How might an agent still create liability for a principal even after the agency has been terminated?
The correct answer and explanation is:
An agent may still create liability for a principal after the agency has been terminated in certain situations. This can happen under specific conditions, such as when the agent acts beyond the scope of authority or when the principal has not properly notified third parties about the termination.
First, if the agent continues to act in the same capacity after the agency ends, even without actual authority, the principal may still be liable if third parties believe the agent still has authority. This is known as “apparent authority.” Apparent authority occurs when the principal’s conduct or representations give the impression that the agent still has the power to act on their behalf. If the third party reasonably relies on this appearance, the principal could be bound by the agent’s actions.
Second, if the agent’s actions are deemed to be in the scope of the agent’s prior duties, and the agent was acting with the implied consent of the principal, the principal could still be held liable even after the termination. This can apply in cases where the agent is required to wrap up existing transactions or obligations that were in place before termination.
Lastly, if the agent acts negligently or fraudulently after termination and causes harm to third parties, the principal might still be held liable if it can be shown that the principal did not take appropriate steps to inform others of the agency’s end or to prevent such actions. In some cases, this could result from a failure to adequately communicate the termination to clients or customers who had previously dealt with the agent.
Therefore, even after the formal end of an agency relationship, the principal must take steps to ensure that the agent’s authority is properly revoked and that third parties are informed to avoid continued liability.