Bar Exam (Uniform) Quiz: Agent Binding Authority

20 questions · exam conditions

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Agent Binding AuthorityQuestion 1 of 20

Your client owns a small business. She authorized an employee to purchase a used delivery van for "no more than $15,000." The employee found a suitable van and negotiated a price of $14,000, but the seller insisted on including a set of expensive, unnecessary custom wheels for an additional $3,000, for a total price of $17,000. The employee agreed and signed the contract. The employee then reported to your client that he had successfully purchased the van for $14,000, omitting any mention of the wheels. Pleased with the price, your client told the employee, "Great work!" The next day, the bill for $17,000 arrived. Your client wants to know if she is bound to the full contract.

What is the most accurate advice regarding whether your client is bound to the contract for $17,000? Select one.

She is bound to the full contract because her statement, "Great work!", constituted a ratification of the employee's actions.

She is not bound to the contract because the employee lacked actual authority to spend more than $15,000.

She is bound to purchase the van for $14,000 but can refuse the wheels, as ratification can be partial.

She is not bound to the contract because a ratification is ineffective unless the principal is aware of all material terms of the transaction.

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Bar Exam (Uniform) Quiz

Bar Exam (Uniform) Quiz: Agent Binding Authority

Practice Agent Binding Authority in Bar Exam (Uniform) with focused quiz questions that help you check what you know, review explanations, and build confidence with test-style prompts.

What this quiz covers

This quiz focuses on Agent Binding Authority, giving you a quick way to practice the rules, question types, and explanations that matter most for Bar Exam (Uniform).

How to use this quiz

Try each quiz question before looking at the correct answer. Use the explanations to review missed ideas, then come back to similar questions until the pattern feels familiar.

All questions

Question 1

What is the most accurate advice regarding whether your client is bound to the contract for $17,000? Select one.

She is bound to the full contract because her statement, "Great work!", constituted a ratification of the employee's actions.
She is not bound to the contract because the employee lacked actual authority to spend more than $15,000.
She is bound to purchase the van for $14,000 but can refuse the wheels, as ratification can be partial.
She is not bound to the contract because a ratification is ineffective unless the principal is aware of all material terms of the transaction. (correct answer)

Explanation: The correct answer is D. For a ratification to be effective, the principal must have knowledge of all material facts of the transaction at the time of the alleged ratification. Here, the client was unaware of the $3,000 wheels, a material term of the contract. Therefore, her expression of approval was not an effective ratification of the $17,000 deal. A is incorrect for this reason. B is correct that the employee lacked actual authority, but it doesn't address the ratification issue, which is the central point of the client's action. D provides the more complete and precise reason why the client is not bound despite her statement. C is incorrect because ratification must be of the entire transaction; a principal cannot ratify the beneficial parts of a contract and reject the detrimental parts.

Question 2

A gallery owner hired a manager to oversee the daily operations of her art gallery. The owner explicitly instructed the manager, "You have the authority to sell any painting in the main gallery for its listed price, but you must get my written approval before selling any piece from my private collection in the back room." Last week, while the owner was out of the country, a prominent collector visited the gallery. The collector was interested in a sculpture from the owner's private collection. The manager, unable to reach the owner, sold the sculpture to the collector for a very high price, believing the owner would be pleased. The manager signed the bill of sale as "Manager, on behalf of Gallery Owner."

Is the gallery owner bound by the contract for the sale of the sculpture? Select one.

Yes, because the manager had implied authority to act in the owner's best interest to secure a profitable sale.
Yes, because the manager had apparent authority to sell any piece of art located within the gallery premises.
No, because the manager acted outside the scope of her express actual authority. (correct answer)
No, because the owner's absence from the country automatically suspended the manager's authority to sell high-value items.

