Question

Two stockbrokers, in clear violation of the rules of their employer, sold worthless stocks to unsuspecting customers. There was no question that the brokers had the actual or implied authority to sell the stock. The customers who lost money sued the brokerage firm, contending it was liable for their losses because the brokers had apparent authority. Did they?

Answer 1

Answer: Yes they did.

Explanation:

Apparent Authority refers to a scenario where a Agent is assumed to have the power to act on behalf of a Principal regardless of if said authority had not being expressly given whether implicitly or otherwise.

It is worthy of note that this power is only valid if the third party in the transaction assumes from the conduct of the agent, that they have such powers to act.

It is stated in the text that there was no question that the brokers had the actual or implied authority to sell the stock meaning that the Principal had not done enough to show that the agents did not have the Authority to act as they did. For this reason, they can indeed be sued under the Principle of Apparent Authority.