Agency - Actual Authority & Ratification PDF

Preview

Summary

Various tutors gave these lessons....

Description

Types of Agency Relationship (Actual Authority & Authority by Ratification) Caution: although the different types of agency relationship are dealt with separately they should not be compartmentalised. In practice the different types of authority may well overlap so that it is, for example, fairly common for an agent to possess express actual, implied actual and apparent authority. (A).

ACTUAL AUTHORITY

The leading case law for actual authority is: 

Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480



Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549

An agent is given actual authority to act for a principal when the principal has agreed, in advance, that the agent should have such authority. The prior agreement, which confers the authority, will usually be a contract.

How do we know what has been agreed: (a) If there is a contract (b) If there is no contract? Whether or not an agent has actual authority is a matter of fact. Diplock LJ in Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 described actual authority: “An ‘actual’ authority is a legal relationship between principal and agent created by a consensual agreement to which they alone are parties. Its scope is to be ascertained by applying ordinary principles of construction of contracts, including any proper implications from the express words used, the usages of the trade, or the course of business between the parties. To this agreement the contractor (third party) is a stranger, he may be totally ignorant of the existence of any authority on the part of the agent. Nevertheless, if the agent does enter into a contract pursuant to the ‘actual’ authority, it does create contractual rights and liabilities between the principal and the [third party].” When considering actual authority it is convenient to distinguish express actual authority and implied actual authority.

1. EXPRESS ACTUAL AUTHORITY 

Express actual authority arises when the agent and the principal agree in words that the agent shall have the power to act on the principal’s behalf. No formalities attach to the formation of the agreement, which will usually be a contract.



Express actual authority is relatively straightforward.



However, the issue for express actual authority is what is the correct interpretation of the express words in the mandate (the contract between the principal and the agent) as to the scope of the authority (the role) of the agent?

Three rules: 1. The general rule is that an interpretation is the meaning that “would convey to a reasonable person having all the background (e.g. other contractual terms, purpose of the contract, practices in the relevant trade as known to the parties) knowledge which would reasonably be available to the audience to whom the instrument is addressed”; Attorney General of Belize v Belize Telecom Ltd [2009] 1 W.L.R. 1988 at 1993, confirmed, Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896. 2. The interpretation of the mandate (contract between the principal and the agent) is liberal, taking into account all the relevant circumstances. But if the mandate is given in deed courts will take a strict approach in interpretation so the scope of authority is what is only written in the deed  Jacob v Morris. 3. Any ambiguity is likely to be resolved in favour of the agent as long as the agent acted reasonably. In Ireland and others v Livingston [1861–73] All ER Rep 585: 



The principal (P) wrote to the agent (A) to ship sugar from abroad stating “I should prefer the option of sending the vessel to London, Liverpool, or the Clyde, but if that is not compassable, you may ship to either Liverpool or London ”. (A) Shipped the sugar on a vessel that also contained other person’s goods to Liverpool. (P) Claimed that (A) did not follow his instructions as by mixing other persons goods on the vessel (A) became unable to exercise the option of determining the destination of the vessel.

It was held that the agent was not in breach of his duty to adhere the mandate (the instructions in the agency contract with the principal).

2. IMPLIED ACTUAL AUTHORITY 

We have already seen that implied actual authority is conferred by agreement between the principal and the agent. Express actual authority is conferred by words, implied actual authority is not. Implied actual authority arises when it can be inferred that the principal consented to the agent acting on his behalf. The very existence of the agent’s authority may be entirely inferred, or the implied authority of the agent might define and expand the express authority.



Implied actual authority is not so straightforward as express actual authority. In HelyHutchinson v Brayhead Ltd [1968] 1 QB 549 Lord Denning MR gave a lucid explanation of the difference between the two types of actual authority: “ . . . actual authority may be express or implied. It is express when it is given by express words, such as when a board of directors pass a resolution, which authorises two of their number to sign cheques. 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 numbers to be managing director. They thereby impliedly authorise him to do all such things as fall within the usual scope of that office.”

