Representation by Apparent Authority: Latest Developments in the Law

on Apparent Authority that Enables an Agent to Make Representation

about their Authority to the Third Party

Written By
Gerald Ogoko

January, 2017.
 TABLE OF CONTENTS
Introduction…………………………………..………………………………………..… 2
Principle of Agency………………………….…………………………………………... 2
Apparent Authority: Conceptual Definition……………………………………………. 2
Representation by Apparent Authority………………………………………………..… 4
Conclusion……………………………………………………………………………… 5
…
Bibliography……………………………………………………………………………… 7
.

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Introduction
This paper addresses the issue of apparent authority from the standpoint of representation. It
begins by discussing the law of agency to provide a contextual background for examining
developments in the doctrine of “apparent authority”. Apparent authority is one of the ways
that a relationship is created between the principal and agent. It also explores conditions or
situations where potential breaches in implied authority may occur during representation to
third parties. Critical considerations that define the scope and applicability of the doctrine of
apparent authority are also discussed. A summary of discussions is presented at the end of this
paper.
Principle of Agency
The doctrine of ‘apparent authority’ emerges from conditions in which the agent represents the
principal to third parties. Agency can be defined as:
“the fiduciary relationship that exists between two people, one of whom expressly or
impliedly consents that the other should act on his behalf so as to influence or impact his
relationship with third parties, and the other of whom similarly consents to act or so acts.”
(Bowstead & Reynolds on Agency, 19ed). 1
Agency also describes the relationship that exists between two people when one, referred to as
the ‘agent’, is considered in law to represent the other, referred to as the ‘principal’, in such a
manner as to be able to impact the principal’s legal position in respect of strangers to the
relationship by making of contracts or property disposition. 2 The relationship between the
principal and agent is created through four ways namely:
i. By express or implied agreement between the principal and agent, i.e. actual
authority.
ii. By operation of law.
iii. By the ratification of the agent’s acts by the principal.
iv. Under the doctrine of apparent authority.
Apparent Authority
Apparent authority is not real authority as is the case with actual authority. In fact, it is a form
of estoppel. 3 Agency by estoppel is an agency that is not created as a an actual agency by a
principal and an agent but that is imposed by law when a principal acts in such a manner as to
make a third party to reasonably believe that another is the principal’s agent and the third party
is injured by depending on and acting in accordance with such belief. 4 Under this relationship,
it is necessary to note that a principal is required to correct a third party’s mistaken belief in an
agent’s authority to act on behalf of the principal. Essentially, if a principal is negligent in his
duty to correct this misunderstanding, he or she is estopped from denying the existence of the
agency and is bound by the agent’s acts in relating with the third party.

1
Bowstead, W & Reynolds, M B, Bowstead & Reynolds on Agency (19th ed, Sweet & Maxwell, United
Kingdom, 2010).
2
Fridman, G H L, The Law of Agency (7th ed, Butterworths, London, 1996).
3
Eric, B, Greg, O, Lee, R, Commercial Law (2nd ed., Oxford University Press, Oxford, 2016).
4
Walter, W C, ‘Agency by Estoppel’, (1905) 5 Columbia Law Review No. 1, 36-47.

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It is essential to draw a distinction between apparent authority and actual authority as there are
situations where apparent authority may coincide with actual authority. For instance, a
principal may terminate the agency agreement, in which case the agent’s actual authority is
also likely to be terminated, but the agent’s apparent authority may persist. 5 Even if both types
of authority co-exist, it may be the case that the agent’s apparent authority surpasses his actual
authority. Consequently, drawing a distinction between both types of authority would help in
determining the scope of each during representation. Actual authority describes the relationship
between the principal and the agent, and deals with the authority that the principal has,
expressly or impliedly, bestowed on the agent. On the other hand, apparent authority is:
“a legitimate relationship between the principal and the third party created by a
representation, made by the principal to the third party, intended to be and in fact binding
on both parties, that the agent has authority to enter on behalf of the principal into a contract
of a type within the scope of the apparent authority, so as to require the principal liable to
act on any obligations imposed on him by an agreement or contract”. 6
In Freeman & Lockyer v Brayhead Ltd, Diplock LJ maintained that the court was accurate in
its judgment in which it ruled that Brayfield Ltd pay Freeman & Lockyer for their architecture
work. This judgment was reached on the basis that if actual authority is conferred by the board
without a formal resolution, this makes the board liable to the terms of the contract. Some
conditions for the applicability of apparent authority can be inferred from this judgment: if an
individual possesses no actual authority to act on a firm’s behalf, then a contract can still be
enforced if an agent possessed authority to enter contracts of a different but similar type, the
person giving the authority itself had authority, the contracting party was induced by these
representations to enter the agreement, and the company being represented had the capacity to
act. There are issues that can arise when the agent acts under implied authority when
representing the principal to third parties. For one, the agent may go beyond the scope of
authority expected by the principal during representation; and this may affect the principal as
he or she may be bound by whatever agreement is reached by the agent, especially as the third
party may enter into agreements with the agent on the ‘appearance of authority’ –even when it
is non-existent- displayed by agent.
Another case that highlights potential conflicts that may arise from apparent authority is Waugh
v HB Clifford & Sons Ltd. In this case, Clifford was being sued by plaintiffs seeking damages
arising from a defective building work in the erection of semi-detached dwelling houses on
land acquired by Clifford. 7 Both Clifford and the plaintiffs hired solicitors to act on each other’s
behalf. Clifford instructed its solicitors to propose a settlement of proceedings to the plaintiffs.
Negotiations between the solicitors of each party (i.e. agents) to secure a proper settlement
ensued. One of the issues being negotiated was the price at which Clifford would purchase the
properties from the plaintiffs. A recommended solution was agreeing on a valuer for the
disputed properties. Clifford wanted to hire the valuer for this arrangement however, this
information did not get to the solicitor representing it and as a result, the agreement reached
entailed the plaintiffs hiring the valuer. Following this situation, the plaintiffs initiated a suit
against Clifford for the performance of the agreement evidenced by the exchange of documents
between solicitors in original proceedings. Clifford argued that it was not bound by the
agreement as the solicitor had no authority to make that agreement on its behalf. Clifford was

