Certification in Supplier Diversity Practice Exam

What does 'actual authority' refer to in agency law?

1. The power exercised by an agent without consent

2. The authority granted intentionally by the principal to the agent

3. The limits of an agent's discretion

4. The authority derived from public law

The correct answer is: The authority granted intentionally by the principal to the agent

In agency law, 'actual authority' specifically refers to the authority that a principal intentionally grants to an agent. This form of authority can be expressed verbally or in writing and is clearly delineated by the principal's directives. When an agent acts within the bounds of this actual authority, their actions are legally binding on the principal, as the agent is carrying out the principal's wishes. This concept ensures that both parties – the principal and the agent – have a clear understanding of the scope of the agent’s powers. An agent acting with actual authority can make decisions, enter into contracts, and perform other actions that would be considered authorized by the principal, thus creating enforceable obligations. In contrast, the other options depict distinct concepts that do not align with the definition of actual authority. For instance, authority exercised without consent does not reflect actual authority since it lacks the essential component of authorization from the principal. Similarly, the limits of an agent's discretion and authority derived from public law do not encapsulate the intentional connection established between a principal and an agent, which is central to the notion of actual authority.