Main Differences Between Actual And Apparent Authority In Agency Law - Essay.

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

• Definition of agency. (accompanied with case law)
• Relevance of agency. (why it is agency important with examples)
• Agency as a fiduciary relationship. (meaning of fiduciary and how its relevant to agency)
• The three relationships in agency. (principle, agent “third party” and customer)
• Different types of authority. (consent, non-consent, actual express or actual implied, apparent, usual, or necessary)

• Actual express authority. (define accompanied with examples and case laws)
• Actual implied authority. (define accompanied with examples and case laws)
• Apparent or ostensible authority. (define accompanied with example and case laws)
• Three requirements needed to bound principle to agency authority. (representation bounds them which can be by agent authority, representation from the principle and whether representation can be relied upon by the third party).
• Compare the difference between actual and apparent authority. (give examples of how they are different from one another).

Conclusion.

• State own opinion to whether differences are satisfactory or if they are confusing. Suggest same reforms using journals and magazines.

In the current scenario, where businesses are growing fastly and everyone is being busy, it is not possible for a person to do everything by him/her. In such a situation, a person often authorizes others to do act on his/her behalf. Such authorization creates a relationship of agency between two of these people. An agency relationship is a type of mutual arrangement where one party gives an authority to another to do a particular task on behalf of the first one. A person who gives such authority is known as principal and on the other side, the person to whom a principal grants an authority is known as agent under an agency agreement.

The agency relationship is highly relevant and significant in different areas of life.  Such a relationship has many characteristics. In the case of Bamgboye v. University Of Ilorin & Ors (1991) 8 N.W.L.R 129, an opportunity was given to the supreme court to check out the possible characteristics of an agency relationship. The first feature of an agency relationship is the capacity of principal and agent to create legal relation. Consent is another important characteristic of the agency relation. It was decided in the case of Ayua v. Adasu (1992) 2 N.W.L.R.598 that an agency relationship can only be established with the consent of the parties, however, such consent can be expressed or implied one. An agent is required to have certain kind of authority in order to perform acts that a principal demands.

Mainly a person authorizes another to act on his/her behalf with the purpose to reduce the work pressure. An authority under agency relationship can be granted about anything but the same must be legal. The reason for developing an agency relationship is far significant. There are many benefits cause of which people enter into an agency contract.  For instance- this is possible that a person does not have the required skills and other person have the same. In such a situation, the first one can authorize the other to act as an agent. An agency contract fulfills the various necessities of individuals.

A fiduciary relationship gets developed between the parties out of an agency contract. A fiduciary relationship is that where parties do trust on each other or one of the parties to the transaction puts confidence, reliance, and special trust in respect to the other and then another person is required to behave like a reasonable person with all the trust and truth. In an agency relationship, an agent, and principal, both are required to act reasonably in respect to each other.

Types of Authority

Mainly three parties are there in an agency contract. One is the principal, agent and a third party. In an agency contract, all the obligations and rights of these parties are mentioned. Such a contract needs to be drafted in writing and the same can be developed in an oral form. Where no contract is developed and decided among the parties, general agency law and legal precedents decide the right and duties of the parties.

Authority is the power of an agent that gives him/her an entitlement to act on behalf of the principal. Carnac Grain Co Inc v HMF Faure & Fairclough Ltd & Bunge Corp [1967] 2 All ER 353 is the case that provided the importance of consent in an agency relationship. It was given in the decision of this case, that an agency relationship can only be established with the affirmation of a principal and agent and such consent can be expressed or implied. This is the reason that there are many kinds of authorities exist in an agency relationship that is discussed in below section.

Mainly two types of authorities are there one is an actual authority and another one is an ostensible authority. Ostensible authority is also known as apparent authority. There are two types of actual authority. One is expressed actual authority and another is implied actual authority. Although both of such authorities are valid and held a principal liable for the acts of his/her agent, yet there are much difference in between them based on their nature and manner in which the same exist in agency contract. Following discussion is focused on various types of authorities that are a significant area of study under agency law.

As the name implies itself, an actual authority is that where the authority of an agent present in actual. This can be understood, as that such kind of authority exists where a principal intentionally confers upon agent and his powers (Schneeman, 2009). This authority is further divided into two kinds of authorities. One is expressed and another one is implied.

Expressed Authority: - In such type of authority, a principal authorizes his/her agent to act on his/her (principal) behalf. The same is generally granted through a legally developed agreement which can be in written or as well as in an oral form. Whether an actual expressed authority would be granted through written agreement or an oral one, it depends on the custom of a business, trade, and usages (Eaa.org.hk, 2018). A principal grant such authority to his/her agent in specific terms. For instance: - To purchase a Holden sedan car not older than 2 years from the current date".

