Definition Apparent Authority Agency
“The doctrine protects innocent third parties who have reasonably relied to their detriment on the representations of those whose principal claims to have the power to act on his behalf.” We will look at what apparent authority is, define apparent authority, look at examples of apparent agency and how it can affect the agent and client, compare it to real authority and much more! There are four factors of apparent authority required to bind a company to a contract or agreement that results from the actions of an agent. FN6: Id. (with the statement that “apparent authority therefore results only from the actions and behavior of the customer”) (emphasis added). Most business owners understand that agents can bind the business and create obligations and responsibilities because of their actual authority. For example, a store manager can sign for a delivery of goods, a CFO can open an operating account with a bank, and a CEO can make a statement to the news media on behalf of the company. FN3 Activities like these are not attributed to these people individually, but to the company itself. In most cases, a person will act on behalf of another person who corresponds to a real or explicit authority. The doctrine of apparent authority often appears in agency law. Under agency law, an apparent authority is defined as a representative authorized to act on behalf of a principal where manifestations from the principal to a third party would lead a reasonable third party to believe that the principal authorized the agent to act. If an agent has obvious authority and acts within the framework of authority, then the client is bound by the agent`s actions. Sensenig`s victims then discovered that Grease had given Monkey Sensenig considerable powers to borrow money without the approval of the board of directors, and that he had failed to exert control over their president. Seeing that this lack of oversight was a key factor in the case, the court concluded that Grease had enveloped Monkey Sensenig with an “apparent authority” that the fraud victims had relied on. Grease Monkey was ordered to repay the money.
The good news is that the law is clear that apparent authority arises only from the actions or inactions of the client. FN6 officers and alleged agents cannot create the circumstances that establish their apparent authority. FN7 However, this sometimes means that the customer must actively inform third parties that one or more people are not authorized to bind them or their business. In the context of commercial transactions, the notion of apparent authority may very well be relevant. In situations as simple as a person speaking on behalf of a company or acting as a representative of a company, you may have an agency relationship. Connecticut uses the definition set out in Restatement (Third) of Agency § 2.03 (2006): “Apparent authority is the power that an agent or other actor possesses to influence a principal`s legal relationship with third parties if a third party has reasonable grounds to believe that the actor is authorized to act on behalf of the principal and that belief is due to the client`s protests, to recognize apparent authority and apparent free will as distinct doctrines. What is less known is that an agent – or even a former agent – of a company can bind that company if that person has only the obvious authority to speak or act on behalf of that company. FN4 Apparent authority arises when a third party reasonably believes that someone is an agent of the company. FN5 In these situations, the law protects reasonable third parties and the company is bound as if the (alleged) agent had acted with the actual authority of the company. Agents – whether they are other owners, managers, agents or employees – enable companies to get things done on a daily basis. Companies therefore give these agents real authority (explicit or implicit) to speak or act on behalf of the company itself. FN1: The title of this entry refers to “partners” for simplicity, but the remarks here apply not only to partners, but also to many other business relationships, including relationships between co-owners, owners and management, as well as a company and its employees.
For example, members of a member-run LLC are functionally synonymous with partners in terms of agency powers. To explain the idea behind apparent authority, consider the context of a committed romantic relationship. Suppose you know two people in such a relationship and one of them tells you that the other would attend a party or event. Here, you would probably normally expect another partner to actually participate (without reasonable excuse). And you`d expect that precisely because one partner told you that the other would actually participate. An apparent authority (also known as an apparent agency) refers to a situation in which a third party reasonably believes that a person or organization has the authority to act on behalf of another person. The doctrine of apparent authority is based on the concept of forfeiture, so that it prevents the client from denying the existence of an agency to a third party, provided that he has made a representation to the third party, either by his words or by his deeds, of the authority of the agent. The notion of apparent authority derives from the law of the agency, in which one person is considered an agent of another person (the client).
FN7: Digital Ally, Inc. v. Z3 Tech., LLC, 754 F.3d 802 (Cir. 10, 2014) (noting that “the agent`s actions alone are not sufficient to establish obvious authority,” but finding that the public servant had obvious authority in part because the bylaws “expressly gave him authority”). For corporations,[2] the apparent authority of the directors, officers and representatives of the corporation is generally referred to as “alleged authority.” Obvious questions of authority also arise in the context of the Fourth Amendment, which concerns who is allowed to consent to a search. [3] The rule in the case of Turquand does not allow a third party to engage the company per se in an unauthorized transaction. It allows a third party to assume that a transaction that falls within the jurisdiction of the directors has been duly approved, but it requires the third party to establish the fact of a real or obvious authority. In general, the doctrine of apparent authority is used to defend against allegations that one officer did not have the power to bind another (usually in business). If one person (or legal entity) acts by words, statements, representations, manifestations, or behavior on behalf of another, then you have that person who has obvious authority to act on behalf of another. In Freeman and Lockyer v.
Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480, the director in question managed and acted on behalf of the company`s property and, as such, instructed the applicant architects to draw up plans for the development of the company`s owned land.
