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Theodore, as a treasurer of Kelt Corp
Theodore, as a treasurer of Kelt Corp., had the duty to invest corporate earnings as he deemed best for the company. When Kelt Corp. went public, the new board decided that such investment decisions would be made by a committee of the officers. If Theodore thereafter unilaterally contracted to purchase investment securities with corporate earnings as he had done many times before, such contract would be valid:
a. since Theodore would have express authority.
b. since Theodore had implied authority.
c. under apparent authority if the seller knew Theodore's past transactions.
c. because of ratification if the board did not know of his actions.
Expert Solution
According to the Turquand rule, each outsider contracting with a company in good faith is entitled to assume that the internal requirements and procedures have been complied with.
The company will consequently be bound by the contract even if the internal requirements and procedures have not been complied with. The exceptions here are: if the outsider was aware of the fact that the internal requirements and procedures have not been complied with (acted in bad faith); or if the circumstances under which the contract was concluded on behalf of the company were suspicious.
(Wikipedia)
Thus in this case c. under apparent authority if the seller knew Theodore's past transactions.
Will be the answer as outsider that is seller is assuming of the Theodore's authority and is unknown about the changes in the internal requirements.
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