Critical Discussion On Actual Vs. Apparent Authority In The Law Of Agency - Essay.

By referring to relevant case law, critically discuss the main differences between actual and apparent authority under the law of agency.

Through this article, a brief effort is undertaken to evaluate the difference between the two prime authorities of an agent, that is, actual authority and apparent authority. Both the authorities are derived from the relationship that is shared amid an agent and the principal. The relationship between an agent and the principal is governed by the principles of the law of agency. Thus, there are few basic questions related to the law of agency which must be first answered before evaluating the distinction between the agents authority, that is, actual and apparent. The analysis is based on the research of the relevant scholarly articles, books and case laws.

The law of agency is one of the essential elements of the business law which helps in the smooth running of the businesses.  The law of agency simply means the law that governs the relationship between an agent and the principal with the third parties. The area of the commercial law that deals with the contractual relationship that is established amid an agent and the principal is called the agency law.

Thus, it is first important to understand the three basic terminologies that govern the agency law, that is, the agent, the principal and the third party. (Clarke et al, 2015)

An agent is the person who initiates a contractual relationship between the principal and the third party. The agent is empowered to facilitate contracts and to cater all the delegated responsibilities of the principal and is thus the designated representative of the principal.

The agent can be appointed by the principal either expressly or impliedly or apparently. Whatever may be the form of appointment but the acts of the agents are thus considered to be the acts of the principal provided the same are carried on within the scope of the authority. No liability can be imposed on the agent provided the acts that are carried on by him are within the authority delegated to him. A person can be appointed as an agent provided he is capable to make contract, thus, he must be of sound mind and must be major in age. (Benett 2014)

Any person who is capable to make contract, that is, he must be of sound mind and must be major in age can become the principal. A principal is the person who delegates his part of the power to another person (agent) and is responsible for all the acts that are carried out by him within the scope of the delegated power.  (Singleton 2015)

The law of agency

Third party or the outsider is the person with whom the agent enters into a contractual relationship on behalf of the principal. Any contractual relationship that is established amid the agent and the outsider will bind the principal by such contract and he is responsible to honor the terms of the contract that is made with the outsider. If any contractual term is not complied with then the third party has the power to hold the principal liable for breach of contract. (Benett 2014)

Thus, the law of agency is nothing but a three way contractual relationship that is established amid an agent, the principal and the third party. In this relationship, the principal delegates his power upon the agent who is then authorized to carry out the functions of the Principal and enters into contractual relationship with the third parties. The contract that is made between the third party and the agent is a valid contract established under the law of agency and is binding between the principal and the third party and is held in Watteau v Fenwick (1893). (Gullifer and Vogenauer 2014)

It is now important to understand the kinds of authorities that are possessed by an agent which are delegated to him by the principal. It is the manner in which the principal delegates the authority that defines the nature of the authority that is possessed by an agent. Thus, on the basis of mode f delegation, the authorities that are possessed by an agent are bifurcated into actual authority or apparent or ostensible authority.

As submitted it is the manner in which the principal delegates his authority to an agent that defines the kind of authority that is possessed by an agent. Thus, the authority is of actual or apparent authority.

Actual authority is the authority that is given to the agent by the principal himself without any interruption. He can either confer the authority directly upon the agent by express words of mouth or in written form. The authority can also be possessed by an agent which is part and parcel of the authority which is directly delegated to an agent. (Gullifer and Vogenauer 2014)

Thus, actual authority is of two kinds, actual express authority and actual implied authority.

Actual express authority is the authority that is delegated by the principal upon the agent directly and expressly. The actual express authority can be granted either by agreement or by verbal communications and the agent is expressly permitted to carry out acts on behalf of the principal. The concept of actual express authority is highlighted in Hely Hutchinson v Brayhead Ltd (1968). (Gullifer and Vogenauer 2014)

Agent

An actual implied authority is originated when the principal placed the agent at a particular position and an authority is delegated upon him implied. In Brick and Pipe Industries Ltd v Occidental Life Nominees Pty Ltd (1992), it was held that the director of the company holds the controlling position in the company and this authority is assumed by him from his position and thus he possess an implied authority to carry on acts on behalf of the company. He is empowered to undertake such acts which are not only delegated to him expressly but the acts which are attached to the position of the director impliedly. Likewise, in the leading case of Rosenbaum v Belson 1900, it was held by the court that the authority that is possessed by an agent and which is derived from the position and thus making him capable t enter into contract is governed by implied authority. (Beatson, Burrows and Cartwright 2016)

In the leading case of Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd (1964), it was held that Mr Kapoor was not having the actual authority to manage the affairs of the company. This authority was imbibed upon him by making a representation in front of an outsider. This representation made by the board of the directors on behalf of the company has granted him an apparent authority to carry on acts on behalf of the company and which is binding upon the company. (Beatson, Burrows and Cartwright 2016)

