Who Am I Talking To? Business Liability Associated with the Apparent Agent

Anyone who has seen the film "Get Shorty", or read Elmore Leonard's book of the same name, will recall Chili Palmer, played with distinction in the movie by John Travolta, confronting two gun toting thugs with the question "who am I talking to?". The question, designed to find the decision maker, results in broken noses and bruised bodies.

Anyone who has been involved in negotiating contracts of any sort, has lived the "who am I talking to" experience. Similarly, business owners may place a trusted employee in the position of being the "go to" person. In either case, whether the individual negotiating the contract, or the person making the representation has the actual authority, is irrelevant: they both have apparent authority.

This legal concept of apparent authority has existed for centuries as black letter law of agency. Even so, it can come as a surprise to many, and can be basis for imposing liability under a contractual scenario, or tort- if the person was acting within apparent authority from the company.

The idea is simple- putting an individual in a place where a reasonable third party would believe they are acting with your authority, leaves you with the liability for what is said, whether they had your authority or not. If they injure someone when they have your apparent authority, you may be liable.

In a contract dispute, you may find yourself with testimony or evidence to the effect one of your employees agreed to terms that are plainly inconsistent or economically unreasonable. Frequently, in an effort to salvage a "deal" a representative may agree to terms that on second look make no sense. If the facts are such that the other side could reasonably expect that the person making the statement was acting with "apparent authority" you are bound by the statement. This is true even if you can produce evidence the person was not in the management or control group, and did not have actual authority.

Conversely, if you are dealing with a representative, and they come back later saying they did not have the authority to give you the quote, estimate or bid, you may be in a position , especially if you have relied on the statement, to assert apparent authority.

The totality of circumstances control here. Age, circumstances, and course of conduct with the other side are all questions of fact for the judge or jury to consider.

Many business owners assume that by using "independent contractors", they can insulate themselves from the actions of their erstwhile employees. In these situations, apparent authority will often control whether liability can be assessed. As an example, for many years, hospitals hired physicians as "independent contractors" to work in emergency rooms. When liability arose, the hospitals asserted the physicians were "independent contractors" and thus they had no responsibility for the actions of the independent contractors. The courts disagreed saying that ER physicians act with the "apparent authority" of the hospital, and allowed claims directly against hospitals on that basis.

How then to protect yourself against the "who am I talking to" experience? The essence of apparent authority is that a third party could believe an individual is acting with your authority. Any relationship which involves acting on your behalf should be carefully examined and steps taken to know exactly who is talking to whom.


[1] Chili Palmer in "Get Shorty" by Elmore Leonard