Outside Sales People May Make Promises Company Must Keep
Published 12/4/97

The senior executives of a business must usually delegate at least some dealings with customers, suppliers, and other third parties to others. Whether those others are employees or those services are outsourced such as a business' utilization of outside salespersons, those individuals are considered under the law as "agents" of the business and usually can bind the business, their "principal," to certain obligations, sometimes even if they do not have the authority to do so.

For example, if a manufacturer hires a manufacturer's representative (whether he/she is an inside account representative or an outside salesperson) to sell its product, it may be natural in the industry for the retailer customer to assume the manufacturer's representative is authorized to bind the manufacturer to credit terms. If it is justifiable under the circumstances for the retailer to make such an assumption and the manufacturer's representative agrees that the normal finance charge is waived and payment can be made over six consecutive equal monthly payments, the manufacturer may be bound to those terms with the retailer even if the manufacturer retained all credit decisions to itself. This is called "apparent authority" of the agent and is a legal theory which basically attributes the risk between a principal using an agent and third party dealing with that agent to the principal when it is not made clear to the third party the limits of the agent's scope of authority.

It is for this reason that principals should:

clearly define in writing to their agents what they are authorized to do and what they must obtain the consent of their principal to do. Consider notifying third parties dealing with the principal's agent in writing of the limitations of the agent's authority, obviously with respect of the third party/agent relationship.

Agents should likewise:

confirm in writing with their principal what are the limitations of their authority acting on the principal's behalf including what terms of a deal they cannot agree to under any circumstances without consent of the principal. In negotiations with third parties, let them know up front what terms are subject to approval/consent by their principal so that the third party does not become frustrated trying to negotiate terms with the agent that the agent has no authority to agree to.

As to third parties dealing with agents they should:

immediately ascertain what are the limitations of authority that an agent has to bind the principal and thereafter determine what, if any, terms of the deal they desire to negotiate directly with the principal rather than communicating an offer to be relayed by the agent.

Both principals and their agents should also consider under what circumstances it is prudent in fostering the relationship with the third party to allow direct access to the principal who is capable of saying "yes" to those critical business terms.

J. Daniel Marr is a director and shareholder at Hamblett & Kerrigan, PA whose legal practice includes counseling businesses and business persons on a variety of legal issues and advocating on their behalf. Attorney Marr is also an adjunct professor at Daniel Webster College where he teaches business law and corporate responsibility. You can reach Attorney Marr by e-mail at: dmarr@hamker.com

This information is general information and may not reflect the most current legal developments, verdicts or settlements. The information provided should not be relied upon as an indication of the actual state of the law or of future developments. The information contained on the Hamblett & Kerrigan website is for informational purposes only and does not constitute legal advice. If the information referenced may be of legal importance to you, you should consult with an attorney to provide you with legal guidance and opinion as the the effect of the current law upon your situation.