Legal Aspects of Agency: Actual and Apparent Authority

This document discusses the legal aspects of agency, focusing on actual and apparent authority. It explains the different types of authority and their implications in business. The document also includes case studies and explores the doctrine of estoppel. Suitable for students studying business law or related subjects.

LEGAL ASPECTS OF
BUSINESS

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................2
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................8

INTRODUCTION
Agency is relevant for understanding the relation between agents and principals and it is a
fiduciary relationship that is it involve trust and confidence at a certain level. It allow an
individual to take action against a corporation that is usually a legal entity as well as individuals.
However, these corporation cannot conduct its own affairs and that is the reason they are need of
agents. Agents are generally authorised by the principal in order to act on behalf of the respective
agents. Agency is generally been build with express agreement that can either written or oral. Its
implication is on bases of different practice of trade and it is generally conduct of the principal.
Agency relationship works effectively as one entity appoints another in terms of different
legal factors and agents act on behalf of this entity and usually have conflict of interest. It is
generally described as a contract and the agents usually have obligation in order to complete the
tasks. The condition is there that there should not be any sort of conflict between them and if any
conflict arise, it leads to principal agent problem (Agency, 2019). That is the reason, the
relationship is expressed through a written contract and the relationship between the both creates
a fiduciary relationship.
There are different types of agent's authority and are as following:-
Actual authority:- Authority that is been conferred on the respective agent by the
principal is known as actual authority and is basically classified in two categories that is express
and implied. The example for express authority can be one with power of attorney and here an
agent can not borrow something on behalf of the principals if they do not have the authority for
the same(Agency Law. 2019). On the other hand, an authority is implied authority when it is
inferred from circumstances of the case. It differs from express authority as it depends whether
the respective authority is delimited by words or with conduct.
Apparent authority:- It is the type of authority that appears to others and it usually
coincides with actual authority. For example the board of a business usually appoint its member
as MD and invest not only with implied authority but also with apparent authority. It is basically
a situation where third party understand that agent has authority to act. Here, the principal is
bound with respect to the actions of the agent's though the agent is not having any authority
either express or implied (Winters, 2018).
So, the actual authority is different from the apparent authority as actual authority
1

requires specific instructions for the performance of the task or related activity. In the case of
apparent authority they have certain implied obligations for the performance of task.
Taking the focus to apparent authority from the actual authority following case will guide in
further understanding the concept.
With respect to the case of Rama corporation Ltd v. Proved Tin and General Investments
Ltd. is not having apparent authority unless is meet the three conditions that are as following:-
 With the third party, representation must have been made so that they can represent that
agents is having authority to act if principal is not there.
 Another condition is that, representation of a reliance have to be there.
 The last condition is that an alteration of third party's position have to be resulted with
respect to these reliance.
From the respective case it is been seen that the third party do not rely on the ostensible
authority of the agents and it binds the company if third party is having understanding that the
agent is not having actual authority in order to bind the organization. It is also seen that the third
party enforce the contract against the organization if the party put inquiry whether the agents act
within authority that is the party must have understanding that agent did not have the actual
authority to act for the same. It generally has threes ingredients that are a representation, reliance
on the representation and an alteration of your position resulting from such reliance. If condition
is there that the agent is having apparent authority then the agent will not be having any sort of
liability with respect to the scope of the respective authority. This condition is there till there is
relationship of agency and principals identity is been disclosed (Conant, 2018). If the agency is
been partially disclosed then the third party usually implies warranty with respect to the
authority. From the case it is been analysed that the agents is having two major duties for its
business that is to undertake tasks with respect to the terms and conditions of the agency and
another is to discharge the respective duties with due diligence.
MAIN BODY
“Ostensible or apparent authority … merely form of estoppel, indeed, it has been termed agency
by estoppel and you cannot call in aid an estoppel unless you have three ingredients. 1
2

