What is 'Implied Authority'

Implied authority refers to an agent with the jurisdiction to perform acts which are reasonably necessary to accomplish the purpose of an organization. Under contract law, implied authority figures have the ability to make a legally binding contract on behalf of another person or company.

BREAKING DOWN 'Implied Authority'

Implied authority is authority that is not express or written into a contract, but it is authority an agent is assumed to have in order to transact the business for a principal. Implied authority is incidental to express authority since not every single detail of an agent's authority can be spelled out in the written contract.

Implied authority applies to insurance company agent that is given the authority to solicit applications for life insurance on behalf of the insurer. When the insurer gives the agent that express authority, it also gives the agent the implied authority to telephone prospects on its behalf to arrange sales appointments. Implied authority also applies in a situation where a person is wearing a uniform or nametag bearing the logo or trademark of a business or organization. 

How Implied Authority Works

If a server at a restaurant tells you they can give you a free beverage with the purchase of an entree, they have made a contract with you on behalf of the restaurant business they are representing. The server's authority is implied by the fact that they have been chosen as the sole employee of the business designated to do business with you. Whether or not other employees ultimately get involved in the transaction is immaterial because it is expected that she will be the only person required to complete your business transaction.

In such a situation, if a restaurant manager came to your table and informed you that the server made a mistake and tried to take back the "free beverage with paid entree" offer, the business would actually be in direct violation of a legally enforceable contract made between you, the client, and their employee. They may certainly penalized the employee if they choose, but implied authority legally obliges them to honor the terms of the agreement. The same principle applies to more complex or extreme legal circumstances.

By contrast, "expressed authority" is clearly stated and granted by the principal to the agent either orally or in writing...and "apparent authority," sometimes called "ostensible authority," exists where a principal's actions could result in a third party (as a reasonable person) believing the agent had authority even where it may not be expressed or implied.

  1. Actual Authority

    Actual authority refers to specific powers, expressly conferred ...
  2. Limited Trading Authorization

    A level of trading authorization that gives an agent or broker the ...
  3. Agent

    An agent is any person who has been legally empowered to act ...
  4. Implied Rate

    The implied rate is an interest rate equal to the difference ...
  5. Independent Agent

    An independent agent is an insurance agent that sells insurance ...
  6. Financial Power Of Attorney

    A financial power of attorney grants a trusted agent the authority ...
Related Articles
  1. Taxes

    What's IRS Form 2848 Used For?

    It's a power of attorney tax form and here's what it can, and cannot, do.
  2. Investing

    Do You Need A Real Estate Agent?

    There's no guarantee that realtors will act in your best interest, but it may be worth hiring one anyway.
  3. Insurance

    How to Become a Life Insurance Agent

    The pros and cons of selling life insurance, a field that can be hard to crack, but can pay off big when you do.
  4. Investing

    How Real Estate Agent and Broker Fees Work

    Buying or selling a home? What you need to know about real estate agent and broker fees.
  5. Investing

    What Real Estate Agents Don't Want You To Know

    While they can be instrumental in helping you buy or sell a home, real estate agents may ulterior motives.
  6. Investing

    Top 5 Signs Of A Bad Real Estate Agent

    The signs of a bad agent go beyond whether your home sells quickly.
  7. Managing Wealth

    Medical Power of Attorney: Which Child to Choose?

    Don’t compromise for the sake of family harmony when you pick an adult child to fill this role. But be sure you fully explain your decision to all.
  8. Insurance

    Becoming a Life Insurance Agent

    Few careers match the opportunity for as quick and large a paycheck as being a life insurance agent, but it takes the right personality.
  9. Insurance

    What Your Life Insurance Agent Makes – On You

    Being paid by commission gives life insurance agents an incentive to sell bigger policies and specialized financial products. Remember that before you buy.
  1. What is authorized stock?

    Authorized stock represents the maximum number of common shares that can be issued legally by the company as stated in the ... Read Answer >>
  2. What is the difference between authorized shares and outstanding shares?

    Calculating financial ratios can help investors understand a company's financial position, but only when a knowledge of various ... Read Answer >>
  3. What is the role of agency theory in corporate governance?

    Understand how businesses use agency theory in corporate governance. Learn how moral hazard problems may be addressed using ... Read Answer >>
  4. What is the relationship between implied volatility and the volatility skew?

    Learn what the relationship is between implied volatility and the volatility skew, and see how implied volatility impacts ... Read Answer >>
  5. Do employers use agency theory in labor relations?

    Learn more about how agency theory works and how it is used to illustrate relationships between principals and agents in ... Read Answer >>
Hot Definitions
  1. Money Market

    The money market is a segment of the financial market in which financial instruments with high liquidity and very short maturities ...
  2. Perfect Competition

    Pure or perfect competition is a theoretical market structure in which a number of criteria such as perfect information and ...
  3. Compound Interest

    Compound Interest is interest calculated on the initial principal and also on the accumulated interest of previous periods ...
  4. Income Statement

    A financial statement that measures a company's financial performance over a specific accounting period. Financial performance ...
  5. Leverage Ratio

    A leverage ratio is any one of several financial measurements that look at how much capital comes in the form of debt, or ...
  6. Annuity

    An annuity is a financial product that pays out a fixed stream of payments to an individual, primarily used as an income ...
Trading Center