Actual authority

Actual authority is a concept tied to the doctrines of the law of agency in the United States and other countries around the world. Associated with legal agency, actual authority involves specific powers being expressly conferred by a principal to an agent selected to act on the former’s behalf. Actual authority occurs when the principal’s words or conduct leads the agent to believe that they are empowered to act on behalf of the principal. Actual authority may be granted orally or in writing. The power of actual authority can take different forms and may be considered general, limited, or broad as the situation dictates. In practice, actual authority typically provides a mechanism through which a third-party agent is authorized to represent and make decisions on behalf of a company or other principal in a variety of possible situations.

Background

Actual authority is a key element of agency law. It governs legal relationships between two parties when one party grants another the power to act on their behalf. This type of relationship involves two distinct entities: a principal and an agent. The principal is party who authorizes the agent to act on their behalf. The agent is the party who acts on behalf of the principal. Agency law also provides the legal framework for the relationship between principals, agents, and the third parties with whom they interact. In short, agency law establishes that the principal is liable for and bound by the actions the agent takes on their behalf within the scope of the authority granted by the principal.

Agencies can arise in many types of legal relationships. Some are relatively simple in nature, such as in a marriage when one spouse acts as the other spouse’s agent for one reason or another. A family member or other personal representative could also act as an agent for someone who has passed away. While these and other similar examples are quite common, the concept of agency is perhaps most common and important in the world of business. In business matters, an agent may work on behalf of a principal in a wide variety of situations. A sales agent may buy or sell goods on behalf of a business. A real estate agent may work on behalf of a party trying to buy or sell a home or other property. A talent agent may negotiate contracts on behalf of an artist or athlete.

There are two main types of legal agency: express and implied. Express agencies are created through a written or verbal business contract in which the principal and agent clearly agree to engage in an agency relationship. The contract to which the parties agree typically defines the full scope of authority bestowed upon the agent by the principal so that there are no ambiguities. Implied agencies arise because of the conduct of the principal and agent. In other words, the conduct of the principal inherently affords the agent the authority to take reasonably necessary actions on behalf of the principal to achieve the principal’s goals. This means that the principal does not have to directly consent in order for the agent to take action. Rather, the agent’s power to take action on behalf is derived from the circumstances of the two parties’ relationship.

Overview

Actual authority is an idea in agency law referring to the specific powers that a principal expressly confers upon an agent so that the latter can act on behalf of the former. These powers may be broad or limited in scope.

Actual authority arises before it is received. It arises when the agent rationally comes to believe that they have been empowered to act because of the principal’s words or conduct. However, actual authority is only truly received when the principal grants the authority to act verbally or in writing. In most cases, written authority is preferred over verbal authority because the latter can be difficult to legally verify. In business settings, written express authority is often derived from company bylaws or resolutions that specifically grant an agent permission to carry out a particular task. When an agent empowered by actual authority makes a contractual agreement with a third party, the resulting contract will establish various rights and liabilities between the principal and the third party.

Actual authority is closely associated with the idea of implied authority. When an agent acts on behalf of a principal, it is often inherently implied that the agent has the authority to take certain incidental actions necessary for them to perform their duties as effectively as possible. The nature of these actions typically varies depending on the situation and customs of the line of business in question.

It is important to note that there is a clear difference between actual authority and what is known as apparent authority. An agent is said to have apparent authority when the principal suggests to a third party that the agent has the authority to act on their behalf even though the agent does not expressly have the authority to do so. In such cases, the agent’s authority to act on behalf of the principal is purely cosmetic. Even so, any contract created between a principal and a third party through an agent with apparent authority remains legally binding for the principal. This is because such arrangements give rise to agency by estoppel, which ultimately prevents the principal from claiming that the contract is not binding. Third parties, on the other hand, are protected against liabilities under these circumstances. To avoid problems that might arise because of apparent authority, businesses must be sure to carefully monitor which agents they are using and ensure that all are properly authorized to enter into contracts with third parties.

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