It was the summer of 1980 and I was working for a local construction company to earn money before I shipped off for my freshman year of college. At that time, the four Ganther siblings (I was No. 3 on the seniority list) shared use of one “kids’ car,” a red 1969 VW Beetle named Oskar.
As it happened, I had a date lined up for the night of the crime, a Friday, and was blocked out from use of Oskar. Rather than cancel my date — Uber hadn’t been invented yet — I did what every red-blooded American teenage boy would do if he could. I stole a truck.
This is how it went down. I peddled my orange Schwinn Varsity 10-speed 2.5 miles north of our house to the construction company yard, used my master keys to get through the gate and into the warehouse, picked a set of keys off the rack in the foreman’s office, and drove off in a green Ford F-150 with the company name emblazoned on both doors.
Oh, yeah — about the company name. The ginormous stickers on each side of the truck read “Ben B. Ganther Co.” My great-grandfather, Ben B. Ganther, established the family business in 1900; 80 years later, my dad ran it. This will complicate things in very short order.
As I drove off, I was confident that, so long as I had the truck back in the fleet before, say, 6 a.m. on Monday, I should be OK. What could possibly go wrong?
I quickly ran the truck through a car wash, picked up my date, and drove to the Calhoun Beach Club at the corner of Irving and Main Street in Oshkosh (where it remains to this day). As luck would have it, I even got a parking spot right in front of the door.
The date ran its course and I got the truck back to the yard and peddled home in the dark. It was the perfect crime — at least until I came to the next morning. See, one of the disadvantages of growing up in a small town in Wisconsin in the 20th century was that everyone knew your business. Facebook hadn’t been invented yet, either, but gossips had.
So I started my Saturday with my dad in my grillwork. “What the #@*! were you doing parking a company truck in front of a bar?” he demanded. “Next time, park at least a block away!”
I let that sink in. My dad was not mad that I had stolen a company truck. He was mad that a truck with the name of his family business on the side was parked in front of a bar, with all that implied. Five years before I ever went to law school, my father gave me my first lesson in the law of agency.
Many providers and administrators engage independent agents to market their products to dealerships; virtually all use dealers to market their products to consumers. Using someone else to do something on your behalf is called “agency.” The person doing the something is called an “agent.” The person or entity for whom the agent is acting is called the “principal.” Given its prevalence in the F&I industry, it’s worth understanding the law of agency.
Whole books have been written on the topic of agency. I will focus briefly on the two narrow issues most important to providers and administrators: actual authority and apparent authority.
Actual authority is the easiest to understand. An employee in the field acts as an agent for his employer, so long as he is acting within the scope of his employment. He has actual authority by virtue of his role as an employee — it’s his job to act on behalf of the principal.
Many providers engage independent agents (there’s that word again) to promote and support their F&I products. Those agents are authorized by a contract typically called an “agent agreement” or something similar. That agreement sets forth the scope of the agent’s actual authority. And as long as the agent acts within the scope of that authority, the agent’s acts bind the principal.
But what happens if the agent acts outside the scope of his authority? That’s where things get interesting, and that’s where the concept of apparent authority comes into play. In a nutshell, if a third party reasonably believes the agent has the authority for the action in question, the principal will be bound.
An example might illustrate what that means in the context of F&I. Say an independent agent has the actual authority (as set forth in the agent agreement) to solicit dealerships to enter a contract with the provider to sell its F&I products. Agent signs up a dealership. So far, so good. But to induce the dealer to sign up, the agent represented (orally, of course) that the provider will routinely honor goodwill claims up to $1,000 per occurrence.
If the dealer reasonably believes the agent had the authority to make that change to the dealer-provider agreement, the provider is on the hook for those goodwill claims. The agent may be fired, and the dealership dropped, but the dealer is entitled to rely upon the agent’s apparent authority.
Want to really tighten your plumbing? The same theory applies to the dealership-customer relationship. This means that, if a customer reasonably believes an F&I manager is an agent for the provider, that F&I manager’s oral representation that the provider’s VSC is “bumper-to-bumper” and covers wear items, floormats and glass, well, it might.
Third parties are allowed to rely upon the actions of agents as if they were the actions of the principal, assuming the actions are within the scope of the agent’s authority. From the perspective of the third party, that is true whether the authority is actual or apparent. In the next issue, we’ll address how a provider can best deal with that reality.