Which Of These Is Not A Type Of Agent Authority

In agency law, understanding the scope of an agent's authority is crucial for determining whether the agent's actions bind the principal. Agent authority dictates the extent to which an agent can act on behalf of a principal and create legal obligations. Not all actions taken by an agent are automatically binding on the principal. The law recognizes different types of agent authority, each with its own set of rules and limitations.

Types of Agent Authority

To fully grasp the concept of agency authority and identify what is not a type of agent authority, it is important to first explore the different types of agent authority that exist. These include:

• Actual Authority: Authority that the principal intentionally confers on the agent.
• Apparent Authority: Authority that a third party reasonably believes an agent possesses, based on the principal's conduct.
• Implied Authority: Authority that is reasonably necessary to carry out the agent's express authority.
• Ratification: Authority granted retroactively when a principal approves an agent's unauthorized act.
• Emergency Authority: Authority that arises when an unforeseen emergency requires an agent to act to protect the principal's interests.

By understanding the nuances of these established categories of authority, it becomes easier to recognize arrangements or behaviors that do not constitute valid agent authority.

Actual Authority

Actual authority is the most straightforward type of agent authority. It arises when the principal directly communicates to the agent what actions they are authorized to take. This communication can be explicit, using clear and direct language, or it can be implicit, based on the principal's conduct or the circumstances.

• Express Authority: Express authority is created when the principal directly states the agent's powers, whether orally or in writing. For example, if a company president tells a sales representative, "You are authorized to negotiate and sign contracts up to $10,000," the sales representative has express authority to enter into contracts within that limit.
• Implied Authority: Implied authority, also known as incidental authority, is not expressly granted but is inferred from the agent's position or the nature of the task. It encompasses actions that are reasonably necessary to carry out the agent's express duties. For example, if a principal hires an agent to manage a property, the agent has implied authority to hire a cleaning service and make necessary repairs, even if these actions are not explicitly mentioned in the agreement.

Apparent Authority

Apparent authority exists when the principal's actions lead a third party to reasonably believe that the agent has authority to act on the principal's behalf. This belief must be based on the principal's representations or conduct, not on the agent's own statements. The focus is on how the principal's actions would appear to a reasonable person dealing with the agent.

The key elements of apparent authority are:

• Representation by the Principal: The principal must make some representation, either directly to the third party or to the public at large, that leads the third party to believe the agent has authority. This representation can be through words, conduct, or even inaction.
• Reasonable Reliance by the Third Party: The third party must reasonably rely on the principal's representation. This means that a reasonable person in the third party's position would believe that the agent has the authority to act.
• Change in Position by the Third Party: The third party must change their position in reliance on the agent's apparent authority. This could involve entering into a contract, providing goods or services, or taking some other action that they would not have taken otherwise.

For example, if a company allows an employee to use the title "Vice President" and gives them an office with the company logo, a third party might reasonably believe that the employee has the authority to enter into contracts on behalf of the company. Even if the employee lacks actual authority, the company could be bound by the contract based on apparent authority.

Ratification

Ratification occurs when a principal approves or adopts an act that was originally performed by an agent without authority. If an agent acts outside the scope of their actual or apparent authority, the principal can choose to ratify the act, making it binding as if the agent had been authorized from the beginning.

To be effective, ratification must meet certain requirements:

• Knowledge: The principal must have full knowledge of all material facts surrounding the transaction. They cannot ratify an act without knowing what they are approving.
• Acceptance: The principal must clearly accept the act. This can be done through words, conduct, or even silence if silence would reasonably indicate acceptance.
• Entire Act: The principal must ratify the entire act. They cannot ratify only the parts they like and reject the rest.
• No Third-Party Rights: Ratification cannot prejudice the rights of third parties. If a third party has already acquired rights in the subject matter of the transaction, the principal cannot ratify the act to defeat those rights.

For example, if a real estate agent enters into a purchase agreement on behalf of a client without the client's authorization, the client can ratify the agreement by signing it and proceeding with the sale. Once ratified, the agreement is binding on the client as if the agent had been authorized from the start.

Emergency Authority

Emergency authority arises when an unforeseen emergency requires an agent to act to protect the principal's interests, and it is impossible or impractical to obtain the principal's instructions. In such situations, the agent has the authority to take reasonable actions to address the emergency, even if those actions would otherwise be outside the scope of their authority.

Emergency authority is typically limited to situations where:

• Emergency Exists: There must be a genuine emergency that threatens the principal's property, health, or safety.
• Impossibility of Communication: It must be impossible or impractical to communicate with the principal to obtain instructions.
• Reasonable Action: The agent's actions must be reasonable and necessary to address the emergency.

For example, if a property manager discovers a burst pipe in a building and cannot reach the owner, they have emergency authority to hire a plumber to repair the pipe to prevent further damage. The property manager's authority is limited to taking actions necessary to address the emergency, and it ends once the emergency is resolved.

