What does "apparent authority" refer to in agency law?

Apparent authority in agency law refers to the power of an agent to act on behalf of a principal when a third party reasonably believes that the agent has the authority to do so based on representations made by the principal. It arises when a principal creates an impression through their conduct or statements that leads third parties to assume that the agent has authority to act in a specific manner, even if that authority has not been explicitly granted.

For example, if a principal has been consistently allowing an agent to negotiate contracts on their behalf and does nothing to contradict this understanding, a third party who interacts with the agent may assume that they possess the authority to bind the principal to contracts. This belief can hold the principal liable for the actions of the agent, even if the agent exceeds their actual authority.

The other options do not accurately define apparent authority. Authority explicitly stated in a contract describes actual authority, while authority granted by a court order relates to judicially conferred power rather than authority derived from representations. Authority limited to verbal agreements can also be misleading, as apparent authority is not confined to informal or oral agreements; it is about the reasonable perceptions of third parties based on the principal’s conduct.