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ACCA Applied Skills · Corporate and Business Law (Global) · Agency law

Farid, an agent for Gala Ltd, was told to stop dealing with Hanif Co, a long-standing customer. Gala Ltd did not tell Hanif Co of this. Farid then agrees a sale with Hanif Co, who knows nothing of the restriction. What is the legal position?

Gala Ltd is bound. Although Farid's actual authority was restricted, the company had held him out as its agent and did not tell Hanif Co of the limit, so Farid had apparent authority and the third party can enforce the contract.

  1. AGala Ltd is bound, because Farid has apparent authority arising from its earlier dealings and non-notificationCorrect
  2. BGala Ltd is not bound, because Farid's actual authority has ended
  3. CFarid alone is bound, because he exceeded his instructions

Explanation

Apparent authority arises from a representation by the principal that the agent has authority, here continuing dealings. Limits on authority bind third parties only if communicated. Hanif Co relied reasonably, so Gala is bound, though it may claim against Farid for breach of duty.

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