Which form of authority is based on the third party's reasonable belief that the agent has authority to act on the principal's behalf?

• A. Actual authority
• B. Apparent authority
• C. Express authority
• D. Implied authority

Answer: (B)

Apparent authority comes from how the principal’s words or actions lead a third party to reasonably believe the agent has authority to act for the principal. It isn’t about what the agent was actually told to do; it’s about the belief created in the third party by the principal’s conduct. If a company lets a manager behave as if they can sign contracts up to a certain amount, a third party may reasonably rely on that appearance and bind the principal, even if the manager had no actual authority.

By contrast, express authority is a clear, explicit grant from the principal (written or spoken). Implied authority arises from the agent’s duties and the need to carry out the express authority, or from the agent’s position and past practice. Actual authority covers both express and implied authority, while apparent authority specifically focuses on the third party’s reasonable belief created by the principal’s representations or conduct.