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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)

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"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 supported 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 account;

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."

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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;

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

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 passing

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 passage, 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 support 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 others 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 contactor 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 terms are the terms 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.

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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 accounted
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 registered as partners in a
business. With a representative of the respondent company at a meeting, Chan held himself out
to be Yongs 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 Yongs 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 wifes 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 husbands financial
position at the time.
By the Partnership Act 1971, section 7
This partnership Act provides that partners are each others 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.
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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 anothers 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 principals
instruction, the agents 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 couldnt 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 Xs 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 membership and etc. An agent who has made secret profit is liable to
account 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 account 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
account. 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 accounts 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 jointly 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 account to his partners for
the whole profit he had made.
All partners are jointly and severally liable for the firms debts. Partners owe
statutory duties of good faith to each other.
partners are bound to render true accounts and full information of all things
affecting the partnership to any partner or his representative"
Every partner must account 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 firms business. (Hamlyn v Houston &
Co. (1903) 1 KB 81) Thirdly, Section 9 states the obvious and rules that every

partner is liable, jointly 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.