CHAPTER 32

THE DUTIES AND LIABILITIES OF THE AGENT TO THE THIRD PERSON

§ 254. (Agency, Sec. 70.) General statement.

(Note: The agent is not liable to the third person: Where (1) he acts pursuant to his authority and (2) makes the contract in his principal's name; and commits no tort.)

A. Liability of agent in contract.

B. Liability of agent in tort.

A. Liability of Agent in Contract.

(a) The agent warrants his authority.

(b) Agent having authority may bind himself.

(a) The Agent Warrants His Authority.

§ 255. (Agency, Sec. 71.) Warranty of authority by agent.

Case 251. Thilmany v. Iowa Paper Bag Co. and Wm. Daggett, 108 Iowa, 357.

Facts: Suit by Thilmany to recover the purchase price of a carload of paper shipped to the Iowa Paper Bag Co. The paper was shipped under a contract of purchase by the Bag Company, and a guaranty of payment signed "Iowa National Bank, by William Daggett, V. P." It is sought to hold Daggett on the theory that he warranted his authority, the bank having no power under its charter to make such a contract.

Point Involved: Whether an agent is responsible on a contract made by him in excess of his actual or apparent authority; limitations on the doctrine. Specifically, whether an agent who seeks to bind a corporation

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on a contract it has no power under its charter to make, is personally liable.

DEEMER, J.: "Plaintiff claims that defendant Daggett is liable on the written guaranty for two reasons: First, because it is his individual contract, was intended to bind him as well as the bank, and was so received and acted upon by appellant; second, for the reason that, if he intended said guaranty or letter of credit to be the obligation of the bank only, he was acting beyond the scope of his authority as vice-president of the bank, and failing to bind the bank, is himself liable; as an agent who attempts to bind his principal by a contract he had no authority as such agent to make.

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"As to the second proposition, the rule has been broadly stated over and over again that when an agent contracts in excess of his authority, or acts without authority, or assumes to have authority when he has none, or for any reason fails to bind his principal, he is himself bound. Winter v. Hite, 3 Iowa, 142; Allen v. Pegram, 16 Iowa, 163; Andrews v. Tedford, 37 Iowa, 314; Lewis v. Tilton, 64 Iowa, 220. That this is the general rule must be conceded, and, as applied to the facts of the cited cases, it is correct. But like nearly every other general rule, it is subject to exceptions, some of which we will notice. The reasons generally given for the rule are: First. That, as the agent assumes to represent a principal, he cannot be heard to say that he had no authority, or that there was in fact no principal to be bound; for, if he assumes to represent another, he impliedly warrants that there is such another, and that he has authority to represent him. If, then, there is no principal, or the agent has no authority to act for him, an action will lie for deceit or misrepresentation. Second. The law assumes that the contract was intended to bind someone, and, if the principal is not bound, the contract must be that of the agent. This last rule is generally applied to executed contracts. In such cases

action will lie for benefits received by the agent. Some cases go to the extent of rejecting all parts of the contract relating to the obligation of the principal, and then treat it as the personal contract of the agent. As illustrating this rule, see Byars v. Doors, 20 Mo. 284; Woodes v. Dennett, 9 N. H. 55; Twerilliger v. Murphy, 104 Ind. 32 (3 N. E. Rep. 404). A third reason for the rule is that the agent impliedly warrants his authority to act for his principal, and if he has no such power, an action lies for breach of warranty. Now, it is apparent, that if the party with whom the agent contracts has notice of the facts relating to the authority of the agent, and is as fully advised as to his authority as the agent himself, there can be no action for deceit. And so the text writers have generally stated this as an exception to the general rule. Mechem on Agency, at sections 545 and 546, thus states the law: 'Sec. 545.

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Of course if the other party knew, or by the exercise of reasonable care might have discovered, the want of authority, he cannot recover. This implied warranty by the agent of his authority must ordinarily be limited to its existence as a matter of fact, and not be held to include a warranty of its adequacy or sufficiency in point of law.' 'Sec. 546. Where Agent Discloses All the Facts Relating to His Authority. Where, however, the agent, acting in good faith, fully discloses to the other party at the time all the facts and circumstances touching the authority under which he assumes to act, so that the other party from such information or otherwise, is fully informed as to the existence and extent of his authority, he cannot be held liable. It is material, in these cases, that the party claiming a want of authority in the agent should be ignorant of the truth touching the agency. If he has full knowledge of the facts, or of such facts as are sufficient to put him upon inquiry, and he fails to avail himself of such knowledge, or of the means of knowledge reasonably accessible to him, he cannot say that he was misled, simply on the ground that the other assumed to act as agent without authority. Of course,

if the agent conceals or misrepresents material facts, to the detriment of the other party, he cannot claim exemption.' Judge Story, in his valuable work on Agency, (section 265) says: "This doctrine, however, as to the liability of the agent, where he contracts in the name, and for the benefit of the principal, without having due authority, is founded upon the supposition that the want of authority is unknown to the other party, or if known, that the agent undertakes to guarantee a ratification of the act by the principal. But circumstances may arise in which the agent would not or might not be held to be personally liable, if he acted without authority, if that want of authority was known to both parties or unknown to both parties.' Abundant authorities are cited by each author in support of these propositions. The same thought is equally applicable to the third reason above given for the general rule. And it may be further said that the implied warranty of the agent does not relate to the power of the principal to enter into the particular contract. He simply covenants that he has authority to act for his principal, not that the act of the principal is legal and binding. Hence it has been justly said that the contract must be one which the law would enforce against the principal, if it had been authorized by him, else the anomaly would exist of giving a right of action against an assumed agent for an unauthorized representation of his power to make the contract, when a breach of the contract itself, if it had been authorized, would have furnished no ground of action against the principal.

[The court decides that on neither of the grounds contended for, is Daggett liable. The party dealing with Daggett as Vice President of the bank was bound in law to know that Daggett as such Vice President could not bind the bank on a commercial guarantee, the same not being legitimate banking business.]

Question 251: (1) State the facts in this case, the specific question presented and the Court's decision.

(2) State in your own words the rule as to the liability of an agent to a third person when that third person cannot hold the principal because of lack of real or apparent authority. On what reasons is the agent so held?

(b) Agent Having Authority to Bind Principal May Instead Bind Himself.

§ 256. General statement.

§ 257. Principal undisclosed.

§ 258. Agent bound; sealed instruments.

§ 259. Agent bound; negotiable paper.

§ 260. Agent bound; other contracts.

§ 261. Agent bound; no definite or responsible principal.

§ 256. (Agency, Sec. 72.) General statement.

(Note: An agent may of course, notwithstanding his authority to bind his principal, bind himself, either because he is careless, or because he is willing to contract on his own credit, or because he does not disclose his principal. See following sections.)

§ 257. (Agency, Sec. 73.) Case 252.

Principal undisclosed.

Wheeler v. Reed, 36 Ill. 81.

Facts: Suit by Reed and others against Wheeler to recover damages arising out of an alleged breach of warranty in a sale of flour by Wheeler. Among other defenses, Wheeler contended that he was not representing himslf but a principal. Plaintiffs testify that no principal was named or known at the time, though it was known Wheeler was a broker. The transactions were oral.

Point Involved: The liability of an agent as principal where he does not disclose his principal.

"The next question raised by the appellant is, whether the defendant made the warranty to bind himself, or on behalf of a principal.

"We admit the rule to be as stated, where an agent makes a contract and discloses at the same time his prin