Question

Sophie is an employee of X Ltd. Sophie has been told by her boss that she can enter into transactions up to the value of $10,000. One day Sophie negotiates with Esther, an employee of Z Ltd, that X Ltd will purchase a new piece of machinery from Z Ltd for $50.000. Esther knows that Sophie has only been given authority to purchase items up to $10,000. When XLtd receives the invoice for the machinery it refuses to pay claiming that Sophie had no authority to purchase the machinery. Which of the TWO following statements BEST indicates X Ltd's legal position? Because Sophie had no authority to enter into the contract X Ltd does not need to pay the invoice. Companies are liable for all transactions entered into by their employees, thus X Ltd must pay the invoice. XLtd can ratify the contract if it wants to do so and pay the invoice. Because Esther knew at the time that Sophie had no authority to enter into the contract X Ltd could not ratify the contract even if it wanted to. Sophie has no authority to enter into the contract, therefore X Ltd does not need to pay the invoice. Sophie has apparent authority to enter into the contract.

Answer 1

Correct Answer:

D

E

Since Sophie can enter into the contract worth $10000 or less, then Sophie had no authority to enter into contract if it was of $50000. Hence, X Ltd. has no liability towards the invoice of $50000.