Restatement (Third) of Agency · Section § 1-04
This section outlines the principal's liability in relation to a disclosed or partially disclosed agent's actions.
Source: Restatement Restatement (Third) of Agency § § 1-04
A principal is liable for the acts of an agent when the agent acts with actual authority or apparent authority granted by the principal.
This section confirms that if an agent has been given the authority to act on behalf of a principal, the principal is responsible for the agent's actions. This includes situations where the authority is not explicitly stated but is implied or perceived by third parties.
Actual authority includes both express and implied authority given by the principal.
Apparent authority arises when a third party reasonably believes the agent is authorized due to the principal's representations.
Illustration 1
If a company employee is authorized to sign contracts, the company is liable for those contracts even if the employee exceeds specific limits.
Illustration 2
If a real estate agent represents a seller, the seller is responsible for the agent's actions and representations made during the sale.
This case demonstrated that principals are bound by the agents' actions when the agent acted within the scope of their authority.
Understanding this section is crucial for parties engaged in agency relationships, as it outlines the extent of liability a principal holds for the actions of their agents. Businesses must ensure they clearly define the limits of their agents' authorities to mitigate potential risks.