CPA Exam — REG (Regulation)Business LawEasy
A principal hires an agent to negotiate the sale of a commercial property. The agency agreement explicitly states that the agent has the authority to list the property, show it to potential buyers, and present offers, but *not* to sign any sales contracts on behalf of the principal. The agent, believing they found a great deal, signs a sales contract with a buyer, representing themselves as having full authority. The principal later refuses to honor the contract. What type of authority did the agent *lack* when signing the contract?
- AExpress authority
- BImplied authority
- CApparent authority
- DEmergency authority
Show answer & explanationAnswer & explanation
Correct answer: A. Express authority
Express authority is directly granted by the principal to the agent, either orally or in writing. In this scenario, the contract explicitly denied the agent the authority to sign sales contracts, meaning express authority for that action was absent.
Why the other options are wrong
- B. Implied authority is inferred from express authority or the custom of the business, but cannot contradict express limitations.
- C. Apparent authority arises from the principal's actions leading a third party to reasonably believe the agent has authority, but the question focuses on the actual authority granted.
- D. Emergency authority arises in unforeseen circumstances to protect the principal's property, which is not relevant here.
Express Authority
Authority directly and clearly granted by the principal to the agent, either orally or in writing, to perform specific acts.
- It is the most direct form of actual authority.
- It defines the explicit boundaries of the agent's power.
- Any act outside express authority is generally unauthorized unless other forms of authority apply.
Memory trick: A-I-E-A: Agents In Every Authority.