What is a potential limitation on an agent's authority in a transaction?

The correct answer highlights a crucial aspect of the agent-principal relationship, which is the requirement for agents to operate within the confines of the authority granted to them by the principal. An agent's authority is fundamentally shaped by the specific terms and conditions set forth by the principal. This means that agents must follow the guidelines, limits, and parameters that their principal has established. Failure to adhere to these terms not only compromises the agent’s effectiveness but could also lead to legal ramifications for both the agent and the principal.

For example, if a principal specifies that an agent can only sell goods up to a certain price, the agent cannot exceed this limit. Sticking to these terms is essential because it preserves the trust and accountability inherent in the agency relationship.

In contrast, the incorrect options present misunderstandings about the dynamics of agency authority. Agents cannot make any decisions boundlessly; they are required to act within the scope of their designated authority. Moreover, agents do not have the power to override the principal's decisions as this would undermine the principal's control over the transaction. Lastly, while agents actively negotiate on behalf of the principal, they must do so in accordance with the authority and guidelines provided by the principal, reinforcing the importance of having clear directives for the agent's