A Restatement or a Redefinition: Eliminationof Inherent Agency in the Tentative Draft ofthe Restatement (Third) of Agency

"[I]t is easier for heaven and earth to pass away, than for one stroke of a letter in the law to be dropped." Luke 16.17 (NRSV)I. IntroductionThe inherent agency doctrine is one means by which a third party may subject principals to liability for their agents' conduct. The American Law Institute is drafting a new Restatement of Agency, and that draft has eliminated inherent agency. Although the draft attempts to expand apparent authority to cover the present scope of inherent agency, this Note argues that the Institute has not accomplished this goal and should reconsider its approach.The Restatement (Second) of Agency currently provides several doctrines creating a principal's liability for its agent's conduct.1 Like the Restatement, this Note presents actual authority first.2 That doctrine holds a principal liable to third parties transacting with the principal's agent when the principal manifests authority to the agent to transact in the manner in question.3 The discussion of actual authority in this Note serves merely to preface the focus on two other doctrines that the Second Restatement articulates. Apparent authority creates a principal's liability to third parties to whom the principal manifests that an agent has authority, even if the agent really has no such authority.4 Inherent agency, on the other hand, requires no manifestation. Instead, that doctrine imposes liability upon a principal when a third party transacting with an agent is reasonable in believing that the agent has authority, even if the agent has no authority and even if the principal makes no manifestations that the agent has authority.5Several scholars have criticized inherent agency heavily,6 especially its ambiguity.7 This criticism culminates in the elimination of inherent agency in the current draft of the Restatement (Third) of Agency.8 That draft claims to expand the definition of "manifestation," thereby broadening apparent authority to include everything that inherent agency currently regulates.9 This Note rebuts that claim by arguing that apparent authority under the draft of the Third Restatement does not, and cannot, embrace all of the cases in which a principal would be liable based on inherent agency. First, Part II distinguishes inherent agency from actual and apparent authority.10 Part III then analyzes the treatment of inherent agency in the Third Restatement draft.11 Part IV demonstrates that courts have been receptive to inherent agency.12 Finally, Part V argues that the elimination of inherent agency conflicts with precedent, policy, and the purpose of Restatements.13II. Overview of Agency AuthorityA. Actual AuthorityActual authority is one means by which a third party may hold a principal liable for its agent's conduct. The liability arises out of the principal's manifestations to its agent that the agent has authority to act in a certain manner.14 Actual authority requires (1) manifestations by the principal to the agent15 that both (2) make it reasonable for the agent to believe that he had authority16 and (3) are express (directly stated) or implied (such that the acts are incidental to expressly authorized conduct).17As for the manifestations by the principal to the agent, what the third party knows or should know of the manifestations is immaterial.18 The only concern of the manifestation requirement is the existence of such manifestations, not the third party's awareness of them.19 As for reasonableness, the scope of actual authority is the reasonable belief by the agent that the principal confers authority.20 Even when the principal intends otherwise, if the agent reasonably believes that the principal intends to confer authority, then the agent has actual authority, and the principal thereby assumes liability.21 That is, actual authority arises from an objective manifestation, not the principal's subjective intent.The third element allows communications from the principal to the agent to be express or implied. …