Inherent Authority: How Far Does Your Liability Go Without Realizing?

One of the most common tools a company uses in its smooth operation is the hiring of agents.  Agents are great in that they can carry on tasks for the company, freeing up time for the company’s officers and directors to concentrate on the more important tasks.  Although agents are known for their efficiency, there is another aspect to agents that some companies are either unaware of or refuse to acknowledge: liability.  Courts extend liability to principals for the actions of their agents in their dealings with third parties.  Principals are liable for their agent’s actions so long as it is within their authority.  Many principals are unaware of the most common type of authority: inherent authority.

Inherent authority refers to the power of an agent derived from the existence of the agency relationship.  It exists to protect others dealing with an agent.  Courts seek to protect third parties because the principal is in a better position to deal with the agent.  The level of inherent authority will range with the type of agent hired.  A general agent, or an agent authorized to conduct a series of transactions involving a community service, may have greater inherent authority.  For example, in the case of an undisclosed principal, the general agent subjects the principal to liability for acts that are done on the principal’s account, even where the principal has forbidden them.

Inherent authority may overlap with apparent authority, or authority the principal assents to.  The policy behind inherent authority is that it would be unfair to allow a company to benefit from its agents, but not be responsible for their failure to act carefully.  Case law has explicitly allowed third agents to sue principals on account of inherent authority.  Just how much inherent authority an agent has depends on the context.  However, there is a certain level of inherent authority associated with each agent.  For example, if it is customary for an agent to undertake certain actions in his line of work, it will be considered part of his inherent authority.

Principals remain liable for an agent’s actions.  Just because an agent is undertaking the actions instead of the principal does not absolve the principal of liability.  This is true even when the principal has not defined specifically the authority of the agent.  Principals will remain liable due to inherent authority.  Therefore, as a business owner, you may not know when you are liable. Consulting with an experienced legal team can help you understand where and when you may be exposed to liability.  Call the Trembly Law Firm at (305) 431-5678 today to schedule your consultation.