Chapter 2agency 1

Chapter 2: Agency 1 (Principle and Case Notes)
Contents
A. 1) 2) 3) B. 1. 2. 1) 2) 3) 4) 5) 6) 3. 1) 2) 3) 4) 5) 6) C. i. ii. iii. What is Agency? ............................................................................................................................. 4 Introduction ................................................................................................................................. 4 Theories....................................................................................................................................... 6 Trustees, sellers, buyers, distributors and franchisees ................................................................ 7 Types of Agent ................................................................................................................................ 7 General agent and special agent .................................................................................................. 7 Factor and mercantile agent ........................................................................................................ 7 Baring v Corrie [1818] 2 B & Ald 137 ................................................................................... 7 Stevens v Biller [1883] 25 Ch D 31 ........................................................................................ 7 Weiner v Harris [1910] 1 KB 285 ........................................................................................... 8 Official Assignee of Madras v Mercantile Bank of India Ltd [1935] AC 53 ......................... 8 Jerome v Bentley & Co [1952] 2 All ER 114 ......................................................................... 9 Lowther v Harris [1927] 1 KB 393 ......................................................................................... 9 Other agents .............................................................................................................................. 10 Broker ................................................................................................................................... 10 Commission agent ................................................................................................................. 10 Confirming houses ................................................................................................................ 14 Del credere agent .................................................................................................................. 14 Forwarding agent .................................................................................................................. 15 Commercial agent ................................................................................................................. 15
Creation of Agency ....................................................................................................................... 15 RV Ward Ltd v Bignall [1967] 1 QB 534 ................................................................................. 15 Chaudhry v Prabhakar [1989] 1 WLR 29 ................................................................................. 15 AMB Imballaggi Plastici SRL v Pacflex Ltd [1999] 2 All ER (Comm) 249 ....................... 16
iv. Mercantile International Group plc v Chuan Soon Huat Industrial Group Ltd [2002] EWCA Civ 288 .............................................................................................................................................. 17 D. 1. i. The actual authority of the agent................................................................................................... 18 Actual authority of the agent ..................................................................................................... 18 Jacobs v Morris [1902] 1 Ch 816 .......................................................................................... 18
Disclaimer: This notes is Subject Guides further explanations for cases and principle. Please refer to Subject guide for full navigations. Main sources: Dictionary, subject guide, textbook (Sealy and Hooley), UOL study pack, westlaw.com, LexisNexis.com.
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2. i. 3. i. ii.
Definition of actual authority .................................................................................................... 20 Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 ........... 20 Express actual authority ............................................................................................................ 22 Aviva Life & Pensions UK Ltd v Strand Street Properties Ltd [2010] EWCA Civ 444 at 54 22 SMC Electronics Ltd v Akhter Computers Ltd [2001] 1 BCLC 433.................................... 23
What if the instructions from the principal to the agent are ambiguous? ..................................... 23 4. i. ii. iii. iv. v. vi. E. 1. i. ii. iii. iv. v. vi. 2. i. ii. iii. 3. i. ii. Implied (or incidental) actual authority..................................................................................... 27 Bryant, Powis, and Bryant Ltd v Law Banque du Peuple [1891-94] All ER 1253............... 27 Watteau v Fenwick ............................................................................................................... 27 Rosenbaum v Belson [1900] 2 Ch 267 ............................................................................. 27 Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549 ......................................................... 28 Robinson v Mollett [1875] LR 7 HL 802.............................................................................. 28 Nickalls v Merry [1875] LR 7 HL 530 ............................................................................. 31
Apparent Authority ....................................................................................................................... 32 Definitions................................................................................................................................. 32 Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] i above .................. 32 Nayyar & Others v Sapte & Anor [2009] ............................................................................. 32 Hely- Hutchinson v Brayhead Ltd [1968] iv above .......................................................... 33 Rama Corpn Ltd v Proved Tin and General Investment Ltd [1951] 2 QB 147 ................ 33 The Tatra [1990] 2 Lloyds Rep 51 at 59.............................................................................. 33 Spiro v Lintern [1973] 1 WLR 1002 ................................................................................. 33
Representation by the principal................................................................................................. 34 Nayyar & Others v Sapte & Anor [2009] ii above................................................................ 34 ING Re (UK) Limited v R&V Versicherung AG [2006] EWHC 1544 (Comm) ................. 34 (Spiro v Lintern )vi above ................................................................................................. 35
Representation by the agent ...................................................................................................... 35 ING Re (UK) Limited v R&V Versicherung AG [2006] EWHC 1544 (Comm) ii above.... 35 Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd i above ............................. 35
iii. Egyptian International Foreign Trade Co v Soplex Wholesale Supplies Ltd and PS Refson & Co Ltd [1985] 2 Lloyds Rep 36................................................................................... 35 iv. First Energy Ltd v Hungarian International Bank Ltd [1993] 2 Lloyds Rep 194; Reynolds (1991) 110 LQR 21 ....................................................................................................... 36
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v. vi. vii. viii. F. G. 1. i. ii. iii. iv. v. vi.
Armagas Ltd v Mundogas [1986] AC 717............................................................................ 36 Emerald SA v Prominvestbank [2008] EWHC 1979 (Comm) ......................................... 38 Overbrooke Estates Ltd v Glencombe Properties Ltd [1974] 1 WLR 1335 ..................... 40 Misrepresentation Act 1967, s.3........................................................................................ 41
Usual Authority: Watteau v Fenwick............................................................................................ 41 Ratification.................................................................................................................................... 42 Requirements for ratification .................................................................................................... 42 National Oilwell (UK) Ltd v Davy Offshore Ltd [1993] 2 Lloyds Rep 582 ....................... 42 Keighley, Maxsted & Co v Durant [1901] AC 240 .............................................................. 42 Watson v Swann [1862] 11 CBNS 756............................................................................. 42 The Managers of the Metropolitan Asylums Board v Kingham [1890] 6 TLR 217 ......... 42 Williams v North China Insurance Co [1876] 1 CPD 757 .................................................... 43 Marsh v Joseph [1897] 1 Ch 213 ...................................................................................... 43
vii. Aviva Life & Pensions UK Ltd v Strand Street Properties Ltd [2010] EWCA Civ 444 at [73] i above ................................................................................................................................... 45 viii. 2. i. ii. iii. iv. H. Suncorp Insurance and Finance v Milano Assicurazioni SpA [1993] 2 Lloyds Rep 225 45
Effect of ratification .................................................................................................................. 45 Keighley, Maxsted & Co v Durant [1901] AC 240 iii above ............................................... 45 Suncorp Insurance and Finance v Milano Assicurazioni SpA viii above ............................. 45 Bolton Partners v Lambert (1889) 41 Ch D 295 ............................................................... 45 Brown v Bird [1850] 19 LJ Ex 154................................................................................... 46
Agency of Necessity ..................................................................................................................... 48 i. ii. iii. iv. v. China-Pacific SA v Food Corporation of India, The Winson [1982] AC 939 ................... 48 Sachs v Miklos [1948] 2 KB 23 ............................................................................................ 49 Prager v Blatspiel, Stamp and Heacock Ltd [1924] 1 KB 566 ......................................... 51 Hawtayne v Bourne [1841] 7 M & W 595 at 599 ............................................................. 51 The Great Northern Railway Company v Swaffield (1874) LR 9 Exch 132 ........................ 51
I. 1.
Capacity ........................................................................................................................................ 52 Capacity of the principal ........................................................................................................... 52 i. Boston Deep Sea Fishing and Ice Co Ltd v Farnham (Inspector of Taxes) [1957] 1 WLR 1051............................................................................................................................................... 52 2. Capacity of the agent................................................................................................................. 53
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A. What is Agency?
1) Introduction
Lord Alverstone CJ once defined an agent as any person who happens to act on behalf of another (The Queen v Kane [1901] 1 QB 472). If P (the principal) instructs A (the agent) to act in the purchase or sale of goods from or to T (the third party seller), the contract of sale that arises is enforceable between P and T. In general, A has no liability to either P or T on that contract: Where a person contracts as agent for a principal the contract is the contract of the principal and not that of the agent; and, prima facie, at common law the only person who may sue is the principal, and the only person who can be sued is the principal. (Montgomerie v United Kingdom Mutual Steamship Association [1891] 1 QB 370, Wright J (Sealy and Hooley, pp.149-50).) Some others definition of Agency:o American Restatement of the Law of Agency Agency is the fiduciary relationship that arises when one person (a principle) manifests assent to another person (an agent) that the agent shall act on the principles behalf and subject to the principles control, and the agent manifests or otherwise consents so to act. o Bowstead and Reynolds on Agency Agency is the fiduciary relationship which exists between two persons, one of whom expressly or impliedly manifests assent that the other should act on his behalf so as to affect his relations with third parties, and the other of whom similarly manifests assent so to act or acts pursuant to the manifestation. o GHL Fridman The Law of Agency Agency is the relationship that exists between two persons when one, called agent, is considered in law to represent the other, called the principal, in such a way as to be able to affect the principals legal position in respect of strangers to the relationship by the making of contacts or the disposition of property.
*Any concise definition of the concept of agency must be treated with care. Striving for brevity, the definition is likely to be flawed by errors and omissions which may make it misleading. However, the definitions set out above do provide a starting point from which to begin our assessment of the theoretical basis of agency.
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Relationship between Principle, Agent and Third Party

The Relationship Between P and A The Relationship Between A and T The Relationship Between P and T
Empowerment by law of representative (Agent) to affect legal position of another (Principal) in relation to stranger (3rd Party)
Outside the authority of P Breach of contract Within the authority of P P liable to T Apparent (Ostensible) Authority Within the authority of P T knows the limits of A, Apparent Authority = Actual Authority T do not know the limits of A, must rely on the apparent Authority Apparent Authority: P has not represented to the T Actual Authority: A has not been appointed by P A T
An agent who acts outside the authority granted by the principal will be in breach of the contract (if there was one) by which the agent was appointed
The principal may be bound to the third party because the authority with which the agent has been clothed by the principal determines the relationship between the principal and the third party. That is, the principal may be liable to the third party if the principal represented that the agent was acting within their authority (apparent authority). If the third party knows the limits of the agents actual authority, there is no difficulty and the apparent authority will be the same as the actual authority of the agent. However, usually the third party will not know the terms of appointment of the agent and must rely on the apparent authority.
someone represents to the third party that they have the authority to act as an agent for another person, there is neither actual authority (the agent has not been appointed by the principal) nor apparent authority (the principal has not represented to the third party that the agent has authority). In this situation the principal is not bound and the third party is left only with an action against the agent for breach of warranty (that is, breach of the promise by the agent of authority to act for the principal). However, in this situation, the principal may decide to adopt the transaction in other words, to ratify the action of the agent and by doing so establish a contractual relationship between the principal and the third party.
Breach of Warranty
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2) Theories
There are three main theories that seek to define and explain agency: power-liability Theory, consent theory and qualified consent theory. 1. Power-liability theory:- P T, (EXTERNAL) *Please refer to subject Guide. 2. Consent theory:- P T, (INTERNAL) *Please refer to subject Guide. 3. Qualified consent theory *Please refer to subject Guide. Distinguish between power and authority in the context of agency. The terms power and authority should not be confused. As Professor Dowrick has emphasized:A power is a legal concept: it connotes the ability of a person to alter relations by doing some act: agents power is such an ability existing in the eyes of law. Authority is a matter of fact: it connotes that one person has given instructions or permission to another to act on his behalf. The legal attribute of an agent, his power, may be called into being by the fact that he has his principles authority to act, but it may be called into being by other facts, such as the necessity of the case. Conclusions:- source: Philosophical foundations of the law of agency, Gerard McMeel Therefore the consensual and power-liability models of agency are reconcilable and compatible: each illuminates different facets of a complex structure. A refined, qualified consensual theory, derived from the background political theory, supplies the normative underpinnings of the subject. In contrast, Hohfeldian analysis (if thoroughly undertaken) illuminates the conceptual structure of the triangular nexus of relationships by which a principal is entitled to multiply his ability to transact via intermediaries. The powerliability model cannot properly be contrasted with consensual model. Instead, consent forms the core of any normative account of the subject. It has been argued here that it can properly be regarded as supplemented by the principle protecting misplaced reliance (or the policy favouring an objective reading of commercial communications). The qualified consensual theory cannot explain the whole of the modern law of representation and responsibility. It is further supplemented by instances of policy-motivated recognitions of agency. These underpin the statutory examples in the context of consumer credit and consumer financial services. These species of vicarious responsibility, based on broader policy concerns, such as consumer protection and enterprise liability, have clear analogies to vicarious liability in tort. Vicarious responsibility may also be thought, by those sceptical about attributing legal phenomena to the intentions of the parties, to be a sounder explanation of some recent decisions on apparent authority. Whilst that is not accepted here, it is submitted that the concept of vicarious responsibility is more properly contrasted with the traditional consensual theory than the schematic power-liability theory. It has further been suggested that the emphasis on ontological, rather than normative, theories in agency texts is due to the refinement of agency principles taking place during the early twentieth century when faith in classical liberal political theory was on the wane. With the resurgence of neo-classical models of contract law, agency theory can be unrepentant that its roots lie clearly in liberal political thought. A coherent challenge to
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the centrality of consent in agency law will have to articulate theoretical reasons (moral, political or economic) for its displacement.
3) Trustees, sellers, buyers, distributors and franchisees

