Source of Authority
An agent may obtain his power and authority in a number of ways.
- Actual authority arises when the principal gives the agent powers in writing or verbally to bind him in relation to particular matters.
- Apparent authority arises when the principal holds out another (the agent) or makes it appear that he has authority to act on its behalf.
- Usual authority is the authority a person customarily has in a particular position or role.
An agent has authority to bind his principal within the scope of his authority. Where there is no written or verbal appointment, the scope of the appointment and authority may be determined by implication.
There are common law rules which protect outsiders and third parties who deal in good faith with persons who appear to have authority on behalf of another person. Where a principal or another on his behalf, makes an express or implied representation that another person, the apparent agent, has authority on his behalf and a third party relies on this representation, the principal will be bound by acts withing the scope of the agent’s apparent authority.
The representation must emanate from the principal or from another person on his behalf. It may be based on words, written or spoken, or on conduct. It may arise from the agent being held out as having authority in a particular area.
Breach of Authority
An agent who has usual or apparent authority in a particular role or context may have different express or implied actual authority or may have no authority at all. The third party who deals with the agent is not bound by non-apparent limitations on the agent’s authority, of which he was not aware. Although the principal may be bound to the third party, there may be a breach of the contract between the principal and the agent. The agent may be liable to the principal for breach of contract.
If an agent purports to act on behalf of the principal, even though he did not have authority, the principal may later ratify his acts. This is a retrospective confirmation of authority.
Once ratified, the principal stands in a direct contractual relationship with the third party. He may sue and be sued. Any liability of the agent is extinguished. The agent may not be sued for breach of his warrant of authority nor may he be held liable for breach of actual authority. These are waived.