Ralph,the owner of a medium-sized business operated as a sole proprietorship,gives his vice-president,Wanda,authority to hire a new manager for the firm.Ralph gives Wanda detailed instructions about the salary she can contract to pay,but tells her that under no circumstances can she make commitments regarding the new manager's pension.Wanda contracts to hire Nick for the new managerial position.But to get Nick to sign up,she has to make certain specific pension commitments to him.Some years later,Nick sues Ralph for failing to fulfill the pension commitments.Which of the following is true in this case?
A)Ralph has no liability,because he expressly told Wanda that she didn't have authority to bind him on pension matters.
B)Ralph is bound on the basis of Wanda's apparent authority.
C)Ralph is bound on the basis of Wanda's implied authority.
D)Ralph is bound on the basis of Wanda'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.

Ralph,the Owner of a Medium-Sized Business Operated as a Sole