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VAIDA JĖČIENĖ∗

Vytautas Magnus University,


School of Law

IS A PRINCIPAL BOUND BY A CONTRACT


IF THE AGENT HAS EXCEEDED HIS AUTHORITY?

Constantly increasing competition at both national and international levels,


rapid changes of the business environment, dispensation of activities as a result of
regional economic unions as well as globalization force people to implement devices
that would enable them to spread and enlarge their operations beyond the limits of
their own presence. Agents can be used as one of the means to broaden the scope
of persons’ activities, thus, facilitating to accomplish the increasing demands of the
modern society. The agent can be appointed to perform many and varied duties, all
or part of which may consist of making contracts on behalf of another person.
Common law countries as well as the civil law countries provide legal rules that
govern the agency relationship. Although certain legal aspects of agency in common
law countries differ from the ones in the civil law countries, the legal rules governing
agency strive to achieve the same purpose – to provide the legal framework to
persons who are involved in agency relationship to perform activities as well as to
impose rights and obligations that are associated with such actions.
Due to the agency relationship the person (the principal) on whose behalf the
agent acts acquires many positive results, nonetheless, legal difficulties may
inevitably arise out of the relationship between the principal and the third person
who deal through the agent. In cases where the agent who contracts on behalf of
the principal but fails to comply with the requirements of the principal and makes a
contract in excess of his authority, many controversial issues should be considered:
who carries legal responsibility for the unauthorized acts of the agent; whether the
principal’s legal commitments alter as a result of the unauthorized acts of his agent,
who is responsible to the innocent third party; does the principal have a duty to
assume the legal responsibilities of such contract, etc. As there exist so many
conflicting interests involved, the legal solution to the stated issues is not always
easy to achieve.
Thus, the purpose of this article is to analyze the contractual liability of the
principal to the third party when the agent, who acts on behalf of (in the name of)
the principal, exceeds his authority in making a contract with the third party. To
demonstrate how different legal systems examine the issue, the United States, the
United Kingdom, and Lithuania are chosen. The hypothesis is that the principal is not
bound by the contract entered on his behalf (in name of the principal), if the agent
exceeds the scope of authority, unless the principal ratifies the contract.
To confirm the stated hypothesis:


VAIDA JĖČIENĖ. Address: Vytautas Magnus University, School of Law, Daukanto 28, Kaunas
44246, Lithuania. E-mail: Vaida_Jeciene@fc.vdu.lt
Vaida Jėčienė Is a Principal Bound by a Contract, if the Agent has Exceeded His Authority ? 51

1) The agent’s power to affect the legal position of the principal will be
analyzed.
2) Applicability of the general provisions that govern the contractual
liability of the principal in relation to the excess of the agent’s authority will be
determined.
3) Doctrine of ratification will be discussed.

The analysis is restricted to the general legal provisions and principles that
govern contractual liability of the principal where the agent performs unauthorized
act. Therefore, the specific rules that are applicable to partnerships, legal persons,
and procure are beyond scope of this article.

1. Authority of the Agent as a Basis to Bind the Principal by the


Contract (The United States of America)

Agency is a consensual relationship where the parties (the principal and the
agent) mutually agree that the agent will act on behalf of the principal and will be
subject to the principal’s control.1The agent is the fiduciary of the principal and is
obliged “[t]o act primarily for the benefit of another in matters connected with his
undertaking”.2 As the fiduciary, the agent is also responsible to obey instructions of
the principal.3 Where the agency relationship is formed, “any person possessing
legal capacity to give legally operative consent can be a principal”.4 There are
basically no limitations imposed on who can act as the agent, “[s]ince an agent does
not contract on his own behalf he need not possess full contractual capacity”.5 It is
legal capacity of the principal that is controlling in the agency relationship, thus,
persons who have no legal capacity to act for themselves, can be appointed as
agents. It depends on the principal whether he exercises care in choosing a person
that the principal intends to act through. Under the law of agency, the agent who
contracts on behalf of the principal with the third party does not become a party to
that contract – the contract binds only the principal and the third party.6 So, if the
agent makes the contract with the third party on behalf of the principal, does this
mean that the principal automatically becomes liable for that contract?
The general rule is that the principal is bound by any contract formed on
behalf of the principal by his agent only when principal granted authority so to act.7
In other words, the principal is liable to the third party for the contract, if the agent
was authorized to enter into the contract for the principal. Before the principal can
be exposed to contractual liability, it should always be considered whether the agent
was granted authority to form the contract. Secondly, it should be looked whether

1
The Restatement (Second) of Agency (1958), § 1.
2
Ibid, § 13, comment a.
3
Ibid, § 14, comment a.
4
Harold Gill Reuschlein, William A. Gregory, The Law of Agency and Partnership, Second
Edition (St.Paul, Minn.: West Publishing Co, 1990), p. 21.
5
K.R. Abbott, N. Pendlebury, Business Law, Fifth Edition (London: DP Publications LTD, 1991),
p. 423.
6
Ibid, p. 423.
7
A. James Barnes, Terry Morehead Dworkin, Eric L. Richards, Law for Business, Fourth Edition
(Homewood (IL), Boston (MA): Richard D. Irwin, Inc, 1991), p. 355.
International Journal of Baltic Law
Volume 1 No. 3 (June, 2004) 52

the agent acted within the scope of his authority. Thirdly, it might be important to
determine whether the principal is disclosed, partially disclosed or undisclosed.
The principal may grant actual (real) authority to the agent or the agent may
act under apparent authority. Actual authority is defined in the Restatement
(Second) of Agency as “[t]he power of the agent to affect the legal relations of the
principal by acts done in accordance with the principal’s manifestations of consent to
him”.8 In case of actual authority, the principal communicates his consent to the
agent that the agent is authorized to act on behalf of him.9 Actual authority may be
express or implied.10 The principal grants express authority to the agent if “[t]he
principal has made it clear, in express and explicit language, to the agent that he is
quite willing or desires that the act under scrutiny be done”.11 So the principal
expressly specifies extent of the agent’s power. This can be done orally or in writing,
unless a specific form is required by law.12
Another type of actual authority is implied authority. When the principal grants
express authority, it is usually implied that “[a]uthority to conduct transaction
includes authority to do acts which are incidental to it, usually accompany it or
reasonably necessary to accomplish it”.13 Thus, the scope of the agent’s implied
authority is limited to such acts that are incidental to the transaction, customary
done in the course of the transaction or necessary to achieve the required result.
Moreover, the agreement itself may exclude certain acts of the agent that would
otherwise be considered as authorized under the implied authority.14 It should be
noted that authority of the agent can also be implied where the agent customary
exercises some power that is not expressly granted to him by the principal and the
principal does not object to such practice;15or when the agent is given the position, it
might be implied that the agent has authority to perform the act.16
The agent may also act under apparent authority and make the principal liable
for the contract formed on his behalf. Apparent authority is established by words or
conduct of the principal that causes the third party reasonably to believe that the
third party is dealing with the agent when, in fact, it is not.17 Apparent authority may
be created where the agent is no longer the agent but the principal fails to notify
third persons of termination of the agency relationship, it may arise from customs of
trade;18 or it may be created by appointing the agent to a position.19 As apparent
authority is created by words or conduct of the principal, it cannot arise from words
or conduct of the agent alone.20 It should also be taken into consideration that
apparent authority cannot be established if it is unreasonable for the third party to

8
See note 1: The Restatement, § 7.
9
Ibid, § 26.
10
See note 4:Harold Gill Reuschlein, p. 37.
11
Ibid.
12
Ibid, p. 35.
13
See note 1: The Restatement, § 35.
14
Ibid.
15
See note 4: Harold Gill Reuschlein, p. 42.
16
Lawrence S.Clark, Peter D.Kinder, Law and Business The Regulatory Environment, Third
Edition (New York, St.Louis, San Francisco: Mc Graw-Hill, Inc, 1991), p. 274.
17
See note 1: The Restatement, § 27.
18
See note 7: A. James Barnes et al., p.357.
19
See note 4: Harold Gill Reuschlein, p. 61.
20
See note 7: A. James Barnes et al, p. 357.
Vaida Jėčienė Is a Principal Bound by a Contract, if the Agent has Exceeded His Authority ? 53

believe that the agent has authority to act.21 Duty to determine the extent of the
agent’s authority is imposed on the third party irrespective of whether the agent has
actual or apparent authority.22
In sum, both actual and apparent authority of the agent is equally effective to
make the principal liable for the contract.23 However, even when authority of the
agent can be established, it is crucial to determine the scope of authority under
which the agent acts, because he is empowered to affect the principal’s legal position
where the agent acts within the limits of authority.24

