BFV Perspectives, Georgia Business Disputes, | Mar 11, 2014

Apparent Authority Club

On a plane flight, you find yourself seated next to Tyler, who tells you that he works for the Paper Street Soap Company.  He gives you his card, which does not denote his title, and shows you some of the soaps his company offers. 

You are so taken with Tyler’s product that you decide to make his company the exclusive soap supplier for a restaurant chain you own.  The two of you make an oral agreement that your companies will enter into an exclusive relationship with each other, which will be finalized the next week in person.

When you arrive at Paper Street Soap Company’s offices, you are greeted by Jack, who presents himself as the President and CEO of the Company.  When you mention Tyler, Jack says, “Tyler’s not here.  Tyler went away.”  Jack further explains that only he makes decisions about relationships with other companies.  He is not interested in your oral agreement with Tyler and will neither honor nor otherwise entertain it. 

You explain that you believed that Tyler had authority to bind the company in this way – after all, he had a card and appeared to speak from a position of authority.  Jack replies, “this conversation is over,” reenters his office, and shuts the door.

You are shocked.  You begin to lose sleep about the situation.  Is there some way you can fight Tyler and Jack and bind the company?

The doctrine of apparent authority allows a principal (Jack) to be held liable for the representations of his agent (Tyler) in certain circumstances.  To establish liability under the doctrine of apparent authority, a claimant must show: (1) that the alleged principal held out another as his agent; (2) that the plaintiff justifiably relied on the care or skill of the alleged agent based on that representation by the principal; and (3) that this justifiable reliance led to an injury.

Here, however, your belief that Tyler had authority to bind the Company derived not from anything Jack did, but simply from your subjective impression of Tyler.  The doctrine of apparent authority is rooted in fairness and, where Jack did nothing objective to hold Tyler out as having authority, the reasoning typically goes that fairness does not dictate that Jack should be held liable.  The harsh but logical answer is that, absent such a representation from the higher-ups in the company, those who deal with the company’s representatives bear the risk of such a misunderstanding.

When you meet a purported representative of a company, then, the rule is clear: contact the office and do talk about apparent authority club. 

BFV Perspectives, Georgia Business Disputes, | Mar 11, 2014