Apparent Authority

An agent acts with apparent authority “when a third-party reasonably believes the actor has authority to act on behalf of the principal and that belief is traceable to the principal’s manifestations.” Restatement (Third) of Agency § 2.03. So if the principal says something or takes some action that causes a third-party to reasonably believe the agent is acting on behalf of the principal, then the agent has apparent authority and the principal will be bound.

Both actual authority and apparent authority require a reasonable belief traceable to the principal’s actions. In actual authority, it is the agent’s reasonable belief. In apparent authority, it is the third-party’s reasonable belief.

Also, note that the basis for that belief must be traceable to something the principal said or did. An agent's actions cannot create apparent authority for that agent. This makes sense. If the principal is going to be bound, the principal must be the one to manifest assent to be bound.

Test Drive Questions

Paul works at Richard's gas station. Richard authorizes Paul only to sell gas. He doesn't authorize Paul to sell the shop's car care products (like air fresheners) because Paul always tries to haggle uncomfortably with customers. Jess enters the store while Richard is leaving. Richard says, "Paul can help you with anything you need."

1. Does Paul have authority to sell Jess a car wash? What type of authority?
2. Jess wants to contract to buy two air fresheners. If Paul signs the agreement in Richard's name, is Richard bound?
3. Suppose Jess offers to buy the store and the land it sits on. If Paul signs the land sale agreement in Richard's name, is Richard bound?
4. Jake doesn't work at the gas station, but he likes the fashion of the uniforms, so he orders one online. He wears it into the gas station one day and a customer asks him to contract for the sale of a few air fresheners. If Jake signs the agreement in Richard's name, is Richard bound?

Test Drive Answers

1. Paul has actual authority to sell car washes because Richard authorized him to.
2. Richard is probably bound. Jess likely believes the shop attendant Paul has authority to sell items in the shop and that belief is traceable to Richard's statement that "Paul can help."
3. Richard is probably not bound. Paul doesn't have actual or apparent authority to sell the store. Jess's belief that a shop attendant has authority to sell the store and land is probably not reasonable.
4. Richard is not bound. Jake lacks actual authority; he just bought the shirt online. He also lacks apparent authority. Although it is reasonable for the customer to believe that Jake has authority to sell shop goods, there isn't any manifestation by Richard that led to that belief. Apparent authority must always be based on some action by the principle. If Richard isn't in the story, then Richard isn't bound by apparent authority.