Question

Anna hired Juan to act as her sales agent in her auto dealership. However, Anna has instructed Juan not to enter into any sales contracts before she has had a chance to review the transaction. One day, Juan entered into a sales contract with William without informing Anna first. Has Juan created a contract with William that is binding on Anna in this situation?a. Yes, Juan had actual authority to act.b. Yes, Juan had express authority to act.c. Yes, Juan had implied authority to act.d. Yes, Juan had apparent authority to act.

Answer 1

D) Yes, Juan had apparent authority to act.

Step-by-step explanation:

In a principal-agent relationship, apparent authority exists when a third party can reasonably believe that the agent is acting on behalf of the principal and has the authority to do so. In this case, since Juan works at the auto dealership, any customer can believe that he has the authority to act on behalf of the owner.

An agent acting under apparent authority can create a contract with third parties that is binding on the principal. Even though Juan's actions are binding on Anna, he is also liable to Anna for his actions.