*Please refer to subject Guide.
B. Types of Agent
1. 2. General agent and special agent
*Please refer to subject Guide.
Factor and mercantile agent
1) Baring v Corrie [1818] 2 B & Ald 137 AGENCY - NATURE AND FORMATION - CLASSES OF AGENTS - FACTOR AGENCY - RELATIONS BETWEEN PRINCIPAL AND THIRD PERSONS CONTRACTUAL RELATIONS - LIMITATIONS ON RIGHTS AND LIABILITIES WHERE PRINCIPAL IS CREDITOR AND DEBTOR SEEKS TO SET OFF AS AGAINST PRINCIPAL A DEBT DUE FROM AGENT TO DEBTOR - BROKER CONCEALED PRINCIPAL The character of a broker is materially different from that of a factor. He is not trusted with the possession of goods, and ought not to sell them in his own name; and where a broker sold goods without disclosing the name of his principal: Held (1) the broker acted beyond the scope of his authority; (2) the buyer could not set off a debt due from the broker to him against the demand for the goods made by the principal. A factor is a person to whom goods are consigned for sale by a merchant residing abroad, or at a distance from the place of sale, and he usually sells in his own name without disclosing that of his principal; the latter, with full knowledge of these circumstances, trusts him with the actual possession of the goods, and gives him authority to sell in his own name (Abbott, CJ). Where a broker sold goods without disclosing the name of his principal: Held (1) the character of broker was materially different from that of factor; (2) the broker acted beyond scope of his authority; (3) the buyer could not set off a debt due from the broker to him against the demand for the goods made by the principal. 2) Stevens v Biller [1883] 25 Ch D 31 AGENCY - NATURE AND FORMATION - CLASSES OF AGENTS - FACTOR AGENCY - RELATIONS BETWEEN PRINCIPAL AND AGENT - RIGHTS OF AGENT AGAINST PRINCIPAL - LIEN - LIEN BY AGREEMENT - WHETHER LIEN EXCLUDED BY AGREEMENT OR OTHER CIRCUMSTANCES - EXPRESS INSTRUCTIONS TO ACT IN PRINCIPAL'S NAME Where an agent has been entrusted with possession of goods consigned for the purpose of sale, he is not less a factor because, as between him and his principal, he is under restriction as to the price at which the goods are to be sold, or is bound to sell in the principal's name.
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An agent intrusted with the possession of goods for the purpose of sale does not lose his character of factor, or the right of lien attached to it, by reason of acting under special instructions from his principal to sell the goods at a particular price and to sell in the principal's name. 3) Weiner v Harris [1910] 1 KB 285 AGENCY - AUTHORITY OF THE AGENT - IMPLIED AUTHORITY - AUTHORITY TO PLEDGE - GOODS - UNDER THE FACTORS ACTS - MERCANTILE AGENT INTRUSTED - ACT OF 1889 RETAIL JEWELLER IN POSSESSION OF JEWELLERY FOR SALE OR RETURN CORRESPONDENCE REGARDING SAME Plaintiff, manufacturing jeweller, was accustomed to send articles of jewellery to F, retail jeweller, for sale on terms of a letter written by F to plaintiff, in which F, after acknowledging he had had from plaintiff on sale or return goods entered up to date in a book in possession of plaintiff, and that he was liable to account to plaintiff for such goods, continued: The goods referred to in that book are your property, and are to remain so until sold or paid for, being only left with me for the purpose of sale or return, and not to be kept as my own stock. The goods I receive from you are to be entered at cost price, and my remuneration for selling them is agreed at one half the profit: Held (1) upon construction of the letter as a whole F was employed as agent for sale; (2) he was a mercantile agent within the Act, and as such had implied authority to pledge the goods intrusted to him; (3) plaintiff could not recover goods pledged by F with defendant without express authority from plaintiff. Plaintiff, a manufacturing jeweller, was accustomed to send articles of jewellery to F, a retail jeweller, for sale on the terms of a letter written by F to plaintiff, in which F, after acknowledging that he had from plaintiff on sale or return the goods entered up to date in a book in the possession of plaintiff, and that he was liable to account to plaintiff for such goods, continued: The goods referred to in that book mentioned are your property, and to remain so until sold or paid for, they being only left with me for the purpose of sale or return, and not be kept as my own stock. The goods I receive from you are to be entered at cost price, and my remuneration for selling them is agreed at one half the profit: Held upon the construction of the letter as a whole F was employed as agent for sale; that he was a mercantile agent within Factors Act 1889 (c 45), and as such had implied authority to pledge the goods entrusted to him, consequently plaintiff could not recover goods pledged by F with defendant without express authority from plaintiff. 4) Official Assignee of Madras v Mercantile Bank of India Ltd [1935] AC 53 BANKRUPTCY AND INSOLVENCY - BANKRUPTCY - ADMINISTRATION OF BANKRUPT'S ESTATE; TRUSTEE'S POWERS; PROPERTY AVAILABLE FOR CREDITORS - PROPERTY IN REPUTED OWNERSHIP OF BANKRUPT - IN THE POSSESSION, ORDER OR DISPOSITION OF BANKRUPT - TERMINATION - IN GENERAL - PLEDGE WITHOUT DELIVERY INDIAN CONTRACT ACT A railway receipt, providing that delivery of the consigned goods is to be made upon the receipt being given up by the consignee, or by a person whom he names by endorsement thereon, is a document of title within Indian Contract Act 1872 s 178 (for which a new
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section was substituted by the amending Act IV of 1930), and a pledge of a railway receipt operated under the repealed section as a pledge of the goods. The pledgee does not release the pledge by handing the receipt to the pledgor in order that he may collect the goods from the railway company and place them in a warehouse upon behalf of the pledgee. Goods so pledged are not in the possession, order or disposition of the pledgor within s 52(2)(c) of Presidency-towns Insolvency Act 1909, even where the railway receipt has been handed to the pledgor for the purpose above stated. Further, where the owner of goods hands to a bank indorsed railway receipts relating thereto as security for an advance (even without a formal letter of hypothecation), there is constituted, in the absence of evidence to the contrary, an equitable charge upon the goods which is binding between the owner and the bank without notice to those having custody of the goods; upon a subsequent insolvency of the owner the assignee takes no higher right than the owner had at the commencement of the insolvency. 5) Jerome v Bentley & Co [1952] 2 All ER 114 AGENCY - RELATIONS BETWEEN PRINCIPAL AND THIRD PERSONS DISPOSITIONS OF PROPERTY - IN GENERAL - PRINCIPAL'S RIGHT TO FOLLOW PROPERTY INTO THE HANDS OF THIRD PARTIES - AGENT EMPLOYED TO SELL GOODS GOODS CONVERTED TO AGENT'S USE NO POWER TO PASS PROPERTY Plaintiff, the owner of a diamond ring, entrusted it to T who undertook to try to sell it on his behalf. Plaintiff was to receive 550 and T any surplus of the proceeds. If the ring was not sold within seven days T was to return it to plaintiff. After the seven days had elapsed T, representing himself as the owner of the ring, sold it for 175 to defendants, who bought it in good faith and re-sold it. T was subsequently convicted of the larceny of the ring as a bailee. In an action by plaintiff against defendants for damages for wrongful conversion of the ring: Held at the time of the sale to defendants T was not an agent of plaintiff to deal with the ring and was not in the position of a person who might be presumed as an agent to have authority to sell it; by the sale he converted the ring to his own use; and, therefore, he did not pass any property in it to defendants, who were thus liable to plaintiff. 6) Lowther v Harris [1927] 1 KB 393 AGENCY - AUTHORITY OF THE AGENT - IMPLIED AUTHORITY - AUTHORITY TO PLEDGE - GOODS - UNDER THE FACTORS ACTS - MERCANTILE AGENT INTRUSTED - ACT OF 1889 DEALER INTRUSTED WITH FURNITURE AUTHORITY TO OBTAIN OFFER IMPROPER SALE Plaintiff was the owner of the A tapestry and the L tapestry, and he gave P, a dealer in antiques, a limited authority to obtain and submit offers from possible purchasers. P falsely represented to plaintiff that he could obtain 525 for the A tapestry, and plaintiff allowed him to take it away for delivery to a purchaser, who in fact did not exist. P then sold the A tapestry to defendant for 250. Subsequently P, who never had authority to sell the L tapestry, stole it from plaintiff and sold it to defendant. In an action for conversion defendant contended that P had been in possession of the tapestries as a mercantile agent within the 1889 Act, and that as he had bought them from P in good faith he had acquired the property in them. He also contended that plaintiff had held out P as a person with
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authority to sell and was estopped from saying that P had no such authority in fact: Held (1) although P's authority was limited, and although he was not acting for any principal other than plaintiff, yet these facts did not prevent him from being a mercantile agent and in the circumstances he was a mercantile agent and in possession of the A tapestry with the consent of plaintiff, and as to that tapestry the defence under the 1889 Act was established; (2) as to the L tapestry, as P was never in possession of it with plaintiff's consent, the defence under the Act failed, and, as plaintiff had never represented to defendant that P had authority to sell it, there was no estoppel, and plaintiff was entitled to recover the value of the L tapestry alone.
3.
Other agents
1) Broker i. Baring v Corrie (1818) 2 B & Ald 137) 1) above 2) Commission agent i. Ireland v Livingston (1872) LR 5 HL 395 AGENCY - AUTHORITY OF THE AGENT - IMPLIED AUTHORITY - TO ACT ACCORDING TO CUSTOM OR ACCORDING TO ORDINARY COURSE OF BUSINESS - SUGAR MARKET USAGEAGENCY - RELATIONS BETWEEN AGENTS AND THIRD PERSONS - LIABILITIES OF AGENT - ON CONTRACTS IN GENERAL - CONTRACTS ON BEHALF OF FOREIGN PRINCIPAL - IN GENERAL - AGENT'S RIGHT OF STOPPAGE IN TRANSITU AGENCY - RELATIONS BETWEEN PRINCIPAL AND AGENT - DUTIES OF AGENTS TO PRINCIPALS - GENERAL DUTIES - EXERCISE OF DISCRETION WHERE INSTRUCTIONS AMBIGUOUS - AGENT ADOPTING REASONABLE CONSTRUCTION AGENT NOT LIABLE An agent who buys goods on commission for shipment to a principal abroad is to some extent in the position of a vendor, and has the vendor's right of stoppage in transitu (Blackburn, J). Where a letter of orders constituting a contract from a merchant to his commission agent is so worded as to be capable of two interpretations, if the agent fairly and honestly assumes it to bear one of those interpretations, and acts on that assumption, the merchant cannot be released from his contract on the ground that he intended it to bear the other. As the error arose from his own indistinctness of expression, he must bear the loss. A wrote to B & Co, at Mauritius, desiring them to ship him 500 tons of sugar at 26s 9d to cover freight and insurance, adding Fifty tons more or less of no moment, if it enables you to get a suitable vessel. I should prefer the option of sending vessel to London, Liverpool, or the Clyde; but if that is not compassable, you may ship to either Liverpool or London. B & Co could only procure, at the price mentioned, nearly 400 tons, which they purchased from several different persons, and shipped in one vessel to Liverpool. A refused the cargo, and wrote to cancel the order so as to prevent any further shipment: Held in the circumstances, A was bound to accept the cargo.
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(1) L wrote to I and Company at Mauritius, desiring them to ship him 500 tons of sugar at 26s 9d, to cover freight and insurance: adding, 50 tons more or less of no moment, if it enables you to get a suitable vessel. I should prefer the option of sending vessel to London, Liverpool, or the Clyde; but if that is not compassable, you may ship to either Liverpool or London. I and Company could only procure, at the price mentioned, nearly 400 tons, which they purchased from several different persons, and shipped in one vessel to Liverpool. L refused the cargo, and wrote to cancel the order so as to prevent any further shipment: Held under the circumstances L was bound to accept the cargo. (2) The terms at a price, to cover cost, freight and insurance, payment by acceptance on receiving shipping documents, are very usual, and are perfectly well understood in practice. The invoice is made out debiting the consignee with the agreed price, or the actual cost and commission, with the premiums of insurance, and the freight, as the case may be, and giving him credit for the amount of the freight which he will have to pay to the ship-owner on actual delivery, and for the balance a draft is drawn on the consignee which he is bound to accept, if the shipment be in conformity with his contract, on having handed to him the charterparty, bill of lading, and policy of insurance (Blackburn J). ii. Robinson v Mollett (1875) LR 7 HL 802 AGENCY - AUTHORITY OF THE AGENT - IMPLIED AUTHORITY - TO ACT ACCORDING TO CUSTOM OR ACCORDING TO ORDINARY COURSE OF BUSINESS - INTRINSIC CHARACTER OF ACTUAL AUTHORITY MUST NOT BE CHANGED AGENCY - RELATIONS BETWEEN PRINCIPAL AND AGENT - DUTIES OF AGENTS TO PRINCIPALS - GENERAL DUTIES - OTHER CASES OF AGENT'S BREACH OF DUTY - WHERE AGENT SELLS HIS OWN PROPERTY TO PRINCIPAL - AGENT CANNOT SELL HIS OWN PROPERTY NOTWITHSTANDING ANY USAGE TO THE CONTRARY A person who employs a broker to transact business for him in a market with the usages of which the principal is unacquainted gives him authority to contract upon the footing of such usages, provided that they are only such as relate to the mode of performing the contract, and do not change its intrinsic character. A custom in a particular market that a broker who has purchased, and is purchasing, goods of a particular kind, in his own name, may take portions of those goods and supply them to principals who have employed him in his character of broker to buy such goods for them, is one of a peculiar nature, and cannot be supported as against a principal not proved to have been acquainted with it when he gave his order. R, a merchant in Liverpool, gave orders to a tallow broker in London to buy certain quantities of tallow for him. The broker did not buy the specified quantities from any person, though he sent bought-notes in the usual form, Bought of A on your account: both before and after the order he bought from various persons, in his own name, larger quantities of tallow, proposing to allot to R the quantities R had desired to be bought. On R's refusal to accept, the broker sold the tallow, and brought an action for the differences: Held though the evidence showed such a mode of dealing to be the usage in the London
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tallow market, the action was not maintainable against a principal who did not appear to have had knowledge of its existence. A custom in a particular market that a broker who has purchased, and is purchasing, goods of a particular kind, in his own name, may take portions of those goods and supply them to principals who have employed him in his character of broker to buy such goods for them, is one of a peculiar nature, and cannot be supported as against a principal not proved to have been acquainted with it when he gave his order. Although a person who as principal employs a broker to transact business for him in a particular market is bound by the usage of that market, though unknown to him, provided the usage is one that merely regulates the mode of performing the contract and does not change the intrinsic character of the contract, yet where the usage is one which gives the broker an interest at variance with his duty, as by converting him into a principal instead of a mere agent to establish privity of contract between two principals, such a usage is not binding on a principal who, being ignorant of the usage, employs a broker to whom the usage is known to perform the ordinary and accustomed duties belonging to the office or employment of a broker. The principal is not bound to inquire what the usage may be, or whether there be any particular usage affecting the market in which he proposes to deal. Appellant, a Liverpool merchant, employed respondents, brokers of London, to buy tallow for him in the London tallow market. They having other orders bought in their own name a quantity sufficient to cover all their orders, and by letter informed appellant that they had bought on his account so many tons, but did not mention the name of the seller. A few days after they sent him notice that they were already to deliver to him so many casks of tallow in fulfilment or part fulfilment of his order, but did not allude to any third party as the seller. Appellant acknowledged the receipt of these notices without observation. There was a usage on the London tallow market for brokers when they received orders to contract in their own names, and if their principals refused to accept or deliver, to buy or sell against them, and charge them with the loss. Appellant was ignorant of this usage. On becoming aware of it, and of the mode in which his order had been executed, tallow: having in the meantime fallen, he refused to take the tallow: Held (1) as respondents were employed to act as brokers only, the usage which converted them into principals was inconsistent with the employment, and as appellant was ignorant of it when he gave his orders, he was not bound by the usage; (2) as the first notice sent by the brokers was that they had bought on appellant's account, he was not thereby put on inquiry as to the usage or as to the name of the seller; (3) he was not bound to accept when it turned out that his own brokers might in fact be the vendors, or to pay them the difference between the price at which they bought and that at which they sold in consequence of his having refused the contract. Although a usage may control the mode of performing a contract, it cannot change its intrinsic character. A custom in a particular market that a broker who has purchased, and is purchasing, goods of a particular kind, in his own name, may take portions of those goods and supply them to principals who have employed him in his character of broker to buy such goods
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for them, is one of a peculiar nature, and cannot be supported as against a principal not proved to have been acquainted with it when he gave his order. R, a merchant in Liverpool, gave orders to a tallow broker in London to buy certain quantities of tallow for him. The broker did not buy the specified quantities from any person, though he sent bought notes in the usual form: Bought of A on your account, but, before and after the order, he bought from various persons, in his own name, larger quantities of tallow, proposing to allot to R the quantities R had desired to be bought. On Rs refusal to accept, the broker sold the tallow, and brought an action for the differences: Held though the evidence showed such a mode of dealing to be the usage in the London tallow market, the action was not maintainable against a principal who did not appear to have had knowledge of its existence. Customs of trade, as distinguished from other customs, are generally courses of business invented or relied upon in order to modify or evade some application which has been laid down by the courts, of some rule of law to business, and which application has seemed irksome to some merchants; and when some such course of business is proved to exist in fact, and the binding effect of it is disputed, the question of law seems to be, whether it is in accordance with fundamental principles of right and wrong. A stranger to a locality or trade, or market, is not held to be bound by the custom of such locality, trade, or market, because he knows the custom, but because he has elected to enter into transactions in a locality, trade, or market wherein all who are not strangers do know and act upon such custom. The question, therefore, I submit, in the present case is, whether the alleged custom is not too much in favour of the brokers who set it up, whether it does not pass beyond due freedom and degenerate into injustice. If the custom which exists in fact is not unjust, as against principals ignorant of it, your Lordships will uphold it, however much it departs from the rules hitherto recognised by the courts as applicable to the contract of employment between principals and brokers, but if it so far breaks from those rules as to be unjust to such principals in such contract, your Lordships will pronounce it to be void as a custom (Brett J). iii. Aluminium Industrie Vaassen BV v Romalpa Aluminium Ltd [1976] Sale of goods Passing of property Vendor retaining property in goods Duty of purchaser to account for proceeds of sub-sales Fiduciary duty as agent and bailee of goods Right of vendor to trace and recover proceeds of sub-sales in priority to other creditors of purchaser Contract reserving property in goods after delivery until full price paid Implied power of purchaser to sell goods as agent of vendor Implied duty to account to vendor for proceeds of sub-sales Purchaser in financial difficulties Receiver appointed Whether vendor entitled to trace and recover proceeds of sub-sales in priority to secured and unsecured creditors. The plaintiffs, a Dutch company which manufactured aluminium foil in Holland, sold quantities of foil to the defendants, an English company carrying on business in England. Clause 13 of the general selling terms and conditions which governed the individual contracts provided: 'The ownership of the material to be delivered by [the plaintiffs] will only be transferred to [the defendants] when [they have] met all that is owing to [the plaintiffs]. Until the date of payment [the defendants could be required] to store this material in such a way that it is clearly the property of [the plaintiffs].' Clause 13 then
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continued with elaborate provisions to deal with cases in which, after delivery, the foil had been mixed with other material by the defendants for the purpose of creating new 'objects'. The clause provided that in those circumstances the ownership of any such objects was to be transferred to the plaintiffs as 'surety' for 'full payment' and until full payment had been made the defendants were to keep the mixed goods for the plaintiffs as 'fiduciary owner'. The defendants were also given an express power of sale over such 'mixed' goods on condition that, so long as the defendants had not fully discharged their indebtedness to the plaintiffs, they were, on request, to assign to the plaintiffs the benefit of any claim against sub-purchasers. Subsequently the defendants got into serious financial difficulties and a receiver was appointed by the debenture holders. At the date of his appointment the defendants were indebted to the plaintiffs for over 122,000. Following his appointment, the receiver certified that 35,152 was held by him representing the proceeds of sale of unmixed aluminium foil supplied by the plaintiffs to the defendants and sold by the latter to third parties. The plaintiffs claimed that, by virtue of cl 13 of the general conditions, they were entitled to that sum in priority to the secured and unsecured creditors. Held In order to give effect to the obvious purpose of cl 13, that clause was to be construed as conferring on the defendants a power to sell unmixed foil and also as imposing on them an obligation to account to the plaintiffs for the proceeds of sale unless and until all moneys owing from the defendants to the plaintiffs had been paid. Although, so far as sub-purchasers were concerned, the defendants sold the unmixed foil as principals, so far as the plaintiffs were concerned, the foil was the plaintiffs' property which the defendants were selling as agents for the plaintiffs to whom, by virtue of their fiduciary relationship as agents and bailees, they remained fully accountable. It followed therefore that the plaintiffs were entitled to trace the proceeds of sale of the unmixed foil and to recover them in priority to the secured and unsecured creditors. Re Hallett's Estate (1880) 13 Ch D 696 applied 3) Confirming houses i. Sobell Industries Ltd v Cory Brothers & Co [1955] 2 Lloyds Rep 82 4) Del credere agent i. Gabriel & Sons v Churchill & Sim [1914] 3 KB 1272 AGENCY - NATURE AND FORMATION - CLASSES OF AGENTS - DEL CREDERE AGENT The obligation of a del credere agent on a sale of goods to an undisclosed buyer does not extend to make him the person with whom the seller is entitled, if he wishes, to litigate any disputes that arise out of the contract and ascertain what is due upon it. It does not extend further than that, where there is an ascertained amount or certain sums due as a debt from the buyer to the seller, and the buyer fails to pay that amount either through insolvency or something that makes it as impossible to recover as in the case of insolvency, the broker has to answer for that default by reason of his having received a del credere commission.
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5) Forwarding agent *Please refer to subject Guide. 6) Commercial agent *Please refer to subject Guide.
C. Creation of Agency
i. RV Ward Ltd v Bignall [1967] 1 QB 534 SALE OF GOODS - RIGHTS OF UNPAID SELLER AGAINST GOODS - RESALE BY SELLER - IN GENERAL - WHETHER AMOUNTING TO RESCISSION OF CONTRACT If an unpaid seller of goods in possession of the goods re-sells the goods, or, part of them as he is entitled to do under Sale of Goods Act 1979 s 48 (3), the contract of sale is rescinded, with the consequences that the buyer is discharged from any further liability to pay the price and the seller is entitled to retain the proceeds of the resale, whether they be greater or less than the contract price, and in addition to sue the buyer for damages for non-acceptance if the resale, after deducting its extra expenses, realizes less than the contract price. On May 6, 1965, plaintiff contracted with defendant for the sale to the defendant of two motor cars, a Vanguard and a Zodiac, for a total price of 850, of which defendant paid a deposit of 25. Defendant repudiated the contract. On the same day (May 6) plaintiffs solicitors, wrote to defendant notifying him, among other matters, that if he failed to pay the balance by May 11, plaintiff would endeavour to re-sell the cars. Defendant did not pay the price. On May 24, 1965, plaintiff sold the Vanguard for 350. Plaintiff having failed to sell the other car, subsequently brought an action against defendant for damages, being the balance of the total purchase price (475) and advertising expenses (22 10s). On appeal by defendant against an award of such damages: Held the re-sale of the Vanguard by plaintiff, as unpaid seller, constituted a rescission of the contract of sale with defendant; therefore plaintiff was not entitled to recover the balance of the purchase price but only damages (47 10s) for loss sustained by defendant buyers default. Per Diplock LJ: in modern times very little is needed to give rise to the inference that the property in specific goods is to pass only on delivery or payment. ii. Chaudhry v Prabhakar [1989] 1 WLR 29 AGENCY - RELATIONS BETWEEN PRINCIPAL AND AGENT - DUTIES OF AGENTS TO PRINCIPALS - CARE, SKILL AND DILIGENCE - GRATUITOUS AGENTS - DUTY OF CARE GRATUITOUS AGENT FINDING SECONDHAND CAR FOR FRIEND The plaintiff, who had recently passed her driving test and knew nothing about cars, asked the first defendant, a close friend who, although not a mechanic, had some knowledge of cars, to find a suitable secondhand car for her to buy. She stipulated that such a car should not have been involved in an accident. The first defendant found a
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one-year-old low-mileage car being offered for sale by the second defendant, a car sprayer and panel beater. The first defendant noticed that the bonnet had been crumpled and straightened or replaced but thought that the car was in good condition and recommended that the plaintiff buy it, which she did for 4,500. A few months later it became apparent that the car had been involved in a very bad accident, had been poorly repaired and was unroadworthy. The plaintiff sued the defendants and was awarded damages against both defendants by the judge, who held that the first defendant was in breach of his duty to take reasonable care and the second defendant was in breach of the implied term that the car was of merchantable quality. The first defendant appealed: Held (May LJ dubitante), a gratuitous agent who offered to purchase a secondhand car on behalf of another owed the buyer a duty of care to exercise the degree of care and skill which could reasonably be expected of him in all the circumstances, that degree of care and skill being measured objectively and not subjectively. Since the first defendant knew that the plaintiff was relying on him and since he ought to have been put on inquiry, by the crumpled bonnet and the second defendant's trade, as to whether the car had been involved in an accident, he was in breach of that duty. The appeal would therefore be dismissed. Per Stuart-Smith LJ. When considering the question of whether a duty of care arises, the relationship between the parties is material: if they are friends the true view may be that the advice or representation is made on a purely social occasion and that the circumstances show that there is no voluntary assumption of responsibility. iii. AMB Imballaggi Plastici SRL v Pacflex Ltd [1999] 2 All ER (Comm) 249 CONTRACT - AGENCY TRADING BETWEEN PLAINTIFF AND DEFENDANT ON SALE AND RE-SALE BASIS WHETHER DEFENDANT ACTING AS PLAINTIFFS COMMERCIAL AGENT COMMERCIAL AGENT (COUNCIL DIRECTIVE) REGULATIONS 1993, REG 2(1). The plaintiff had obtained judgment in part in relation to goods sold by it to the defendant. The defendant did not contest that the plaintiff was entitled to judgment for the remainder of the price, subject to a counterclaim by which it contended that the trading carried on between it and the plaintiff, which had led to the price being due for goods supplied by the plaintiff, had been carried on under a commercial agency contract within the Commercial Agent (Council Directive) Regulations 1993 which, the defendant contended, entitled it to compensation under reg 17. Commercial agent was defined in reg 2(1) as a self-employed intermediary who has continuing authority to negotiate the sale or purchase of goods on behalf of another person (the principal), or to negotiate and conclude the sale or purchase of goods on behalf and in the name of that principal. The judge found that at no time had any contract been formalised under which the defendant was obliged to act as the plaintiffs agent or under which the defendant was bound to act as distributor of the plaintiffs goods, and that although the plaintiff might have been prepared to deal with the defendant on an agency basis, the defendant had in fact chosen to deal on a sale and re-sale basis, charging a mark-up chosen by it and not dictated by the plaintiff. Accordingly, he dismissed the defendants counterclaim. The defendant appealed. Held: The appeal would be dismissed. The question whether a person was a commercial agent could be straightforwardly stated by reference to the words used in the definition in reg 2(1): if a person bought or sold as principal he was outside the ambit of the
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regulations, because he was acting on his own behalf and not on behalf of another. All the regulations pointed in the direction of the words on behalf of meaning what an English court would naturally construe them as meaning. In the instant case, the defendant had never in fact acted as an agent negotiating on behalf of another at all and, furthermore, there had never been a contract between the parties under which the defendant had had continuing authority to act on behalf of the plaintiff. Accordingly, on the facts of the instant case, the judges decision that the defendants counterclaim failed was correct. iv. Mercantile International Group plc v Chuan Soon Huat Industrial Group Ltd [2002] EWCA Civ 288 AGENCY - AGENT COMMERCIAL AGENT MEANING CLAIMANT APPLYING MARK-UP ON PRICE OF GOODS RECEIVED FROM DEFENDANT PRIOR TO PASSING GOODS ON TO THIRD PARTIES WHETHER CLAIMANT ACTING AS DEFENDANT'S COMMERCIAL AGENT COMMERCIAL AGENTS (COUNCIL DIRECTIVE) REGULATIONS 1993, REG 2(1) The defendant was a Singaporean manufacturer of timber products. The claimant acted as its UK representative. The claimant entered into contracts with third parties on terms which stated that those contracts were with the defendant and that the claimant acted as agent only. Those contracts were confirmed, in slightly different terms, by the claimant to the defendant. The defendant knew that the claimant charged more to the third parties than it confirmed to the defendant (the mark-up), but did not care to know detail about it. In proceedings between the claimant and defendant, a preliminary question was posed in the following terms: Whether [the claimant was] a commercial agent within the meaning of the [Commercial Agents (Council Directive) Regulations 1993]. Those regulations provided, by reg 2(1), that: commercial agent means a self-employed intermediary who has continuing authority to negotiate the sale or purchase of goods on behalf of another person (the principal) or to negotiate and conclude the sale or purchase of goods on behalf and in the name of that principal The judge held that the claimant had, within the meaning of reg 2(1), been acting as commercial agent. The defendant appealed on the ground that the relationship between the defendant and claimant was in truth one of sale and resale, as evidenced by the mark-up, and authority indicated that such a relationship could not be one of agency. Held The appeal would be dismissed. In the instant case there was documentation which purported to describe the relationship between the defendant, the claimant, and the third parties in terms whereby direct contracts were brought into existence between the defendant and the third parties through the agency of the claimant. The absence of such documentation had, in previous authorities, been critical in finding that there had not been a relationship of agency and in such circumstances, the defendants submission that the relationship between it and the claimant was not one of agency depended on saying that such documentation was a sham. Accordingly, in the instant case, although there was a mark-up, the significance of that was overwhelmed by the underlying documentation, and the relationship between the defendant and the claimant was one of agency.
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D. The actual authority of the agent

