MOD003339 – Commercial Law

Agency law: the authority of

the agent

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 Learning outcomes

At the end of this session you should be able to:

Concept of agency
Different types of agents’ authority
Relevant case law

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 Fiduciary (trust and confidence based on equity)
relationship giving rise to rights and obligations

• THE PRINCIPAL GIVES AUTHORITY TO THE AGENT

TO ACT ON HIS/HER BEHALF WITH THIRD
PARTIES (CUSTOMER)

• Agent is authorised by principal to undertake various

acts (E.G enter contracts) on behalf of principal.
• What is the legal effect of agency? With this authority
the agent has the power to bind the principal (e.g. the
agent may enter contracts on behalf of principal).
• Contracts are treated as contracts made by principal
(avoiding privity). The agent is not party to the contract.

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 The three relationships in agency

• Principal/agent relationship;
• Agent/third party (customer) relationship; and
• Principal/third party (customer) relationship

• You may always use the example of company

directors.

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 Different Types of Agents Authority: under English law, we have types of
authority based on the consent of the principal and some others not based
on the consent of the principal.

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 Actual express authority

• Actual express authority: this is the authority that

the agent actually has.

• This is based on consent

• The scope/extent of this authority is usually found

in a contract (e.g. contract of employment). The
agreement can be in written form or in an oral
form. So,the actual authority of a director is usally
found in the AoA.
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 Actual express authority

1. Where there is already an agreement in existence

between P & A.
2. The agreement will state what A is actually authorised to
do.
3. Extent of A’s actual authority will depend on construction
of the agreements terms.

• See: Ireland v Livingston [1872]

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 Actual implied authority

• This is also based on consent.

• How Implied Authority arises:

• A has implied authority to do what is usual or customary

in trade, job to carry out his express authority (Hely
Hutchinson v Brayhead Ltd). So, a managing director
has usually all the powers of someone in that position
irrespective of the content of the AoA.
 
• If A exceeds express limit on his authority or does something that P
has expressly stated he cannot do – then is TP cannot say A has
Implied Authority: However P could still be bound if this is Apparent
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Authority.
 Actual implied authority
• Hely – Hutchinson v Brayhead Ltd [1968] 1

• Lord Denning M.R. stated: “It is implied when it is

inferred from the conduct of the parties and the
circumstances of the case, such as when the
board of directors appoint one of their number to
be managing director. They thereby impliedly
authorise him to do all such things as fall within
the usual scope of that office”

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 Apparent authority

• Where an agency relationship can be formed

despite there being no express agreement
between A & P (i.e. not based on consent)
• If P leads a TP to believe that A is acting as his
Agent, then the Courts will use estoppel to
impose an agency relationship.
• So that P will be bound to honour contract with
TP

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 Apparent authority: requirements

Requirements needed:
1) There must be a representation by the
principal to the third party that the agent has
authority, and
2) The third party must rely on the representation,
and
3) The third party must not be aware that the
agent is acting without authority (in good faith).

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 Apparent authority: rationale

• The law protects the third party (customer) by

allowing him to rely on appearances which have
been created or corroborated by P.
• So, if a company (shareholders) allow someone
to act as a managing director even if he is not
formally appointed, the company will be liable
for the contracts entered with third parties.

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 Freeman and Lockyer v Buckhurst Park
Properties (Mangal) Ltd [1964] 2 

• Freeman & Lockyer – the Principal made a specific

representation (implied by conduct) created the
impression to TP that A had authority to act as agent on
P’s behalf. Therefore the agent had the apparent
authority to commission the work in this case.

• See also Ramsay v Love (2015)

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 Summers v Solomon (1857)
• Summers v Solomon is an example of P making
a specific representation through previous
course of dealing.
• A without authority had run a jewellery shop and
purchased goods on P’s behalf. P in the past had
paid for these.
• A stopped working for P. Ordered jewellery on
credit from TP and absconded.

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 Summers v Solomon (1857)

• The P liable as had through previous course of

dealings (honouring credit) and conduct by not
telling TP that A left & putting A in such a
position that carries usual authority.

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 Criterion Properties plc v Stratford UK
Properties LLC [2004]

• If a person dealing with an agent knows that the

agent does not have actual authority to
conclude the contract or transaction in question,
the person cannot rely on apparent authority.

• Apparent authority can only be relied on by

someone who does not know that the agent has
no actual authority.

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 Usual authority
• Usual authority is also not based on consent.
• Usual authority is the authority an agent would
usually be expected to have in those
circumstances.
• This is very controversial – can A bind P – if (i)
acting outside both express/implied authority, (ii)
where expressly told by P not to do X, (iii) and P
has not held A out to have any apparent
authority.

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Panorama Developments (Guildford) Ltd v Fidelis
Furnishing Fabrics Ltd [1971] 2
• Co appoints A to act as company secretary but
is expressly told that he may not enter into any
contract without approval of the company's chief
executive.
• A enters into a contract with C, who is unaware
of the limitation on A’s authority, for the supply to
the business of a photocopier. P is bound by the
contract, notwithstanding the limitation on A’s
authority,

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 Panorama Developments (Guildford) Ltd v
Fidelis Furnishing Fabrics Ltd [1971] 2

• if it is within the usual authority of a

company secretary, because the agent
appears to have that authority (apparent
authority).

• English law protects the customer and applies a

business approach to the matter.

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 Watteau v Fenwick [1893] 1 

• In Watteau v Fenwick the Court held that the

agent could bind the Principal. In this very
important case the Agent managed the pub in his
own name, with his name over the door.

• He was expressly forbidden from making any

contracts. He contracted to buy drink from the
Third Party.

• The Third Party discovering that he only an Agent

tried to sue the Principal for payment.
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 Undisclosed agency
• This was an undisclosed agency – where the
Third Party does not know that A is only an
Agent.

• Had the identity of the Principal been disclosed,

then the Principal would have been bound by
usual authority – that is it was usual for A to
have the authority as the pub manager.

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