Why does a third party’s good faith matter when an agent acts after a principal’s death?

In the context of agency law, the significance of a third party’s good faith when an agent acts after a principal’s death depends on the legal system in question.

While traditional English law historically held that a principal’s death automatically terminates an agent’s powers—regardless of whether the agent or a third party was aware of the event—continental legal systems have adopted a more protective approach. In these jurisdictions, the good faith of the third party serves as a determinative factor for the validity of the transaction.1

This approach prioritizes the protection of the parties involved over rigid, doctrinaire rules. Because the agent’s primary interest in such scenarios is typically to avoid personal liability on a contract, the law focuses on whether the third party acted in good faith without knowledge of the principal's death. By centering on the third party's state of mind, the law ensures that transactions remain reliable and efficient, preventing the third party from bearing the risk of an event they could not have known occurred.1