Deemed Authority
Cases
Nationwide Building Society v Lewis & Anor
[1998] EWCA Civ 337
Gibson LJ
“Mr Jackson challenges the judge’s reasoning on two grounds. First, he submits that there was no act by the plaintiff which could amount to the giving of credit by the plaintiff to the firm, at any rate after the contract of retainer was made. Second, he submits that there is no evidence that the plaintiff did anything on the faith of, or in reliance on, the representation that Mr Williams was a partner and the judge was wrong to presume such reliance. We did not hear argument on Mr Jackson’s first submission based on the meaning of “given credit” in section l4(l), as we indicated that as the plaintiff was not basing itself on section l4(l) alone and as the common law doctrine of estoppel by holding out was wider than section l4(l), it mattered not how the statutory language was construed. The position at common law seems to me to have been well expressed by Lord Esher MR in Re Fraser [l892] 2 Q.B. 633 at 637:
“The doctrine of ‘holding out’ is a branch of the doctrine of estoppel. If a man holds himself out as a partner in a firm, and thereby induces another person to act upon that representation, he is estopped as regards that person from saying that he is not a partner. The representation may be made either by acts or by words; but the estoppel can be relied upon only by the person to whom the representation has been made in either way, and who has acted upon the faith of it.”
I should also quote from Lynch v. Stiff (1943) 68 C.L.R. 428 a decision of the High Court of Australia on the Partnership Act l892 of New South Wales which contains precisely the same wording as section l4(l) of the Partnership Act l890. At page 435 this appears in the judgment of the court (Chief Justice Latham, Mr Justice Rich, Mr Justice McTiernan and Mr Justice Williams):
“The doctrine of holding out is a branch of the law of estoppel. So far as the element of action by the party relying upon an estoppel is concerned, it is sufficient if that party acts to his prejudice upon a representation made with the intention that it should be so acted upon, though it is not proved that in the absence of the representation he would not have so acted.”
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Mr Patten supports the judge’s reasoning. He submits that it can be presumed in the circumstances of this case that the plaintiff did act on the faith of, or on reliance on, the representation. He points out that the holding-out of Mr Williams as a partner was a continuous act. He submits that it is clear beyond doubt that it was the firm which the plaintiff retained. Mr Patten places particular reliance on the letter of l0th May, containing as it does the features to which I have already referred. In his skeleton argument he submitted that it was clear from authority that reliance on the doctrine of holding-out as a partner can be presumed.
For this proposition he referred to Hudgell Yeates & Co. v Watson [1978] Q.B. 45l. In that case a Mr Smith who was temporarily not qualified to act as a solicitor had been held out as a partner of the plaintiff firm of solicitors. The defendant, for whom the plaintiffs had acted in litigation sought, to resist a claim by the plaintiffs for their costs. His defence included the point that, although Mr Smith had not acted for him, his disqualification meant that there was a breach of the Solicitors Act l957, disentitling the plaintiffs from recovering their costs. That point failed, but there was some discussion by this court of the effect of Mr Smith being held out to be a partner. Lord Justice Megaw said at page 470:
“But what is the effect of a holding-out of someone as being a partner? A holding-out is relevant, and relevant only, as an estoppel. As it is put in Lindley on Partnership l3th ed. (l97l), p.l00:
´The doctrine that a person holding himself out as a partner, and thereby inducing others to act on the faith of his representations, is liable to them as if he were in fact a partner is nothing more than an illustration of the general principle of estoppel by conduct.’
For an estoppel to exist it is necessary to show, not only that there has been an unequivocal representation (here the holding-out), but also that the person seeking to assert an estoppel has acted on the faith of the representation: Freedman v. Cooke (l848) 2 Ex. 654. This requirement is stressed by Lord Blackburn in his speech in Scarf v. Jardine (l882) 7 App. Cas. 345, 357 where he says: ´I put rather an emphasis on those last words “against those who acted upon the faith that the authority continued.”‘”
Lord Justice Megaw then referred to the fact that the defendant could not say that he instructed the plaintiffs on the faith of the holding-out, nor that he suffered any detriment. Lord Justice Megaw continued at pages 470-1:
“So, though there was a holding-out – a continued holding- out – of Mr Smith as being a partner when he was not, there is no estoppel in favour of the defendant on the facts of this case. It is not that the defendant is estopped from alleging the holding-out. He is not. It is that the holding-out was irrelevant because the defendant’s own assertion as to his state of mind involves that he did not rely on it. We are not here concerned with any question as to the burden of proof, or as to presumptions, in relation to reliance on a holding-out. As the defendant did not rely upon the holding-out and as, in law, Mr Smith was not a partner, the partners in the new partnership, which had come into existence before the defendant gave his instructions, are not contaminated so as to lose their entitlement to profit costs for work done, not being work done by Mr Smith, by reason of any question of partnership between them and the temporarily unqualified Mr Smith.
We do not, therefore, have to consider what the position would have been if the defendant had, or was deemed to have, relied upon the holding-out of Mr Smith as a partner.”
Mr Patten fastened on the pre-penultimate and last sentences as suggesting a recognition by Lord Justice Megaw that reliance can be presumed.
Law and Another v. Robert Roberts & Co.
[1964] 1 I.R. 299
Kenny J.
The next issue is whether Hamilton & Hamilton had authority to make a contract binding on the defendants: I regard this as the most difficult issue in the case, particularly as the decided cases are difficult to reconcile and do not lay down any clear principle.