Obligations of the Parties Involved in an Agency Agreement

As mentioned above that in an actual authority a principal grant clear powers to the agent, this is to be stated that a contract gets developed between a third party and a principal where an agent enters into any transaction with an outsider in his/her a capacity of an agent. Express authority is easy to understand, as all the parties remain aware of the existence of such authority. Under such kind of authority, the entitlements and liabilities of the parties remain expressly clear.

In the case of Castillo v. Case Farms of Ohio, 96 F Supp. 2d 578, the court decided that a principal may be held liable for the act of an agent out of an express authority (Revolvy.com, 2018).

Implied Authority: - Implied Authority is another kind of actual authority that is different from actual expressed authority. Unlike to actual expressed authority, under this kind of authority, powers are not expressly granted to the agent by the principal. An implied authority can be defined as an authority that is not clearly given to an agent, but an agent supposed to possess the same in order to perform the activities given in expressed authority (Kleinberger, 2008).

It was given in the decision of the case of Australia and New Zealand Bank v Ateliers de Constructions Electriques de Charleroi (1966) 39 ALJR 414 that an implied authority occurs in a transaction where an agent does some act which is incidental to complying with the express authority granted to him/her. The facts of a case and customs of a business, trade, or usages decide the existence of implied authority. (Legaldictionary.net, 2018). An implied authority can come into the knowledge of a third party cause of the conduct of principal or an agent.

Implied authority can further be understood by an example. A person had actual expressed authority to act as a local agent on behalf of an insurance company. He had no further expresses authority to deal with cancellation of notices given by policyholders, yet he was engaged in the act of handling those notices, as it was required to fulfill his obligations under express authority. The agent would assume to have an implied authority in respect of handling those notices.

It was given in the decision of the case of Castillo v. Case Farms of Ohio that granting of an actual expressed authority to an agent by the principal also includes implied authority to do certain things that are helpful for the performance of expressed authority (Law.justia.com, 2018).

To conclude the discussion over actual authority, this is to be stated that expressed and implied authorities are part of the actual authority and an implied authority cannot exist without the presence of actual expressed authority as the same exists to supports the expressed authority. Apart from the actual authority, another kind of authority i.e. ostensible authority is also important to study and therefore the discussion on the same is made hereunder.

Firstly to be stated that this is also known as Apparent authority.  Sometimes the same refers to the doctrine of holding out or estoppel (Kearns, 2017). The doctrine applies where a person cause of his/her inactions and actions allow a third party to believe that he/she is acting as an agent of a person. Such person is treated as principal in such cases. This doctrine prevents a principal from denying the authority of the agent. In general, this doctrine exists in those circumstances where a person (agent) is allowed to have a position that appears to carry this authority.

This authority binds a principal in a similar manner in which an actual authority binds. A principal cannot deny from the liabilities occur out of an ostensible authority merely based on the argument that an actual authority was missing there. Under agency law, many of the cases have happened where courts make a principal liable for the act of his/her agent cause of ostensible authority had by the agent. The existence of this authority can be understood by the following example.

Example:- A went to buy some household articles from B's Shop. The shop was named as "B's Supermarket" and it was a person C who was dealing on the counter of the supermarket. In such a situation, A has reason to believe that C is acting on behalf of B, has enough authority and B will be liable for the acts of C. A felt so cause of the actions of C. Now, the authority, which C has, is an ostensible authority. B will be liable for the act of C irrespective of the fact that an actual authority was not there.

This kind of authority mainly presents in the cases of employment. Watteau v Fenwick [1893] 1 QB 34 is a case where court reviewed the liability of a principal in cases of ostensible authority. In this case, an agent had an ostensible authority but the same was limited up to a level. The third party of the case i.e. the plaintiff was not aware of such limitation and hence the court held the principal liable towards the third party. The court determined that under an ostensible authority, principal of a transaction would remain liable towards a third party if he/she do not clearly state a third party about the limited authority of an agent.

In the decision of the case of Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480, the judgment was given that for an ostensible authority, three requirements need to be there.

A representation must be there by the agent to a third party about the existence of an authority

Such representation must be present by a person who has actual authority to do that transaction i.e. principal.

The third party decided to enter into a contract cause of subjective representation.

