Agency and partnershipl law assessed coursework - Essay Example

? Question “Ostensible or apparent ity is the ity of an agent as it appears to others. It often coincides with actual ity” (Per Lord Denning MR,” Hely-Hutchinson v Brayhead Ltd [1968] 1 Q.B 549 at 583)”. Discuss the nature of both actual and apparent authority of agents and, with reference to relevant authorities, critically analyse the relationship that the two forms of authority share. Introduction The acts of an agent will be obligating a principal if such act falls within the agents ‘real or ostensible or apparent authority. If an unauthorised act is done by an agent which was later ratified by the principal, then such unauthorised acts by an agent will be binding the principal. An agent’s actual authority may be either implied or express. As regards to express authority, there will be no issues as everything will be explained or predetermined. An ostensible authority will occur when if the authority has been conferred on the agent, even if such authority is not bestowed upon him by express words. For instant, if an insurer permits his agent to have in possession of blank cover notes, then the insurer implicitly permits him to create temporary insurance contracts on behalf the insurer. If temporary oral contracts entered by an agent are being continuously adopted by the insurer, then it will confer an ostensible authority on that agent1. This research essay will make an earnest attempt to establish that there is no any difference between the acutual and ostensible authority as it appears to be . Analysis Usual Authority of an Agent An agent’s usual authority is interpreted by the courts in the background of actual implicit power, which is being conferred to an agent due to circumstance of a specific case like usual power of an agent from a specific custom or particular trade. Thus, usual authority of an agent is viewed as a feature of apparent or actual authority. In Watteau v Fenwick2, the manager of a beer house had the express authority to buy cigars from the defendant only. However, the agent (manager) bought the cigars from the plaintiff. In a suit for claiming to settle the amount due to the plaintiff, it was held that as the plaintiff was not aware of the express restriction, and since, it fell within the usual power of the manager of a beer house to place an order for this type of goods, the principal was held accountable3. However, in Daun v Simmins4, the decision held in Watteau v Fenwick was contrasted where it was observed that if an agent (manager) of a “tied” public house only has the power in general to purchase spirits from a specific source. In cases like this, no reliance on an implied authority can be made by a supplier so as to sue the principal5. Implied or Ostensible or Apparent Authority An implicit or implied or apparent or ostensible authority means where a third party is enticed to enter into a contract with a principal through a party who seems to have power to function or act but in reality , he is lacking such power or authority. In “Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd”, Diplock, LJ held that there is vast difference between apparent authority and actual authority. Despite these, terms are always coincided and co-existed without the other and their relevant background may be diverse. In actual authority, there is a relationship which exists between an agent and the principal legally which is ushered by an unanimous agreement to which they are regarded to be parties6. In ING Re (UK) Ltd v R & V Versicherung AG7, the apparent authority of an agent was explained by Toulson J as one, which is footed upon estoppel by representation. Where a third party (X) is being caused or represented by a Principal (P) that the agent (A) has the power to function on P’s behalf, and X is dealing with A as an agent of P purely on the reliance of such representation, P is liable to the acts of A to the same magnitude as if A had the required power which he was demonstrating as possessing8. In Zurich General Accident and Liability Ins. Co Ltd v.Rowbury9, an insurance broker was authorised by the insurance company to effect policy. In one incidence, the agent by mistake had mentioned the wrong destination in a travel policy. The insured wanted to avoid the contract on the grounds of the mistake but the insurer was held liable for the broker’s action as the broker had ostensible authority to conclude a travel insurance policy without any specific instruction as to the destination10. In “Rama Corporation Ltd v Proved Tin and General Investment Ltd”11 , Slade J held that a noticeable or ostensible power of an agent is just a guise of estoppel , which can be termed as an agency by estoppel and to call it as an estoppel , it should have the following elements: A delegation or representation of authority A trust on such delegation or representation Due to such trust or reliance , a change in one’s position12 A principal may represent to third parties that someone by his conduct, who, in reality, do not have any authority at all to function as his agent and who has been empowered to act as that he is the agent of that principal. In Barrett v Deere13, it was held that a third party who has repaid the money, he owed to his debtor to a person who demonstrated as if he is authorised to collect such payment by sitting inside the office of the principal and gave a receipt, and it was held by Lord Tenterden CJ that payment was effectual to absolve the third parties debt14. Likewise, in Gurtner v Beatton15, a person who represented himself as the authorised agent of an aviation firm through his action for the purpose of running a private flying club was found to possess the apparent authority as those who dealt with such flying club would have thought due to the action of such an agent they were associating with the aviation firm16. Mance LJ in OBG Ltd v Allan 17observed that if someone who has been bestowed with apparent power, despite the fact that the principal had not employed him as his agent but whose appointment new was released in the trade press, but it never finalised and withdrawn subsequently. Here also, third parties who have acted on the basis of trade press releases would be protected18. It is to be observed that both in Gurtner v Beatton and in OBG Ltd v Allan, the demeanour or words of the principal entice third parties rationally to think that the ostensible agent has command or authority to bind the principal through his actions. Thus, in these cases, the courts simply give effect to the belief caused by the demeanour or words of the principal. In SMC Electronics Ltd v Akhter Computers Ltd19, an employee of the defendant company who had the designation “Director PSU Sales” agreed to pay commission to an intermediary who referred orders to the company. Though the employee’s designation was director, but he was not a director of the company and did not have any express authority to make this type of contract. The Court of Appeal, in this case, applied the principle that agent’s will have implicit power to carry out such duties as may practically be linked with the agent’s