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Agent Authority and Contract Disputes

Litigation By Harvey Binnall PLLC - 2018/10/24 at 09:52pm

Alexandria Commercial Litigation Lawyer

Whether you are the plaintiff or defendant in a breach of contract dispute, litigation may be complicated if the contractual agreement itself was effectuated by an “agent.”  Parties may disagree that the agent had the authority necessary to create a valid and enforceable contract, and this could have a significant impact on liability.

Confused?

Let’s move forward step-by-step and examine the basics of agent authority in the contract dispute context.

Actions of Authorized Agents Bind Their Principal

Authorized agents — whether those agents have been authorized explicitly, impliedly, or apparently — may have the power to bind their principal to contractual agreements, depending on the scope of their authority.

For example, if a sales manager for your IT firm may be explicitly authorized to meet with prospective software clients and to enter into binding contracts with such clients on behalf of the principal IT firm.  Were the IT firm to breach the terms of that contract, it could not avoid liability by arguing that the agent did not actually have the authority to enter into the contract on their behalf.  The plaintiff could — ostensibly — establish that the agent had been granted explicit authority to do so.

Generally speaking, conflicts relating to agents in the contract dispute context are centered around the question of authority, and more specifically, authority that might not have been explicitly granted (i.e., apparent authority).

Understanding the Limits of Apparent Authority

Unlike explicit or implied authority, apparent authority is not granted by the principal to the agent but is granted based off the reasonable inferences of a third-party.

For example, if a court was examining whether an agent was granted explicit authority to enter into contracts on behalf of the principal, they would likely evaluate their employment agreement, internal emails and communications, and other evidence indicating the expected responsibilities of the agent.

On the other hand, if a court was examining whether an agent had “apparent authority” to enter into contracts on behalf of the principal, they would evaluate the conduct of the agent (and principal) and determine whether a third-party could reasonably infer that such binding authority existed.

The doctrine of apparent authority is meant to protect those who enter into contracts with agents who might not be explicitly granted the power to enter binding contracts, but who hold themselves out to have such authority.

Establishing apparent authority is not a simple matter, however.  Consider the following complications.

Reasonable Belief in Authority is Necessary

Apparent authority will not attach to an agent if the third-party does not “reasonably” believe that such authority exists.  In other words, a principal cannot be bound to a contract simply because a third-party was unreasonable in assuming that the agent had authority in a situation where they clearly did not.

How might this play out in practical terms?

Suppose that a secretarial intern at your company meets the management team of a prospective client while at a social mixer.  The intern is excited to prove that they are a valuable member of the company, and as such, they attempt to broker a deal at the party and get the management team to sign the contract.  The management team knows that the agent is a secretarial intern.  Under such circumstances, it would be patently unreasonable to believe that the secretarial intern had unilateral authority to bind their employer to a contract.

Agent Can Only Bind Principal When Acting Within Scope of Authority

Agents may have a limited scope of authority — authority is not unlimited.  If an agent takes action that goes beyond the scope of authority, then it may not bind their principal.

For example, a sales manager may only have the authority to enter into purchase contracts with potential clients.  It would be outside of the scope of their authority if they attempted to unilaterally sign someone to an employment contract with their principal.

Authority May Sometimes Be Created From Industry Expectations

In some cases, apparent authority can be created on the basis of social/market/industry expectations.  Most people would assume that the sole owner of a small, local business has the authority to enter into contracts on behalf of the business.  If the owner does “not” have such authority (perhaps they only enter into binding contracts after a consultation with managers), that might not be sufficient to void the contract, given the reasonable expectation of a third-party.

Consult an Experienced Alexandria Commercial Litigation Lawyer for Further Guidance

Harvey & Binnall, PLLC is a boutique commercial litigation firm located in Alexandria, VA and serving clients throughout the region — in Virginia, Maryland, and the Washington D.C. metro area.

We have decades of experience representing those who are involved in complex commercial litigation, plaintiffs and defendants alike.  This has granted us a broader view of contract disputes and helped us understand how to creatively resolve such disputes in a manner that is not only favorable for our client but is time and cost-efficient as well.

Ready to learn more about your case and the next steps necessary for proceeding with the dispute?  We encourage you to call (703) 888-1943 or send us a message online to request a consultation with an experienced Alexandria commercial litigation lawyer at Harvey & Binnall, PLLC.