Explanation: The correct answer is C. The owner is not bound because the manager lacked any form of authority. The owner gave the manager express instructions not to sell items from the private collection without written approval. This explicit prohibition negates any claim of actual authority, express or implied. B is incorrect because apparent authority arises from a principal's manifestations to a third party. Here, there are no facts to suggest the owner did anything to make the collector believe the manager had authority to sell from the private collection. The manager's title alone is generally insufficient to create apparent authority contrary to an explicit limitation, especially for unique or high-value goods. A is incorrect because an agent cannot have implied authority to act contrary to the principal's express instructions. D is an incorrect statement of law.

Question 3

The Vice President of Marketing for a national retail company signed a one-year, $1 million contract with an advertising agency. The retail company's corporate bylaws, which are not public, require full board approval for any expenditure over $750,000. The advertising agency was unaware of this internal rule and had previously completed smaller, successful projects with the same Vice President. When the board of directors learned of the contract, they voted to repudiate it, citing the bylaw.

Is the retail company likely bound by the contract? Select one.

No, because the Vice President acted outside his actual authority as defined by the corporate bylaws.
No, because the advertising agency, as a sophisticated party, had a duty to inquire about the Vice President's authority for such a large contract.
Yes, because a Vice President of Marketing has inherent authority to enter into advertising contracts, regardless of internal limits.
Yes, because the Vice President had apparent authority based on his title and prior dealings, and the agency was unaware of the internal limitation. (correct answer)

Explanation: The correct answer is D. The company is bound by the contract due to apparent authority. The retail company manifested the Vice President's authority by placing him in the position of "Vice President of Marketing." A third party, like the ad agency, would reasonably believe that a person with this title has the authority to enter into advertising contracts. The secret, internal limitation in the bylaws does not affect the agent's apparent authority with respect to third parties who are unaware of it. A is incorrect because the lack of actual authority is irrelevant if apparent authority exists. B is incorrect because there is generally no duty to inquire when an executive acts in a way that is consistent with their position. C is incorrect because "inherent authority" is a less-favored concept, and the better analysis is based on apparent authority created by the principal's manifestations (the title and position).

Question 4

What is the most accurate advice regarding whether your client is bound to the contract for $17,000? Select one.

She is bound to the full contract because her statement, "Great work!", constituted a ratification of the employee's actions.
She is not bound to the contract because the employee lacked actual authority to spend more than $15,000.
She is bound to purchase the van for $14,000 but can refuse the wheels, as ratification can be partial.
She is not bound to the contract because a ratification is ineffective unless the principal is aware of all material terms of the transaction. (correct answer)

Question 5

A corporation authorized its agent to hire a specialized consultant to assist with a project. The agent was given a budget of $20,000 for the consultant's fee. The agent hired a consultant, but to secure the consultant's services, the agent also had to hire the consultant's required assistant for an additional $5,000. The agent signed two separate contracts, one with the consultant for $20,000 and one with the assistant for $5,000. The corporation, upon learning of the second contract, refused to pay the assistant.

Is the corporation liable for the assistant's $5,000 fee? Select one.

No, because the agent exceeded his express authority by spending more than the $20,000 budget.
No, because the agent only had authority to hire one person, the consultant.
Yes, because the agent had implied authority to take all steps necessary to carry out his expressly authorized task of hiring the consultant. (correct answer)
Yes, because the corporation ratified the contract with the consultant and therefore must also ratify the related contract with the assistant.

Explanation: The correct answer is C. An agent has implied authority to perform acts that are necessary or incidental to achieving the principal's authorized objective. Here, the express objective was to hire the consultant. If hiring the assistant was a necessary precondition to hiring the consultant, the agent had implied authority to do so, even if it caused the total cost to exceed the initial budget. The budget could be interpreted as applying to the consultant's fee alone. A is incorrect because implied authority can exist even if it leads to exceeding a budget, if it is necessary to accomplish the main goal. B is too narrow an interpretation of the agent's authority. D is incorrect because ratification isn't the issue; the question is about the agent's authority at the time of contracting.

Question 6

You represent a medical supply company. Your client entered into a large, long-term supply contract signed by the Chief Financial Officer (CFO) of a hospital. The hospital is now attempting to void the contract, claiming its internal policies require all contracts over $100,000 to be approved by its Board of Trustees. Your client was not aware of this policy. The CFO has regularly signed smaller supply contracts with your client in the past.

