Breach of warranty of authority. An agent can make contracts between his principal and a third party. When he does this he “warrants” (or “promises” to the third party) that he has authority to carry out the act. When an agent, for example, a shipbroker, acts without any authority from his principal or exceeds the authority given to him, there is no contract and the principal is not bound. The agent can then become liable to one, or both, of the parties to the presumed contract for the breach of the warranty of authority.
Breach of warranty of authority can be committed “with negligence” or “without negligence”. In the former case, the agent himself will make a mistake or act carelessly, thus breaching his duty of care to his principal and cause the principal some loss or damage. In the latter case, the agent may act in such a Way as to cause a presumed contract to become unenforceable because he has acted on mistaken information supplied by another.
An example is a situation where a shipowner, O, offers his ship to a shipbroker, S, on certain conditions. S then offers the ship to a Charterer, C, on different conditions. C accepts the offer. There is no enforceable contract between O and C because each was intending to enter into a different contract. S would be liable for breach of warranty with negligence.
Suppose, for example, that O offered the shin on certain conditions to A an intermediate broker, and A offered the ship under different conditions to the shipbroker, S. S then offered the ship on the conditions he has received to the Charterer, C. C accepts. Again, there is no enforceable contract between O and C. C can still bring an action against S for breech of warranty without negligence. S may require indemnity from A, but S’s primary liability to C still exists. S can protect himself by adequate insurance and also by being as careful and professional as possible.