1. Actual authority of the agent
i. Jacobs v Morris [1902] 1 Ch 816 AGENCY - AUTHORITY OF THE AGENT - CONSTRUCTION OF AUTHORITY POWERS OF ATTORNEY - INCIDENTAL POWERS IMPLIED MONEY POWER TO BORROW AGENCY - RELATIONS BETWEEN PRINCIPAL AND THIRD PERSONS CONTRACTUAL RELATIONS - NOTICE TO AGENT - NOTICE TO THIRD PARTY OF LIMITATION OF AGENT'S AUTHORITY - WHERE AGENT IS KNOWN TO ACT UNDER FORMAL OR WRITTEN INSTRUCTIONS - AGENT ACTING PROFESSEDLY UNDER POWER OF ATTORNEY Plaintiff was sole partner in an Australian firm. Defendants had dealt with his firm since 1889. In January 1899, plaintiff gave to his agent in England a power of attorney to purchase goods in connection with plaintiff's business, and either for cash or on credit, and for me and on my behalf, and where necessary in connection with any purchase made on my behalf as aforesaid or in connection with my business, to make, draw, sign, accept, or indorse any bills of exchange or promissory notes which should be requisite or proper, and to sign plaintiff's name, or his trading name, to any cheques on his banking account in London. The attorney, purporting to act under the power, obtained from defendants a loan of 4,000, and accepted bills of exchange for that amount in the name of the firm per pro himself. He represented to defendants that he had full power to borrow, and produced the power, but they accepted his word, and did not read the power. The 4,000 was paid by two cheques of defendants in favour of plaintiff's firm. The attorney indorsed these cheques, and paid them into the London banking account of plaintiff's firm. He afterwards drew out the whole sum, and applied it to his own purposes. Plaintiff brought this action to restrain negotiation of the bills. Defendants counterclaimed for payment of the money due on the bills, or, in the alternative, for the 4,000 as money had and received by plaintiff to their use. The judge found that plaintiff had no knowledge of the borrowing by the attorney, and got no benefit from it: Held (1) the power of attorney conferred no general power to borrow, and the claim for the money due on the bills of exchange failed; (2) defendants must be taken to have had notice of the terms of the power and that the attorney had no general power to borrow; (3) they could not recover the 4,000 as money had and received by plaintiff to their use. Plaintiff was sole partner in an Australian firm. Defendants had dealt with his firm since 1889. In January 1899, plaintiff gave to his agent in England a power of attorney to purchase goods in connection with plaintiff's business, and either for cash or on credit, and for me and on my behalf, and where necessary in connection with any purchases made on my behalf as aforesaid or in connection with my business, to make, draw, sign, accept, or indorse any bills of exchange or promissory notes which should be requisite or proper, and to sign plaintiff's name, or his trading name, to any cheques on his banking account in London. The attorney, purporting to act under the power, obtained from defendants a loan of 4,000, and accepted bills of exchange for that amount in the name of the firm per pro himself. He represented to defendants that he had full power to borrow,
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and produced the power, but they accepted his word, and did not read the power. The 4,000 was paid by two cheques of defendants in favour of plaintiff's firm. The attorney indorsed these cheques and paid them into the London banking account of plaintiff's firm. He afterwards drew out the whole sum, and applied it to his own purposes. Plaintiff brought an action to restrain negotiation of the bills. Defendants counterclaimed for payment of the money due on the bills, or, in the alternative, for the 4,000 as money had and received by plaintiff to their use. The judge found that plaintiff had no knowledge of the borrowing by the attorney, and got no benefit from it: Held (1) the power of attorney conferred no general power to borrow, and the claim for the money due on the bills of exchange failed; (2) defendants must be taken to have had notice of the terms of the power and that the attorney had no general power to borrow; (3) they could not recover the 4,000 as money had and received by plaintiff to their use. Plaintiff carried on business as a tobacco merchant in Melbourne, Australia, under a firm name. He also had a London office bearing the firm name, at which the business of purchasing and paying for goods in London and shipping them to Melbourne was carried on. While absent in Australia he appointed an agent at the London office under a power of attorney, describing him (plaintiff) as of Melbourne trading as a tobacco merchant under the firm name, and authorising the agent for him (plaintiff) and in his name, or in his trading name, to purchase and to make any contract for the purchase of any goods in connection with the business carried on by me as aforesaid, and to make such purchase either for cash or on credit, with power to modify or cancel the contracts for purchase, and where necessary in connection with any purchase made on my behalf as aforesaid, or in connection with my business, to make, draw, sign, accept, or indorse any bills of exchange or promissory notes which should be requisite or proper in the premises, and to sign plaintiffs name or his trading name to any cheques on his banking account in London. The agent, purporting to act under the power of attorney, obtained a loan of 4,000 from defendants, a firm of cigar merchants in London who had previously had frequent business dealings, including loan transactions, with plaintiff. On applying for the loan the agent, who was well known to defendants, represented that the power of attorney authorised him to borrow money, and that the loan was required for the purposes of plaintiffs business. At the same time he produced to them the power itself, but, being satisfied with his assurances, they did not read it. On receiving the 4,000 the agent handed to defendants as security bills of exchange for the amount accepted in his own name per pro plaintiffs firm. He then paid the 4,000 into plaintiffs London banking account, drew it out by cheques drawn by him under the power, and applied it to his own use. Plaintiff, being at the time in Australia, had no knowledge of the loan transaction. In an action by him against defendants to restrain them from negotiating the bills upon the ground that they had been accepted without his authority, and upon a counter-claim by defendants against plaintiff for the 4,000 as money had and received by him to their use: Held the primary cause of the loss of the 4,000 was the neglect by defendants of ordinary business precautions when lending the money to the agent, and they were estopped by such neglect, and also by constructive notice that the agent had no power to borrow, from claiming it as money had and received by plaintiff to their use. Plaintiff carried on business as a tobacco merchant in Melbourne, Australia, under a firm name. He also had a London office bearing the firm name, at which the business of purchasing and paying for goods in London and shipping them to Melbourne was carried
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on. While absent in Australia he appointed an agent at the London office under a power of attorney, authorising him in plaintiff's name, or in plaintiff's trading name, to purchase and to make any contract for the purchase of any goods in connection with the business carried on by me as aforesaid, and to make such purchase either for cash or on credit, with power to modify or cancel the contracts for purchase, and where necessary in connection with any purchase made on my behalf as aforesaid, or in connection with my said business, to make, draw, sign, accept, or indorse any bills of exchange or promissory notes which should be requisite or proper in the premises, and to sign plaintiff's name or his trading name to any cheques on his banking account in London. The agent, purporting to act under the power of attorney, obtained a loan of 4,000 from defendants, a firm of cigar merchants in London who had previously had frequent business dealings, including loan transactions, with plaintiff. On applying for the loan the agent, who was well known to defendants, represented that the power of attorney authorised him to borrow money, and that the loan was required for the purposes of plaintiff's business. At the same time he produced to them the power itself, but, being satisfied with his assurances, they did not read it. On receiving 4,000 the agent handed to defendants as security bills of exchange for the amount accepted in his own name per pro plaintiff's firm. He then paid the 4,000 into plaintiff's London banking account, drew it out by cheques drawn by him under the power, and applied it to his own use. Plaintiff, being at the time in Australia, had no knowledge of the loan transaction. In an action by him against defendants to restrain them from negotiating the bills upon the ground that they had been accepted without his authority, and upon a counter-claim by defendants against plaintiff for the 4,000 as money had and received by him to their use: Held (1) the power of attorney gave the agent power to purchase only, with such powers as were necessarily implied by the appointment of the agent as purchasing agent, and did not confer authority to borrow; (2) the primary cause of the loss of the 4,000 was the neglect by defendants of ordinary business precautions when lending the money to the agent, and they were therefore estopped by this neglect, and also by constructive notice that the agent had no power to borrow, from claiming it as money had and received by plaintiff to their use.
2.
Definition of actual authority
i. Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 AGENCY - NATURE AND FORMATION - FORMATION OF AGENCY - AGENCY BY ESTOPPEL - OSTENSIBLE AUTHORITY K, who carried on business as a property developer, entered into a contract to purchase an estate. He had not enough money to pay for it and obtained financial assistance from H. They formed a limited company with a share capital of 70,000, subscribed equally by K and H, to buy the estate with a view to selling it for development. K and H, with a nominee of each, comprised the board. The quorum of directors was, by the articles of association, four. H was at all material times abroad. There was power under the articles to appoint a managing director, but the board did not in fact do so. K to the knowledge of the board acted as if he were managing director of the company in relation to finding a purchaser for the estate and, again, without express authority of the board, employed on behalf of the company a firm of architects and surveyors for the submission of an
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application for planning permission, preparing an appeal against a refusal of permission, preparing plans and defining estate boundaries. The firm claimed from the company their fees for work done: Held the company was liable for the fees claimed because: (1) K throughout acted as managing director to the knowledge of the company and thus was held out by the company as being managing director, and the ostensible authority thus conferred could bind the company since its articles of association in fact provided for there being a managing director of the company; (2) K's act in employing plaintiffs was within the ordinary ambit of the authority of such a managing director; (3) the fact that plaintiffs had not examined the company's articles of association and had not enquired whether K was properly appointed managing director did not prevent their establishing their claim against the company based on their reliance on K's ostensible authority. Per Diplock, LJ: to entitle a contractor to enforce against a company a contract entered into on behalf of the company by an agent who had no authority to do so four conditions must be fulfilled, viz (a) a representation that the agent had authority to enter on behalf of the company into a contract of the kind sought to be enforced must have been made to the contractor; (b) the representation must have been made by a person or persons who had actual authority to manage the business of the company either generally or in respect of those matters to which the contract related; (c) the contractor must have been induced by the representation to enter into the contract; and (d) the company must not have been deprived, under its memorandum or articles of association, of the capacity either to enter into a contract of the kind sought to be enforced or to delegate authority to the agent to enter into a contract of that kind. K, who carried on business as a property developer, entered into a contract to purchase an estate. He had not enough money to pay for it and obtained financial assistance from H. They formed a limited company with a share capital of 70,000, subscribed equally by K and H, to buy the estate with a view to selling it for development. K and H, with a nominee of each, comprised the board. The quorum of directors was, by the articles of association, four. H was at all material times abroad. There was power under the articles to appoint a managing director, but the board did not in fact do so. K to the knowledge of the board acted as if he were managing director of the company in relation to finding a purchaser for the estate and, again, without express authority of the board, employed on behalf of the company a firm of architects and surveyors for the submission of an application for planning permission, preparing an appeal against a refusal of permission, preparing plans and defining estate boundaries. The firm claimed from the company their fees for work done: Held the company was liable for the fees claimed because: (1) K throughout acted as managing director to the knowledge of the company and thus was held out by the company as being managing director, and the ostensible authority thus conferred could bind the company since its articles of association in fact provided for there being a managing director of the company; (2) Ks act in employing plaintiffs was within the ordinary ambit of the authority of such a managing director; (3) the fact that plaintiffs had not examined the companys articles of association and had not enquired whether K was properly appointed managing director did not prevent their establishing their claim against the company based on their reliance on Ks ostensible authority. Per Diplock, LJ: to entitle a contractor to enforce against a company a contract entered into on behalf of the company by an agent who had no authority to do so, four conditions
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must be fulfilled, viz: (a) a representation that the agent had authority to enter on behalf of the company into a contract of the kind sought to be enforced must have been made to the contractor; (b) the representation must have been made by a person or persons who had actual authority to manage the business of the company either generally or in respect of those matters to which the contract related; (c) the contractor must have been induced by the representation to enter into the contract; and (d) the company must not have been deprived, under its memorandum or articles of association, of the capacity either to enter into a contract of the kind sought to be enforced or to delegate authority to the agent to enter into a contract of that kind.
3.
Express actual authority
i. Aviva Life & Pensions UK Ltd v Strand Street Properties Ltd [2010] EWCA Civ 444 at 54 CONTRACT - CONSTRUCTION CONTRACTUAL TERM CLAIMANT COMPANY ALLEGING THIRD PARTY COMPANY ENTERING INTO FEE SHARING AGREEMENT IN RELATION TO PROPOSED DEVELOPMENT SCHEME ON DEFENDANT'S COMPANY BEHALF CLAIMANT BRINGING PROCEEDINGS AGAINST DEFENDANT FOR MONIES DUE UNDER ALLEGED AGREEMENT WHETHER THIRD PARTY MAKING AGREEMENT ON DEFENDANT'S BEHALF - WHETHER CLAIM SHOULD HAVE BEEN BROUGHT IN DEBT OR FOR AN ACCOUNT The proceedings concerned a claim brought by the claimant company against the defendant company in the sum of 643,353.63, inclusive of VAT, which was alleged to represent 50 per cent of the costs paid by the claimant in progressing a proposed development scheme. The claimant alleged that loans had been made pursuant to an agreement made with the defendant, on 2 July 2001. The claimant alleged that the agreement, which was binding on the defendant, had been made on the defendant's behalf by LPE Ltd, a third party company. The defendant, inter alia, denied that there was any relevant agreement as to payment to the claimant of a contribution towards costs incurred by the claimant in progressing the development scheme. The judge found that there had been an agreement. He found that LPE Ltd had agreed with the claimant that both sides would continue to work towards a development in which both sides would be involved and that the fees involved in working towards the development would be shared equally between the two sides. He found LPE Ltd had held itself out as acting as agent for the defendant rather than as principal. He found that the defendant had delegated its authority to LPE Ltd. Conseuently, he found that LPE Ltd had had implied actual authority, on behalf of the defendant, to make the fee sharing agreements which had been relied upon by the claimant. Accordingly, he held that the claimant would be entitled to judgment in the sum of 643,353.63. The defendant appealed. The defendant argued that: (i) there had not been a binding agreement at all; (ii) if there had been an agreement, it was not bindingm as LPE Ltd did not have authority to act on their behalf and (iii) any claim should have been brought in account, rather than debt. The appeal would be dismissed. In the circumstances, the judge had been correct to find that a consensus had been reached at the meeting on 2 July 2001, that the consensus had been properly reached and was properly explained. The agreement had been supported by consideration. The judge had
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also been correct to find that LPE Ltd had been authorised to enter into the fee sharing agreement on behalf of the defendant. Accordingly there had been an agreement, which was binding on the defendant. The claim was correctly brought in debt (see [47], [51], [66] and [81] of the judgment). ii. SMC Electronics Ltd v Akhter Computers Ltd [2001] 1 BCLC 433 CONTRACT - AGENT AUTHORITY APPARENT AUTHORITY AGENT ENTERING INTO CONTRACT ON PRINCIPAL'S BEHALF WHETHER AGENT HAVING ACTUAL AUTHORITY WHETHER AGENCY AGREEMENT AMBIGUOUS. DB was employed by S, a division of A Ltd, as Director PSU Sales, although he was not a director of any company in A Ltds group. PSU referred to power supply units, which A Ltd sold. PB, a large manufacturer, approached SMC for a quote for the supply of a number of such units known as the B900 project. SMC was unable to fulfil the order itself and approached DB. DB purported to conclude an agreement with SMC on behalf of S. The agreement, the terms of which were drafted by SMC, provided, inter alia, that SMC will do its utmost to sell and distribute S products however on the occasions where we would have to pass on the project to S, we agree to do so based on our agreement that the total profit will be shared equally This will not only apply to the current project, but any future projects and orders generated from the customer identified . PB eventually awarded the project to S and A Ltds group supplied a large number of units, subsequently supplying units other than the B900 project. A Ltd denied that DB had actual or ostensible authority to enter the agreement on A Ltds behalf, and refused to pay any commission under the agreement. SMC brought an action for the commission. The judge allowed SMCs claim and declared that SMC was entitled under the agreement to 50% of the profits A Ltd had made on the sales of all units to PB, not simply the B900 project. A Ltd appealed. A Ltd argued that the judge was wrong to find any authority on the part of DB to enter into the agreement, and also that the judge was wrong to hold that the agreement, if it were binding, would apply to all contracts subsequently concluded between A Ltd and PB, rather than only the B900 project. Held The appeal would be allowed in part. On the facts, it was clear that DB had actual authority from A Ltd to enter into the agreement on behalf of S. Applying established academic authority, even if DBs employment contract were ambiguous on the point, the act of entering into the agreement, if done in good faith by him, and if justified by any possible construction, would have been authorised by the ambiguous clause, even if the construction adopted and acted upon by him was not that intended by his principal. On a true construction of the agreement, it was clear that SMCs commission was limited to the B900 project, and the account of profits would be limited accordingly.
