Authority

General
There are three bases by which an officer or employee of an entity may be found to have legal authority to bind the entity to a contract. These are actual authority, apparent authority, and implied authority.

Actual authority
Actual authority arises where the principal's words or conduct reasonably cause the agent to believe that he or she has been authorized to act. This may be express in the form of a contract or implied because what is said or done make it reasonably necessary for the person to assume the powers of an agent. If it is clear that the principal gave actual authority to agent, all the agent's actions falling within the scope of the authority given will bind the principal. This will be the result even if, having actual authority, the agent in fact acts fraudulently for his own benefit, unless the third party with whom the agent is dealing was aware of the agent's personal agenda. If there is no contract but the principal's words or conduct reasonably led the third party to believe that the agent was authorized to act, or if what the agent proposes to do is incidental and reasonably necessary to accomplish an actually authorized transaction or a transaction that usually accompanies it, then the principal will be bound.

Apparent authority
Apparent or ostensible authority exists where the principal's words or conduct would lead a reasonable person in the third party's position to believe that the agent was authorized to act, even if the principal and the purported agent had never discussed such a relationship. For example, where one person appoints a person to a position which carries with it agency-like powers, those who know of the appointment are entitled to assume that there is apparent authority to do the things ordinarily entrusted to one occupying such a position. If a principal creates the impression that an agent is authorized but there is no actual authority, third parties are protected so long as they have acted reasonably. This is sometimes termed "agency by estoppel" or the "doctrine of holding out", where the principal will be estopped from denying the grant of authority if third parties have changed their positions to their detriment in reliance on the representations made.[2]

Implied authority
Implied authority considered held by the agent by virtue of being reasonably necessary to carry out his express authority. As such, it can be inferred by virtue of a position held by an agent. For example, partners have authority to bind the other partners in the firm, their liability being joint and several, and in a corporation, all executives and senior employees with decision-making authority by virtue of their position have authority to bind the corporation.

* Authority by virtue of a position held:

To deter fraud and other harms that may befall individuals dealing with agents, there is a concept of Inherent Agency power, which is power derived solely by virtue of the agency relation.[3] For example, partners have apparent authority to bind the other partners in the firm, their liability being joint and several (see below), and in a corporation, all executives and senior employees with decision-making authority by virtue of their declared position have apparent authority to bind the corporation.

Even if the agent does act without authority, the principal may ratify the transaction and accept liability on the transactions as negotiated. This may be express or implied from the principal's behavior, e.g. if the agent has purported to act in a number of situations and the principal has knowingly acquiesced, the failure to notify all concerned of the agent's lack of authority is an implied ratification to those transactions and an implied grant of authority for future transactions of a similar nature.