Actual Authority: Everything You Need to Know
Actual authority refers to specific powers that are conferred by a principal onto an agent. 3 min read
Actual authority refers to specific powers that are conferred by a principal onto an agent. The agent then acts on the principal's behalf. There are two sub-types that fall under actual authority: express and implied.
About Actual Authority
When a principal's words or behavior gives an agent a reasonable belief that he or she is empowered to act on the principal's behalf, it is known as actual authority. Actual authority may be either broad, general power or limited, special power.
This authority is given in writing or orally, although written authority is generally the preferred form because verbal authority can be difficult to verify. In express actual authority, a principal tells the agent — verbally or in writing — exactly what the principal wants the agent to do on its behalf.
In a corporation, express authority comes in the form of bylaws and resolutions that are the product of directors' meetings. This gives the authorized individual permission to carry out specific acts on the corporation's behalf.
If the agent operates under actual authority and enters into a contract with a third party, the contract creates obligations and rights between the third party and the principal.
Express Actual Authority
There are limits on an agent operating under express actual authority, such as the following:
- The specific actions that the principal asked the agent to do.
- The authority that the principal otherwise gave the agent through an employment agreement, operating agreement, or bylaws.
If the principal tells the agent that it wants the agent to sell its trademark rights under certain time or price constraints and the agent sells the rights within those specific constraints, the agent acted under express actual authority to sell the trademark.
However, if the agent sells the copyright and not the trademark, the agent is acting outside the scope of his or her express actual authority. The principal may or may not be bound to the obligation, depending on the specific circumstances in that case. In addition, the agent may be required to cover any damages that the principal suffered as a result.
Implied Actual Authority
Implied authority is also known as usual authority. This is authority granted to an agent to perform acts that are necessary and reasonably incidental to the effective performance of his or her duties. Under implied authority, an agent has authority to perform actions that are designed to carry out goals that the principal has expressed.
Usually, the situation determines what the exact powers in implied authority are as well as the customs of a profession, business, or trade.
For instance, the principal requests that its agent sell its real estate portfolio. Using implied authority, the agent has the power to put the property on the market, negotiate with interested parties, and present offers for the portfolio.
The agent's power is generally limited to what's considered reasonable in the situation along with the instructions that the principal provided.
Written Actual Authority
Someone acting under actual authority isn't required to have written authority, but putting it in writing can help avoid potential legal issues in the future. Written actual authority provides legal documentation that the agent had the legal power to act within its limitations.
For instance, when a store owner gives permission to a store clerk to lower prices on certain items, the clerk has actual authority to perform that action. In case something happens — such as the business taking an immediate financial hit or the clerk being fired — having that written actual authority will help prevent the store owner from blaming the clerk. The owner won't be able to claim that the clerk's actions were outside the scope of his or her authorized duties.
This provides valuable protection for an employee in the event the owner tries to file civil or criminal charges.
Many large businesses use actual authority in one way or another. It's often more efficient to have an agent carry out certain duties because the business owners may be busy handling other tasks. Whenever possible, it's better to put things in writing in order to avoid any confusion and potential legal headaches down the road.
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