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FACTS

As a receptionist at 123 Corporation’s corporate office, Deborah performed various administrative duties such as greeting customers, answering phone calls, sorting the mail, and responding to general questions about the company. One day when none of 123’s managers were in the office, an ABC Insurance Co. sales representative went to 123’s corporate office hoping to convince 123 to replace its current employee health insurance plan with ABC’s plan. Even though Deborah told the representative that none of 123’s managers were available, the representative explained ABC’s employee health insurance plan to Deborah who commented that ABC’s plan sounded better than 123’s current employee health insurance plan. , The representative then gave Deborah a contract to sign to purchase ABC’s health insurance plan for 123’s employees. Deborah sign the contract.

ISSUE

Under state law, can a corporation be bound to an employee health insurance contract signed by the corporation’s receptionist when none of the company’s managers were at the office?

RULE

An agent is a person who has authority to speak and act on behalf of an entity or another person. An agent’s authority may be actual or apparent. Under state law, actual authority is “the agent’s power or responsibility expressly or impliedly communicated by the principal to the agent.” Express actual authority includes the instructions and directions from the principal to the agent. Implied actual authority is the agent’s ability to do whatever is reasonable to assume that the principal wanted the agent to do in order to carry out his or her express actual authority.

Apparent authority arises when the principal’s conduct, past dealings, or communications cause a third party to reasonably believe that the agent is authorized to act or do something on behalf of the principal. This type of authority can arise when there is a past contractual agreement between a company and a third party, and it was the company’s agent who entered into the contractual agreement. This type of authority can also arise when a company has communicated to a third party that the company’s agent has the authority to enter into a contractual agreement.

APPLICATION

123 gave Deborah actual authority by expressly communicating her duties to her when it hired her as a receptionist, e.g., greeting customers, answering phone calls, sorting the mail, and answering general questions regarding 123. Deborah also had implied actual authority to do whatever is reasonably related to her duties as a receptionist. Deborah could act on her implied actual authority by performing other administrative duties. She could have scheduled appointments for 123’s managers, order lunches, or accept packages. Thus, Deborah is an agent for 123 when she is performing her duties as the receptionist. However, 123 never gave Deborah express actual authority to sign contracts on behalf of 123, nor did Deborah have implied actual authority to sign such contracts. Signing contracts on behalf of 123 is not reasonably related to her role as a receptionist. Therefore, Deborah did not have express actual authority or implied actual authority to bind 123 to ABC’s employee health insurance contract.

Furthermore, 123 did not communicate to ABC that Deborah had authority to enter into an employee health insurance contract. None of the facts given in this case suggest that 123 and ABC had conducted business with one another in the past. The nature and typical responsibilities of Deborah’s role as a receptionist do not make it reasonable for the ABC’s sales representative to believe that she had the authority to select and approve health insurance plans for 123’s employees. Thus, Deborah had no apparent authority to authorize ABC’s employee health insurance contract.

CONCLUSION

ABC’s employee health insurance contract is not binding on 123 Corporation because as 123’s receptionist, Deborah did not have either actual authority or apparent authority to sign the contract on behalf of 123.