What is your client's strongest argument for enforcing the contract against the hospital? Select one.

The CFO had express actual authority because the Board of Trustees hired him as CFO.
The CFO had apparent authority to enter into the contract based on his corporate title and past dealings. (correct answer)
The hospital ratified the contract by failing to object to it immediately after it was signed.
The hospital is estopped from denying the contract because it negligently allowed the CFO to access its contract forms.

Explanation: This question tests your understanding of agency law, specifically the different types of authority an agent can have to bind a principal. When someone acts on behalf of a corporation, you need to determine what authority they had to enter into the contract. Apparent authority is the strongest argument here because it's based on what a reasonable third party would believe about the agent's power. The CFO's corporate title naturally suggests he has authority over significant financial matters, and the hospital strengthened this appearance by allowing him to sign previous supply contracts. Your client reasonably relied on these outward manifestations of authority, and the hospital's internal policy limiting his power was unknown to your client. Courts typically find apparent authority when the principal creates the appearance that the agent has power to act. Answer A fails because express actual authority requires clear, direct authorization from the Board of Trustees for this specific contract. Simply hiring someone as CFO doesn't automatically grant unlimited contracting authority. Answer C is incorrect because ratification requires the principal to accept the contract's benefits with knowledge of all material facts, not merely fail to object immediately. The hospital's quick objection actually argues against ratification. Answer D misapplies estoppel doctrine—access to contract forms alone doesn't establish the hospital was negligent in creating apparent authority. On agency questions, focus on what the third party reasonably believed based on the principal's words and conduct. Apparent authority protects parties who reasonably rely on the principal's manifestations, making it often stronger than actual authority arguments when internal limitations weren't disclosed.

Question 7

A partner in a three-person accounting firm, acting without consulting her other two partners, signed a contract to purchase a high-speed document scanner for $10,000. The partnership agreement states that any expenditure over $5,000 requires a majority vote of the partners. The scanner seller was unaware of this provision in the partnership agreement. The other two partners refuse to approve the purchase and claim the partnership is not bound.

Is the partnership bound by the contract to purchase the scanner? Select one.

No, because the partner lacked actual authority to make the purchase under the terms of the partnership agreement.
Yes, because purchasing office equipment is an act for apparently carrying on in the ordinary course the partnership's business. (correct answer)
No, because a partner in a three-person firm can never unilaterally bind the partnership for a significant expenditure.
Yes, because the seller's lack of knowledge of the partnership agreement constitutes a waiver of the provision.

Explanation: When you encounter partnership authority questions, focus on the distinction between actual authority (what the partnership agreement allows) and apparent authority (what third parties reasonably believe a partner can do). Here, the purchasing partner exceeded her actual authority since the partnership agreement required majority approval for expenditures over $5,000. However, partnership law protects innocent third parties through the concept of apparent authority. Under the Uniform Partnership Act, each partner has apparent authority to bind the partnership by any act for carrying on the business in the ordinary course, unless the third party knows the partner lacks authority. Answer B is correct because purchasing office equipment like a document scanner is clearly within the ordinary course of an accounting firm's business operations. The seller reasonably believed the partner had authority to make this purchase, and the seller was unaware of any internal restrictions. Answer A is wrong because it focuses only on actual authority while ignoring apparent authority principles that protect third parties. Answer C incorrectly states an absolute rule that doesn't exist—partners can bind partnerships for significant expenditures when acting with apparent authority. Answer D mischaracterizes the legal principle; the seller's lack of knowledge doesn't create a "waiver" but rather supports the apparent authority analysis. Remember this pattern: when a partner acts beyond internal partnership restrictions but within the apparent scope of partnership business, and the third party is unaware of the restrictions, the partnership will likely be bound. Focus on whether the act appears to be ordinary business conduct from an outsider's perspective.

