CPA Exam — REG (Regulation)Business LawMedium
A principal, 'Alex', orally authorizes an agent, 'Beth', to sell his personal car for a minimum price of $15,000. Beth finds a buyer, 'Chris', who offers $16,000. Beth accepts Chris's offer on Alex's behalf. Later, Alex decides he no longer wants to sell the car and attempts to revoke Beth's authority. Chris insists on purchasing the car. What type of authority did Beth have to sell the car?
- AExpress authority
- BImplied authority
- CRatification
- DApparent authority
Show answer & explanationAnswer & explanation
Correct answer: A. Express authority
Express authority is created when the principal directly and specifically communicates to the agent the power to act on their behalf, either orally or in writing. Here, Alex explicitly told Beth to sell the car.
Why the other options are wrong
- B. Implied authority is inferred from express authority or the custom of the business, not directly stated.
- C. Ratification occurs after an unauthorized act, when the principal affirms the agent's action, which is not the initial grant of authority.
- D. Apparent authority arises from the principal's conduct leading a third party to reasonably believe an agent has authority, not based on the principal's direct instructions to the agent.
Express Authority (Agency)
The authority explicitly granted by a principal to an agent, either orally or in writing, to perform specific acts on the principal's behalf.
- Directly communicated from principal to agent.
- Can be oral or written.
- Clearly defines the agent's powers.
Memory trick: Agents get their power in different ways, like a secret handshake or a loud command.