Legal Relationship: A Common Misconception in Legal Disputes

In both civil cases or contractual disputes, it is common to observe that one party will often attempt to bring “every person involved” into the lawsuit with the intent to make them jointly liable in the matter. However, the law does not impose liability merely because someone happens to be “connected” to the transaction or dispute. Legal liability arises only where there is a legal relationship between the parties concerned.

What is a Legal Relationship?

A legal relationship refers to a relationship recognized by law that creates correlative rights and duties between parties. In a contractual relationship, a legal relationship shall constitute when parties enter into a contract in which each acquires rights and obligations as stipulated therein. For instance, the buyer has the right to receive goods but also the duty to pay the agreed upon price, while the seller has the right to payment for the goods as well as the duty to deliver the goods undisturbed or undamaged to the other party.

Therefore, absent a legal relationship, no third party can be compelled to bear liability, regardless of the allegations.

Frequent Misconceptions

A frequent misconception is that, whenever multiple parties are involved in a transaction or series of works, all parties are automatically liable if disputes arise. This is not legally correct.

Example:
A principal contractor hires a subcontractor → the subcontractor hires a sub-subcontractor. If the subcontractor fails to pay the sub-subcontractor, this does not automatically render the project owner or the principal contractor liable. Liability depends strictly on whether a direct legal relationship exists between the project owner and the sub-subcontractor.

Ostensible agent: A Source of Confusion

An ostensible agent arises when a person contracts in his own name but in fact acts for the benefit of another (the principal).

Example:
Mr. A contracts with Mr. B in his own name, but the contract is actually intended for the benefit of Mr. C. If it can be proven that Mr. A acted as an ostensible agent, the counterparty (Mr. B) may claim liability either from the agent (Mr. A) or from the principal (Mr. C), but not from both concurrently. This principle is often misunderstood and leads to improper litigation.

Case Study

Our client, a company engaged in the sale and installation of refrigeration systems, was contracted by a foreign corporation to install equipment in a slaughterhouse in Thailand. The client engaged a subcontractor to perform part of the work, who in turn hired a sub-subcontractor.

Subsequently, a payment dispute arose between the subcontractor and the sub-subcontractor. The sub-subcontractor then sued both the subcontractor and our client, alleging that the subcontractor was acting as an ostensible agent for our client.

Crafting The Effective Defense Strategy

Our litigation team then submitted to the court that:

Our client never authorized nor manifested any intention to appoint the subcontractor as an ostensible agent.
The pleadings of the plaintiff failed to set out clear factual grounds establishing a legal relationship between the sub-subcontractor and our client.
Even if the subcontractor were deemed an ostensible agent, liability must be enforced against either the agent or the principal, not jointly against both.

The Findings of the court

The court found that our client had no direct legal relationship with the sub-subcontractor.

As such, our client could not be compelled to share liability with the subcontractor. The court further observed that the claim for payment of the sub-subcontractor should have been clearly directed against either the subcontractor or the client, not both concurrently. The court thus advised the sub-subcontractor to consider withdrawing its claim against our client.

As a result, the dispute was resolved within seven months, avoiding years of prolonged litigation and appeals.

Jurisprudential Insights

A legal relationship is the cornerstone of legal liability. Absent direct rights and duties, a third party cannot be held liable.
An Ostensible agent creates liability that is an alternative (against either the agent or the principal), yet not joint and several.
Vague or contradictory pleadings weaken a claim and may lead to dismissal or withdrawal.
An effective legal team, capable of discerning factual inconsistencies and articulating correct legal principles, can bring swift resolution, saving both time and expense.

Closing Remarks

This case underscores the principle that “not everyone connected is liable.” Liability arises only where a legal relationship exists. In cases of ostensible agency, liability must be pursued against one party, either the agent or the principal, not both simultaneously. Proper understanding of these legal doctrines not only mitigates risks but also ensures effective protection of the rights against such parties.

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