In practice, a principal may instruct an agent to find customers, present offers and carry out other activities preceding the conclusion of a contract, without authorising the agent to conclude contracts with customers on its behalf.
📌 Is a contract which the agent concludes with a customer on the principal’s behalf then invalid?
⚠️ No. As a rule, the contract is valid and binds the principal.
However, if the principal does not wish to enter into that contract, it should notify the customer, immediately after learning of its conclusion, that it does not confirm the contract.
❗ Failure to do so means that the contract is deemed confirmed.
The same applies where the agent was authorised to conclude contracts but exceeded the scope of that authority.
📌 Does notifying the customer that the contract is not confirmed always resolve the matter?
🚫 Not always. The principal may be liable for damage the agent’s actions cause to the customer. Such liability may arise under specific legislation, for example the rules on insurance distribution.
For example:
➡️ an insurance agent concludes a contract with a customer without the necessary authority;
➡️ the insurer learns of this and immediately refuses to confirm it;
➡️ the insurance contract does not bind the insurer;
➡️ nevertheless, the customer suffers damage because of the agent’s conduct.
The customer may then claim compensation from the insurer. The claim is based on liability for damage caused in connection with agency activities, rather than on the insurance contract.
📌 Does concluding a contract without authority oblige the principal to pay the agent commission?
The Civil Code does not expressly determine how concluding a contract without authority affects the agent’s right to commission.
If the principal informs the customer that it refuses to enter into the contract, it need not pay the agent commission. If it fails to do so, commission is payable under the agency agreement.
⚠️ Acting without authority therefore does not necessarily deprive the agent of commission automatically.
👉 What can the principal do to avoid similar problems in future?
Concluding a contract without authority, or exceeding the authority granted, may breach both the duty of loyalty to the principal and the agency agreement.
Depending on the circumstances, particularly the seriousness of the breach and its consequences, this may justify:
🔵 terminating the agency agreement without notice;
🔵 claiming damages from the agent;
🔵 applying other consequences provided for in the agency agreement.
📌 Conclusion
Simply withholding authority to conclude contracts does not give the principal full control over contracts with customers.
Prompt information sharing and an immediate response to every contract concluded without authority, or beyond its scope, are equally important.