Thus, an apparent authority is an authority which is an indirect form of authority and which is delegated upon an agent by a representation which is made by the principal in front of an outsider. The gent does not possess the actual authority bit it is because of such representation an authority is garneted to him. The outsider in good faith can believe that the agent has the authority to bind the principal mainly because the principal himself has made a representation in front of him. Any act carried on by an agent within the apparent authority is binding upon the principal. (Beatson, Burrows and Cartwright 2016)

In the leading case of Armagas Ltd v Mundogas Ltd or The Ocean Frost [1986] it was specifically held that an apparent or an ostensible authority can be imbibed upon the agent only when there is some representation made by the principal. If there is no representation made by the Principal in front of the outsider designated authority on the shoulders of an agent, then, there cannot be any kind of apparent authority that can be possessed by the agent. Likewise, in Crabtree Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Co Pty Ltd (1957), it is only the principal who can make a representation and no one else. In Freeman and Lockyer (A Firm) v Buckhurst Park Properties (Mangal) Ltd it was held that both the apparent and the actual authority are distinct and are independent of each other. the principal is empowered to delegate any kind of authority upon the shoulders of the agent and it is the duty of the agent to carry on the acts as per the authority that is delegated to him.

Principal

If the authority is delegated directly by the principal without making any indirect form of representation, then, the power that is possessed by an agent is an actual form of authority. But the authority that is assumed by the agent with the help of the representation made by the principal, then, it is the form of ostensible authority. The main elements to prove apparent authority include: (Beatson, Burrows and Cartwright 2016)

1. The principal must make a representation in front of an outsider;
2. The representation must be such which shows that the agent is authored to act for the principal;
3. The representation must make an outsider believe that the agent does possess the authority;
4. The acts carried within apparent authority will make a contract amid the principal and the agent.

Thus, these are the authorities that are possessed by an agent through a Principal. It is now important to understand the advantages and the disadvantages that can be associated with the concept of delegation of authority.

It is submitted that the presence of agents in any business is very important as it helps in proper functioning of the business. The Principal at times is not able to carry on his functions and thus require persons for the functioning of the business. However, there are both advantages and disadvantages that are associated when an authority is delegated to an agent and the same are discussed herein below. (Stone 2015)

There are various advantages that can be associated when an authority is delegated by the principal to an agent. The same includes, firstly, it is very easy to appoint an agent when compared with an appointment of a specialized or expert employee. Looking for an expert is quite tedious in comparison with the appointment of an agent and then delegating authority upon him and making him work according to the expectations of the principal; secondly, with the help of various agents the principal can able to cover the large amount of market which is not possible when an in house employee is appointed; thirdly, the overhead cost of the business can be reduced when an overseas agent is appointed. (Stone 2015)

There are several disadvantages that can be associated with the appointment of an agent and includes firstly, delegating authority to an agent is every easy but it is very difficult to control the acts of the agent upon whom the delegation is made; secondly,  at times the manner in which an agent acts is very different from the manner with which a principal acts and thus there can be chances of conflicts that might arise amid the two; thirdly,  any wrongful, act which is carried on by the agent within the authority will bound the principal, by the same. (Stone 2015)

Thus, it is very beneficial to appoint and agent but at times it becomes very tedious and disadvantageous to cope up with the acts of the agent which are carried out by him within the course of business.

Conclusion

It is thus submitted that the principal is empowered to delegate any of his powers to an agent and the agent is obligated to carry on the acts only within the arena of the authority that is delegated upon him. Any acts which are outside the scope of the authority will not establish any binding relationship upon the principal.

References

Books/.Articles/Journals

Clarke et al, (2009) Commercial Law: Text, Cases, and Materials. Oxford University Press.

Beatson, J, Burrows, A,  Cartwright, J. (2016). Anson's Law of Contract. Oxford University Press

Benett, H. 2014. Principles of the Law of Agency. Bloomsbury Publishing.

Gullifer, L and Vogenauer, S. (2014). English and European Perspectives on Contract and Commercial Law: Essays in Honour of Hugh Beale. Bloomsbury Publishing.

Stone, R. (2005). The Modern Law of Contract. Psychology Press.

Singleton, S. (2015). Commercial Agency Agreements: Law and Practice, Bloomsbury Professional.

Case laws

Armagas Ltd v Mundogas Ltd or The Ocean Frost [1986] AC 717.

Brick and Pipe Industries Ltd v Occidental Life Nominees Pty Ltd (1992) 10 ACLC 253.

Crabtree Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Co Pty Ltd (1957) 33 CLR 72.

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

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

Rosenbaum v Belson 1900.

Watteau v Fenwick (1893).