ExpertHard1 markMultiple Choice
CPA · Question 11 · Area II: Business Law
Peyton is the manager of a retail store owned by Corp X. Corp X explicitly instructed Peyton not to hire any vendors without corporate approval. Despite this, Peyton hired a cleaning service to clean the store, signing the contract as 'Peyton, Manager for Corp X.' The cleaning service was unaware of the restriction on Peyton's authority. Is Corp X liable for the contract?
Peyton is the manager of a retail store owned by Corp X. Corp X explicitly instructed Peyton not to hire any vendors without corporate approval. Despite this, Peyton hired a cleaning service to clean the store, signing the contract as 'Peyton, Manager for Corp X.' The cleaning service was unaware of the restriction on Peyton's authority. Is Corp X liable for the contract?
Answer options:
A.
Yes, because Peyton had apparent authority.
B.
Yes, because Peyton had actual implied authority.
C.
No, because Peyton lacked actual authority.
D.
No, because the contract was for services, not goods.
How to approach this question
Distinguish Actual Authority (Principal -> Agent) from Apparent Authority (Principal -> Third Party). Titles like 'Manager' create apparent authority.
Full Answer
A.Yes, because Peyton had apparent authority.✓ Correct
Apparent authority arises when the principal holds out the agent as having authority (e.g., by giving them the title of Manager). Third parties can reasonably rely on this appearance of authority unless they know of the restriction. Since the cleaning service did not know, Corp X is bound.
Common mistakes
Focusing only on the internal instructions (Actual Authority) and ignoring the external appearance (Apparent Authority).
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