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Ostensible Authority: Definition, Example and Related Terms

What is Ostensible Authority ?

Ostensible authority refers to a situation where a person appears to have the authority to act on behalf of a business or individual, even if they don't actually have this authority. This is judged from the perspective of a reasonable third party who believes that the person has the power to act as an agent due to the way they are presented or behave. It is also known as apparent authority.

For instance, if a company's employee regularly negotiates contracts and the company does nothing to correct this perception, a third party may reasonably believe the employee has the authority to enter into binding agreements, even if the employee does not have express or implied authority.

Ostensible authority is an important concept in contract law, as it can determine whether or not an agreement made by an agent is binding on the principal (the person or entity the agent is acting on behalf of). It helps protect third parties who rely on the actions and representations of agents.

The principal can be held liable for agreements made under ostensible authority if they have created or allowed the appearance of authority. For example, if a company knows that a manager has been acting beyond their actual authority and does nothing to stop it, the company may be bound by the manager's actions.

Example(s)

  • Scenario Description
    An employee frequently signs contracts with suppliers on behalf of their employer, and the employer is aware of this but does not object or take action. In this case, the suppliers may reasonably believe that the employee has the authority to sign contracts. This creates ostensible authority, binding the employer to the contracts signed by the employee.
    A manager at a retail store negotiates prices with customers and offers discounts regularly. If the store owners are aware and do not intervene, customers can reasonably assume that the manager has the authority to negotiate and offer discounts. This ostensible authority binds the store to the deals made by the manager.