Ostensible authority: Overview, definition and example
What is ostensible authority?
Ostensible authority is when someone appears to have the power to act on behalf of a company or another person, even if they haven’t been formally given that power. It relies on how their role or actions are presented to others, making it reasonable for a third party to believe they have authority.
For example, if an employee regularly negotiates contracts for a company and a vendor assumes they have the authority to do so, that could be considered ostensible authority—even if the employee wasn’t officially authorized.
Why is ostensible authority important?
Ostensible authority is important because it holds businesses accountable for how they represent their employees or agents to others. If a company gives the impression that someone has authority, it may be bound by that person’s actions, even if they acted beyond their actual powers.
For businesses, understanding ostensible authority helps prevent unintentional agreements or liability by ensuring that roles and responsibilities are clearly defined and communicated to outsiders.
Understanding ostensible authority through an example
Imagine a sales manager at a manufacturing company regularly negotiates pricing with clients. If a new client agrees to a deal based on the manager’s promises, the company may be bound by the agreement, even if the manager wasn’t formally authorized to finalize contracts. The client could reasonably believe the manager had ostensible authority based on their role and behavior.
In another case, a contractor deals with a project manager who oversees construction work for a property owner. If the project manager instructs the contractor to order additional materials, the contractor might assume the project manager has the authority to do so. If the owner disputes the expense, they could still be held responsible due to the project manager’s ostensible authority.
An example of an ostensible authority clause
Here’s how an ostensible authority clause might look in a contract:
“The Parties acknowledge that no individual shall be deemed to have authority to act on behalf of either Party unless expressly authorized. Any reliance on ostensible authority shall be at the risk of the relying Party.”
Conclusion
Ostensible authority occurs when someone appears to have the power to act on behalf of a business or individual, creating binding obligations based on reasonable belief. It underscores the importance of how roles are presented to third parties.
By understanding ostensible authority, businesses can protect themselves by clearly defining and communicating who has authority, helping to avoid unintended agreements or liability. It’s a key concept for managing relationships and responsibilities in business dealings.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.