Story Case

Edward Davis sold to George Miller an automobile which was the property of Otto Nance. Davis acted without authority in making the sale in the name of Nance, and also in warranting that the machine was good in every respect. When Nance learned of the sale, he ratified, by writing Miller a letter, stating that he expected Miller to make the first payment in accordance with the contract. The automobile did not prove to be as good as Davis, the agent, had warranted it to be, and Miller refused to make any payments. On the contrary, he brought an action against Davis on the contract for breach of warranty. Nance also sued Davis for having made an unauthorized contract, whereby Nance claimed he lost his machine. Is Davis liable in either or both suits?

Ruling Court Case. Sheffield Vs. Ladue, Volume 15 Minnesota Reports, At Page 388; Also Volume 10 American Reports, At Page 145

The defendant, Ladue, was a travelling salesman for Johnson & Company. He had in possession a pair of horses, property of Johnson & Company, with authority to sell or exchange them. In pursuance of this authority, he exchanged them with the plaintiff for a pair of horses belonging to the plaintiff, but agreed to pay a difference to the plaintiff and therefore gave a note, signed by himself as agent for Johnson & Company.

The plaintiff sues Ladue, the agent, who contends that he is no longer liable, since the principal, Johnson & Company, in the meantime ratified the contract, although he was not authorized to give a promissory note in the beginning.

Justice Ripley gave the opinion:

The Court held that the defendant was not liable. The ratification of the act by the principal made the note his own, and the agent was no more liable than had he been authorized in the beginning, because the ratification relates back to the time when the act was done, or the note was signed, as in this case.

Ruling Law. Story Case Answer

When the principal has ratified an unauthorized act of an agent, it is the general rule that the rights and liabilities of all parties concerned are the same as if the agent had been given the authority in the first place. Accordingly, the agent is entitled to his compensation, and he is not longer liable to the third person; but he owes such duties as are incidental to the relation. The rights of third persons are then against the principal and not against the agent. Third persons are liable to the principal and not to the agent. If the third person learns that the agent acted without authority, he may withdraw and escape liability to the principal, if he does so before the principal has ratified. Also, after ratification, the agent is not liable to the principal for having made the contract or done the act, even though a loss occur to the principal, as for instance, where he cannot collect for goods sold by an agent acting originally without authority. Therefore, in the illustrative case, Davis is not liable to either party.