Agency Contract

The action for breach of implied warranty of authority can only be brought by the third party, and not by the principal. If the purported principal suffers loss in this situation he must take action against the agent either for breach of their agency contract or if there is no contract between them then in some other area such as the tort of negligence. The agent is liable for his breach of implied warranty of authority whether he has acted innocently, negligently or fraudulently. For example, where his authority has been terminated without his knowledge such as by death or mental disorder of the principal, even though the agent will most likely have been of a reasonable belief that he had his professed authority, he will, nonetheless, still be liable. The measure of damages for breach of warranty of authority is the actual loss sustained. A typical example of breach of warranty of authority in a shipping business context could arise when an agent (broker) transmits his principal’s firm offer incorrectly to the other party.  If it is the broker’s own mistake then he will be liable for breach of warranty of authority with negligence.  The incorrect authority may, however, have been passed to the broker by another (intermediate) broker. In such a case the broker passing this to the other party will have been acting in all good faith but will, nonetheless, be liable.  This is referred to as breach of warranty of authority without negligence.