Dennegar, Knutson, Apparent Authority, and Liability
Published on Feb 02, 2021
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PRESENTATION OUTLINE
New England Institute of Business at Cambridge College
MBA 530W Legal and Ethical Dimensions of Strategic Management
February 7, 2021
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Dennegar and Knutson
(Fischer, n.d.)
In the early 2000s, Dennegar and Knutson lived together in Dennegar's home. During this time, Dennegar consented to Knutson managing the household's daily and financial affairs. Eventually, AT&T issued a card in Dennegar's name that Knutson used and made payments on prior to his death in 2003. After his death, AT&T sued Dennegar for the unpaid remaining balance of $14,752.93. Dennegar claims he never knew about or applied for this credit card.
(Fisher, n.d.)
Is Dennegar liable for the unpaid charges incurred by Knutson?
(Fisher, n.d.)
Is Dennegar liable for the unpaid charges incurred by Knutson?
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Principals and Agents
- A principal is a person or entity that appoints an agent to act on their behalf and in their best interest (Mayer et al. 2017)
- A relationship is formed when the principal temporarily or permanently empowers the agent to negotiate or conclude contracts on their behalf (Lucia 2020).
- Knutson was verbally authorized to run the household - general agent
To understand if Dennegar is liable, we need to first determine if Dennegar and Knutson formed a principal-agent relationship.
A principal is a person or entity that appoints an agent to act on their behalf and in their best interest (Mayer et al. 2017).
A relationship is formed when the principal temporarily or permanently empowers the agent to negotiate or conclude contracts on their behalf (Lucia 2020).
Types of agents can vary from universal, where the agent has almost unlimited power, to special, where the agent is only authorized to act in specific capacities (Mayer et al. 2017).
In this case, Dennegar verbally authorized Knutson to run the household on his behalf, indicating that he is a general agent, someone who handles day-to-day operations.
But is verbal consent or an understanding between two people legally binding?
A principal is a person or entity that appoints an agent to act on their behalf and in their best interest (Mayer et al. 2017).
A relationship is formed when the principal temporarily or permanently empowers the agent to negotiate or conclude contracts on their behalf (Lucia 2020).
Types of agents can vary from universal, where the agent has almost unlimited power, to special, where the agent is only authorized to act in specific capacities (Mayer et al. 2017).
In this case, Dennegar verbally authorized Knutson to run the household on his behalf, indicating that he is a general agent, someone who handles day-to-day operations.
But is verbal consent or an understanding between two people legally binding?
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Types of Authority
- Express (Mayer et al. 2017)
- Implied (Cheney and Wolf-Smith 2016)
- Apparent (Barnes and Oldham 2019)
The short answer is yes. Principals can authorize agents in three ways: express, implied, and apparent. Relationships with express authority are the most easy to prove and clearly delineate the powers and restrictions of the agent (Mayer et al. 2017). Although they are not needed to be written, most are as a form of proof.
Implied agency is common in conjunction with law, where one party acts as an agent and the principal acquiesces with full knowledge of the actions of the other individual (Cheney and Wolf-Smith 2016). For example, implied authority ocurrs when heads of households assume responsibility for charges incurred by children.
Apparent authority arises when a third party reasonably believes that the principal has granted authority to the agent who has performed an act on their behalf, regardless of whether the principal had knowledge of the transaction (Barnes and Oldham 2019).
Implied agency is common in conjunction with law, where one party acts as an agent and the principal acquiesces with full knowledge of the actions of the other individual (Cheney and Wolf-Smith 2016). For example, implied authority ocurrs when heads of households assume responsibility for charges incurred by children.
Apparent authority arises when a third party reasonably believes that the principal has granted authority to the agent who has performed an act on their behalf, regardless of whether the principal had knowledge of the transaction (Barnes and Oldham 2019).
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Apparent Authority
(Fischer, n.d.)
In Dennegar's case, he first implied a principal-agent relationship by providing verbal consent of running the household's activities, and signing checks that Knutson wrote. In addition, he consented to Knutson writing and signing checks in Dennegar's name.