The first case dealing with the authority of an estate agent to make a contract for sale binding the person who retained him was Hamer v. Sharp (1). In that case the defendant had given the estate agent written instructions “to procure a purchaser” and had stated the price to him. The estate agent negotiated a sale and, without reference to the defendant, signed a receipt acknowledging payment on account of the purchase price. Two days afterwards the defendant informed the estate agent that he had no right or authority to sell the property and that he, the defendant, would not recognise the contract as binding on him. The Vice-Chancellor, Sir Charles Hall, said:The question is whether, when the owner of an estate puts it into the hands of an estate agent for sale, stating a price for and giving particulars of the property to enable him to inform intending purchasers, but giving no instructions as to the absolute disposal, and none as to the title of the property, and mentioning none of those special stipulations which it might be proper to insert in conditions in reference to the title, that is sufficient authority to the agent to sign a contract for the sale of the property for the price stated in the instructions, without making any provision whatsoever as to title. In considering whether the instructions of October, 1872, were a sufficient authority to the agent for that purpose, I cannot help expressing an opinion that such an authority to an agent on the part of a vendor would be highly imprudent, as the purchaser would then be entitled to require, on completion, attested copies of all documents of title, and the expense of them would swallow up, to a great extent, the purchase money. This estate agent must have known that if this property had been offered for sale by public auction there would have been conditions to guard the vendor against being subject to certain expenses, and to prevent the contract becoming abortive by reason of a purchaser requiring a strictly marketable title. Could he suppose that he was invested with authority to sign a contract without considering what it should contain as regards title? As an intelligent and well-informed person, he could not suppose that he was properly discharging his duty to his principal when he signed the contract which he signed: such a contract was not one within the scope of his authority to sign. If he had a right to enter into any contract at all, it was one of a different description, and on that ground alonethis being a bill for specific performance, and the Court having a discretionI hold that the alleged contract, if it be a contract, is not one which the Court will decree to be carried into effect.
Taking that view of the case, it is not necessary for me to decide the question of authority, but I nevertheless state my opinion to be, that when instructions are given to an agent to find a purchaser of landed property, he, not being instructed as to the conditions to be inserted in the contract as to title, is not authorised to sign a contract on the part of the vendor.”
Although the judgment of Sir Charles Hall has been referred to with approval in many of the subsequent cases, I have great difficulty in understanding the principle upon which it was based. In the earlier part of the judgment he seems to suggest that the estate agent had authority to sign a certain type of contract but that he had no right to sign an open contract. In the later part of the judgment he states that an estate agent who is not instructed as to the conditions to be inserted in the contract as to title, is not authorised to sign a contract on the part of the vendor. I think it unlikely that the authority of an estate agent to conclude a contract depends upon whether he is instructed about the conditions relating to title which are to be inserted in it.
In Wilde v. Watson (1), the owner authorised the estate agents to enter the premises on their books for private sale and he also placed them on the books of another house agent. The owner did not give any authority to the estate agents to make any binding contract for sale. The estate agents entered into a contract to sell the premises without consulting the owner. The Vice-Chancellor said (at. p. 405):A house or estate agent has no implied or general authority to conclude a contract for sale; his duty is to find a purchaser or tenant and communicate his offer to his principal. The judgment of Hall V.C., in Hamer v. Sharp (2), states his opinion of the authority of such agents, and I quite agree in his view. It is a common practice to place houses or estates on the books of a number of these agents at the same time, and if each had authority to conclude a contract for the owner the result would be, that he might become bound to let or sell the same premises to several different parties at the same instant.”
In Prior v. Moore (1), a decision of Kekewich J., an owner instructed an estate agent to put property on his books for sale and informed him of the lowest price he would accept. It was held that the estate agent was not authorised to sign a contract.
In Chadburn v. Moore (2), another decision of Kekewich J., the agent was authorised to find a purchaser and negotiate a sale and it was held that he had no authority to sign a binding contract.
In Saunders v. Dence (3) Field J. distinguished Hamer v.Sharp (4), saying:All that Hall V.C. in that case decided, as I understand it, was that if you go to an estate agent, and tell him you have property to sell, and that you want a purchaser, and you tell him what you have made up your mind shall be the price, and to a certain extent what shall be the conditions, and you instruct him to try and find a purchaser, that is not sufficient, under those circumstances, to authorise the agent to make a contract without any conditions whatever with regard to the title.”
In Rosenbaum v. Belson (5), a decision of Buckley J., an owner had signed a document requesting estate agents to sell a number of his houses. The estate agents obtained an offer and told the owner of it. He, however, was not prepared to accept the offer and increased the price at which they might sell. The owner then wrote a letter to them agreeing to accept their client’s offer of £785. They then made an agreement with the purchaser and it was held that the owner was bound. In that case it will be noted that the owner had agreed to accept an offer made and had told the estate agents this, In the course of his judgment Buckley J. said:I have been unable to find any case in which it has been held that instructions given by A.B. to sell for him his house and an agreement to pay so much on the purchase price accepted are not an authority to make a binding contract including an authority to sign an agreement.” In addition Buckley J. found as a fact that the estate agents had told the owner that they would sign a contract in exchange for the payment of a deposit and that he had assented to that.
In Lewcock v. Bromley (6) the estate agent had been given authority to find a purchaser and Sargant J. said that a general authority to find a purchaser for a house does not authorise the agent to sign a contract binding on the vendor.
In Allen & Co., Ltd. v. Whiteman (7) the estate agents communicated to the owner an offer which they had received. They were instructed to make an offer of the property to the proposing purchaser who agreed to buy at this price. Eve J. held that the estate agents had authority to enter into the contract.
In Keen v. Mear (1), Russell J. said (at p. 579): Hamerv. Sharp (2); Wilde v. Watson (3); Chadburn v. Moore (4); Rosenbaum v. Belson (5) and Thuman v. Best (6) were cited to me. The result of those cases is, in my opinion, this: that the mere employment by an owner of an estate agent to dispose of a house confers no authority to make a contract; the agent is solely employed to find persons to negotiate with the owner; but, if the agent is definitely instructed to sell at a defined price, those instructions involve authority to make a binding contract and to sign an agreement.” Russell J. held, however, that the only authority given to the agent was to make an open contract and that as the contract contained special conditions as to title the agent had no authority to make it. It is impossible to reconcile the views expressed by Russell J. with those of Sir Charles Hall in Hamer v. Sharp (2)as to the authority of an agent to sign an open contract.
