Also known as: ostensible authorities · apparent authority
Written by attorneys · grounded in primary & secondary sources — see below
The power of an agent to affect the legal relations of the principal with third persons by transactions professedly on the principal's behalf. The power arises from the principal's manifestations to the third persons that reasonably cause them to believe the principal consents to the agent's acts.
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Odyssey Logistics issued business cards to junior analyst Orion Orlov listing him as Associate Advisor and allowed him to meet clients at firm offices. Orion presented the card and used firm letterhead to obtain a discretionary trading authorization from client Otis Olsen. Otis transferred funds in reliance on the apparent grant of authority. Odyssey is bound by the authorization even though internal limits had suspended Orion's actual signing power.
Zenith Studio, general partner of Dusk Studio, permitted general partner Judy to negotiate advertising contracts on partnership letterhead. Judy signed a multi-year revenue-sharing deal with Dawn Studio while acting in the ordinary course of the radio-station business. Dawn Studio relied on Judy's position and the partnership's silence. Dusk Studio is liable for resulting losses under the rule governing general-partner conduct with apparent authority.
Maple Wireless allowed regional engineer Jack to meet commercial customers and coordinate service installations. Jack assured White Telecom of discounted fiber-line pricing and priority restoration. White Telecom purchased equipment in reliance on those statements made during ordinary partnership business. The partnership is liable for losses caused by the commitments even though sales management later disavowed them.
Counsel of record for Omega Energy represented to opposing counsel that a settlement had been reached on pending litigation. The opposing party changed position by dismissing related claims in reliance on the representation. Omega later asserted that its lawyer lacked actual authority to settle. The settlement is enforceable against Omega because the lawyer of record possessed apparent authority to bind the client.
Optima Health placed a network engineer in ongoing contact with commercial accounts to assess needs and coordinate service. The engineer assured a hospital of pricing and restoration guarantees during those dealings. The hospital relied on the engineer's position and purchased equipment. The hospital is protected because the principal's manifestations created apparent authority even though the terms exceeded any actual authority.
General partner of Omega Energy received payment from a non-partner customer for storage services and then misapplied the funds. The customer had dealt with the general partner while the partner acted with apparent authority of the limited partnership. The partnership is liable for the customer's loss. The rule imposes responsibility on the entity when funds are received under color of partnership authority.
Ostensible authority, also called apparent authority, arises from the principal's manifestations to third persons that reasonably lead them to believe the agent is authorized. Actual authority arises from manifestations made directly to the agent. A principal may be bound by an agent's acts under ostensible authority even when the agent lacked actual authority.
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Written or spoken words or other conduct of the principal that, reasonably interpreted, causes a third person to believe the principal consents to the agent's acts creates ostensible authority. Supplying business cards, letterhead, or allowing the agent to attend client meetings without disclaimers are common examples of such manifestations.
…that the making of such statement was within the authority of the agent or, as to persons dealing with the agent, within the apparent authority or other power of the agent" (emphasis added). Restatement (Second) of Agency § 285 (1958). See Levie, 52 Mich. L. Rev., at 1161. The reason behind this concept is that the agent's…
…As to the bank: It was put upon notice of the improper activities of its employees, Gale and Haslem, knowingly created the
…Commission. However, it was not shown that these limitations were made known to respondent. The trial court, on the theory of ostensible authority
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No. Termination of actual authority does not automatically terminate apparent authority. Third parties without notice of the internal restriction may continue to rely on the appearance created by the principal's prior manifestations.
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A partnership is liable for loss caused by a partner acting in the ordinary course of business or with actual or apparent authority of the partnership. The same rule applies to limited partnerships when a general partner acts with apparent authority.
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Yes. A lawyer of record is presumed to have apparent authority to settle litigation. Absent notice of limitations, the opposing party may rely on the lawyer's representations, and the settlement may be enforced against the client.
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