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Key Topics
- Requirement
- Solution
- Discussion on the three kinds of agencies created by Actual, Apparent and Usual Authority
- Actual authority:
- Express authority:
- Implied authority:
- Apparent authority
- Usual authority:
- Critically discuss the legal capacity to enter a contract by minors
- Contracts of Minors for Necessaries:
- Contracts ratified upon majority:
- Contracts valid unless repudiated at the majority
- REFERENCES
Requirement
Assignment question(s)
As a Marketing Consultant for A Business Consultants Ltd, you are required to prepare a 3,000-word report to the Marketing Director of an organization of your knowledge covering the following questions.
1. Provide a detailed explanation of how marketing has developed from
2. “transactional to a relationship” and how your chosen organization has developed it’s market orientation policies with this in mind.
3. Outline and evaluate the potential impact of the UK’s decision to leave the EU on your organization’s marketing strategy.
4. Identify and analyze the current pricing policy used by your chosen organization.
Solution
Discussion on the three kinds of agencies created by Actual, Apparent and Usual Authority
In an agency relationship, the authority flows from the principal to an agent, who is appointed to carry out the transactions on behalf of the principal. In other words, in the Law of contracts, the contract between an agent and the principal is binding only when the agent was acting within the scope of his authority. Such authority can be categorized as Actual, apparent and usual authority. If in cases where the agent has acted outside his authority or is unauthorized to do so, such contracts can either be ratified or can take suitable action against the agent.
Actual authority:
Actual Authority takes place where the principal has conferred authority to his agent to act on his behalf either expressly or impliedly. The legal relationship between the principal and agent is created by an agreement between them, stipulated either in express words, usages of trade where the contractual rights and the liabilities are clearly stipulated between the parties. A contractual agreement; whether oral or written, a Power of Attorney, or acts of trust, trade, and usage are some of the examples of actual authority.
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Express authority:
where the principal has conferred authority to the agent expressly either in the form of words, or gesture or both, it is binding on the agent to perform it. The nature, terms, and scope of authority are stipulated clearly to the agent. Here in case of express authority, it is important that the principal and the agent have to consent and agree to the terms as stated between them. In certain cases, however, even if the agent is found to be acting outside the scope of express authority, such acts may still be valid if found that such acts flow from implied or apparent authority. In the case of Freeman v Lockyer Buckhurst Park Properties (Mangal) Ltd, it was stated that express authority can be ascertained by applying the ordinary principles of “constructions of contract, including the express words, usages of trade” Since the terms and nature of the contract are expressly stipulated between the parties, it is little or no ambiguity when it comes to the enforceability of a contract.
Implied authority:
In case of implied authority, the Principal does not explicitly confer the authority to the agent, but states what is necessary to carry out the express authority by means of conduct, action or will of the principal. Therefore, the agent has a duty to perform those acts which are incidental and are reasonably necessary to carry out the transaction; he also has an implied authority to perform his agency in such a manner that any agent would be expected to act in such particular transactions. In the case of Mill Street Church case, it was held that the handyman had implied authority to hire an assistant as he had express authority to hire one as agreed upon between him and the principal.
Therefore, if the activity is incidental to the usual conduct of the agent’s business, it will attract the meaning of implied authority. In the case of (Howard v Sheward, 1866) it was understood that while the horse dealer had the authority to sell the horse, he also had an implied authority to ensure the soundness of the horse. Implied authority arises where the principal has consented to the agent to have some authority and the agent has agreed and acted accordingly. Inference of authority by way of trust, trade practice, and belief impliedly confer authority on the agent. In case of Hely Hutchinson v Brayhead Ltd, (1968), the question arose whether the de facto Managing director of the company was liable for the cheques signed by him. It was held that by virtue of the clauses in the articles of association, and when the board of directors of the company appoints one of their members to be the director, they impliedly authorize him to do all those actions which fall within the usual scope of the office, including conferring of authority him to sign cheques. .
The following are some of the instances where the agent has been found to have implied authority:
Where an agent, having been given express authority on previous occasions, is deemed to have acquired implied authority to continue to act so.
The partners in a partnership have an implied authority to bind the others in the firm by virtue of their rights and liabilities being joint and several.
In cases where the principal has expressly stated to his agent not to carry out any action or not to act in a particular way, the agent is bound by the implied actual authority not to act in the manner stated by the principal... Hence while the agent has an implied authority to do an act, the principal may also require him not to do an action.
Apparent authority
Apparent authority arises where the principal makes a representation to the third party that so as to create an impression to them that the agent has an authority to act on his behalf. The key element to establish apparent authority is that there has to be a representation by the principal to the third party, causing the third party to rely on him, that the agent has the authority that he actually does not have. In the case of Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd, the company’s articles provided for the appointment of a Managing Director, but none was appointed. The acting directors of the defendant company authorized the plaintiffs to carry out some of the architectural work at the company premises. After the work was complete, they submitted the invoice to the company, who now refused to pay on the grounds that the directors had no authority to enter into any contract. The Court held that even in the absence of actual authority, the directors had acted within the scope of the apparent authority and that the company was bound to pay.
