Actual Authority And Apparent Authority 2j6y

Actual authority and apparent authority "Actual authority and apparent authority are quite independent of one another. Generally they coexist and coincide but either may exist without the other and their respective scope may be different." (Lord Diplock in Freeman and Lockyer v Buckhurst Park Properties) Critically discuss Lord Diplock's statement.

Introduction Under the law of agency, there are many vague definitions which are doubtful and accepted as it is. They prove to be useful when construing contracts or statutory enactments, but their doubtful validity can be misleading when they are used to interpret an entire subject into explanatory sentence in order to construe its precise meaning. (Munday, 1998) In this age of increasing economic (trade) conflicts, the concept of Agency has gained a lot of significance in Commercial field. The practise of business is expanding and for the smooth functioning, agents are employed by the businessmen to save time and money. Commercial activities would come to standstill if business practitioners could not hire agents for their work and were supposed to manage on their own. In fact, the agent also known as "middleman" plays a vital role in almost every field of commerce such as insurance agents, real estate agents, shipping agents, travel agents, etc. (Bradgate, Commercial Law, 2000)

This law essay is an example of a student's work Disclaimer This essay has been submitted to us by a student in order to help you with your studies. This is not an example of the work written by our professional law writers. Law Essay Writing Service Law Assignment Writing Service Law Coursework Writing Service Who wrote this essay? Freelance Writing Jobs Place an Order "An agent is one appointed to transact business and to make contracts with third persons in place of and on behalf of the person appointing him, known as the principal. Agency has a two-fold aspect. It is on one hand, a contract between principal and agent, which does not differ as to the fundamental principles from other contracts; on the other hand, it is a means of bringing the principal into contractual relations with persons with whom in the point of fact he has had no personal dealings." (Page, 1919) The agent possesses two types of authority, namely actual authority and apparent authority. These two types of authority are defined by many authors, but still there was lack of understanding these concepts. There was uncertainty around the interpretation of the agent's authority until the judgement of the benchmark case of "Freeman and Lockyer v Buckhurst Park

Properties", (Bradgate, 2000) in which the Court of Appeal has distinguished between 'actual' and 'apparent' authority of an agent. Lord Diplock in this case emphasizes the statement "Actual authority and apparent authority are quite independent of one another. Generally they coexist and coincide but either may exist without the other and their respective scope may be different." (Freeman & Lockyer (A Firm) v Buckhurst Park Properties (Mangal) Ltd and Another., 1964)

Case Summary The famous case of Freeman and Lockyer (A Firm) v Buckhurst Park Properties (Mangal) Ltd. and Another revolves around the matter of determining the scope of the authority of a managing director, who is not duly appointed according to the articles of association to contract with the third party. In this case, Freeman and Lockyer was a firm carrying on the business as architects and surveyors and Buckhurst Park Properties (Mangal) Ltd. formed the defendant company. Mr Shiv Kumar Kapoor and Mr Nimarjit Singh Hoon along with a nominee of each formed the defendant company. This case was first filed in the Westminster County Court, where the Honourable Judge Herbert placed his final decision in the favour of plaintiffs and found that, despite the fact that Mr Kapoor was never been appointed as a managing director by the board, he had acted as such within the knowledge of the directors of the defendant company. The defendant company was not satisfied by the decision of the County Court Judge and appealed that decision in the Court of Appeal which was dismissed by Lord Diplock emphasizing that it was not for the plaintiffs to inquire that the power to appoint Mr Kapoor as a managing director was contained in the articles of association and whether he was appointed as such. In the light of the decision of the Court of Appeal, the defendant company was liable for the payment of fees to the plaintiffs. (Freeman & Lockyer (A Firm) v Buckhurst Park Properties (Mangal) Ltd and Another., 1964)

Lord Diplock's Judgement "Lord Diplock in his judgement ed the findings of the County Court Judge which are as follows: 

that the plaintiffs intended to contract with Mr Kapoor as agent for the company and not on his ;



that the board of the company intended that Mr Kapoor should do what he could to obtain the best possible price for the estate;



that Mr Kapoor, although never appointed as managing director, had throughout been acting as such in employing agents and taking other steps to find a purchaser;



that Mr Kapoor was so acting was well known to the board".

