Question

Company A hired Nick as an agent and gave him a letter authorizing him to make purchases on behalf of the company. In a separate email, the company explained to Nick that he could only make purchases for 100,000 or less. In other words, 100,000 was the reservation price for his negotiations. Nick proceeded to negotiate a contract with a new supplier, B, in which he purchased goods for 95,000. Nick showed B the letter of authority from the company but did not mention the 100,000 limitation that the company explained in the email.

A. Company A is bound by the contract because Nick had express authority.
B. Company A is bound by the contract because Nick had apparent authority.
C. Company A is not bound by the contract because of illegality.
D. Company A is not bound by the contract because of unconscionability.
E. Company A is not bound by the contract because of fraud.
F. None of the above.

Answer 1

Since Nick, Company A's agent, made a purchase within his authorized limit despite not disclosing this limit to Supplier B, Company A is bound by the contract due to Nick's express authority. Options suggesting illegality, unconscionability, or fraud do not apply here.

Step-by-step explanation:

The question revolves around the concept of agency law and the principles that determine whether a company is bound by the actions of its agent. In this scenario, Company A assigned Nick as an agent and gave him express authority with a limitation communicated via email, which Nick did not disclose to Supplier B. Since the purchase Nick negotiated was within the authorized amount (95,000 is less than the 100,000 limit), Company A is bound by the contract. The most fitting answers are:

• A. Company A is bound by the contract because Nick had express authority.
• B. Company A is bound by the contract because Nick had apparent authority.

Option A is the most accurate because Nick acted within the limits of his express authority provided by Company A, even though he did not disclose the specific limitation to B. There is no indication of illegality, unconscionability, or fraud as Nick adhered to his authorization limit.