Question 8

A client tells you the following: "I told my friend, a car enthusiast, that he could sell my classic car and that he should try to get at least $50,000 for it. Later that day, I met a potential buyer, Bob, and I told him, 'My friend is my agent for selling my car; you should talk to him.' The next day, I had a change of heart and texted my friend, 'Don't sell the car for less than $60,000.' My friend, who had not yet seen my text, sold the car to Bob for $55,000."

Is your client bound by the contract to sell the car to Bob for $55,000? Select one.

No, because the agent's actual authority was limited to $60,000 at the moment the client sent the text message.
Yes, because the agent's apparent authority was based on the client's statement to Bob and was not affected by the private text message. (correct answer)
No, because the agent breached his duty of care by not checking for new instructions before making the sale.
Yes, because the agent's original actual authority was to sell for at least $50,000, and he acted before that authority was effectively terminated.

Explanation: This question tests agency law, specifically the distinction between actual authority and apparent authority. When analyzing agency problems, you need to consider both the principal-agent relationship and any representations made to third parties. The client is bound by this contract because of apparent authority. Apparent authority exists when a principal creates a reasonable belief in a third party that an agent has authority to act. Here, the client directly told Bob that "my friend is my agent for selling my car," creating apparent authority for the friend to negotiate and sell the car. Bob reasonably relied on this representation when dealing with the friend. Crucially, the client's private text message to the friend raising the minimum price to $60,000 doesn't affect apparent authority because Bob had no knowledge of this change. Answer B correctly identifies that apparent authority protects Bob's reasonable reliance. Answer A incorrectly focuses on actual authority at the moment of the text. While the client may have intended to modify the friend's actual authority, this internal change doesn't affect the apparent authority already established with Bob. Answer C misses the point entirely. Even if the agent breached a duty to the principal, this doesn't invalidate the contract with the third party who relied on apparent authority. Answer D is wrong because it focuses on actual authority and termination, but apparent authority is the controlling concept here. The key isn't when actual authority ended, but what Bob reasonably believed based on the client's representations. Remember: apparent authority protects third parties who reasonably rely on a principal's representations, even when actual authority has been secretly modified or revoked.

Question 9

A company president, without board approval, hired an architect to design a new corporate headquarters. The company's bylaws require board approval for all contracts related to real property. The architect, unaware of the bylaw, completed the designs and submitted them along with a bill for her services. The company's board of directors reviewed the designs, and while they decided not to build the new headquarters, they used several of the architect's unique design elements in a renovation of their existing office space. The board then refused to pay the architect's bill.

Is the company obligated to pay the architect's bill? Select one.

No, because the president lacked actual authority to enter into the contract.
Yes, because the board ratified the president's unauthorized contract by knowingly accepting its benefits. (correct answer)
No, because the board's decision not to build the headquarters constituted a rejection of the contract.
Yes, because the president had apparent authority to hire an architect for the company.

Explanation: This question tests your understanding of corporate authority and ratification in business law. When corporate officers act beyond their authority, the key issue becomes whether the corporation later accepts the benefits of that unauthorized action. The company is obligated to pay because the board ratified the president's unauthorized contract through their conduct. Ratification occurs when a principal knowingly accepts the benefits of an unauthorized agent's actions. Here, even though the president lacked proper authority initially, the board's decision to use the architect's unique design elements in their renovation constituted acceptance of the contract's benefits. By incorporating the architect's work into their own project, they effectively approved the original agreement and became bound by its terms. Let's examine why the other answers fail: (A) incorrectly focuses only on the president's initial lack of authority while ignoring the board's subsequent ratification. The president's lack of actual authority would normally void the contract, but ratification cures this defect. (C) misunderstands the legal effect of the board's actions—while they rejected building the new headquarters, they still used and benefited from the architect's work, which constitutes acceptance. (D) is wrong because there's no indication the architect had reason to believe the president possessed apparent authority to bind the company, especially given the specific bylaw requirement. Remember this principle: when analyzing corporate authority questions, always look beyond the initial authorization issue to see if the corporation later accepted benefits from the unauthorized act. Ratification through conduct is just as binding as express approval.

