Start Here: 5 Things You MUST Know
Actual authority = what the principal really gave the agent (express or implied)
Apparent authority = what a third party reasonably believes the agent can do — NOT granted by the principal
Implied authority covers acts reasonably necessary to carry out express authority OR that arise from business custom
An agent generally cannot delegate duties except for ministerial tasks, custom, or emergencies
If something seems fishy, the third party has a duty to verify the agent's authority with the principal
1. Actual Authority
Actual Authority
Authority the principal has genuinely given to the agent. This is the real, legitimate power to act. It comes in two flavors: express and implied.
Express Authority
Authority the principal has specifically and explicitly given. Plain English: "I told you that you can do X."
Example: Ed tells his agent Al, "Go purchase men's clothing for the store." Al has express authority to buy men's clothing because Ed specifically said so.
Implied Authority
Authority not explicitly stated but reasonably necessary to carry out express authority, OR arising from business custom. Plain English: "I didn't say you could do X, but it's obviously part of the job."
Example: Al also buys perfumes (gift items) for Ed's men's clothing store. Ed never mentioned perfumes, but a reasonable agent might stock gift items. Al has implied authority to do this.
Real-World Scenario: Express vs. Implied Authority
The Setup: Ed owns a men's clothing store. He hires Al as a purchasing agent and says, "Buy merchandise for the store." Ed personally hates denim and tells Al, "Never buy denim."
What Happens: Al buys men's shirts (express authority), perfumes as gift items (implied authority), and also buys a shipment of denim jeans (against express instructions).
The Result: Al has express authority for shirts, implied authority for perfumes, and no authority (express or implied) for denim because Ed specifically forbade it.
Business Custom and Implied Authority
An agent may have implied authority based on business custom. If an agent has customarily sold the same kind of goods for the same price, they have implied authority to sell newly delivered goods for that price — even without express permission for each individual sale.
2. Apparent Authority
Apparent Authority
Authority that a third party reasonably believes the agent has, based on the principal's words or conduct, even if the agent does NOT actually have that authority.
Critical Distinction (Most Heavily Tested)
Actual Authority
Between the principal and agent. "What did the principal really authorize?"
Apparent Authority
About what a third party reasonably believes. "What does the outsider think the agent can do?"
Key Rule: A principal does NOT grant apparent authority. It arises from a third party's reasonable belief that the agent has authority.
Real-World Scenario: The Denim Purchase
The Setup: Ed told Al never to buy denim. But Ethel, a denim supplier, has no idea about this restriction. She sees Al purchasing all kinds of clothing for Ed's store.
What Happens: Al buys denim from Ethel, violating Ed's instructions.
The Result: Ethel had no reason to think Al could not buy denim — it is a clothing store. Al has apparent authority from Ethel's perspective. Ed is bound by the purchase. Ed's remedy is to sue Al for disobeying instructions, but Ed still owes Ethel for the denim.
Insurance Example: Apparent Authority
The Setup: An insurance agent has been told by the company to never bind coverage for earthquake risks. A customer asks for earthquake coverage.
What Happens: The agent says "Sure, you're covered!" and issues what looks like a valid policy on company letterhead.
The Result: The customer had no way of knowing about the internal restriction. From the customer's perspective, the agent appeared to have authority to sell this coverage. The insurer may be bound under apparent authority, even though the agent exceeded actual authority.
3. Duty to Ascertain Authority & Delegation
Third Party's Duty to Verify
A third party must communicate directly with the principal to confirm the agent's authority if the agent acts in a way adverse to the principal's best interests. In plain English: if something smells fishy, the third party has a duty to check with the principal.
Example: An agent offers to sell company assets at 10% of their value. A buyer should realize this is suspicious and verify with the principal before closing the deal. If the buyer fails to verify, they cannot rely on apparent authority.
Delegation of Authority
General Rule
An agent cannot delegate duties to others (subagents). The principal chose this specific agent for a reason — their skill, judgment, or trustworthiness.
3 Exceptions to the No-Delegation Rule
Ministerial Duties
Routine, mechanical tasks that do not require the agent's personal skill or judgment. Filing paperwork, data entry, etc.
CAN delegate
Customary Appointments
Situations where delegation is common practice in the industry. If everyone in the business delegates this task, so can the agent.
CAN delegate
Emergency Appointments
When an emergency requires immediate delegation because the agent cannot personally handle the situation in time.
CAN delegate
Real-World Scenario: Delegation
The Setup: An insurance claims adjuster is assigned to personally evaluate a complex commercial property loss. They are swamped with work.
What Happens: The adjuster asks their assistant to file the claim paperwork (ministerial duty) but also asks an unqualified friend to evaluate the actual damage (non-ministerial).
The Result: Delegating the paperwork filing is fine — it is a ministerial task. But delegating the damage evaluation is not allowed because it requires professional judgment and skill, which is why the principal hired this specific adjuster.
4. Authority at a Glance
Principal Grants
Actual Authority
(Express + Implied)
Agent Acts
Third Party Believes
Apparent Authority
(Reasonable belief)
Principal Bound
| Authority Type | Source | Between Whom? | Principal Bound? |
|---|---|---|---|
| Express | Principal's explicit instructions | Principal and Agent | Yes |
| Implied | Reasonably necessary or business custom | Principal and Agent | Yes |
| Apparent | Third party's reasonable belief | Principal and Third Party | Yes (but can sue agent) |
Cheat Sheet
Print this page for quick referenceAuthority Types
- Express: Principal explicitly grants ("do X")
- Implied: Reasonably necessary or business custom
- Apparent: Third party's reasonable belief (NOT from principal)
Delegation Exceptions (3)
- 1. Ministerial duties (routine, no judgment needed)
- 2. Customary appointments (industry practice)
- 3. Emergency appointments (immediate need)
Key Rules
- Apparent authority is NOT granted by principal
- Third party must verify if agent acts suspiciously
- Principal bound by apparent authority (sue agent separately)
Memory Trick
- Actual = between principal and Agent (A and A)
- Apparent = what the third Party Perceives (P and P)
Exam Trap Alerts
1. "Apparent Authority Comes From the Principal"
WRONG. Apparent authority arises from the third party's reasonable belief, NOT from anything the principal intentionally grants. The principal's conduct may create the appearance, but the authority itself is based on what the outsider perceives.
2. "An Undisclosed Principal's Agent Can Have Apparent Authority"
WRONG. By definition, apparent authority requires the third party to know an agency exists. If the principal is undisclosed, the third party does not know there IS an agent, so apparent authority is impossible.
3. Implied Authority vs. Apparent Authority
These are NOT the same thing. Implied authority is real authority the principal intended (based on necessity or custom). Apparent authority may exist even when the principal explicitly denied permission. The difference: who is the authority "between"?
4. Agent Cannot Delegate Judgment Calls
The exam may describe an agent passing off important decisions to someone else. Only ministerial (routine) tasks can be delegated. Anything requiring professional skill, judgment, or discretion must be done by the agent personally.
Quick Reference Summary
Express Authority
Principal explicitly grants. "I told you to do X."
Implied Authority
Reasonably necessary or business custom. Part of the job.
Apparent Authority
Third party's reasonable belief. NOT granted by principal.
Delegation Rule
Cannot delegate except: ministerial, customary, emergency.
Duty to Verify
Third party must check if agent acts adversely to principal.
Ministerial Duties
Routine tasks not requiring personal skill or judgment.