Commercial Law

What firstly needs to be briefly mentioned is in agency law a consensual relationship is created by contract where one party known as the principal grants authority for another party which is the agent, to act on behalf of and under the control of the principal to deal with a third party.The actions and words of an agent swapped by a third party bind the principal which forms the contract.

However in this assignment we are concentrating on apparent authority, this is the authority of an agent as it seen to others. It occurs in apparent authority when the principal represents (by conduct or words) to the third party that the agent is authorised to contract. If acted reasonably, then the third parties are protected from this theory if the principle gave them a notion that the agent was authorised to act. Then when the third party claims that the agent did not show that they wanted to make the agreement, then the third party can claim that they were induced into the contract. This is due to the reliance on the representation the third party which occurred in a loss due to the position the party obtained beforehand.

If a representation has been made then the principal will be bound and therefore forbidden from rejecting the agent. This is because the agent’s act was within the authority that the agent was represented by the principal as holding the agent’s apparent authority. Therefore we can see that the principal can be bound to a third party even though the agent does not have actual authority, if either the agent’s agreement has ended, or the agent acts beyond the actual authority granted by the principal. The agent is therefore based on estoppel and not the consent of the principal.

Furthermore it can be found that the doctrine of this imposes liability as the actions of a principal has somewhat mislead the public into thinking that the connection or the authority had been given. This idea is crucial in the acknowledgment of estoppel. The primary basis of this where the agent has apparent authority to act, in which the principle deliberately allowed the agent to act then the principle will be bound by this. What has to be looked at is if the principal has intentional acted with the agent and what type of business it is as it may be sufficient to assume that the agent has authority to carry out the act in matter. An example of the doctrine of apparent authority can be seen in the case Irving v. Doctor Hospital of Lake Worth Inc. it was found that hospital liability can also include apparent authority. As a hospital will be liable for a doctors negligence, this therefore makes a medical doctor the agent and when the patient accepts treatment from the doctor as they believe in the best of faith that on the hospital behalf they are being looked after.

Furthermore the Civil Code supports the theory of estoppel. As in the Civil Code, Article 1869 [1] provides: that an agent can do the act by been given expression of implication from the principle. If the principle knows the agent is acting and does not stop this. Therefore this can distinguish corporate entities like hospitals on which can only operate through others such as through doctors, as the doctors are what runs the hospital and without the doctors the hospital will not function. The hospital will only be seen to be giving outstanding healthcare where a qualified doctor does great work, which may then become public within the health system and this is good for business. If achieved this then they can make proceeds within the financial department. Hospitals will find it difficult to get away from liability from the acts of its agents; any form of the negligence will ruin its class of health care.

In Rama Corpn Ltd v Tin and General Investments Ltd (1952) [2] it was found three categories in estoppel is required: of representation, reliance and representation and alteration of your position resulting from such reliance. The representation must be made by the principle and not by the agent himself. The third party must have relied upon the representation in reliance. It is found that the principle can be bound by a contract even though the requirements of apparent authority are not satisfied, if excluded from the conduct by disagreeing with the contract as made on his behalf.

In Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd (1946) [3] the main issue in this case is whether the individual had apparent authority to hire the architects. The trial judge held the individual had the apparent authority. The court of appeal dismissed the company’s appeal from that decision. Lord Diplock was presented with a case of authority of an agent to create contractual rights and liabilities between the principle and a third party.

This part of the law has developed reasonably rather than logically as the earlier history on the action of assumpsit and consistent absence in English law but this is depending on the basis of each situation. Apparent authority shows the legal relationship among the principle and the third party created by representation, made by the principle to the third party, intended to be and acted upon by the third party that the agent has authority to enter on behalf of the principle into a contract within the scope of apparent authority. This makes the principle liable to perform any obligations imposed upon him by contract. The representation, when acted upon by the contractor by entering into a contract with the agent, operates as an estoppel, preventing the principle from stating that he is not bound by the contract.

