Restatement (Third) of Agency · Section § 7-01
Section 7-01 of the Restatement (Third) of Agency delineates the fundamental principles governing the authority of agents to bind principals in contractual relationships.
Source: Restatement Restatement (Third) of Agency § § 7-01
An agent has actual authority when the principal has specifically granted the agent that authority or when the agent reasonably believes they have such authority based on the principal's conduct.
Section 7-01 outlines the concept of actual authority in agency law. It states that an agent can act on behalf of a principal when the principal expressly permits it or when the agent believes, based on the principal's behavior, that they have the authority to act.
Actual authority can be expressed or implied depending on the circumstances.
Agents must act within the scope of their authority to bind the principal legally.
Illustration 1
If a principal tells their agent to sell a car, the agent has the actual authority to sell that car.
Illustration 2
If a principal's regular conduct suggests to a third party that the agent has the authority to enter into contracts, the agent may have implied actual authority.
Established the concept of implied authority in agency relationships.
Clarified the limits of an agent's authority based on principal's representation.
Understanding actual authority is crucial for parties engaging in business relationships to know when an agent can legally bind their principal. It also protects third parties who enter into contracts believing an agent acts within their authority.