AUTHORITY OF AGENT

AUTHORITY OF AGENT

An agent’s acts are binding on the principal if they are done within the agent’s authority

If an agent does an act beyond his authority – principal not bound

Authority may be:

1. Actual 

Actual authority can be of two kinds. Either the principal may have expressly conferred authority on the agent, or authority may be implied. Authority arises by consensual agreement, and whether it exists is a question of fact.

An agent, as a general rule, is only entitled to indemnity from the principal if he or she has acted within the scope of her actual authority, and may be in breach of contract, and liable to a third party for breach of the implied warranty of authority. In tort, a claimant may not recover from the principal unless the agent is acting within the scope of employment.

Express actual authority

Express actual authority means an agent has been expressly told he or she may act on behalf of a principal.

IRELAND v LIVINGSTONE (1872) LR 5 HL 395

Implied actual authority

Implied actual authority, also called "usual authority", is authority an agent has by virtue of being reasonably necessary to carry out his express authority. As such, it can be inferred by virtue of a position held by an agent. For example, partners have authority to bind the other partners in the firm, their liability being joint and several, and in a corporation, all executives and senior employees with decision-making authority by virtue of their position have authority to bind the corporation.

HELY-HUTCHINSON V BRAYHEAD LTD [1968] 1 QB 549

2. Apparent – not expressly given but which the law regards the agent as possessing although the principal has not consented to his exercising such authority

Apparent authority (also called "ostensible authority") exists where the principal's words or conduct would lead a reasonable person in the third party's position to believe that the agent was authorized to act, even if the principal and the purported agent had never discussed such a relationship. For example, where one person appoints a person to a position which carries with it agency-like powers, those who know of the appointment are entitled to assume that there is apparent authority to do the things ordinarily entrusted to one occupying such a position.

If a principal creates the impression that an agent is authorized but there is no actual authority, third parties are protected so long as they have acted reasonably. This is sometimes termed "agency by estoppel" or the "doctrine of holding out", where the principal will be estopped from denying the grant of authority if third parties have changed their positions to their detriment in reliance on the representations made.

RAMA CORPORATION LTD v PROVED TIN AND GENERAL INVESTMENTS LTD [1952] 2 QB 147, Slade J, "Ostensible or apparent authority... is merely a form of estoppel, indeed, it has been termed agency by estoppel and you cannot call in aid an estoppel unless you have three ingredients: (i) a representation, (ii) reliance on the representation, and (iii) an alteration of your position resulting from such reliance."

FREEMAN & LOCKYER V BUCKHURST PARK PROPERTIES (MANGAL) LTD [1964] 2 QB 480

Facts

Mr Freeman and Mr Lockyer sued Buckhurst Park Ltd and its director, Shiv Kumar Kapoor, for unpaid fees for their architecture work on developing the ‘Buckhurst Park Estate’ in Sunninghill, Berkshire. The company’s articles said that all four directors of the company (another Mr Hoon, who was never there, and two nominees) were needed to constitute a quorum. Originally the company planned to simply buy and resell the land, but that fell through. Kapoor had acted alone (as if he were a managing director) in engaging the architects, without proper authority. The company argued it was not bound by the agreement.

Judge Herbert at Westminster County Court held the company was bound, and the company appealed.

Judgment

Diplock LJ held the judge was right and the company was bound to pay Freeman and Lockyer for their architecture work. He noted that if actual authority is conferred by the board without a formal resolution, this renders the board liable for a fine. If a person has no actual authority to act on a company's behalf, then a contract can still be enforced if an agent had authority to enter contracts of a different but similar kind, the person granting that authority itself had authority, the contracting party was induced by these representations to enter the agreement and the company had the capacity to act. All those conditions were fulfilled on the facts, because (1) the board knew about Kapoor’s general activities and permitted him to engage in these kinds of activities; such conduct represented his authority to contract for these kinds of things (2) the articles conferred full power to the board (3) Freeman and Lockyer were induced to contract by these ‘representations’ and (4) the company had capacity.

THE RAFFAELLA or EGYPTIAN INTERNATIONAL FOREIGN TRADE CO V SOPLEX WHOLESALE SUPPLIES LTD AND PS REFSON & CO LTD [1985] 2 Lloyd's Rep 36.

In the case of WATTEAU v FENWICK, Lord Coleridge CJ on the Queen's Bench concurred with an opinion by Wills J that a third party could hold personally liable a principal who he did not know about when he sold cigars to an agent that was acting outside of its authority. Wills J held that "the principal is liable for all the acts of the agent which are within the authority usually confided to an agent of that character, notwithstanding limitations, as between the principal and the agent, put upon that authority." This decision is heavily criticised and doubted, though not entirely overruled in the UK. It is sometimes referred to as "usual authority" (though not in the sense used by Lord Denning MR in Hely-Hutchinson, where it is synonymous with "implied actual authority"). It has been explained as a form of apparent authority, or "inherent agency power.

WATTEAU v FENWICK, [1893] 1 QB 346,

The plaintiff, Watteau, supplied cigars to a beer house named the "Victoria," which was located at Middlesbrough. The establishment was operated by a man named Humble. Prior to 1888, he had operated the business on his own account, but in that year, he had assigned his interest to the defendants, Messrs. Fenwick and Company. However, Humble remained the manager and continued to operate the business as before. The sign bore his name, and the license was held in his name.

The plaintiff supplied cigars to Humble. He was at all times unaware of Fenwick's involvement. Indeed, Fenwick had never given Humble any authority to act on their behalf. But when Watteau was not paid the 25 pounds owed him, he eventually sued Fenwick.

The County Court held that the defendants had held Humble out to the world as having general authority, and that they were therefore liable for the claim because of the implied authority thereby granted.

Dissatisfied with this outcome, the defendants then brought an appeal to the Queen's Bench. That court, Lord Coleridge, Chief Justice, dismissed the appeal. The Court held that once it is established that the defendant was the principal, then the ordinary rules of principal and agent apply, notwithstanding the fact that the relationship was unknown to the plaintiff. The principal is liable for acts of the agent, as long as those are those usually confided to an agent of that character. This is true even though the agent was acting outside the scope of his actual authority.

The Court likened the case to that of a "dormant partner", in which case the partner would be liable for acts within the ordinary authority of the other partner