How To Know If The Person Signing Your Contract or Purchase Order Has The Authority To Do So.
Here at Revenue Assurance Partners, your go-to for all things related to commercial transactions, accounts receivable and bad debt. We feel it is of the utmost importance to help to educate and keep our clients informed of the nature of commercial transactions so that you can protect your company from write-offs.
Today let’s talk about Implied Agents and Apparent Authority.
Apparent Authority
Apparent authority is the power of an agent to act on behalf of a principal, even though not expressly or impliedly granted. This power arises only if a third party reasonably infers, from the principal's conduct, that the principal granted such power to the agent. The idea of apparent authority protects third parties who would otherwise incur losses if the agent's signature did not bind the principal after reasonable observers thought that it would. Typically, if an agent has apparent authority, the agent's principal will be held liable for the actions of the agent which are within the scope of the apparent authority.
Agency Law
The doctrine of apparent authority comes up often in agency law. In American Soc'y of Mech. Eng'rs v. Hydrolevel, 456 U.S. 566 (1982), the Supreme Court upheld apparent authority as a legitimate doctrine under agency law, holding, "Under general rules of agency law, principals are liable when their agents act with apparent authority . . . An agent who appears to have authority to make statements for his principal gives to his statements the weight of the principal's reputation” -- in this case, the weight of petitioner's acknowledged expertise in boiler safety.
Power of Position
The "power of position" refers to apparent authority that is created by appointing someone to a position which carries recognized duties (i.e., manager or treasurer). In this situation, there will be apparent authority to do the things which are regularly and typically entrusted and expected of someone with the position title. In New York, this principle was explicitly upheld, when the New York Appellate Division held that the manager of a company has the apparent authority to bind the company to contracts, regardless of whether he has actual authority.
Even if the principal has expressly placed limitations on the agent's abilities, but these limitations are not known, then the agent will still have the apparent authority to do those things.
Therefore, you can rest assured that if you have secured a Contract, Purchase Order or other business transaction and the entity that you supplied products or services to will still not recognize that they are in fact liable because the person that signed or ordered the product “did not have the authority to do so”. We At Revenue Assurance Partners have your back to ensure their compliance and get you paid.
Phillip F Weaver
President/CEO