Question 10

A wealthy investor, wishing to remain anonymous, hired an agent to purchase a vintage car. The investor gave the agent express instructions and funds to purchase the car for up to $100,000. The agent visited a classic car dealer, did not disclose she was acting for a principal, and negotiated a contract to purchase the car for $95,000 on credit, with payment due in 30 days. The dealer believed the agent was buying the car for herself. The agent then absconded with the investor's funds. The dealer, having discovered the agency relationship, is now suing the investor for the purchase price.

Is the investor liable to the dealer for the $95,000 purchase price? Select one.

Yes, because an undisclosed principal is bound by contracts entered into by an agent acting within the agent's actual authority. (correct answer)
No, because the agent was not authorized to purchase the car on credit, only with the provided funds.
No, because the dealer elected to deal with the agent as the sole party to the contract and cannot now sue the principal.
No, because an undisclosed principal is never liable for an agent's contracts.

Explanation: The correct answer is A. When an agent acts on behalf of an undisclosed principal, the principal is liable on the contract if the agent acted with actual authority. Here, the agent had express actual authority to purchase the car for a price up to $100,000. The purchase for $95,000 was within that scope. B is incorrect because the authority to purchase generally includes the implied authority to use customary payment methods, such as short-term credit, unless expressly forbidden. C is incorrect because the dealer did not make a binding election; upon discovering the principal's identity, the third party can generally choose to hold either the agent or the principal liable. D is an incorrect statement of law.

Question 11

A property owner sent a letter to a real estate agent, stating, "I authorize you to find a buyer for my commercial property and negotiate a sale price of at least $1 million." The agent found a buyer willing to pay $1.1 million. Believing she had the power to finalize the deal, the agent signed a binding purchase and sale agreement with the buyer on behalf of the owner. The owner, having received a better offer from another party, now refuses to honor the agreement signed by the agent.

Is the owner bound by the purchase and sale agreement? Select one.

Yes, because the authority to "negotiate a sale" includes the implied authority to execute the final contract.
Yes, because the agent acted within the owner's price requirement and secured a better deal, which is in the owner's best interest.
No, because authority to find a buyer and negotiate terms for the sale of real property does not typically include the authority to execute a binding contract. (correct answer)
No, because any contract for the sale of land signed by an agent is unenforceable unless the agent's authority is recorded in the land records.

Explanation: The correct answer is C. The authority to sell real property is strictly construed. An agent's authority to "find a buyer" and "negotiate a sale price" is generally interpreted as the authority to solicit and present offers to the principal, not the authority to sign a binding contract of sale. To have the power to convey property, an agent typically needs explicit authorization to do so. A is incorrect because this interpretation of implied authority is too broad for real estate transactions. B is incorrect because acting in the principal's best interest does not create authority that does not otherwise exist. D is incorrect because while the statute of frauds requires the agent's authority to be in writing (the equal dignities rule), it does not typically require that authority to be publicly recorded to bind the principal.

Question 12

An office manager for a law firm had, over the past two years, purchased new office furniture on five separate occasions from the same supplier. Each time, the manager exceeded her $1,000 express budgetary limit, and each time, the firm's partners grumbled but ultimately paid the invoice. Last week, the manager entered into a contract with the supplier for new desks costing $5,000. This time, the partners, facing a cash crunch, refused to pay the invoice and sought to return the desks, arguing the manager exceeded her authority.

Is the law firm bound by the $5,000 contract? Select one.

No, because the manager's express authority was limited to $1,000, and this limit was never formally changed.
No, because the partners' prior payments created apparent authority, but a $5,000 purchase was not a reasonable extension of that authority.
Yes, because the partners' repeated payment of invoices for unauthorized purchases expanded the manager's implied actual authority through acquiescence. (correct answer)
Yes, but only if the supplier can prove it was unaware of the manager's express budgetary limit.

