Choice "D" is correct. Here, Sutter had no actual authority because actual authority is that authority which the agent reasonably believes he has, and here North told Sutter that he no longer had authority to make unlimited purchases. There is no requirement that actual authority granted in writing be rescinded in writing. Nevertheless, North will be bound because Sutter had apparent authority. Apparent authority arises from a third party's reasonable beliefs based on the principal's communications directed toward the third party. Here, North had given Sutter written authorization to make purchases for North without limitation, and Orr had been shown the written authorization. North's secret limitation on Sutter's authority has no effect on Sutter's apparent authority. Thus, North is liable to Orr for the purchase of all 500 recorders because Sutter had apparent authority.
Choice "c" is incorrect. An agent implicitly warrants to third parties with whom the agent deals that the agent has the authority the agent purports to have. Because Sutter had apparent authority, the warranty is not breached here and North is liable on the contract. However, North can hold Sutter liable for damages caused by Sutter's breach of duty (purchasing more than actually was authorized).Choice "b" is incorrect. An agent who exceeds his actual authority is liable to his principal for any damages caused by the excess. There is no requirement that actual authority granted in writing be rescinded in writing; the oral limitation on actual authority was valid between North and Sutter.
Choice "a" is incorrect. Although Sutter exceeded his actual authority, North will be liable because of Sutter's apparent authority. Apparent authority arises from a third party's reasonable beliefs of authority based on the principal's holding the agent out. Where the principal has given the agent written authority, the agent has apparent authority consistent with the written authority, even after actual authority is terminated, until the written authority is retrieved.