In Carney v. Fair (7), there were negotiations for sale and a notification to an agent that the owner would accept a purchaser at a sum named. It was held that this did not give the agent authority to conclude a contract.
In Roony v. Thomas (8), the estate agent had authority to negotiate only and Gavan Duffy P. held that this did not confer an authority to sign a contract.
In Wragg v. Lovett (9), the High Court Judge held that a firm of estate agents had authority to make the agreement. The Court of Appeal accepted the judge’s finding on the authority of the estate agent. They held that the defendant was satisfied to allow the estate agents to make whatever contract they thought best and relied on them to protect his interests. In his judgment, Lord Greene M.R. said (at p. 969):While accepting the learned judge’s conclusion upon the particular facts of this case, we must not be understood as suggesting that when a vendor merely authorises a house agent to ‘sell’ at a stated price he must be taken to be authorising the agent to do more than agree with an intending purchaser the essential (and, generally, the most essential) term, i.e., the price. The making of a contract is no part of an estate agent’s business, and, although, on the facts of an individual case, the person who employs him may authorise him to make a contract, such an authorisation is not lightly to be inferred from vague or ambiguous language.” Lord Greene then discussed the question whether the authority of an estate agent to sign a contract is limited to signing an open contract and said that it was not necessary to decide that matter. It would appear that the only case cited to the Court of Appeal was Keen v. Mear (1).
These cases seem to justify the following propositions:
1, When a contract for sale is made between a purchaser and an estate agent retained by the owner, the onus of proving that the estate agent had authority to make the contract is on the purchaser.
2, An estate agent as such has no implied authority to conclude a contract for sale.
3, An owner who puts his property on the books of an estate agent and authorises him to find a purchaser and to negotiate a sale does not thereby authorise him to conclude a contract.
4, An owner who puts his property on the books of an estate agent and informs him of the lowest price which he will accept does not thereby authorise him to conclude a contract.
5, An estate agent who is instructed to sell at a defined price has authority to conclude a contract for sale at that defined price if the contract is an open contract.
6, An estate agent may be expressly authorised to accept on behalf of the owner an offer made to the agent and, in that event, has authority to conclude a contract.
7, If an offer is made to an estate agent and if he communicates it to the owner and is authorised to accept it or if the owner states that he will accept it, the agent has authority to make an open contract with the purchaser.
Hely-Hutchinson v Brayhead Ltd
[1967] 1 QB 549
Lord Denning MR.
“I need not consider at length the law on the authority of an agent, actual, apparent, or ostensible. That has been done in the judgments of this court in Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd.[1] It is there shown that 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 number to be managing director. They thereby impliedly authorise him to do all such things as fall within the usual scope of that office. Actual authority, express or implied, is binding as between the company and the agent, and also as between the company and others, whether they are within the company or outside it.
Ostensible or apparent authority is the authority of an agent as it appears to others. It often coincides with actual authority. Thus, when the board appoint one of their number to be managing director, they invest him not only with implied authority, but also with ostensible authority to do all such things as fall within the usual scope of that office. Other people who see him acting as managing director are entitled to assume that he has the usual authority of a managing director. But sometimes ostensible authority exceeds actual authority. For instance, when the board appoint the managing director, they may expressly limit his authority by saying he is not to order goods worth more than £500 without the sanction of the board. In that case his actual authority is subject to the £500 limitation, but his ostensible authority includes all the usual authority of a managing director. The company is bound by his ostensible authority in his dealings with those who do not know of the limitation. He may himself do the “holding-out.” Thus, if he orders goods worth £1,000 and signs himself “Managing Director for and on behalf of the company,” the company is bound to the other party who does not know of the £500 limitation, see British Thomson-Houston Co Ltd v Federated European Bank Ltd.,[2] which was quoted for this purpose by Pearson L.J. in Freeman & Lockyer. Even if the other party happens himself to be a director of the company, nevertheless the company may be bound by the ostensible authority. Suppose the managing director orders £1,000 worth of goods from a new director who has just joined the company and does not know of the £500 limitation, not having studied the minute book, the company may yet be bound. Lord Simonds in Morris v Kanssen,[3] envisaged that sort of case, which was considered by Roskill J. in the present case.
Apply these principles here. It is plain that Mr. Richards had no express authority to enter into these two contracts on behalf of the company: nor had he any such authority implied from the nature of his office. He had been duly appointed chairman of the company but that office in itself did not carry with it authority to enter into these contracts without the sanction of the board. But I think he had authority implied from the conduct of the parties and the circumstances of the case. The judge did not rest his decision on implied authority, but I think his findings necessarily carry that consequence. The judge finds that Mr. Richards acted as de facto managing director of Brayhead. He was the chief executive who made the final decision on any matter concerning finance. He often committed Brayhead to contracts without the knowledge of the board and reported the matter afterwards. The judge [Roskill J] said:
“I have no doubt that Mr. Richards was, by virtue of his position as de facto managing director of Brayhead or, as perhaps one might more compendiously put it, as Brayhead’s chief executive, the man who had, in Diplock L.J.’s words, ‘actual authority to manage,’ and he was acting as such when he signed those two documents.”
and later he said:
“the board of Brayhead knew of and acquiesced in Mr. Richards acting as de facto managing director of Brayhead.”
The judge held that Mr. Richards had ostensible or apparent authority to make the contract, but I think his findings carry with it the necessary inference that he had also actual authority, such authority being implied from the circumstance that the board by their conduct over many months had acquiesced in his acting as their chief executive and committing Brayhead Ltd to contracts without the necessity of sanction from the board.”
Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd
[1964] 2 QB 480
Diplock LJ
“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 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 contractor. It may be that this rule relating to “undisclosed principals,” which is peculiar to English law, can be rationalized as avoiding circuity of action, for the principal could in equity compel the agent to lend his name in an action to enforce the contract against the contractor, and would at common law be liable to indemnify the agent in respect of the performance of the obligations assumed by the agent under the contract.
An “apparent” or “ostensible” authority, on the other hand, is a legal relationship between the principal and the contractor created by a representation, made by the principal to the contractor, intended to be and in fact acted upon by the contractor, that the agent has authority to enter on behalf of the principal into a contract of a kind within the scope of the “apparent” authority, so as to render the principal liable to perform any obligations imposed upon him by such contract. To the relationship so created the agent is a stranger. He need not be (although he generally is) aware of the existence of the representation but he must not purport to make the agreement as principal himself. The representation, when acted upon by the contractor by entering into a contract with the agent, operates as an estoppel, preventing the principal from asserting that he is not bound by the contract. It is irrelevant whether the agent had actual authority to enter into the contract.
In ordinary business dealings the contractor at the time of entering into the contract can in the nature of things hardly ever rely on the “actual” authority of the agent. His information as to the authority must be derived either from the principal or from the agent or from both, for they alone know what the agent’s actual authority is. All that the contractor can know is what they tell him, which may or may not be true. In the ultimate analysis he relies either upon the representation of the principal, that is, apparent authority, or upon the representation of the agent, that is, warranty of authority.
The representation which creates “apparent” authority may take a variety of forms of which the commonest is representation by conduct, that is, by permitting the agent to act in some way in the conduct of the principal’s business with other persons. By so doing the principal represents to anyone who becomes aware that the agent is so acting that the agent has authority to enter on behalf of the principal into contracts with other persons of the kind which an agent so acting in the conduct of his principal’s business has usually “actual” authority to enter into.
In applying the law as I have endeavored to summarise it to the case where the principal is not a natural person, but a fictitious person, namely, a corporation, two further factors arising from the legal characteristics of a corporation have to be borne in mind. The first is that the capacity of a corporation is limited by its constitution, that is, in the case of a company incorporated under the Companies Act, by its memorandum and articles of association; the second is that a corporation cannot do any act, and that includes making a representation, except through its agent.
Under the doctrine of ultra vires the limitation of the capacity of a corporation by its constitution to do any acts is absolute. This affects the rules as to the “apparent” authority of an agent of a corporation in two ways. First, no representation can operate to estop the corporation from denying the authority of the agent to do on behalf of the corporation an act which the corporation is not permitted by its constitution to do itself. Secondly, since the conferring of actual authority upon an agent is itself an act of the corporation, the capacity to do which is regulated by its constitution, the corporation cannot be estopped from denying that it has conferred upon a particular agent authority to do acts which by its constitution, it is incapable of delegating to that particular agent.
To recognize that these are direct consequences of the doctrine of ultra vires is, I think, preferable to saying that a contractor who enters into a contract with a corporation has constructive notice of its constitution, for the expression “constructive notice” tends to disguise that constructive notice is not a positive, but a negative doctrine, like that of estoppel of which it forms a part. It operates to prevent the contractor from saying that he did not know that the constitution of the corporation rendered a particular act or a particular delegation of authority ultra vires the corporation. It does not entitle him to say that he relied upon some unusual provision in the constitution of the corporation if he did not in fact so rely.
The second characteristic of a corporation, namely, that unlike a natural person it can only make a representation through an agent, has the consequence that in order to create an estoppel between the corporation and the contractor, the representation as to the authority of the agent which creates his “apparent” authority must be made by some person or persons who have “actual” authority from the corporation to make the representation. Such “actual” authority may be conferred by the constitution of the corporation itself, as, for example, in the case of a company, upon the board of directors, or it may be conferred by those who under its constitution have the powers of management upon some other person to whom the constitution permits them to delegate authority to make representations of this kind. It follows that where the agent upon whose “apparent” authority the contractor relies has no “actual” authority from the corporation to enter into a particular kind of contract with the contractor on behalf of the corporation, the contractor cannot rely upon the agent’s own representation as to his actual authority. He can rely only upon a representation by a person or persons who have actual authority to manage or conduct that part of the business of the corporation to which the contract relates.
The commonest form of representation by a principal creating an “apparent” authority of an agent is by conduct, namely, by permitting the agent to act in the management or conduct of the principal’s business. Thus, if in the case of a company the board of directors who have “actual” authority under the memorandum and articles of association to manage the company’s business permit the agent to act in the management or conduct of the company’s business, they thereby represent to all persons dealing with such agent that he has authority to enter on behalf of the corporation into contracts of a kind which an agent authorized to do acts of the kind which he is in fact permitted to do usually enters into in the ordinary course of such business. The making of such a representation is itself an act of management of the company’s business. Prima facie it falls within the “actual” authority of the board of directors, and unless the memorandum or articles of the company either make such a contract ultra vires the company or prohibit the delegation of such authority to the agent, the company is estopped from denying to anyone who has entered into a contract with the agent in reliance upon such “apparent” authority that the agent had authority to contract on behalf of the company.
If the foregoing analysis of the relevant law is correct, it can be summarized 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:
(1) 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;
(2) 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;
(3) that he (the contractor) was induced by such representation to enter into the contract, that is, that he in fact relied upon it; and
(4) that under its memorandum or articles of association the company was not deprived of the capacity either to enter into a contract of the kind sought to be enforced or to delegate authority to enter into a contract of that kind to the agent.
