What type of authority arises from the circumstances surrounding a contract?

The type of authority that arises from the circumstances surrounding a contract is best described as apparent authority. Apparent authority occurs when a principal's actions lead a third party to believe that an agent has the authority to act on their behalf, even though that authority has not been explicitly granted.

In situations involving apparent authority, the emphasis is on the perceptions of the third parties. For instance, if a company has previously allowed an employee to negotiate contracts and the employee is acting in a manner consistent with that behavior, third parties may reasonably assume that the employee still holds that authority, even if the company has not formally documented it. This aspect of apparent authority is crucial because it protects third parties who rely on the representations made by an agent, even when actual authority may not exist.

In contrast, implied authority is derived from the responsibilities of a role, express authority is clearly defined and documented in written or verbal form, and actual authority refers to the power an agent is granted by the principal based on their direct communication. Apparent authority stands out because it is fundamentally linked to the perceptions and actions of both the agent and the principal in the eyes of third parties, thereby influencing how business transactions are viewed and executed.