1.1. Contractual Liability of Disclosed, Partially Disclosed, and Undisclosed Principals

The principal is disclosed “[i]f at the time of a transaction conducted by an


agent, the other party thereto has notice that the agent is acting for the principal
and of the principal’s identity”.25 The disclosed principal is a party to a contract
entered on his behalf by the agent, unless otherwise indicated.26 Thus, the disclosed
principal is bound by a contract where his agent’s authority is established. In the
case of the disclosed principal the third party relies either on actual authority or
apparent authority of the agent.27 When the principal is partially disclosed, “[t]he
other party has notice that the agent is or may be acting for a principal but has no
notice of principal’s identity”.28 The agent only indicates his status as an agent.29
Where the principal is partially disclosed and the agent forms the contract on behalf
of the principal, the principal is liable for the authorized acts of his agent, unless
otherwise agreed.30 The third party can rely on either actual or apparent authority of
the agent. The principal is undisclosed, “[i]f the other party has no notice that the
agent is acting for a principal”.31 This means that the third party is aware neither of
the name of the principal nor of his identity. However, under the law of agency, the
undisclosed principal is liable for the authorized acts of the agent.32 Still, as the third
party deals solely with the agent without any knowledge about the agency
relationship, there can be no apparent authority established.33 Whether the principal
is disclosed, partially disclosed or undisclosed is determined at the time of the
transaction.34

1.2. The Principal’s Contractual Liability Where the Agent Exceeds His Authority.
Ratification

21
See note 4: Harold Gill Reuschlein, p.64.
22
See note 7: A. James Barnes et al., p. 358.
23
See note 4: Harold Gill Reuschlein, p.34.
24
Edward S Pearson, Law for European Business Studies (UK: Pitman Publishing, 1994), p.
154.
25
See note 1: The Restatement, § 4 (1).
26
See note 4: Harold Gill Reuschlein, p. 13.
27
See note 7: A. James Barnes et al., p. 358.
28
See note 1: The Restatement, § 4 (2).
29
See note 7: A. James Barnes et al., p. 367.
30
See note 4: Harold Gill Reuschlein, p.16.
31
See note 1: The Restatement, §4(3).
32
See note 4: Harold Gill Reuschlein, p. 14.
33
See note 1: The Restatement, § 159, comment e.
34
See note 1: The Restatement, § 4 comment c.
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Volume 1 No. 3 (June, 2004) 54

The agent’s power to affect the legal position of the principal is limited by the
scope of his authority.35 If the agent is not granted authority to contract on behalf of
the principal or if he exceeds his authority, such contract is not binding on the
principal.36 When the agent exceeds his authority, it means that the agent’s acts can
be covered on neither actual nor apparent authority. However, the agent does not
exceed his authority, if he acts in emergency situations.37 Therefore, the principal is
bound by the contract entered on his behalf by his agent in emergency situations
provided that the agent’s acts are compatible with conditions to establish authority
by necessity.38 When the agent exceeds his authority, it is usually associated with
some negative consequences for the principal due to his disobedient agent. But this
is not necessarily true. The excess of the agent’s power does not always produce
harm to the principal. Where the agent’s acts exceed his authority, the result of such
acts can still be beneficial or more advantageous to the principal. Still, from the point
of view of law, beneficial consequences of the contract do not influence the legal
duties of the principal - the principal is not bound by such contract. There are
situations, however, when the principal would prefer to accept the contract, entered
in excess of his agent’s authority, although he is not obliged to do it by law. The
principal might ignore the fact that the agent has breached his fiduciary duty to act
within the limits of authority and afterwards confirm the contract where he wants to
protect the principal’s relationship with the other party,39 his business reputation,40 to
escape from the lawsuit,41 or for some other reasons. This can be done by
ratification.
Ratification enables the principal to affirm an act that was originally performed
without authority.42 Under the doctrine of ratification, the principal may ratify the
contract of the agent who has exceeded the authority granted or who has not been
appointed as an agent at all.43 Once the principal ratifies the contract, he becomes
bound by it as if the agent had authority and fully complied with the principal’s
directions.44 Ratification acts retrospectively and relates to that point of time when
the unauthorized act was originally performed.45 The principal is not obliged to ratify
the contract formed in excess or without authority of the agent or purported agent.
However, if the principal chooses to ratify the unauthorized act, he is not
entitled to partial ratification of the contract. The principal has to ratify the whole
contract.46 Manifestation of ratification can be made either expressly or it can be
implied.47 For instance, ratification by silence can be valid only in circumstances
“[w]hich reasonably justify an inference of consent”.48 The principal who intends to

35
Edward S. Pearson, Law for European Business Studies (UK: Pitman Publishing, 1994), p.
155.
36
Ibid, p. 154.
37
See note 4: Harold Gill Reuschlein, p. 39.
38
See note 5: K. R. Abbott, p. 244.
39
US case: Goldstick v. ICM Realty, 788 F. 2d 456, 460 (7th Cir. 1986).
40
See note 1: The Restatement, § 82, comment d.
41
Ibid.
42
See note 4: Harold Gill Reuschlein, p. 72.
43
See note 7: A. James Barnes et al., p. 358.
44
See note 4: Harold Gill Reuschlein, p. 72.
45
Ibid.
46
Ibid, p. 76.
47
Ibid.
48
See note 1: The Restatement, § 94.
Vaida Jėčienė Is a Principal Bound by a Contract, if the Agent has Exceeded His Authority ? 55

ratify must do it within the reasonable time.49 Whether the principal ratifies within
the reasonable time, should be determined from the standpoint of both parties.50 As
a result of ratification, an act that could not be legitimate becomes legitimate.51 Till
the moment of ratification the agent or the purported agent is subject to liability to
the third party.52 If ratification is valid, it releases the agent from liability to both the
principal and the third party.53 However, ratification is subject to limitations.
Conditions of ratification are the same where the agent acts in excess of his authority
or where he has no authority to act at all.
The first requirement is that the principal can ratify only such contracts that
would be valid if the agent had authority at the time the contract was formed.54 For
example, if the agent makes a contract that is ultra vires of such company, the
contract cannot be ratified.55 Second, the principal must exist when the contract is
formed and be legally competent at the time of ratification.56 The Restatement
(Second) Agency says that “[a]n act which, when done, the purported or intended
principal could not have authorized, he can not ratify”.57 It should not be forgotten,
though, that the legal capacity of the principal (not that of the agent) is controlling in
agency relationship,58 therefore, for instance, if the principal is a corporation and the
contract was formed on behalf of a corporation, when a corporation still did not
exist, the principal cannot ratify such contract after corporation comes into
existence.59 On the other hand, ratification cannot be effective, if the principal has
full contractual capacity at the time the unauthorized act occurs but looses his
capacity to contract before ratification occurs.60 Thirdly, the contract must have been
formed on behalf of the person who later ratifies.61 The Restatement states that
“[r]atification does not result from the affirmance of a transaction with the third
person unless the one acting purported to be acting for the ratifier”.62 All what is
required is that the agent disclosed his status of the agent.63 The agent does not
have a duty to disclose identity of his principal to meet this requirement. If, however,
the principal is undisclosed, he cannot ratify the contract.64 The forth requirement is
that the principal must have knowledge of all material facts concerning the contract
that was formed on his behalf in excess or without authority when he ratifies it.65 As
ratification makes the principal liable for the unauthorized contract, it is reasonable
that the principal cannot condemn himself to account for legal consequences of the

49
See note 4: Harold Gill Reuschlein, p. 78.
50
Ibid, p. 79.
51
Ibid, p. 80.
52
Ibid.
53
Ibid.
54
Ibid, p. 74.
55
See note 5: K. R. Abbott, p. 245.
56
See note 4: Harold Gill Reuschlein, p. 72.
57
See note 1: The Restatement, § 84(2).
58
See note 5: K. R. Abbott, p. 243.
59
J.Dennis Hynes, Agency, Partnership, and the LLC The Law of Unincorporated Business
Enterprises Cases, Materials, Problems, Abridged fifth edition (Charlottesville, Virginia: LEXIS
Law Publishing, 1998), p. 214.
60
See note 4: Harold Gill Reuschlein, p. 74.
61
Ibid.
62
See note 1: The Restatement, § 85 (1).
63
See note 4: Harold Gill Reuschlein, p. 73.
64
See note 16: Lawrence S.Clark, p. 278.
65
See note 4: Harold Gill Reuschlein, p. 74.
International Journal of Baltic Law
Volume 1 No. 3 (June, 2004) 56