This was further substantiated when payments were made on the AT&T card prior to Knutson's death. AT&T had strong reason to believe that Knutson had apparent authority and was acting on Dennegar's behalf, particularly when no complaints were made about the card prior to collection attempts of the remaining balance.
Now that a principal-agent relationship between Dennegar and Knutson has been established, how does this affect liability?
This was further substantiated when payments were made on the AT&T card prior to Knutson's death. AT&T had strong reason to believe that Knutson had apparent authority and was acting on Dennegar's behalf, particularly when no complaints were made about the card prior to collection attempts of the remaining balance.
Now that a principal-agent relationship between Dennegar and Knutson has been established, how does this affect liability?
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Respondeat Superior (Swain 2019)
- Did the event fall under scope of employment?
- Is the action related to their work responsibilities?
- Does the action benefit the principle?
The principal can be held liable for actions of the agent under respondeat superior if it meets three conditions: that the action falls under the scope of employment, was related to the agent's work responsibilities, and if it benefited the principal (Swain 2019).
When Knutson incurred these charges, it was during and for the purpose of managing Dennegar's household on behalf of Dennegar.
When Knutson incurred these charges, it was during and for the purpose of managing Dennegar's household on behalf of Dennegar.
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Is Dennegar liable?
Dennegar will be held liable unless he can prove that Knutson expressly went against his wishes in obtaining the card, or that the charges on the card were fraudulently made by a third party after Knutson's death (Dietrich and Field 2019).
Barring that, Dennegar and Knutson had established a principal-agent relationship, where Knutson was a general agent and performed his tasks with minimal supervision. Dennegar's constant consent to pay charges paid by Knutson when he was alive demonstrated implied and apparent authority. AT&T has a right to expect payment from Dennegar due to the fact that Knutson was acting in accordance with his role as an agent at the time the charges were incurred.
Barring that, Dennegar and Knutson had established a principal-agent relationship, where Knutson was a general agent and performed his tasks with minimal supervision. Dennegar's constant consent to pay charges paid by Knutson when he was alive demonstrated implied and apparent authority. AT&T has a right to expect payment from Dennegar due to the fact that Knutson was acting in accordance with his role as an agent at the time the charges were incurred.
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References
- Barnes, V. and Oldham, J. (2019, June 1). The Legal Foundations of Apparent Authority. Journal of Corporation Law, 44(4). P. 649-664. Retrieved from http://eds.b.ebscohost.com/eds/pdfviewer/pdfviewer?vid=13&sid=e33c5490-252b...
- Cheney, K.S., and Wolf-Smith, R.L. (2016, March 1). Inaction as implied consent. ABI Journal, 35(3). P. 20-31. Retrieved from http://eds.b.ebscohost.com/eds/pdfviewer/pdfviewer?vid=14&sid=e33c5490-252b...
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References (cont.)
- Dietrich, J. and Field, I. (2019, October 1). Statute and theories of vicarious liability. Melbourne University Law Review, 43(2). P. 515-557. Retrieved from http://eds.b.ebscohost.com/eds/pdfviewer/pdfviewer?vid=21&sid=e33c5490-252b...
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References (cont.)
- Fischer, J.A.D. (n.d.). New Century Financial Services Inc. v. Dennegar. Retrieved from https://caselaw.findlaw.com/nj-superior-court-appellate-division/1263011.ht...
- Lucia, T. D. (2020). The mandate and the agency contract. Annals of the University of Oradea: Economic Science Series, 29. P. 314-322. Retrieved from http://eds.a.ebscohost.com/eds/pdfviewer/pdfviewer?vid=12&sid=7c1a8df9-2b83...
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References (cont.)
- Mayer, D., Warner, D., Siedel, G., Lieberman, J., K. (2017, March). Business Law and the Legal Environment, v. 2.0. Flat World knowledge.
- Swain, W. (2019, November 1). A historical examination of vicarious liability: a ""veritable upas tree""? Cambridge Law Journal, 78(3). P 640-661. Retrieved from http://eds.b.ebscohost.com/eds/pdfviewer/pdfviewer?vid=7&sid=9bfa1822-14e6-....
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