What if the instructions from the principal to the agent are ambiguous?
i. ii. Ireland v Livingston (1872)i above Midland Bank Ltd v Seymour [1955] 2 Lloyds Rep 147 BANKING - DOCUMENTARY CREDITS AMBIGUOUS INSTRUCTIONS TO BANK CREDIT TO BE MADE AVAILABLE AGAINST DELIVERY OF CERTAIN DOCUMENTS FULL PARTICULARS CONTAINED IN TENDERED DOCUMENTS AUTHORITY OF BANK TO PAY DUTY OF CARE OWED BY
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BANK TO CUSTOMER ALLEGED NEGLIGENT OMISSION BY BANK TO PASS ON INFORMATION RECEIVED AFFECTING TRANSACTION iii. European Asian Bank AG v Punjab & Sind Bank (No 2) [1983] 1 WLR 642 PRACTICE AND PROCEDURE - DISPOSAL OF PROCEEDINGS WITHOUT TRIAL - SUMMARY JUDGMENT - SUMMARY JUDGMENT UNDER ORDER 14 LEAVE TO SIGN JUDGMENT OR DEFEND - APPEALS FROM ORDER - APPEAL FROM ORDER GIVING UNCONDITIONAL LEAVE TO DEFEND TRIABLE ISSUES OF LAW INTERVENTION BY COURT OF APPEAL The plaintiffs claimed, under a letter of credit, to be negotiating bankers and that the defendants, as issuing bankers, were liable to them for a sum of money due under the letter of credit. The plaintiffs issued a summons for judgment under RSC Ord 14, but an order was made giving the defendants unconditional leave to defend the action. The judge decided that the question of whether the defendants were estopped from denying the plaintiffs entitlement to negotiate the letter of credit was a triable issue. The plaintiffs appealed against the order. Held, no special principles applied to an appeal to the Court of Appeal against an order giving unconditional leave to defend. In cases where it had been held that there was a triable issue of fact the Court of Appeal would be reluctant to interfere with that decision and decide that no trial should take place. However, where the appeal raised a point of law, as in the present case, the court would intervene more readily and would not hesitate to decide that point under Ord 14 in an appropriate case. The policy of the Order was to prevent delay in cases where there was no defence. In the present case, on construction of the relevant documents, there was a clear liability upon the defendants to pay to the plaintiffs the sum due under the letter of credit on the due date. There was no triable issue and no arguable defence to the plaintiffs claim. The appeal would be allowed and judgment given for the plaintiffs. iv. Patel v Standard Chartered Bank [2001] All ER (D) 66 ESTOPPEL - BANK CUSTOMER NEGLIGENCE AVAILABILITY AS DEFENCE BY BANK CUSTOMERS MANDATE FILLED OUT IRREGULARLY THIRD PARTY MAKING DISHONEST WITHDRAWALS CUSTOMER ARGUING WITHDRAWALS CONTRARY TO MANDATE BANK ARGUING CUSTOMER NEGLIGENT IN FILLING OUT MANDATE WHETHER CUSTOMER ESTOPPED FROM RECOVERING FROM BANK The claimants, who were brothers, lived in the USA and wished to establish savings accounts in the UK with the defendant bank in 1982. It was agreed that the claimants would open joint deposit accounts in US$ and sterling. The mandate signed by the claimants stated I/we have given my/our authority to . (vi) give instructions for or in relation to the purchase or sale of any foreign currencies. Other paragraphs provided powers for the procurator to draw, accept or endorse bills of exchange, cheques or promissory notes on the account holders behalf. There was a small asterisk beside each paragraph number and, at the bottom of the form, another asterisk and beside it the words delete any paragraph which is inappropriate. The mandate form was signed by the first claimant and by another person, BP. A circle was placed around the number (vi) on the form and a tick was placed beside it. BP never exercised the authority given to him, and in September 1985, the first claimant decided to transfer the authority to a
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relative, RP. The first claimant therefore obtained a fresh mandate from the bank, which was in a similar form, but the words delete any paragraph which is inappropriate were in very small print. He returned the form to the bank, with a manuscript circle around the number (vi) as on the previous form (but without a tick) and without deleting the other numbered paragraphs. The bank did not query whether the first claimant wanted the original mandate revoked, nor did it query the form in which the mandate in favour of RP was completed and returned. Statements for the account were redirected to RPs address as well. RP subsequently dishonestly withdrew all funds from the accounts. The claimants brought an action against the bank demanding repayment of all sums deposited by them with appropriate interest. The bank advanced two defences: (i) that it paid out the monies in accordance with instructions received from RP and that, in doing so, it acted within the terms of the mandate or on a reasonable interpretation of it; and (ii) that the claimants were estopped by breach of duty on the part of the first claimant from denying that the payments were made with the claimants authority. The bank submitted that, where an agent acted upon ambiguous instructions, he was not in default if he could show that he adopted what was a reasonable meaning, and that principle was capable of applying by analogy to the instant case. Held: The court ruled: (1) Where an agent received ambiguous instructions, the critical question was not limited to whether the agents interpretation was reasonable, it was whether he behaved reasonably in acting upon that interpretation. Although the relationship between the bank and the claimants was a contractual one of debtor and creditor, and not that of principal and agent, the principle relied upon by the bank was capable of applying by analogy, in certain circumstances in which a bank received a request from a customer. But it was not capable in applying in a case such as the present, where the mandate form was prepared by the bank and any irregularity in the way in which it was completed by the claimants was apparent on its face. Moreover, if the principle were capable of applying in such circumstances, it had not been reasonable in the instant case for the bank to disregard the highlighting of para (vi) and to treat the mandate as unqualified, without seeking clarification of the claimants intention. (2) The banks argument that a customer owed to a bank an implied contractual duty to report fraud of which the customer did not know, but which a putative reasonable person, possessing the same information as the customer, would have discovered, was unsound in principle and contrary to authority. It followed that the banks defence based on duty/estoppel would fail. On the facts, even if the claimants conduct were to be judged by that reasonably to be expected of the hypothetical average customer, the first claimant would not have been in breach of duty. v. Cooper v National Westminster Bank plc [2009] EWHC 3035 (QB) BANKING - BANK ACCOUNT INTEREST CLAIMANT ACCOUNT HOLDER OBTAINING BANKER'S DRAFT FROM DEFENDANT BANK CLAIMANT REQUESTING BANK TO SUPPLY REPLACEMENT DRAFT AND POST TO CLAIMANT DRAFT SENT TO BANK AND CLAIMANT COMPLAINING CLAIMANT SENDING LETTER TO BANK BANK REPLYING AND CREDITING CLAIMANT'S ACCOUNT WITH ORIGINAL AMOUNT, INTEREST AND EX GRATIA PAYMENT WHETHER CLAIMANT'S LETTER AMOUNTING TO SETTLEMENT WHETHER BANK INTERPRETING CLAIMANT'S LETTER IN GOOD FAITH
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The claimant was a retail customer of the defendant bank and maintained a current account at a branch of the bank. The claimant had addresses in both London and Dublin and carried on business as a trader. On 28 October 2002, the clamant gave instructions to the bank to draw on his account a draft expressed to be payable to P. The instructions were given in writing by the claimant who completed a standard printed form used by the bank. The claimant wanted the bank to issue a draft in favour of P in the euro equivalent of 135,000 and to send the draft to him at an address in Dublin. The requested draft (the original draft) was issued and the account was debited on 29 October 2002 with the sum of 135,000, together with a fee. The equivalent in euros of the sum of 135,000, at the date of the issue of the original draft was 213,327. The rate of exchange adopted for that transaction was thus 1 = 1.5802. The original draft was despatched to the claimant in Ireland and was received by him. However, he decided that he did not wish to use the original draft. Instead, he requested the bank to replace the original draft with a draft (the replacement draft) in the same euro sum, expressed to be payable to himself. The original draft was posted to the bank, but it did not arrive. On 29 November 2002, the claimant visited the bank and in the absence of the original draft, and in order to facilitate the issue of the replacement draft, the claimant completed an indemnity cover form. The bank was instructed that the replacement draft be sent to the claimant by post to an address in Dublin. Instructions were then given within the bank for the issue of the replacement draft, issued on or about 9 December 2002. The draft was instead sent to the bank. Subsequently, a letter (July letter) was sent from the claimants solicitors to the bank. The letter stated that 'it is plain that the claimant has lost the benefit of the interest which could have been added to the money from October. Could you please respond by return to inform us that the full amount is not in his account, together with interest at the rate payable by the bank from October 2002 to date.' At close of business on 31 July 2003 the sterling equivalent of 213,327 was 148,992.18. The prevailing rate of exchange was thus 1 = 1.4318. In reply, on 4 August 2003, the bank wrote a letter (August letter) stating that the account had been credited with 135,040 and the interest due from 29 October 2002 to date was 2000. In addition it stated that as a gesture of goodwill a payment of 500 as exgratia had been credited to the account. The claimant brought an action in contract against the bank. The bank submitted that, on proper construction of the July letter, the claimant had offered to accept in settlement of his claims against the bank the sum of 135,040. The reference in the letter to the date October 2002 in the context of the date for the crediting of the account had showed that what the claimant was offering to accept was simply reimbursement of the sum paid for the original draft. In addition, the July letter had given instructions to the bank as to what the claimant wished to have done which were ambiguous, but which the bank had interpreted in good faith, and for acting upon which the bank could not be held accountable. Lastly, it was contended that it should be inferred from silence on the part of the claimant that he was agreeable to receive from the bank the settlement of a claim for delivery of a draft, or to be credited with the value of such a draft converted into sterling. The court ruled: (1) It was plain, as a matter of construction of the July letter, that it had not been an offer of compromise capable of acceptance so as to preclude the claimant pursuing his claims. There was no clear offer to accept any sum or other recompense in settlement of the claimants claims arising out of the non-delivery of the replacement draft. The letter
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went no further than to indicate that the claimant would be prepared not to take matters further if, the full amount is in his account together with interest at the rate payable by the bank from October 2002 to date. However, what the full amount was was unspecified, although it might have been interpreted as being that sum in excess of 213,000 [which] should have been credited to his account by the bank in October 2002. Again the rate of interest payable by the bank from October 2002 to date had not been identified, although that might have been interpreted as the base rate of the bank from time to time over the specified period. The terms of the July letter had simply been insufficiently certain to be capable of amounting to an offer capable of acceptance. In a contractual context the letter was at best an invitation to treat. However, even if that were wrong, and the July letter had technically been capable of being an offer to compromise the claimants claims, it was manifest that the bank had not accepted that offer. Any offer contained in the July letter had not been an offer to accept the reimbursement of the cost of the original draft, together with an amount of 2,000 described as interest, but obviously assessed entirely arbitrarily, and an ex gratia payment of 500 (see [56] and [57] of the judgment). (2) It was plain that the bank had not acted reasonably in taking the steps which it had done after the receipt of the July letter of cancelling the replacement draft, crediting the account on 1 August 2003 with 135,040, the cost of the original draft, together with the sums of 2,000 and 500, and writing the August letter. The instructions given in the July letter, insofar as it was appropriate to interpret the letter as giving instructions, rather than as an invitation to treat in relation to settlement of the claimants claims against bank, were ambiguous. It would have been correct to seek clarification from the claimant of what he wanted to do, to have the then current value of the replacement draft credited to the account, or only the cost of the original draft, plus some interest. The bank had not only decided what offer to make, which was disadvantageous to the claimant, but had decided to press its offer on him by crediting the account with the amount of the offer. The bank had not sought agreement from the claimant to its proposal before crediting the account. It had realised that the offer had been disadvantageous to the claimant and would have realised that he was unlikely to accept it, given a free choice (see [63] and [72] of the judgment). Accordingly, judgment would be entered for the claimant. Damages would be assessed at 11,452.18 together with interest at the rate one per cent above the Bank of England base rate from time to time on that sum from: (i) 1 August 2003 until 26 April 2004; (ii) 2 November 2004 until 23 August 2005; and (iii) 31 October 2006 until the date of the instant judgment (see [96] of the judgment).
4.
Implied (or incidental) actual authority
i. Bryant, Powis, and Bryant Ltd v Law Banque du Peuple [1891-94] All ER 1253 ii. Watteau v Fenwick iii. Rosenbaum v Belson [1900] 2 Ch 267 AGENCY - NATURE AND FORMATION - FORMATION OF AGENCY - FORMAL REQUIREMENTS FOR APPOINTMENT - APPOINTMENT OTHERWISE THAN BY DEED - AUTHORITY OF AGENT TO SIGN MEMORANDUM UNDER THE STATUTE OF FRAUDS - ESTATE AGENT AUTHORITY TO SELL An authority given to an estate agent to sell property prim facie implies an authority to effect a sale binding in law, and includes an authority to execute an agreement on behalf
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of the principal where the law requires a contract in writing. Instructions given by an owner of real estate to an agent to sell the property for him, and an agreement to pay a commission on the purchase price accepted, are authority to the agent to make a binding contract, including authority to sign an agreement for sale. iv. Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549 AGENCY - AUTHORITY - COMPANY - CHAIRMAN ACTING AS MANAGING DIRECTOR - USUAL BUSINESS TRANSACTION OF COMPANY - CONTRACT WITH OTHER DIRECTOR OF SAME COMPANY - VALIDITY. R, the second defendant, was chairman and chief executive of Brayhead Ltd, defendant company. R acted as de facto managing director of Brayhead, and the board of Brayhead acquiesced in this. Plaintiff had become managing director of P Limited, which had been prospering but towards the end of 1964 was sustaining losses. Plaintiff had guaranteed a loan to P Limited, from merchant bankers. Plaintiff sold a large number of shares in P Limited to Brayhead, which proposed to provide money for P Limited. In January 1965, plaintiff became a director of Brayhead, but he did not attend a board meeting until 19 May 1965. On that day, immediately following the board meeting, R and plaintiff privately discussed the possibility of plaintiffs providing further money for P Limited which was still in need of finance. Four documents were then signed, of which two, in the form of letters to plaintiff, were signed by R as chairman of Brayhead. The first letter was expressed as an undertaking to indemnify plaintiff against any loss which might occur by his having to fulfil his personal guarantee to the merchant bankers; and by the second letter Brayhead agreed to guarantee the repayment of any moneys loaned by plaintiff personally to P Limited. Plaintiff did in fact advance a substantial sum to P Limited in reliance on these letters. The giving of the indemnity and the guarantee was not reported to the board of Brayhead. By art 99 of Brayheads articles of association, a director of Brayhead was permitted to contract with Brayhead without being liable to account for any profit provided that the nature of his interest in the contract was declared at a meeting of the directors as required by 1948 Act s 99. Having had to meet his obligations to the merchant bankers, plaintiff recovered judgment against Brayhead on the contracts of indemnity and guarantee recorded by the letters of 19 May 1965. On appeal, it being conceded that rescission was no longer practicable: Held (1) the contracts of indemnity and guarantee were enforceable by plaintiff against Brayhead for the following reasons (a) on the facts R had implied authority from the board of Brayhead to enter into these contracts (b) the failure of plaintiff to disclose to the board of Brayhead his interest in the contracts of indemnity and guarantee, thus failing to comply with 1948 Act s 199 and art 99 of the articles of association of Brayhead, rendered the contracts voidable at the instance of Brayhead but did not render them void, and as it was no longer possible to restore the parties to their former position, rescission could not be granted; (2) in the circumstances, if plaintiffs claim against Brayhead had failed, R would have been liable for breach of warranty of authority. v. Robinson v Mollett [1875] LR 7 HL 802 AGENCY - AUTHORITY OF THE AGENT - IMPLIED AUTHORITY - TO ACT ACCORDING TO CUSTOM OR ACCORDING TO ORDINARY COURSE OF BUSINESS - INTRINSIC CHARACTER OF ACTUAL AUTHORITY MUST NOT BE CHANGED
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AGENCY - RELATIONS BETWEEN PRINCIPAL AND AGENT - DUTIES OF AGENTS TO PRINCIPALS - GENERAL DUTIES - OTHER CASES OF AGENT'S BREACH OF DUTY - WHERE AGENT SELLS HIS OWN PROPERTY TO PRINCIPAL - AGENT CANNOT SELL HIS OWN PROPERTY NOTWITHSTANDING ANY USAGE TO THE CONTRARY A person who employs a broker to transact business for him in a market with the usages of which the principal is unacquainted gives him authority to contract upon the footing of such usages, provided that they are only such as relate to the mode of performing the contract, and do not change its intrinsic character. A custom in a particular market that a broker who has purchased, and is purchasing, goods of a particular kind, in his own name, may take portions of those goods and supply them to principals who have employed him in his character of broker to buy such goods for them, is one of a peculiar nature, and cannot be supported as against a principal not proved to have been acquainted with it when he gave his order. R, a merchant in Liverpool, gave orders to a tallow broker in London to buy certain quantities of tallow for him. The broker did not buy the specified quantities from any person, though he sent bought-notes in the usual form, Bought of A on your account: both before and after the order he bought from various persons, in his own name, larger quantities of tallow, proposing to allot to R the quantities R had desired to be bought. On R's refusal to accept, the broker sold the tallow, and brought an action for the differences: Held though the evidence showed such a mode of dealing to be the usage in the London tallow market, the action was not maintainable against a principal who did not appear to have had knowledge of its existence. A custom in a particular market that a broker who has purchased, and is purchasing, goods of a particular kind, in his own name, may take portions of those goods and supply them to principals who have employed him in his character of broker to buy such goods for them, is one of a peculiar nature, and cannot be supported as against a principal not proved to have been acquainted with it when he gave his order. Although a person who as principal employs a broker to transact business for him in a particular market is bound by the usage of that market, though unknown to him, provided the usage is one that merely regulates the mode of performing the contract and does not change the intrinsic character of the contract, yet where the usage is one which gives the broker an interest at variance with his duty, as by converting him into a principal instead of a mere agent to establish privity of contract between two principals, such a usage is not binding on a principal who, being ignorant of the usage, employs a broker to whom the usage is known to perform the ordinary and accustomed duties belonging to the office or employment of a broker. The principal is not bound to inquire what the usage may be, or whether there be any particular usage affecting the market in which he proposes to deal. Appellant, a Liverpool merchant, employed respondents, brokers of London, to buy tallow for him in the London tallow market. They having other orders bought in their own name a quantity sufficient to cover all their orders, and by letter informed appellant that they had bought on his account so many tons, but did not mention the name of the seller.
