Borg is the vice-president of purchasing for Crater Corp.He has authority to enter into purchase contracts on behalf of Crater provided that the price under a contract does not exceed $2 million.Dent,who is the president of Crater,is required to approve any contract that exceeds $2 million.Borg entered into a $2.5 million purchase contract with Shady Corp.without Dent's approval.Shady was unaware that Borg exceeded his authority.Neither party substantially changed its position in reliance on the contract.What is the most likely result of this transaction?
A)Crater will be bound because of Borg's apparent authority.
B)Crater will not be bound because Borg exceeded his authority.
C)Crater will only be bound up to $2 million,the amount of Borg's authority.
D)Crater will be bound because of Borg's actual authority.

Question

Quizplus · Accepted Answer

Apparent authority protects third parties who reasonably rely on a principal's manifestations that an agent has authority.It assumes special importance in cases where the principal has told the agent not to make certain contracts that the agent ordinarily would have actual authority to make,but the third party knows nothing about this limitation and has no reason to know about it.

Borg Is the Vice-President of Purchasing for Crater Corp