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Agency • Termination of Principal-Agent Relationship
AG#021
Legal Definition
Apparent authority ends when it is no longer reasonable for the third party with whom an agent deals to believe that the agent continues to act with actual authority.
Plain English Explanation
Remember: apparent authority exists when a third party is reasonably led to believe that an agent has the authority to act on behalf of the principal. This is fair to the third party, who is essentially misled. Thus, when it is no longer reasonable for the third party to hold this belief, then the apparent authority terminates.
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.
Hypo 2: Same facts as Hypo 1, except as Bob is writing up the contract, Amy notices how dirty Bob's hands are. She also notices that Bob has a name tag that says "Bob Janitorial Services." Amy asks Bob, "So how many pizzas do you usually make per day?" Bob responds, "Oh, I'm just a janitor. I've never made one before. Sam won't let me." Bob finishes the contract and hands it over to Amy to sign. Result: At this point, it is no longer reasonable for Amy to believe Bob has the apparent authority to act on behalf of the pizza parlor. Even if Amy signed the contract, it would not be enforceable against Sam since the apparent authority has terminated before the agreement was formed.
Hypo 2: Same facts as Hypo 1, except as Bob is writing up the contract, Amy notices how dirty Bob's hands are. She also notices that Bob has a name tag that says "Bob Janitorial Services." Amy asks Bob, "So how many pizzas do you usually make per day?" Bob responds, "Oh, I'm just a janitor. I've never made one before. Sam won't let me." Bob finishes the contract and hands it over to Amy to sign. Result: At this point, it is no longer reasonable for Amy to believe Bob has the apparent authority to act on behalf of the pizza parlor. Even if Amy signed the contract, it would not be enforceable against Sam since the apparent authority has terminated before the agreement was formed.