representation, 2 reliance on representation and 3 alteration of position resulting from such
reliance.”
This quote states that the agents are required to perform the activities and task if it had
apparent authority for performance of the task. The agency by estoppel represent that the agents
have to perform the tasks having implied authority. The third party will be not provided for the
damages if does not takes into account the roles and responsibilities of the agent. Any activity
performed by the agent that shows that he has the implied authority for the performance of job
where the agent in actual do not have such authority from the principal. Compensation can be
claimed only when the third party has relied over the representations made by the agent. Any
contract entered by the third party on the representation made on reliance of his authority to enter
into the contract. If the position of the third party is changed by relying on the representations
made by the agent than the principal will be made liable if authority is given by him. It is
essential for the third party that he has relied over the representation made and has suffered
damages due to reliance over such representation made to the third party.
In English law agency is component of commercial law of UK dealing with application
of the agency laws in UK forming set of core rules that are essential for smooth business
functioning.
Agents are the individuals working within scope of their authority conferred by
individuals binding principal in obligations created by agent third parties. Law recognises only
two kinds of authority that are actual and implied (McIntire, 2016).
Actual authority
Actual authorities are of two types, authority conferred by principals may be express or
the authority could be implied. Authority is arises through consensual agreements and its
existence in question of fact.
Express Authority
It refer to authority where agent is expressly told about acting on behalf of principal.
Implied Actual Authority
Implied authority are also known as usual authority. This refers to authority where agent
by virtue is reasonably essential for carrying out the express authority. It could be inferred by the
virtue of position that agent holds.
3

Case law of Hely Hutchinson v Brayhead ltd is of UK that is related to authority of
agents acting for company. It was held by Lord Denning that Mr Richards was having authority
but the authority granted was actual authority due to fact that acts of Richard were continued by
Board and that created actual authority.
In this case chairman was acting as managing director, signed for guaranteeing a loan for
company without board approval though he was not having the implied authority of doing so, but
was done depending on circumstances of case.
Ruling
Actual authority could be implied from conduct of parties and circumstances of case.
When any person is appointed as managing director of company by board than they are
impliedly authorise of do whatever that is coming within their scope.
Apparent Authority
Apparent authorities are existing where conduct or words of principal would be leading
reasonable person in position of third party with belief that agents were authorized for acting
even when the principal and purported agents never had discussion on such relationship
(Apparent Authority, 2019).
For instance a person has appointed another person on position carrying powers as that of
agency. People who are aware of appointment could assume there is an apparent authority for
doing things that are entrusted ordinarily to person carrying on such position . If impression is
created by principal that agents are authorized but in actual there is no such authority existing,
than protection to third parties is available to the extent they have acted adequately (Authority of
Agent, 2019). This is termed sometimes as agency by estoppel or Doctrine of holding out, in
such situation principals are estopped from the denial of authority granted, if position of 3rd
parties were changed the detriment relying on representations made (Krotoszynski Jr, 2018).
In Rama Corporations case
Under doctrine of estoppel, where a company represents or has permitted for being
represented as an officer having certain powers, than if any person contracting on behalf of
representations cannot deny from the fact that no powers were held by the officer. There are
several instances where it could be said that it was permitted by company to have such
4

representations, in ordinary business courses. For instance power of making loan by an officer
and director can be delegated by Articles of company. If without such authority officer is
constantly making loans on company' behalf as power have been delegated to him, and where
other officers have knowledge about what is being done and does not do anything in matter . It is
presumed that such person is having the authority of making loans and is bound for contracts
entered. It is an essential of estoppel that representations must be made or permitted by company
(Rama Corporation Ltd v Proved Tin and General Investments Ltd [1952] 2 QB 147, 2019).
In agency by estoppel discussion are made on Representation by principal
Principal should make representation to third party regarding the authority of agent. This
representations could not come from agents as Steyn Li in First Energy in (UK) ltd. In apparent
authority's context, idea of self authorising agent is not recognised under law. Point is how
representation arises. It could be implied or expressed. Representation arises where any person is
appointed over position that possess the authority of entering into specific contracts types. Lord
Keith in Armagas ltd vs Mundogas SA, observed when an agent is placed over a position by
principal that is regarded by outside world as having the authority to carry out transactions.
However it is also stated that it is not possible for third party to identify that
representations made by agents were not having the actual authority to enter into transaction of
that type . Representation should be from principal or from someone that has authority of making
representations.
Reliance by third party on the representation
Third parties cannot be expected to know about the internal representation of the
company. The authority granted to any person can be judged through it actions only. When any
person is performing the transactions as if power has been granted by principal for carrying out
the transaction on behalf of company. It is the primary responsibility of principal to make clear
the representation to outside parties about the authority granted to individual. It is essential for
company to make sure that the outside parties that are relying on the actions of agent does not
entered into any contract binding the company. Third parties will always rely on what is being
represented to them by the actions of person acting as agent. The agents cannot deny afterwards
5

