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Agent's authority to bind the principal (Agent's liability for…
Agent's authority to bind the principal
Actual authority
express
the principal and agent agree in word that the agent will have authority to act for the principal
implied
agreement is otherwise than in words and arises from the relationship between principal and agent or from their conduct
Hely-Hutchinson v Brayhead
Apparent (ostensible) authority
arises on account of the principal having made a representation to a 3rd party that that agent has the authority to act on his behalf
Mercantile Credit Co Ltd v Garrod
Consequences of authority
actual authority - the contract takes effect between the principal and the 3rd party; and either the principal or the 3rd party can enforce the contract against each other
apparent authority - the 3rd party can enforce the contract against the principal; the principal cannot enforce the contract against the third party as the 3rd party did not make representation. The agent will be liable to the principal if this causes the principal to suffer a foreseeable loss
Conditions where ostensible/apparent authority is binding
it appears to a 3rd party that the agent has the authority to enter into contract; the 3rd party must believe that he is dealing with the agent on behalf of the principal.
McLaughlin v Gentles
ostensible authority cannot exist if the 3rd party does not know that the agent is acting on behalf of the principal
this belief must result from the principal making a representation of fact, usually by conduct, to the 3rd party;
the representation must be made by the principal, not by the agent
the 3rd party must not be aware of any limitation in the power of the agent
Reckitt v Barnett, Pembroke and Slater Ltd
the 3rd party must rely upon the representation
The doctrine of the undisclosed principal
applies when the 3rd party is unaware that they are dealing with an agent
3rd party can sue the principal if there is breach of contract
3rd party in a transaction where the principal has not been disclosed has the option of either suing the agent or the principal, but not both
Conditions where the principal can sue on the contract
the principal must exist and have capacity at the time the agent entered the contract;
the contract must not specifically exclude the intervention of an undisclosed principal
Humble v Hunter
A counterparty signing a contract as an ‘owner’ is incompatible with the doctrine of undisclosed agency.
the principal cannot intervene if the 3rd party can demonstrate that they wishes to deal with the agent personally
if the 3rd party would be materially worse off if the principal adopted the contract
Fraudulent acts by agents
the principal may be liable for the fraudulent act the agent commits, even if the principal is unaware of the fraudulent activity; or if no benefit is gained by the principal from the contract.
Personal liability of an agent
Agent is liable when:
the agent agrees to be liable
the agent fails to disclose the agency so the doctrine of the undisclosed principal applied
the agent exceeds their actual authority (although the principal would be liable on the original contract, they will be able to seek recompense from the agent
the principal does not exist or lacks capacity
the agent signs a bill of exchange without indicating the agency
the agent contracts by deed without being appointed by deed
trade custom makes him liable
Agent's liability for breach of warrant of authority
an agent can be liable to a 3rd party for a breach of warranty of authority if:
an agent makes a representation to a 3rd party, warranting that he has authority to act for a principal
the agent does not in fact have such authority
the 3rd party acts on this representation to his detriment
if the principal ratifies the agent's actions, then the agent will not be liable for breach of warranty of authority, because the agent will retrospectively have acquired actual authority.
nor will the agent be liable for breach of warranty of authority if the 3rd party knew, or should have known, that the agent did not have that authority.
breach of warranty of authority is a breach of contract, and damages will be assesses according to normal contract principles under the rule
Hadley v Baxendale