What is apparent authority?
Looking for an apparent authority example?
What are the important legal elements that you must know!
In this article, we will break down the legal definition of “apparent authority”, so you know all there is to know about it!
We will look at what is apparent authority, we’ll define apparent authority, look at examples of apparent agency and how it can impact the agent and principal, we’ll compare it to actual authority and more!
Stick around as we’ve got definitions, examples, legal concepts and more to explain!
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Table of Contents
What is apparent authority
An apparent authority (also referred to as apparent agency) relates to a situation where a third party reasonably believes that a person or entity has the authority to act on behalf of another.
The apparent authority notion stems from the law of agency where a person is considered to be the agent of another (the principal).
In the context of business transactions, the notion of apparent authority may be quite relevant.
When a person (or legal entity) presents himself or herself as acting on behalf of another either through words, declarations, representations, manifestations or conduct, then you’ll have that person having an apparent authority to act on behalf of another.
Here is an apparent authority example:
Let’s use the “power of position” to illustrate apparent authority.
Suzanne works for a company but does not have the authorization to bind the company.
However, Suzanne is given an important title, has business cards, uses the company logo, is given a company car, uses the company’s letterhead in her written communications and presents herself as the director of the company.
A third party (prospect customer) dealing with Suzanne can reasonably believe that she has the ability to act on behalf of the company and make representations on behalf of the company.
Apparent authority definition
How do you define apparent authority?
According to Cornell Law School’s Legal Information Institute, apparent authority is defined as:
Apparent authority is the power of an agent to act on behalf of a principal, even though not expressly or impliedly granted. This power arises only if a third party reasonably infers, from the principal’s conduct, that the principal granted such power to the agent.
In other words, when a third party reasonably presumes, based on the conduct of the agent and the principal, the actions of the agent will be assigned to the principal.
Example of apparent authority
In business, there are many situations that can create a principal-agent relationship.
In situations as simple as a person speaking on behalf of a company or appearing as a representative of a company, you can have an agency relationship.
In most cases, a person will act on behalf of another further to an actual authority or express authority.
However, in some situations, a person may appear to have the authority to represent another or act on behalf of another regardless of the actual relationship between the “perceived” agent and the “perceived” principal.
Let’s look at an example.
Typically, there is an agency-principal relationship between an employer and an employee.
The actions of the employee are therefore attributable to that of the employer.
Imagine Company A enters into a corp to corp agreement with an independent service provider Company B.
Company B sends over one of its employees (Mary) to handle a project for Company A.
When engaged in the project, Mary presents herself as one of the Company A resources staffing the project and starts dealing with the Company A customer (third party).
The customer being a third party reasonably believes that Mary is acting on behalf of Company A due to the fact that Company A has allowed her to be on the project and that Mary is taking the necessary steps to advance Company A’s interests.
This is where Mary has an apparent authority in relation to Company A’s customer.
Doctrine of apparent authority
What should you know about apparent authority law?
The apparent authority doctrine is designed to protect innocent third parties relying on the actions, representations and conduct of both the principal and the apparent agent to act to their detriment.
In agency law, the principal would be held accountable for the actions of its perceived or apparent agent when the actions and conduct of the agent and principal can lead a person to believe that the agent was authorized to bind the principal.
Generally, the apparent authority doctrine is used to defend against allegations that an agent did not have the authority to bind another (generally in business).
When such legal defense arguments are raised, the principal is estopped from denying the authority of the agent.
Apparent authority vs actual authority
How is actual authority different than apparent authority?
An actual authority results from the combination of a few factors such as:
- A person (agent) making representations that they have the ability to act on behalf of another (principal)
- The agent making such representations did have an actual authority to represent the principal
- A third party relied on the agent’s representations
- A third party understood that the agent is legally binding the principal
The apparent authority works in a similar way.
The most important difference is that the third party dealt with the agent (who did not have an actual authority to act) believing that he or she was representing the principal.
Apparent authority takeaways
So what is the legal definition of apparent authority?
What is the apparent authority legal definition?
What is the difference between actual vs apparent authority?
In essence, you have apparent authority when:
- A person or company presents itself as acting on behalf of another
- There are objective and reasonable signs that the person is representing another
- A third party relied on the person’s representations and actions to act in a certain way or agree to a contract
In the normal course of business, businesses deal with one another, customers and prospects based on the apparent authority of their employees, directors and officers.
A client, customer, consumer, prospect or anyone dealing with a company deals through individuals having the appearance to act on its behalf.
The law recognizes that the consumer or prospect’s assumption that a person was acting on behalf of the company could legally bind the company regardless of the person’s actual authority within the company.