Apparent authority, also known as ostensible authority provides the agent with authority to enter into a contractual relationship where the company has acted in a way to suggest to the outside world of the third-party contractors, to enable such third party contractors to infer that the agent had actual authority to bind the company. The above case law laid down the cardinal principles of the apparent authority as stated by Diplock LJ-
Representation is made by the company in relation to that agent which holds out the agent as actually having authority to bind the company, although there is no express authority granted to him.
the third party who contracts with the agent reasonably relies upon the representation in agreeing to enter into the contract
Therefore, an apparent authority is caused only when the representation made by the agent is relied upon by the contractor and only to the extent of the reasonableness of such reliance. This relation is well described, which concerned a matter whether the branch manager of an insurance company had apparent authority to make a representation that one of his junior employees had actual authority to enter into a contract. It was held that there was no apparent authority in this case, as such authority has to emanate from the principal company and not the senior employee working for the company who neither had such ostensible authority or the competency to appoint such agent on behalf of the company.
While in case of implied or express authority real authority exists between the parties, in case of apparent authority, the agent may be able to bind the principal with the third party by virtue of the apparent authority conferred on him. The law of agency provides for such flow of authority in the hands of agent who is capable of binding the contracting party on the faith of appearance of authority. In case of a dispute caused by action emanating from apparent authority, the third party can sue the principal. Where the apparent authority arises, the principal is estopped from denying the fact that the agent had the authority to contract with the third party, and thereby not bound by the contract. The case of, the plaintiffs entered into an agreement with the defendants, who were acting on behalf of the Doncaster Council, with respect to the media rights in connection with horse racing at their course. The agreement was signed by the CEO. At this juncture, another company negotiated with the council for media rights on similar terms. Although the defendants stated that they did not intend to proceed with the deal, the Racing UK brought legal proceedings against the council stating that they were bound by the contract. The Court held that although the CEO did not have actual authority, by virtue of the fact that during the recent years, he had been negotiating the dealings on behalf of the company, he had apparent authority to enter into the agreements.
Usual authority:
Generally speaking, usual authority arises where the authority is conferred on the agent as a result of certain circumstances of the case due to conduct or general practices of trade and custom. It is also applicable in cases where by virtue of the fact that the agent has been conferred with the authority, has the authority to cause all actions which are associated with such authority. Usual authority is often rendered as a part of apparent and actual authority, while it is also interpreted in the light of implied authority. The distinction between the two is what causes usual authority as it creates a distinct ground of an agency relationship. Its nature and scope can be demonstrated in the case of Watteau v Fenwick. In this case, the plaintiff supplied to Humble, who operated a beer House named Victoria. Humble, though not the owner, he held the licence and his name appeared on the doorway as well. However, on that year, Fenwick had assumed office, and Humble having supplied cigars was not paid his due of 25 pounds. The Court held that since it was largely established and assumed that Humble was the principal, the usual authority takes over, wherein; the principal is liable for the acts of his agent as long as such acts are confided to an agent. It was held that Finwick was bound by the act of Humble, although he had no actual authority; but was acting within the scope of his usual authority as the manager cum operator of the beer House.
The above case demonstrates that there is a fine line between the different kinds of authority, wherein the principal is bound by the acts of the agents by virtue of the fact that he had allowed the agent to hold himself responsible for the day to day functioning of job and had discharged his duties occurring within the usual scope of authority. The actions arising out of the scope of usual authority include those acts which are beyond the actual authority, but are within the scope of the discharge of official duties which the employee usually has authority to do. In the case of Panorama Developments v Fidelis Furnishing Fabrics, ( 1971), it was held that the Company secretary acting within the course of his business is a mere servant, where his position is to discharge what he has been told, which therefore, falls within the purview of the discharge of usual authority. Describing the scope of the usual authority, Lord Diplock, while ascertaining the doctrine of usual authority has stated that in cases where the agent to be authorized or conferred the right to enter into a contract, the third party will rely on the appearance of things and would not probably enquire otherwise either for reason of reducing cost and effort, or due to the appearance of facts.
