Opinion ID: 1799721
Heading Depth: 2
Heading Rank: 1

Heading: Butcher's Actions

Text: The Bookers contend that United American is liable for Butcher's misrepresentations and suppression because, they argue, Stone, United American's agent, effectively appointed Butcher as a subagent of United American. We disagree. The law regarding the responsibility of a principal for persons allegedly appointed as subagents is well settled. When one employs an agent who has either express or implied authority to employ a subagent, the subagent will also be the agent of the principal.... .... ... [However, t]he act of a subagent will not bind the original principal where the appointment of such subagent was not by authority, express or implied, or was not subsequently ratified by the principal.... 3 C.J.S. Agency § 265 (1973). See 3 Am. Jur.2d Agency §§ 157, 162, 163 (1986). That is, a principal will be bound by the acts of a purported subagent only if: (1) the agent had express authority to appoint the subagent; (2) the agent had implied authority to appoint the subagent; or (3) the principal ratified the appointment. [2] See Consolidated Underwriters Ins. Co. v. Landers, 285 Ala. 677, 681, 235 So.2d 818, 822 (1970); Eagle Motor Lines v. Hood, 256 Ala. 395, 398, 55 So.2d 126, 129 (1951); Butler v. Standard Life Ins. Co. of the South, 232 Ala. 238, 167 So. 307, 309-10 (1936); Schloss Bros. & Co. v. Gibson Dry Goods Co., 6 Ala.App. 155, 60 So. 436, 437 (1912). [3] The Bookers argue first that Stone was a general agent of United American with express authority to appoint subagents, including Butcher. The contract between United American and Stone, however, clearly contradicts this proposition. It specifically provides that Stone could only recommend subagents to United American for it to appoint and that United American would not appoint any recommended subagents until they were authorized to sell by United American and were licensed by the state insurance authorities. [4] United American did not appoint Butcher or authorize him with the Alabama insurance authorities. In fact, it is undisputed that United American was unaware of Stone's relationship with Butcher. Thus, Stone did not have express authority to appoint Butcher as United American's subagent. [5] Neither did Stone have the implied authority to appoint Butcher as United American's subagent. Of course, there can be no implied authority for Stone to appoint Butcher, given the contract's express reservation of all appointment power to United American. See Restatement (Second) of Agency § 34(e) cmt. h (1958) (stating that a formal writing authorizing an agent to act for a principal will be strictly construed in determining the scope of the agent's authority). [6] In addition, it is elementary that an agent cannot endow a subagent with more authority than the agent himself possesses. See Insurance Co. of North America v. Thornton, 130 Ala. 222, 233-34, 30 So. 614, 617 (1901) (holding that an insurance agent could not appoint a subagent to act in a manner contrary to the contract restrictions applicable to the agent). Clearly, Stone could not endow Butcher with the authority to sell for United American, without authority from United American and a license from the state insurance authorities, [7] when Stone himself was restricted to selling only with such authority and with a license in force. That Stone had no implied authority to appoint Butcher as United American's subagent is further confirmed by the circumstances surrounding Butcher's alleged appointment. Implied authority for an agent to appoint a subagent may arise from the nature of the agency, the work to be done, and the particular circumstances.... [W]here a delegation of power is not necessary, proper, or usual, there is no implied power in the agent to delegate his power to a subagent.... 3 C.J.S. Agency § 261. See 3 Am.Jur.2d Agency § 157. It was not necessary, proper, or usual for Stone to appoint Butcher as a subagent for United American, given that United American had revoked Butcher's authority to sell its products, fired him, and placed him on its No Rehire List. Thus, Stone did not have implied authority to appoint Butcher as United American's subagent. The Bookers next contend that the actions they say Butcher took as United American's subagent were ratified by Stone. This contention misses the point of ratification. It is the principal's ratification, not the agent's, that is controlling. See 3 C.J.S. Agency § 265 (stating that the subagent's actions bind the principal only if the principal ratifies those actions). For example, in American Pioneer Life Insurance Co. v. Sandlin, 470 So.2d 657, 664-65 (Ala.1985), this Court refused to overturn a judgment based on a jury verdict imposing liability for a third-party agent's action when the insurance company had knowingly received the application from the third party, had approved the application, had returned it to the third party for completion, had referred to the third party as the agent in correspondence with the insured, and had subsequently made the third party its direct agent. See generally Butler, 232 Ala. at 242, 167 So. at 309-10 (requiring a knowing ratification to bind a principal to the acts of a subagent). In contrast, United American never knowingly received the application from Butcher, never referred to Butcher as its agent in its correspondence with the Bookers, and never made Butcher its agent after the sale to the Bookers. Simply put, United American was incapable of knowingly ratifying Butcher's conduct, of which it was unaware. Thus, United American is not liable for the actions of Butcher. [8]