“to say that a principal is only liable for what has been done within the authority of his agent
leaves open the critical question: what is the meaning of “authority” in the eyes of the law?
The Meaning is not self-evident, for what has not in fact been authorised may nonetheless be
regarded by the law as authorised.”
Chesire, Fiffot & Furmston
Explain and discuss the above statement. Critically evaluate whether using an agent to
conduct business leaves the principal at too great a risk of being bound by contracts
which they did not wish to enter.
PLAN
Introduction:
This Essay will examine the meaning of “authority” before the law regarding acts done by a
principal’s agent the extent at which this creates a risk for the principal being bound to
contracts they do not wish to enter.
Agency = Is the relationship which arises where one person (the agent) acts on behalf of
another (the principal), and has the power to affect the principals legal position with regard to
a third party. (Freeman and Lockyer v Buckhurst Properties)
Example:
An example of this would be where company directors (principals) delegate power to
management (the agent) to enter into contracts on behalf of the company or
alternatively where a partnership (Principals) authorises an individual to contract on
its behalf.
Generally, in order for an agent to create binding contracts on behalf of the principal they
must have authority.
- Such authority may arise in three circumstances. (Probably just Mention briefly
here)
1. Actual authority
- Actual authority is a legal relationship between principal and agent, created by a
consensual agreement to which they alone are parties - Freeman & Lockyer v
Buckhurst Park Properties
2. Apparent Authority
- Apparent authority is a legal 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 acted upon by the third party, that the agent has authority to enter on behalf
of the principal into a contract of a kind within the scope of the "apparent" authority,
, so as to render the principal liable to perform any obligations imposed upon him by
such contract - Freeman & Lockyer v Buckhurst Park Properties
3. Agency by Estoppel / Ratification
- A principal may give retrospective authority to something the agent did if the
following four conditions are satisfied:
o The agent must have purported to act as an agent
o The contract must be capable of ratification e.g. it must not be a void contract
o The principal must ratify within a reasonable time
Academic?
As seen in the above statement, Chesire, Fiffot & Furmston argue that as a result of such wide
interpretation of what “authority” entails, consequently, leaving principals exposed to the acts
done by an agent which may fall within these definitions of authority and thus bind the
principal.
Structure:
The first part of this essay will examine actual auth … to show...
The second part will examine apparent auth…. to show
The third part will….. ratification to show….
POINT ONE – ACTUAL AUTH.
Actual authority is a legal relationship between principal and agent, created by a consensual
agreement to which they alone are parties - Freeman & Lockyer v Buckhurst Park
Properties
As a result the agent has authority to to make contracts on behalf of the principal with third
parties. As the agent hold authority the contract is seemingly between the principal and the
third party with the agent essentially “dropping out of the picture”
- When the so-called critical question identified by Chesire, Fiffot & Furmston of what
is the meaning of “authority” in the eyes of the law? With them proclaiming “it is not
self-evident” is considered with actual authority it seems to be extremely limited.
The principal expressly chooses to give authority to the agent and in turn controls how far
which this authority extends.
Consequently, is seems to be of a limited risk for the principal to be bound by contracts which
they do not wish to enter as the principal is controlling the authority and purpose of the agent
and expressly consenting to it. If the principal consents to it they clearly want to enter into
contracts via the agent.
However, risks may arise where there is a lack of clarity in the granting of the authority.
- Given that the scope of actual authority is determined by the proper implications from
the express words used, the usages of the trade, or the course of business between the
parties, then it could be the case that a principal will find that they have given an
agent authority with greater scope than they had (subjectively) intended. So it is
generally only where the principal has failed to expressly articulate the scope of the
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