contract without proper prior evaluation of the circumstances. The principal is,
therefore, not bound by the contract, “[i]f, at the time of affirmance, the purported
principal is ignorant of material facts involved in the original transaction, and is
unaware of his ignorance, he can thereafter avoid the effect of the affirmance”.66
However, if the principal is presented with such facts that would cause an ordinary
prudent person to investigate the facts more precisely but the principal fails to do so,
he loses his right to claim that his ratification is ineffective due to lack of knowledge
of the material facts.67 It is also true that if the principal accepts the contract and is
unwilling to investigate the facts, it is treated that the principal willingly assumes the
risk associated with such contract.68 As it is stated in Oxford Lake Line v. First Nat’l
Bank of Pensacola,69 the principal is liable on the ground of ratification if “[h]e
ratified upon full knowledge of all material facts, or that he was willfully ignorant, or
purposely refrained from seeking information, or that he intended to adopt the
unauthorized act at all events, under whatever circumstances”.70 At last, if special
form is required for an original grant of authority, ratification has to meet the same
formalities. In case Estate of Huston v. Green71 the agent was granted the power of
attorney to act on behalf of Ms. Huston. He did not have power to make gifts on
behalf of her. When the agent made the gift to a person who took care of Ms.
Huston, she orally approved the agent’s acts. However, the court said that the
contract was void “[b]ecause a power of attorney must be in writing, any act
performed by the agent acting under the power of attorney must therefore be
ratified in writing to be valid”.72
There are specific circumstances, however, when the principal who complies
with all requirements of ratification may be unable to ratify. Firstly, under the law of
agency, the third party is allowed to withdraw from the contract prior to
ratification.73 If the third party withdraws from the contract made in excess or
without authority of the agent prior to ratification, ratification by the principal cannot
be valid.74 The American doctrine of ratification regards the third party as an offeror
who can withdraw prior to acceptance (i.e. prior to ratification of the principal or the
purported principal).75 In contrast, the English courts view the withdrawal of the third
party completely differently. The English courts do not allow withdrawal of the third
party prior to ratification.76 Their view is based on the retrospective nature of
ratification77as ratification places the parties in the same position in which they would
have been if the agent had authority at the time the contract was made. So, if the
third party was willing to be bound by the contract at that point of time, it cannot
withdraw.78

66
See note 1: The Restatement, § 91 (1).
67
Ibid, § 91(1) comment e.
68
Ibid .
69
US case: Oxford Lake Line v. First Nat’l Bank of Pensacola, 40 Fla. 349, 359-60, 24 So. 480,
483 (1898).
70
Ibid.
71
US case: Estate of Huston v. Green, 60 Cal. Rptr. 2d 217 (Cal. App. 1997).
72
Ibid.
73
See note 1: The Restatement, § 88.
74
See note 4: Harold Gill Reuschlein, p. 77.
75
Ibid, p. 78.
76
Ibid.
77
Ibid.
78
Ibid.
Vaida Jėčienė Is a Principal Bound by a Contract, if the Agent has Exceeded His Authority ? 57

Secondly, the principal may be unable to ratify if the third party loses capacity
prior to ratification.79 Loss of capacity encompasses death of the third party, loss of
mental capacity, loss of physical capacity in personal service contracts.80
Sometimes the principal may be precluded from refusing to be bound by the
contract entered in excess or without authority of the agent or the purported agent.
Under the law of agency, the principal is estopped by the unauthorized contract, if
the third party can prove misrepresentation, reliance on the (purported) agency and
change of position to the detriment of the third party.81 This is known as ratification
by estoppel. For instance, if the principal retains the benefits of the unauthorized
contract and fails to investigate material facts concerning the contract, he is
estopped.82 Thus, he loses the right to reject the unauthorized contract and the
principal (not the agent) becomes bound by it. The principal, however, can protect
himself from ratification by estoppel, if he repudiates after discovery of the
unauthorized acts of the agent or the purported agent.83 In agency estoppel can only
be applicable to protect the interests of the third party.84 Moreover, unlike
ratification, ratification by estoppel creates rights and obligations only between the
third party and the principal, without changing legal relations between the principal
and the agent.85 Ratification by estoppel should be distinguished from apparent
authority of the agent. Apparent authority of the agent is created by representations
of the principal to the third party.86 If the agent, having apparent authority enters
into a contract on behalf of the principal, the principal immediately becomes a party
to the contract with all rights and obligations to the third party.87 It is immaterial
whether he intended to contract or not; or whether the position of the third party
has changed.88 Estoppel only will be used to protect the third party that relied on
the principal’s manifestations and thus sustained loss.89
Therefore, if the agent exceeds his authority, the principal is not bound by the
contract entered on his behalf by the agent unless the principal is estopped or he
ratifies the contract later and his ratification is consistent with the above stated
requirements.

1.3. Contractual Liability of the Principal for the Unauthorized Acts – General and
Special Agents

79
Ibid.
80
Ibid.
81
Ibid.
82
Ibid, p. 82.
83
Ibid, p. 81.
84
Ibid, p. 82.
85
Ibid.
86
See note 1: The Restatement, § 8.
87
Ibid, § 8 comment d.
88
Ibid.
89
Ibid.
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Volume 1 No. 3 (June, 2004) 58

The general agent is “an agent authorized to conduct a series of transactions


involving continuity of service”.90 The general is usually appointed to act in a certain
business for the principal and has implied authority to perform duties that are
incidental to such business.91 The special agent is “an agent authorized to conduct a
single transaction or a series of transactions not involving continuity of service”.92
Although it is sometimes problematic to distinguish whether the agent is the general
agent or the special agent, it should always be done, before liability for the
unauthorized acts of the agent can be imposed on the principal.
If the general agent has authority to act on behalf of the principal, the
principal is liable for the authorized acts of the general agent. However, the principal
can still be liable for the contract when the general agent performs unauthorized acts
if such acts “usually accompany or are incidental to transactions which the agent is
authorized to conduct”.93 Peculiarly enough, even if the general agent performs an
act contrary to the directions of the principal (but customary or incidental to a
transaction), the principal will be liable for the unauthorized act.94 It should be noted
that if the third party knows or has a reason to know that the general agent has no
authority to perform a specific act, the general agent cannot make his principal
liable.95 The above stated rules are applicable to disclosed or partially disclosed
principals.96 Do the rules differ, if the general agent works for the undisclosed
principal? According to the Restatement (Second) of Agency, the general agent can
also bind his undisclosed principal to a contract when the unauthorized acts occur, “if
[such acts are] usual or necessary in such transactions, although forbidden by the
principal to do them”.97 It should be noted again that apparent authority is not
possible where the principal is undisclosed.98
The special agent, compared to the general agent, has narrower powers to
bind the principal for the unauthorized acts. Where the principal appoints the special
agent, the principal is not bound by the contract, if the special agent exceeds the
scope of the authority granted.99 However, there are instances when the special
agent’s sole deviation from authority cannot release his principal from liability.100 If
the special agent acting on behalf of the principal discloses the identity or names the
principal when the principal is willing to be unknown (i.e. the special agent acts
contrary to the directions of the principal), the principal cannot escape liability and is
bound by the contract.101 The same rule applies to situations when the principal is
willing to be disclosed but the special agent contracts in his own name.102 It is also
established that improper motive of the special agent cannot preclude the principal
from liability, unless the third party knows or has a reason to know that the agent

90
See note 1: The Restatement, § 3.
91
See note 35: Edward S Pearson, p. 153.
92
See note 1: The Restatement, § 3.
93
See note 59: J.Dennis Hynes, p. 142.
94
See note 4: Harold Gill Reuschlein, p. 167.
95
Ibid.
96
See note 59: J.Dennis Hynes, p. 142.
97
See note 1: The Restatement, § 194.
98
Ibid, § 159 comment e.
99
See note 4: Harold Gill Reuschlein, p. 168.
100
See note 1: The Restatement, § 161A.
101
See note 4: Harold Gill Reuschlein, p. 168.
102
Ibid.
Vaida Jėčienė Is a Principal Bound by a Contract, if the Agent has Exceeded His Authority ? 59

does not act for the benefit of his principal.103 This rule is applicable to general
agents as well.104 Where the principal grounds authority to the special agent relying
on the agent’s determination of facts, the principal cannot escape from liability, if the
special agent is negligent in determining the facts upon which the authority was
established.105 The rule applies to general agents, too.106
It should also be taken into consideration that so called ‘secret instructions’ to
the agent do not release the principal from contractual liability. Where the third party
has reasonable grounds to believe that the agent in similar position would generally
be granted authority to perform certain acts, when, in fact, the agent’s authority is
limited by secret instructions, the principal is bound by the contract formed contrary
to such instructions.107 Therefore, whenever the principal seeks to protect himself
from contractual liability, he must notify the third party about any restrictions of the
agent’s authority.108

2. Authority of the Agent as a Basis to Bind the Principal on the


Contract (The English Law)

