What is implied authority?
Implied authority is the unstated power an agent has to take actions reasonably necessary to perform their role on behalf of a principal. Even when not expressly written or spoken in a contract, implied authority can create legally binding commitments between the principal and third parties when the agent acts within the scope of their job.
How it works
- Implied authority fills gaps that express authority (explicit oral or written permission) does not cover. Principals generally cannot anticipate every specific act an agent must perform, so some authority is assumed as necessary to transact business.
- Courts evaluate implied authority based on the agent’s role, the tasks reasonably needed to perform that role, and established business practices.
- When an agent acts within implied authority, the principal is typically bound by any agreements the agent makes with third parties, even if the principal later disagrees with the action.
- Implied authority often overlaps with apparent authority (also called ostensible authority). Apparent authority arises when the principal’s words or conduct lead a reasonable third party to believe the agent is authorized, regardless of the agent’s actual authority.
Common examples
- Real estate: An agent given authority to handle a property sale will have implied authority to carry out customary marketing, showings, negotiations, and contract-signing tasks necessary to complete the transaction.
- Insurance: An insurer that grants an agent express authority to solicit life-insurance applications implicitly authorizes routine prospecting activities (e.g., phone calls, appointment scheduling).
- Retail/restaurant: A server who offers a free beverage with a paid entrée can create a binding contract on the restaurant’s behalf. Even if a manager later claims the server erred, the business is generally obligated to honor the promise to the customer; the employer may discipline the employee afterward.
Special considerations
- Express vs. implied vs. apparent:
- Express authority: explicitly granted by the principal (oral or written).
- Implied authority: implicitly necessary to carry out the agent’s express duties.
- Apparent authority: derived from the principal’s representations that cause reasonable third parties to rely on the agent’s authority.
- Limits and disputes: Principals can limit an agent’s authority internally, but limits unknown to third parties may not protect the principal if a third party reasonably relied on the agent’s apparent or implied authority.
- Remedies and consequences: If an agent exceeds authority, the principal might avoid liability, but third parties may have recourse against the agent. If the agent acted within implied or apparent authority, the principal is generally bound and can seek remedies against the agent for any breach of internal limits.
Key takeaways
- Implied authority allows agents to take reasonable actions not explicitly stated but necessary to perform their duties.
- It complements express authority and can bind the principal in dealings with third parties.
- Apparent authority protects third parties who reasonably rely on the principal’s representations about an agent’s authority.
- Businesses should clearly define agent roles and communicate limits to reduce disputes, but must be prepared to honor commitments agents make within the scope of their apparent or implied authority.