He felt the necessity to differentiate between 'actual' authority on one side, and 'apparent or ostensible' authority on other side. He defines "actual authority as a legal relationship between

principal and agent created by consensual agreement to which they alone are parties". The scope of an agency agreement is to be discovered by following ordinary principles of construction of contracts, including any proper implications from the express words used, the usages of the trade and the course of business between the parties. "An apparent or ostensible authority is a legal relationship between the principal and the contractor created by a representation, made by the principal to the third party, intended to be and in fact acted on by the third party, that the agent has authority to enter on behalf of the principal into the contract of a kind within the scope of the apparent authority, so as to render the principal liable to perform any obligations imposed upon him by such contract."

This law essay is an example of a student's work Disclaimer This essay has been submitted to us by a student in order to help you with your studies. This is not an example of the work written by our professional law writers. Law Essay Writing Service Law Assignment Writing Service Law Coursework Writing Service Who wrote this essay? Freelance Writing Jobs Place an Order The following four requirements should be satisfied by the contractor in order to enforce a contract against the company entered by an agent without actual authority to do so. 

a representation by the company made to the contractor that the agent had authority to enter on their behalf into a contract of the kind sought to be enforced;



such representation was made by a member of the company who had actual authority to manage the business to which the contract relates;

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the contractor was persuaded by such representation to enter into the contract and in fact relied upon it;

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under its memorandum or articles of association, the company was not deprived of the capacity either to enter into a contract of the kind sought to be enforced or to delegate authority to enter into a contract of that kind to the agent.

Lord Diplock in this judgement makes a critical statement "Actual authority and apparent authority are quite independent of one another. Generally they coexist and coincide but either may exist without the other and their respective scope may be different." (Freeman & Lockyer (A Firm) v Buckhurst Park Properties (Mangal) Ltd and Another., 1964)

Criticism Of The Above Statement It is true that actual authority and apparent authority are quite independent of one another. An actual authority is a legal relationship between the principal and agent created by an agreement to which they alone are parties. It may be express, when it is given by express words like ing

of resolution by the board of directors authorizing a director to employ architects. It is implied when it is concluded from the conduct of the parties or the circumstances of the case, such as when the board of directors appoint one of them as managing director. On the other side, apparent authority is the authority which an agent appears to others to have as a result of some representation or conduct by the principal intended to be acted upon the third party. (Shum, 1989) From the above age, it is clear that actual authority depends upon the agreement between the principal and the agent, whereas apparent authority depends upon the representation made by the principal to the third party. Hence, both types of authority are not dependant on each other. The above statement is more precisely construed by Lord Denning in his decision of HelyHutchinson case. He finds this case quite similar to Freeman and Lockyer case. In that case, the chairman was held to have implied actual authority whereas, in latter case, Mr Kapoor was held to have apparent authority. Lord Denning MR held in the Hely-Hutchinson case that, "Ostensible or apparent authority is the authority of an agent as it appears to others. It often coincides with actual authority". He identified it in Hely-Hutchinson v Brayhead Ltd that, the chairman acting as an appointed managing director by the board had apparent authority as well as implied actual authority. This case demonstrated that the two types of authority often overlap thus creating confusion between the scope of actual authority and apparent authority. (Maclntyre, 2008) The statement made by Lord Diplock in Freeman Lockyer case seems to be doubtful, which is described by the Lord Denning in more better way. Lord Denning regards apparent authority as power of an agent as represented to others. He considered that both types of authority may correspond to each other and can even exist together. Later on, it was regarded that 'either may exist without the other and their respective scopes may be different'. Sometimes apparent authority exceeds actual authority. The factors for placing liability over the principlal in such situation have been based on the grounds of public policy, business efficiency, or equity. At times, Apparent authority is not really authority at all.According to Professor James Louis Montrose, "Apparent authority is really equivalent to the phrase 'appearance of authority'. There may be an appearance of authority whether in fact or not there is authority". Even after distinction between actual authority and apparent authority placed by Diplock L.J. in Freeman and Lockyer case, Lord Denning MR held in Barrington v Lee case that confusion between implied actual authority and apparent authority has not been resolved since past 30 years and is still persisting.

