1. Creating an Apparent Simple Contract
2. What Is Apparent Authority?
3. Apparent Authority vs. Actual Authority

An apparent contract is created when two parties reach an agreement that is directly related to the contract. 

Creating an Apparent Simple Contract

People make promises every day, whether it's agreeing to meet up for a cup of coffee or arranging a doctor's appointment. In some cases, what began as a simple agreement can be upgraded to a legally binding contract if certain conditions are met. For an agreement to reach the level of a contract, there must be consideration and intention.

Contracts must contain several factors to be considered legally binding:

  • Consent of both parties.
  • A legitimate purpose.
  • Parties that have legal capacity.

When these factors don't exist, there can be no contract, meaning the simple arrangement would not be legally binding. An agreement, or arrangement, is the basis of any contract. In most cases, an agreement occurs when an offer is made by one party and the other party accepts. However, in some cases, an agreement can also be created by the actions of the parties involved.

Take, for example, Harrison v. Nickerson. In this case, the plaintiff saw an auction advertisement and decided to visit the auction for the purpose of buying a specific item. When he arrived, he found that the item in question had been withdrawn, and decided to file a lawsuit against the auctioneer. The court found that there was no agreement in place because the newspaper advertisement was simply an invitation to the auction and not an offer of the item the plaintiff wanted to purchase.

While contracts are founded on agreements, a legally binding contract must meet several strict requirements, with the most important being the presence of intention. Intention can be a complicated issue because it can either be expressed directly or implied through the actions of the parties involved. When parties are negotiating a contract, the language that is used and the conduct of each party will be vital in proving intention.

In commercial agreements, it is common to include exemption clauses. It is extremely common for the intention of contracted parties to be vague. This makes court cases very difficult, as the court's main goal in contract disputes is deciding whether or not the party's intent was for their agreement to be legally binding. To help with this issue, courts will first decide if the agreement was non-commercial or commercial. Once the court has decided if there was a commercial purpose for the agreement, it will be easier to determine if there was intent. 

What Is Apparent Authority?

When an agent has the right to act without the express permission of the principal, this is known as apparent authority. However, apparent authority only exists if a third-party understands that the principal's actions have given this authority to their agent.

The purpose of apparent authority is to protect the rights of third parties. For instance, if the agent's signature did not make the principal legally responsible for the contract, then the third-party could be damaged in some way. The principal can be legally culpable for their agent's actions if apparent authority exists. Apparent authority can be interpreted differently depending on the state where you reside.

New Jersey, for instance, often will not recognize apparent authority, because the state's interpretation is that these powers only exist when the principal has engaged in intentionally misleading actions. 

Apparent Authority vs. Actual Authority

When a breach of contract occurs, apparent authority is frequently an issue.

Imagine that two parties agree to a contract whose purpose is selling a piece of valuable real estate. Later on, the buyer decides not to purchase the property, causing the seller to sue for breach of contract. Now, imagine that the buyer is a consulate working on the behalf of a foreign government. In general, foreign governments have sovereign immunity, which means they usually cannot be sued.

The seller, in this case, claims that when the consulate signed the contract, immunity was waived because the consulate was acting on the foreign government's behalf. The foreign government's defense is that the consulate did not have actual authority to enter into a contract on their behalf, meaning immunity is still in place.

In such a case, the court's priority would be discovering if the consulate actually did have authority to sign the contract. If not, then the seller would have no basis for a lawsuit.

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