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

Marta appoints Joseph as her agent to buy machinery for her business, instructing him not to spend more than 50,000 dollars on any single purchase. Joseph, without telling the supplier about the limit, buys a machine for 70,000 dollars in Marta's name. The supplier has dealt with Joseph before on Marta's behalf for purchases within the limit, with Marta's knowledge, and reasonably believes he has authority. Which statement is correct?

Marta is bound by the contract because Joseph had apparent authority, created by her past conduct in allowing him to deal with the supplier. The supplier did not know of the 50,000 dollar limit. Marta may then sue Joseph for breaching his duty to obey her instructions.

  1. AMarta is bound to the contract because Joseph had apparent (ostensible) authority, and she may then claim against Joseph for breach of his duty to obey instructionsCorrect
  2. BMarta is not bound because Joseph had no actual authority for this purchase, and the supplier's belief is irrelevant
  3. CMarta is bound only for the first 50,000 dollars, as that was the limit of Joseph's authority
  4. DJoseph alone is liable on the contract because he exceeded his actual authority

Explanation

Apparent authority arises where the principal, by words or conduct (such as allowing past dealings), represents that the agent has authority and a third party relies on it. The secret limit does not bind the supplier, who did not know of it. The contract therefore binds Marta, who can seek redress from Joseph for breaching his duty to follow instructions. Option B ignores apparent authority.

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