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(Munday, 1998) It is clearly analysed from above that when both types of authority exist without the of each other, their scopes are different. Actual authority is quite reliable than ostensible authority. In certain circumstances, apparent authority overtakes actual authority. Some commentators consider apparent authority as no authority as it just appears but does not exist. This is really a vague concept because apparent authority is sought of indirect authority. With regards to differentiation between actual and apparent authority by Lord Diplock, Lord Denning has criticized it to be insufficient in its meaning thus adding to the uncertainty. The original framework of initial cases dealing with apparent authority was established upon a holding-out principle, in which the principle directly makes an unambiguous representation to the third party and the latter relies upon it. Comparatively, this approach towards apparent authority was suitable for simple commercial transactions of the nineteenth century, but this structure is given more significance with the want of development in modern times. The prototype of Lord Diplock in Freeman and Lockyer with regards to apparent authority is not suitable for the complex trade usage of twentieth century, where agent acts on behalf of multinational companies. In modern times, it is very difficult to establish that close link described by Lord Diplock in the above case. His judgement exemplifies agent as an inactive source between the principal and third party, however this concept is impractical in modern business world. It is quite justified in current corporate practise that, the third party relies more on the agent than the principal regardless of his awareness with respect to corporate existence of the principal. Such reliance of the third party is almost mandatory, therefore it would be unfair to entail that the genuine third party should investigate regarding the internal system of commanding the agents in the company. (Brown, The agent's apparent authority: paradigm or paradox?, 1995) According to Diplock L.J., in actual authority, the third party is a stranger to the internal connection between the principal and agent whereas, in apparent authority, the agent is a stranger to the relationship between the principal and third party. This practical analysis of apparent authority is possible only if the principal makes a planned, exhaustive representation to the third party, but such unequivocal representation has been rarely made and it is quite unrealistic in impersonal, corporate commerce. The archetype of apparent authority in the nineteenth century has substantially failed to provide adequate protection to third party interests. (Brown, The significance of general and special authority in the development of the agent's external authority in English law, 2004) It can be deduced from the Brown's analysis that Lord Diplock's interpretation for the authority of agent is old and obsolete. It does not suit the needs of modern world. His critical statement is difficult to prove because in modern times, the third part depends more on agent rather than principal. The third party is not obliged to inspect the internal procedures of the company, when he places his reliance on the agent. It is difficult to expect clear representation of agent's authority made by the principal to the third party in this fast-growing business world. It is not an efficient system to protect the interests of third party. So that statement has no practical application to some extent.

Conclusion: However, my conclusion states that the outcome in Hely-hutchinson case is much more preferred in England and in some law jurisdictions in the Commonwealth than that in Freeman and Lockyer with regards to determining the authority of an agent. It is quite obvious from the recent judgements that the protection offered by actual implied authority is much wider as compared to ostensible or apparent authority due to following reasons: 

the principle of implied actual authority protects insiders as well as outsiders;



the third party is not obliged to prove that its reliance on the implied actual authority is due to the board's representation of an apparent managing director as being competent to bind the company;



evidence showing that board has conceded with director's unauthorised activities which gives rise to both ostensible authority and implied actual authority. Such an acknowledgement of board is different from case to case. (Obadina, 1998)

Bibliography 1. (2000). In R. Bradgate, Commercial Law, 3rd Edition (p. 125). London, Edinburgh, Dublin: Butterworths. 2. (2000). In R. Bradgate, Commercial Law, 3rd Edition (pp. 139-140). London, Edinburgh, Dublin: Butterworths. 3. Brown, I. (1995). The agent's apparent authority: paradigm or paradox? Journal of Business Law , 1-2. 4. Brown, I. (2004). The significance of general and special authority in the development of the agent's external authority in English law. Journal of Business Law , 15. 5. (2001). In E. Maclntyre, Business Law, Fourth Edition (p. 337). Essex, England: Pearson Education Limited. 6. Munday, B. S. (1998). An Outline of the Law of Agency, Fourth Edition. London, Edinburgh & Dublin: Butterworths. 7. Obadina, D. (1998). The transactional authority of a managing director: Part 1. International Company and Commercial Law Review , 4. 8. Page, W. H. (1919). The Law Of Contracts Vol2 (Section 960). The W. H. Anderson Company. 9. (1989). In C. Shum, Business Associations (pp. 7,9). Hong Kong: Hong Kong University Press.

