Authority Defined

Sept. 5, 2023
The law of agency is important to understand

By Jon Straw

For any project, this Russian proverb is helpful: Doveryay, no proveryay – Trust, but verify. In other words, get it in writing.

In the case of Eagle Rock Timber, Inc. v. Teton County, Idaho, 531 P.3d 488 (Idaho Supreme Court, June 13, 2023), a contractor agreed to reconstruct a 1.6-mile stretch of road for Teton County, Idaho. Before bids were even solicited, the purported owner’s agent at the center of this story was employed as a licensed engineer for the project designer. In this role and at that time, he prepared many of the design documents for the bid solicitation. By the time the bids were opened, the engineer was then the director of public works for the owner.

During the project, the contractor discovered unsuitable base material under portions of the road and twice reported the discovery to the engineer/director. The contractor argued that the engineer/director (the owner’s actual or apparent agent) directed the contractor to remove the material and said the owner would “make it right.”

Later, however, both the engineer/director and his employer, the public owner, denied that such a statement was ever made and denied payment for removal of the unsuitable material. Curiously, the owner approved payment for extra infill material to replace the unsuitable material.

The contract included express provisions that no modifications could be made orally and without written authorization from the owner. The trial court agreed with the owner and granted summary judgment (without a trial) that the director of public works did not have the authority to bind the owner to pay for extra work. On appeal, the Idaho State Supreme Court reversed the trial court holding that the engineer/director of public works may have had the actual or apparent authority to bind the owner.

In reversing the trial court, the Idaho Supreme Court reasoned that several ambiguities in the contract and unanswered factual questions made summary judgment improper. The trial court had ruled that the contract was clear and unambiguous when designating the designer as the owner’s agent “with authority as defined” by the contract.

Although the engineer/director had previously been employed by the designer and had helped to prepare the invitation for bids, the contract designated the designer, not the engineer, as the owner’s agent. Since the engineer/director was employed by the owner during the project not the designer, this designation of the owner’s agent was somewhat unclear. The parties also disagreed on the scope of the engineer/director’s authority and whether it was sufficient to orally modify the contract. The contractual ambiguities and uncertainty over the scope of authority were factual questions for a jury, not legal questions for the trial court to solely decide.

In its opinion, the Idaho Supreme Court dug deep into the law of agency, some of which is useful to understand here and for future application. Two types of authority were at issue here: actual vs. apparent authority.

Actual authority is the scope of power that the agent actually has and that the agent himself or herself understands to actually have. Actual authority is determined from the agent’s viewpoint.

Apparent authority is how much power a third-party perceives that the apparent agent has. Apparent authority is determined from the viewpoint of the third party. The apparent authority can exceed the actual authority and bind the principal. Whether actual or apparent authority, the true authority depends on the extent to which the principal knows or should know of the agent’s actions/inactions without adjusting/correcting out-of-scope results. No one viewpoint consistently wins. Context and perception are important. Written boundaries can be exceeded by the agent and still be binding on the principal.

Principals (here, the owner) should not blindly trust agents, or they must be willing to accept the results. Agents (here, the engineer/director) should act consistently within the scope of authority or make very clear when exceptions are made to act outside the typical scope of authority. Third parties (here, the Contractor) should trust, but verify or confirm – get it in writing. R&B

About the Author

Jon Straw

Jon Straw is a partner with Kraftson Caudle, PLC, a law firm in McLean, Va., specializing in heavy-highway and transportation construction. Straw can be contacted via e-mail at [email protected].