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Agency • Liability of Principal for Agent's Contracts
AG#013
Legal Definition
An agent has apparent authority from a principal where (1) the principal cloaked the agent with the appearance of authority, and (2) a third party reasonably relied on that appearance of authority.
Plain English Explanation
Imagine if, due to a printing error, one of your low-level associates received a business card with the title "Vice President" or "Partner." Without realizing the mistake, the associate networks with vendors and offers to do business. Those offers would be valid if the vendor believed they were speaking with someone who had the authority to make such an offer. Why? Because the employee was cloaked with the appearance of authority, and the vendors reasonably relied on that appearance of authority.
Hypothetical
Hypo 1: Sam owns a pizza parlor. He hires Bob as an independent contractor to clean the restaurant. One day, Sam has to step outside for a few hours and leaves Bob alone to clean. Amy walks in and is interested in having a large pizza party. She sees Bob standing alone behind the counter and assumes he is an employee. She asks him if she can hire them to cater her pizza party and Bob decides to go with it and says, "Sure thing." Bob then takes a stack of paper and writes up a contract. Amy signs and agrees. Result: Bob has apparent authority to act on behalf of the pizza parlor because Sam has cloaked Bob in a sense of authority by leaving him alone behind the counter and Amy reasonably believes Bob is an employee with the ability to engage in such an agreement.
Related Concepts
How can actual express authority be revoked?
How can a principal ratify an agreement that their agent made without authority to do so?
When does an agent have actual express authority to enter into an agreement?
When does an agent have actual implied authority to enter into an agreement?
When is an agent liable to a third party for an agreement they entered into on behalf of their principal?
When is a principal liable for contracts created by their agent?