Agent by By the Partnership Act 1971, section 7 This partnership Act provides that partners are each other’s agents when contracting in the partnership business. Any act carrying on by a partner in the usual way business carried on by the firm binds the firm and his fellow partners, even if the partner acting has in fact no authority to act for the firm in the matter, unless the person with whom he is dealing knows he has no authority, or does not know or believe him to be a partner. Edmund v. Bushell and Jones Jones was employed Bushell as the manager of his business in London under the name of “Bushell & Co."Jones forbade Bushell from drawing and accepting bills of exchange. However, Bushell breached this prohibition in accepting some bills and Jones was sued upon one of them by the plaintiff. Court held that Jones was liable. This is because neither the plaintiff nor any previous holder of the bill knew that Bushell was the agent of Jones

Five ways that may arise an agency The law of agency is an area of commercial law dealing with a or or quasi-contractor, or non contractor set of relationships when a person, called an agent, is authorized to act on the behalf of principal to create a legal relationship with a third party. An agent is a person employed to do any act for another or to represent another in dealings with third persons. Principal is the person for whom such act is done, or who is represented. With the reference of contract Act 1950, there are 5 ways that may arise an agency, which are by express appointment by the principal, by implied appointment by the principal, by ratification by the principal, by necessity and by the doctrine of estoppels/holding out. By express appointment by the principals In contract act 1950 section 140, an agent may be authorized by mouth or word to sign a memorandum. Express are the that have been specifically mentioned and agreed by both parties at the time the contract is made. They can be either in oral or in writing. The principal may by spoken or written words ‘appoint' another person to act on his behalf. An example of an express appointment is a Power of Attorney. A power of attorney is construed strictly and if an attorney, in purported exercise of his authority, acted outside the reasonable scope of his powers by changing his principal, the principal will not be liable. He will be reliable only when he adopts it. For some purposes, the law requires a power of attorney to be in writing.

This law essay is an example of a student's work Disclaimer This essay has been submitted to us by a student in order to help you with your studies. This is not an example of the work written by our professional law writers. Law Essay Writing Service Law Assignment Writing Service Law Coursework Writing Service Who wrote this essay? Freelance Writing Jobs Place an Order By implied appointment by the principal In contract Act 1950 section 140, implied appointment arise when a person, by his words, hold out another person as having authority to act for him. The thing spoken or written or the ordinary course of dealing When it is to be inferred from the circumstances of the case, may be ed circumstances of the case. Chan Yin Tee v William Jacks & Co The appellant which is Chan and Yong is a minor. Both of them were ed as partners in a business. With a representative of the respondent company at a meeting, Chan held himself out to be Yong’s partner. Business then commenced between the parties and goods were supplied to Yong but the price was not paid. The respondent company obtained judgment against Chan and Yong. They appealed to the Federal Court. The court held that irrespective of whether Chan was a partner or not, Chan had the authority to do things on his behalf and, Chan who act as appellant was liable for Yong’s acts. Relationship between husband and wife The relationship of principal and agent may exist between the husband and the wife. There is a rebuttable presumption in law that a wife living together with her husband and the wife has the authority to pledge her husband credit for necessaries suited to their style of living. The example are sundry goods, household and etc) .Once the cohabitation ceases, the presumption ceases and the tradesman must prove that the husband held his wife out to have his authority to contract. The tradesman must also show that the goods ordered were necessary and not extravagant. For example, a husband who habitually takes upon himself the liability to settle his wife’s past dealings and purchases from tradesmen will remain responsible and liable for all such contracts unless and until he makes it known to the tradesmen that her agency has been determined. In other words, the presumption can be rebutted by the husband proving that: he expressly forbade his wife to pledge his credit; or he expressly warned the tradesman not to supply his wife with goods or credit; or

