Introduction to Business Law

Running Head: BUSINESS AND CORPORATION LAW 0
Introduction to Business Law
5/15/2019
Student’s Name

Introduction to Business Law
1
Question (a)
Agency is a trustworthy relationship between two people where a person acts on behalf of others.
The person who acts is called as an agent and the other person to whom behalf an agent act is
known as the principal. Here to state that an agent has various powers as the same can enter into
a contract, can receive and make representation and statement, can pay and receive money on
behalf of the principal. Under an agency relationship, various types of authorities are there.
Ostensible authority is one of them, which is also known as an authority by estoppel or apparent
authority. Ostensible authority refers to a situation where an outsider believes that a person has
the authority to act as an agent on behalf of another person (principal). Such belief of the third
party must come out by words or conduct of principal and this dummy authority is ostensible
authority. It means the representation must be by the principal (Kershaw, 2012). In such a
situation, a principal becomes responsible for the act of an agent to the outsiders/third party by
the virtue of ostensible authority if the outsider do something in reliance of ostensible authority.
Here this is necessary to mention that ostensible authority exists in those cases where actual
authority does not exist. Freeman & Lockyer v Buckhurst Park Properties [1964] 1 All ER 630
is an important case to discuss here. In this case, the board of directors of a corporation
knowledgeably presented its one of the directors to perform as managing director on many
events, whereas in actual he was not appointed on this position. Later on, the director entered
into a contract with third parties. Court held the company liable as a principal for the conduct of
director and provided in reasoning that the company represented as the same had authority to act
as managing director and therefore the third party came into this belief and entered into a
contract (Webstroke.co.uk, 2019).