Freeman v Buckhurst case study notes PDF

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Here are some helpful notes about an important case for LAW20019. This will be very helpful for the exam....

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Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 FACTS Kapoor and Hoon formed a company for the purpose of developing a property. They each held half the issued shares and together with a nominee of each, comprised the board of directors. The quorum of the board was four, but at all material times, Hoon was overseas. Kapoor acted as managing director with the approval of the board, although he had not actually been appointed to that position. Kapoor engaged a firm of architects and surveyors on behalf of the company. The firm brought an action claiming payment for work carried out when the company refused to pay its fees.

ISSUE Who can hold out for the company by making representations of authority to outsiders on the company’s behalf so as to bind the company?

COURT RULING The court held that the company had held out that Kapoor was its managing director and was therefore bound by his actions. He had apparent authority to employ the architects because this was within the customary authority of a managing director. Because the outsiders had relied on the apparent authority of the managing director, they did not have to examine the company’s constitution or inquire whether the managing director had been properly appointed. Diplock LJ examined the law of agency as it applies to contracts with companies where the agent does not have actual authority. He concluded: If the foregoing analysis of the relevant law is correct, it can be summarised by stating four conditions which must be fulfilled to entitle a contractor to enforce against a company a contract entered into on behalf of the company by an agent who had no actual authority to do so. It must be shown: (a) that a representation that the agent had authority to enter on behalf of the company into a contract of the kind sought to be enforced was made to the contractor; (b) that such representation was made by a person or persons who had “actual” authority to manage the business of the company either generally or in respect of those matters to which the contract relates; (c) that he (the contractor) was induced by such representation to enter into the contract, that is, that he in fact relied on it. The representation that Kapoor had authority was made by the board, which had actual authority to manage the affairs of the company. This was so, even though the board had made no formal decision to that effect. The representation arose because the board failed to prevent him from acting as if he were the company’s managing director....