LAW 561-002 – Business Associations

Liability in Contract


Authority
Ratification
Estoppel
Agent Liability to Third Parties

If an agent contracts with a third party on behalf of a disclosed principal, the agent is not liable on the contract absent a contrary agreement. R3A § 6.01(2). However, if the principal is undisclosed or only partially disclosed, the agent is normally liable on the contract. R3A § 6.02, R3A § 6.03.

An agent who purports to act on behalf of a principal impliedly warrants that he has authority unless he disclaims such a warranty or the third party knows he lacks authority. R3A § 6.10.

Third Party Liability to Principals

If an agent acting for a disclosed or partially disclosed principal has authority, the third party is bound as well as the principal unless the contract provides otherwise. R3A § 6.01(1). R3A § 6.02(1).

If the principal is undisclosed and the agent has authority, the third party is bound to a contract unless:

  1. the principal's existence is fraudulently concealed, or
  2. the third party is induced to enter into the contract by a representation that the agent was acting for himself and the agent or principal has notice that third party would not have dealt with the principal.

R3A § 6.11(4).

An undisclosed principal cannot require a third party to accept its performance instead of its agent's or render performance to it instead of its agent if this substitution substantially changes the performance contracted for or the nature of the third party's obligation. R3A § 6.03.