Exam 29: Relationship With Third Parties

Under the Third Restatement, an agent representing an undisclosed principal is discharged from liability if the third party:

Sunset Properties, Inc. hires William to manage its 42-unit apartment complex. Nothing is said as to expenses. William purchases fuel to heat the apartments and arranges for a repairperson to do ordinary maintenance. William will be personally liable for these expenses, because he has no authority to incur them.

Southern Furniture Co. hired Chuck to drive a company truck and deliver furniture. Chuck had a spotless driving record and did well on his driving test. Belinda ordered a chair from Southern Furniture Co. and arranged for its delivery on her lunch hour. Belinda was at home when Chuck delivered the chair. After delivering the chair, Chuck brutally raped Belinda, causing severe physical and psychological injuries. Chuck was convicted in the criminal courts. During the trial it was revealed that Chuck had been in a mental institution for the criminally insane for two years because he had brutally assaulted his mother and other women. He also had a lengthy criminal rap sheet involving theft crimes. Belinda sought compensation for her physical and psychological injuries from both Chuck and Southern Furniture Co. in civil court. Discuss what the probable outcome of this case would be with regard to the issues of: (a) respondeat superior and (b) general tort liability of principals for the unauthorized acts of their agents.

In general, an undisclosed principal and the third party to a contract are contractually bound if the agent acts within the scope of his actual authority in making the contract.