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The Principal’s Liability on the Contract 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?

In agency law, the liability of principals and agents depends on the authority granted to the agent and the knowledge of third parties involved in the transactions. In this scenario, Crash appoints Steve as his agent to handle certain contracts and explicitly restricts Steve’s authority to endorsement deals with Bob. Despite this instruction, Steve signs a contract for Crash to attend a birthday party, which exceeds his authorized scope unless deemed within a scope of apparent authority. The key issue is whether Crash is liable for contracts entered into by Steve without explicit authority, especially when third parties are unaware of any restrictions.

Analysis of Crash’s Liability

Crash’s liability on the contracts depends on the nature of the authority given to Steve—either actual authority (express or implied) or apparent authority. Actual authority exists when the principal explicitly or implicitly grants the agent the power to act on their behalf. Here, Crash explicitly instructed Steve to only make endorsement deals with Bob, which limits his authority regarding other contracts. However, unless the scope of authority includes unlimited or implied authority to make performance contracts, Crash might not be liable for agreements outside this scope.

In the situation where Steve signs a contract with Jimmy for a performance at a bar, the key question is whether Steve had the authority to do so. Since Crash only authorized endorsement deals with Bob, and there is no indication that performance contracts are within the implied authority, Crash may not be liable unless Steve’s authority was considered broad enough to include such performance contracts. If Steve’s actions are deemed to fall within the apparent authority—meaning Crash’s conduct led third parties to believe Steve could bind Crash—Crash might still be liable.

Regarding Fred’s endorsement contract, Fred was unaware of any restrictions and was dealing with an agent who had apparent authority. Under the doctrine of apparent authority, if Crash’s conduct or communications led Fred to believe that Steve had the authority to enter into endorsement deals broadly, Crash could be held liable. However, because Crash explicitly restricted Steve’s authority and Fred was unaware of any limitations, Crash’s liability here is less certain and likely limited or nonexistent if the restrictions are proven.

Analysis of Steve’s Liability

Steve’s liability depends on whether he exceeded his authority and whether he disclosed his agency status. Since Steve signed a contract with Jimmy for a performance beyond his limited endorsement authority, he might be liable for acting outside his actual authority unless the third party (Jimmy) reasonably believed he had authority, or Steve’s conduct implied authority. Because Jimmy knew Steve was an agent but not whom he represented, he might have reasonably believed Steve had authority to make such contracts, making Steve personally liable for any breach or unauthorized acts.

Similarly, in the case of Fred’s endorsement contract with no disclosure of agency, Fred’s lack of knowledge regarding Steve’s authority complicates liability. If Fred believed Steve had authority or if Steve’s conduct created apparent authority, Steve might be personally liable. Otherwise, Crash could be liable if Fred was misled by the conduct of Crash or Steve.

Legal Principles and Conclusions

In conclusion, Crash’s liability hinges on whether Steve’s actions can be viewed under actual or apparent authority. Unless the contracts fall within the scope of authority granted or are justified by apparent authority, Crash may not be liable for contracts made outside these limits. Steve’s liability depends on whether he acted within his authority, whether he disclosed his agency status, and whether third parties reasonably believed he had authority to bind Crash. Particularly, the contracts with Jimmy and Fred raise issues of unauthorized acts and undisclosed agency, which could lead to personal liability for Steve or liability for Crash depending on the circumstances and third-party perceptions.

References

• Farnsworth, E. A., & Farnsworth, E. M. (2015). Farnsworth on Contracts. Aspen Publishing.
• Restatement (Third) of Agency, American Law Institute (2006).
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• Beatty, J. F., & Samuelson, S. S. (2017). Business Law and the Regulation of Business. Cengage Learning.
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