Source of Authority I
An agent may obtain his power and authority in a number of ways. Actual authority arises when the principal gives the agent powers in writing or verbally to bind him in relation to particular matters. The authority may be on such terms as may be provided. It may cover a certain type of transaction or matter, generally or on specific matters. The authority may be unconditional, or it may be subject to specified limitations and particular terms.
Apparent authority arises where the principal holds out another (the agent) or makes it appear that he has authority to act on its behalf. This is very common in practice. In this case, it is irrelevant whether the other (the agent) had actual authority.
If the principal leads third parties to believe that another has authority to act on his behalf, then the principal will be bound by that other’s acts within the scope of the apparent authority. The implication or representation must come from the principal or someone on his behalf. It must be made to the third party.
Source of Authority II
Usual authority is the authority a person customarily has in a particular position or role. For example, a managing director will usually have powers to manage the company’s business. A cashier in a shop will usually have authority to sell the goods which the shop sells.
The third-party customer is entitled to assume that the person in question has the requisite usual authority. If there are any secret or hidden limitations on his actual authority, they will not bound bind the third party.
In the case of express, implied or apparent authority, the agent’s authority to bind his principal will usually be for particular purposes. A cashier in a shop may have the authority to complete the sale of goods but is less likely to have authority to purchase stock. The law tries to accord with common sense expectations.
An agent has authority to bind his principal within the scope of his authority. Where there is no written or verbal appointment, the scope of the appointment and authority may be determined by implication. Even if there is a written appointment, the full scope of authority may not be set out and may follow from a common-sense view of the authority required to perform the relevant role.
The determination of the scope of an implied authority will involve consideration of any express authority granted, custom and practice in the relevant business and the previous relationship between the parties. Where a person is appointed an agent for a particular purpose or function, all incidental powers necessary for giving effect to that purpose or function will be implied.
The question may arise as to what is the usual authority of the person concerned. The custom and practice of the business concerned will be relevant. In the context of goods, it is common that the agent has authority to sell. In contrast, an estate agent is generally authorised to find a purchaser, but will rarely have authority to sign a contract for the sale of land.
Unlike when he acts as estate agent only, an auctioneer will usually have authority to knock down a property to the highest bidder and sign a sale contract. This authority arises from the instruction to put the property for auction.
There are common law rules which protect outsiders and third parties who deal in good faith with persons who appear to have authority on behalf of another person. The other person is commonly a legal person such as a company or a firm/ partnership. The company or partner may be bound by the acts of an individual, notwithstanding the lack of actual authority.
Although a person may not have actual authority, he may have apparent authority to enter transactions and otherwise bind his principal. No actual authority need exist.
Apparent authority is analogous to the principle of estoppel. This is the principle that a person who leads another to believe that a particular state of affairs exists and causes him to act in reliance on this belief to his detriment, (here, the principal) may be estopped from denying what he has represented to the extent necessary to do justice.
Where a principal or another on his behalf, makes an express or implied representation that another person, the apparent agent, has authority on his behalf and a third party relies on this representation, the principal will be bound by acts withing the scope of the agent’s apparent authority.
The principal must have led the third party to believe that the agent had authority. Where an agency arises in this manner, the third-party may enforce against the principal. However, the principal may not enforce against the third party unless he ratifies the agent’s acts.
The representation must emanate from the principal or from another person on his behalf. It may be based on words, written or spoken, or on conduct. It may arise from the agent being held out as having authority in a particular area.
The holding out may arise from a course of previous dealings between the parties. Custom and practice may inform the context.
The representation must be that of principal or someone else on his behalf. The agent’s representation that he is authorised is not sufficient. Another agent on behalf of the principal, such as a person at a senior level within a company, may have authority, actual or apparent, to hold out another as having actual or apparent authority on the company’s behalf.
When a company holds someone out as having authority, it must do so through its own agents, such as its officers or employees. The question may arise whether the person who holds out, has authority to hold out another.
The strict requirements for estoppel, by which the person must act to his detriment do not apply. However, the person dealing with the apparent agent must rely on the express or implicit representation, in order for the principle to apply. If the third party knows that the representation is incorrect, then he cannot have relied on it.
Breach of Authority
An agent who has usual or apparent authority in a particular role or context may have different express or implied actual authority or may have no authority at all. If there are unknown limitations on the agent’s actual or implied authority from the principal, then the principal may be nonetheless bound by the agent’s acts.
The third party who deals with the agent is not bound by non-apparent limitations on the agent’s authority, of which he was not aware. The agent who has usual and/ or apparent authority may thereby bind the principal.
Although the principal may be bound to the third party, there may be a breach of the contract between the principal and the agent. The agent may be liable to the principal for breach of contract. Where there is no contract, he may incur liability for loss caused to the principal by his acting in excess of his actual authority.
If an agent purports to act on behalf of the principal, even though he did not have authority, the principal may later ratify his acts. This is a retrospective confirmation of authority. It may occur where the agent had no authority or where he exceeded his authority.
The ratification and adoption of the transaction may take place explicitly or by implication. The ratified act must be valid. A void contract is a nullity and cannot be ratified.
The ratification must take place within a reasonable time. The principal must be aware of the relevant facts. The agent must have purported to have acted on behalf of the principal.
The principal must be aware of the relevant facts. The principle must be capable of being identified. If this was not a requirement, then a third party could simply take the benefit of a contract, by claiming to be an undisclosed principal. An unknown principal cannot ratify the contract.
Where ratification takes place, it cures any previous defect in authority. It may also follow that the agent is entitled to remuneration, to which he might not otherwise have been entitled.
The principal must exist at the time that the act was done. This requirement formerly caused difficulties in the case of actions undertaken on behalf of a yet unformed company. The Companies Act provides an exception to this rule, by permitting an unformed company to ratify later acts, purported to be entered on his behalf.
The principal must have the ability to enter the contracts concerned. Therefore, he/ it must not be a minor or a company whose powers are limited so that it is not entitled to undertake the action concerned.
There must be sufficient information to identify the principal. He need not be identified but must be capable of being ascertained.
Ratification must take place within a reasonable time. What is reasonable, depends on the circumstances. Generally, it must be before the contract is to be performed.
The principal must have full knowledge of the relevant circumstances when he ratifies the contract. It has been held that where a seller ratified a sale contract entered on his behalf in the absence of knowledge of a counteroffer, the ratification was flawed and was not binding.
Once ratified, the principal stands in a direct contractual relationship with the third party. He may sue and be sued. Any liability of the agent is extinguished. The agent may not be sued for breach of his warrant of authority nor may he be held liable for breach of actual authority. These are waived.
References and Sources
Commercial Law, Fidelma White 2nd Ed. Thomson Round Hall, Dublin, 2015.
Commercial Law Michael Forde, 3rd Ed Tottel, Haywards Heath, 2005
Principles of the Law of Agency Howard Bennett 2013,
Agency 3e: Law & Principles (3rd Revised Ed) Munday, Roderick;
Bowstead & Reynolds on Agency, 20th Ed. Professor Peter G. Watts
The Law of Agency Friedman