Actual Authority

Actual authority allows a third party to act on behalf of, and engage in decision-making for a company or agency. Any authorization, decision, or act taken by the third party acting with actual authority is legally binding and enforceable within the courts.  To explore this concept, consider the following actual authority definition.

Definition of Actual Authority

Noun

  1. Specific powers granted to a third party by a company, agency, or organization in oral or written form. The powers may be broadly defined, or very specific.

Written Actual Authority

Though a person acting under actual authority is not required to have the authority put in writing, doing so can help avoid any legal issues that may arise later. Written actual authority creates legal documentation from which the legal powers derive.

For example, if a store owner gives the night clerk permission to drop prices on certain items, the clerk has actual authority to do so. In the event that something occurs, such as the employee being fired or the company suffering an immediate financial loss, having written actual authority could prevent the owner from claiming that the employee acted outside the scope of his duties. This would be a valuable protection for the employee if the owner tries to file criminal or civil charges.

Actual Authority vs. Apparent Authority

Actual authority differs from apparent authority, though some may consider the differences minor. While actual authority requires a third party to have been officially granted the authority to act on behalf of a company, apparent authority does not require an official granting of power. Apparent authority is a concept used to refer to a situation that arises when a company or agency assumes that a third party or agent has the authorization to act on behalf of the company he is representing, though that third party had not been appointed to such representation. This may be a result of the third party’s verbal or circumstantial representation, such as presenting business cards, stationary, or simply stating he represents the company. Any actions taken under apparent authority may not be legally binding.

Example of Apparent Authority

A man works for a local flower delivery company. He does not have actual authority to order materials, arrange flowers, or price the items, but when an occasion arises, he gives a price quote to a customer on a flower order. While he does not have the actual authority to do this, his position as the floral company’s delivery driver grants him apparent authority. This may lead customers to believe he has the authority to give them a price quote.

Types of Actual Authority

There are two types of actual authority, expressed and implied. However, both of types of actual authority require a consensual agreement between the agency or company and the third party agent.

  1. Expressed actual authority occurs when a third party has been told that he has permission to act on behalf of the company or agency.
  1. Implied actual authority, also known as “usual authority,” takes place when an agent does what is reasonably necessary to express the authority.

Example of Actual Authority

Eva Weaver v Priscilla Deverell

Sometime during his life, Percy Holmes purchased a life insurance policy for $25,000 in which he named his partner, Eva Weaver, the primary beneficiary. The couple had lived together for over 20-years, and at times, Weaver paid the premiums associated with the policy. In 2009, Holmes designated his daughter, Priscilla Deverell as his Power of Attorney and she in turn changed the beneficiary on the insurance policy from Eva to herself. Percy died in 2010, and both women applied for the benefits stated in the policy. Weaver quickly filed a complaint with the Shelby Country Chancery Court claiming that Priscilla Deverell committed fraud when she changed the beneficiary to herself.

In the case of Eva Weaver v Priscilla Deverell, Weaver argued that, since Holmes was of sound mind when the change was made, Deverell did not have the actual authority to change it. Deverell defended her actions stating that she, having been granted Power of Attorney, had the right to change the beneficiary, using the doctrine of actual authority as her defense. Eva’s lawyers argued that, under her title as “attorney in fact,” Deverell had the authority to change the beneficiary. The court disagreed, however, ruling in favor of Eva Weaver. As of 2014, Deverell and her attorney are in the process of filing an appeal.

Related Legal Terms and Issues

  • Binding – an agreement between two parties that is enforceable by law.
  • Third Party – a person not directly involved with a company or agency.
  • Attorney in Fact – the title given a person who has authority to act in performing business and other transactions on behalf of someone else through a signed and witnessed Power of Attorney document.

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