from the facts that he was not having that authority to act as agent or enter into the transactions.
Third party will always be protected against the act of agent that were within the scope of
authority. Third party would not be suffering losses due to change in representation and implies
authority . Third party shall always rely on representations made by agent of principal.
Relied upon Customer
Such representation will alter the position of third party. Representation are made by
principal and the representation must state the authority granted to agent. This should not give
misrepresentation when individuals are not having the actual power to enter into transaction.
Position of third party will be altered if it had reasonable grounds for believing that the
representations made by the agents are not actual. If by reasonable inquiry it could be figured out
by third party that the agent is not possessing the actual powers to enter into transaction. Third
party will not be protected by law if it had knowledge of the representations of the agent (Miller
and Sardais, 2011). Third party is only protected when they have acted in good faith without
knowledge of the actual positions.
Ratification of agency
Ratification refers to adoption or confirming the earlier acts of agent that were not
binding on principal. Ratification is equivalently treated as original authority and through
ratification relationship between the agent and principal is constituted retroactively and
retrospectively. Ratification is done only on satisfaction of certain conditions like the act of agent
that is to be ratified should be done expressly by agent on behalf of principal. Third party should
also be aware of fact that agent was working on behalf of principal. Ratification is done on
complete knowledge of material facts. An act of forgery cannot be ratified by agent.
Doctrine of Indoor Management
This case also involves the study for doctrine of indoor management that protect
outsiders against the act of company. Outsider dealing with company cannot be expected to have
the knowledge about the internal details of company. Internal affairs of company are not open for
public. In this case third party cannot be expected to have knowledge about the authority of
agent. Therefore company would be liable in such situations where agents are acting on behalf of
principal (Jensen and Smith, 2016). The concepts can be related as when management is the
6

agent of shareholder. If any act of the management that is not legal and involves
misrepresentation than shareholders cannot be held liable for not having the knowledge about the
internal working of company.
CONCLUSION
From the above study it is been concluded that there are Agency is correlation between
agents and principals and it leads to fiduciary relationship and the respective agents are generally
been authorized by the respective principal to act on behalf of the agents. Report further
concluded that the agency relationship usually have one entity that appoints others for different
legal factors and also have conflict of interest. Report further concluded that there are two types
of agent's authority that is actual authority and apparent authority that differs to each other with
certain conditions. Report also concluded that there are certain key features and aspects related to
apparent authority and there is great focus on the apparent authority with respect to the given
case. Report also concluded that there are three criteria with respect to the given case that it
includes its representation, principals and it also relied upon by the respective customers. Further
report concluded that there are different issues related to ratification.
7

