A principal in whose name a contract is made pursuant to authority, is liable to the third person.
We may find three situations in which a principal who is disclosed at the time of the contract and in whose name the contract is made is liable thereon.
1. Where the principal actually authorized the agent to make the contract.
2. Where there is no actual authority, yet from the situation in which the principal places the agent, the third person may presume there is authority. The agent is then said to have apparent authority.
3. Where there is neither actual nor apparent authority, yet the act is done in the name of the principal and the principal afterwards ratifies the act. This situation we have already considered.
A principal is not bound by the unauthori2ed assertions of authority made by the agent.
It is very clear that no one can hold another as principal merely because a certain person has represented himself to be an agent. If that were the case no man could know what obligations another might fasten upon him. Just as no man's property can be taken from him by forgery or theft, so no contract may be fastened upon him by another's unauthorized representation of him. All authority to act as agent must be traceable back to some word spoken or some act done by the principal, upon which the third person is entitled to rely as a representation not only that the agent is an agent, but also that as such agent he has authority to bind the principal upon this very contract. The agent may in such a case exceed his real authority; he may disobey secret instructions, he may do things that the principal never contemplated that he should do, and the principal may be held; yet in such a case there must still be something said or done by the principal upon which a third person may reasonably base a belief that the agent had the power in question "It is to be remembered that " persons dealing with an assumed agent are bound at their peril to ascertain not only the fact of the agency, but the extent of the agent's authority."58
Express authority is that set forth literally. Implied authority is authority actually conferred by implication. Apparent authority is the authority which the agent seems to have from other circumstances whether he actually has it or not and includes implied authority.
Authority of an agent to bind his principal, may be thus arranged:
1. Actual authority.
2. Apparent authority.
58. Merchant's National Bank of Peoria v. Nichols, 223 111. 41.
The law of the agent's apparent authority is frequently treated as synonymous with his implied authority; but there is a distinction. It is true an agent has apparent authority to do a certain thing because he has implied authority to do it, but in that sense apparent authority would also cover express authority. But the term apparent authority would seem to be more correctly employed to denote an appearance of authority as to third persons independent of the question whether there is authority as between the parties themselves.
It is a usual rule of construction applied to all grants of power that the grant carries with it by implication all that is necessary, convenient and reasonable to carry out the purpose of the grant. In general agencies, this is necessarily quite large. In special agencies, it is narrow. As appointment of an agent to operate a general store, carries with it by implication all that is necessary and usual to that end, although not enumerated. But apparent authority may exist where there is neither express nor implied authority. One behind a counter apparently as a clerk might be there in fact as a detective with instructions to make no sales. Yet he would have apparent authority to make sales, and do whatever one in that position usually has power to do.
Secret instructions derogatory to the seeming authority are not binding on third persons. Thus I might give an agent a power of attorney to borrow money for me and instruct him not to use it until he heard further from me, but if he did use it I would be bound.
In a general agency there is necessarily much more implied and therefore apparent agency than in a special agency.
The courts have very frequently referred to agencies as being general or special for the purpose of determining the question of implied or apparent authority. The distinction has been criticized upon the ground that the real question is merely what implications can properly be made from the facts in each case, but as a matter of fact in a rough way the distinction carries a real meaning. A person employed to manage a mill would be called a general agent. Necessarily there is in his appointment much left to be implied, while an agent appointed to collect a note has practically no authority save that which has been expressly conferred upon him. But suppose he is employed to collect notes generally. Is he a special agent or a general one? His authority would be confined to the collection of notes. He could no more extend time of payment on one than if he had been appointed to collect only that one. After all the question is - what reasonably may we infer from the appointment conferred upon him, and the use of the distinction into general and special agencies must not confuse us on this point.