The confusion which, I venture to think, has sometimes crept into the cases is in my view due to a failure to distinguish between these four separate conditions, and in particular to keep steadfastly in mind (a) that the only “actual” authority which is relevant is that of the persons making the representation relied upon, and (b) that the memorandum and articles of association of the company are always relevant (whether they are in fact known to the contractor or not) to the questions (i) whether condition (2) is fulfilled, and (ii) whether condition (4) is fulfilled, and (but only if they are in fact known to the contractor) may be relevant (iii) as part of the representation on which the contractor relied…
Allied Pharmaceutical Distributors Ltd. v. Walsh
[1991] 2 I.R.17
Barron J.
“The deposits were obtained by Mr. Walsh while a partner in the defendant firm. The defendants submit that the ordinary business of the firm did not include giving investment advice. I accept the defendants’ submission that the firm does not give investment advice and that if a client wanted such advice it would introduce him or her to a stockbroker or merchant banker. The question does not depend for its answer on whether or not the firm gave investment advice. The question to be answered is whether in doing what he did Mr. Walsh was carrying out the ordinary business of the partnership. It was clearly the ordinary business of the partnership to allow one of its number to be a director and even a chairman of a board of directors of a client company. It was the ordinary business of the partnership to allow an individual partner in such a position to take deposits from client companies for his own private company. It was equally the ordinary business of the partnership that such partner having such positions in client companies should make decisions directing client companies how to apply their monies. Taking these factors into account it seems to me that what Mr. Walsh was doing when deciding to direct the making of the deposits with Thorndene was something done within the ordinary business of the partnership.
Nevertheless it is essential that there should have been a representation by the partnership to the plaintiff that such conduct had its approval. The representation does not have to be made in writing or even orally. It is sufficient if it is made by conduct which is the normal way in which an ostensible authority is established. Here the defendant firm was also the auditor of the plaintiff. As such it would have had to have been aware of the transactions with Thorndene. At no time did it suggest to the plaintiff that there was anything unusual or improper in making the deposits. There was nothing to suggest to the plaintiff that it should not effect similar transactions in future. In my view, the absence of any comment from the defendant firm was a sufficient representation by conduct that Mr. Walsh had the authority of the defendants to direct the making of such deposits.
Kett v. Shannon [1987] I.L.R.M. 364 is a case of principal and agent. In my view the position is stronger when the alleged agency arises between partners. The basis of partnership is mutual trust between the partners. When one partner is put into a position of trust with a client in my view that alone is a representation that the partnership trusts that partner and will stand over whatever he does.
….
The defendants have submitted that the taking of the deposits was clearly an independent transaction and one having no connection with his position as financial adviser to the plaintiff. I cannot accept that submission. What he did, he did in his position as a financial adviser to the plaintiff. In so doing he owed the plaintiff a duty of care. Having regard to the financial state of Thorndene at the material times, he ought not to have directed such deposits and in so doing was in breach of his duty of care to the plaintiff. This case has been put forward by the plaintiff as one in which an honest adviser directed the plaintiff to make the particular deposit. This has not been contested. As I pointed out during the course of the hearing no suggestion was being made by either party that the actions of Mr. Walsh were dishonest in any way. I should add that neither Mr. Walsh nor his secretary gave evidence and that therefore a decision of the court as to the involvement of the partnership has had to be made in the absence of what is in effect the most relevant evidence. I am satisfied that the defendant partnership is liable for this breach of duty on the part of Mr. Walsh for the reasons and also on the bases which I have indicated.
Armagas Ltd v Mundogas (The Ocean Frost)
[1985] UKHL 11 [1986] AC 717, [1986] 1 AC 717
Lord Keith House of Lords
“Upon the issue of Mr. Magelssen’s authority to conclude the three year charterparty on behalf of Mundogas, counsel for Armagas accepted that he did not have actual or ostensible general authority to enter into contracts of such an onerous character, but argued that he had ostensible specific authority to enter into this particular contract. Ostensible authority comes about where the principal, by words or conduct, has represented that the agent has the requisite actual authority, and the party dealing with the agent has entered into a contract with him in reliance on that representation. The principle in these circumstances is estoppel from denying that actual authority
existed. In the commonly encountered case, the ostensible authority is general in character, arising when the principal has placed the agent in a position which in the outside world is generally regarded as carrying authority to enter into transactions of the kind in question. Ostensible general authority may also arise where the agent has had a course of dealing with a particular contractor and the principal has acquiesced in this course of dealing and honoured transactions arising out of it.
Ostensible general authority can, however, never arise where the contractor knows that the agent’s authority is limited so as to exclude entering into transactions of the type in question, and so cannot have relied on any contrary representation by the principal: Russo-Chinese Bank v. Li Yau Sam [1910] AC 174.
It is possible to envisage circumstances which might give rise to a case of ostensible specific authority to enter into a particular transaction, but such cases must be very rare and unusual. Ex hypothesi the contractor knows that the agent has no general authority to enter into the transaction, as was the position here. The principal might conceivably inform the contractor that, in relation to a transaction which to the contractor’s knowledge required the specific approval of the principal, he could rely on the agent to enter into the transaction only if such approval had been given. In such a situation, if the agent entered into the transaction without approval, the principal might be estopped from denying that it had been given. But it is very difficult to envisage circumstances in which the estoppel could arise from conduct only in relation to a one-off transaction such as this one was.
……………….
But no representation by Mr. Magelssen can help Armagas.They must be in a position to found upon some relevant representation by the responsible management of Mundogas as to Mr. Magelssen’s authority: Freeman & Lockyer v. Buckhurst Park Properties (Mangal) Ltd. [1964] 2 Q.B. 480, 505 per Diplock L.J.
