Legalese: Agents and boundaries

A recent article discussed the topic of misrepresentations, and how they can create legal liability. An actionable misrepresentation can certainly be binding on your company through the action of one of your employees or other agent. There are many more areas, though, where one of your employees or other agents can be found to have committed you and/or your company. Agency is a legal concept with many nuances, and we will now take a more in depth look at agency and how it can potentially affect you and/or your business.

Agency is the relationship that exists between two people when one, called the agent, is considered in law to represent the other, called the principal. The agent is able to affect the legal position of the principal with third parties, by making contracts with them or dealing with their property. A good example would be one of your sales people at your rental store. He or she is your agent. If he or she commits to rent a particular piece of equipment to a third party for a certain price, your company will be bound by the contract negotiated by your agent. It will not be open to you to say later to the third party that the deal made by the agent is not satisfactory.

This agency relationship can often become very important when matters end up before the court and a determination must be made as to who was responsible. Was it the principal? The agent? Nobody?

First, let’s look at what makes someone an agent for a principal. Simply calling a person an agent is not enough. A key factor courts look at is the degree of control exercised by the alleged principal and whether the alleged agent must account to the principal for money he or she receives.

There are two types of agency relationships that can be created. The first is actual authority by express agreement or statute. This means that the principal has hired a person to act as an agent and has written down the terms in a contract or the roles are defined by a piece of legislation. A good example of this type of agency would include a realtor. The homeowner usually signs a listing agreement, clearly outlining the nature and extent of the actual authority being granted to the agent.

The other kind is known as apparent authority. In a case involving apparent authority the roles might not be expressly defined, but it is obvious that one person is acting as the agent for another through conduct. A good example of this type of agency would be a salesperson at a rental store. Although the rental store and the salesperson may not have a written contract, or ever even discussed the nature of their agency relationship, the fact remains that the salesperson possesses apparent authority to bind his or her principal.

You might think that actual authority does not cause many disputes because there is a written agreement that outlines the roles of the agent and the principal. Unfortunately, disputes still arise because these written agreements can often be deficient in terms of how they define such things as the breadth of the authority granted to the agent.

Implied authority can create even more problems. Issues will arise over what actions an alleged agent was carrying out, and whether it was reasonable for a particular third party to rely on the agent. At law, if you put someone in a position where it is reasonable for others to believe he or she is your agent, then you can be held liable for the actions of that person even if his or her conduct was outside the scope of their actual authority.

The question becomes one of degree, as there are a great number of different scenarios where someone could be exceeding their actual authority and binding you legally. The best course of action for you as a business owner would be to clearly define the nature of your agency relationships, and tell your customers and third parties about the nature and extent of the authority of the person with whom they are dealing. This is of particular importance if you have a concern about one of your agents potentially exceeding his or her authority.