The authority of an agent refers to the legal power and permission granted to the agent by the principal to act on the principal’s behalf and make decisions or transactions within a specified scope.
There are two primary types of authority: actual authority and apparent authority.
- Actual authorityThis is the authority which the agent has been given by the principal under the contract between them. The authority may be express, implied, customary or usual.
- Express authority: It is the authority given to the agent by the principal in writing or by word of mouth. If in writing, it is interpreted restrictively.
- Implied authority: It is the agent’s authority implied from the nature of the business or transaction which the agent is engaged to transact. It is the authority reasonably necessary to accomplish express authority.
- Customary or usual authority: It is the agent’s authority implied from the customs, usage and practices of the transaction or business. It is the authority which every agent in a particular business or profession is deemed to have and 3rd parties dealing with such agents expect such authority. It is a category of implied authority. Agents created by agreement or ratification exercise real or actual authority.
- Apparent authority
– It is also known as ostensible authority, is the authority that a third party reasonably believes an agent possesses based on the actions, representations, or appearances created by the principal.
– It arises when the principal, through words or conduct, leads third parties to believe that the agent has the authority to act on the principal’s behalf, even if the agent’s actual authority may be more limited.
– The principal can be bound by the actions of the agent performed with apparent authority, even if those actions exceed the agent’s actual authority. The principal is responsible for clarifying the scope of the agent’s authority to third parties.