What does "actual authority" mean in contract law?

Actual authority in contract law refers to the explicit permission granted to an agent by a principal to act on their behalf. This authority can be written or oral, and it allows the agent to make decisions and enter into contracts within the scope defined by the principal. When an agent operates under actual authority, the actions taken by the agent are binding on the principal, provided they remain within the parameters of that authority.

In this context, the option indicating explicit permission highlights that the principal has formally communicated their consent for the agent to act in specific matters or capacities, which is essential for the agent to represent the principal effectively and legally. Understanding actual authority is crucial in determining the validity of agreements made by agents and the extent to which the principal can be held accountable for those agreements.