Zac authorises his agent, Jolly, to purchase shares up to a value of $100,000. Jolly purchases shares with a total value of $125,000. Which amongst the following options is CORRECT? Select one: a. None of the statements for this question are correct. b. Zac is bound by the purchase if Jolly has apparent authority to purchase the shares above a value of $100,000. c. Zac is bound by the purchase since Jolly did not have the actual authority to purchase shares above a value of $100,000. d. Whether Zac is bound will depend upon how things appear to the third party, and this will be assessed by what they thought subjectively.
Question
Zac authorises his agent, Jolly, to purchase shares up to a value of 125,000. Which amongst the following options is CORRECT?
Select one:
a. None of the statements for this question are correct.
b. Zac is bound by the purchase if Jolly has apparent authority to purchase the shares above a value of $100,000.
c. Zac is bound by the purchase since Jolly did not have the actual authority to purchase shares above a value of $100,000.
d. Whether Zac is bound will depend upon how things appear to the third party, and this will be assessed by what they thought subjectively.
Solution
The correct answer is option B.
Zac is bound by the purchase if Jolly has apparent authority to purchase the shares above a value of $100,000.
Here's why:
In agency law, an agent's authority can be actual or apparent. Actual authority is the express or implied power a principal directly grants to an agent. In this case, Zac gave Jolly actual authority to purchase shares up to a value of $100,000.
However, apparent authority, also known as "ostensible authority," arises when a principal's actions lead a third party to believe that the agent has authority to act, even if the agent does not have actual authority.
If Jolly had apparent authority to purchase shares above a value of $100,000, then Zac would be bound by the purchase. This is because the third party could reasonably believe, based on Zac's conduct, that Jolly had the authority to make the purchase.
So, even though Jolly exceeded the actual authority given by Zac, Zac could still be bound by the purchase if Jolly had apparent authority.
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