Restatement (Third) of Agency · Section § 5-03
This section addresses the nature of actual authority an agent may possess in a principal-agent relationship.
Source: Restatement Restatement (Third) of Agency § § 5-03
An agent has actual authority when the principal has knowingly permitted the agent to exercise authority on the principal’s behalf, or the principal has held the agent out as possessing authority.
Actual authority refers to the power given to an agent to act on behalf of the principal. This authority can stem from explicit permission from the principal or from circumstances in which the principal represents that the agent has authority.
Actual authority can be either express or implied.
The existence of actual authority depends on the reasonable beliefs of the agent derived from the principal's communications or conduct.
Illustration 1
If a manager explicitly tells an employee they can sign contracts, the employee has actual authority to do so.
Illustration 2
If a business usually allows an employee to negotiate with clients, a new client might reasonably believe that the employee has the authority to finalize contracts based on past interactions.
The court recognized that the agent's authority was established by the principal's explicit permission, confirming the principles outlined in § 5-03.
Understanding actual authority helps parties in business transactions ascertain the validity of actions taken by agents. It also protects principals from unauthorized actions by agents who do not have actual authority.