MBE Rules · Business Associations
Actual Authority
Actual authority (agency)
The rule
Actual authority — express or implied from the principal's manifestations reasonably interpreted — binds the principal to contracts the agent makes within its scope, including acts incidental or customarily accompanying the authorized transaction.
In plain English
Actual authority refers to the power an agent has to act on behalf of a principal, which can be explicitly granted (express authority) or inferred from the principal's conduct (implied authority). This authority allows the agent to enter into contracts that the principal is bound by, as long as the actions fall within the scope of that authority.
Worked example
A company manager tells an employee they can negotiate contracts with suppliers. The employee negotiates a deal with a supplier, which the company later refuses to honor. Since the manager gave express authority to the employee, the company is bound by the contract with the supplier.
Memory hook
Actual authority means the agent can act, and the principal must back it up.
The trap
Exams may present scenarios where an agent acts outside their authority but claims to have actual authority based on vague statements from the principal, leading students to misinterpret the scope.
How examiners test it
Questions often involve fact patterns where an agent's actions are scrutinized to determine if they fall within the actual authority granted by the principal, testing the student's understanding of express versus implied authority.
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