Explanation: The correct answer is C. The firm is bound because the manager had implied actual authority based on the principal's prior acquiescence. When a principal repeatedly accepts and pays for an agent's unauthorized acts, the agent can reasonably infer that her authority has been expanded to include such acts in the future. The five previous instances of paying for over-budget purchases created this implied authority. A is incorrect because implied authority can modify or expand express authority through conduct. B is also a plausible theory (apparent authority), but implied actual authority is the stronger argument because the analysis focuses on the reasonable belief of the agent, which is well-supported by the facts. D is incorrect because the analysis of implied actual authority does not depend on the third party's knowledge.

Question 13

A farmer hired a ranch hand to manage his remote, 500-acre property. The farmer gave the hand authority to purchase feed and make minor repairs. One day, a severe, unexpected storm caused a fence to collapse, allowing a large portion of the cattle herd to escape onto a neighboring highway. Unable to reach the farmer, the ranch hand immediately hired a local fencing company on credit to make emergency repairs, costing $5,000. The farmer later refused to pay the fencing company, arguing that the ranch hand's authority was limited to "minor repairs."

Is the farmer liable for the $5,000 cost of the fence repair? Select one.

Yes, because the ranch hand had implied authority to take reasonable actions in an emergency to protect the farmer's property. (correct answer)
Yes, because the farmer ratified the contract by accepting the benefit of the repaired fence and the returned cattle.
No, because the cost of the repair exceeded the ranch hand's express authority for minor repairs.
No, because the fencing company should have contacted the farmer directly to confirm the ranch hand's authority for a major expense.

Explanation: The correct answer is A. An agent has implied authority (sometimes called emergency authority) to act beyond their express authority when an unforeseen emergency arises that threatens the principal's interests, and the agent is unable to communicate with the principal. The ranch hand's action to repair the fence and protect the cattle was a reasonable response to an emergency. C is incorrect because emergency authority allows an agent to exceed express limitations. B is incorrect because ratification requires a post-contract act by the principal; the farmer is refusing to ratify, so the binding must come from the initial authority. D is incorrect as there is no general duty for a third party to verify authority when dealing with an agent in an emergency situation, especially when the principal is unreachable.

Question 14

A woman met a man at a coffee shop who claimed to be a purchasing agent for a large, well-known technology company. The man produced a professional-looking but fake business card and offered to buy the woman's inventory of custom microchips for the company. The woman, without contacting the technology company to verify the man's identity or authority, signed a contract with him. The man then disappeared. The woman is now seeking to enforce the contract against the technology company.

Is the technology company bound by the contract? Select one.

Yes, if the woman's belief in the man's authority was reasonable under the circumstances.
Yes, because the man presented himself as an agent and the company is estopped from denying his agency.
No, because apparent authority cannot be created solely by the words or actions of the purported agent. (correct answer)
No, because the contract is void due to fraud in the inducement perpetrated by the man.

Explanation: The correct answer is C. The core principle of apparent authority is that it arises from a manifestation by the principal that is communicated to the third party. An agent cannot create their own apparent authority. In this case, all manifestations of authority (the claim, the business card) came from the impostor, not the technology company. The company did nothing to create the appearance of authority. Therefore, apparent authority does not exist. A is incorrect because the reasonableness of the third party's belief is irrelevant if there is no manifestation from the principal. B is incorrect because agency by estoppel requires some fault or action on the part of the principal. D, while possibly true as to the man, does not correctly state the legal reason why the company is not liable; the primary reason is the lack of any agency relationship.

Question 15

You represent a corporation that owns a chain of restaurants. The corporation's CEO was given express authority by the board of directors to purchase a specific parcel of land for a new restaurant, with a maximum authorized price of $500,000. The CEO entered into negotiations with the landowner and, after extensive discussion, signed a purchase agreement for $525,000, believing the extra $25,000 was a small price to pay to secure a prime location. The landowner was unaware of the board's price limitation.

What is the corporation's best argument for voiding the purchase agreement? Select one.

