CPA Exam — REG (Regulation)Business LawEasy
A principal hires an agent to negotiate the sale of a commercial property. The agency agreement explicitly grants the agent the authority to list the property, show it to potential buyers, and accept offers within a specific price range. The agreement, however, does not mention signing a final sales contract. The agent receives an offer within the specified price range and signs a sales contract on behalf of the principal. Is the principal bound by the agent's signing of the sales contract?
- ANo, because the agent's actions constituted a breach of fiduciary duty.
- BYes, because the agent had apparent authority to sign the contract.
- CYes, because the agent had implied authority to sign the contract.
- DNo, because the agent exceeded their express authority.
Show answer & explanationAnswer & explanation
Correct answer: D. No, because the agent exceeded their express authority.
Express authority is explicitly granted to the agent. Since the agency agreement did not mention signing a final sales contract, the agent exceeded their express authority by doing so. The principal would only be bound if there was implied or apparent authority, which is not clearly established here for signing the final contract.
Why the other options are wrong
- A. While exceeding authority can be a breach of fiduciary duty, the primary reason the principal is not bound is the lack of authority, not necessarily the breach itself for the third party's perspective.
- B. Apparent authority arises when the principal's words or conduct lead a third party to reasonably believe the agent has authority. The scenario does not provide details of the principal's conduct that would create such a belief regarding signing the final contract.
- C. Implied authority would typically cover actions necessary to carry out express authority, but signing a final sales contract is often considered a significant act requiring specific authorization, not merely implied.
Express Authority
Authority explicitly granted to an agent by the principal, either orally or in writing, to perform specific acts.
- Clearly defined and stated.
- Limits the agent's power to only the specified actions.
- Often found in agency agreements or power of attorney documents.
Memory trick: Express is Explicit, Implied is Necessary, Apparent is Perceived.