Implied actual authority can arise in the following ways:

(i) Incidental and ancillary acts that are necessary or ordinarily to undertake in executing the express authority. Examples: an agent who is expressly instructed to sell a house will have, as a necessary step to complete the sale, an implied (understanding that it goes without saying) authority to sign the agreement for sale (Resenburn v Belson (1900) (ii) Implied actual authority by the virtue of practice. It is also known as usual actual authority. The term ‘usual authority’ is not used here, unlike the textbooks, in order to avoid confusions as such a term is used to denote the authority of Watteau v Fenwick that is a separate authority, and again the term usual authority is used under the type of ‘apparent authority’. Usual authority under both Watteau and apparent authority is not actual authority. The scope of the actual authority is determined by the express words in the contract and the surrounding practices which are patterns of behaviour that generate expected and normative understandings in a particular trade, profession or market. Practice is divided into three categories: 

Course of dealing: practices developed and repeated between the same parties (e.g. (P) instructed (A) to purchase goods for home furniture on his behalf for such and such terms in the summer of 2003. Once the parties repeats the same action for a couple of years it will become without saying that when (A) is asked to purchase goods (say in 2017) the understanding is to purchase home furniture for the same previous terms.



Market practices: they are the practices that are well known by the traders in the market profession or particular trade (and not to any trader or anyone);



Trade custom or usage: they are the practices in a particular market, trade or profession that are well known, or supposed to be known, by any trader or one who is to undertake a relevant transaction. o

Market practice and usages/customs are a matter of fact that is often proved before the courts by expert evidence from the relevant trade. For a market practice or usage/custom to be recognised it must be certain, well known and reasonable; Culiffe-Owen v Teather (1967)

Examples:  Once a person is expressly authorised to be a manger of a railway company, it is well known (the practice that it goes and is understood without saying it) that a manager of a railway company has the authority (implied actual authority) to bind the company to pay a medical assistance to employees following an accident at work;  It is well known that a person who is expressly appointed (express authority) as an auctioneer will have the role - scope of his actual authority – to sell goods and to sign a sale of contract on behalf of seller and purchaser,  Cropper V Cook (1867): A based in Liverpool was instructed by (P) to purchase wool on P’s behalf. (A) Purchased the wool in his name for (P). Despite that it was the custom in Liverpool wool-market that brokers purchase wools either in their own names or in the name of principals, (P) contended that (A) did not have authority to purchase wool in A’s name for (P). (P) Accordingly refused to pay for the wool. It was held that (A) had authority by the virtue of the proved custom, so it was an implied actual authority as it was the well-known and accepted understanding of the parties that the role of wool agents involved purchasing goods in their own name.

(iii) Implied agreement for actual authority as inferred by conduct and relevant circumstances - Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549: 

The chairman of Brayhead, Richards, was allowed by the board of directors to act as if he had been appointed managing director. In fact Richards had never been appointed to this position. Richards often made contracts on behalf of the company and only informed the board of directors afterwards. Did Richards have either express actual authority or implied actual authority to act as managing director of Brayhead?

Held: In all three of the situations outlined above, the authority or its scope arises because of an implied agreement between principal and agent. Legal consequences of actual authority The principal and the agent can sue and be sued on the contract, so both can enforce the contract and the third party drops out of the transaction, Montogomerie v United Kingdom Mutual Steamship Association [1891] 1 QB 370.

3. AGENCY BY RATIFICATION In this situation the agent has no actual authority at the time of the relevant act but the principal for whom, (unknown to such principal), he was acting later adopts (“ratifies”) the particular act as if he had given prior authorisation. NOTE: - that this is particularly relevant where an agent with apparent but no actual authority, see next lecture on apparent authority.

Requirements 

The agent must purport to act on behalf of an ascertainable principal 

Keighley, Maxsted & Co. v. Durant [1901] AC 240 o

“It is, I think, a well-established principle in English law that civil obligations are not to be created by, or founded upon, undisclosed intentions. That is a very old principle.”



The principal must be in existence at the time of the act



The principal must be competent at the time of the act and of the purported ratification

Method Ratification may be either express or implied from the principal’s unequivocal conduct. e.g. paying the agent’s fees Effects It has a retroactive effect, e.g. it is equivalent to an antecedent authority The principal may sue and be sued by the third party The agent drops out of the picture, is discharged of all liability as regards the third party and cannot be held liable for exceeding his authority as regards the principal. The principal may be liable to pay the agent reasonable remuneration or an indemnity for loss incurred by him Bolton Partners v Lambert [1889] 41 Ch. D 295

Criticism? –BUT note the limitations:  Ratification must take place within a reasonable time  The “subject to ratification” offer  Consider also the effects of Kidderminster Corpn v Hardwick (1873) LR 9 Exch 13...