Brenda is a purchasing agent for Commodities Exchange Corporation. Dennis, a Commodities corporate officer, gives Brenda written authority to buy for the firm as many computers and peripheral devices as necessary. The next day, Dennis calls Brenda and

Question

tells her to buy only fifty notebook computers and nothing else. Brenda shows the written authority to E-Products, Inc, and enters into a contract with E-Products to buy sixty note-book computers and a selection of printers, scanners, and extra storage media. E-Products ships the order to Commodities. Is Commodities liable to E-Products under the contract? Is Brenda liable? In each case, if so, why? If not, why not?

Answer 1

Commodities is liable to E-Products. Brenda is not liable to E-Products. A principal is liable for the contracts of its agents entered into with actual or apparent authority. Actual authority may be express or implied. Apparent authority arises from what the principal causes a third party reasonably to believe regarding the agent's authority to act, even if the agent does not have actual authority to act. If the third party changes its position in reliance on the principal's representations, the principal is estopped from denying that the agent had authority. In this problem, Brenda had the actual authority to order fifty notebook computers and apparent authority to order the rest of the equipment, according to the written authorization that Dennis gave to Brenda and Brenda showed to E-Products. E-Products's contract rights are not limited by the limits placed on that authority by Dennis's call to Brenda. Brenda is not liable to E-Products because she acted with apparent authority. Brenda is liable to Commodities, however, for exceeding her authority.