Critically discuss the legal capacity to enter a contract by minors
As one of the cardinal principles of Contract Law, the parties entering into the contractual relation should have the legal capacity to enter into the contract. Legal capacity describes one’s capacity to understand, ascertain the risks and benefits of a particular decision. In other words, the parties should have attained the legal age of majority for the contract to be enforceable between them. As per the Common Law, minor-aged below 18 years, therefore, does not have a legal capacity to exercise the rights and obligations under law. A minor contract is a voidable contract which may be terminated or canceled by the party making it either orally or in writing stating that he does not wish to honor the deal. However, if the minor wishes to validate the contract with an adult, he cannot avoid the contract on the ground that the party is minor. In the case of Shaner v State System of Higher Education,
Irrespective of this general rule, there are certain cases where the contract entered into by the minors are legal, binding and ones which can be ratified. The contract made by the minor is binding on the adult and not on the minor. In some cases of the emancipation of minors, ratification of earlier acts can be made after the minor attains the age of majority. The exceptions to the general principle of acts where minors is bound by the terms of the contract include
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Contracts for necessaries, beneficial contracts, cases of acquisition of property or obligations by minors.
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Contracts ratified upon a minor attaining majority and
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Contracts valid unless repudiated at the majority
Contracts of Minors for Necessaries:
where a contract takes place with a minor for basic necessities such as food, clothing and shelter, which are not provided by the parents or guardians, a minor, is held responsible for such reasonable value. In the case of William v Baptist Health Systems, the plaintiff, a minor was hospitalized and received treatment from the defendants. This treatment was necessary and was conducted by qualified medical practitioners. Since William was a minor, he had to depend on his mother for support. The mother having acquired bankruptcy relief prevented the hospital from recovering from mother. It was held that when the parent has failed to pay for the treatment of the child, the provider of services may enforce liability for the payment of reasonable cost towards the treatment from the minor. This rule also presupposes that whatever may be the legal age of the minor, such goods delivered must be suitable to the actual requirements of minor. It was held in , that where the defendant, still a minor purchased fancy clothing, eleven waistcoats from the plaintiff could not be regarded as necessaries. Hence, in describing the necessaries to which the minors are bound, it includes food, clothing, education, shelter training and other essential services necessary for day to day living. He must, therefore, make good the reasonable sum for the necessaries as defined under s. 3 of the Sale of Goods Act, 1979 for the “actual requirements at the time of sale” .
The contract for necessaries also presupposes a contract for services entered by a minor which has been accepted by him. In the case of Roberts v Gray, (1913), the defendant minor was held liable for the failure of his duty to perform during a tour with a noted billiard player. Although the contract was executory in nature, it was held to be binding from the time of its formation. The decision is a landmark one, to the extent that the minors can be held liable for the beneficial contracts of service entered into by them, as long as the same is reasonable.
Contracts ratified upon majority:
Where the contract with a minor is voidable, he may ratify the contract, either expressly or impliedly upon reaching the age of majority. The effect of such ratification is to affirm the contract and state that it is no longer voidable by the minor. Insurance, bonds, deposits are examples of such ratifications. Ratification may either be express if he states orally or in writing that he intends to be bound by the contract. On the other hand, implied ratification takes place if the minor, upon reaching majority intends to abide by the contract.
Contracts valid unless repudiated at the majority
In case of voidable contracts entered into by the minors, the same may become valid when the minor attains majority, unless and until he has not repudiated it before the legal age. The most common contracts here include dealings in land, acquisition of shares, physical property and leasehold property made during minority. In such contracts, the minor is bound by the obligations of acquiring it so long as he retains it. In order to make it effective, it has to be repudiated upon attaining the majority or within a reasonable time which must also include a surrender of interest in question. In the case of, the claimant sought a share in the royalties from a popular song to which he had contributed the organ solo when he was a minor. He attributed the song’s success to his rendering. It was held that if an infant chooses to repudiate a disposition, he must do so within a reasonable time after coming to age.
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[1964] Freeman v Lockyer Buckhurst Park Properties (Mangal) Ltd[1964] 2 QB 480
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[2003] William v Baptist Health Systems 398 F.3d 469
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BEVANS, Neal R. 2007. Business Organizations and Corporate Law. New York: Thompson Delmar Learning.
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DAVIES, Paul Lyndon. 2010. Introduction to Company Law. Oxford: Oxford University Press.
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Edwards v Carter [1893].
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Hely Hutchinson v Brayhead Ltd [1968].
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Hely Hutchinson v Brayhead Ltd [1968].
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Howard v Sheward [1866] CP148.
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in British Bank of Middle East v Sunlife Assurance Co of Canada (UK) Ltd [1983].
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KERSHAW, David. 2012. Company Law in Context: Text and Materials. Hampshire: Oxford University Press.
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Mill Street Church of Christ v. Hogan [1990] S.W.2d 263.
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Nash v Inman [1908] 2 KB1, CA.
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Panorama Developments v Fidelis Furnishing Fabrics, [1971].
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POOLE, Jill. 2015. Text Book on Contract Law. Oxford: Oxford University Press.
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Racing UK Ltd v Donacaster Racecourse Ltd [2005].
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Roberts v Gray [1913].
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Supreme Court of Judicature [1893].
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Waugh v HB Clifford and Sons Ltd [1982].
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