What is ostensible authority?

Ostensible authority refers to the authority that is perceived by third parties based on the principal's representations or actions. It does not rely on a formal agreement or contract but rather on what the third parties believe to be true due to the principal's conduct. This concept protects third parties because they can rely on the representations made by a principal, even if the agent does not have formal authority to act in a given situation.

It is significant because it establishes that a principal can be held liable for the actions of an agent when those actions appear to be authorized based on how the principal has represented the agent's role to others. This fosters a trustworthy business environment where parties can interact with each other based on the assumptions created by the principal's behavior.

Other options refer to different types of authority. Authority granted by contract is a type of express authority, while authority assumed by agents without formal approval pertains more to implied authority. The notion that authority must be proven in court does not align with the essence of ostensible authority, which is about the perception created in the eyes of third parties, rather than legal proof.