ExpertMedium2 marksMultiple Choice
The formation and constitution of business organisationsThe formation and constitution of business organisationsAgency
ACCA · Question 09 · The formation and constitution of business organisations
Section A
In the context of agency law, how is 'ostensible' (or apparent) authority created?
Section A
In the context of agency law, how is 'ostensible' (or apparent) authority created?
Answer options:
A.
By an express written agreement between the principal and the agent.
B.
By a representation made by the principal to a third party that the agent has authority.
C.
By a representation made by the agent to a third party that they have authority.
D.
By the agent acting out of necessity in an emergency situation.
How to approach this question
Focus on who must make the representation to the third party to bind the principal legally.
Full Answer
B.By a representation made by the principal to a third party that the agent has authority.✓ Correct
Ostensible (apparent) authority is created when the principal represents to a third party that an agent has authority to act on their behalf, and the third party relies on that representation. The principal is then estopped from denying the agent's authority.
Common mistakes
Believing that the agent's own claims of authority can create ostensible authority.
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