…………… The broad proposition of law founded upon is that an employer is vicariously liable for the torts of his employee committed in the course of his employment. “Course of employment” is a concept which has engendered much disputation and spawned a plethora of reported decisions. The starting point should be to consider the fundamental principles which govern vicarious liability in the field of intentional wrongdoing by the servant, particularly by way of dishonest conduct. It is unnecessary to consider the development of the basis of vicarious liability in relation to torts such as negligence or trespass, which has followed a somewhat different line. Dishonest conduct is of a different character from blundering attempts to promote the employer’s business interests, involving negligent ways of carrying out the employee’s work or excessive zeal and errors of judgment in the performance of it. Dishonest conduct perpetrated with no intention of benefiting the employer but solely with that of procuring a personal gain or advantage to the employee is governed, in the field of vicarious liability, by a set of principles and a line of authority of peculiar application. The genesis of these principles is to be found in the statement of Holt C.J. in Hern v. Nichols (1700) 1 Salk 289: “Seeing somebody must be a loser, by this deceit, it is more reason that he that employs and puts a trust and confidence in the deceiver should be a loser than a stranger.” In Lickbarrow v. Mason (1787) 2 Term Rep. 63, 70, Ashhurst J. spoke to similar effect: “That, whenever one of two innocent persons must suffer by the acts of a third, he who has enabled such third person to occasion the loss must sustain it.” These broad statements do, however, fall to be confined within the limits that justice truly requires. In Farquarson Brothers. & Co. v. C. King & Co. [1902] A.C. 325, 342 Lord Lindley observed that the doctrine enunciated by Ashhurst J. was far too wide. “So far as I know, the doctrine has never been judicially applied where nothing has been done by one of the innocent parties which has in fact misled the other.” That was a case where the issue was estoppel by ostensible authority, a fraudulent clerk in the employment of the plaintiffs having procured a purported sale of their timber to the defendants, the value of which the plaintiffs sought to recover. But the question of ostensible authority in. the contractual field is closely intertwined with that of vicarious liability for the fraud of a servant. Then in Slingsby v. District Bank Ltd. [1932] 1 K.B. 544, 560, Scrutton L.J., under reference to the passage quoted from Lord Lindley, explained “enabling” in the dictum of Ashhurst J. as meaning that the employer has in some way held out or represented the servant as having authority to do the acts complained of. It is well settled that a master is not liable for the dishonest tort of his servant merely because the latter’s employment has given him the opportunity to commit it: Morris v. C. W. Martin & Sons Ltd. [1966] 1 Q.B. 716 per Diplock L.J. at 737.The leading case in this field is Lloyd v. Grace, Smith & Co. [1912] AC 716, the facts of which are too well known to require recapitulation. The proposition established by that case is epitomized in the speech of Earl Loreburn at p. 725:
“If the agent commits the fraud purporting to act in the course of business such as he wasauthorised, or held out as authorised, to transact on account of his principal, then the latter may be held liable for it.
Lord Shaw of Dunfermline said at pp. 739-740: “The case is in one respect the not infrequent one of a situation in which each of two parties has been betrayed or injured by the fraudulent conduct of a third. I look upon it as a familiar doctrine as well as a safe general rule, and one making for security instead of uncertainty and insecurity in mercantile dealings, that the loss occasioned by the fault of a third person in such circumstances ought to fail upon the one of the two parties who clothed that third person as agent with the authority by which he was enabled to commit the fraud.”
Later he equiparates ostensible authority with actual authority. The principal importance of the case lies in its having dispelled misunderstanding of certain observations by Willes J. in Barwick v. English Joint Stock Bank (1867) L.R. 2 Ex. 259, and having established that it is not necessary to a master’s liability for the fraud of his servant that the fraud should have been committed for the master’s benefit. It was argued for Armagas that in Lloyd v. Grace, Smith & Co. the fraudulent clerk was not acting within the scope of his actual or ostensible authority but was acting in the course of his employment, and that it was the latter which made the employer liable. In the present case, so it was maintained, Mr. Magelssen was acting in the course of his employment though not within the scope of his actual or ostensible authority, so Mundogas was liable. In my opinion the attempted distinction has no validity in this category of case. Lord Macnaghten, in Lloyd v. Grace, Smith & Co. [1912] AC 716, 736, regarded the two expressions as meaning one and the same thing. The essential feature for creating liability in the employer is that the party contracting with the fraudulent servant should have altered his position to his detriment in reliance on the belief that the servant’s activities were within his authority, or, to put it another way, were part of his job, this belief having been induced by the master’s representations by way of words or conduct. In Uxbridge Permanent Benefit Building Society v. Pickard [1939] 2 K.B. 248, 254-255, Sir Wilfrid Greene M.R., rejecting the argument that the actings of the fraudulent solicitors’ clerk who had induced the building society to advance money to a non-existent client, were analogous to “a frolic of his own” said:
“With all respect to that argument, I cannot accept it. It appears to me to be drawing an analogy where no analogy exists, because in the case of the servant who goes off on a frolic of his own, no question arises of any actual or ostensible authority upon the faith of which some third person is going to change his position. The very essence of the present case is that the actual authority and the ostensible authority to Conway were of a kind which, in theordinary course of an everyday transaction, were going to lead third persons, on the faith of them, to change their position, just as a purchaser from an apparent client or a mortgagee lending money to a client is going to change his position by being brought into contact with that client. That is within the actual and ostensible authority of the clerk.”
.
Many other cases were cited, but none of them, in my view, provides any further certain guidance. In the end of the day the question is whether the circumstances under which a servant has made the fraudulent misrepresentation which has caused loss to an innocent party contracting with him are such as to make it just for the employer to bear the loss. Such circumstances exist where the employer by words or conduct has induced the injured party to believe that the servant was acting in the lawful course of the employer’s business. They do not exist where such belief, although it is present, has been brought about through misguided reliance on the servant himself, when the servant is not authorised to do what he is purporting to do, when what he is purporting to do is not within the class of acts that an employee in his position is usually authorised to do, and when the employer has done nothing to represent that he is authorised to do it.”
