A third party who deals with a person claiming to be an agent

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Recognized CPD Activities. The same applies to the case where the agent has been granted authority of limited scope and acts exceeding its authority. Illustration 1. Principal B authorises agent A to buy on its behalf a specific quantity of grain but without exceeding a certain price.

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A enters into a contract with seller C for the purchase of a greater quantity of grain and at a higher price than that authorised by B. Today both Anglo-American and continental courts permit the legal consequences of an agency relationship to result even when the principal is not willfully responsible for the appearance of authority. Similar situations can also lead to opposite approaches in some matters. Here also it depends in the first instance upon whether the principal or the third party must bear the risk, since in general an agent acting without authority is not personally responsible.

The question arises as to whether and to what degree the authority of the agent to bind his principal is affected by the death of the principal. According to the traditional English view Campanari v. In contrast, the continental legal systems have evolved less doctrinaire solutions to this question based more on considerations of protection of the concerned parties. Article of the French Civil Code even goes so far as to treat all transactions of an agent who acts in ignorance of the death of his principal as valid.

The more balanced solution offered by the courts on the Continent, however, is to make the good faith of the third party the determinative factor, since in the usual case the real interest of the agent is simply to avoid any personal obligation. The hidden principal is not concerned by the effects of the transaction at all. In contrast to the continental view, when an agent contracts in his own name without disclosing his principal, the common law allows the undisclosed principal under certain conditions to sue or be sued by the third party.

Such conditions include that the agent had power to make the contract and that the parties eventually learn their respective identities.

Historical development

This wider concept of agency has no counterpart in continental legal tradition. The use of this basic doctrine in the common-law countries gives rise to questions regarding the identity of the undisclosed principal, the election of remedies that must be made by the third party, the extent of the respective liabilities, the right of the third party to setoff the amount of its own damages from any sum that might be awarded it , etc. A solution to these conflicts of interests must in final analysis rest upon an evaluation of the extent to which the relationship between the undisclosed principal and the agent should influence the contract made by the agent with a third party.

It is still a characteristic feature of the French Civil Code and of other codifications following its model for instance, those of Spain, Portugal, Romania, and Brazil and other Latin-American countries that agency is not recognized as an isolated institution. These legal systems conceive of agency only as a subordinate instance or external effect of mandate.

Overview of the Privacy Act of 1974

The result is that they consider the power to act as an agent as a mere part of mandate and do not have a general concept of authorization as a distinct legal institution. In contrast to this approach, the more modern codifications of Scandinavia and of such countries as Germany, Switzerland, Japan, Poland, Italy, and Greece draw a sharp distinction between the unilateral organizational act on the part of the principal authorizing the agent to act and the internal contractual relations between the principal and the agent. This distinction, one of the major achievements of 19th-century European legal scholars, is also followed by modern English and American legal writers, even though the classical concept of mandate is unknown in the common law.

The insight that authority can exist independent of the underlying contract, and even without it, opens several new practical possibilities. For example, it explains the rule that the authorization of a minor can be valid if he is in fact mentally and physically capable of transacting business, even though the minor is not competent himself to conclude the internal contract of employment for himself that establishes fiduciary duties.

Thus, the minor is not subject to the liabilities ex contractu from or out of a contract of an adult agent although he is authorized.

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A few countries still prescribe a special form for every authorization. According to the Russian and Brazilian codes, for example, an authorization must be given in written form. In spite of this express statutory language, German courts do require compliance with formalities in certain extreme situations under pressure of practical necessity, in order to avoid frustration of the aim of the formal requirement in the principal contract. This attitude thereby approaches the English rule according to which, in most cases, no particular formalities are required, even if the agent is to make an agreement for the sale or lease of land, an agreement that must be in writing.

More attention to the connection between the authorization and the act of the agent appears in provisions like that of the Greek Code of , which says that the authorization must take the form required for the legal transaction for which the authority is issued unless the particular circumstances lead to a different solution. The consent of the principal may be given expressly by a written power of attorney or implied by his conduct, such as an established course of dealing.

Generally, the formation of the contract of agency requires no formal ritual. The basic principle of agency is that the agent, in fulfilling his obligation, concludes legal transactions on the part of his principal.

Agent Liability to Third Parties

When these transactions result from the authorized legal acts of the agent, the result is that only the principal is bound by them. This general rule that the agent does not become involved may change in the exceptional case of an authorization conferred for the benefit of the agent. Thus, such an agent has been held personally liable by German courts for mistakes made in the course of contract negotiations culpa in contrahendo.

Continental European codifications generally do not treat the contract of agency as a separate type of contract. The standards governing the principal—agent relationship must therefore be derived from the general legal rules governing the mandate, the contracts for performing work, employment contracts, and partnership contracts, together with the more specific rules e. Differing from this general approach, the common law has recognized a number of more specific rights and duties between principal and agent. The primary duties of the agent to the principal are those of care, obedience, and loyalty—similar to those of a trustee.

If an agent has received money or other property from or for his principal, he must account for it. An agent also may not normally delegate his task to a subagent, since the principal is assumed to have placed his confidence in the person of the agent and not in a subagent. Finally, the agent also has the abstract duty of conducting himself so as not to bring disrepute upon the principal. Continental European law classifies the undertaking of transactions in the place of another as agency only when the transactions are legal.

It excludes other acts, including unlawful acts, so that, when dealing with the law of agency, the rules concerning the liability of a master for the torts of his servant do not come into consideration. On the other hand, consequences flowing from an agency relationship rest on the idea that an authorized person performs legal acts within his competence not on his own behalf but for the principal. This doctrine of respondeat superior arose from the belief that, since the head of the household or of the economic enterprise exercises control, he should pay for the harm caused by its members.

Generally, this includes conduct that is not a serious departure from that authorized, both in manner and space, by the master and that is actuated at least in part by a motive to serve the master.


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For example, a principal is not liable for the harm caused by the negligent physical conduct of his nonservant agent. The chief example of such conduct is tortious misrepresentation by the agent. With the termination of actual authority, questions often arise as to whether the authority was usual, was special or general, arose out of necessity, or was also apparent. Questions concerning the external and internal agency relationships create special problems, particularly in this area.

It may be that the principal can terminate the real authority but not the apparent authority toward a third party. In theory, the principal may revoke the real authority of his agent or the agent may terminate his authority by renunciation or revocation at any time. If the revoking party has previously agreed not to do so, the revocation remains valid, but the other party may maintain a breach of contract action against him.


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The agency relation can also terminate by operation of law in case of death, insanity, bankruptcy , or war, particularly where the principal is concerned. The question then arises as to whether the unknowing agent is protected by the law, since he might be personally liable on the contract. We welcome suggested improvements to any of our articles.

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