The English law defines agency similarly to the definition used in the United
States.109 The agent must have express, implied or ostensible authority to bind the
principal on the contract.110 The principal may orally, in writing or by deed grant
express authority to the agent.111 If the agent has express authority to contract and
acts within the scope of the express authority, the principal will be bound by a
contract entered on his behalf.112 In case the principal’s instructions cause ambiguity
to the agent and the agent acts in good faith in interpreting the intent of the
principal, it is considered that the agent acts within extent of his authority if “a
reasonable agent [would] interpret these instructions in the light of all circumstances
[the same]”.113 However, if the agent’s authority is established by deed, the scope of
the agent’s authority is determined strictly according to the deed.114 It should be
considered that if the third party knows about the limitations to the express authority
of the agent, the third party is bound by them.115 When the third party does not
know about specific restrictions and the agent acts contrary to them, the principal
can still be bound by the contract, if implied or ostensible authority is established.116
Similarly to the American law, if the agent is granted express authority to
contract, it is implied that he has authority to do all the acts that are “necessarily

103
Ibid.
104
Ibid.
105
Ibid.
106
Ibid.
107
See note 16: Lawrence S. Clark, p. 276.
108
See note 7: A. James Barnes et al., p. 361.
109
“Agency is a legal relationship under which one person (the agent) acts on behalf of
another (the principal).” Richard Stone, The Law of Agency (London: Cavendish Publishing
Limited, 1996), p. 4.
110
Richard Stone Contract Law (London: Cavendish, 1996) p. 272.
111
Richard Stone, The Law of Agency (London: Cavendish Publishing Limited, 1996), p. 42.
112
See note 111: Richard Stone, p. 98.
113
Ibid, p. 43.
114
Ibid, p. 42.
115
See note 110: Richard Stone, Contract Law, p. 272.
116
Ibid, p. 272.
International Journal of Baltic Law
Volume 1 No. 3 (June, 2004) 60

incidental to the express authority”.117 The scope of implied authority, however, does
not cover reasonable acts of the agent, if they are not necessarily incidental to the
express authority. As it is stated in Hamer v. Sharp,118 the express authority ‘to find a
purchaser’ does not imply authority ‘to make sale of property’.119 Authority of the
agent can also be implied if it arises from the agent’s type of work or the place of
business.120 The agent will have implied authority if it is ‘usual’ in a particular position
or ‘customary’ in particular business.121 However, it should be noted that any express
limitations to the agent narrow the scope of the agent’s implied authority.122 Still,
express limitations to the agent might not preclude the third party to rely on the
implied authority of the agent, if the third party is unaware of certain restrictions of
the agent’s authority.123
Ostensible authority of the agent (the American law usually refers to it as
‘apparent authority’) can be established, if the principal by his words or actions
causes the third party to believe the agent has authority to act when, in fact, the
agent has no authority to perform.124 The person who asserts to bind the principal on
ostensible authority has to show a representation, a reliance on the representation
and alteration of position due to such reliance.125

2.1. Contractual Liability of Disclosed, Partially Disclosed, and Undisclosed Principals

Unlike the American law, the English law recognizes only two types of
principals, i.e. disclosed and undisclosed.126 If “[t]he third party knows from the start
that [it is] dealing with an agent, and there is another party in the background who
will end up having legal rights and liabilities towards, the third party”,127 the principal
is disclosed. If the principal is undisclosed, “[t]he third party thinks that the agent is
acting on their own behalf”.128 Where the contact is made on behalf of the disclosed
principal within the limits of the expressly stated authority, the principal is bound by
such contract.129 If the agent contracts on behalf of the undisclosed principal:
(1) An undisclosed principal may sue and be sued on a contract
made by an agent on his behalf, acting within the scope of his actual
authority.
(2) In entering the contract, the agent must intend to act on the
principal’s behalf
(3) […]
(4) […]
(5) The terms of the contract may expressly or by implication,
exclude the principal’s right to sue, and his liability to be sued. The

117
See note 111: Richard Stone, p. 43.
118
UK case: Hamer v. Sharp, LR 19 Eq 108 (1874).
119
See note 111: Richard Stone, p. 45.
120
Ibid, p.45.
121
See note 110: Richard Stone, Contract Law, p. 272.
122
See note 111: Richard Stone, p. 43.
123
Ibid, p. 44.
124
Ibid, p. 98.
125
UK case: Rama Corporation Ltd v. Proved Tin and General Investments Ltd, QB 147 (1952).
126
See note 111: Richard Stone, p. 93.
127
Ibid.
128
Ibid.
129
Ibid.
Vaida Jėčienė Is a Principal Bound by a Contract, if the Agent has Exceeded His Authority ? 61

contract itself or the circumstances surrounding the contract, may show


that the agent is the true and the only principal. 130
As well as under the United States law, where the principal is undisclosed,
under the English law, ostensible authority of the agent cannot be established.131
Since the representations on which the third party relies must come from the
principal and not from the agent, the third party at the time of entrance into the
contract does not know that the principal exists and, thus, is unable to rely on the
undisclosed principal. 132 Although implied authority of the agent is confusingly
similar to the ostensible authority, they are different. Firstly, implied authority of the
agent can be established only where the principal-agent relationship exists.133
Secondly, the implied authority is possible where the principal is undisclosed as
implied authority of the agent is not solely based on representations of the
principal.134

2.2. The Principal’s Contractual Liability Where the Agent Exceeds His Authority.
Ratification

Rights and obligations of the principal that arise out of the principal-agent
relationship are based on the extent of the agent’s authority.135 If the contract is
made within the agent’s authority (express, implied or ostensible), the disclosed
principal is bound by such contract entered on his behalf by the agent.136 The
undisclosed principal cannot escape from contractual liability as well, provided that
the agent complies with the conditions discussed above. It should also be taken into
consideration that the English law justifies the agent’s or the purported agent’s acts
under emergency situations.137 The agent’s (or the purported agent’s) acts are
authorized and, thus, the principal is bound by the contract entered on his behalf in
emergency situations, if it is established that the agent acts in genuine emergency,
has no possibility to communicate with the principal, and the agent acts in good faith
concerning the interests of the principal.138
Similarly to the United States law, the English law recognizes the doctrine of
ratification.139 Although it is generally stated that the principal has a right to ratify
the unauthorized contract made on behalf of the principal where the contract is
beneficial to the principal,140 it might be inferred that that the principal is not
precluded from ratification of the unauthorized contract if the principal intends to
ratify it for some other reasons. The principal can ratify the unauthorized actions of
the agent whose acts exceed the scope of the authority or when the agent (or
purported agent) acts without authority at all.141 Ratification acts retrospectively,
thus, converting the unauthorized contract into the authorized one and making the

130
UK case: Siu (Yin Kwan) v. Eastern Insurance Co Ltd, 1 ALL ER213 (1994).
131
See note 111: Richard Stone, p. 99.
132
Ibid, p. 106.
133
Ibid, p. 104.
134
Ibid, p. 105.
135
Ibid, p. 41.
136
Ibid, p. 98.
137
Ibid, p. 35.
138
Ibid, p.p. 36-37.
139
Ibid, p. 25.
140
See note 110: Richard Stone, Contract Law, p. 275.
141
See note 111: Richard Stone, p. 25.
International Journal of Baltic Law
Volume 1 No. 3 (June, 2004) 62

principal liable for the former unauthorized contract.142 Ratification can be express or
implied as long as the principal’s intention to authorize the agent’s acts is evident.143
If, however, agency is established by deed, the unauthorized actions of the agent
can be ratified only by deed.144 Conditions of ratification are basically the same as
are recognized under the United States law.
First, the agent or the purported agent must indicate (expressly or by
implication) that he works on behalf of the principal.145 Thus, it is evident that
undisclosed principal cannot meet the first requirement of ratification. As it is stated
in Keighley Maxted & Co v. Durant146 (the agent made a contract at a higher price
than he was instructed), the contract is not subject to ratification if the person acting
on behalf of the principal does not identify the principal at the time the contract is
made.147 Second, the principal must exist at the time of the contract.148 In Kelner
149
v. Baxter the court held that the company is barred from ratification when it
intends to ratify the unauthorized contract of the agent who made the contract on
behalf of the corporation before it came into existence.150 Thirdly, the principal must
have capacity at the time of the agent’s unauthorized action.151 For instance, if the
principal is a minor, under statutory provisions, the adult can ratify the contract
made on the minor’s behalf by the agent.152 However, the minor can himself ratify
the contract, if the contract is for the necessary goods and services.153 It should also
be true that mentally incompetent principal cannot ratify, since it is the legal capacity
of the principal that is controlling in the agency relationship.154 Under the English
law, the contract that is made on behalf of the enemy aliens cannot be subject to
ratification.155 Fourthly, the competent principal who loses his capacity at the time of
ratification cannot ratify. The English law, however, interprets ‘lack of principal’s
capacity’ broader than the United States law, in a sense that it does not limit itself to
the legal capacity of the principal. For instance, in the case Grover&Grover v.
Matthews,156 the principal could not ratify a contract of fire insurance after the fire
destroyed the property.157 As well as under the United States law, the principal is
restricted from ratification provided that the contract is void ab initio.158
The principal may be precluded from ratification if he does not ratify within the
reasonable time,159 whereas, what constitutes a reasonable time should be
considered on case by case basis.160