What is NOT a Type of Agent Authority

Now that we have examined the different types of agent authority, we can identify arrangements or behaviors that do not constitute valid agent authority. Some examples of situations where an agent lacks authority include:

• Self-Proclaimed Authority: An agent cannot create authority simply by claiming to have it. Authority must be derived from the principal's actions or the circumstances. If an agent tells a third party that they have the authority to act on behalf of a principal, but the principal has not done anything to suggest this is true, the agent lacks authority.
• Authority Based on Agent's Statements: Authority cannot be based solely on the agent's own statements or representations. Apparent authority must be based on the principal's conduct, not the agent's. If a salesperson tells a customer that they have the authority to offer a discount, but the company has not authorized them to do so, the salesperson lacks the authority to bind the company to the discount.
• Authority Contrary to Instructions: An agent who acts contrary to the principal's express instructions lacks authority. Even if the agent believes they are acting in the principal's best interests, they cannot disregard the principal's clear directives. For example, if a stockbroker is instructed to buy a specific stock but instead buys a different stock, the broker lacks authority, and the principal is not bound by the transaction.
• Authority After Termination: An agent's authority terminates when the agency relationship ends. After termination, the agent can no longer act on behalf of the principal. If an employee is fired but continues to enter into contracts on behalf of the company, the company is not bound by those contracts unless it takes some action to suggest otherwise.
• Gratuitous Authority: An agent cannot claim authority based solely on performing a service for free. While acting pro bono does create a certain expectation of conduct, that does not automatically translate to recognized legal authority to bind or represent the principal.
• Authority Based on Assumptions: An agent cannot assume they have authority based on unsubstantiated assumptions. Authority must be based on evidence or reasonable inferences from the principal's conduct or the circumstances. For example, an assistant cannot assume they have the authority to sign checks on behalf of their boss simply because they have access to the checkbook.
• Authority Acquired Through Deception: Authority cannot be acquired through deception or fraud. If an agent tricks a principal into granting them authority, the authority is invalid. For example, if a con artist impersonates a company executive and convinces a bank to grant them authority to withdraw funds, the authority is invalid, and the bank is liable for any losses.

Highlights of What Does NOT Constitute Agent Authority

Case Studies Illustrating Lack of Agent Authority

To further illustrate the concept of what is not a type of agent authority, let's consider a few case studies:

Case Study 1: Unauthorized Contract

A company hires a marketing manager to oversee its advertising campaigns. The marketing manager enters into a contract with a billboard company for a year-long advertising campaign without obtaining approval from the company's CEO, as required by company policy. The billboard company sues the company for breach of contract.

In this case, the marketing manager likely lacked authority to enter into the contract. While they may have had implied authority to negotiate advertising contracts, they did not have authority to sign contracts without the CEO's approval. The billboard company may argue that the marketing manager had apparent authority, but it would need to show that the company made some representation that led the billboard company to reasonably believe that the marketing manager had the authority to sign contracts on its behalf.

Case Study 2: Employee Acting Outside Scope of Employment

A store clerk sells a customer a defective television. The customer demands a full refund, but the clerk refuses, stating that store policy only allows for store credit. The customer sues the store for a full refund.

In this case, the clerk likely lacked authority to refuse a full refund. While they had the authority to sell televisions, they did not have the authority to make decisions about refunds that were contrary to store policy. The store may be liable for a full refund based on the clerk's apparent authority, but the customer would need to show that the store made some representation that led them to reasonably believe that the clerk had the authority to make decisions about refunds.

Case Study 3: Agent Exceeding Express Authority

A homeowner hires a contractor to remodel their kitchen. The homeowner gives the contractor express authority to spend up to $20,000 on the remodel. The contractor spends $25,000 on the remodel without obtaining the homeowner's approval. The contractor sues the homeowner for the additional $5,000.

In this case, the contractor likely lacked authority to spend more than $20,000 on the remodel. The homeowner gave the contractor express authority to spend up to that amount, but the contractor exceeded that authority by spending an additional $5,000. The contractor may argue that they had implied authority to spend the additional money because it was necessary to complete the remodel, but the homeowner could argue that the contractor should have obtained their approval before spending the additional money.

Practical Implications

Understanding what is not a type of agent authority has several practical implications for principals, agents, and third parties:

• Principals: Principals should clearly define the scope of their agents' authority and communicate those limitations to third parties. They should also monitor their agents' actions to ensure they are not exceeding their authority.
• Agents: Agents should understand the scope of their authority and act within those limits. They should not make representations to third parties that they do not have the authority to make.
• Third Parties: Third parties should verify the agent's authority before entering into any transactions. They should not rely solely on the agent's representations.

By understanding the different types of agent authority and the limitations on that authority, principals, agents, and third parties can avoid disputes and ensure that their transactions are legally binding.

FAQ

• Q: Can an agent create their own authority?
  • A: No, an agent cannot create their own authority. Authority must be derived from the principal's actions or the circumstances.
• Q: Is an agent always liable for acting outside the scope of their authority?
  • A: Yes, an agent is generally liable for acting outside the scope of their authority. The agent may be liable to the principal for breach of contract or breach of fiduciary duty, and they may be liable to third parties for misrepresentation or breach of warranty of authority.
• Q: Can a principal ratify an act that was originally unauthorized?
  • A: Yes, a principal can ratify an act that was originally unauthorized. To be effective, ratification must meet certain requirements, including knowledge, acceptance, and no prejudice to third-party rights.
• Q: How can a third party verify an agent's authority?
  • A: A third party can verify an agent's authority by contacting the principal directly, reviewing the agency agreement, or checking the agent's credentials.

Conclusion

In summary, understanding the different types of agent authority—actual, apparent, implied, ratification, and emergency—is essential for determining whether an agent's actions bind the principal. However, it is equally important to recognize what does not constitute valid agent authority. An agent cannot create their own authority, rely solely on their own statements, act contrary to instructions, or act after termination of the agency relationship. By understanding these limitations, principals, agents, and third parties can avoid disputes and ensure that their transactions are legally sound.