5
Freeman & Lockyer v Brayhead Ltd [1968] 1 QB 549 (CA) 583.
6
Diplock L J, Case Opinions - Freeman & Lockyer v Brayhead Ltd [1968] 1 QB 549 (CA) 583.
7
Waugh v HB Clifford & Sons Ltd [1982] Ch 374 (CA) 387 (Brightman LJ).

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unsuccessful in its defence of the suit despite the fact that its solicitors did not possess express
authority to agree to the arrangement with the plaintiffs. 8
Based on the decision of the court in Waugh v HB Clifford & Sons Ltd, it is clear that a solicitor
or agent may possess ostensible authority to enter into a contract that compromises an action
so long as the contract does not have terms which are ‘collateral to action’. Consequently,
Clifford was bound to the terms of the agreement since its solicitor had implied authority to
reach a settlement with the plaintiffs. Despite Clifford failing in its defence of the suit and as a
matter of due diligence, the third party should have requested that the solicitor or agent produce
articles or correspondence (e.g. Power of Attorney) with his principal to prove their authority.
This should help prevent conflicts that may arise when the agent exceeds the scope of their
representation.
Representation by Apparent Authority
Apparent authority is the legal relationship between the principal and the third party created by
a representation, made by the principal to the contractor through an agent. Apparent authority
only arises when there is a ‘representation’. To define and understand the scope of apparent
authority, four considerations are critical: indicative terms of the representation; origin of the
representation; nature of representation; and timing of the representation.
The indicative terms of the representation is less problematic than the other considerations.
Diplock LJ notes that the representation ought to show that the agent has authority to enter on
behalf of the principal into an agreement of a type within the scope of the apparent authority,
so as to make the principal liable to fulfil the terms of the agreement. 9 Essentially, the
representation ought to show that the agent has the authority to act on behalf of the principal.
A ‘power of attorney’ may suffice to legitimize the representation. This document is very useful
as it can highlight the scope of the agent’s authority.
In terms of the origin of representation, the basis for the apparent authority of an agent is that
the agent appears to have authority to act on behalf of the principal because the principal has
in some way acted to create the appearance of authority. Based on this observation, apparent
authority will not generally be created where the representation comes from the agent himself;
to allow otherwise would be permit the agent to self-authorize. However, concerns have been
raised about how representation can arise. For instance, Reynolds FMB notes that: “there may
be situations where the agent only has authority in particular conditions; only the agent knows
whether they have arisen. Here, the third party may be entitled to depend on the agent’s
statement, express or implied, that they possess”. There are exceptions to this rule as
demonstrated in Armagas Ltd v Mundogas SA (The Ocean Frost) where the House of Lords
indicated that, “where the third party knows that an agent does not have authority, a principal
will not be bound where such an agent incorrectly claims to have gained such authority”. 10
However, in First Energy (UK) Ltd v Hungarian International Bank Ltd case 11, the court ruled
that apparent authority was present. Unlike Ocean Frost where the agent clearly lacked
authority; in First Energy (UK) Ltd v Hungarian International Bank Ltd, Jamison’s role as a
Senior Manager bestowed on him the apparent authority to sanction the credit facility to First
Energy. While commenting on this particular case, Steyn LJ noted that the law recognises that

8
Ibid.,
9
Diplock L J, Case Opinions - Freeman & Lockyer v Brayhead Ltd [1968] 1 QB 549 (CA) 583.
10
Armagas Ltd v Mundogas SA [1986] AC 717 (HL).
11
First Energy (UK) Ltd v Hungarian International Bank Ltd [1993] BCC 533 (CA).

