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Trading Tip: Authority of an employee

Headshot of Doug Nelson, Produce Blue Book's Vice President of trading assistance.

You recently settled a transaction with a salesman, let’s call him Sam, who you just found out is no longer employed by the seller, SellCo.

Now, the owner of SellCo, let’s call her Olive, is on the phone telling you that Sam did not have the authority to settle transactions for her company, and that therefore, the transaction was not settled, and more money is owed.

Is Olive right? Probably not.

Section 16 of the Perishable Agricultural Commodities Act provides—

In construing and enforcing the provisions of this Act, the act, omission, or failure of any agent, officer, or other person acting for or employed by any commission merchant, dealer, or broker, within the scope of his employment or office, shall in every case be deemed the act, omission, or failure of such commission merchant, dealer, or broker as that of such agent, officer, or other person. (7 U.S.C. 499(p))

Consistent with this provision, and the common law of agency, PACA decisions have held that individuals employed as buyers and/or sellers of produce are presumed to have authority to enter into, and modify sales agreements, and to settle routine transactions of behalf of their employer.

If an employer wants to limit the scope of an employee’s apparent authority, this limitation should be clearly expressed (preferably in writing) to trading partners before the act in question occurs.

So, provided you were not informed that Sam had no authority to settle transactions, your reliance on the appearance of Sam’s authority, which was created by SellCo holding Sam out as its salesman and by its failure to tell you any different, is sufficient to bind SellCo.

It is sometimes said that an agent with apparent authority, but no actual authority, has the power but not the right to bind his employer.

Of course, if Sam’s settlement of the transaction was at an unreasonably low price and/or you had reason to know that Sam was not representing SellCo’s interests in good faith, this could be grounds for nullifying the settlement.

Bottom line: by holding Sam out as its salesman, the selling company gave the Sam the power, even if not the right, to bind SellCo within the scope of a salesman’s typical responsibilities.

Authority of Employee to Bind Employer.

Individuals employed as buyers and/or sellers of produce are presumed to have authority to enter into, and modify, sales agreements, and to settle transactions of behalf of their employer. If an employer wants to limit the scope of an employee’s apparent authority, this limitation should be clearly expressed (preferably in writing) to trading partners before the act in question occurs.

Doug Nelson is Vice President of Trading Assistance for Blue Book Services