Understanding Implied Authority
Implied authority refers to an agent’s inherent ability to perform acts that are reasonably necessary to fulfill the goals of an organization. Under contract law, these agents have the capacity to forge legally binding contracts on behalf of another party or entity.
How Implied Authority Operates
Implied authority isn’t explicitly stated or documented within a contract like express authority but is assumed essential for conducting business for a principal. It complements express authority as not every scenario can be detailed in a written contract. In real estate, for example, express authority gives an agent permission to act on behalf of a principal.
Key Insights
- Three Types of Authority: Express, implied, and apparent authority are critical in business transactions like real estate.
- Apparent Authority: This arises when an individual’s behavior suggests they can act in someone else’s interest without explicit consent.
- Real Estate Agents: When a real estate agent signs a binder with a client, they receive implied authority to act on a seller’s behalf.
- Express Authority in Companies: For example, a life insurance agent might have express authority to conduct certain activities on behalf of their employer.
Implied authority also extends to insurance agents authorized to solicit life insurance applications. When given express authority from the insurer, they acquire implied authority to contact prospects and schedule appointments. This principle also applies to individuals wearing uniforms or badges representing a business.
Express and implied authority are commonly utilized within the real estate industry.
Real-World Example of Implied Authority
Imagine you’re dining at a restaurant, and the server informs you that you can get a free beverage with an entree purchase. By doing so, they’ve established a contract with you on the restaurant’s behalf—implied by their role. This contract remains enforceable even if a manager later tries to retract the offer, highlighting the server’s implied authority.
If the management contests this, the restaurant would breach an enforceable agreement made between you and their employee. While they may reprimand the server, the business must honor the promise due to the implied authority. This principle has broader applications in various legal contexts.
Special Insights
Contrastingly, “expressed authority” is directly communicated by the principal to the agent, either orally or in writing, whereas “apparent authority,” also known as “ostensible authority,” exists when a principal’s actions lead a third party to believe the agent holds authority, even if unexpressed or implied.
Related Terms: express authority, apparent authority, ostensible authority, principal, agent, contract law.
References
Get ready to put your knowledge to the test with this intriguing quiz!
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## What best describes the term "Implied Authority"?
- [x] Authority of an agent that is not expressly stated but assumed from circumstances
- [ ] Defined legal authority granted by a posted job description
- [ ] Authority given after a formal written agreement
- [ ] Authority that refers only to autonomous decision-making
## Implied authority generally derives from which of the following?
- [ ] Official enterprise directives
- [x] Actions, conduct, or trade customs
- [ ] Explicit mandates from supervising tiers
- [ ] Official documented guidelines
## Which professionals commonly operate under implied authority?
- [ ] Property owners
- [x] Real estate agents
- [ ] Contractors performing basic assigned tasks
- [ ] Business unit employees with no assigned project
## How might a third party assume an agent’s implied authority?
- [ ] Through observation of the agent’s regular duties alone
- [x] Through the nature of the role and consistent behavior fitting within typical industry standards
- [ ] Based solely on discussions without action
- [ ] By reviewing internal company documentation solely
## How is an agent's implied authority critical to business transactions?
- [ ] It obstructs operations due to required approvals
- [ ] It reduces the likelihood of fulfilling agreements
- [x] It enables timely decision-making and executing standard transactions
- [ ] It nullifies flexibility by strictly following policy
## In terms of the law, how is implied authority treated?
- [ ] As irrelevant in court
- [x] Recognized and enforceable if shown through conduct or situation
- [ ] Only valid with corroborated evidence by both parties involved
- [ ] Overseen primarily in the documentation
## Can implied authority exist without any form of explicit written agreement or instructions?
- [x] Yes, if circumstances suggest authority is validly assumed
- [ ] No, it requires at least an email directive
- [ ] Only if backed up by verbal approval
- [ ] Conditional on the inclusion in a company manual
## Which scenario is a valid example of implied authority?
- [ ] An investment banker making discretionary decisions without prior client consultation
- [ ] A temp contractor purchasing machinery for a project without instruction
- [x] A store manager handling refunds without specific procedural mandates due to role treatment
- [ ] A company intern signing off on contracts
## What risks are associated with implied authority?
- [ ] Simplicity and predictability in roles
- [ ] Elevated procedural compliance
- [x] Unauthorized overreach, misunderstanding in roles
- [ ] Elimination from standard-process conflicts
## Under what circumstances should implied authority be reviewed or potentially restricted?
- [ ] When tasks expand on original job descriptions
- [ ] When established trade customs change irregularly
- [x] During organizational restructuring or when roles significantly change
- [ ] When the agent consistently abides by explicit outlined authority
