Restatement (Third) of Agency · Section § 3-03
This section outlines the conditions under which a principal is bound by contracts made by an agent.
Source: Restatement Restatement (Third) of Agency § § 3-03
A principal is bound by a contract made by an agent if the agent acts within the scope of their actual authority or apparent authority.
This section explains that a principal is legally obligated to honor contracts entered into by the agent, as long as the agent was acting within their allowed authority. This includes situations where the agent appears to have authority that the principal has not explicitly granted but has allowed to be perceived.
The principal's liability is based on the agent's authority—either actual or apparent.
Apparent authority can arise from the principal's representations to third parties.
Illustration 1
If a company executive is given authority to sign contracts, any contracts signed within that authority bind the company.
Illustration 2
If a business owner allows an employee to act as if they have authority to negotiate deals, the owner may be held liable for the employee's agreements.
This case highlighted the distinctions between actual and apparent authority, reinforcing the principles set out in § 3-03.
Understanding this section is crucial for parties engaged in business to determine liability in contract disputes. It helps outline the bounds of authority agents may exercise, protecting both principals and third parties.