Which authority allows an agent to act based on the principal's behavior or representations?

The correct answer is apparent authority. This type of authority arises when a principal's conduct or representations lead a third party to reasonably believe that an agent has the authority to act on the principal’s behalf, even if the principal has not explicitly granted that authority. Essentially, it is based on the perception created by the principal's actions or statements.

For example, if a business owner frequently allows an employee to negotiate contracts without explicitly stating that they have the authority, third parties may perceive that the employee has the authority to do so. If the employee then enters into a contract, the principal could be bound by it due to the apparent authority created by their behavior.

The other types of authority, like express authority, refers to a clear, stated permission granted by the principal. Implied authority covers behaviors or responsibilities that are necessary to fulfill express authority but are not explicitly stated. Actual authority involves the authority that the agent is given by the principal, whether express or implied, which is not dependent on the perceptions of third parties. Understanding these distinctions helps clarify why apparent authority is specifically tied to the principal's behavior or representations.