What defines apparent authority?

Apparent authority refers to a situation where a third party reasonably believes that an agent has the authority to act on behalf of a principal, based on the principal's representations or conduct. This belief does not stem from any formal agreement or explicit statements made by the principal but rather from the context and behavior that suggest the agent is empowered to act.

The key component of apparent authority lies in the perception of the third party. If the principal has done something that leads the third party to believe that the agent has the authority to make agreements or decisions, then the principal may be bound by the agent’s actions, even if the agent lacks actual authority. This doctrine serves to protect third parties who rely on the representations made by the principal.

In contrast, authority that is visible and understood by all parties involves a different expectation of clarity and mutual understanding that does not encapsulate the nuanced belief of third parties in apparent authority. Explicitly stated authority is clear and formalized, often leaving no room for misinterpretation, while authority granted without consultation lacks the necessary context that defines apparent authority.