First Energy (UK) Ltd v Hungarian International Bank Ltd
24 February 1993
LORD JUSTICE STEYN said a theme that ran through the law of contract was that the reasonable expectations of honest men must be protected. It was not a rule or principle of law. But if the prima facie solution to a problem ran counter to reasonable expectations of honest men, this criterion sometimes required a rigorous re-examination of the problem to ascertain whether the law did compel demonstrable unfairness.
In the present case, if their Lordships were to accept the implications which the defendant had placed on observations of the House of Lords in Armagas Ltd v Mundogas SA (1986) 1 AC 717, it would frustrate the reasonable expectations of the parties.
The plaintiff’s case was that the defendant’s agent, while not authorised to enter into the transaction, did have ostensible authority to communicate his head office’s approval of the financing facility. He had sent the plaintiff a letter to this effect, which the judge held amounted to an offer capable of acceptance by the plaintiff.
The law recognised that in modern commerce an agent who had no apparent authority to conclude a particular transaction might sometimes be clothed with apparent authority to make representations of fact.
A decision that the agent did not have such authority would defeat the reasonable expectation of the parties. It would also fly in the face of the way in which in practice negotiations were conducted between trading banks and trading customers who sought commercial loans.
LORD JUSTICE NOURSE and LORD JUSTICE EVANS concurred.
Watteau v Fenwick
[1893] 1 QB 346
Lord Coleridge, C.J. The judgment which I am about to read has been written by my brother Wills, and I entirely concur in it.
WILLS, J. The plaintiff sues the defendants for the price of cigars supplied to the Victoria Hotel, Stockton-upon-Tees. The house was kept, not by the defendants, but by a person named Humble, whose name was over the door. The plaintiff gave credit to Humble, and to him alone, and had never heard of the defendants. The business, however, was really the defendants’, and they had put Humble into it to manage it for them, and had forbidden him to buy cigars on credit. The cigars, however, were such as would usually be supplied to and dealt in at such an establishment. The learned county court judge held that the defendants were liable. I am of opinion that he was right.
There seems to be less of direct authority on the subject than one would expect. But I think that the Lord Chief Justice during the argument laid down the correct principle, viz., once it is established that the defendant was the real principal, the ordinary doctrine as to principal and agent applies – that the principal is liable for all the acts of the agent which are within the authority usually confided to an agent of that character, notwithstanding limitations, as between the principal and the agent, put upon that authority. It is said that it is only so where there has been a holding out of authority-which cannot be said of a case where the person supplying the goods knew nothing of the existence of a principal. But I do not think so. Otherwise, in every case of undisclosed principal, or at least in every case where the fact of there being a principal was undisclosed, the secret limitation of authority would prevail and defeat the action of the person dealing with the agent and then discovering that he was an agent and had a principal.
But in the case of a dormant partner it is clear law that no limitation of authority as between the dormant and active partner will avail the dormant partner as to things within the ordinary authority of a partner. The law of partnership is, on such a question, nothing but a branch of the general law of principal and agent, and it appears to me to be undisputed and conclusive on the point now under discussion.
The principle laid down by the Lord Chief Justice, and acted upon by the learned county court judge, appears to be identical with that enunciated in the judgments of Cockburn, C.J., and Mellor, J., in Edmunds v. Bushell (1), the circumstances of which case, though not identical with those of the present, come very near to them. There was no holding out, as the plaintiff knew nothing of the defendant. I appreciate the distinction drawn by Mr. Finlay in his argument, but the principle laid down in the judgments referred to, if correct, abundantly covers the present case. I cannot find that any doubt has ever been expressed that it is correct, and I think it is right, and that very mischievous consequences would often result if that principle were not upheld.
In my opinion this appeal ought to be dismissed with costs.”
Brennan v. O’Connell
[1980] 1 I.R. 17
Henchy J. S.C.
“The central point in this appeal is whether the failure of Mr. Byrne to inform the defendants of Mr. Moloney’s telephone conversation was a non disclosure which prevented the defendants’ assent to a sale to the plaintiff from being a ratification of the written contract entered into by Mr. Byrne and the plaintiff on the 13th October, 1972.
Before a principal can be held to have ratified a contract made on his behalf by his agent, the principal must be made aware of all the material facts on which the contract is founded; that is well-established law. This stands to reason, for clearly it would be unfair to hold a man bound by the obligations of a contract made on his behalf if he was debarred by lack of factual information from being able to assess what a ratification would let him in for. The nature of the information that must be made available to the principal depends on the circumstances of the particular case. In the instance of a vendor and an estate agent, the vendor should not be held to have ratified a contract for sale which the estate agent has purported to make on his behalf unless the vendor is made aware of all facts in the knowledge of the estate agent which, in the particular circumstances and without the benefit of hindsight, could objectively be said to have been necessary to enable the vendor to decide if he should assent to the sale. ……….
…………….
The contract of agency should expressly, or by necessary implication, authorise the property owner to do so before he can avoid an otherwise valid ratification by relying on non-disclosure of a circumstance which, according to ordinary business standards, could not be said to be material to a decision to accept or reject a particular offer. No such term can be read into the agency here. As the mere fact that someone had made an inquiry about the terms on which the property might be sold could not, without more, be held to be a consideration which might be expected in the ordinary course of business to affect a decision to assent to an otherwise acceptable offer, the non-disclosure of that inquiry cannot be held to avoid the ratification.
The effect of the ratification is that Mr. Byrne is to be deemed to have had authority to make on behalf of the defendants the open contract in writing which he made on the 13th October, 1972: see Law v. Robert Roberts & Co. 1 The plaintiff is entitled to specific performance of that contract.
Therefore, I would dismiss this appeal.
