Future Business Leaders of America (FBLA) Business Law Practice Exam

What is meant by 'apparent authority' in agency law?

1. Authority granted explicitly by a principal

2. Authority an agent is believed to have by third parties

3. Authority derived from a statutory obligation

4. Authority that is implied but not formally recognized

The correct answer is: Authority an agent is believed to have by third parties

Apparent authority refers to the situation where a third party believes that an agent has the authority to act on behalf of a principal, even if that authority has not been explicitly granted. This belief is often based on the behavior of the principal or the circumstances surrounding the agent's actions. For example, if a principal allows an agent to act in ways that suggest they have authority, such as giving the agent a business card stating their title, a third party may reasonably assume that the agent has the authority to engage in transactions or make decisions on behalf of the principal. This concept is crucial in agency law because it protects third parties who engage with agents in good faith. If a principal does not want an agent to have authority, it is their responsibility to clearly communicate this to both the agent and any relevant third parties. If an agent acts beyond their actual authority but within what a third party perceives as authority, the principal may still be bound by the agent's actions due to the apparent authority doctrine. The other options, while related to authority in some way, do not capture the essence of apparent authority: - Authority granted explicitly by a principal refers to actual authority, which is clearly defined and recognized. - Authority derived from a statutory obligation involves legal