A recent post on the inVigor Law Group blog explored the idea of “agency liability.” Agency liability refers to liability for actions of employees and owners of a company when acting on behalf of the company. I’ve highlighted some of the key points for you in today’s post.
When two people (or companies) agree to allow one person to act on behalf of the other party, the acting party is referred to as an “agent.” The other party–the one that authorized the agent’s actions–is referred to as the “principal.” Why does this matter to you? Because figuring out the agency relationship is important in determining whether contracts and agreements that your agent enters into are binding.
Two Types of Authority
Agents can act on behalf of principals (and bind the principal to a particular contract or agreement) if they have actual or apparent authority.
Actual authority is broken down into two categories: express and implied actual authority. Express actual authority is when an agent is expressly told that they may act on behalf of the principal and the scope of that authority. For example, if a principal tells the agent that they have the authority to sell the principal’s car until next week for $1000, then the agent has express actual authority to sell the car under those terms. The agent does not have authority to sell the car for a different price or at a different time, and if he or she does, then the agent may be liable for any damages that the principal suffers as a result of the agent’s actions that are outside the scope of the express actual authority.
Implied actual authority is when the agent is given implied authority to complete a task on behalf of the principal. For example, the principal may ask that the agent sell the company’s equipment. In this scenario, the agent has the implied authority to take actions that would promote this goal, including finding buyers and negotiating the terms of the deal.
The other type of authority occurs when a principal does not give actual authority, but makes it apparent to a third party that the agent has. Further, contracts can be ratified and will be binding even if an agent enters into the agreement with actual or apparent authority. A principal can choose to authorize (or ratify) the contract after the fact, and the principal will be bound by the terms of the contract even if it was originally made without the principal’s consent. authority to act on the principal’s behalf. Generally when problems arise, it is because everyone is unclear to what extent the agent has the apparent authority to act on behalf of the principal. For example, you own a small delivery business and a buyer calls you to buy one of your trucks and you refer the buyer to your office manager to talk about finalizing the terms of the sale. You never gave your office manager actual authority to sell the truck (and you’re not sure you even want to sell the truck); however, if a contract is entered into to sell the truck between the buyer and your office manager, your company may be bound by the contract because the buyer believed the office manager was acting on behalf of your small business.
If you want to learn more about agency liability, you can check out the full post at the inVigor Law Group blog here.Read more →