The representation that creates apparent authority can be shown in many ways. The most popular is representation by conduct, which is allowing the agent to act in a way that they are aware that the agent is acting ad that the agent has the authority to enter on behalf of the principle into the contract, is usually actual authority.

Apparent authority can operate to create authority this can be to expand an agent’s actual authority, to dress an agent with authority where he would usually have actual authority but for the existence of limits that are anonymous to the third party and to extend an agents authority further than termination of the agency relationships. An example of this in Barrett v Deere (1828) [4] the agent entered the principle’s house and acted as if trusted with the conduct of the principle’s business. Payment of a debt to the agent was held to be a good payment to the principle as the principle allowed the agent to enter his business premises and appear to be responsible for the conduct of that business. In the case First Energy Ltd Hungarian International Bank Ltd (1993) [5] where a senior regional manager of a bank was held to have apparent authority to convey head office approval of a certain type of loan when he didn’t have actual authority or head office approval. In addition what can be noted in estoppel is it cannot give the principle an action if he approved of the agent’s unauthorised act. If apparent authority was actual authority the principle could sue and be sued on the contract.

In distinction to this vicarious liability is strict secondary liability that was formed under the common law doctrine of agency . In which the respondeat superior has the responsibility of the superior for the acts of their subordinate. Hence, they have a responsibility of any third party that had the duty to control the jobs of anyone that does not obey the law. The foundation of this came from tort law. Employers are vicariously liable, under the respondeat superior doctrine, for negligent acts by their employees. For an act to apply it must either be authorised or connected with an authorised act . This therefore can be connected to apparent authority and make the principle liable for the agent acting. An employer will be found accountable if it is shown that the employee did not follow instructions and carried out a dissimilar way of the responsibilities; however the employee will not be liable if acted in his own right rather than on the employer’s business that engages in a frolic.

In most cases an employer will be held liable for assault committed by employees. Although, if the employer is of an independent contractor then he will not be held vicariously liable for the tortious acts of the contractor, unless where the contractor hurts an individual who the employer obliges a non delegable duty of care. Employers are also liable under the common law principle as one who acts through another, acts in his own interests. A car owner can be found liable for negligence under tort law even if the negligence occured by a person who borrowed the car. Therefore one can see that the owner is the principal and the agent is the driver who may even just be using the car on behalf of the owner such as runing an error for the owner.

The law states that a company can merely act through its employees and agents. So it is important to review what situations the law of agency or vicarious liability will be used in order to make the company liable in tort. This is an objective test as the liability requires a state of mind in relation to the company in order to prove the liability. In Meridian Global Funds Management Asia Limited v. Securities Commission [1995] [6] , two workers in a company, acted within the scope of their authority by using company money to get shares. However, the directors were not aware of this. What needed to be highlighted here is if the company was aware or should have been aware that the buisness needed those shares. The court held that this was the case. If there is ostensible authority as the agents acted within their authority or employees acted in regards to their duties and their knowledge could be contributed to their companies, then they may be liable as joint tortfeasors especially were the directors have assumed responsibility on behalf of them and the company.

Therfore we can see that if a director is authorised to make representations of a certain type on behalf of the company, and illegally makes a representation of this to a third Party resulting in a loss, the company will be liable even if a representation was incorrect in authorising what actually needs to be done. Futhermore the authority fact based and is majorly more than the fact as there must have been a chance for the employee to committ to fraud. In Panorama Developments Limited v Fidelis Furnishing Fabrics Limited [1971] [7] , a administrator of a company committed fraud as the individual hired cars for his personal benefit, which the manager was unaware of. The adminstrator regually does dealings in the company’s name and has administrative responsibilities that gives apparent authority to hire cars. This therefore makes the company liable. The theory of vicarious liability can be ignored with where an employers indemnity has been applied. When an employer is sued, they also can sue the wrongdoer for an indemnity to recover back the damages. This principle is heavily criticised when applied in Lister v Romford Ice Cold Storage [1956] [8] . In this case if was found a term will not be implied into a contract at common law unless it satisfies the requirement of certainty, under the principle that an implication must be precise and obvious.