title of the job and viewed that such implied authority can be regarded from the title of the job.20 Implied Authority In Hely-Hutchinson v Brayhead Ltd21, Lord Denning MR held that Brayhead Company’s chairman of the board of directors had entered into many business contracts through his implied authority in the company’s day to day operations of the company. In this process, Brayhead’s chairman used to any agreements without permission or knowledge of the board of directors of the company and just gave feedback at the next board meeting after successfully executing the business contracts, and thus he had functioned as an unofficial whole-time director of the company with the implicit authority from the board of directors of the company22. In Hely-Hutchinson case, the chairman of the board functioned as the whole-time director of the company with the knowledge of the board of directors. In the course of the business, he made the company to guarantee a loan taken from a bank by P Ltd. Later P Ltd went into liquidation. Then, bank sued the company for recouping its losses. At this juncture, the company turned down the claim of the bank on the pretext that the chairman had no power to sign any agreement for the sake of the company. In this case, the” Court of Appeal” viewed that the company was liable to honour the contract on the footing that the chairman had actual authority which was implicit from the demeanour of the parties and background of the case. In the past also , the said chairman entered contracts of financial nature that had the approval of the board and hence , the chairman even though he did not have actual authority , but because of his earlier actions , had in fact acquired extra , implicit , implied authority to act in this specific business deal23. An agent’s power or authority not necessarily be actual one but also can be implicit or implied. For example, from the background of the cases and from the demeanour of the parties, one can understand that an agent acts with the implied or implicit authority. An agent , who on earlier incidents had been authorised by his principal to carry out any action, which is in excess of his power or authority may have obtained implicit or implied authority to prolong to act24 . In “Panorama Developments (Guildford) Ltd v Fidetls Furnishing Fabrics Ltd “, Lord Denning viewed that for establishing the apparent authority , there requires to be an illustration by the principal either through his conduct or by words to a third party , which that such party trusts upon , that the agent has a power that he does not necessarily have. Apparent or explicit authority includes of either that authority to be in existence and in that case of business can rationally supposed to have or that authority that the specific agent has been disclosed by his principal’s action that he is possessing the same25. The facts of the case in “Freeman & Lockyer v Buckthurst Park Properties (Mangal) Ltd” is similar to that of Hely-Hutchinson case. In Freeman & Lockyer case, the Court viewed that the company was bound to honour the contract entered by an ordinary director if such director had acted within the ambit of his explicit or apparent authority. The board, by allowing the director to carry on some duties as managing director would in the ordinary course be authorised to sign such types of contract for the sake of the company26. In Racing UK Ltd v Doncaster Racecourse Ltd, it was held by the court that all the prerequisites of apparent authority had been evident in this case, especially that the council (principal) had made the third parties to deem that the chief executive (agent) had the power to carry out contracts on behalf of the council27. In Dey v Pullinger Engineering Co28, it was held that where without the board’s authority if a managing director had drawn a bill that a person who receives the bill in due course had every right to believe that he had power to do so29. Under certain scenarios, the principal may not establish the notion of actions or words but rather through inaction. If the principal fails to inform the third party of the lack of authority of an agent or if a principal fails to prevent an agent from dealing in the name of the company and if the third party changes his stand on the footing of the agent’s actions in the rational assumption that the agent is having real authority, then the principal will not be allowed to escape from his liability for the actions of his agent by refuting that the agent had no authority30. If an agent tries to bind the principal through his action by acting fraudulently or dishonestly, and such action does it fall within his apparent authority. It is be noted that an agent will bind the principal, through his action even if acts fraudulently or dishonestly and doest it fall within his apparent authority. It is to be noted that the agency will be carried out in the interest of principal and it should be honest. In “Macmillan Inc v Bishopgate Investment Trust (No 3) “31, it was observed by the Millett J that UK law acknowledges the difference between the abuse of power and want of power. The English courts, nevertheless, view that the principal will be accountable for the actions of the agent if the agent’s acts fall within the ambit of his apparent authority and even if the agent functions dishonestly or in contrast to the principal’s interest 32 Conclusion From the facts mentioned here ,there is no much difference between ostensibe authority and acutal authority of an agent under the law of agency. It is to be observed that both in Gurtner v Beatton and in OBG Ltd v Allan, the demeanour or words of the principal entice third parties rationally to think that the ostensible agent has command or authority to bind the principal through his actions. Thus, in these cases, the courts simply give effect to the belief caused by the demeanour or words of the principal. In Hely-Hutchinson case, , even though the chairman did not have actual authority , but because of his earlier actions had in fact acquired extra , implicit , implied authority to act in this specific business deal. If the principal fails to inform the third party of the lack of authority of an agent or if a principal fails to prevent an agent from dealing in the name of the company and if the third party changes his stand on the footing of the agent’s actions in the rational assumption that the agent is having real authority, then the principal will not be allowed to escape from his liability for the actions of his agent by refuting that the agent had no authority. Bibliography Andreas Cahn & David C Donald, Comparative Company Law, (CUP, Cambridge) 319 Birds J, Insurance Law in the United Kingdom (Kluwer Law International 2010) Cahn A & Donald D C, Comparative Company Law (CUP 2010) Mugambwa J T, Amankwah H A & Haynes CEP (Val), Commercial and Business Organisations Law in Papua New Guinea, (Routledge- Cavendish 2007) Munday R & Munday R J C, Agency: Law and Principles, (OUP 2010) Rush J & Ottley M, Business Law. (Cengage Learning EMEA 20060 Stone R, The Modern Law of Contract (Routledge Taylor & Francis Group 2005) Read More