142
See note 110: Richard Stone, Contract Law, p. 276.
143
See note 111: Richard Stone, p. 30.
144
Ibid.
145
Ibid, p. 25.
146
UK case: Keighley Maxted & Co v. Durant, AC 240 (1901).
147
See note 111: Richard Stone, p. 26.
148
Ibid, p. 27.
149
UK case: Kelner v. Baxter, LR 2 CP 174 (1866).
150
See note 111: Richard Stone, p. 27.
151
Ibid.
152
Ibid, p. 28.
153
Ibid.
154
See note 5: K. R. Abbott, p. 243.
155
See note 111: Richard Stone, p. 29.
156
UK case: Grover&Grover v. Matthews, 2 KB 401 (1910).
157
See note 111: Richard Stone, p. 29.
158
Ibid, p. 30.
159
Ibid, p. 31.
160
Ibid.
Vaida Jėčienė Is a Principal Bound by a Contract, if the Agent has Exceeded His Authority ? 63

Ratification primarily focuses on unauthorized acts of the agent and, therefore,


it neither extends the agent’s authority in future nor establishes agency relationship
where the principal ratifies the unauthorized acts of the purported agent.161
Ratification, however, does not preclude from ostensible authority of the agent or
purported agent in future.162
In sum, the English law acknowledges the general rule of the common law that
where the agent exceeds his authority or where the person acts without authority,
the principal is not bound.163 It depends solely upon the principal’s intent whether he
is or is not willing to ratify the unauthorized contract. In case he decides not to
ratify, when the agent exceeds his authority or where the person acts without
authority, the principal is not bound. However, if the principal ratifies the
unauthorized contract and his ratification is effective, the principal is personally liable
for the former unauthorized contract.

3. Authority of the Agent as a Basis to Bind the Principal by the


Contract (Lithuania)

Under the Lithuanian Civil Code,164 persons can make contracts personally as
well as through agents.165 However, the Code does not define the agency
relationship directly. Still, it is stated that the agent is empowered to make a contract
on behalf of (in the name of) the principal, which creates, alters and abolishes the
civil rights and obligations of the principal, provided that the agent acts within the
scope of his authority and discloses the fact of agency.166 A relationship created
between the principal and the agent enables the agent to act in the name and
interests of the principal although the rights and obligations resulting from the
agent’s acts bind the principal rather than the agent.167 This accords the common law
rule that the agent who contracts on behalf of the principal with the third party does
not become a party to that contract – the contract binds only the principal and the
third party.168 It is important to note that agency relationship can only be established
where the person acts in the name of the other, as the Civil Code imperatively states
that persons who act in their own name although in the interests of another persons
cannot be considered as agents.169 Thus, distributors who buy goods or services in
their own name and for their own money from foreign manufacturers for resale or
final consumers,170 trade intermediaries,171 commissioners,172 trustees173 cannot be
ascribed to agents. Depending on what grounds the agent has been granted the

161
Ibid, p. 33.
162
Ibid.
163
See note 5: K. R. Abbott, p. 245.
164
The Civil Code of Lithuania (2000 07 18, No.VIII-1864).
165
Ibid, article 2.132, part 1, translated by dr.Tadas Klimas in: “The New Agency Rules in
Lithuania: Translation and Commentary”, Teises Apzvalga (2001, No. 5), p. 106.
166
Ibid, article 2.133, part 1, translated by dr.Tadas Klimas: see note 165.
167
Ibid, article 2.133.
168
See note 5: K. R. Abbott, p. 243.
169
The Civil Code of Lithuania, article 2.132, part 4, translated by dr.Tadas Klimas: see note
165.
170
Ibid, article 6.796.
171
Ibid, article 2.132, translated by dr.Tadas Klimas: see note 165.
172
Ibid, article 6.780.
173
Ibid, article 6.955.
International Journal of Baltic Law
Volume 1 No. 3 (June, 2004) 64

right to act in the name and interests of the principal, several types of agency are
found in the Civil Code: 1) by contract (convention), 2) under the provisions of the
statute, 3) by the decision of the court, 4) by the administrative act.174
Both natural and legal persons can act as agents.175 However, unlike the
common law, the Lithuanian law of agency requires that the agent had full legal
capacity to be able to act in name and interests of the principal.176
Under the general rule, the principal is bound by the contract that is made by
his agent (i.e. the contract creates, alters and abolishes the civil rights and
obligations of the principal).177 The question arises whether this rule can always be
applied. The answer is ‘no’, because there are two main requirements imposed by
law to make this rule effective. First, the agent is empowered to make a contract on
behalf of (in the name of) the principal, provided that the agent acts within the
scope of his authority.178 Secondly, the agent has to disclose the fact of agency.179
The term ‘authority’ should be understood as the power of the agent granted by the
principal, which allows the agent to make a contract and perform other legal acts in
the name of the principal that bind the principal.180 In other words, “[i]t is the
subjective right of the agent that determines his appropriate behavior, the
possibilities of his actions with the third party”.181 Thus, the term ‘authority’ in
Lithuania is used similarly to the one provided by the Restatement (Second) of
Agency “[t]he power of the agent to affect the legal relations of the principal by acts
done in accordance with the principal’s manifestations of consent to him”.182
Authority can be granted expressly or “[t]he rights of an agent also may be
understood from the circumstances under which the agent acts (a seller in retail
trade, cashier etc.)”.183 Usually the agent is granted express authority by a written
document (the power of attorney) that confirms that one person (the principal)
empowers the other person (the agent) to represent the principal in relations with
third parties.184 The extent and content of the authority granted to the agent in the
power of attorney is generally clearly defined. However, if the agent’s authority is not
clearly defined in the power of attorney, it does not mean that the power of attorney
is not in force.185 The Civil Code provides that:
The agent whose rights are not explicitly defined in the power of
attorney has authority to carry out only those actions which are
necessary for the preservation of the principal’s wealth and property
interests and for the safeguarding of his property.186

174
Ibid, article 2.132, part 2, translated by dr.Tadas Klimas: see note 165.
175
Ibid, article 2.132, part 3, translated by dr.Tadas Klimas: see note 165.
176
Ibid.
177
Ibid, article 2.133, part 1, translated by dr.Tadas Klimas: see note 165.
178
Ibid.
179
Ibid.
180
Valentinas Mikelėnas et al., Lietuvos Respublikos Civilinio kodekso komentaras, antroji
knyga Asmenys (Vilnius: Justitia, 2002), p. 262, translated by the author.
181
Ibid, p. 262
182
See note 1: The Restatement, §7.
183
The Civil Code of Lithuania, article 2.133, part 2, translated by dr.Tadas Klimas: see note
165.
184
Ibid, article 2.137, part 1, translated by dr.Tadas Klimas: see note 165, p. 110.
185
See note 180: Valentinas Mikelėnas et al., p. 274.
186
The Civil Code of Lithuania, article 2.137, part 2, translated by dr.Tadas Klimas: see note
165, p. 110.
Vaida Jėčienė Is a Principal Bound by a Contract, if the Agent has Exceeded His Authority ? 65

Thus, the agent can act under implied authority in relatively limited
circumstances. So, in this respect it is different from the American view that
“[a]uthority to conduct transaction includes authority to do acts which are incidental
to it, usually accompany it or reasonably necessary to accomplish it”;187 As well as
from the English rule that, if the agent is granted express authority to contract, it is
implied that he has authority to do all the acts that are “necessarily incidental to the
express authority”.188
In addition to the requirement that the agent is obliged to act within the scope
of his authority to be able to bind the principal, the agent has also to comply with
the second requirement i.e. to disclose the fact of agency. The fact of agency can be
disclosed in a number of ways, for example, by showing a power of attorney to the
third party or it can be understood from the circumstances under which the agent
acts.189 It should be taken into consideration that the principal and third party’s rights
and obligations under the contract are determined differently if the agent fails to
meet the second requirement.190
In sum, the principal is bound by the contract provided that the agent acts
within the limits of his authority and discloses the fact of agency. The agent has to
meet both requirements; he cannot view them as alternatives. Thus under the
Lithuanian civil law as well as under the United States and the English law, the scope
of authority is crucial to make the principal liable for the contract. However, the
common law rules do not always impose an obligation to disclose the fact of agency
in order to bind the principal by the contract.

