1900 Scope of Agent’s Authority as to Third Persons*
If the
What Is the Scope of an Agent's Authority?
Ultimately, this depends on the agreement made between the
principal and the agent. In general, there are two ways to
determine the scope of an agent's authority:
 Express: An agent's authority can be expressly
determined. If an agreement specifies an agent's
duties, an agent does not have authority to
represent the principal beyond those duties.
 Implied: An agent's authority can be implied by
custom. Custom is determined by the express
duties of other agents in the same position. For
example, a realty company hires a real estate agent.
It is implied that the agent has authority to help
third parties buy and sell homes since it is the
custom among real estate agents.
Are There Other Ways to Determine an Agent's Authority?
There are situations where an agent's authority is created
even if the person is not an agent. Here are examples of
these different situations:
 Apparent Authority: A principal has a duty not to
misrepresent another as his/her agent. When a
principal (accidentally or purposefully) causes a
third party to believe that someone is an agent, the
principal is bound by the agent's actions even if the
person was not an agent. The third party must be
reasonable in believing that the person was an
agent. Also known as agency by estoppel.
 Emergency Powers: In an emergency situation, an
agent may act beyond his/her authority even if the
principal did not give the agent permission. For
example, an agent might use company funds to
provide medical attention to an injured employee.
The agent may not have authority to do so, but the
emergency situation would excuse the agent's
actions.
 Ratification: There are times when a principal will
authorize the agent to act beyond his/her authority.
As long as the principal knows about the stretch in
authority and ratifies the action ahead of time, the
agent has authority to act.
Why Is Agent Authority Important?
Agent authority often decides whether a principal or an
agent is liable for a lawsuit. If the agent acts under the
principal’s authority, then the agent was most likely under
the principal’s control, thereby making the principal liable.
In most instances, the principal has more money than the
agent. As a result, injured parties want to go after a principal
because that means more money, even though suing the
agent would be easier.
What Happens If the Agent Was Operating Outside the
Scope of Authority?
If the agent was outside his or her scope of authority, then
the principal is not liable for any injuries. The only
exception is if the principal ratified an agreement.
agent was acting outside the scope of authority, the agent
may be liable for any injuries or breach of contract.
How Can an Attorney Help Me?
An agency relationship is similar to an employer-employee
relationship. An experienced employment lawyer can assist
you in issues dealing with issues involving agency law. For
example, an employment lawyer can help you draft an
agency agreement or inform you if any parties have violated
their duties.
An agent has different kinds of authority which he exercises
in the course of the performance of his duties. These include
the following:
Actual authority: This exists where the agent has been
expressly instructed to act on behalf a principal. Actual
authority is of two types. The first is the express actual
authority is an explicit authority given to the agent to act on
behalf of the principal. It may be withdrawn, suspended or
modified at any time before the agent has executed it. The
second is the implied actual authority which is the authority
that can be inferred from the circumstances of the express
agreement or from such matters as the customs or nature of
trade or business which the agent is employed to transact.
Implied actual authority is of three types. One, incidental
actual authority. As a general rule, every agent has the
implied authority to do whatever is necessary for, or
ordinarily incidental to, the effective execution of his express
authority in the usual way. Thus, an agent expressly
authorized to sell cars and entrusted with possession of the
car has an implied authority to take potential buyers for test-
drive and to fuel the car to do so. Similarly, an agent who is
authorized to buy/sell land outside native law and customs is
reasonably expected to sign necessary documents even
though the principal did not expressly instruct him to do such
because the signing of documents is an indispensable
attribute of such sale of land.
Two, usual authority. This authority has to do with those
things which similar agents usually or normally have
authority to do. Its use relates to the notion of reasonableness
and it has to do with an agent who belongs to an established
trade, business or profession. An instance is the case of a
Managing Director of a company. He is authorized to manage
and conduct the company’s business and as such has the usual
authority to pay out money in satisfaction of a rightful claim
against the company. Therefore, a principal in this
circumstance is liable for all the acts of the agents which are
within the authority usually conferred on agents of that
character. In this context, where the principal has expressly
prohibited the agent from acting the way he did, he is still
bound by the usual authority of the agent unless the third
party had notice of the limitation.
Three, customary authority. Where an agent is employed to
act for his principal in a certain place, market or business,
then the agent is impliedly authorized to act according to the
customs and practices of such place, market or business; and
if such customs and practices are lawful and reasonable, the
principal is bound, whether he is aware of them or not.
The difference between usual authority and customary
authority is that whereas the basis of usual authority is an
inference from the ordinary course of a particular trade,
business or profession, the basis of customary authority is the
custom and practice of a particular place, market or business.
