New York Agency law deals with the relationship between an “agent,” and a “principal.” An agency relationship forms when a principal asks an individual to act on behalf of the principal and the action of the agent may bind the principal in some way. Agency, in short, is a fiduciary relationship where an agent acts for a principal subject to control of the principal.
Under these circumstances, a principal will be liable for contracts entered into by agents when (1) the a fiduciary relationship exists between an agent and principle (2) the agent acted with some kind of authority, and (3) a contractual obligation is created between the agent and a third party. The idea of authority can be a tricky one to nail down.
Actual, Apparent & Inherent Authority to Act for a Principal in New York
An agency relationship can be, and often is, enforced by written agreements made through a power of attorney that grants an agent “actual authority” that is printed in black and white. A power of attorney, or a real estate agency agreement are prime examples of principals granting actual authority.
However, where an agent lacks actual authority or the issue is in doubt, s/he may nonetheless bind a principal t if the principal has created the appearance of authority, also referred to as “apparent authority,” leading the other contracting party to reasonably believe that actual authority existed. This exists to protect third parties who would otherwise incur losses.
Agents may also possess “inherent authority,” which is derived solely from the agency relationship itself and exists for the protection of persons harmed by or dealing with the agent. This power arises only if required for the agent to exercise some actual authority granted by the principal. For example, if a principal grants power to do some action, but doing that action requires doing something related or conditional to that action, then the agent acquires inherent authority to the related or conditioned action on behalf of the principal.
New York small business owners cannot be everywhere and do everything. Understanding agency relationships, and making the right choices as to who one grants authority will allow your business to run efficiently and smoothly. Please avoid apparent and inherent authority by always have a contract drafted when any agent is acting for you. It is, typically, better to detail the authority granted than to wonder what you can be bound to in the future.
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