REFERENCES
Books and Journals
Conant, M., 2018. The Objective Theory of Agency: Apparent Authority and the Estoppel of
Apparent Owenrship. Neb. L. Rev. 47. p.678.
Criddle, E.J., 2017. Fiduciary administration: Rethinking popular representation in agency
rulemaking. Tex. L. Rev.88. p.441.
Jensen, M.C. and Smith, C.W., 2016. Stockholder, manager, and creditor interests: Applications
of agency theory. Theory of the Firm. 1(1).
Krotoszynski Jr, R.J., 2018. Why Deference: Implied Delegations, Agency Expertise, and the
Misplaced Legacy of Skidmore. Admin. L. Rev.. 54. p.735.
McIntire, J.A., 2016. Authority of Government Contracting Officers: Estoppel and Apparent
Authority. Geo. Wash. L. Rev.. 25. p.162.
Miller, D. and Sardais, C., 2011. Angel agents: Agency theory reconsidered. Academy of
Management Perspectives. 25(2). pp.6-13.
Winters, A.M., 2018. Detrimental Reliance in an Agency Setting: The Demise of Apparent
Authority. Loy. L. Rev. 33. p.1162.
Online
Authority of Agent. 2019. [Online]. Available through :
<http://www.balohpedia.com/2014/04/authority-of-agent.html>.
Rama Corporation Ltd v Proved Tin and General Investments Ltd [1952] 2 QB 147. 2019.
[Online]. Available through :
<http://classic.austlii.edu.au/au/journals/SydLawRw/1954/14.pdf>.
Agency. 2019.[Online]. Available through :<https://uk.practicallaw.thomsonreuters.com/1-107-
6376?transitionType=Default&contextData=(sc.Default)>
Agency Law. 2019. [Online]. Available through
:<https://www.myerson.co.uk/assets/Newsletters/b3f1104cbe/Commercial-Agency-Law-
Update.pdf>
Apparent Authority. 2019. [Online]. Available through :<https://hallellis.co.uk/ostensible-
apparent-authority/>
Justifications
Conant, M., 2018. The Objective Theory of Agency: Apparent Authority and the Estoppel of
Apparent Owenrship. Neb. L. Rev. 47. p.678.
8

This reference contains the details about the apparent authority.
Criddle, E.J., 2017. Fiduciary administration: Rethinking popular representation in agency
rulemaking. Tex. L. Rev.88. p.441.
This contains the details about the representation to be made by the agent and its implications.
Jensen, M.C. and Smith, C.W., 2016. Stockholder, manager, and creditor interests: Applications
of agency theory. Theory of the Firm. 1(1).
This contains the relationship between the agency and the firm.
Krotoszynski Jr, R.J., 2018. Why Deference: Implied Delegations, Agency Expertise, and the
Misplaced Legacy of Skidmore. Admin. L. Rev.. 54. p.735.
The details regarding the expertise related to the implied delegation in the agency.
McIntire, J.A., 2016. Authority of Government Contracting Officers: Estoppel and Apparent
Authority. Geo. Wash. L. Rev.. 25. p.162.
The Agency by estoppel is referred between the apparent authority.
Miller, D. and Sardais, C., 2011. Angel agents: Agency theory reconsidered. Academy of
Management Perspectives. 25(2). pp.6-13.
This contains the case when the representations made are false.
Winters, A.M., 2018. Detrimental Reliance in an Agency Setting: The Demise of Apparent
Authority. Loy. L. Rev. 33. p.1162.
This contains the case when agent comes to end on death.
Online
Authority of Agent. 2019. [Online]. Available through :
<http://www.balohpedia.com/2014/04/authority-of-agent.html>.
This contains the contenty about the authoriy of agent.
Rama Corporation Ltd v Proved Tin and General Investments Ltd [1952] 2 QB 147. 2019.
[Online]. Available through :
<http://classic.austlii.edu.au/au/journals/SydLawRw/1954/14.pdf>.
This contains the Case law and ruling about the case.
Agency. 2019.[Online]. Available through :<https://uk.practicallaw.thomsonreuters.com/1-107-
6376?transitionType=Default&contextData=(sc.Default)>
9

This contains the definition about the agency.
Agency Law. 2019. [Online]. Available
through :<https://www.myerson.co.uk/assets/Newsletters/b3f1104cbe/Commercial-
Agency-Law-Update.pdf>
Actual authority of agent is defined under this site.
Apparent Authority. 2019. [Online]. Available through :<https://hallellis.co.uk/ostensible-
apparent-authority/>
The definition of Apparent authority has been defined under this site.
10