The overlap in the doctrines can be seen through the similaritites between agency and vicrarious libility. Both involve situation in which the act one one person (agent) may create obligigations on part of a second person (principle) towards a third person (third person). The agent’s act may result on obligitions between the third person and principle as well as the principle to the third party. However in vicarious liability the act may make the principle liable to the third person but will not give the principle any rights against the third party. As Diplock LJ [9] pointed out, ‘In ordinary business dealings the contractor at the time of entering into the contract can in the nature of things hardly ever rely on the actual authority of the agent.’ This is because the third party will not have permission to the terms on which the agent has been appointed. The third party, therefore, relies on an understanding on the authority of the agent, that is, the agent’s apparent authority.

On the other hand, if the agent did not have any authority, the third party can still implement a contract not in favour to the principal. Nevertheless if the principle represents a usual authority to the agent to act then the individual still gains the authority as a agent even if limitations are applied. The case Freeman & Lockyer v Buckhurst Park Properties Ltd [1964] [10] as briefly mentioned above can be looked at in more dept. This case regards two people who made a company that insists of them to buy and then sell land. They both had a nominee each. The document of their agreement covered a power to appoint a managing director but none did this. One partner ordered a firm of architects to do work on the land, in which they did. When the architect wanted to be paid, it was found that the partner was not a managing director so had no actual authority to employ the architect. However he did have apparent authority as there was knowledge of the board that he carried out responsibilities in the business that suggested he was the managing director and his action in hiring the architects was contained by the usual authority of the duties of a managing director.

To make the agents act binding in apparent authority, the principle must have represented to the third party that the agent had the authority to act on the principle’s behalf. The third party must have had the actual belief that the agent had the authority. Conventionally if the representation of the authority is given from an individual maintaining to be the agent, the principal will not be bound to the third party, though the false agent may be legally responsible to the third party for infringing the agreement in regards to authority. A representation can be formed from words or actions. Typically, saying nothing will not qualify as a representation, except if there is a clause regarding there to be an obligation to speak, however this is highly unlikely. In Spiro v Lintern [1973] [11] , a woman went into a contract for the sale of her husband’s house, and he did nothing. After the buyers found costs in completion of the house. The husband was estopped by saying nothing from rejecting the authority of his wife to contract. This therefore showed that to establish apparent authority the third party must have relied on the representation of the principal. Generally, this will be proved by the third party entering the contract. This was not shown in this case as the representation and reliance happened following the contract. In this circumstance it would appear that the third party would be obligatory acted to their disadvantage.

There is also a complexity in this area as companies are obliged to act through agents, representations. The authority of the agents has to come from the company’s agents. If the agent represents and afterwards contracts then the principal will not be bound. Except the principal cannot give the agent the authority to make representations about the agent’s own authority to act for the principle in dealings. This subject occurred once more in the case of First Energy Ltd v Hungarian International Bank Ltd [1993] in which an individual wanted to set up credit facilities through the bank and transacted with the senior manager of the bank branch. The individual knew that manager did not have the power to give money facilities and the only way to authorise this would be with the agreement of the head office. With no authority, the manager written to the individual saying that head office had approved the credit facility. The Court of Appeal determined that as the manager had apparent authority to write to the individual telling him the decision of the head office consequently, this made the bank bound by the manager’s letter. The following case is found eminent Armagas Ltd v Mundogas SA [1986] [12] , In which the House of Lords rejected the argument that the principle had represented to the third party that the agent was authorised to make a representation on behalf of the principle to the extent that the agent had actual authority to take on the contract with the third party.