As mentioned earlier, two types of authorities are there in an agency namely actual and ostensible authority. In the above section, the basic including definitions and examples have been discussed of these authorities. Now, moving towards, the differences between two of these authorities, firstly to say that many differences are there. First of all, an actual authority is based on an expressed or consensual agreement, whereas, on another side, an ostensible authority is based on estoppel and reliance (McLaughlin, 2018). It means under actual authority, a clear intention of agent and principal exist, whereas the same is absent under ostensible authority.

In comparison to ostensible authority, an actual authority is more reliable. The requirements stated by Lord Diplock in the case of Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd, seems to be confusing and later n Lord Denning described the same in a better way. Lord Denning refers an ostensible authority as a power to make representation to others. Even after many of the cases, the confusion between actual and ostensible authority still exist there. In the case of Barrington v Lee [1971] EWCA Civ J1027-1, [1972] 1 QB 326, Lord Denning held that this confusion is typical to remove.

It is far clear from the above-mentioned discussion that both of these authorities can exist without the support of each other. Some commentators think that an ostensible authority is no authority, as the same does not exist. This is not true as in the decisions of many of the cases; justices considered this authority and held a principal liable for the conduct of an agent out of such authority. The scope of implied actual authority is wider than an ostensible authority, as the same provides protections to insider as well as outsiders. This would not be wrong to state that an ostensible authority makes a transaction easy in the absence of an actual authority. An ostensible authority exists where a principal represents a third party that a second person (agent) has a level of authority and hence this can confirm that an act of representation needs to be there on the part of the principal. In general one out of two exist in a transaction. However sometimes, an actual or ostensible both authority can exist at the same time. The case of Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549 is an important one to study in the area of actual and ostensible authority. In this case, Lord Denning concluded that both of such authority can exist together and even in some cases, an ostensible authority can overrule the actual authority (Egallyunrobed.com, 2018).

Conclusion

In order to conclude the issue, this is to state that many times, justice tried to figure out the difference between actual and apparent authority but some confusions are still there. This confusion exists cause of actual implied authority. In cases of express actual authority, the rights and obligations of the parties remain far clear. Apart from the differences, there is many similarities between actual and apparent authority as an obligation of a principal towards the third party remain the same (Kershaw, 2018). Under an implied authority and apparent authority, very few differences are there in between them. However this can be understood as that for an implied authority, an express authority needs to be there. But in overall, the difference between actual and ostensible authorities are hard to understand as Lord Denning stated while giving the decision of the case of Barrington v Lee. Further, the author, Martin Hogg in his book named Contract Law update 2010-2012 has discussed various kinds of authorities. Many other authors also have discussed the topics in their books and writings on the topic of law of agency.

References 

Australia and New Zealand Bank v Ateliers de Constructions Electriques de Charleroi (1966) 39 ALJR 414

Ayua v. Adasu (1992) 2 N.W.L.R.598

Bamgboye v. University Of Ilorin & Ors (1991) 8 N.W.L.R 129

Barrington v Lee [1971] EWCA Civ J1027-1, [1972] 1 QB 326

Castillo v. Case Farms of Ohio, 96 F Supp. 2d 578

Eaa.org.hk. (2018) Types of authority. [online] Available from: https://www.eaa.org.hk/en-us/Information-Centre/Publications/Agency-Law/-4-Types-of-authority [Accessed on 29/10/2018]

Egallyunrobed.com. (2018) Actual and Ostensible authority. [online] Available from: https://legallyunrobed.com/2018/04/04/actual-and-ostensible-authority/ [Accessed on 29/10/2018]

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

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

Kearns, S. (2017) Legal Studies.  NSW : Southern Cross University.

Kershaw, D., (2018) Company Law in Context: Text and Materials. UK: OUP Oxford.

Kleinberger, D., S. (2008) Agency, Partnerships, and LLCs: Examples and Explanations. New York :Aspen Publishers Online

Law.justia.com. (2018) Castillo v. Case Farms of Ohio, Inc., 96 F. Supp. 2d 578 (W.D. Tex. 1999). [online] Available from: https://law.justia.com/cases/federal/district-courts/FSupp2/96/578/2420968/ [Accessed on 29/10/2018]

Legaldictionary.net. (2018) Implied Authority. [online] Available from: https://legaldictionary.net/implied-authority/ [Accessed on 29/10/2018]

McLaughlin, S. (2018) Unlocking Company Law. Oxon : Routledge.

Revolvy.com. (2018) Castillo v. Case Farms of Ohio. [online] Available from: https://www.revolvy.com/page/Castillo-v.-Case-Farms-of-Ohio [Accessed on 29/10/2018]

Schneeman, A. (2009) Law of Corporations and Other Business Organization. USA: Cengage Learning.

Watteau v Fenwick [1893] 1 QB 34