ACCA Applied Skills · Corporate and Business Law (Global) · Agency law
Kestrel Ltd's board has never given Dana, a sales manager, authority to sign property leases. Dana signs a ten-year lease of offices for Kestrel with Landlord Co, which knows only that Dana is a sales manager and nothing about the board's decisions. Landlord Co has had no prior dealings with Kestrel and no statement from the board about Dana's authority. Which is the most accurate conclusion?
Kestrel is not bound unless it ratifies the lease. Dana had no actual authority, and Kestrel made no representation that she could sign leases, so there was no apparent authority. The third party's good faith alone cannot create authority; Dana may instead be liable for breach of warranty of authority.
- AKestrel is bound because a sales manager has implied actual authority to make all contracts for the company
- BKestrel is bound because Landlord Co acted in good faith, which is enough to create authority
- CKestrel is not bound unless it ratifies the lease, because there was no actual authority and no representation by Kestrel that Dana could sign leasesCorrect
- DDana is bound as principal because an agent without authority becomes the contracting party in place of the company
Explanation
Apparent authority needs a representation by the principal (here Kestrel) that Dana had authority; merely holding a job title does not usually extend to unusual transactions like a long lease, and the third party's good faith alone is insufficient. With no actual or apparent authority, Kestrel is not bound unless it ratifies. Dana would be liable to Landlord Co for breach of warranty of authority, not become the principal.
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