AGENCY LAW: AUTHORITY OF AN AGENT

 AUTHORITY OF AN AGENT

In establishing an agency relationship, the principal does not give the agent unlimited power to enter into any contract whatsoever but is likely to place strict limits on the nature of the contracts that the agent can enter into on his behalf. In other words, the authority of the agent is limited and in order to bind a principal, any contract entered into must be within the limits of the authority extended to the agent. The authority conferred on an agent can be;

                  -          express authority

                  -          implied authority

                  -          ostensible authority

    Express authority

Express authority is a matter between principal and agent. This is authority explicitly given by the principal to the agent to perform particular tasks, along with the powers necessary to perform those tasks. The extent of the agent's express authority will depend on the construction of the words used on his appointment. If the appointment is in writing, then the document will need to be examined. If it is oral, then the scope of the agent's authority will be a matter of evidence. If the agent contracts outside the scope of his express (actual) authority, he shall be liable to the principal. The agent will also be liable to the third party for breach of warranty of authority. The consequences for the relationship between the principal and third party depends on whether the third party knew that the agent was acting outside the scope of their authority.

For example, an individual director of a company may be given the express power by the board of directors to enter into a specific contract on behalf of the company. In such circumstances the company would be bound by the subsequent contract but the director would have no power to bind the company in other contracts.

     Implied authority

Implied authority is authority inferred or conferred by;

                -           custom;                                                                      

                -           the nature of the agent's activities; or

                -          what is reasonably necessary to carry express authority.

Between principal and agent the latter's express authority is paramount. Accordingly, the agent cannot contravene the principal's express instructions by claiming that he had implied authority for acting in the way he did. However, third parties are entitled to assume that an agent holding a particular position has all the powers that are usually provided to such an agent. Without actual knowledge to the contrary the third parties may safely assume that the agent has the usual authority that goes with their position. In Watteau v Fenwick (1893) the new owners of a hotel continued to employ the previous owner as its manager. They expressly forbade him to buy certain articles including cigars. The manager, however, bought cigars from a third party who later sued the owners for payment as the manager’s principal. It was held that the purchase of cigars was within the usual authority of a manager of such an establishment and that for a limitation on such usual authority to be effective it must be communicated to any third party.

Directors of companies can also bind their companies on the basis of implied authority. In Hely-Hutchinson v  Brayhead Ltd (1968), although the chairman and chief executive of a company acted as its  de facto  managing director, he had never been formally appointed to that position. Nevertheless, he purported to bind the company to a particular transaction. When the other party to the agreement sought to enforce it, the company claimed that the chairman had no authority to bind it. It was held that, although the director derived no authority from his position as chairman of the board, he did acquire such authority from his position as chief executive and thus the company was bound by the contract he had entered into on its behalf as it was within the implied authority of a person holding such a position.

     Ostensible/apparent authority

The Phrase apparent authority refers to the appearance of authority to which the principal has lent himself by some act by which he represents or holds the agent out as having an authority beyond that which he in fact possesses. Ostensible/apparent authority can arise in two distinct way

           (i) Where P makes a representation to T that A has the authority to act as their agent without actually appointing them as their agent. In such a case the person making the representation is bound by the actions of the ostensible/apparent agent. The principal is also liable for the actions of the agent where they are aware that the agent claims to be their agent and yet does nothing to correct that impression.
           (ii) Where P has revoked agent’s authority and the T has no notice of this.

 Even if the principal has subsequently revoked the agent’s authority they may still be liable for the actions of the former agent unless they have informed third parties who had previously dealt with the agent about the new situation.

Where A acts within his scope of apparent authority, P is bound to the same extent as if he had actually authorized the transaction. 

In  Freeman & Lockyer v  Buckhurst Park Properties (Mangal) Ltd (1964), although a particular director had never been appointed as managing director, he acted as such with the clear knowledge of the other directors and entered into a contract with the plaintiffs on behalf of the company. When the plaintiffs sought to recover fees due to them under that contract it was held that the company was liable: a properly appointed managing director would have been able to enter into such a contract and the third party was entitled to rely on the representation of the other directors that the person in question had been properly appointed to that position.

Apparent authority will also arise where a P has revoked A’s authority and the third party has no notice of this.  The principal may still be liable for the actions of the former agent until he informs third parties who had previously dealt with the agent about the new situation.

The extent of ostensible authority

Ostensible authority is not restricted to what is usual and incidental. The principal may expressly or by inference confer on the agent any amount of ostensible authority.

Conditions needed to be able to invoke apparent authority

For a representation to create ostensible authority;

                 -          the representations must be made by the principle or an agent acting on his behalf and not by an agent who is claiming ostensible authority;

                 -          it must be a representation of fact not law;

                 -          the representation must be made to the third party; and

                 -      the representation must be relied on by a third party.

Furthermore, it must be shown that the 3^rd party relied on the representation. If there is no causal link between the 3^rd party’s loss and the representation, the third party will not be able to hold the principal liable. Nevertheless, it is enough that third party alters his position as a result of reliance on the representation. He does not have to suffer any detriment as a result.