More on Power to Bind by an Unauthorized Act

In Sources of Apparent Authority, I discussed the apparent authority requires a holding out  (manifestation) by the principal; as a general rule apparent authority cannot be based only on the conduct of an agent.  That said, one of the traditional sources of apparent authority is appointing an agent to a position that, by custom, carries with it certain authority to act for the principal.  In most of the cases involving “power of position,” the principal does not communicate directly with the third person;  the only affirmative act by the principal is the appointment to the position.  That raises the question:  how is that apparent authority, as opposed to estoppel to deny agency power? That question leads to these further observations:

  • The traditional view is that an agent has implied authority to tell third persons the position to which the agent has been appointed.  A statement by the agent–a holding out–“I am the General Manager” (for example)–can be deemed to be a statement by the principal.  In Tutti Mangia Italian Grill v. Amer. Textile Maintenance Co., if the person who signed the contract as General Manager was, in fact, the General Manager (an additional fact), then the holding out by the GM was a holding out by the principal.
  • To the extent that you don’t buy the traditional view, then estoppel to deny agency power can apply.  The principal appoints the agent to a position with customary power.  The principal should reasonably foresee that the agent will tell his position to third persons, who will reasonably believe that the agent has the customary authority.  If the principal limited the agent’s authority, the principal’s failure to warn third parties of that limitation can form the basis of estoppel to deny agency power.
  • Where the agent is a general agent, apparent authority by position would also be inherent agency power (which Restatement Third of Agency rejects).

The point is that the Restatement categories tend to overlap.  Many states, such as California, tend to lump them all together into ostensible authority. 

As I tell my students, all these doctrines are just judges and professors trying to explain the circumstances in which power to bind by an unauthorized act arises.  But, as the Zen koan put its:  the finger that points at the moon is not the moon.

When Learned Hand was pointing at the moon, he probably didn’t intend to invent a new doctrine, inherent agency power.  Because he was the Revered Learned Hand, that’s what happened.  The Restatement Third would abolish the doctrine. Good luck with that.

posted by Gary Rosin


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