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A few days after they sent him notice that they were already to deliver to him so many casks of tallow in fulfilment or part fulfilment of his order, but did not allude to any third party as the seller. Appellant acknowledged the receipt of these notices without observation. There was a usage on the London tallow market for brokers when they received orders to contract in their own names, and if their principals refused to accept or deliver, to buy or sell against them, and charge them with the loss. Appellant was ignorant of this usage. On becoming aware of it, and of the mode in which his order had been executed, tallow: having in the meantime fallen, he refused to take the tallow: Held (1) as respondents were employed to act as brokers only, the usage which converted them into principals was inconsistent with the employment, and as appellant was ignorant of it when he gave his orders, he was not bound by the usage; (2) as the first notice sent by the brokers was that they had bought on appellant's account, he was not thereby put on inquiry as to the usage or as to the name of the seller; (3) he was not bound to accept when it turned out that his own brokers might in fact be the vendors, or to pay them the difference between the price at which they bought and that at which they sold in consequence of his having refused the contract. Although a usage may control the mode of performing a contract, it cannot change its intrinsic character. A custom in a particular market that a broker who has purchased, and is purchasing, goods of a particular kind, in his own name, may take portions of those goods and supply them to principals who have employed him in his character of broker to buy such goods for them, is one of a peculiar nature, and cannot be supported as against a principal not proved to have been acquainted with it when he gave his order. R, a merchant in Liverpool, gave orders to a tallow broker in London to buy certain quantities of tallow for him. The broker did not buy the specified quantities from any person, though he sent bought notes in the usual form: Bought of A on your account, but, before and after the order, he bought from various persons, in his own name, larger quantities of tallow, proposing to allot to R the quantities R had desired to be bought. On Rs refusal to accept, the broker sold the tallow, and brought an action for the differences: Held though the evidence showed such a mode of dealing to be the usage in the London tallow market, the action was not maintainable against a principal who did not appear to have had knowledge of its existence. Customs of trade, as distinguished from other customs, are generally courses of business invented or relied upon in order to modify or evade some application which has been laid down by the courts, of some rule of law to business, and which application has seemed irksome to some merchants; and when some such course of business is proved to exist in fact, and the binding effect of it is disputed, the question of law seems to be, whether it is in accordance with fundamental principles of right and wrong. A stranger to a locality or trade, or market, is not held to be bound by the custom of such locality, trade, or market, because he knows the custom, but because he has elected to enter into transactions in a locality, trade, or market wherein all who are not strangers do know and act upon such custom. The question, therefore, I submit, in the present case is, whether the alleged custom is not too much in favour of the brokers who set it up, whether it does not pass beyond due freedom and degenerate into injustice. If the custom which exists in fact is
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not unjust, as against principals ignorant of it, your Lordships will uphold it, however much it departs from the rules hitherto recognised by the courts as applicable to the contract of employment between principals and brokers, but if it so far breaks from those rules as to be unjust to such principals in such contract, your Lordships will pronounce it to be void as a custom (Brett J). vi. Nickalls v Merry [1875] LR 7 HL 530 AGENCY - AUTHORITY OF THE AGENT - IMPLIED AUTHORITY - TO ACT ACCORDING TO CUSTOM OR ACCORDING TO ORDINARY COURSE OF BUSINESS - STOCK EXCHANGE USAGE A person employing a broker on the Stock Exchange must be taken to conform to the usages which have been established by members of the Stock Exchange as among themselves, for the better conducting of their business, and must be supposed to intend that his shares shall be sold subject to that condition. Plaintiff through a stock-broker contracted with defendant, a jobber, for sale of shares. On name day the jobber gave plaintiffs broker a ticket with the name of the intended purchaser, L, which had been passed to him by another jobber. A transfer to L was executed by plaintiff, but on discovery of L being an infant, the transfer was never registered. Plaintiff claimed indemnity against calls: Held defendant was not discharged from liability to the vendor until a person was named who was capable of contracting. (1) A purchase or sale of shares made by one who is not a member of the Stock Exchange and made through a broker who is a member of that body, will be treated as made subject to the Rules of the Stock Exchange. The Rules of the Stock Exchange imply that the name of the person given as that of the ultimate purchaser of shares must be that of one able and willing to purchase and they are not satisfied if the name given is that of a nonexistent person, a lunatic, an infant, a married woman, or a person who has not given authority for the use of his name. (2) The period of ten days limited by the rules of the Stock Exchange, within which the seller may object to the name given, has application only to objections grounded on the pecuniary incapacity of the person named to perform the contract, not to his capacity and willingness to enter into it. M sold 50 shares in a company through his broker a member of the Stock Exchange to N a stockjobber and also a member. On the settling day N passed to Ms broker the name of L, which he had received from some other broker, as the purchaser. Ms broker made no objection to L and prepared a transfer to L, which M executed, and the price for the shares was paid. Two years afterwards the company was ordered to be wound up; M was placed on the list of contributories and ordered to pay certain calls in respect of the shares. It then appeared that the transfer had never been registered, and that L was an infant: Held N the jobber had not performed his contract inasmuch as he had not given to M the name of a purchaser competent and willing to contract and he was liable to indemnify M against the calls.
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E. Apparent Authority
1. Definitions
i. Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] i above ii. Nayyar & Others v Sapte & Anor [2009] NEGLIGENCE - DUTY TO TAKE CARE EXISTENCE OF DUTY FIRST DEFENDANT SOLICITORS EMPLOYING SECOND DEFENDANT AS SENIOR SOLICITOR SECOND DEFENDANT INTRODUCING CLAIMANTS TO OPPORTUNITY FOR THEIR JOINT VENTURE COMPANY TO BE EXCLUSIVE GLOBAL SALES AGENT (GSA) OF AIR INDIA FOR UNITED KINGDOM AND IRELAND CLAIMANTS ALLEGING SUMS PAID BY THEM IN ANTICIPATION OF APPOINTMENT AS GSA CLAIMANTS NEVER BEING AWARDED GSA AND DEPOSIT NEVER BEING RECOVERED CLAIMANT COMMENCING CLAIM FOR DAMAGES DEFENDANTS CONTENDING CLAIM BARRED ON BASIS OF MAXIM OF EX TURPI CAUSA NON ORITUR ACTIO The claimants were travel agents. They conducted their respective travel agency businesses through corporate vehicles which were set up for that purpose. The second defendant was a senior solicitor employed by the first defendant solicitors in the India group. Part of her main role involved the introduction of parties in the commercial field with a view to generating fees for the first defendant and increasing its profile and presence in India. She introduced the claimants to an opportunity for their joint venture company to be the exclusive Global Sales Agent (GSA) of Air India for the United Kingdom and Ireland. GSAs were very lucrative for travel agents. They involved being made the airlines exclusive sales agent in the specified country or territory. That meant that a commission was earned on every ticket sold. It was anticipated by the claimants that the proposed GSA would yield net profits of over 2m per year. The claimants alleged that the second defendant promoted the idea, and actively encouraged them, to pursue the GSA. They averred that they were told that, to obtain the GSA, it would cost 2 million: an upfront payment or deposit of 400,000, and a balance of 1.6m, payable in two instalments, including 250,000 in legal fees. The opportunity was introduced to the second defendant by the former minister for tourism for India, Y. He had connections in the aviation industry in India and with the then minister for aviation. The claimants further averred that, acting on the advice of the second defendant, and with her positive encouragement, they paid 13,000 in cash to Y's assistant as part of the deposit. A further sum totalling 370,259 was paid by transfers. The GSA was never awarded to the claimants and, despite repeated demands of Y, the deposit had not been recovered. The claimants brought a claim for damages against the defendants in respect of the sums paid by them in anticipation of the appointment of the joint venture. The claimants submitted, inter alia, that the second defendant had assumed a duty of care toward them as she had acted as their solicitor. They argued that she had given negligent advice, when positively advising and in omitting to give advice and/or to consider appropriately the risks involved with them. They further argued that the first defendant was vicariously liable as the activities carried on by the second defendant were within the scope of her employment and that, in all the circumstances, she had the requisite apparent/ostensible authority. The first defendant's defence was that it had never been retained as solicitors for any of the claimants, and that if the second defendant had in fact
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acted for them in the ways alleged, her actions were outside the usual scope of a solicitor's work, and therefore outside the terms of her employment with them. The second defendant's defence was that none of the claimants had ever retained her, or the first defendant, as their solicitor, and that her role in the GSA transaction was limited to putting the claimants in touch with Y. Both defendants contended, in any event, that the deposit monies that the claimants had to rely on to establish the damage they claimed to have suffered were tainted, so that the doctrine of illegality was triggered and the claim was accordingly barred. They relied on the maxim ex turpi causa non oritur actio. The court ruled: (1) In all the circumstances, there was a very clear and close connection between the wrongful conduct and the claim made. The wrongful conduct had consisted of the payment which was made and the damages being claimed was that payment. On any view, the making of the payment for an illegal purpose was an effective cause of the loss suffered. Accordingly, the defendants had made out their defence of ex turpi causa and the claimants' claim failed (see [120], [121] of the judgment). (2) In the circumstances of the case, the second defendant had not been acting within her actual or ostensible authority as a solicitor employed by the first defendant. The first defendant was not vicariously liable for her actions (see [162] of the judgment). iii. Hely- Hutchinson v Brayhead Ltd [1968] iv above iv. Rama Corpn Ltd v Proved Tin and General Investment Ltd [1951] 2 QB 147 AGENCY - NATURE AND FORMATION - FORMATION OF AGENCY - AGENCY BY ESTOPPEL - APPARENT OR OSTENSIBLE AUTHORITY A person who at the time of entering into a contract with a company, registered under Companies Act, has no knowledge of the company's articles of association, cannot rely on those articles as conferring ostensible or apparent authority on the agent of the company with whom he dealt. The doctrine of constructive notice of a company's registered documents is a purely negative one which does not operate against a company but only in its favour. A person who at the time of entering into a contract with a company, registered under Companies Act, has no knowledge of the companys articles of association, cannot rely on those articles as conferring ostensible or apparent authority on the agent of the company with whom he dealt. The doctrine of constructive notice of a companys registered documents is a purely negative one which does not operate against a company but only in its favour. v. The Tatra [1990] 2 Lloyds Rep 51 at 59 vi. Spiro v Lintern [1973] 1 WLR 1002 ESTOPPEL - ESTOPPEL IN PAIS - ESTOPPEL BY CONDUCT - SILENCE OR INACTIVITY WHERE DUTY TO SPEAK OR ACT - DUTY TO SPEAK PURCHASER OF HOUSE ENTERING INTO AGREEMENT WITH OWNERS WIFE WIFES LACK OF AUTHORITY NOT DISCLOSED BY OWNER PURCHASER INCURRING EXPENDITURE ON REPAIRS
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If A, having some right or title adverse to B, sees B in ignorance of that title acting in a manner inconsistent with it, which would be to Bs disadvantage if the right or title was asserted against him thereafter, A is under a duty to B to disclose the existence of his right or title. Similarly, if A sees B acting in the mistaken belief that A is under some binding obligation to him and in a manner consistent only with the existence of such an obligation, which would be to Bs disadvantage if A were thereafter to deny the obligation, A is under a duty to B to disclose the non-existence of the supposed obligation. If A fails in his duty to make this disclosure B is entitled to assume that the obligation exists. In such circumstances the conduct of A in failing to make the disclosure amounts to a representation by conduct that the obligation exists. To found an estoppel it is not necessary that the representation relied on should be false to the knowledge of representor, provided that representor acted in such a way that a reasonable man would take the representation to be true and believe that he was intended to act on it. Plaintiff had been induced by first defendants representation to act to his detriment in that he had been put to expense in employing an architect and a builder as well as in continuing the employment of his solicitor in conveyancing work in connection with the proposed purchase of a house. It followed that first defendant was estopped from asserting that the contract had been entered into without his authority and plaintiff was entitled to specific performance.
2.
Representation by the principal
i. Nayyar & Others v Sapte & Anor [2009] ii above ii. ING Re (UK) Limited v R&V Versicherung AG [2006] EWHC 1544 (Comm) CONTRACT - AGENT AUTHORITY OSTENSIBLE AUTHORITY CLAIMANT ENTERING INTO QUOTA SHARE AGREEMENT IN BELIEF DEFENDANT'S AGENT PROVIDING INDEMNITY FROM DEFENDANT WHETHER AGENT HAVING OSTENSIBLE AUTHORITY OF DEFENDANT WHETHER DEFENDANT RATIFYING CONTRACT The proceedings concerned a contract between the defendant, a large and reputable German reinsurance group, and Risk Insurance and Reinsurance Solutions, which was not a company but a name used by a group of companies based in London, Paris and elsewhere. The contract provided that the Risk group was duly authorised to bind the defendant to indemnify the claimant for all losses of whatsoever nature arising under business ceded to a contract known as the 2002 quota share treaty. The instant case was a sequel to an earlier action between the defendant and a number of Risk group companies. In that action, it was held (see [2004] All ER (D) 307 (Nov)) that there had been a dishonest conspiracy between the chief executive of the Risk group (based in Paris) and one of the defendants senior underwriters in relation to two binding authorities. Under those authorities, the defendant had authorised Risk Paris to write contracts of reinsurance on its behalf negotiated through the London market. Those binding authorities had no relation to the claimant in the instant case, but the judge also considered the validity of the quota share treaty the subject of the present action. He found that the Risk group had no actual authority to enter into the contract on behalf of the defendant. The claimant in the instant case accepted that Risk had had no authority to execute the treaty, but it alleged in the proceedings that Risk had had ostensible authority to do so and, in any event, the defendant had ratified the contract.
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Held It was unfortunate for the claimant that it had entered into the quota share treaty in the belief in good faith that Risk had the defendants authority to act on its behalf, but the defendant had not, on the facts, represented to the claimant that Risk had such authority, nor had the defendant ratified the contract. iii. (Spiro v Lintern )vi above
3.
Representation by the agent
i. ING Re (UK) Limited v R&V Versicherung AG [2006] EWHC 1544 (Comm) ii above ii. Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd i above iii. Egyptian International Foreign Trade Co v Soplex Wholesale Supplies Ltd and PS Refson & Co Ltd [1985] 2 Lloyds Rep 36 COMPANIES - COMPANIES REGULATED BY THE COMPANIES ACT 1985 POWERS AND LIABILITIES OF COMPANIES - AGENCY - RIGHTS AND LIABILITIES OF AGENTS - AUTHORITY OF AGENT APPARENT AUTHORITY PROPER APPROACH IN DETERMINING SCOPE OF AGENTS APPARENT AUTHORITY In March 1979 the plaintiff entered into a contract with the first defendant (Soplex) for the purchase of a cargo of cement and procured the issuance of a letter of credit in favour of the plaintiff. The cement was to be shipped from Constanza to Port Said or Alexandria. Payment was made on the letter of credit against documents which apparently complied with its terms. In actual fact the cargo of cement which Soplex purported to sell to the plaintiff did not exist, but Soplex proposed to fulfill the contract with another shipment of cement which was over a year old and which was loaded on board a ship other than that designated in the March 1979 contract. When the shipment did not arrive on the date contracted for, the plaintiff became concerned and eventually the plaintiff obtained a guarantee from Soplexs banker, PS Refson & Co Ltd (the bank), whereby it undertook to pay to the plaintiff the sum of $575,000 if the cement did not arrive by a certain date or, if on arrival, it was not of an acceptable quality. The guarantee was signed on behalf of the bank by a Mr Booth, the manager of its documentary credits department, above the stamp of the bank. The cargo on delivery at Alexandria was defective and the plaintiff thereupon sought payment from the bank on the guarantee. When the bank refused to pay, the plaintiff commenced the present proceedings. Leggat J held that execution of the guarantee was within the apparent authority of Mr Booth and gave judgment against the bank. The bank appealed: Held qppeal dismissed. In determining whether a principal had represented that his agent had authority to enter into a particular transaction, the court had to consider the totality of the principals conduct. It was not right for the court to restrict its inquires to an assessment of what was the normal or usual authority of the particular type of agent in question, although this undoubtedly would be a relevant factor and on occasions in may be the only evidence available for determining the agents apparent authority. On the facts, the evidence taken as a whole was sufficient to entitle the judge to conclude that Mr Booth had apparent authority to execute the guarantee on behalf of the bank and accordingly the appeal would be dismissed.
