Introduction
From a legal perspective, agency refers to a legal relationship between two people in which one person serves the other. The agent usually refers to the person acting for the other whereas the principal gives acting authority to the agent. In essence, agency can be created in a wide range of ways.
For instance, this could be through contract, ratification, estoppel or necessity. Unless the contract has undergone some modification, agents owe several duties to principals. These include but not limited to being obedient to the principal’s instructions, skillful acting, being loyal, protection of sensitive and private information and to account for all the expenses incurred.
In its application, agency law operates effectively within the confines of apparent and actual authority. Apparent authority is the authority of an agent as it appears to others and has been found to coincide with the actual authority (Munday 2010). This essay discusses the nature of both actual and apparent authority of agents and, with reference to relevant authorities and critically analyzes the relationship that the two forms of authority share.
Apparent authority
Apparent authority is also referred to as ostensible authority and it relates with the provisions of the law of agency. This type of authority finds a lot of application and relevance in constitutional law and corporate law. This segment of the agency law puts emphasis on the need for action to be taken by an agent when rendering legally recognized services or performing duties. It simply refers to a scenario where a normal person would easily notice and comprehend the existence of authority for the agent to take some action (Munday 2010).
In other words, the actions of the agent bind the principal despite the fact that the agent may not have had actual authority that is implied or expressed. Since the third party is normally given an assurance, this authority has the ability to raise an estoppel. As a result of this assurance, would be unfair for the involved principal to reject the granted authority.
Additionally, apparent authority allows some form of omission by the principal. This occurs when the agent’s actions are geared towards giving unrealistic impression to the third party, a case that leaves the principal unbound. Nevertheless, the principal becomes bound if these actions take place in his presence while he is silent, without doing anything to deter the third party from getting convinced that the principal could be bound by the authority commanded by the agent (Munday 2010).
It is also worth noting that apparent authority may occur in cases where the agent’s authority has been terminated by the principal but this information remained undisclosed to the third parties. Legal experts refer to this situation as lingering apparent authority. However, it is also possible for business owners to avoid being liable by making a prior notification to the public, stating the termination of the authority. Additionally, this can be attained by successfully contacting a third party who had a just reason to have such authority disclosed to him.
In this regard, the apparent authority found in companies, involving directors, agents and company agents are commonly referred to as ostensible authority. This authority has also raised points of concern in the context of the Fourth Amendment questioning the person with the legal authority to authorize searches and seizures (Munday 2010).
Under the apparent authority, a person is seen to signify an agency and acts on behalf of the agency not considering the existence of such authority within legal boundaries. As mentioned above, this law is common when dealing with larger companies in relation to how members of such organizations are able to come to a consensus with other individuals on behalf of the entire company (Munday 2010).
A good example is a case where an employee working at a cash register in a retail shop may lack the legal actual authority to determine prices for consumers, even though he or she may have apparent authority to customers to push for a price adjustment for certain commodities.
Generally, issues revolving around apparent authority occur in relation to the presence of large business organizations and the willingness to represent their organizations to other people. In other words, companies that engage in hiring consultants or other third parties to perform important responsibilities, widen apparent authority to such individuals without relinquishing any form of actual authority to them.
At this stage, the law allows employees of a company to discuss business terms including the establishment of policies that affect the pricing of commodities for specific customers even in cases where such employees lack relevant authority. Although there are several ways in which this authority can be established, it principally depends on being hired, official clothing, official cars and having business cards carrying their name (Emanuel & Emanuel 2009).
Legal provisions
It has been argued that apparent authority usually finds its relevant application to guard against the possibility of the principal asserting that the agent has authority when there is no authority like that. In most cases, principals tend to revisit the agreement based on the fact that the agent lacked any form of authority (Emanuel & Emanuel 2009). According to legal experts, apparent authority can be applied in the enlargement of actual authority and in the establishment of authority especially in cases where actual authority is missing.
In general, any law that relates to the ostensible authority and to companies represents a section of rules contained in the apparent authority and the general law of agency. However, due to the predominance of matters touching corporate law, their specific bodies have been developed for the purpose of pursuing case laws (Stim 2010).
Apparent authority problem
In the understanding of agency law, it is worth noting that apparent authority has certain issues which always make it complicated in its application. In most cases, expressed authority is given to the business agent although the picture is somehow muddled under certain circumstances. It is believed that apparent authority commonly comes into play when a “past course of dealing” has been experienced with the creditor (Emanuel & Emanuel 2009). In such a case, the agent with actual authority may have had several contacts with the creditor, acting on behalf of the principal. Additionally, these cases are accompanied by payment of bills by the principal after receiving them.
It is also worth noting that under this authority, the power of the employees is frequently undermined. This happens since from the previous course of dealing, it is possible for the creditor to be convinced and believe that that principle is still being represented by the agent, especially when no notification is made to the creditor. In case the agent goes ahead to form a contract with the creditor based on this assumption while acting in the capacity of the principal, then the principal is responsible for the contract as a result of apparent authority (Business Owners’ Toolkit 2011).
In simple words, an employee may lose his or her job but retain the power to bind the business to contracts. In this case, the limited liability company would represent the responsible principal as long as required precautions have been taken by the business owner aimed at separating him or her from the liabilities of the business.
