What is the extent of my liability as an agent, and how can I limit it?
Q. What is the effect of a warranty of authority? An architect, engineer or other professional may be liable if he makes representations to another either negligently or fraudulently that he has the authority of his client, when in fact he does not, to enter into contract on his behalf. If that other person P, subsequently relies on the good faith of the professional, A, and A’s truth in warranting his authority, and the P suffers physical or financial damage, P may be entitled to reimbursement from A. For example, if an architect provides a builder with quantities and assures him that they are correct, but the architect has no authority to bind his client in this manner, then the client may not be liable to the builder for errors in the quantities, but the architect may be. It is of no consequence that the architect might have been the agent of a client and have previously, but no longer, had the authority to act in the way he did, that he did not know that the authority had been rescinded due to the death of his client or for any other reason, or had no means of finding out that such was the case. Where such circumstances are known by the architect and the third party, and also that the former’s representation of authority was merely a question of law, the architect may not be liable for any loss suffered; nor will an action against him succeed if it is shown that the third party knew he had no authority from his client to act in a particular manner. Q. When and how may I be liable for fraud? If you make a statement in the process of arranging a contract which is a complete falsehood, unbeknownst to yourself, and the remark being made innocently with the intention that it should be acted upon, then you may not be liable if any damages result, provided that you had not spoken negligently or acted without due care. Neither will your client be liable if he too were innocent, there being no intention to commit a fraud or to obtain an unfair and wrongful advantage over the other party to the contract. In other words, you cannot add an innocent state of mind to an innocent state of mind and get as a result a dishonest state of mind. Conversely, where you act fraudulently, you are personally liable for damages, even though you were acting as your client’s agent and for his benefit. An agent cannot plead authority of his principal in defence, even though he did not know that what he was doing was tortious e.g. the infringement of copyright in a design. In other words, you cannot use your position as an excuse. All persons directly concerned in the commission of a fraud are to be treated as principals. No
party can be permitted to excuse himself on the ground that he acted as agent of another. The reason for this is that a contract of agency or of service cannot impose any obligation on the agent or servant to commit or assist in the committing of a fraud. Where the client has suffered loss because you acted fraudulently within the scope of your employment, as when you come to an agreement with the builder over what work is and is not to be included in the contract, you yourself receiving some ‘token of gratitude’ from the builder, the client may not only recover damages from you and the builder for such an act, but also dismiss you and rescind the contract he has with the builder as it is so fundamental a breach of it. Furthermore, the client may recover any money paid as a bribe or secret commission to yourself. You will not be liable if your client acts in a fraudulent manner; there is no doctrine of ‘respondent inferior’. Neither will you be personally liable for fraud if you innocently made a misstatement, even though your client or another agent knew that it was false. Nevertheless, if the client does not intervene to correct the fault, he will be liable, for the party with the guilty knowledge can himself be treated as being guilty of fraud.