Certified Professional Contract Manager (CPCM) 2025 – 400 Free Practice Questions to Pass the Exam

The correct choice highlights "actual authority," which is directly given to an agent by the principal. This authority can be explicitly stated in written or oral agreements, making it clear what the agent is authorized to do on behalf of the principal. Actual authority ensures that the agent acts within the scope defined by the principal and helps establish a clear understanding of the responsibilities and powers granted.

In contrast, implied authority arises when an agent has the authority to perform actions that are necessary to fulfill their duties, even if those actions are not explicitly stated. Unauthorized authority refers to situations where the agent acts without any permission from the principal, potentially leading to liability issues. Potential authority, while a valid term, does not define a clear legal standing compared to actual authority and tends to lean more toward conjectural scenarios.

Understanding these distinctions is essential in contract management, as it clarifies the boundaries of an agent's power in representing the principal and ensures compliance with legal obligations.