Introduction to Agencies

Agent Classification and Authority

The characteristics of the agent may affect whether the principal is liable for actions the agent undertakes. Agents act with actual authority or apparent authority, and either type of authority can bind a principal in contract and for some torts.

A principal appoints a general agent, one who is authorized to carry out duties and make decisions on behalf of the principal, to do all acts connected within a particular business or trade, and the agent has the authority to act within that scope. As long as the agent stays within the limits that the agent and principal have agreed upon, then the agent has actual authority—specific and expressly conferred authority and power that the principal gives the agent. If the agent is appointed as a manager, then they may bind the principal for all their acts related to managing that particular department, project, product, property, or business. Bind the principal means that the principal is legally and contractually responsible for the agent's actions in this situation.

How do third parties fit into the agent-principal relationship? Third parties are permitted to assume that the agent has the authority to do all the tasks and functions within the scope of the appointment. If the agent acts within that apparent authority but does something that creates liability or obligation, then the principal is responsible for the agent's acts. There are exceptions, such as if the third parties have notice that the agent's apparent authority is limited or changed in some way. As such, this puts responsibility on the principal to control the actions of, and therefore the potential damage done by, the agent.

A principal appoints a special agent to perform a specific act on behalf of the principal. This is typically limited to one transaction.

A universal agent enjoys unlimited authority to do all acts that the principal delegates, including those that the principal could lawfully perform themselves. For instance, a business owner who is moving toward retirement may authorize a universal agent to conduct business on her behalf. A principal may have only one universal agent.

Agency Types

Type of Agent Example
General A realty company hires a building manager to perform maintenance in an apartment complex.
Special A taxpayer hires a certified public accountant to prepare her income tax return for one year.
Universal A business owner has a medical emergency. Through a document called power of attorney, he appoints his lawyer to conduct business in his name and sign contracts on his behalf.

Agency types include general, special, and universal.

Actual authority includes express authority and implied authority. Express authority is when the principal has dictated what needs to be done, explicitly and in detail. Implied authority is the power of the agent to perform acts that are reasonably necessary to fulfill their duties but that were not specifically dictated by the principal.

Apparent authority happens when a reasonable third party believes that the agent had authority to act, regardless of whether the principal gave the agent actual authority to do the specific acts in question. By giving the agent certain titles or having common powers for agents in specific industries, the principal is considered to have made a representation to the world at large that their agent has the ability to do these usual things associated with their position. The third party may rely on that representation. This puts the burden on the principal to carefully manage the responsibility and powers given to an agent because apparent authority creates the same liability as actual authority. For example, Mr. Campbell has been writing and approving contracts with third-party vendors for over a year, and he entered into one with a new vendor for services. The third party was unaware that the principal did not want to participate with the new third party. Apparent authority was present since the new vendor was familiar with Mr. Campbell's dealings with other similar vendors and believed Mr. Campbell had authority to act on the part of the principal.