Apparent authority: This exists where the principal’s words
or conduct would lead a reasonable person in the third party’s
position to believe that the agent was authorized to act even
if the principal and the purported agent had never discussed
such relationship. An instance is where one person appoints a
person to a position which carries with it agency-like powers,
those who know of the authority are entitled to assume that
there is apparent authority to do the things ordinarily
entrusted to one occupying such a position. If a principal
creates the impression that an agent is authorized but there is
no actual authority, third parties are protected so long as they
have acted reasonably.
Presumed authority: This expression is usually used to
describe the authority of an agent in two cases where agency
is created by operation of law, namely: authority presumed
from cohabitation and agency of necessity. The former
situation may arise where a husband and wife live together
and maintain a household establishment, especially where the
wife is a full-time housewife. She can act on behalf of her
husband as his agent in matters of necessaries and the
husband is bound to take responsibilities. Even where there is
no legitimate marriage but there is cohabitation, agency can
result from that, this authority is said to be presumed.
Necessaries here are referred to goods that are really
necessary and required by the woman for her use having
regard to her station in life. This will include items of food,
clothing and household utensils.
In the case of agency of necessity, the authority results from
emergency situations. An agency of necessity arises when, in
emergency conditions, a person is obliged to act in order to
prevent irreparable loss to another. Such an agency is implied
by law to exist in certain circumstances where, for example
an agent makes a sale of perishable goods before time, due to
the circumstances surrounding him. This would be binding on
the principal.
1901 When agent’s lack of authority not available as a
defense
2.2.5
(Agent acting without or exceeding its authority)
(1) Where an agent acts without authority or exceeds its
authority, its acts do not affect the legal relations between
the principal and the third party.
(2) However, where the principal causes the third party
reasonably to believe that the agent has authority to act on
behalf of the principal and that the agent is acting within the
scope of that authority, the principal may not invoke against
the third party the lack of authority of the agent.
Lack of authority
Paragraph (1) expressly states that where an agent
acts without authority, its acts do not bind the
principal and the third party to each other. The
same applies to the case where the agent has been
granted authority of limited scope and acts
exceeding its authority.
As to the liability of the false agent vis-à-vis the
third party, see Article 2.2.6.
Illustration
Principal B authorizes agent A to buy on its behalf
a specific quantity of grain but without exceeding a
certain price. A enters into a contract with seller C
for the purchase of a greater quantity of grain and
at a higher price than that authorized by B. On
account of A’s lack of authority, the contract
between A and C does not bind B, nor does it
become effective between A and C.
Apparent authority
There are two cases in which an agent, though acting
without authority or exceeding its authority, may bind the
principal and the third party to each other.
The first case occurs whenever the principal ratifies the
agent’s act and is dealt with in Article 2.2.9.
The second case is that of so-called “apparent authority” and
is dealt with in paragraph (2) of this Article. According to
this provision a principal, whose conduct leads a third party
reasonably to believe that the agent has authority to act on
its behalf, is prevented from invoking against the third party
the lack of authority of the agent and is therefore bound by
the latter’s act.
Apparent authority, which is an application of the general
principle of good faith (see Article 1.7) and of the
prohibition of inconsistent behavior (see Article 1.8), is
especially important if the principal is not an individual but
an organization. In dealing with a corporation, partnership
or other business association a third party may find it
difficult to determine whether the persons acting for the
organization have actual authority to do so and may
therefore prefer, whenever possible, to rely on their apparent
authority. For this purpose the third party only has to
demonstrate that it was reasonable for it to believe that the
person purporting to represent the organization was
authorized to do so, and that this belief was caused by the
conduct of those actually authorized to represent the
organization (Board of Directors, executive officers,
partners, etc.). Whether or not the third party’s belief was
reasonable will depend on the circumstances of the case
(position occupied by the apparent agent in the
organization’s hierarchy, type of transaction involved,
acquiescence of the organization’s representatives in the
past, etc.).
Illustrations
A, a manager of one of company B’s branch offices, though
lacking actual authority to do so, engages construction
company C to redecorate the branch’s premises. In view of
the fact that a branch manager normally would have
authority to enter into such a contract, B is bound by the
contract with C since it was reasonable for C to believe that
A had actual authority to enter into the contract.
A, Chief Financial Officer of company B, though lacking
authority to do so, has, with the acquiescence of the Board
of Directors, repeatedly entered into financial transactions
with bank C on behalf of B. On the occasion of a new
transaction which proves to be disadvantageous to B, B’s
Board of Directors raises against C the objection of A’s lack
of authority. C may defeat this objection by claiming that B
is bound by A’s apparent authority to enter into the financial
transaction on B’s behalf.