3.1. Principal’s contractual Liability Where the Agent Exceeds His Authority (General
Provisions). Ratification

Where the agent acts within the scope of his authority and discloses the fact of
agency, he is empowered to change, alter and abolish the civil rights and obligations
of the principal.191 As it was discussed above, authority of the agent to act in the
name of the principal, disclosing the fact of agency can only be valid if the principal
expressly grants his agent the right to perform a certain task or when it can be
implied according to the circumstances under which the agent acts. Thus, the
principal is not bound by the contract if the agent fails to comply with the obligation
to act within the scope of his authority. The excess of the agent’s authority can be
viewed as any act that is not performed within the authority granted. Moreover, the
principal cannot be responsible for the contract, which has been entered in the name
of the principal without any authority at all. Under certain circumstances, though, the
principal might be willing to be bound by the contract entered in the name of the
principal although in excess of the authority granted or with no authority at all.
Under the Lithuanian law as well as the United States law and the English law, the
principal, nevertheless, can assume the legal rights and obligations of such
unauthorized contract, if he ratifies it. As it is stated in the Civil Code:

187
See note 1: The Restatement, § 35.
188
See note 111, Richard Stone, p. 43.
189
See note 180: Valentinas Mikelėnas et al., p. 262.
190
The Civil Code of Lithuania, article 2.133, part 3, translated by dr.Tadas Klimas: see note
165, p. 107.
191
Ibid, article 2.133, part 1, translated by dr.Tadas Klimas: see note 165.
International Journal of Baltic Law
Volume 1 No. 3 (June, 2004) 66

A convention made in the name of another person by one who has


no right to make such a convention or who acts in excess of his
authority, creates, changes or abolishes rights and obligations for
the principal only if the principal subsequently ratifies the whole of
this convention or that part which was made in excess of
authority.192
The law does not impose duty on the principal to ratify any contract that is
made either in excess of the agent’s authority or with no authority at all. However,
once the principal decides to ratify the unauthorized contract, he is under obligation
to comply with all procedural requirements of ratification. The Civil Code establishes
that when the unauthorized acts occur, the third party (i.e. the person with whom
the agent or purported agent has entered into the contract) can address the request
to the principal (or the purported principal) to ratify or not to ratify the unauthorized
contract.193 It should be noted that there are two imperative requirements provided
by the Code to make the request valid. Firstly, the request to ratify or not to ratify
must be in writing. Secondly, the time period for ratification cannot be shorter than
fourteen days.194 This does not mean, however, that the third party is precluded
from providing any longer period for the ratification. It is important that the principal,
once he gets the request, must ratify the unauthorized contract within the time limit
that is indicated in the request. Under the general provisions of agency, the principal
does not have an obligation to respond, if the principal decides not to ratify the
unauthorized contract.195 However, he can notify about his disagreement to the third
party. Therefore, if the principal does not respond to the third party within the
provided time limit, it is considered that the principal has refused to ratify the
unauthorized contract.196 The principal’s silence, thus, under the general provisions
of agency, can be viewed as a refusal to be bound by the unauthorized contract.
It should be taken into consideration that contrary to the general rules of
agency, in cases of commercial agency, the principal after disclosure of the
unauthorized contract has a duty to notify the third party if he refuses to ratify the
unauthorized contract.197 As in cases of commercial agency it is considered that the
principal has ratified the contract if, after the discovery of the unauthorized acts he
does not immediately inform the third party that he disapproves of it.198 Although the
Code does not specify the time limit within which the principal has to notify about his
refusal to be bound by the unauthorized acts of the commercial agent (or the
purported commercial agent), the Code, however, imposes an obligation to respond
immediately after the discovery of the unauthorized acts of the commercial agent.199
Therefore, in commercial agency principal’s silence is viewed as consent to ratify the
contract but not as refusal to ratify it; thus, failure on the part of the principal to
notify makes him liable for the unauthorized contract.200
The general provisions governing agency do not indicate the form in which
ratification has to be done. As well as there are no requirements provided in what

192
Ibid, article 2.136, part 1, translated by dr.Tadas Klimas: see note 165, p. 110.
193
Ibid, article 2.133, part 6, translated by dr.Tadas Klimas: see note 165, p. 107.
194
Ibid.
195
Ibid.
196
Ibid.
197
Ibid, article 2.163, part 1.
198
See note 180: Valentinas Mikelėnas et al., p. 265.
199
The Civil Code of Lithuania, article 2.163, part 1.
200
See note 180: Valentinas Mikelėnas et al., p. 265.
Vaida Jėčienė Is a Principal Bound by a Contract, if the Agent has Exceeded His Authority ? 67

form the refusal to ratify should be done in order to be valid. Therefore, one can rely
on the commentary of the Civil Code, which states that ratification can be done
orally, in writing or by some other action of the principal.201 Probably the same rule
could be applicable to cases where the principal responds to the third party that he
refuses to ratify the unauthorized contract. To decide whether the principal by his
conduct gives sufficient grounds that he intends to ratify, the general provisions of
the Civil Code can be helpful. As it is stated in the article 1.79 of the Civil Code, it is
presumed that the party ratifies the contract if after acquiring the possibility to ratify
or to refuse it, the party fully or partially performs the contract or if it requests the
other party to perform the contract, or if it assures the other party that it will
perform, etc.202
The Civil Code of Lithuania as well as the Restatement (Second) of Agency and
the English law establishes that ratification acts retrospectively,203 i.e. it relates to
that point of time when the unauthorized act was performed. Therefore, if the
principal ratifies the unauthorized contract, the principal assumes all rights and
obligations under the contract from the moment the unauthorized contract is made
rather than from the moment it is approved.204
According to the Civil Code as well as under the Restatement, the third party
can withdraw from the contract that is made in excess of the authority or with no
authority. However, the withdrawal must take place prior to ratification of the
principal.205 It should also be taken into consideration that the third party loses its
right to withdraw from the contract made by the unauthorized agent, if at the time
the contract was made, the third party knew or should have known that the third
party was entering into the contract with the agent who had no authority or who
exceeded his authority.206 Thus, under the general provisions of agency, the party
can withdraw only if it withdraws prior to ratification and if the third party was
honest at the time it entered into the contract.207
If the principal complies with all requirements of ratification and ratifies the
contract, the principal (not the agent or purported agent) is bound by such
contract.208 However, if the principal does not ratify the contract that is formed in
the name of the principal and disclosing the fact of agency but in excess or with no
authority of the agent, the principal is not bound.209 Thus, the agent (or the
purported agent) is exposed to legal obligations to the third party, unless the third
party knew or should have known that it was dealing with the unauthorized
person.210 It is evident that the law protects only the interests of the honest persons,
i.e. the third party, which did not know and should not have known that the contract
was made with an unauthorized agent acting in the name of another person. In
deciding whether the third party knew or should have known that the person lacked
authority to make the contract in the name of another person, it should be analyzed,
taking concrete circumstances into account, whether the third party was prudent

201
Ibid.
202
The Civil Code of Lithuania, article 1.79, part 2.
203
Ibid, article 2.133, part 6, translated by dr.Tadas Klimas: see note 165, p. 107.
204
Ibid.
205
Ibid, article 2.133, part 7, translated by dr.Tadas Klimas: see note 165, p. 108.
206
Ibid.
207
Ibid.
208
Ibid, article 2.133, part 6, translated by dr.Tadas Klimas: see note 165, p. 107.
209
Ibid.
210
Ibid, article 2.133, part 8, translated by dr.Tadas Klimas: see note 165, p. 108.
International Journal of Baltic Law
Volume 1 No. 3 (June, 2004) 68

enough to investigate that the person is authorized to act in the name of another
person.211
There are special circumstances, though, when principal is precluded from
ratification. Firstly, it is provided by the Code, that the person cannot appoint the
agent to make such contracts “[t]hat can be made only personally because of their
character”212 as well as in cases where special laws prohibit delegation of authority to
the other person.213 Thus, if the principal fails to comply with such requirement that
governs agency, any contract made in the principal’s name and disclosing the fact of
agency cannot be valid, therefore, no later ratification is possible. Secondly,
according to the Code, if the principal himself cannot make a contract, his agent
cannot enter into such contract in the name of the principal either.214 Therefore, the
principal who has no right to enter into the contract, cannot ratify the contract made
in his name, unless special provisions of the law provides the opposite. This rule
applies to legal persons, too.215 Thirdly, contrary to the common law rules, the
Lithuanian Civil Code does not state directly, whether ratification is possible if the
principal dies prior to ratification or if the principal loses its legal capacity prior to
ratification. The answer probably should be negative as ratification is a unilateral
act216 that can be valid only if a person who expresses his will is legally competent.217
Fourthly, special attention should be drawn to the part 9 of the Article 2.133, which
says:
If an agent’s act exceeded his authority, but in such a way that the
third party had a reasonable basis for believing he was making a
convention with an agent acting within his authority, then the
convention binds the principal [.]218
So, if under special circumstances the third party has grounds to believe that
the contract is made with the authorized agent when, in fact, the agent exceeds his
authority, the principal is bound by such contract. It has to be proved, though, that a
reasonable person (in the third party’s place), under the same circumstances, in
analogous situation would have acted the same.219 This is the special case where the
agent who acts in excess of his authority can bind the principal without the
principal’s ratification. Still, it is not clear, whether this provision is only applicable to
situations where the agent exceeds his authority or it might be interpreted broader
and be used in cases where the person acts with no authority as well. It should be
noted that if the third party knows or should know that the agent exceeds his
authority, the principal cannot be bound.220

