A key concept to keep in mind is that an agent must act with authority from the principal to hold the principal liable for the agent’s acts or omissions. In other words, if the agent acts outside the scope of the agency relationship, then the agent will be personally liable to third parties while the principal will not be liable at all.

So, the first question should always be: Is there any actual authority to act? Actual authority is the authority that is actually given by the principal to the agent (assuming the agent accepts that authority). Actual authority can either be express or implied authority. Express authority includes the authority that the principal tells the agent he or she has (this is the authority that most of us think of). Implied authority refers to the authority implied from the express authority.

For example, assume Bo, a professional baseball player, asks Tom to be his sports agent and Tom accepts. Bo tells Tom that Tom can review the contracts offered to Bo from the various MLB baseball teams. Here, Tom has the express authority to review contracts. Tom then hires his own secretary to direct phone calls and deal with some of the paperwork involved with the contracts. Bo did not give Tom the express authority to hire the secretary and help Tom, but this would likely be allowed because it is implied authority stemming from Tom’s and Bo’s agency relationship.

If there is no actual authority, the second broad question should be: Is there any apparent authority to act? Apparent authority occurs when a third party "reasonably believes" that the agent has actual authority to act on behalf of the principal. Now, apparent authority cannot be created by the agent. Rather, the principal has to have given the third party a "reasonable belief" that the agent has actual authority. Let’s look at the Bo and Tom agency relationship again.

Assume that Bo tells the Milwaukee Brewers that Tom is his sports agent and Tom can negotiate all proposed contracts for Bo on Bo’s behalf. The Brewers then enter negotiations with Tom and ask if Tom can also negotiate an endorsement with the Brewers to promote their new ballpark, for which Bo will be paid extra. Here, Bo said Tom could negotiate all contracts, but may have only meant actual baseball contracts, not endorsement contracts. However, regardless of what Bo meant, it’s likely that Tom could negotiate the proposed endorsement contract because the Brewers would be reasonable to believe that Tom had that authority. In other words, at the very least, Tom likely has apparent authority to negotiate the endorsement contract with the Brewers.

So, now that we’ve covered how agency authority generally works, let’s take a look at the duties of an agent.