Ostensible authority is a legal term that has relevance for businesses when they enter into contracts. Ostensible authority means that a person has the apparent or apparent authority to act on behalf of an organization, even though they may not actually possess such authority. In other words, they may seem to have the power to act on the behalf of the organization, but lack the actual authority to do so.
This can create problems for businesses if they enter into a contract with a third party based on the representation of the person with ostensible authority, only to discover that they did not actually have the authority to make such promises or enter into such contracts. In such a situation, the business may have a claim against the organization for negligence.
Examples of Ostensible Authority
One of the most common examples of ostensible authority involves employees who make representations to customers on behalf of their employer, without having explicit authority to do so. For instance, a sales representative may promise a customer a certain discount or make other commitments on behalf of the organization, without having actually been given such authority.
Another example involves a person who may be described as the organization’s agent or representative, such as a consultant or contractor. If the organization does not take precautions to ensure that the person is actually authorized to act on its behalf, or to limit the scope of any such authority, then it may be liable for the person’s acts, even though they lacked actual authority to act.
How to Avoid Issues of Ostensible Authority
The best way to protect yourself from issues of ostensible authority is to ensure that all persons who are acting on an organization’s behalf are clear about the scope of their authority and that any representations they make are consistent with such authority. It is also important to take steps to ensure that all employees understand that they are not authorized to make commitments on behalf of the organization unless they are explicitly authorized to do so.
Another important step involves documenting in writing any agreements and communicating the terms to all parties involved. By taking these steps, businesses can protect themselves from potential issues of ostensible authority and avoid potential litigation.