Breach of warranty of authority PDF

Preview

Summary

This document provides: Breach of warranty of authority, Collateral contract, and The basis and nature of liability....

Description

Collateral contract

in a typical agency relationship, an agent will effect a contract between his principal and a third party. The agent is not a party to this contract and is not usually liable on it. In certain circumstances, however, the courts may hold that a separate collateral contract exists between the agent and the third party, upon which either party can be liable.

Breach of warranty of authority

An agent, through words or conduct, may represent that he has authority to act on behalf of another person.

A third party may rely on this representation and act upon it. In such a case, the agent is deemed to have warranted that he has the level of authority that he represented to have—this is known as the agent’s warranty of authority.

If it transpires that the agent did not in fact have the authority that he represented to have, then the agent will be in breach of this warranty of authority, and the third party may commence proceedings against him and obtain damages.

The basis and nature of liability

For a time, the courts struggled to articulate a consistent basis for the imposition of liability for breach of warranty of authority, with some cases basing liability in contract whilst others based it in tort. Whilst liability can be tortious where the agent’s representation is fraudulent or negligent, liability for breach of warranty of authority is usually based in contract.

By representing that he has authority, the agent brings into existence a unilateral65 collateral contract between himself and the third party, under which he impliedly promises that the authority that he professes to have actually exists.

A consequence of liability being based in contract is that liability is strict (i.e. proof of fault is not required). An agent will breach his warranty of authority simply by representing a level of authority that does not in fact exists.

The warranty of authority will not be implied where the third party knew, or ought to have known, that the agent lacked authority....