This results even if, having actual authority, the Agent in fact acts fraudulently for his own benefit, unless the Third Party was aware of the Agent's personal agenda. If it is clear that the Principal gave actual authority to Agent, all the Agent's actions falling within the scope of the authority given bind the Principal. This may be expressed as a contract or implied because what is said or done make it reasonably necessary for the person to assume the powers of an Agent. This arises where the Principal's words or conduct reasonably cause the Agent to believe they have been authorised to act. The person acting as an Agent represents they are acting on their own behalf and does not disclose the existence of the agency relationship.įor these purposes, the Principal must give, or be deemed to give, the Agent authority to act. Borrowing parallel concepts from Tort and Equity, this means that the Principal owes the Third Party a duty of care to ensure that the Agent is honest and efficient, and that a Principal is estopped from denying that an Agent was authorised to act as they did.Īt the time of the transaction made by the Agent with the Third Party, the latter knows that the person he is dealing with is acting as an Agent and also knows the Principal’s identity.Īt the time of the transaction, the Third Party knows that the person he is dealing with is acting as an Agent but does not know the Principal’s identity. The result is a form of strict liability in which the legal consequences of an Agent's acts or omissions are attributed to a Principal even when the Principal was without fault in appointing or supervising the Agent.
After all, the Principal selects the Agents and has the power to control their actions both through express instructions and incentives intended to influence their behaviour which will include laying down routines for how Agents should handle information, and the extent to which Agents will be rewarded for transmitting information of commercial value. Since the purpose of the law is to offer protection to Third Parties who have acted in good faith, it is reasonable to allow them to believe that, in most cases, the Agents have fulfilled this duty. This rule in favour of imputation relates to the duties an Agent owes a Principal, in particular the Agent's duty to communicate material facts to the Principal. Consequently, the Principal cannot exploit ignorance to their advantage by instructing the Agent to withhold key information or by appointing an Agent known to be secretive. Indeed, if not for imputation, there would be a perverse incentive to conduct business through Agents rather than personally. But, if it turned out badly, the Principal could disavow it. For example, if the particular deal turned out well, the Principal could adopt the transaction.
If Principals were allowed to hide behind their agents' own ignorance, mistakes or failures to communicate, a Principal could, by using an Agent, achieve a better result than if they acted personally. But, for the purposes of ascribing legal responsibility to the Principal, when the Agent acts with actual or apparent authority, all the Agent's knowledge will be imputed to the Principal. Agents must, of necessity, be allowed some degree of discretion in the conduct of routine transactions. In the majority of cases, it is impossible for agents to seek specific authority for every deal or detail within a deal.
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