What are the two types of authority in contracting?

In the context of contracting, actual authority and apparent authority are two critical concepts that define the extent to which an agent can act on behalf of a principal.

Actual authority occurs when an agent has been explicitly granted the power to act on behalf of the principal, often outlined in the contract or agreement. This authority can be further divided into express authority, which is specifically stated, and implied authority, which is derived from the circumstances or the agent's role.

Apparent authority, on the other hand, arises when a third party reasonably believes that an agent has the authority to act on behalf of the principal, even if that authority has not been explicitly granted. This can occur through the principal's conduct or representations that lead the third party to assume the agent has such authority. It is important because it protects third parties who enter into contracts, as they can rely on the representations made by the principal.

Together, actual and apparent authority form the basis for understanding how contracts can be formed and how parties can interact in a contractual relationship. The distinction between these types is crucial for both agents and principals to navigate their responsibilities and rights effectively in a contracting environment.