The CEO lacked express actual authority to agree to a price over $500,000. (correct answer)
The CEO lacked apparent authority because the landowner should have verified the CEO's authority for such a large transaction.
The purchase agreement is voidable because the CEO breached her fiduciary duty of obedience to the corporation.
The purchase agreement is unenforceable because it was based on a mutual mistake as to the CEO's authority.

Explanation: The correct answer is A. The CEO's express actual authority was explicitly limited to $500,000. By agreeing to $525,000, she acted outside this authority. While this is the corporation's best argument, it may not ultimately succeed if the CEO had apparent authority. However, the question asks for the best argument. A is a direct and factually supported argument against the corporation being bound. B is a weaker argument; a third party is generally entitled to rely on the apparent authority of a CEO for transactions in the ordinary course of business, and land acquisition for a restaurant chain could be seen as such. C is incorrect because while the CEO did breach her duty to the corporation, this breach gives the corporation a claim against the CEO; it does not automatically void the contract with the third party. D is incorrect as this is not a case of mutual mistake.

Question 16

Is the corporation liable for the assistant's $5,000 fee? Select one.

No, because the agent exceeded his express authority by spending more than the $20,000 budget.
No, because the agent only had authority to hire one person, the consultant.
Yes, because the agent had implied authority to take all steps necessary to carry out his expressly authorized task of hiring the consultant. (correct answer)
Yes, because the corporation ratified the contract with the consultant and therefore must also ratify the related contract with the assistant.

Question 17

Is the technology company bound by the contract? Select one.

Yes, if the woman's belief in the man's authority was reasonable under the circumstances.
Yes, because the man presented himself as an agent and the company is estopped from denying his agency.
No, because apparent authority cannot be created solely by the words or actions of the purported agent. (correct answer)
No, because the contract is void due to fraud in the inducement perpetrated by the man.

Question 18

Is the investor liable to the dealer for the $95,000 purchase price? Select one.

Yes, because an undisclosed principal is bound by contracts entered into by an agent acting within the agent's actual authority. (correct answer)
No, because the agent was not authorized to purchase the car on credit, only with the provided funds.
No, because the dealer elected to deal with the agent as the sole party to the contract and cannot now sue the principal.
No, because an undisclosed principal is never liable for an agent's contracts.

Question 19

At 9:00 a.m., the owner of a construction company died unexpectedly of a heart attack. At 10:00 a.m. that same day, the company's long-time procurement manager, who was working at a remote job site and had no knowledge of the owner's death, signed a contract to purchase a shipment of lumber from a supplier. The owner was a sole proprietor. When the supplier tried to deliver the lumber, the owner's estate refused delivery and payment, arguing that the business ceased to exist with the owner's death.

Is the owner's estate bound by the contract signed by the procurement manager? Select one.

Yes, because the manager had apparent authority, and neither the manager nor the supplier had notice of the owner's death.
Yes, because the manager was acting within the scope of her actual authority at the time she believed the contract was made.
No, because the death of the principal automatically terminated the agent's authority, irrespective of notice. (correct answer)
No, because a contract for the sale of goods over $500 must be in writing and signed by the principal, not an agent.

Explanation: The correct answer is C. In a traditional agency relationship (as opposed to a durable power of attorney), the death of the principal terminates the agency by operation of law. This termination is instantaneous and automatic, and it extinguishes both actual and apparent authority. The fact that the agent and the third party were unaware of the death is irrelevant. A and B are incorrect because both actual and apparent authority cease to exist at the moment of the principal's death. D is an incorrect statement regarding the Statute of Frauds, which allows for an authorized agent to sign on behalf of the principal.

Question 20

Is your client bound by the contract to sell the car to Bob for $55,000? Select one.

No, because the agent's actual authority was limited to $60,000 at the moment the client sent the text message.
Yes, because the agent's apparent authority was based on the client's statement to Bob and was not affected by the private text message. (correct answer)
No, because the agent breached his duty of care by not checking for new instructions before making the sale.
Yes, because the agent's original actual authority was to sell for at least $50,000, and he acted before that authority was effectively terminated.