his wife was given sufficient allowance without having to pledge his credit; or his wife was sufficiently provided for with goods of the kind in question; or The order, though for necessaries, was unreasonable, considering her husband’s financial position at the time. By the Partnership Act 1971, section 7 This partnership Act provides that partners are each other’s agents when contracting in the partnership business. Any act carrying on by a partner in the usual way business carried on by the firm binds the firm and his fellow partners, even if the partner acting has in fact no authority to act for the firm in the matter, unless the person with whom he is dealing knows he has no authority, or does not know or believe him to be a partner. Edmund v. Bushell and Jones Jones was employed Bushell as the manager of his business in London under the name of “Bushell & Co."Jones forbade Bushell from drawing and accepting bills of exchange. However, Bushell breached this prohibition in accepting some bills and Jones was sued upon one of them by the plaintiff. Court held that Jones was liable. This is because neither the plaintiff nor any previous holder of the bill knew that Bushell was the agent of Jones By ratification Under the Contracts Act 1950, section 149, (Right of person as to acts done for him without his authority, effect of ratification), whereby acts are done by one person on behalf of another but without his knowledge or authority, he may elect to ratify or to disown the acts. If he ratifies them, the same effects will follow as if they had been performed by his authority. This means that one of the two situations must exist before agency by ratification can arise. This can be created either an agent who was duly appointed has exceeded his authority or a person who has no authority to act for the principal has acted as if he has the authority. The principal can either reject the contract since he has not authorized it or accept the contract made. Once accepted, the contract is known as ratification. Sentance v Hawley Plaintiff, a broker, on instructions of defendant bought three lots of sugar for him, numbered 67, 68, and 69. By the conditions of sale the goods were to remain at the wharf, at seller's risk, till the warrants were delivered to the buyer. On 25 May defendant requested plaintiff to obtain a warrant for lot 67 and clear it at the Custom House, which he did. At the same time plaintiff paid and obtained warrants for the other lots, which was the ordinary course of proceeding among brokers, they getting discount allowed by the seller. It was proved that defendant knew of this practice, and that it had been done in this instance. On 22 June defendant instructed plaintiff to clear lot 68. According to the ordinary practice, if the warrants had not been obtained previously, they would have been obtained on the Saturday, and the duty would have been paid on the

following Monday. The warrants, however, had been previously obtained. A fire broke out after business hours on Saturday, and lot 68 was destroyed. The court held that the conduct of defendant amounted to a ratification or adoption of the previous payment. The sugar was then standing at the buyer's risk. Plaintiff could recover the money paid for it as money paid for defendant's use. This law essay is an example of a student's work Disclaimer This essay has been submitted to us by a student in order to help you with your studies. This is not an example of the work written by our professional law writers. Law Essay Writing Service Law Assignment Writing Service Law Coursework Writing Service Who wrote this essay? Freelance Writing Jobs Place an Order By necessity (in an emergency) An agent has authority, in an emergency; to do all such acts for the purpose of protecting his principal from loss as would be done by a person of ordinary prudence, in his own case, under similar circumstances. This is created when a person is entrusted with another’s property and it becomes necessary to do something to preserve that property although he has no express authority to do so. There must be already some existing contractual relationship between the principal & the person who acts on his behalf. There three condition whereby it may be created if the conditions are fulfilled. There are it must be impossible for the agent to get the principal’s instruction, the agent’s action is necessary and agent of necessity has acted in good faith. In Prager v Blatspiel. Stamp & Heacock Ltd During the First World War an agent of a fur merchant in Bucharest bought £1,900 worth of skins. The merchant paid for the skins but owing to the war the agent couldn’t dispatch the skins to him. The skins increased in value and the agent sold them. The court held that there was no agency of necessity the court held. The skins were not likely to drop in value and could be preserved by proper storage (v) By estoppel Ordinarily, a person is not bound by a contract made on his behalf without his Authority. But if a person, by his words and conduct, allows a third party to believe X is his agent, when X is not and the third party relies on it, he will be estoppels from denying the existence of X’s authority. Mordaunt Bros v British Oil and Cake Mills Lt The defendants sold oil to certain merchants. The merchants sold a portion of this oil to the Plaintiffs. Merchants give the delivery orders, address to defendants and directing the defendants

