Authority Versus Power

Apparent Authority and Inherent Power

Authority Versus Power

A lawyer settles a case in a way the client never approved. Is the client bound? That question holds two others. First, did the lawyer have the client's permission? Second, can the other side hold the client to the deal anyway? The first asks about actual authority, which runs from the client (the principal, for whom the lawyer acts) to the lawyer (the agent). The second asks about apparent authority, which Restatement (Second) of Agency § 8 defines as “the power to affect the legal relations of another person by transactions with third persons, professedly as agent for the other, arising from and in accordance with the other's manifestations to such third persons.”¹

The word that matters in that definition is power. An agent has the right to bind the principal when acting with the principal's actual authority, express or implied. An agent has the power to bind the principal whenever apparent authority, estoppel, or inherent agency power lets the agent commit the principal to a transaction without the principal's consent. Right and power can come apart. An agent who exercises power without right acts in an unprivileged manner and owes the principal damages for the departure from instructions.² The power itself is real, not merely apparent. The agent is a wrongdoer for using it, because the agent holds the power without the privilege of using it.³

Courts blur this vocabulary. They do not always use “apparent authority,” “implied authority,” and “inherent agency power” consistently, so a reader sometimes must take a term's meaning from its context.⁴

Actual and apparent authority both rest on the principal's manifestations, meaning what the principal says or does rather than what the principal privately intends. They differ in audience. Actual authority depends on the principal's manifestations to the agent: an agent acts with actual authority when the agent reasonably believes, in accordance with those manifestations, that the principal wishes the agent to act. Apparent authority depends on the principal's manifestations to a third party: it exists when the third party reasonably believes the actor has authority and that belief is traceable to the principal's manifestations.⁵ An act within the scope of apparent authority binds the principal.⁶

Because the two audiences can hear different things, the two kinds of authority can differ in size. Take a buyer who tells an antique-car seller, “A has the authority to negotiate the deal for me and will meet with you tomorrow.” After the meeting, the buyer tells A, “You have no authority to do anything on my behalf; do not enter into a deal with the seller.” The next day A negotiates a deal that requires the buyer to purchase the car. The buyer is bound. A lacked actual authority but had apparent authority, because the seller's belief traced to the buyer's own statement. The buyer can sue A for disobeying instructions, but the buyer remains bound to the seller.⁷

Substitute a client for the buyer and a lawyer for A, and the result carries over. A client who tells opposing counsel that the lawyer will negotiate the matter, and then privately forbids settlement without approval, faces a settlement the lawyer had no right to make but had the power to make. The client's recourse is against the lawyer.

When one message reaches both audiences, the gap closes. If the client gives the lawyer and the other side the same description of the lawyer's authority, actual and apparent authority are the same size.

Delete the sign-off requirement from the copy that goes to opposing counsel, and the two kinds of authority part company. Actual authority still excludes settlement. But the other side now holds the client's statement that the lawyer may negotiate, and it may argue that it reasonably believed the lawyer could close the deal. Whether that belief is reasonable is the subject of the sections ahead on reasonable belief and inquiry.

The law lets the outsider prevail in the car example for a practical reason. Apparent authority protects third parties' reliance interests and lets them contract without the costly step of confirming an agent's authority each time.⁸ The principal's own manifestation created the appearance, and the agent's liability for exceeding instructions leaves the principal a remedy against the person who departed from them.

Four doctrines can bind a client who never authorized the act, and the rest of this chapter takes them in turn. Apparent authority under § 8 comes first; it requires a manifestation from the client to the third party and a reasonable belief traceable to it. Inherent agency power follows. Restatement (Second) of Agency § 8A describes it as the power of an agent derived “not from authority, apparent authority or estoppel, but solely from the agency relation,” existing for the protection of persons harmed by or dealing with the agent.⁹ Estoppel and ratification come last. A party may be estopped from disclaiming contract liability when she knew or should have known that a third party believed someone was acting on her behalf in making the contract and the third party reasonably so believed. A party may also ratify a contract after the fact and become bound by it.¹⁰ Either doctrine can bind a principal even when the agent lacks one of the three kinds of authority.¹¹