Flyover 2 - Authority

Welcome to the second agency and partnership flyover lesson. Agents have real power to affect the affairs of their principals. Let's go through some of the ways this can happen.

Actual Authority

The simplest way for an agent to have authority to affect a principal's affairs is for the principal to give the agent actual authority. Actual authority comes in two flavors: express authority and implied authority.

Express authority arises when the principal expressly tells the agent to do something. If I say, "Go buy me a copy of the newspaper at this shop," and my agent goes and buys that paper, she's acting with my express authority. If she buys a magazine instead, she's acting outside her express authority.

Actual authority may also be implied. The test here is whether the agent reasonably believes, in accordance with the principal's manifestations to the agent, that the principal wishes the agent to act in a particular way. The key for determining whether an agent acted with actual authority is the agent's reasonable understanding at the time the agent takes action.

If the principal forms an agency relationship and then later lets the agent know about her preferences, the agent can no longer reasonably believe that the principal wants the agent to act in a way that runs against the principal's preferences.

You should be thinking about the reasonable scope of an agent's authority whenever an agent begins to do things that a principal has not specifically instructed her to do. Some reasonable independence will be within the bounds of the agent's authority. But if it's something that the agent should have known that the principal would not approve of, it's likely outside their authority.

Apparent Authority

Apparent authority is another doctrine that makes for some great MEE questions. This is the Restatement's test for apparent authority. Apparent authority is the power held by an agent or other actor to affect a principal's legal relations with third parties when a third party reasonably believes that the actor has the authority to act on behalf of the principal, and that belief is traceable to the principal's manifestations.

Apparent authority often confuses people because it allows an agent to bind a principal to a contract, even if the agent is acting outside her authority. The key to the apparent authority doctrine is what the third party reasonably believes about the scope of the agent's authority, and if the third party formed that belief based on some manifestation from the principal.

This manifestation can happen in different ways. The principal could tell the third party that the agent has their authority to reach a deal, and then privately instruct their agent about what kind of deal to agree to. If the agent oversteps and pays a higher price than what the principal privately instructed, the principal will still be bound. Here, the manifestation about the agent's authority went directly from the principal to the third party.

But this is not the only way for apparent authority to arise. A principal could put some statement on a website or make statements to one person which are then repeated to the third party. The manifestation simply must be traceable to the principal, not directly conveyed by the principal. Anytime you see an agent exceeding their authority, you'll want to think about apparent authority.

Inherent Agency Power

Although it's in decline, some courts still apply inherent agency doctrine. This doctrine will make a principal liable for an agent's actions when the agent does something similar to what the agent was authorized to do but in violation of the principal's orders. In most instances, the absence of any apparent authority will mean that the agent did not have the power to bind the principal.

Vicarious Liability

Agents create liability for the principals. It's helpful to run through different vicarious liability scenarios here.

Employee Contexts - Torts

If the agent is an employee, the principal will generally have vicarious liability under the respondeat superior doctrine, so long as the agent was acting within the scope of employment. If you hire someone to do a job and they commit a tort while working, the employer will be responsible.

Whether something falls within the scope of employment turns on whether it occurs within an independent course of conduct not intended by the employee to serve any purpose of the employer. For example, if the agent left the job site while on break and committed the tort elsewhere, it would not be within the scope of employment.

Independent Contractors/Non-Employee Agents - Torts

Independent contractors generally do not generate liability for a principal when they commit a tort because the principal does not have the authority to fully control the manner and means the independent contractor uses to complete a job.

One exception to this rule is whether the principal specifically instructed the independent contractor to do the job in a particular way. For example, if you tell an independent contractor to drive at a reckless speed because you want the delivery as soon as possible, the principal would likely have liability for any injuries caused by operating a vehicle at an excessive speed.

Negligent Hiring and Supervision

A principal may also incur liability by inappropriately selecting an agent. For example, if a principal knows an agent has a history of reckless driving and the principal employs her as a driver anyway, the principal may be liable if the agent behaves negligently. Similarly, if a principal knows that the agent performs her services in a negligent or dangerous way and does nothing to address it, the principal may be liable for injuries caused by the agent.

Non-Delegable Duties

Sometimes the law will impose a non-delegable duty on a principal to see that something is done in a particular way. These duties are non-delegable because the principal remains liable even after delegating the work to an employee or independent contractor. Functionally, in these situations, the principal has a strong incentive to pick a good agent and to supervise them.

This kind of duty usually arises with inherently dangerous activities like using dynamite to blast a hole in a mountain. A principal cannot escape liability for rocks or other debris raining down on neighbors simply by hiring an independent contractor to do the blasting.

Summary

In summary, always think through an agent's authority under both actual and apparent authority doctrines. Just because an agent lacks actual authority does not mean that they cannot go ahead and bind a principal under apparent authority.

Distinguishing between independent contractors and employees requires you to apply the manner and means test. When principals integrate agents into their operations, they're much more likely to be employees.

Principals may often evade liability for torts committed by independent contractors. Always look to see if some exception applies. Did the principal instruct the agent to behave recklessly, or does the activity involve some non-delegable duty? Those are the situations to watch out for.