211
See note 180: Valentinas Mikelėnas et al., p. 266.
212
The Civil Code of Lithuania, article 2.132, part 1, translated by dr.Tadas Klimas: see note
165, p. 106.
213
Ibid.
214
Ibid, article 2.134, part 3, translated by dr.Tadas Klimas: see note 165, p. 109.
215
Ibid, article 2.141, translated by dr.Tadas Klimas: see note 165, p. 113.
216
See note 180: Valentinas Mikelėnas et al., p. 265.
217
The Civil Code of Lithuania, article 1.63, part 3; article 2.10 part 2.
218
Ibid, article 2.133, part 9, translated by dr.Tadas Klimas: see note 165, p. 108.
219
See note 180: Valentinas Mikelėnas et al., p. 266.
220
The Civil Code of Lithuania, article 2.133, part 9, translated by dr.Tadas Klimas: see note
165, p. 108.
Vaida Jėčienė Is a Principal Bound by a Contract, if the Agent has Exceeded His Authority ? 69

3.2. Special Provisions Governing Agency in the International Sale of Goods. Excess
of the Agent’s Authority. Ratification

The Lithuanian Civil Code provides special provisions that govern agency
relationship in the international sale of goods. These provisions acknowledge the
general rule of agency that the principal is bound by the contract provided that: 1)
the agent acts in the name and in the interests of the principal, 2) discloses the fact
of agency (i.e. the third party knows or should know that it is making a contract with
the agent), 3) the agent acts within the scope of his authority.221 Thus, if the agent
fails to comply with the provided requirements, the principal is under no duty to
assume the legal consequences of such contract.222 It is also stated that the principal
is not bound by the contract entered in the name of the principal although in excess
of the authority granted or with no authority at all.223 However, the provisions of the
Civil Code, which echo the provisions of the Convention on Agency in the
International Sale of Goods,224 allow the principal to assume the legal rights and
obligations of the unauthorized contract if the principal ratifies the unauthorized
contract.225
The procedural requirements differ from the requirements of ratification under
the general provisions of the Civil Code. Firstly, it is explicitly stated that ratification
of the unauthorized acts can be made in any form, as well as it can be implied from
the conduct of the principal (or the purported principal).226 It is also provided that
ratification is effective (in force) when it reaches the third party227 and from that
point of time it becomes irrevocable.228 Contrary to the general provisions of agency,
the special provisions do not indicate the shortest time period during which the
principal can make a decision to ratify the unauthorized contract or not. Secondly,
the special provisions establish that if entering into the contract the third party
neither knew nor should have known that it was dealing with the unauthorized
person, it has a right to notify the principal that it refuses to be bound by such a
contract even if the principal ratifies it. Such notification, however, should take place
prior to ratification,229 i.e. it can be done at any time before ratification reaches the
third party, unless ratification is implied from the conduct of the principal. On the
other hand, if the principal fails to ratify within the reasonable time, the third party
can withdraw from the contract.230 It should also be taken into consideration that if
the principal does not ratify within the reasonable time and, thus, the third party
decides to withdraw from the contract, the third party is obliged to immediately
notify the principal about its withdrawal.231 This rule is not applicable, however, if the
third party knew or should have known that the agent had no authority or that he
exceeded his authority.232 Thirdly, the principal is not restricted to partially ratify the

221
Ibid, article 2.171, part 1.
222
Ibid.
223
Ibid.
224
Convention on Agency in the International Sale of Goods (Geneva, 17 February 1983).
225
The Civil Code of Lithuania, article 2.173, part 1.
226
Ibid.
227
Ibid.
228
Ibid.
229
Ibid, article 2.173, part 2.
230
Ibid.
231
Ibid.
232
Ibid, article 2.173, part 3.
International Journal of Baltic Law
Volume 1 No. 3 (June, 2004) 70

unauthorized contract. However, in case of partial ratification, the third party has a
right to refuse the partial ratification.233 If the agent acts on behalf and in the
interests of the legal person before its creation, such acts are subject to ratification
only if the special provisions of the law allow such ratification.234
So the general rule remains the same, if the principal refuses to ratify the
contract that is formed in the name of the principal and disclosing the fact of agency
but in excess or with no authority of the agent, the principal is not bound.235 Thus,
the agent (or the purported agent) is exposed to legal obligations to the third party,
unless the third party knew or should have known that it was dealing with the
unauthorized person.236 It is explicitly stated that if the principal does not assume the
legal rights and obligations of the unauthorized contract, the agent (or the purported
agent) is under duty to compensate the third party for damages.237 The third party is
not entitled to request compensation from the principal if the third party knew or
should have known that it was dealing with the unauthorized person.238 Peculiarly
enough, the special provisions of the Code that govern the international sale of
goods fail to specify whether ratification acts retrospectively. So, one can rely on the
general provisions of agency that acknowledge the retrospective nature of
ratification239 (2.133.6) or on the Convention on Agency in the International Sale of
goods, which states that “[o]n ratification the act produces the same effects as if it
had initially been carried out with authority”.240
It should also be noted that apparent authority of the agent or the purported
agent is acknowledged under the special provisions that govern the international sale
of goods. Therefore, if the principal by his own manifestations causes the third party
to reasonably believe that the agent has been granted authority to contract on behalf
and in the interests of the principal and that the agent acts within the scope of his
authority, the principal is bound by contracts entered on the principal’s even though,
in fact, the agent exceeds his authority or acts with no authority.241 It has to be
proved, nevertheless, that the principal’s manifestations would cause a reasonable
person (in the third party’s place), under the same circumstances, in analogous
situation to believe that the agent has authority to act and that the agent acts are
within the scope of the authority granted.242 This is the special case where the agent
who acts in excess of his authority or with no authority can bind the principal without
the principal’s ratification. Contrary to the general provisions, the special provisions
that govern agency in the international sale of good explicitly state that apparent
authority is applicable both: when the agent exceeds his authority or when the
person (or agent) acts with no authority.243 Still, if third party who knows or has a
reason to know that the agent, in fact, has no authority or acts in excess of his

233
Ibid, article 2.173, part 4.
234
Ibid, article 2.173, part 5.
235
Ibid, article 2.174, part 1.
236
Ibid, article 2.172, part 1.
237
Ibid, article 2.174, part 1.
238
Ibid, article 2.174, part 2.
239
Ibid, article 2.133, part 6, translated by dr.Tadas Klimas: see note 165, p. 107.
240
See note 225: Convention, article 15 (1).
241
The Civil Code of Lithuania, article 2.172, part 2.
242
See note 180: Valentinas Mikelėnas et al., p. 338.
243
The Civil Code of Lithuania, article 2.174, part 1.
Vaida Jėčienė Is a Principal Bound by a Contract, if the Agent has Exceeded His Authority ? 71

authority, the third party looses it right to rely on the apparent authority244 and the
principal is not bound by such contract, unless it ratifies it.

Conclusions

The purpose of this article was to analyze the contractual liability of the
principal to the third party when the agent, who acts on behalf of (in the name of)
the principal, exceeds his authority in making a contract with the third party. The
hypothesis stated that: the principal is not bound by the contract entered on his
behalf, if the agent exceeds the scope of authority, unless the principal ratifies the
contract. The hypothesis is proved. Analytical, systematic and comparative analysis
of the laws and legal principles governing agency in the United States, the United
Kingdom and Lithuania enable to provide the following conclusions:
1) Common law countries acknowledge the general rule that the principal is
bound by the contract formed on behalf of the principal by his agent only if the
agent is authorized to enter into the contract for the principal. Under the
Lithuanian law, the general rule is that the agent is empowered to bind the
principal by the contract (i.e. to establish, alter or abolish the civil rights and
obligations of the principal) only if the agent acts within the scope of his
authority and discloses the fact of agency. Thus, under the Lithuanian law the
agent has to meet both requirements to bind the principal by the contract. In
this respect common law rules differ, as the common law rules do not impose
the requirement always to disclose the principal.
2) Common law rules as well as the Lithuanian Civil Code rely on the principle
that the contract entered on behalf of the principal by the agent in excess of
the granted authority (actual or apparent) does not create legal consequences
to the principal. Although special attention should be drawn to the contractual
liability of the principal for the unauthorized acts of the special and general
agents as the United States law provide broader powers to the general agents
to bind the principal by the contract.
3) The United States law, the English law and the Lithuanian law allow the
principal to ratify the unauthorized contract provided that the principal
complies with the imposed requirements of ratification. Valid ratification acts
retrospectively: it relates to that point of time when the agent originally formed
the unauthorized contract on behalf of the principal. Ratification releases the
agent from liability to both the principal and the third party as the principal
becomes bound by the unauthorized contract and assumes all rights and
obligations associated with it.
4) The major difference between the provisions and the legal principles
concerning ratification in common law countries and the Lithuanian law is that
the Lithuanian Civil Code tends to strictly determine the procedural
requirements of ratification whereas it fails to directly provide the general
principles that would make ratification valid or would imperatively preclude the
principal from ratification. Certain ambiguities still cannot be resolved as there
is no case law concerning different issues of ratification under the new
provisions of the Civil Code.