The implication for this is that the owner of the business has to do all that it takes to have his investments protected within the business. However, the issuance of notice is quite important. In the event that apparent authority ceases to exist, creditors must receive notices indicating that the agent can no longer transact and act on behalf of the principal. In this regard, there are two types of notices common in agency law. These are actual individual and constructive notices (McDuffy 2001).
According to the law, the principal is supposed to provide the creditors with actual notices. These creditors are mainly those with whom a past course of dealing has been established by the agent. Above all, the principal is required to prove that the creditor was issued with the notice. This can be achieved through a telephone call or a letter, which have to be documented by the business owner for future verification. Other documents like return receipts and certified letters may be recommended in cases where there exists high risk exposure.
A constructive notice is recognized since letters or phone calls may be sufficiently applicable in cases there is no existing relationship between the business and creditors (Emerson 2009). This type of notice is best represented by circulating newspapers. In the event of a previous course of dealing, it becomes inapplicable. As a result, covering all potential creditors is therefore important.
Actual authority
By definition, actual authority refers to specific powers given by the principal to the agent to act on his or her behalf. This type of power can be considered general or special power. It is also referred to as express authority. In most cases under the application of agency law, actual authority stems from the words or conduct of the principal which may give the agent a basis to believe that he or she has the powers to act on behalf of the principal.
In most cases, this authority is always passed to the agent either in writing or orally (Munday 2010). In this regard, written authority is the most preferred as verbal authority cannot be easily be established. During its application in corporations, written authority comprises of resolutions and bylaws from meetings held by the director, which confer powers to an individual to act on behalf of the company.
Express actual authority
This type of authority is given to the agent by the principal expressly. In other words, the agent is informed of what is expected of him based on the conferred powers. It is always declared with clarity through writing or orally, indicating the definite terms to govern the dispensation of power given by the principal. For fare and proper application of express actual authority, the equal dignity rule is quite essential (Meiners, Ringleb & Edwards 2011).
According to this rule, when an agent is executing a contract on behalf of the principal, evidence of the agent must be equally be put in writing to prevent cases of rendering it voidable in future. However, this rule is not applicable especially in cases where the agent is acting in the presence of the principal or when the agent’s actions are obligatory.
Implied Actual Authority
As mentioned above, this type of authority is applicable in cases where a third party assumes that the agent has been granted some powers to act on behalf of the principal. The third party therefore makes the assumption regardless of whether the agent was expressly given the powers to act or not. This is to say that a third party can assume that an agent has expected powers always given by the principal when such authority does not exist in reality (Meiners, Ringleb & Edwards 2011).
Within the application of agency law, it may be found that the scenario revolving around an agent’s actions clearly imply that actual authority exists. It may also be assumed that the manager receiving orders from the contracting officer to find a solution for a given problem has enough powers to do so and that executed actions may bind the government to remit taxes for any extra work that is likely to be done (Bradgate & White 2007).
This may not be based on the fact that the person’s appearance could denote him or her to be an agent but on the circumstances which generate the necessity of having actual authority granted by a contracting representative. In most cases, the government is liable for any consequences arising from the execution of authority by a contracting officer to give guidance aimed at finding a solution to an existing problem.
Limits on authority
Although contracting officers may be in the capacity to confer powers, their actions are always limited by the laws which regulate procurement in various corporations. For instance, no contracting officer is allowed to engage in a contract with a disqualified contractor. Additionally, contracting officers are not allowed to authorize amendments of the contract, when such corrections are aimed at benefiting the contractor alone (Munday 2010).
This implies that any modifications that are likely to affect the substantive rights of the parties involved in the contract are null and void unless backed with consideration. For instance, if a contracting officer agreed to cater for damaged losses during construction would be inconsistent with the recognized contract and would not be binding under such a contract.
Conclusion
From the above analysis, it is evident that agency law is essential in the management of contracts especially where certain powers are conferred to agents or other parties to act on behalf of the principal. Under this segment of the law, actual and apparent authorities are extremely significant. For instance, actual authority encompasses both implied and express authority and involves the intentional conferment of authority to the agent by the principal, intentional implication for the existence of the agent’s power or by allowing the agent to believe in his powers as a result of want of due care (Munday 2010).
On the other hand, apparent authority emanates from participation acquiescence or knowledge by the principal which grants the agent with authority to act on his or her behalf. However, there are certain limitations that apply in determining the application of apparent and actual authority. In executing these, it is important for the involved parties to be guided by the provisions of the agency law in order to realize the application of these authorities holistically.
References
Bradgate, R & White, F 2007, Commercial Law, Oxford University Press, London.
Business Owners’ Toolkit. 2011, The Problem with Apparent Authority. 2007. Business Owners’ Toolkit: Blog. Web.
Emanuel, S & Emanuel, L 2009, Corporations, Aspen Publishers Online, New York.
Emerson, R 2009, Business Law, Barron’s Educational Series, New York.
McDuffy, 2001, A discussion of legal issues affecting big chapters Prepared for the Officer Leadership training materials. Web.
Meiners, R, Ringleb, A & Edwards, F 2011, The Legal Environment of Business, Cengage Learning, Connecticut.
Munday, R 2010, Agency: Law and Principles, Oxford University Press, London.
Stim, R 2010, Contracts: The Essential Business Desk Reference, Berkeley Press, California.