What needs to be reminded is the third party cannot use the theory of apparent authority if the third party should be aware that the agent should not have actual authority. The third party must prove in this case that they have not relied on the representation made by the principle. In Overbrooke Estates Ltd v Glencombe Properties Ltd [1974] [13] , it was held that the auctioneer did not have the seller’s authority to make representations about the property being sold in a term he used at an auction sale. Before the sale the auctioneer said to a possible buyer that the local authority had no means in the property. After this statement the buyer bought the property and later found that the property may be in an area that is to be demolished. The buy was however bound by the purchase as if the auctioneer had authority to make a representation then the auctioneer has the apparent authority to make the bid valid. It was up to the buyer to check this. There is obviously a legal boundary that restricts legal responsibility for misrepresentation, what needs to be noted is that this does not give the principal a right to restrict apparent authority of the agent and to make representations. This can be governed in The Misrepresentation Act 1967, s.3 [14] ,

Apparent authority is overlapping vicarious liability doctrines. In the majority of case both doctrine would make an employer liable for any harm caused to employees. An example of this is when an employer commits a fraud whilst acting within the scope of employment and with the authority then either doctrine would find them liable.

A way we can see that apparent authority support’s vicarious liability this can also be seen through franchising. A franchisor may be vicariously legally responsible in actual authority for a franchisee’s acts [15] this can be seen in regards to apparent authority. A franchisor can still be liable for the franchisee’s behaviour if there has been apparent authority. Apparent authority can be found if a franchisor acts or does not act in a way that guides a third party in honestly believing that the franchisee is the franchisor’s agent.

Where a third party uses misrepresentation to its disadvantage, then there will be an apparent authority, despite if there is no actual evidence of a principal and agent association. What three elements that need to be proved when establishing apparent authority is: firstly a representation by the principal; secondly reliance on the representation by a third person; and thirdly a change of position by the third person. This shows that reliance by the third party is important.

One can consider that in the franchise circumstances, apparent authority allegations come from franchised departments and the distinguished brands. Accordingly, the franchise position is normally always fulfilled. Many courts find that the representation by the principal comes from the franchisee’s use marketing. Most apparent authority cases occur when the claimant relied on the representation. To overcome vicarious liability allegations that arise from apparent authority cases it has to be proven that the third party did not rely on the representation. Apparent authority cases can be solved in franchising by notifications of self-governing goods.

In Hughes v Metropolitan Railway (1877) [16] a landlord gave notice pursuant to a lease requiring his tenant to perform repairs within six months. The landlord then entered negotiations with the tenant to purchase the lease, but when the negotiations broke down the landlord sought to forfeit the lease (as the lease entitled him to do) on the grounds that the tenant had not performed the repairs he was required to do. The court found that by entering negotiations obligations already owed by the promisee to the promisor, but not to increase the obligations owed by the promisor to the promisee or to create new ones. It cannot, therefore, be used to create a new cause of action. This does not mean that the promisor [17] must always be the claimant, as opposed to the defendant, only that the estoppel will not provide a cause of action and will only help a party to prove their case under a different cause of action (such as breach of contract). This can be seen similar to tort law as the infringement of the fiduciary duty may be a violation in tort. The agent can be assumed to be responsible for the damages caused by the principal. In tort circumstances where malice is proved, disciplinary damages can be compensated. When the agent is established to have benefited from the violation, the principal may cancel any dealings done with third parties that come from the infringement of the fiduciary duty.

In Daniel Oldakowski et al M.P. Barrett Trucking Inc (2004) [18] this case looks at if apparent authority imposes on vicarious liability. Under the theory of respondeat superior, where an individual was liable for a tort committed by another as the tort was related to the duties and occurred in circumstances within a working environment. This shows if any careless act occurs within dealings then you are therefore not held accountable for the independent contractor. They are many examples of this such as an employer being held vicariously liable for the negligence of an independent contractor that was performing a non-delegable duty obligated on the employer by contract.

