If a sale closes and the dishwasher is missing from the kitchen, the buyer’s recourse is against the party with whom they had the contract, not the agent. This example points out an interesting aspect of this principle; if the agent fails to fulfill his/her duties, indemnification comes into question.
If the agent fails to include the dishwasher in the Agreement of Purchase and Sale, but told the buyer it was included, who is likely to pay?
You will notice, of course, that there was no real answer provided in the text. Naturally, it begs the question, and I would have thought that there would have been an answer.
The Agreement of Purchase and Sale is between the Seller and the Buyer. There are no other parties. If something goes wrong then they can sue each other.
Contract: So, if we have a dishwasher and it’s included in the agreement, and the Seller takes it, then the Buyer will have to sue the Seller. Should the Buyer also sue the Agent, the principle of indemnification would come into play and the Seller would have to reimburse the Agent. The Agent was at all times acting upon the instructions of the Seller and should be compensated for this loss.
Authority: The Seller tells the Agent to include the dishwasher. The Agent advises the Buyer that it’s included. The dishwasher is overlooked in the Agreement. This time, in contract, the Buyer can’t sue the Seller. The contract is clear and the contract governs their relationship. The Buyer sues the Agent “in tort” (another heading of law distinct from contract) for misrepresentation. Again, the principle of indemnification would come into play and the Seller would have to reimburse the Agent. The Agent was at all times acting upon the instructions of the Seller and should be compensated for this loss.
No Authority: The next situation is slightly different. The Agent when questioned by the Buyer tells the Buyer that the dishwasher is included but fails to mention it in the Agreement. The Seller takes the dishwasher with impunity since it is a chattel. The Buyer is upset and sues the Agent. This time the Agent acted negligently, without authority, without justification. In this case, the principle of indemnification would not apply. The Agent doesn’t have the dishwasher, so the Court will simply award a sum of money instead.
Brian Madigan LL. B., Broker