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

Pavel, a director of Zenith Co, regularly tells a supplier that his colleague Lena is authorised to place orders for Zenith up to a stated value. Zenith's board has not actually given Lena this authority. The supplier accepts an order from Lena within that value. What is the position?

Lena has apparent authority. A director with power to speak for Zenith represented that she could place orders and the supplier relied on this, so Zenith is likely bound even though the board never actually authorised her.

  1. ALena has apparent (ostensible) authority arising from the representation by Pavel, so Zenith is likely to be boundCorrect
  2. BZenith is not bound, because only actual authority can bind a principal
  3. CLena has implied actual authority, because she has regularly acted for Zenith

Explanation

Apparent authority arises where the principal, or someone with authority to speak for it, represents that the agent has authority and the third party relies on it. Pavel is a director, so his representation is attributable to Zenith, which is then bound. The board gave no actual authority, express or implied, and actual authority is not the only basis for binding a principal.

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