to deliver the oil to the plaintiffs. While the merchants were punctual in their payments to defendants, the defendants regularly delivered oil to the Plaintiffs or their sub-purchasers. The merchants fell into arrear with their payments, and the defendants, claiming to exercise their right of lien as unpaid sellers, refused to make any further deliveries against the merchants' delivery orders. The plaintiffs claimed a declaration that they were entitled to delivery of the goods. Based this claim, defendants were estopped from denying that they had the oil in their hands and to answer the delivery orders. The court held that the plaintiffs had failed to prove facts sufficient to establish a case of estoppels. This showed that plaintiffs regularly made the advances or purchases before making any inquiries as to whether the delivery orders would be executed, and had not, therefore, altered their position on the faith of any answers to such inquiries. Agents and principals have their own duties to arise an agency. With the reference Contract Act 1950 Section 168, agents are not allowed to make any secret profit out of the performance of his duty. Secret profit is not restricted to money but it may include anything of value, for example, an interest-free loan, a club hip and etc. An agent who has made secret profit is liable to to the principal for such profit. For the statement above, the agent has used the property of principal to make profit or benefit for himself, the agent deals on his own in the business of agency, without first obtaining the consent of his principal and acquantining him with all material circumstances which have come to his own knowledge on the subject, the principal may repudiate the transaction or contract. The agent should not make a secret profit in his own . The statement stated that the agent gains the unjust benefit by use of principal’ property, the principle may: Repudiate the contract if it is disadvantageous to him Recover the amount of secret profit from the agent Refuse to pay the commission or remuneration to the agent Dismiss the agent for breach of duty Sue the agent and third party giving the bribe, for damages for any loss he may have sustained through entering into the contract. But, if the principal knows about the secret profit and consent to it, the agent is entitled to keep the profit and is not liable for the transaction. In the Boardman v. Phipps case, Mr. Boardman was a solicitor of a family trust. The trust assets include 27% holding in a company, Boardman was concerned about the s of a company and required to protect the shareholding. He and his beneficiary, Tom Phipps, went to a shareholders’ general meeting of the company. They suggested to a trustee which is Mr. Fox that it would be desirable to acquire a majority shareholding, but Mr. Fox said it was completely out of the question for the trustee to do. After that, Boardman and Phipps decided to purchase the shares but they did not fully informed consent of all the beneficiaries. By capitalizing some of

the assets, the company made a distribution of capital without reducing the values of the shares. The trust benefited by distribution for £47,000, while Boardman and Phipps made £75,000. Then, John Phipps, another beneficiary, sue for their profits. The court held that Boardman was liable to pay for his breach of the duty of loyalty, but he could be paid for his services. In conclusion, agents were disallowed to make any secret profit in perform his duty. But if the secret profit was known by the principal, agent is entitled to keep the profit.

Relationship of partners partners remain tly and severally liable for the acts of partners before the date of dissolution. Partners are essentially agents for one another thus a fiduciary, making each partner liable for the acts of the other undertaken in the course of the business of the partnership In Bristol and West Building Society v Mothew a fiduciary is someone who has undertaken to act for or on behalf of another in a particular matter in circumstance which give rise to a relationship of trust and confidence. In Bentley v Craven (one of the first cases permitting a fiduciary duty to arise from a partnership) a partner was held to be in breach of s29(1) after selling his own goods to the partnership without disclosing that they were his and held liable to to his partners for the whole profit he had made. All partners are tly and severally liable for the firm’s debts. “Partners owe statutory duties of good faith to each other. “partners are bound to render true s and full information of all things affecting the partnership to any partner or his representative" Every partner must to the firm for any benefit derived by him without the consent of the other partners from any transaction concerning the partnership property, name or business connection". (Pathirana v Pathirana (1967) AC 233)" Disadvantages Firstly, the financial benefit derived from running the business will have to be divided between the partners equally or according to their agreement. On the other hand all losses will be split up between partners in proportion to the percentage of capital invested. Secondly, the firm is liable for wrongs committed by the individual partner. By Section 10, where one partner commits an act which is wrong in itself, as opposed to being outside his authority, the firm will be civilly liable for any harm caused, and criminally for any penalty incurred if either the act was done with the actual authority of his fellow partners or the act was within his usual authority, in the ordinary course of the firm’s business. (Hamlyn v Houston & Co. (1903) 1 KB 81) Thirdly, Section 9 states the obvious and rules that every

partner is liable, tly with his co-partners, for all debts and obligations of his firm which are incurred while he is a partner. And lastly, the unlimited liability which states that each partner is responsible for the business debts. However, the new Act was introduced which helped to deal with the problems of unlimited liability.