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in modern commerce, an agent who has no apparent authority to finalize a specific transaction
may sometimes be empowered by apparent authority to make a representation of the fact. 12
Based on the nature of representation, it is essential to note that representation can arise in
different ways and some of these are difficult to identify. This is because while certain
representation can be made verbally or formally in writing, most arise by way of conduct.
Representations by conduct happens where the principal puts the agent in a position that
provides the agent with authority to carry out certain actions as demonstrated in Freeman &
Lockyer vs Buckhurst Park (Mangal) Properties Ltd. 13 In this case, the court held that in
assenting to Kapoor (the agent) who was acting as Managing Director, Buckhurst had
represented to the architects (Freeman & Lockyer) that Kapoor possessed the authority (i.e.
implied) to carry out activities that a managing director would usually be authorized to take on,
including signing agreements on behalf of the company (Buckhurst Park).
Finally, regarding the timing of the representation; it is essential to note that in most cases, the
representation would have occurred before the agent engages in the act in question.
Nevertheless, the law does not demand that this be the case and as demonstrated in Spiro v
Lintern, 14 apparent authority can arise based on subsequent representation. In this particular
case, the court held that John’s failure to disclose to Spiro that Gena lacked the authority to
enter into the contract of sale created a representation that she did, in fact, possess authority to
dispose the property. Consequently, John was estopped from denying that Gena did not have
authority and as such, the order for specific performance was upheld. ‘Reliance’s is a critical
element of estoppel and given that apparent authority derives from the doctrine of estoppel, it
is expected that the third party must depend on the principal’s representation for apparent
authority to occur. Therefore, ‘apparent authority’ is non-existent where the third party is
unaware of the principal’s existence or of the representation. 15
Conclusion
The line between ‘actual authority’ and ‘apparent authority’ can be blurred. This is because in
most cases, apparent authority usually arises by way of conduct than by formal means such as
a written agreement that clearly outlines the terms and scope of the agency or representation.
The appearance of authority on the part of the agent may be misconstrued by the third party as
actual authority and it is under this guise that he or she enters into agreements that may exceed
the expectations of the principal.
As shown in most of the cases discussed, courts are more likely to rule in favour of the third
party where there is a semblance of implied authority on the part of the agent. Consequently, it
behoves of the principal to formalize representations so that the agent does not exceed the scope
of representation. To guard against this, controls can be put in place during negotiations to
ensure that the principal is in the know of the progress of negotiations, especially during the
finalization or agreement signing stage. Ensuring due diligence during representation is not
solely the responsibility of the principal; third parties are equally expected to ensure that the
agent possesses evidence of representation, such as written correspondences with the principal
or a power of attorney. In failing to do this, the third party risks entering into agreements where
there is an apparent lack of authority on the agent’s part. In such a case, the court may rule in

12
First Energy (UK) Ltd v Hungarian International Bank Ltd [1993] BCC 533 (CA) 544 (Steyn LJ).
13
Freeman & Lockyer v Buckhurst Park (Mangal) Properties Ltd [1964] 2 QB 480 (CA).
14
Spiro v Lintern [1973] 1 WLR 1002 (CA).
15
AL Underwood Ltd v Bank of Liverpool [1924] 1 KB 775 (CA).

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favour of the principal when he or she raises concerns about contractual obligations reached by
his or her agent.

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Bibliography
Bowstead, W & Reynolds, M B, Bowstead & Reynolds on Agency (19th ed, Sweet & Maxwell,
United Kingdom, 2010)

Eric, B, Greg, O, Lee, R, Commercial Law (2nd ed., Oxford University Press, Oxford, 2016)

Fridman, G H L, The Law of Agency (7th ed., Butterworths, London, 1996)

Walter, W C, ‘Agency by Estoppel’, (1905) 5 Columbia Law Review No. 1, 36-47.

Cases

AL Underwood Ltd v Bank of Liverpool [1924] 1 KB 775 (CA).

Armagas Ltd v Mundogas SA [1986] AC 717 (HL).

Diplock L J, Case Opinions - Freeman & Lockyer v Brayhead Ltd [1968] 1 QB 549 (CA) 583.

Diplock L J, Case Opinions - Freeman & Lockyer v Brayhead Ltd [1968] 1 QB 549 (CA) 583.

First Energy (UK) Ltd v Hungarian International Bank Ltd [1993] BCC 533 (CA).

Freeman & Lockyer v Brayhead Ltd [1968] 1 QB 549 (CA) 583.

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

Spiro v Lintern [1973] 1 WLR 1002 (CA).

Waugh v HB Clifford & Sons Ltd [1982] Ch 374 (CA) 387 (Brightman LJ).

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