How Actual Authority Works

Agents must receive the actual authority from the principal either in writing or orally. Depending on the situation, the power of actual authority can be either broad, limited, or general. Most of the time, when handing over authority, written authority is usually preferred. It is because written authority can be easily verified, unlike oral authority.

When it comes to corporations, some of the written authority will include the resolutions and bylaws from the director’s meeting. The meeting is to grant permission to carry out specific acts on the corporation’s behalf to the authorized person. If an agent whose operations are under actual authority gets into a contract with another party, there will be a creation of liabilities and contractual rights by the contact between the party and the principal. We can also define actual authority as the granted authority that has been given to an agent to take care of reasonably incidental acts to and for effective duty performance.

Real-World Example of Actual Authority

Brian bought a life insurance policy amounting to $20,000. During the process, he named his wife, Evelyn, as the primary beneficiary. At the time of purchasing the life insurance policy, the partners had lived for 20 years together. Evelyn paid all the premiums that were policy-related.

In the year 2019, Brian designated the daughter as having power of attorney. The daughter, in turn, made some changes by changing the insurance policy’s beneficiary from Evelyn to herself. In the year 2020, Brian, the husband, died, and both the females did the application to get the stated benefits in the insurance policy. After realizing the changes in the insurance policy, the wife filed a complaint that Christine had committed fraud when she made the changes to make her the primary beneficiary.

After filling the complaints, the court stated that Brian had been of sane mind during the changes. Christine defended herself, saying her father had given her power of attorney to make changes when necessary. The court stated that Christine had no actual authority to make changes to the policy. The court ruled in favor of the widow, Evelyn, after disagreeing with the actions of Christine.

Ostensible or Apparent Authority vs. Actual Authority

Depending on the situation, we can determine the powers of actual authority by either customs of trade or professional usages. It is essential to note the occurrence of actual authority in situations where the words or conducts of the principal make an agent believe that the acting power is with the principal. However, the agent has to be handed the actual authority either in writing or orally.

When a principal indicates to the third party that the authority of acting on their behalf is with the agent, then, in this case, the agent will either have ostensible or apparent authority. This remains so even though the actual authority of doing so is not with the agent. In a situation where the third party has relied on the agent leading to tangible business outcomes, apparent authority can also apply.

Agency by estoppel is given rise by ostensible or apparent authority. There is the protection of third parties against liabilities. This is in case there is the creation of an impression by the principal that the agent is authorized while, in the real sense, the agent has no actual authority.