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iv. First Energy Ltd v Hungarian International Bank Ltd [1993] 2 Lloyds Rep 194; Reynolds (1991) 110 LQR 21 AGENT - OSTENSIBLE AND ACTUAL AUTHORITY NO ACTUAL AUTHORITY TO SANCTION CREDIT FACILITY WHETHER AGENT HAD OSTENSIBLE AUTHORITY TO COMMUNICATE OFFER OF CREDIT FACILITY WHETHER OFFER CAPABLE UPON ACCEPTANCE OF BECOMING A BINDING CONTRACT Hungarian International Bank Ltd (HIB) was a bank specialising in commercial lending with a head office in London and one other office in Manchester. In 1989 J, the senior manager in charge of the Manchester office, began discussions with C, on behalf of First Energy (UK) Ltd (First Energy), with a view to providing First Energy with a credit facility to fund its business of installing heating systems on credit terms. J told C that he had no authority to sanction a credit facility and he was not held out by HIB as having authority either alone or with another to sanction any particular facility. In February 1990 HIB offered First Energy a credit facility of 2m on terms requiring First Energy to grant HIB a charge over its assets, but no contract was concluded on these terms. Nevertheless, HIB provided First Energy, with interim finance for one of its contracts to install a heating system and negotiations proceeded between J and C for the funding of three further such contracts. On 2 August 1990 J wrote to C enclosing draft hire purchase agreements in respect of the three contracts, setting out the documents required to complete the transaction and stating that on receipt of the documents HIB would be in a position to release 616,151. First Energy completed the necessary documentation but HIB refused to provide the finance offered. First Energy sued for breach of contract. The judge held that the letter of 2 August 1990 was an offer which was capable upon acceptance of becoming a binding contract; and that, although he had no actual authority to sign the letter, J had ostensible authority by virtue of his position to communicate the offer on behalf of HIB. HIB appealed. Held (1) 1n construing the letter of 2 August 1990 the court would take into account the surrounding circumstances which reasonable persons in the position of the parties would have in mind. On the facts, a reasonable business man placed in the same objective setting as C would have read the letter as communicating an unconditional and firm offer. That offer was capable upon acceptance of being converted into a binding contract. (2) On the facts, J's position as senior manager in Manchester clothed him with ostensible authority to communicate that head office approval had been given for the facility offered in the letter of 2 August 1990. The fact that First Energy knew that J's actual authority to enter into transactions on behalf of HIB was limited did not mean that it had knowledge of his inability to communicate head office's approval of a facility. Accordingly, the appeal would be dismissed. v. Armagas Ltd v Mundogas [1986] AC 717 AGENCY - RELATIONS BETWEEN PRINCIPAL AND AGENT - DUTIES OF AGENTS TO PRINCIPALS - SECRET PROFITS AND BRIBES - WHERE AGENT ACCEPTS BRIBES - PRINCIPAL'S REMEDIES AGAINST THIRD PARTY - AGENT ENTERING CONTRACT WITHOUT AUTHORITY THIRD PARTY KNOWINGLY ACCEPTING FALSE REPRESENTATION AS TO AUTHORITY WHETHER PRINCIPAL BOUND
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Negotiations took place between the plaintiff and defendant for the sale of a vessel. The plaintiff was prepared to purchase it provided that the defendant accepted an immediate charter back from the plaintiff to the defendant for 3 years. The plaintiff was represented in the negotiations by a broker who had been promised a substantial reward if the transaction was completed. He bribed M, the defendant's chartering manager, to enter into the 3-year charter, the existence of which was not disclosed to the defendant. The plaintiff was aware that M had no general authority to enter into such a charter and thought that he would be required to obtain specific authority. The plaintiff nevertheless accepted M's assurances that he had express authority to enter into the 3-year charter. The defendant was subsequently persuaded by M to enter into a one-year charter. Thus the plaintiff believed that the vessel was chartered for 3 years while the defendant believed that it had chartered it for only one year. At the end of the one-year charter the defendant declined to renew it and delivered the ship back to the plaintiff. The plaintiff issued a writ against the defendant claiming damages for wrongful repudiation of the 3-year charter contending that (i) M had either actual or ostensible authority to enter into the 3-year charter and (ii) the defendant was liable for damages in deceit because it was vicariously liable for M's deceit. The defendant was held liable for breach of the 3-year charter but successfully appealed against that decision. On appeal by the plaintiff held, (i) an agent who was known to have no general authority to enter into transactions of a certain type but also nevertheless falsely represented to an innocent third party that he had obtained specific authority to enter into a particular transaction on one occasion could not, in the absence of any representation by the principal, reasonably be believed to have specific authority to enter into that transaction and the principal would not be bound by the agent's actions. In the present case, since the appointment of M to his position with the defendant did not amount to a representation that he had ostensible specific authority to conclude the 3-year charter, M did not have such authority and the defendant was not bound by his actions. (ii) Where an employee made a fraudulent misrepresentation which caused loss to an innocent party contracting with him, the employer was vicariously liable only if he had himself induced the injured party to believe that the employee was acting in the lawful course of the employer's business. An employer would not be liable where such belief was brought about through the injured party's own misguided reliance on the employee. Since M had no authority to enter into the 3-year charter, to do so was not within the usual authority of an employee in his position, the plaintiff knew of that lack of authority and the defendant had done nothing to represent that M had such authority, the defendant could not be vicariously liable. The appeal would be dismissed. The respondent companys vice-president (transportation), who was also its chartering manager, and others, including a partner in a Danish firm of shipbrokers, devised a fraudulent scheme whereby the Danish shipowning concern, by which the appellant company was subsequently incorporated, were induced to agree to the purchase of a vessel on the basis that the respondent agreed to charter it back for a period of 3 years. The chartering manager duly signed, purportedly on behalf of the respondent, a charterparty for a period of 36 months. The respondent however, thought that it had entered into a 12-month-only charter under a separate agreement. Therefore, when the respondent tendered redelivery on expiry of the 12-month charter, the appellant refused to accept this, relying on the 36-month charter of which the respondent denied all knowledge.
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The appellant then sued the respondent, claiming wrongful repudiation of the 36-month charter, subsequently amending the claim to an alternative one for damages for deceit by an employee for whom the respondent was vicariously liable. The respondent counterclaimed for damages for bribery to which it alleged the appellant was a party. Staughton, J, found for the appellant on the ground that the respondents employee, though he had no actual authority to conclude the 36-month charterparty, had ostensible authority to communicate to the appellant the respondents approval of the concluding of the charterparty by the employee. He also held that, if he was wrong on this point, the respondent was not vicariously liable nor did it have a counter-claim for bribery. The Court of Appeal reversed Staughton, Js decision on the question of ostensible authority, though it also held there was no vicarious liability. The appellant then appealed, with leave, to the House of Lords: Held Appeal dismissed. (1) It would be a most unusual and peculiar case where an agent, who was known to have no general authority to enter into transactions of a certain type, could, by reason of circumstances created by the principal, reasonably be believed to have specific authority to enter into a particular transaction of that type. The facts of the present case fell far short of establishing such a situation; there was, therefore, no ostensible authority. Per curiam: It is possible to envisage circumstances which might give rise to a case of ostensible specific authority to enter into a particular transaction, but such cases must be very rare and unusual. Ex hypothesi if the contractor knows that the agent has no general authority to enter into the transaction, as was the position in the present case. The principal might conceivably inform the contractor that, in relation to a transaction which to the contractors knowledge required the specific approval of the principal, he could rely on the agent to enter into the transaction only if such approval had been given. In such a situation, if the agent entered into the transaction without approval, the principal might be estopped from denying that it had been given. But it is very difficult to envisage circumstances in which the estoppel could arise from conduct only in relation to a one-off transaction such as the one in the present case. (2) The appellant was not vicariously liable for the deceit of its employee, since it had not as his employer by words or conduct induced the respondent to believe that the employee was acting in the lawful course of his employers business. The respondents belief, though present, had been brought about through misguided reliance on the servant himself, when the servant was not authorised to do what he was purporting to do, when what he was purporting to do was not within the class of acts that an employee in his position was usually authorised to do, and when the employer had done nothing to represent that he was authorised to do it. Per curiam: In the case of torts involving fraudulent misrepresentation, the essence of the employers vicarious liability is reliance by the injured party on the employees actual or ostensible authority. vi. Emerald SA v Prominvestbank [2008] EWHC 1979 (Comm) GUARANTEE AND INDEMNITY - VALIDITY REFUND GUARANTEE CLAIMANT SEEKING PAYMENT UNDER REFUND GUARANTEE ENTERED INTO WITH EMPLOYEE OF DEFENDANT BANK BANK TAKING ISSUE WITH
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VALIDITY OF GUARANTEE CLAIMANT ARGUING EMPLOYEE HAVING AUTHORITY TO ACT FOR BANK WHETHER BANK BOUND BY TERMS OF GUARANTEE The claimant, a Panamanian company, was part of a group which had extensive shipping interests. In 1993, it entered into a contract with a shipyard (the builder) for the construction, sale and purchase of a single crew refrigerated cargo carrier (the vessel). At about the same time, the claimant liaised with S, an employee of the defendant, which was a bank that had been incorporated under Ukrainian law. In the event, a refund guarantee (the guarantee) was drawn up between the claimant and S in respect of obligations under the shipbuilding contract. The guarantee stated, inter alia, that: [the bank]... hereby irrevocably and unconditionally guarantee the payment to [the claimant] by the builder of the total maximum sum of US$9,990,000 or any amount to be paid to the builder [pursuant to] the first, second, third and fourth instalments under the contract... this letter of guarantee is governed by and is to be issued in in [sic] full accordance with the laws of England. It was well known that two versions of the guarantee were signed, one in English, and the other in Russian; that neither version was dated, on headed paper, or specified an expiry date; and that the English version (at least) contained typing errors. In early 2006, the claimant learned that the Ukrainian state had suspended financial support for the builder and that, as a result, the vessel which was the subject of the contract could not be completed. In July, the claimant, through its solicitor, rescinded the contract, and issued a demand on the bank to make payments under the guarantee. The bank stated that the guarantee was a fraud. Arbitration proceedings were then brought by the claimant against the builder. In November, an interim award was published. In the meantime, the bank had issued proceedings against the claimant, claiming that the guarantee was invalid. In the event, a Ukrainian court of first-instance upheld that claim. The decision of that court was then upheld on appeal. Thereafter, the claimant brought proceedings, claiming, along with other relief, the payment of US$17.258m under the guarantee. It contended, inter alia, that the bank was bound by the terms of the guarantee on the grounds that S had either actual or ostensible authority to represent the banks interests, or that his actions had been ratified by the bank through its chairman or management board. Held In the circumstances, S had no authority to enter into the guarantee on behalf of the bank. The nature of the guarantee indicated that there had been no actual authority. The guarantee was a contingent commitment unlimited in time to pay a large amount of scarce foreign currency, and, moreover, was one governed by a foreign law about which, having regard to the evidence, S had taken no advice. There was further no evidence upon which it could be suggested that S had been given authority to enter into refund guarantees per se; to confer such authority would have been an unusual course for the bank to have taken. In addition, on the facts, no improper motive could be attributed to S. First, S had made commitments at a time when the bank had no relevant written procedures in place and, secondly, S might have been unfamiliar with refund guarantees. In respect of the claimants ostensible authority contention, the bank had neither held S out as having the authority to issue the guarantee, nor made any relevant representation about Ss authority to do so. Lastly, the claimants contention that the bank had ratified Ss actions had to be rejected. There was no evidence to indicate that either the chairman or management board of the bank had knowledge of the terms of the guarantee. Accordingly, the claimants claim would be dismissed.
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vii. Overbrooke Estates Ltd v Glencombe Properties Ltd [1974] 1 WLR 1335 AGENCY - RELATIONS BETWEEN PRINCIPAL AND THIRD PERSONS CONTRACTUAL RELATIONS - NOTICE TO AGENT - NOTICE TO THIRD PARTY OF LIMITATION OF AGENT'S AUTHORITY - WHERE AGENT ACTS UNDER OSTENSIBLE AUTHORITY - OSTENSIBLE AUTHORITY TO MAKE REPRESENTATIONS WHETHER OVERRIDING GENERAL CONDITIONS OF SALE On the instructions of plaintiffs, a firm of auctioneers were to sell a property belonging to plaintiffs at an auction to be held by the auctioneers on 8 November 1973. The catalogue for the auction set out the particulars of the property and the general conditions of sale. General condition R (b) stated: The Vendors do not make or give and neither the Auctioneers nor any person in the employment of the Auctioneers has any authority to make or give any representation or warranty in relation to [the property]. On 5 November the auctioneers, in response to an enquiry from defendants, informed them that neither the local authority nor GLC had any schemes or plans for the property nor were interested in the property for compulsory purchase or any other purpose. At the auction on 8 November defendants made the successful bid for the property. They thereupon gave the auctioneers a cheque for the amount of the deposit and the auctioneers signed a memorandum of contract as the agents of defendants. Defendants then learned that although GLC had not approved any schemes involving the acquisition of the property, it was within an area where the age and condition of the properties were such that they might shortly be included in a slum clearance programme. Their solicitors wrote to plaintiffs' solicitors informing them that defendants had bid for the property on the basis of the information that had been supplied to them on 5 November and, as it had subsequently transpired that the information was inaccurate, defendants were not prepared to proceed. Defendants stopped payment of the cheque. Plaintiffs brought an action against them claiming specific performance of the contract made on 8 November and applied under RSC Ord 86 for summary judgment. Defendants resisted the application on the grounds (i) that they were induced to enter into the contract by the misrepresentation made by the auctioneers, whose ostensible authority to make representation on behalf of plaintiffs concerning the property overrode general condition R (b) in the conditions of sale, and (ii) that condition R (b) excluded or restricted, within the meaning of s 3 of Misrepresentation Act 1967, an essential ingredient of the liability of plaintiffs, namely the auctioneers' ostensible authority, and if the condition was to be relied on to negative their liability for the auctioneers' misrepresentation the court had to consider whether it was fair and reasonable which it could only do at the trial of the action: Held plaintiffs were entitled to summary judgment for the following reasons: (1) a principal was entitled to draw the attention of the public to the limits which he placed on any ostensible authority that his agent prim facie had and that authority was diminished to the extent of those published limits. On the evidence defendants were in possession of the printed particulars of the sale, which in terms negatived any ostensible authority the auctioneers had to make the representations, before any representation was made or contract entered into. Accordingly they knew, or ought to have known, when they bid for the property that nothing which had been told to them by the auctioneers amounted to a representation or warranty binding on plaintiffs; (2) there was no other reason for permitting the action to go to trial for s 3 of the 1967 Act only applied to a provision excluding or restricting liability for a misrepresentation made by a party or his duly
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authorised agent, including an agent with ostensible authority; it did not qualify the right of a principal publicly to limit the otherwise ostensible authority of his agent. The defendants successfully bid for property put up for auction, relying on information given to them by the auctioneers. The general conditions of sale excluded the auctioneers authority to make representations. After signing the memorandum of contract, the defendants discovered that the information was wrong and refused to proceed, whereupon the vendors brought an action for specific performance. The defendants claimed that they were induced to enter into the contract by the misrepresentation of the auctioneers, who had ostensible authority to make representations on behalf of the vendors which overrode any general exemption clause. They claimed further that the clause negatived the liability of the plaintiffs and therefore, under the Misrepresentation Act 1967, the court had to consider whether it was fair and reasonable: Held a principal could draw the publics attention to the limits which he placed on the ostensible authority of his agent. As the defendants were in possession of the printed particulars of sale negativing any ostensible authority of the auctioneers to make representations, they knew or ought to have known that nothing the auctioneers had said amounted to a binding representation or warranty. A principal was entitled to limit the ostensible authority of his agent. viii. Misrepresentation Act 1967, s.3 *Please refer to Statute Book.
F. Usual Authority: Watteau v Fenwick

