What is the meaning of "apparent authority"?

"Apparent authority" refers to a situation where a third party reasonably believes that an agent has the authority to act on behalf of a principal, based on the principal's representations or conduct. This belief arises even if the agent does not actually have that authority, as long as the principal's words or actions lead the third party to assume that the agent is authorized to act in a specific capacity.

In practice, this concept protects the interests of third parties who rely on the representations of a principal. If a principal behaves in a manner that suggests to an outsider that an agent has certain powers, the principal may be bound by the agent's actions, even if those actions exceed the agent's actual authority. This principle is grounded in the need for fair dealings and predictability in business transactions.

Understanding this definition reinforces the idea that authority in a contractual context can extend beyond the explicit permissions granted by the principal, capturing the practical realities of how business is conducted and how relationships are perceived by outside parties.