Ostensible Authority

An agent’s actual authority is that authority given to agent by his principal:

  • Expressly
  • Implication
  • Necessity

Agent or Agent’s Principal will be liable when the agent exceeds authority. This raises the doctrine of ostensible (apparent) authority.

In addition to being liable for those contracts arranged by the agent in the exercise of principle’s actual authority, the principal is also be bound by the contracts organized by the agent in the exercise of principle’s ostensible authority.

Ostensible Authority is that authority of the agent as it appears to others (third parties), in the circumstances of others’ (third parties’) dealings with the agent, reasonably believe the agent to have authority. Board of Directors (BOD) of a company appoints a Managing Director (MD) but expressly limit Managing Director’s authority by saying Managing Director (MD) is not to order goods worth more than $100,000 without the approval of the Board of Directors (BOD). In that case Managing Director’s actual authority is subject to the $100,000 limitation but to reasonable people in the outside world, Managing Director’s ostensible authority includes all the usual authority of a Managing Director (MD). Company is bound by Managing Director’s ostensible authority in his dealings with those who do not know of the limitation. For example, a ship chandler agrees with the master (captain) what supplies should be put on board and at what price. If the chandler’s account is disputed by the shipowner who had issued an instruction to master (captain) that no prices for food may be agreed without first consulting the company’s procurement manager which this master (captain) failed to do. Ship chandler could successfully argue that the prices must remain as billed because ship chandler had a right to assume the master’s (captain’s) ostensible authority to agree them. Essential elements of ostensible authority:

  • Representation
  • Reliance on the representation
  • Alternation of the third parties position resulting from such a reliance

Representation can be expressed or implied from conduct or previous dealings. Representation must be made:

  • by the principal himself
  • by someone acting in accordance with the law of agency

Representation cannot be made by the agent himself. Representation must be made intentionally. There must be a representation to a third party and it must be shown that the third party relied on the representation.

Principal is not be liable if the third-party knew that the agent had no authority to bind the principal. Furthermore, there must be an alteration in the position of the third-party resulting from reliance on the representation.