Helen Kett v Richard Shannon and Michael English
Supreme Court
21 March 1986
[1987] I.L.R.M. 364
HENCHY J
(Griffin and Hederman JJ concurring) delivered his judgment on 21 March 1986 saying: The defendant Michael English (‘the vendor’) owns a garage. In 1979 he sold a secondhand Fiat motor car to a man called Richard Shannon (‘the purchaser’). The car proved to be mechanically defective, so the vendor took it back to his garage to have it repaired, leaving a Renault motor car with the purchaser as a temporary replacement until the Fiat was put right. The purchaser had the use of the Renault for a few days and was then told to bring it back, as it had by then been sold by the vendor to someone else.
The purchaser called to the garage with the Renault. The vendor was not there. In fact the only person he found there was a Mr Toomey, a mechanic (‘the mechanic’). He enquired of him if the Fiat was ready. He was told that it would be ready that evening. The purchaser said that he needed a car immediately. To oblige him, the mechanic let him have the loan of a Mini motor car which was standing in the garage. The purchaser drove off in the Mini.
That was on a Friday. On the following Sunday the purchaser, driving the Mini, negligently collided with the plaintiff as she was walking on the public road and she suffered very severe injuries. The accident was entirely due to the purchaser’s negligence. She brought a claim for damages in the High Court against both the purchaser and the vendor—against the purchaser as the driver and against the vendor on the footing that the purchaser was driving as his servant or agent.
The plaintiff’s claim against the purchaser has been settled for £ 42,500, but alas his driving of the Mini was not covered by insurance. The question in this case is whether she is confined to recovering damages under the Motor Insurance Bureau scheme or whether she can recover against the vendor’s insurers.
The plaintiff got a trial, as a separate issue before a judge and jury in the High Court, of the question whether at the time of the accident the purchaser was driving with the consent of the vendor. The jury answered ‘Yes’ to that question. The result, by reason of the terms of s. 118 of the Road Traffic Act 1961, is that the purchaser is to be deemed to have been using the Mini as the agent of the vendor, so the latter (or, properly speaking, his insurance company) would be vicariously liable for the plaintiff’s damages if that finding stands. However, the vendor has brought this appeal to have that finding set aside.
The net question is whether the mechanic was acting as agent for the vendor when he allowed the purchaser to take the Mini. Put otherwise, the question is whether the vendor had given authority to the mechanic to lend the Mini to the purchaser.
In the law of agency a distinction is drawn between actual (or real) authority and ostensible (or apparent) authority. Actual authority exists when it is based on an actual agreement between the principal and the agent. In this case the uncontradicted evidence of both the vendor and the mechanic was that the vendor had never authorised the mechanic to lend a car to a customer. So it is clear that the mechanic was without actual authority to lend the Mini to the purchaser.
Ostensible authority, on the other hand, derives not from any consensual arrangement between the principal and the agent, but is founded on a representation made by the principal to the third party which is intended to convey, and does convey, to the third party that the arrangement entered into under the apparent authority of the agent will be binding on the principal. It is agency of this kind that is contended for by the plaintiff and the purchaser.
It is a contention which I fear cannot be sustained in the particular circumstances of this case. The essence of ostensible authority is that it is based on a representation by the principal (the vendor) to a third party (the purchaser) that the alleged agent (the mechanic) had authority to bind the principal by the transaction he entered into. Such a representation, however, was absent in this case.
The law on ostensible or apparent authority is fully and illuminatingly dealt with by Diplock LJ in Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480. Having referred to that judgment, Robert Goff LJ in Armagas Ltd v Mundogas SA [1985] 3 All ER 1795 says:
It appears, from that judgment, that ostensible authority is created by a representation by the principal to the third party that the agent has the relevant authority, and that the representation, when acted on by the third party, operates as an estoppel, precluding the principal from asserting that he is not bound. The representation which creates ostensible authority may take a variety of forms, but the most common is a representation by conduct, by permitting the agent to act in some way in the conduct of the principal’s business with other persons, and thereby representing that the agent has the authority which an agent so acting in the conduct of his principal’s business usually has (at p. 804).
I have no doubt that in the eyes of the purchaser the mechanic had ostensible authority to lend him the Mini. But that is not enough to create ostensible authority in the law of agency. There should have been a representation of some kind by the vendor to the purchaser that the mechanic had authority to lend the Mini. On that aspect of the case the facts are clear and unequivocal. There was no representation of any kind by the vendor to the purchaser in regard to the mechanic. The mechanic was one of four or five mechanics who worked in the garage. When the purchaser called to return the Renault, this mechanic happened to be the only member of the staff on the premises. He took it on himself to lend the purchaser the Mini. He had no authority from the vendor to do so. And there is not the slightest suggestion in the evidence that the vendor had by word or deed represented to the purchaser that the mechanic was authorised to lend the Mini. I must therefore hold that in lending the Mini to the purchaser the mechanic was not the vendor’s agent. At the time of the accident, therefore, the purchaser was not driving with the vendor’s consent, so he cannot be classified as the servant or agent of the vendor. That means that he cannot be held liable for the purchaser’s negligent driving.
I would allow this appeal and hold that the application of counsel for the vendor made in the High Court to have the issue being tried withdrawn from the jury should have succeeded.
Rooney v Fielden
Circuit Case.
22 April 1899
[1899] 33 I.L.T.R 100
Palles C.B.
Downpatrick and Dublin, April 22, 1899
Palles, C.B.
It appears to me that the law on this question has been settled since the decision in Brady v. Todd in 1861, and Brooks v. Hassall in 1883. In the first case, where the sale was a private sale, the judges guard themselves against deciding what would have been the result if the sale had been in open market. The second decision—Brooks v. Hassall—in which the Court decided that an authority to give a warranty in the case of a sale of a horse in open market might be implied, was, I think, unquestionably right, and it is unnecessary to say whether I would have followed Brady v. Todd in the present case if the facts had been the same. I must reverse the decision of the County Court Judge, and give a decree for the full amount.