Important notes for ch 5 PDF

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LECTURE 3 SUMMARY ...

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Actual Authority

Actual authority is imparted when an agent is expressly or impliedly granted authority by a company to act on its behalf.

An example of express actual authority is the passing of a resolution by a company, which empowers the agent to bind the company to certain contracts.

Implied actual authority occurs when, due to the position of the agent at the company, the agent is expected to have the power to enter into the contract. The implied authority of an agent will differ depending on their position in the company and the type of contract. For example, a Managing Director would be expected to have the power to enter into major supply contracts and would thus have implied authority to do so. The same could not be said of a company secretary, although they may have implied authority to enter into minor administrative contracts such as hiring company cars.

Ostensible Authority

Even if a company has not granted an agent actual authority, a third party may still be able to enforce their contract made with the agent if they can show the agent had ostensible authority. Whether an agent has ostensible authority is largely dependent on how the agent was presented by the corporation to the third party.

Ostensible authority can be established if: the corporation made a representation to the third party that the agent had authority to enter into a contract of the type sought to be enforced the representation was made by a person with actual authority to manage the company’s affairs in the matter the third party relied upon and was induced into the contract by the representation the company is not deprived by its constitution of the ability to enter into the contract or delegate authority an agent.

For example, the Board of Company A (who has actual authority) might say to a builder for a potential project – ‘B is running the show – he has our full confidence’. This representation leads the builder to believe B has authority to enter into building contracts with him and decides to enter into the relevant contracts with B because of this assurance.

Another example might be where an agent turns up equipped with business cards, receipts, letterheads and forms given to them by the company. By doing so, the company has cloaked the agent in ostensible authority which a third party has relied on. New Express: An agent's authority can be expressly determined. If an agreement specifies an agent's duties, an agent does not have authority to represent the principal beyond those duties. Implied: An agent's authority can be implied by custom. Custom is determined by the express duties of other agents in the same position. For example, a realty company hires a real estate agent. It is implied that the agent has authority to help third parties buy and sell homes since it is the custom among real estate agents. Qs 2 

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Companies do enter into contracts with another party. As companies are artificial person, such contracts are generally entered into by its authorized representatives, usually by the people in senior positions. Usually, well drafted agreements will have a clause like this:, Additionally, in the “representation clause”, often there is an explicit representation stating that the person signing has the authority to sign the agreement. Often the Board of directors will authorise either one of them or another person, generally a Legal counsel or VP/CXO level person to sign important agreements. The power to delegate or authorise will generally be provided in the articles of the company. Agreements which are low value or are part of everyday transaction may be signed by even a mid-level manager.

When you are signing an agreement, try to understand whether that person have authorisation. The principle of constructive notice, states that all person must be aware of what is written in the articles of the company. However, an exception to the rule is that of principle of indoor management, (also know as the Turquand rule) which states that persons dealing with a company need not inquire whether internal proceedings relating to the contract are followed correctly, once they are satisfied that the transaction is in accordance with the memorandum and articles of association. For example, the articles may say the board will authorise one of the board members in a meeting for signing the agreement. However, if not such meeting was held and agreement was signed by one of the board member, the agreement will be valid. On the contrary, if the agreement was signed by a mid-level manager, you may not have right against the company (unless the company itself has profited from the agreement)....