Apparent Authority: Understanding How Agents Can Bind Principals
In agency law, not all authority is actual or expressly granted. Sometimes, a principal may be bound by the actions of an agent even if the agent does not have real authority. This is known as apparent authority (or ostensible authority).
1. What is Apparent Authority?
Apparent authority arises when a third party reasonably believes that an agent has the authority to act on behalf of a principal, based on the principal’s representations. The principal is estopped (legally prevented) from denying the agent’s authority if a third party relies on it to their detriment.
In other words, the agent appears to have authority to outsiders, even if their actual authority is limited or nonexistent.
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Key principle: Apparent authority is about perception, not actual consent.
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Reference case: Hely-Hutchinson v Brayhead Ltd (1968) – a managing director acted as if he had authority; the court held that he had apparent authority even though his actual authority was limited.
2. How Apparent Authority is Created
Apparent authority typically arises through:
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Representation by the Principal – The principal, or someone with actual authority acting for the principal, represents to a third party that the agent has the power to act.
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Reliance by the Third Party – The third party relies on this representation in entering into a contract.
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Change in Position – The third party acts in reliance, often incurring obligations or expenses.
Example: Representation by the Principal
Imagine a fashion brand appoints Emma as the regional manager. The company’s CEO allows Emma to negotiate deals with local boutiques, and her actions are never corrected by the company. A boutique owner reasonably believes Emma has authority to sign a supply contract and enters into an agreement.
Even if Emma was not actually empowered to sign the contract, the company may still be bound under apparent authority because the CEO’s prior conduct represented Emma’s authority.
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Tip: Representation can be express (direct statements) or implied (conduct or tolerance of agent’s behavior).
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Silence or inaction rarely creates apparent authority unless there is a duty to speak.
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Case illustration: In Spiro v Lintern, a husband’s inaction while his wife (without authority) agreed to sell their property led the court to treat the inaction as representation.
3. Representation by the Agent
A common question is: Can an agent represent their own authority?
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General rule: No. An agent cannot normally create apparent authority for themselves.
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The representation must come from another agent acting with the principal’s authority, or the principal must authorize the agent to represent their own authority.
Example: Modern Scenario
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A software company appoints Oliver as a sales executive. He emails a potential client claiming he has approval to offer a 20% discount on enterprise licenses. In reality, only the company’s VP can authorize discounts.
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If the company had previously allowed Oliver to negotiate smaller discounts and never corrected him, a court might find that Oliver had apparent authority for the client to reasonably believe in his power.
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If Oliver acted without any prior company tolerance, the company would likely not be bound.
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Key point: Apparent authority cannot override a third party’s knowledge. If the client knows Oliver cannot authorize discounts, the company is not bound.
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Case illustration: Overbrooke Estates Ltd v Glencombe Properties Ltd – a buyer knew the auctioneer lacked authority to make certain statements, so the principal was not liable.
Summary
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Apparent authority is based on how authority appears to third parties, not actual consent.
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The principal may be bound even if the agent lacked actual authority.
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Representations can come from the principal or another authorized agent, but not from the agent alone unless explicitly authorized.
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Third parties must reasonably rely on the representation, and knowledge of limitations can prevent apparent authority.
Modern takeaway: In business, always clarify the scope of agents’ authority to prevent unintended obligations. Apparent authority protects third parties who reasonably rely on the perceived powers of agents.
What is the key principle of apparent authority?
It is based on how authority appears to third parties, not actual consent.
It allows agents to act without any representation from the principal.
Who can create apparent authority for an agent?
The principal or another agent acting with the principal’s authority.
Any agent can create apparent authority for themselves without permission.
Which case illustrates that a principal may be bound even if the agent lacks actual authority?
Hely-Hutchinson v Brayhead Ltd (1968)
Overbrooke Estates Ltd v Glencombe Properties Ltd
What is required for apparent authority to bind a principal?
A reasonable belief by the third party, based on the principal’s representation, and reliance on it.
Any act by an agent automatically binds the principal regardless of representation.
Can silence or inaction by a principal create apparent authority?
Rarely, unless there is a duty to speak or correct the agent’s misrepresentation.
Yes, silence always creates apparent authority.
Can an agent alone, without the principal’s consent, create apparent authority for themselves?
No, the representation must come from the principal or another authorized agent.
Yes, any agent can freely create apparent authority for themselves.
