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IAI Actuarial Core Principles · Business Management · Trusts and agency

Arjun was employed by Bharat Securities as a dealer, with clear written instructions never to commit the firm to any single trade above Rs 50 lakh. Bharat Securities had publicly presented Arjun to its clients as head of trading, with full powers to deal. He agreed a Rs 80 lakh trade with a client, Neha, who knew nothing of the limit. What is the likely position?

Bharat Securities is bound because Arjun had apparent authority. The firm presented him as head of trading with full powers, and Neha reasonably relied on that without knowing of the private limit. The firm's remedy is against Arjun for exceeding his instructions.

  1. ABharat Securities is not bound, because actual authority was limited to Rs 50 lakh
  2. BBharat Securities is bound to Neha on the basis of apparent (ostensible) authorityCorrect
  3. CArjun alone is bound, because he exceeded his instructions
  4. DThe trade is bound only up to Rs 50 lakh
  5. Neha must prove Arjun's actual authority before she can enforce it

Explanation

The principal held Arjun out as having full powers, and Neha relied on this without notice of the limit. Under agency by estoppel, the principal is bound despite the internal restriction. Bharat Securities may then claim against Arjun for breach of instructions.

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