244
Ibid, article 2.172, part 2.
International Journal of Baltic Law
Volume 1 No. 3 (June, 2004) 72

5) It should also be taken into consideration that the Lithuanian Civil Code
establishes some different procedural rules that govern ratification in
commercial agency as well as in agency of the international sale of goods.
Therefore, the principle lex specialis derogat lex generalis should be applicable.
Vaida Jėčienė Is a Principal Bound by a Contract, if the Agent has Exceeded His Authority ? 73

Abstract in Lithuanian

VAIDA JĖČIENĖ
AR SANDORIS, KURIS SUDARYTAS ATSTOVUI VIRŠIJANT JAM SUTEIKTAS TEISES, YRA
PRIVALOMAS ATSOVAUJAMAJAM?
Santrauka

Didėjanti konkurencija nacionaliniame ir tarptautiniame lygmenyse, pokyčiai


verslo aplinkoje, veiklos pasiskirstymas, sąlygojamas regioninės integracijos bei
globalizacijos, skatina žmones ieškoti būdų, kuriais būtų galima praplėsti savo veiklos
ribas neapsiribojant vien tik asmeniniu dalyvavimu tam tikroje veikloje. Fizinių bei
juridinių asmenų atstovavimas yra viena iš priemonių, kuri įgalina asmenis praplėsti
savo veiklos spektrą taip palengvinant adekvatų poreikių įgyvendinimą modernioje
visuomenėje.
Tiek bendrosios, tiek ir civilinės teisės sistemos šalys pripažįsta atstovavimo
institutą. Nors tam tikri atstovavimo teisinių santykių aspektai civilinės ir bendrosios
teisės sistemos šalyse skiriasi, jie siekia to paties tikslo – sudaryti sąlygas
atstovavimo teisiniams santykiams egzistuoti bei nustatyti atstovavimo teisnių
santykių subjektų teises ir pareigas. Kadangi atstovavimo atveju už civilinių teisinių
santykių subjektus sutartis sudaro bei kitus teisinius veiksmus atlieka kiti asmenys
(veikiantys ‘už juos’ (on behalf of) arba ‘jų vardu’ (in the name of)), neišvengiamai
susiduriama su teisinės atsakomybės klausimais tarp atstovaujamojo ir atstovo, tarp
atstovo ir trečiųjų asmenų bei tarp atstovaujamojo ir trečiųjų asmenų.
Šio straipsnio tikslas yra išanalizuoti atstovaujamojo sutartinę atsakomybę
trečiajai šaliai, kai atstovas, veikdamas atstovaujamojo vardu (‘už atstovaujamąjį’),
sudaro sutartį viršydamas jam suteiktas teises. Čia keliama hipotezė, kad
atstovaujamajam nėra privaloma sutartis, kuri sudaryta atstovui viršijant jam
suteiktas teises, nebent atstovaujamasis patvirtina tokią sutartį. Siekiant pagrįsti
iškeltą hipotezę, straipsyje yra lyginamos Jungtinių Amerikos Valstijų, Didžiosios
Britanijos bei Lietuvos teisės normos bei teisminė praktika. Straipsyje analizuojama:
1. Atstovui atstovaujamojo duodami įgaliojimai, jų rūšys (authority),
kurie suteikia teisę atstovui atstovaujamojo vardu sudaryti sutartis bei
atlikti kitus teisinius veiksmus.
2. Atstovaujamojo sutartinė atsakomybė trečiajai šaliai, kai atstovas,
veikdamas atstovaujamojo vardu (‘už atstovaujamąjį’) sudaro sutartį
viršydamas jam suteiktus įgaliojimus.
3. Sutarties, kuri buvo sudaryta atstovui viršijant jam suteiktas teises,
patvirtinimo (ratifikavimo) sąlygos bei teisinės pasekmės.
Straipsnis neanalizuoja specialių teisės normų, reglamentuojančių atstovavimo
teisinių santykių ypatumus partnerystėje, juridinių asmenų atstovavimo specialiųjų
teisės normų bei prokūros.
Bendrosios teisės sistemos šalyse yra įtvirtinta bendra taisyklė, kad atstovo už
atstovaujamąjį (on behalf of) sudaryta sutartis yra atstovaujamajam privaloma, jeigu
atstovas, sudarydamas sutartį, veikė jam suteiktų įgaliojimų ribose. Atstovo
įgaliojimai gali būti aiškiai apibrėžti (express), numanomi (implied) bei tariami
(apparent). Lietuvos Respublikos civilinis kodeksas (toliau – LR CK) taip pat įtvirtina
bendrą taisyklę, kad atstovo sudaryta sutartis atstovaujamojo vardu, atskleidžiant
atstovavimo faktą ir neviršijant suteiktų teisių, yra privaloma atstovaujamajam. Taigi,
pagal LR CK, atstovas privalo patenkinti abu reikalavimus (atskleisti atstovavimo
faktą bei neviršyti jam suteiktų teisių), kad sutartis atstovaujamajam taptų privaloma.
International Journal of Baltic Law
Volume 1 No. 3 (June, 2004) 74

Šiuo aspektu bendrosios teisės sistemos šalių teisės normos skiriasi nuo teisės
normų, įtvirtintų LR CK, kadangi JAV ir Didžiojoje Britanijoje nėra būtina atskleisti
atstovavimo fakto, kad sutartis taptų privaloma atstovaujamajam.
Tiek bendrosios teisės sistemos šalių teisės normos bei teisminė praktika, tiek
ir LR CK pripažįsta, kad atstovaujamajam nėra privaloma sutartis, kuri sudaryta
atstovui viršijus jam suteiktas teises. Tačiau reikia atkreipti dėmesį į tai, kad JAV
teisės normos suteikia daugiau teisių atstovui bendrojo atstovavimo atveju (general
agents), nei esant specialiajam atstovavimui (special agents). Todėl atstovaujamojo
sutartinė atsakomybė už atstovo atliktus teisinius veiksmus bendrojo atstovavimo
atveju turi tam tikrų skirtumų lyginant su specialiuoju atstovavimu. Kita vertus
bendrosios teisės tradicijos šalyse taip pat ir Lietuvoje yra numatyta išimtis, kada
atstovaujamojo vardu (ar ‘už atstovaujamąjį’) sudaryta sutartis, nors ir atstovui
viršijant suteiktas teises, tampa privaloma atstovaujamajam, – kai atstovaujamasis
tokią sutartį patvirtina (ratifikuoja). Atstovaujamojo patvirtinta sutartis turi atgalinio
veikimo galią, todėl laikoma, kad sutartis tampa galiojančia nuo sutarties sudarymo
momento, o ne nuo jos patvirtinimo. Sutarties, kuri buvo sudaryta atstovui viršijant
jam suteiktas teises, patvirtinimas sukuria teisines pasekmes atstovaujamajam, o ne
atstovui.
Daugelis atsovaujamojo patvirtinimą reglamentuojančių principų bendrosios
teisės sistemos šalyse bei Lietuvoje sutampa. Esminis skirtumas yra tas, kad LR CK
akcentuojami procedūriniai patvirtinimo reikalavimai, tačiau atstovavimo teisinius
santykius reglamentuojančiose teisės normose nėra pateikiami bendrieji principai,
kuriems esant atstovaujamasis galėtų patvirtinti sutartį ar jam tai padaryti būtų
draudžiama imperatyviomis teisės normomis. Taip pat svarbu pažymėti, kad LR CK
yra numatyti tam tikri sutarties, sudarytos atstovui viršijant jam suteiktas teises,
patvirtinimo procedūrinių skirtumai esant komerciniam atstovavimui bei esant
komercianiam atstovavimui sudarant ir vykdant tarptautinio prekių pirkimo–
pardavimo sutartis.
Straipsnyje iškelta hipotezė, kad atstovaujamajam nėra privaloma sutartis, kuri
sudaryta atstovui viršijant jam suteiktas teises, nebent atstovaujamasis patvirtina
tokią sutartį, yra įrodyta.