of an
undisclosed principal. Comment c discusses the circumstances that determine when an agent has made a
contract on behalf of an undisclosed principal, as well as consequences for an undisclosed principal who
becomes a party to a contract. Comment d covers circumstances that may affect the rights and liabilities of an
undisclosed principal, including contracts that explicitly or implicitly exclude an undisclosed principal.
Comment e discusses the position of an agent as a party to a contract made on behalf of an undisclosed
principal. Comment f examines the rights and liabilities of undisclosed principals as parties to sealed
contracts and negotiable instruments. . . . “
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Supplemental (non-required)
Readings re sec. 6.03
Westlaw Citation with comments, enter:
 6.03 Restatement of the Law — Agency Restatement (Third) of
Agency Chapter 6. Contracts And Other Transactions With Third
Parties Topic 1. Parties To Contracts Current through April 2009 S
6.03 Agent For Undisclosed Principal REST 3d AGEN § 6.03
 AmJur and ALR citations
 Am.Jur.2d: Agency
1. Undisclosed Agency, Liability of Principal, Generally
Am.Jur.2d: Agency
2. Undisclosed Agency, Liability of Agent, Generally
ALR
3. Right of Defendant in Action by Undisclosed Principal to Avail
Himself of Defenses or Set-Offs That Would Have Been Available in
an Action by the Agent in His Own Right on the Contract
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Introduction (cont.)
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Ultimately about liability
Subterfuge, Misleading Representations, Pretending,
Stealth, Fraud, etc. issues
Remember there is 3 v. P, 3 v. A, P v. A, and A v. P in
these situations (and, of course sub-A’s mix it all up, where
you add 3 v. SA, P v. SA, P v. A because of SA, SA v. P, SA
v. A, and A v. SA) – Understand all the possible litigation
positions; understand the election rule and the
abandonment of the election rule
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Introduction (cont.)
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The textbook authors ask, “What accounts for this unusual
doctrine, where a person can become a party to a contract
in the absence of a manifestation of mutual assent?” –
Answer? Think back to our previous discussion of
equitable accountability in the face of two innocent parties
and who should bear the burden
(ex ante and ex post).
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Are contracts “inherently personal”? / reliance issues
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Walt Disney acquisition example is very poignant
Assertion of Rights by the Undisclosed
Principal
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Ability of principal to herself enforce the
contract made by the agent even if the
third party didn’t know of the principal
The “if the law says I can be sued by you,
then I can also sue you” doctrine – all
about equity -- advantages and
disadvantages
Parol Evidence Rule
“the act of the agent is the act of
principal” for purposes of this evidentiary
rule unless the principal is expressly
excluded
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Reference your notes from Evidence
Sealed Contracts
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Generally a sealed contract does not make
it “undisclosed” to the principal or the
third party
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Must check statutes
Contrast with traditional common law rule
Exceptions to Undisclosed Principal
Liability
How do each of these facts affect liability. Can we
be Oz hiding behind the curtain?
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Personality/Trust Avoidance
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Competitive Issues
Subterfuge issues, again
Kelly Asphalt Block Co. v.
Barber Asphalt Paving Co.
Warranty case
Using an agent to deal with a competitor; the agent is
the “ostensible principal” because th actual principal
feared his presence, if “disclosed”, would preclude
consummation of the transaction.
 Can the contract be invalidated for “mistake”?
 Is fraud or misrepresentation needed? Yes; why?
 What role did post-notice deliveries make in the
decision? Waiver?
 Contract law – meeting of the minds issues
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Finley v. Dalton
Real estate case / fraudulent representations /
intended uses
 What is the necessity of disclosure?
Was there fraudulent concealment? Why would it
matter?
Materiality of “misstatement or misrepresentation”
issues
How does purpose of buying the property matter?
 Silence v. Disclosure Issues
 Duty of Inquiry Issues
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Notes
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Read the notes following Finley to reconsider
that we are dealing with BOTH:
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The Undisclosed Principle to be Sued
And
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The Undisclosed Principal’s Rights to Sue the
Third Party
Unauthorized Transaction
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Explicit
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Implicit
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Assumed
______________
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Notice/Knowledge of Third Party
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Factual Inquiry
P v. A issues if P is found liable
Watteau v. Fenwick
Transfer of beerhouse ownership and exclusivity cigar
supplier agreement case
 “principal is resposnible for all the acts of the agent
which are within the authority usually confided to an
agent of that character, notwithstanding limitations, as
between the principal and the agent put upon that
authority.”
 Third party “knew nothing of the existence of the
principal.” – Reliance/Estoppel Issues
 In other words, draft with authorization limitations and
scream it out to the world.
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Restatement (Third) of Agency
Sec. 2.06
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“An undisclosed principal may not rely on instructions
given an agent that qualify or reduce the agent’s
authority to less than the authority a third party would
reasonably believe the agent to have under the same
circumstances if the principal had been disclosed.”
 Reliance Issues/Reasonable Expectations
 Does this give the agent too much discretion?
 How does it incentivize principal monitoring?
But, are not the efficiencies in agency that the principal
can delegate and how do these rules affect that?
Senor v. Bangor Mills
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Sole producer of nylon yarn case/shortage of
supply/secondary market issues
What were the issues of consent to buy and consent to
price as related to express or implied authority?
“no authority to but . . . except as specified and agreed
to from time to time . . .” – issue of authority and
responsibility of agent and how authority is controlled
Consider factual consent issue – how much discretion of
an agent
Senor v. Bangor Mills (cont.)
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“It is axiomatic that the existence of an agency relationship and, in large measure,
the area it covers are determined by whatever agreement the parties have made as
the circumstances under which the agent may and will act for the principal.”
“An undisclosed principal who entrusts an agent with the management of his
business is subject to liability to third persons with whom the agent enters into
transactions usual in such business and on the principal’s account, although contrary
to the directions of the principal.” Restatement of Agency sec. 195.
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From Notes: “An undisclosed principal may not rely on instructions given an agent
that qualify or reduce the agent’s authority to less than the authority a third party
would reasonably believe the agent to have under the same circumstances if the
principal had been disclosed.” Restatement (Third) of Agency sec. 206(2).
If you believe you are an agent, “look before you leap” – or at least ask and clarify authority;
same for principals in choosing an agent.
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Irrelevance of third party acceptance issue
Payments and Setoffs and
Oil Supply Company Inc. v.
Hires Parts Services Inc.
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Will not be tested but please understand
that it plays a role in the relevant
relationships and availability of remedies.
Concluding Remarks
Principals cannot hide behind agents
 Agents cannot hide behind principals
 Justifiable reliance controls re Third Parties
 Representations and Notice and
Misrepresentations played key roles in these
cases
Consider the importance of principal monitoring
to avoid liability
 Consider drafting issues to control agents
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