Under which circumstance would the apparent authority of an agent bind the principal to a contract?

• A. The third party reasonably relies on the agent's authority due to the principal's representations
• B. The third party is unaware of the relationship
• C. The principal disavows the agent's authority
• D. The agent acts beyond the scope of any apparent authority

Answer: (A)

Apparent authority binds a principal when the principal’s representations or conduct lead a third party to reasonably believe the agent has authority to act for the principal, and the third party relies on that belief in entering the contract. In this case, the third party reasonably relies on the agent’s authority because of the principal’s representations. That reliance makes the principal bound to the contract through apparent authority, even if the agent lacked actual authority.

If the third party is unaware of the relationship, there’s no basis for relying on the agent’s authority. If the principal disavows the agent’s authority, the principal can no longer be bound by the agent’s apparent authority. And if the agent acts beyond any appearance of authority, there’s no apparent authority to bind the principal.