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ACCA Applied Skills · Corporate and Business Law (Global) · Other company officers

Halden Ltd's secretary, Mr Voss, tells a bank that he is arranging a loan of 2 million to finance a new trading venture, and signs the loan agreement as agent of the company. The board never authorised it and the articles give him no such power. The bank had no knowledge of any lack of authority. Which analysis is most appropriate?

Halden Ltd is not automatically bound. A secretary's apparent authority is limited to administrative matters, and raising a large loan for trading falls outside it. The bank cannot rely on the office alone and needs actual authority or other holding out by the company.

  1. AHalden Ltd is automatically bound because every secretary has authority to borrow
  2. BHalden Ltd is not automatically bound because borrowing to fund a trading venture lies outside a secretary's usual administrative authority, so the bank cannot simply rely on his office aloneCorrect
  3. CMr Voss's act is void and the bank may recover nothing from anyone in any circumstances
  4. DHalden Ltd is bound only if Mr Voss is also a shareholder

Explanation

A secretary's apparent authority covers administrative matters, not commercial borrowing for trading. The bank therefore cannot rely on the office alone and would need other holding out or actual authority. The bank might still have a claim against Mr Voss for breach of warranty of authority, so the third option is too absolute.

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