Academic journal article Journal of Corporation Law

The Legal Foundations of Apparent Authority

Academic journal article Journal of Corporation Law

The Legal Foundations of Apparent Authority

Article excerpt

Abstract                                       649 I. Introduction                                649 II. Background: The Basis of Agency Law        650 III. Who Could Become an Agent                 652 IV. Sources of an Agent's Power and Authority  654 V. Implied Authority                           657 VI. Recognition of Apparent Authority          660 VII. Conclusion                                664 

I. INTRODUCTION

Agents pay a crucial role in coordinating transactions and connecting producer to consumer in today's markets. A significant development in Anglo-American law of agency came with the establishment of apparent authority in the 19th century. In his 1891 article on agency, Oliver Wendell Holmes, Jr. explained that "the obvious consequence of the principal's own conduct in employing an agent is that the public understand him to have given the agent certain powers." (1) In this statement, Holmes explained the function of the doctrine of apparent authority. An agent acts with apparent authority when he or she transacts without the express authority of the principal, but the third party has a reasonable basis for assuming the agent has authority. Although this doctrine is well-documented, its intellectual and legal foundations have long been disputed. (2) One strand of thinking links the origins of apparent authority to estoppel: as stated by Webb and Bianco, "if the principal, by words or conduct, represents or holds his agent out as having certain authority, he will be estopped" from denying that the agent had actual authority. (3) A second view sees apparent authority as an independent class of authority. It ties apparent authority to the objective approach in modern contract law where the courts adopt the position of a reasonable person in order to interpret how others would have seen the intention of the parties. (4) This article provides new insights into this debate as it traces the emergence of apparent authority back to its legal foundations.

The Anglo-American law of agents was forged in the 18th and 19th centuries by English judges and legal commentators; it was then adopted and revised by their American counterparts. (5) We argue apparent authority has little or no historical roots in equity as a form of estoppel. Rather, the doctrine began as an independent form of authority as part of the movement from subjective to objective reasoning. The emergence of the objective approach occurred first in agency law, much earlier than has traditionally been thought, and arrived later in contract law. This article begins by providing some background and context on early agency law with a discussion of commercial and mercantile custom as independent from the rules of private law. We then consider the sources of an agent's power and how the courts construed authority. Finally, this article explains how the law of agency--as a distinct body of commercial rules--gathered pace and became accepted in the Anglo-American legal world.

II. BACKGROUND: THE BASIS OF AGENCY LAW

The late 18th and early 19th centuries were a richly formative era in the history of Anglo-American law. International commercial trade had expanded, (6) despite formidable logistical inhibitors. For merchants and traders, neither the telegraph nor the railway had yet arrived, and poor communication meant information asymmetries were rife. (7) Factors and brokers had become essential in order to coordinate between spatially separated markets and to act as conduits between producer and consumer. (8) As the business of intermediaries flourished, the modern legal rules of agency law began to appear. The doctrine of apparent authority, first articulated in the early 19th century, remains an important part of agency.

It is not surprising that developments in agency law first took place in Great Britain. With its far-flung colonial Empire and its network of merchants, (9) Britain served as the fulcrum of international commerce and the epicenter for new concepts that were passed on to its colonies and so became embedded within American legal thought. …

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