Kidd v. Thomas A. Edison, Inc.
1917 U.S. Dist. LEXIS 1437, 239 F. 405 (1917)
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Rule of Law:
A principal is bound by the actions of an agent if those actions are within the customary and apparent scope of the agent's authority, even if the agent violates secret instructions from the principal that are unknown to the third party.
Facts:
- A company, concerned with selling its records, sought to hold a series of 'tone test' recitals to compare a singer's live voice with its mechanical reproduction.
- The company's manager, Maxwell, hired an agent named Fuller to engage singers for these recitals.
- Fuller was given general authority to manage all aspects of the recitals.
- Maxwell gave Fuller a specific, private instruction that imposed an unusual limitation on his authority to contract with singers, a condition unheard of in the industry for such engagements.
- Fuller entered into a contract with a singer for a recital.
- Fuller did not disclose the secret limiting instruction to the singer during the negotiation or formation of the contract.
Procedural Posture:
- The singer (plaintiff) sued the defendant company (principal) in federal district court, a court of first instance, presumably for breach of contract.
- Following a trial, the defendant filed a post-verdict motion, taking exception to a ruling and asking the court to overturn the outcome based on the agent's alleged lack of authority.
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Issue:
Is a principal bound by a contract entered into by its agent when the agent acts within the customary scope of their authority, even if the agent violates a secret, limiting instruction from the principal unknown to the third party?
Opinions:
Majority - Learned Hand
Yes, a principal is bound by such a contract. The scope of an agent's authority is measured not just by the principal's express words but by the entire context, including the customary powers of such agents. A third party is entitled to rely on the agent's apparent authority, which is derived from the general scope of the business entrusted to the agent. The court reasoned that the true basis for holding a principal liable is not estoppel, which would require direct communication from the principal to the third party, but rather a long-standing policy of imputed responsibility. When a principal delegates authority, they vouch for the agent's reliability and, for commercial convenience, third parties must be able to transact with the agent without constantly verifying every detail with the principal. Therefore, the risk of an agent's deviation from secret instructions falls on the principal who selected the agent, not the innocent third party.
Analysis:
This opinion provides a foundational explanation of apparent authority, grounding the doctrine in public policy rather than solely in the narrower theory of estoppel. Judge Hand's reasoning emphasizes that the needs of modern commerce require that third parties be able to rely on the customary powers of an agent. This decision strengthens the position of third parties in agency relationships by placing the risk of loss from an agent's disobedience of secret instructions squarely on the principal. It establishes that a principal cannot privately limit an agent's authority and then use that limitation as a shield against liability to a third party who reasonably relied on the agent's apparent power to act.