AGENCY - AUTHORITY OF THE AGENT - IMPLIED AUTHORITY - AUTHORITY TO PURCHASE - MANAGER OF PUBLIC-HOUSE AUTHORITY AS SUCH SECRET LIMITATIONS AGENCY - AUTHORITY OF THE AGENT - IMPLIED AUTHORITY - TO DO NECESSARY AND INCIDENTAL ACTS - BEERHOUSE MANAGER ORDERING STOCK AUTHORITY TO MANAGE BEERHOUSE The ordinary rule of law that a principal is liable for the acts of his agent within the authority usually confided to an agent of that character, notwithstanding secret limitations upon that authority, applies also where the existence of any principal is unknown to the person contracting with, and giving credit to, the agent alone. H, owner of a public-house, sold it to defendants, who retained H as manager at a salary, his name being over the door and the licence continuing in his name. Plaintiff, who knew nothing of defendants, sold cigars to H for the use of the public-house. H had been expressly forbidden by defendants to purchase cigars on credit. Being unable to obtain payment from H, to whom alone he had given credit, plaintiff, finding H was manager to defendants, sued them: Held (1) as the cigars were such as would usually be dealt in at such a house as defendants', H was acting within scope of his implied authority as manager in ordering them; (2) defendants could not as against plaintiff set up any secret limitation of that authority. A, a brewer and owner of a beerhouse, put in B as manager and servant, and paid him weekly wages, supplying B with beer and cigars to sell in the house for the benefit of A and
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forbidding him to buy them elsewhere. While B was manager he ordered cigars from C, who supplied them to B, and C credited B alone; but afterwards discovering that B was only a servant of A, used A for the price: Held as the cigars were such as a manager of such business would have power to order as incident to the management, A was liable for the price.
G. Ratification
1. Requirements for ratification
i. National Oilwell (UK) Ltd v Davy Offshore Ltd [1993] 2 Lloyds Rep 582 ii. Keighley, Maxsted & Co v Durant [1901] AC 240 AGENCY - RATIFICATION - CONDITIONS OF RATIFICATION - WHO CAN RATIFY - PERSON ON WHOSE BEHALF ACT DONE ACT MUST BE DONE ON PRINCIPAL'S BEHALF A contract made by a person intending to contract on behalf of a third party, but without his authority, cannot be ratified by the third party so as to render him able to sue or liable to be sued on the contract where the person who made the contract did not profess at the time of making it to be acting on behalf of a principal. iii. Watson v Swann [1862] 11 CBNS 756 AGENCY - RATIFICATION - CONDITIONS OF RATIFICATION - WHO CAN RATIFY - PERSON MUST BE REASONABLY DESIGNATED INSURANCE - MARINE INSURANCE - WHO CAN AVAIL HIMSELF OF THE INSURANCE - RATIFICATION AND ASSIGNMENT - RATIFICATION - ACTION BY PRINCIPAL CONTRACT MUST BE MADE ON BEHALF OF OR FOR BENEFIT OF PARTY RATIFYING A contract can only be ratified by the principal contemplated at the time when it was made. He need not be named, but there must be such a description of him as shall amount to a reasonable designation of the person intended to be bound by his contract. To entitle a person to sue upon a contract, it must be shown that he himself made it, or that it was made on his behalf by an agent authorised to act for him at the time, or whose act has been subsequently ratified and adopted by him: and the person for whom the agent professes to act must be capable of being ascertained at the time. S, an insurance broker at Hull, being instructed to effect an open policy for 5,000 for plaintiff, against jettison only, subject to declaration thereafter, and being unable to do so, declared certain deck cargo shipped for Ostend on board one of plaintiffs vessels on the back of a general policy which he had previously effected for himself upon any kind of goods and merchandise, as interest might appear, and got it initialled by the underwriters. A loss having happened: Held it was not competent to plaintiff to maintain an action against the underwriters upon this policy, the contract not having been made by him or on his behalf at the time. iv. The Managers of the Metropolitan Asylums Board v Kingham [1890] 6 TLR 217 AGENCY - RATIFICATION - CONDITIONS OF RATIFICATION - TIME FOR RATIFICATION - ACCEPTANCE CONTRACT BEFORE DATE FIXED FOR BEGINNING OF PERFORMANCE
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CORPORATIONS - THE NATURE OF CORPORATIONS - THE SEAL RATIFICATION BY - GENERAL RULE A contract must be ratified within a reasonable time after acceptance by an authorised person, and such a contract cannot be ratified after the date fixed for performance to commence. A contract must be ratified within a reasonable time after acceptance by an unauthorised person, and such a contract cannot be ratified after the date fixed for performance to commence. v. Williams v North China Insurance Co [1876] 1 CPD 757 INSURANCE - MARINE INSURANCE - WHO CAN AVAIL HIMSELF OF THE INSURANCE - RATIFICATION AND ASSIGNMENT - RATIFICATION - ACTION BY PRINCIPAL GENERAL RULE (1) Where a policy of marine insurance is made by one person on behalf of another without authority, it may be ratified after the loss of the thing insured by the party on whose behalf it is made, though he knew of the loss at the time of such ratification. Where there was a valued policy on freight: Held the rule that the valuation in a valued policy is conclusive did not prevent the court from looking into the elements of which the valuation was made up to ascertain whether the freight, or the freight intended to be so valued was the full freight, after deducting certain advances made against freight by the charterers agents to the captain, such question becoming material for the purpose of ascertaining whether the shipowner was interested in the whole of the subject matter of insurance, and whether to any extent the loss had been satisfied under another policy of insurance effected by the charterers on the said advances against freight. (2) Under a valued policy it may be shown what it was that was intended to be valued, with a view to disputing interest in the whole subject of valuation, though the amount of the valuation can be disputed only on the ground of fraud. vi. Marsh v Joseph [1897] 1 Ch 213 AGENCY - RATIFICATION - CONDITIONS OF RATIFICATION - RATIFICATION MUST TAKE PLACE AFTER FULL KNOWLEDGE - NO RATIFICATION WITHOUT KNOWLEDGE To constitute a binding adoption or ratification of acts done without previous authority: (1) the acts must have been done for, and in the name of, the supposed principal; (2) full knowledge of them and unequivocal adoption after knowledge must be proved; or else the circumstances must warrant the clear inference that the principal was adopting the acts of his supposed agent whatever their nature or culpability. Without the knowledge or authority of X, a solicitor, A, another solicitor, used X's name in proceedings wherein by acts of fraud and forgery A obtained an order for the payment out of a fund in court and was thereby enabled to get the fund paid out by a cheque from the Paymaster-General, with which he opened a fictitious account at the bank. Two days later and after the account had been partially drawn upon, X was told by A that his name
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had been made use of for a formal party. X reprimanded A for this, but, without inquiring into the nature of the business, accompanied A to the Paymaster-General's Office and received a cheque for 15 for costs; over 10 of this he paid to A for out-of-pocket expenses, and the balance of 4 5s 6d he handed to his partner Y, who entered it to the credit of the firm in their books without knowing anything of the circumstances in which the money had been paid. A large portion of the fund formerly in court having been lost: Held (1) in the circumstances X had not condoned or ratified the use of his name by A and was not liable for the whole of the loss sustained, but only for the amount of the 15 cheque which he took; (2) Y was liable only for the 4 5s 6d received by him for the partnership. Form of order for making good a loss occasioned to the Consolidated Fund under Court of Chancery (Funds) Act 1872 (c 44) s 5 (repealed), through payment of a fund out of court to the wrong person. Without the knowledge or authority of X solicitor, AB, another solicitor, used Xs name in proceedings, wherein by acts of fraud and forgery AB obtained an order for the payment out of a fund in court, and was thereby enabled to get the fund out by a cheque from the Paymaster-General, with which he opened a fictitious account at a bank. Two days later, and after the account had been partially drawn upon, X was told by AB that his name had been made use of for a formal party. X reprimanded AB for this, but, without inquiring into the nature of the business, accompanied AB to the Paymaster-Generals office, and received a cheque for 15 for costs; over 10 of this he paid to AB for out-ofpocket expenses, and the balance of 4 5s 6d he handed to his partner Y, who entered it to the credit of the firm in their books without knowing anything of the circumstances under which the money had been paid. A large portion of the fund formerly in court having been lost: Held (1) even if X had previously authorised the use of his name for a formal party, he would not have been responsible for the acts of fraud and forgery committed by his supposed agent for that agents own fraudulent purposes; (2) under the circumstances, X had not condoned or ratified the use of his name by AB, and was not liable for the whole of the loss sustained, but only for the amount of the 15 cheque which he took; and (3) Y was liable only for the 4 5s 6d received by him for the partnership. Without the knowledge or authority of X, a solicitor, B, another solicitor, used Xs name in proceedings wherein by acts of fraud and forgery B obtained an order for the payment out of a fund in court, and was thereby enabled to get the fund paid out by a cheque from the Paymaster General, with which he opened a fictitious account at a bank. Two days later, and after the account had been partially drawn upon, X was told by B that his name had been made use of for a formal party. X reprimanded B for this, but, without inquiring into the nature of the business, accompanied B to the Paymaster Generals Office, and received a cheque for 15 for costs; over 10 of this he paid to B for out-of-pocket expenses, and the balance of 4 5s 6d he handed to his partner Y, who entered it to the credit of the firm in their books without knowing anything of the circumstances under which the money had been paid. A large portion of the fund formerly in court having been lost: Held (1) even if X had previously authorised the use of his name for a formal party, he would not have been responsible for the acts of fraud and forgery committed by his supposed agent for that agents own fraudulent purposes; (2) under the circumstances, X had not condoned or ratified the use of his name by B, and was not liable for the whole
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of the loss sustained, but only for the amount of the 15 cheque which he took; (3) Y was liable only for the 4 5s 6d received by him for the partnership. vii. Aviva Life & Pensions UK Ltd v Strand Street Properties Ltd [2010] EWCA Civ 444 at [73] i above viii. Suncorp Insurance and Finance v Milano Assicurazioni SpA [1993] 2 Lloyds Rep 225
2.
Effect of ratification
i. Keighley, Maxsted & Co v Durant [1901] AC 240 iiii above ii. Suncorp Insurance and Finance v Milano Assicurazioni SpA viii above iii. Bolton Partners v Lambert (1889) 41 Ch D 295 AGENCY - RATIFICATION - CONDITIONS OF RATIFICATION - TIME FOR RATIFICATION - ACCEPTANCE OFFER TO BUY AFTER WITHDRAWAL OF OFFER An offer of purchase was made by defendant to S, plaintiffs' agent, who was not authorised to make any contract for sale. The offer was accepted by S on behalf of plaintiffs. Defendant withdrew his offer, and after his withdrawal plaintiffs ratified the acceptance of the offer by S. In an action by plaintiffs for specific performance of the contract: Held (1) the ratification by plaintiffs related back to the acceptance by S; (2) the withdrawal by defendant was inoperative; (3) plaintiffs were entitled to specific performance. Subsequently to some negotiations between A, a director of a company, and L, an offer by letter was made by L to the company to take from it a lease of its property. On 9 December 1886, A wrote to L saying that his offer should be laid before the directors, and on 13 December 1886, A again wrote to L to inform him that the directors accepted his offer, and that the companys solicitors had been instructed to prepare the necessary documents. On 13 January 1887, L wrote to the company alleging that he had discovered that he had been misled as to certain facts, and stating that he therefore withdrew all offers made to the company. An action was thereupon brought by the company against L claiming specific performance of the contract, and damages. It appeared that at the time when A wrote accepting Ls offer, he, although acting perfectly bon fide, had not in fact obtained the formal authority of the company to enter into the contract; and that the contract was not ratified by the company until after Ls repudiation thereof. Held the ratification by the company related back to the date of the contract, and the repudiation by L was of no avail, notwithstanding that the company itself was not bound by the contract until the ratification thereof took place. Subsequently to some negotiations between A, a director of a company, and L, an offer by letter was made by L to the company to take from it a lease of its property. On 9 December 1886, A wrote to L saying that his offer should be laid before the directors, and on 13 December 1886, A again wrote to L to inform him that the directors accepted his offer, and that the companys solicitors had been instructed to prepare the necessary documents. On 13 January 1887, L wrote to the company alleging that he had discovered that he had been misled as to certain facts, and stating that he therefore withdrew all offers made to the company. An action was thereupon brought by the company against L claiming specific performance of the contract, and damages. It appeared that at the time when A wrote accepting Ls offer, he, although acting perfectly bona fide, had not in fact
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obtained the formal authority of the company to enter into the contract, and the contract was not ratified by the company until after Ls repudiation thereof: Held the ratification by the company related back to the date of the contract, and the repudiation by L was of no avail, notwithstanding that the company itself was not bound by the contract until the ratification thereof took place. (1) The fact that a simple acceptance of an offer contains a statement that the acceptor will instruct his solicitor to prepare the necessary documents does not render the acceptance a conditional acceptance. (2) Where there has been by means of letters an offer and an acceptance constituting a completed contract, and specific performance is sought of that contract, the fact that the person seeking specific performance had in letters subsequent to the letters constituting the contract sought to insert a new stipulation, which was resisted by the other party, is not sufficient to show that there had been no complete contract constituted by the prior letters. Even before Judicature Act 1873 (c 66), in many cases, and certainly since, it has been the practice of the court to order a lessee in an action for specific performance to pay his rent which he ought to have paid, if the lease had been prepared, engrossed and executed so as to make the term run from the time originally agreed. That is part of the judgment for specific performance, and not an accessory by way of damages (Kekewich, J). The company were bound as vendors, to maintain the property for the benefit of L, their purchaser ... They are bound to maintain the premises on the footing that they are trustees of the property, though not in the fullest sense, for the purchaser; and as they are trustees with that obligation to maintain, it seems to me that, where they have had to pay money out of their own pocket which is entirely unremunerative to them, they have a claim against the purchaser in respect of money so expended (Kekewich J). An offer of purchase was made by defendant to S, who was the agent of plaintiffs, but was not authorised to make any contract for sale. The offer was accepted by S on behalf of plaintiffs. Defendant withdrew his offer, and after the withdrawal plaintiffs ratified the acceptance of the offer by S. In an action by plaintiffs for specific performance of the contract: Held the ratification by plaintiffs related back to the acceptance by S, and therefore the withdrawal by defendant was inoperative, and plaintiffs were entitled to specific performance. iv. Brown v Bird [1850] 19 LJ Ex 154 AGENCY - RATIFICATION - CONDITIONS OF RATIFICATION - TIME FOR RATIFICATION - STOPPAGE IN TRANSITU BEFORE EXPIRY OF TRANSIT SALE OF GOODS - RIGHTS OF UNPAID SELLER AGAINST GOODS - STOPPAGE IN TRANSIT - EXERCISE OF RIGHT - WHO MAY EXERCISE RIGHT - AGENT OF SELLER SUBSEQUENT RATIFICATION BY PRINCIPAL AGENCY NOT ESTABLISHED AT TIME OF BUYERS INSOLVENCY I, a merchant in America, shipped certain cargoes of goods to the account of C and T, merchants in England, against whom a fiat in bankruptcy issued on 8 May. Immediately on
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the arrival of the cargoes on 5, 7 and 9 May defendants, during the continuance of the transit, gave notice to the masters and assignees of a claim to stop the goods in transit on behalf of I. Defendants were not agents of I, nor had they received any authority from I to make the stoppage. On 11 May plaintiffs, the official assignees of C and T, demanded from the masters and consignees the cargoes then on board the vessels in port and undelivered, but delivery of them was refused. On the same day the masters handed over the cargoes to defendants, who on 12 May refused to deliver them to plaintiffs, the assignees of C and T, on demand. On the 13th, H, having received from I a power of attorney, executed on 28 April, to stop the goods in transit, on the same adopted and confirmed the previous stoppage of defendants, and I before commencement of the action adopted and ratified the acts of defendant S and H: Held (1) there could be no valid stoppage in transit after demand of the goods by plaintiffs on 11 May; (2) the ratification by I, after the transit was ended, was too late and had not the effect of altering retrospectively the property in the goods, which at that time, notwithstanding the act of defendants, had become vested in plaintiffs. The doctrine omnis ratihabitio retrotrahitur et mandato priori oequiparatur means: (1) as applied to cases of contract, that if A, unauthorised by B, makes a contract on his behalf with C, which B afterwards recognises and adopts, the contract is to be dealt with as having been originally made by his authority; (2) as applied to cases of tort, that where A, professing to act by the authority of B, does that which prim facie amounts to a trespass, and B afterwards assents to and adopts such acts, A is treated as having from the beginning acted by his authority, and B becomes a trespasser unless he can justify the act. In some cases also where an act, which if unauthorised would amount to a trespass, has been done in the name and on behalf of another, and without previous authority, a subsequent ratification may enable the party on whose behalf the act was done to take advantage of it, and treat it as having been done by his direction; but this doctrine must be taken with the qualification that the act of ratification must take place at a time and in circumstances when the ratifying party might have himself lawfully done the act which he ratifies. The doctrine is one intelligible in principle, and easy in its application, when applied to cases of contract. If A B, unauthorised by me, makes a contract on my behalf with J S, which I afterwards recognise and adopt, there is no difficulty in dealing with it as having been originally made by my authority. J S entered into the contract on the understanding that he was dealing with me, and when I afterwards agreed to admit that such was the case, J S is precisely in the condition in which he meant to be; or, if he did not believe A B to be acting for me, his condition is not altered by my adoption of the agency, for he may sue A B as principal, at his option, and has the same equities against me, if I sue, which he would have had against A B. I, a merchant in America, shipped certain cargoes of goods to the account of C and T merchants in this country, against whom a fiat in bankruptcy issued on May 8. Immediately on the arrival of the cargoes on May 5, 7 and 9 defendants during the continuance of the transitus, gave notice to the master and consignees of a claim to stop the goods in transitu on behalf of 1. Defendants were not the agents of 1, nor had they received any authority from 1 to make the stoppage. On May 11 plaintiff, the official assignee of C and T, demanded from the masters and consignees the cargoes which were then on board the vessels in port, and undelivered, but delivery of them was refused. On the same day the masters handed over the cargoes to defendants, who, on May 12 refused to deliver them to
