What does 'Apparent Authority' refer to in an agency relationship?

Apparent authority refers to a situation in agency relationships where a principal's actions create an impression to third parties that an agent has the authority to act on behalf of the principal, even if that authority has not been explicitly granted. This concept hinges on the reasonable reliance of a third party on the representations or conduct of the principal. For example, if a principal allows an agent to act in a certain capacity, such as using specific titles or engaging in certain transactions, third parties may assume the agent possesses the authority to conduct business with them based on these actions.

When the agent acts within this apparent authority, the principal may be bound to the agreement made by the agent with the third party, even if the agent technically exceeds their actual authority. This is designed to protect third parties who may be relying on the principal's representations regarding the agent's power.

The other options do not accurately capture this concept. Explicit authority is clear and stated directly (as in written contracts), while apparent authority relies on what third parties can reasonably conclude based on the principal's conduct, not necessarily formalized in writing. Legal regulations might imply certain authorities but are separate from the principle of apparent authority shaped primarily through the relationship and representations made by the principal.