Anyone who commits a tortuous act is likely to be held liable for anyone they have hurt in the process. This is so, where the agent acts within their powers as the agent, and a principal may be held liable to third persons for the torts done by the agent. This was originated from the early days under common law when the servant was seen as the property of a master. Because the master had total power over the acts of the servant, if it the master was unjust. Vicarious liability not in favour of the principal is depending whether the servant’s act occurred in the dealing and the limits of the employment type of the agent.

At the moment this set of guidelines has been reserved in the law on the reasoning of at least two reasons. Firstly is because the employer has the control to supervise and discount the employee, as the employer is not superior and can be a risk of being liable this can make the employer to carry out his duties carefully. This gives responsibility for the protection of others on the principal. Also in regards to public policy an injured third person which is usually in favour of the employer and the employee more likely to pay for damages. In modern times what have had a massive affect on our controversial society are these doctrines. Plaintiffs in search of great amendments and to do this have a small possibility. The courts are not in support of the inexcusable reasoning for this guideline, and generally want to steer away from applying the principle. Nowadays there is many ways to get around applying the fellow servant rule. An example of this is where the claimant finds an upturn on the basis of an employer’s carelessness in appointing an associate employee or where the claimant is hurt by a higher employee who is acting within their authority in management of a lower employee.

Some publications suggest that the principal is equally liable with his or her agent for any vicarious acts committed by the agent when the agent is acting within the scope of their authority. This can be in regards to the principal being liable for the vicarious acts done by an agent was authorised to act as a result of the principle. Therefore many theorists find that the principle should be liable for any acts followed by representation to the agent on accordance of apparent authority. This examination also emphasises on the contract of an agency association. So when the principal is liable for acts that are regarded as tort, of the agent when acting within its means. The result of liability is found when a statement represents the principal, made within the apparent authority of the agent. Controversially, some theorists have found that the principal is made liable not liable due to the tort, however as the duty of the principal. What they have found is that in the agency relationship, the principal is liable as principal not the tortuous act. Even though the agent is involved in the transaction of entering the contract, the principal is not binding of the tortuous act as is seen as not entering the contract of this directly. This however comes to a disadvantage as it can mean the principle holds no responsibility of the acts of the agent. The theorists have found immunity of this which is where tortuous conduct is connected to the transaction of the contract.

In conclusion what is transparent is that the accountability, obligation, advantages, and solutions arrived through the agency association originating from tort law. When found that the principal represents to the third party that the agent is allowed to take on the dealing, and the third party was induced on reliance upon that representation, the principal will be bound; this theory now underpins vicarious liability as it bounds the principle in that he will be held liable. In Lloyd v Grace, Smith and Co (1912) it was held that vicarious liability can spread across to acts of fraud if done within the powers of apparent authority in regards to employment. Furthermore, in Dubai Aluminium Company Limited v. Salaam (2002) was also a case of fraud. This case got taken to the House of Lords. It was found that there was not in any doubt Dubai Aluminium transacted with Mr Amhurst in reliance to apparent authority that may have been present. Therefore the judges felt no need to look at the debate of vicarious liability. Furthermore when looking at the vicarious liability in the case there was evidence of dishonest behaviour and proof of the defendant acting on his own benefit rather than the companies. However it was not beyond the scope of the authority. This shows that in certain areas of law of agency an overlap of vicarious liability and apparent authority. From publications made it can be seen that the Atiyah theory also supports that the principal is liable for vicarious acts of the agent done within the capacity of their authority although other theorists such as Fleming who found inconsistencies in this theory. The principal is not liable where the representation which the third party relied on came from the agent acting, unless it was reasonable for the third party to assume that the agent had the duty to act on behalf of the principle. This is similar to vicarious liability as the liability falls on one person as a consequence of an action of another person. It will be shown that the various forms of estoppel resemble tort law. An example of this is that in everyday occurrences of legal responses to statements, agreements or promises as a result so far they do not arise from the binding type of promises they arise to a certain extent from different ethical principles. Therefore now one can see that apparent authority has changes so far in that it now can be seen as supporting the topic of tort law, perhaps soon they will be a reform in the law in which will merge the two doctrines together.