Question

A salesman in a men's clothing store has heard rumours that the store is going out of business. The boss is out of the store when a customer who has heard the same rumour comes in and offers to purchase the store's entire stock, the display cases, and the fixtures. The salesman accepts on behalf of the employer. Applying the correct principle of law, discuss the legal position/liabilities of the parties.

Answer 1

In this case there is two legal relationship. Ie.

1) Principal - Agent ie. Relationship between Employer and Salesman.

2) Buyer and seller: ie. Customer and Salesman.

Further explanation:

It is the relationship between two person where one person is employed (Known as Agent) by
another (known as Principal) to act on behalf of that later with the third person.

So, employer is a Principal, and salesman is a agent ( mercantile agent).

When ,According to the directions given by the principal, or in the absence of any such directions, according to the custom which prevails in doing business of the same kind at the place where the agent conducts such business. When agent acts otherwise, if loss incurred to be borne by agent and if profit incurred to be given to principal.

So, if the rumours were fake, and boss suffered loss, then salesman is liable to compensate for the same amount, as per law.

And Principal is entitled to recover the same amount of money, as equivalent to the loss, from the salesman.

And

Doctrine of privity of contract explains that only party to the contract can sue, third party to the contract cannot sue for damages/losses.

So, principal cannot sue customer for the loss, as he is third party to the contract. (Ie.Contract of sale was between Salesman and Customer)(Principal (Boss) is third party to the contract.)