When Signing As Agent Can Lead To Personal Liability

In the transactional setting, lawyers are often concerned with confirming the authority of corporate officers and other agents to bind the corporation. Thus, we often see representations and warranties of due authorization and execution and legal opinions to that effect as well.  The focus of these efforts is, of course, to ensure that the principal is bound.  But can the agent who misstates his or her authority be liable?

Several provisions of the California Civil Code address this issue directly.  For example, I’m sure that many corporate officers and agents are unaware that when they take an action on behalf of a corporation, they are actually making a warranty of authority for which they may be personally liable:

One who assumes to act as an agent thereby warrants, to all who deal with him in that capacity, that he has the authority which he assumes.

Cal. Civ. Code § 2342.  This liability is further reinforced by the succeeding section which provides:

One who assumes to act as an agent is responsible to third persons as a principal for his acts in the course of his agency, in any of the following cases, and in no others:

1. When, with his consent, credit is given to him personally in a transaction;
2.  When he enters into a written contract in the name of his principal, without believing, in good faith, that he has authority to do so; or,
3.  When his acts are wrongful in their nature.

Cal. Civ. Code § 2343.

While these two statutes overlap, they also differ.  For example, Section 2343(2) requires a lack of good faith while Section 2342 does not.  The confusion is exacerbated by Civil Code Section 3318 which specifies a measure of damages for breach of an agent’s warranty of authority.  The Fourth District Court of Appeal recently tackled some of these problems in Kurtin v. Elieff, Cal. Ct. Appeal No. G043999 (June 27, 2012).

 

Published In: Business Organization Updates, Business Torts Updates, Civil Remedies Updates, General Business Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Allen Matkins Leck Gamble Mallory & Natsis LLP | Attorney Advertising

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