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plaintiffs, the assignees of C and T, on demand. On May 13 H having received from 1 a power of attorney, executed on April 28 to stop the goods in transitu, on the same day adopted and confirmed the previous stoppage of defendants, and I before the commencement of the action adopted and ratified the acts of defendants and H: Held (1) there could be no valid stoppage in transitu after the demand of the goods by plaintiff on May 11; (2) the ratification by I, after the transitus was ended, was too late, and had not the effect of altering retrospectively the property in the goods, which at that time, notwithstanding the act of defendants, had become vested in plaintiffs.
H. Agency of Necessity
i. China-Pacific SA v Food Corporation of India, The Winson [1982] AC 939 SHIPPING AND NAVIGATION - SALVAGE AND WRECK - SALVAGE COMMON LAW PROVISIONS RELATING TO SALVAGE - SALVAGE SERVICES IN GENERAL - CARGO STORAGE EXPENSES MASTER SIGNING LLOYDS STANDARD SALVAGE AGREEMENT ON BEHALF OF SHIPOWNER AND CARGO OWNER VOYAGE ABANDONED BY SHIPOWNER WHETHER SHIPOWNER OR CARGO OWNER LIABLE FOR STORAGE EXPENSES ASHORE In October 1974, the cargo owner chartered a vessel from the shipowner to carry a cargo of wheat from the United States of America to India under a voyage charterparty. On 21 January 1975, in the course of the voyage to India, the vessel stranded on a reef in the South China Sea, some 420 miles from Manila. The following day the ships managing agents in Hong Kong signed a salvage agreement with the salvors in Lloyds open form expressed to be made by the master as Agent for the vessel, her cargo and freight and the respective owners thereof. Under the agreement the salvors agreed to use their best endeavours to salve the vessel and/or cargo and deliver them to a safe port. Between 10 February and 20 April the salvors performed salvage services which resulted in the saving of 15,429 tonnes of wheat, in six parcels. The parcels were taken by the salvors from the vessel, put into barges which they had provided and taken to Manila. On arrival of each parcel of wheat at Manila, where the salvors had no premises of their own, it became necessary for it to be stored under cover in order to preserve it from deterioration. All the arrangements for stevedoring and the storage in Manila were made by the salvors. The cargo owner was kept informed of the proposals for the storage of the wheat on its arrival at Manila and made no alternative proposals for the storage and made no request to the salvors for delivery of any of the wheat. In making the arrangements for storage the salvors incurred expenses for which they became personally liable. On 24 April the shipowner abandoned the voyage and notified the cargo owner accordingly. On 20 May the salvors gave formal notice of termination of their salvage services. On 5 August the cargo owner, which had given a guarantee in respect of its proportion of the salvage award, took possession of the salved cargo at Manila. The cargo owner refused to pay the salvors the expenses they incurred in off-loading and storing the salved cargo after its arrival in Manila and before 24 April, when the voyage was abandoned. The salvors brought an action against the cargo owner in respect of those expenses. The cargo owner denied liability, contending, inter alia, that the shipowner was liable to pay those expenses because the cargo was deliverable to the shipowner and not to the cargo owner on its arrival in Manila by virtue of the contract of carriage created by the charterparty. The trial judge ([1979] 2 All ER 35) held that the cargo owner was liable for those expenses, but his decision was reversed by the Court of Appeal ([1980] 3 All ER 556). The salvors
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appealed to the House of Lords: Held although the contract of carriage created by the charterparty vested the immediate right to possession in the shipowner as against the cargo owner so long as the contract remained in being, it did not necessarily follow that it was to the shipowner and not the cargo owner that the salvors were under a duty to deliver each parcel of cargo on arrival in Manila. Where in the course of salvage operations cargo was off-loaded from the vessel by which the contract of carriage was being performed and was carried separately from the vessel to a place of safety by means provided by the salvor, the relationship which arose between the salvors and the cargo owner was that of bailor and bailee. That bailment arose as soon as the cargo was loaded onto lightening vessels provided by the salvor, and on parting with possession of the cargo to the salvor the shipowner lost any possessory lien he might have had over it. Under the salvage agreement the salvors remuneration in respect of salvage services to the cargo was a liability of the cargo owner, not the shipowner, because the salvage form had been signed by the master as the agent of, inter alia, the owner of the cargo, and it was the cargo owner, not the shipowner, who was responsible for paying the salvors for salvage services rendered to the cargo. When those services were completed and the cargo owner failed to give any instructions when apprised of the salvors proposals for the storage of the cargo in Manila the salvors then held the salvaged cargo under a gratuitous bailment which required them to take such measures to preserve the cargo from deterioration by exposure to the elements as a prudent man would take to preserve his own property. In return for carrying out those measures the salvors had the right as bailees to be reimbursed by the cargo owner for expenses reasonably incurred by them in preserving the cargo. The appeal would therefore be allowed. Per curiam: (1) Where a Lloyds open form of salvage agreement is signed b y the master on behalf of a single owner of the whole of a bulk cargo and the salvage services involve unloading it in whole or in part and taking it to a place or places of safety separately from the carrying ship, it does not necessarily follow that, in the absence of subsequent variation either express or to be implied from the conduct of the parties, there is a termination of the salvage services within the meaning of Lloyds open form until either the whole of the cargo has been brought to places of safety or further attempts to salve cargo that has not yet been brought to any place of safety have been justifiably abandoned by the salvor. (2) The expression agent of necessity should be confined to contexts in which the question to be determined is whether circumstances exist which in law have the effect of conferring on a person authority to create contractual rights and obligations between another person and a third party that are directly enforceable by each against the other and should not be extended to cases where the only relevant question is whether a person who, without obtaining instructions from the owner of goods, incurs expenses in taking steps that are reasonably necessary for their preservation is in law entitled to recover from the owner of the goods the reasonable expenses incurred by him in taking those steps. ii. Sachs v Miklos [1948] 2 KB 23 AGENCY - NATURE AND FORMATION - FORMATION OF AGENCY - AGENCY OF NECESSITY - AGENCY OF NECESSITY SALE BY GRATUITOUS BAILEE BAILMENT - CONSIDERATIONS COMMON TO ALL CLASSES OF BAILMENT ACTIONS; DAMAGES - GENERAL RIGHTS AND OBLIGATIONS OF BAILOR
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AND BAILEE INTER SE - REMEDIES OF BAILOR AND BAILEE - MEASURE OF DAMAGES DETINUE MEASURE OF DAMAGES In 1940 the owner of certain furniture was allowed by the first defendants to store it free of charge in their house. Thereafter those defendants lost touch with plaintiff through the latter's failure to keep them informed of his whereabouts. In 1943, the first defendants required the space taken up by the furniture, and wrote two letters to plaintiff at an address supplied by his bank. They received no reply and their letters were not returned. They also attempted, without success, to reach him by telephone. Deciding that they would no longer keep the furniture, the first defendants handed it to the second defendants, a firm of auctioneers, who duly sold it at auction for 15. In 1946, plaintiff demanded the furniture from the first defendants, who tendered the 15. As the value of furniture had meanwhile risen greatly, plaintiff brought an action for conversion and detinue, claiming damages on the basis of the increase in value. The county court judge found that the first defendants had made every reasonable effort to trace plaintiff and that they were thereupon entitled as agents of necessity to sell the goods. He did not find whether the first defendants' letters written to plaintiff in 1943 were received by him. On appeal by plaintiff: Held those facts gave rise to no agency of necessity since they exhibited nothing in the nature of an emergency compelling the first defendants to sell the furniture; the first defendants were therefore not entitled to sell and all defendants were consequently guilty of conversion; if plaintiff received the first defendants' letters in 1943 he then knew, or ought to have known, that the furniture would be sold if he did not collect it, and was, through his inaction, himself the cause of his loss; if, on the other hand, he did not receive those letters, he was entitled to damages in respect of the increase in the value of the furniture between the dates of the sale and of his discovery of it; and the case must be remitted to the county court judge for the necessary finding and for assessment of damages accordingly. In 1940 the owner of certain furniture was allowed by first defendants to store it free of charge in their house. Thereafter those defendants lost touch with plaintiff through latters failure to keep them informed of his whereabouts. In 1943, first defendants required the space taken up by the furniture and wrote two letters to plaintiff at an address supplied by his bank. They received no reply and their letters were not returned. They also attempted, without success, to reach him by telephone. Deciding that they would no longer keep the furniture, first defendants handed it to second defendants, a firm of auctioneers who duly sold it at auction for 15. In 1946, plaintiff demanded the furniture from first defendants, who tendered the 15. As the value of furniture had meanwhile risen greatly, plaintiff brought an action for conversion and detinue, claiming damages on the basis of the increase in value. The county court judge found that first defendants had made every reasonable effort to trace plaintiff and that they were thereupon entitled as agents of necessity to sell the goods. He did not find whether first defendants letters written to plaintiff in 1943 were received by him. On appeal by plaintiff: Held those facts gave rise to no agency of necessity since they exhibited nothing in the nature of an emergency compelling first defendants to sell the furniture; first defendants were therefore not entitled to sell; and all defendants were consequently guilty of conversion; if plaintiff received first defendants letters in 1943 he then knew, or ought to have known, that the furniture would be sold if he did not collect it, and was through his inaction himself the cause of his loss; if, on the other hand, he did not receive those letters, he was entitled to
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damages in respect of the increase in the value of the furniture between the dates of the sale and of his discovery of it; and the case must be remitted to the county court judge for the necessary finding and for assessment of damages accordingly. iii. Prager v Blatspiel, Stamp and Heacock Ltd [1924] 1 KB 566 AGENCY - NATURE AND FORMATION - FORMATION OF AGENCY - AGENCY OF NECESSITY - AGENCY OF NECESSITY EXTENT OF DOCTRINE SALE OF GOODS - RIGHTS OF UNPAID SELLER AGAINST GOODS - RESALE BY SELLER - WHEN POWER EXERCISABLE - IN GENERAL - AGENCY OF NECESSITY WHERE ACTUAL COMMERCIAL NECESSITY TO SELL SELLER ACTING BON FIDE An agency of necessity can arise in other cases than that of carriers by land or sea or the acceptor of a bill of exchange for the honour of the drawer. Extraordinary circumstances, such as war conditions, which make it impossible for a buyer of goods on behalf of a principal abroad either to despatch them or to communicate with him, would entitle the buyer to sell the goods as an agent of necessity. But in order to establish an agency of necessity the agent must prove that there was an actual and definite commercial necessity for the sale, and that the transaction was bon fide in the interest of the principle. Where an agent in London bought skins in 1915 and 1916 to be forwarded to his principal in Roumania as the principal might direct, and in consequence of the occupation of Roumania by the Germans in 1916, the agent was unable to send the skins to his principal or communicate with him, and the agent thereupon sold the skins without authority: Held the agent had failed to establish agency of necessity because (a) the deterioration of the furs might have been prevented by putting them in cold storage at a comparatively small expense, and, moreover, they had steadily increased in value, and (b) the agent had not acted bon fide in selling the skins. The doctrine of agency of necessity is not confined to cases of carriers of goods or of the acceptor of a bill of exchange for the honour of the drawer, but extends to a case where the sellers of goods to a purchaser abroad to whom, owing to war conditions, they cannot deliver them and with whom they are unable to communicate, resell the goods, purporting to act as the original purchasers agents of necessity, if in the circumstances of the case there is an actual commercial necessity to sell the goods and the agents act bon fide: Held on the facts of the case, there was no such necessity and the sellers had not acted bon fide, and were not, therefore, agents of necessity to resell the goods. iv. Hawtayne v Bourne [1841] 7 M & W 595 at 599 v. The Great Northern Railway Company v Swaffield (1874) LR 9 Exch 132 CARRIERS - CARRIERS OF GOODS - COMMON CARRIERS OF GOODS LIABILITY AS WAREHOUSEMEN - REASONABLE CARE RECOVERY OF EXPENSES Defendant sent a horse by plaintiffs railway directed to himself at S station. On the arrival of the horse at S station at night there was no one to meet it, and plaintiffs having no accommodation at the station, sent the horse to a livery stable. Defendants servant soon after arrived and demanded the horse, and he was referred to the livery stable-keeper, who refused to deliver the horse except on payment of charges which were admitted to be reasonable. On the next day defendant came and demanded the horse, and the stationDisclaimer: This notes is Subject Guides further explanations for cases and principle. Please refer to Subject guide for full navigations. Main sources: Dictionary, subject guide, textbook (Sealy and Hooley), UOL study pack, westlaw.com, LexisNexis.com.
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master offered to pay the charges and let defendant take away the horse, but defendant declined and went away without the horse, which remained at the livery stable. Plaintiffs afterwards offered to deliver the horse to defendant at S without payment of any charges, but defendant refused to receive it unless delivered at his farm and with payment of a sum of money for his expenses and loss of time. Some time after, plaintiffs paid the livery stable-keeper his charges, and sent the horse to defendant, who received it. In an action brought to recover the amount of the charges: Held plaintiffs acted reasonably in putting the horse in the livery stable, and defendant, having refused to take the horse, was liable to plaintiffs for all the livery charges which they had paid. When carriers by land have carried goods to their destination, in pursuance of a contract with one who is both consignor and consignee, and through his default the goods are left in the carriers' hands, they are bound to take reasonable measures for the preservation of the goods, and can recover from him payments they have made on account of expenses so incurred. Defendant sent a horse by railway consigned to himself to a station on the line, and paid the fare. When the horse arrived at the station there was no one on defendant's behalf to receive it, and the railway company therefore placed it with a livery stable keeper: Held they could recover from defendant the reasonable charges which they had paid to the stable keeper.
I. Capacity
1. Capacity of the principal
i. Boston Deep Sea Fishing and Ice Co Ltd v Farnham (Inspector of Taxes) [1957] 1 WLR 1051 AGENCY - RATIFICATION - CONDITIONS OF RATIFICATION - WHO CAN RATIFY - ALIEN ENEMY INCOME AND CORPORATION TAXATION - PERSONS CHARGEABLE CATEGORIES OF PERSONS CHARGEABLE - AGENTS - LIABILITY OF AGENTS FOREIGN PRINCIPALS RATIFICATION AFTER TERMINATION OF WAR A trawler, owned by a French company, was at an English port when France became occupied by the enemy during the war of 1939 to 1945. While France was in enemy occupation the taxpayers, an English company, carried on a trade by using the trawler. The taxpayers had previously acted as agents of the French company in the ordinary course of their business. They held themselves out as managers acting with the authority of the French company, but in fact they had no such authority. They were never formally appointed as managers under the powers conferred by wartime emergency legislation. They kept accounts of the takings and expenses and after deducting a commission for themselves showed a considerable profit on the trading. At the end of the war their conduct, their accounts and the commission that they had reserved for themselves were approved by the French company. The taxpayers were assessed to tax under Income Tax Act 1918 c 40 Sched D, para 1 (a) (iii) (repealed) and the All Scheds Rules rr 5, 6 (revoked), in respect of the profits of the trade on the footing that the French company had carried on the trade through the taxpayers as its agents. By r 10 (revoked), however, of the All Scheds Rules, the taxpayers were excepted
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from the charge to tax unless they were an authorised person carrying on a regular agency of the French company within r 10 (revoked). On appeal: Held the assessments must be discharged because (1) it was only the ratification after the war that the taxpayers could have been authorised by the French company to carry on the trawler's activities during the period of the occupation of France by the enemy, as during that period the taxpayers had not in fact any such authority; and (2) there could not be in law an effective ratification by the French company of the taxpayers' activities during the occupation of France by the enemy, since at that time the French company was an alien enemy and incompetent to be the principal of the taxpayers for it could not have done the acts itself. Quaere: whether, assuming that the French company was capable of ratifying the agency in 1945, the taxpayers could be made taxable as agents in previous years when no such authority could be given. A trawler, owned by a French company, was at an English port when France became occupied by the enemy during the war of 1939 to 1945. While France was in enemy occupation the taxpayers, an English company, carried on a trade by using the trawler. The taxpayers had previously acted as agents of the French company in the ordinary course of their business. They held themselves out as managers acting with the authority of the French company, but in fact they had no such authority. They were never formally appointed as managers under the powers conferred by wartime emergency legislation. They kept accounts of the takings and expenses and after deducting a commission for themselves showed a considerable profit on the trading. At the end of the war their conduct, their accounts and the commission that they had reserved for themselves were approved by the French company. The taxpayers were assessed to tax under 1918 Act, Schedule D, paragraph 1(a)(iii) (repealed) and the All Schedules Rules, r 5, r 6 (repealed), in respect of the profits of the trade on the footing that the French company had carried on the trade through the taxpayers as its agents. By rule 10 (repealed), however, of the All Schedules Rules, the taxpayers were excepted from the charge to tax unless they were an authorised person carrying on a regular agency of the French company within rule 10 (repealed). On appeal: Held the assessments must be discharged because (1) it was only by ratification after the war that the taxpayers could have been authorised by the French company to carry on the trawlers activities during the period of the occupation of France by the enemy, as during that period the taxpayers had not in fact any such authority; and (2) there could not be in law an effective ratification by the French company of the taxpayers activities during the occupation of France by the enemy, since at that time the French company was an alien enemy and incompetent to be the principal of the taxpayers for it could not have done the acts itself. Quaere: whether, assuming that the French company was capable of ratifying the agency in 1945, the taxpayers could be made taxable as agents in previous years when no such authority could be given.
2.
Capacity of the agent

*Please refer to Subject Guide.
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Chapter 2: Agency 1 (Principle and Case Notes)

v. vi. vii. viii. F. G. 1. i. ii. iii. iv. v. vi.

Relationship between Principle, Agent and Third Party

3) Trustees, sellers, buyers, distributors and franchisees

Factor and mercantile agent

D. The actual authority of the agent

Definition of actual authority

Express actual authority

Implied (or incidental) actual authority

Representation by the principal

Representation by the agent

F. Usual Authority: Watteau v Fenwick

Capacity of the agent

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