Case Summary
| Citation | |
| Keywords | |
| Facts | |
| Issues | |
| Contentions | |
| Law Points | |
| Judgement | |
| Ratio Decidendi & Case Authority |
Full Case Details
The defendant company appealed against an order of His Honour JUDGE HERBERT,
Q.C., made on May 2, 1963, ordering that the plaintiffs recover from the defendant company
the sum of £291 Gs. for debt. The grounds of appeal were that: (i) there was no evidence that
either at the time of the making of the contract sued on or at all the second defendant had any
apparent authority to act on behalf of the defendant company in employing the plaintiffs or
any other surveyors, (ii) the judge was wrong in law and misdirected himself in that the
plaintiffs were not entitled to rely on any ostensible or apparent authority in the second
defendant in that there was no evidence that the plaintiffs relied on such authority and the
plaintiffs did not rely on such authority in making the contracts sued on; (iii) there was no
evidence on which the judge could find that the second defendant asked the plaintiffs to do
the work sued on for the defendant company; (iv) there was no evidence on which the judge
could find that the plaintiffs thought that they were being instructed on behalf of the
defendant company; (v) there was no evidence on which the judge could find that the second
defendant had been acting as managing director or so acting to the knowledge of the
defendant company’s board.
WILLMER, L.J. – The plaintiffs, who carry on business as architects and surveyors, bring
this action to recover fees alleged to be due to them in respect of work done during the
autumn of 1959 in relation to Buckhurst Park Estate at Sunninghill, the property of the
defendant company. The plaintiffs received their instructions in August, 1959, from the
second defendant, one Mr. Kapoor, who was at all material times a director of the defendant
company. The plaintiffs admittedly executed the work which they were employed to do, and
there is no dispute as to the quantum of the fees earned by them, viz., £ 291 6s. The question
is whether the liability in respect of those fees is that of the defendant company or that of the
second defendant, Mr. Kapoor. By an amendment Mr. Kapoor was added as second
defendant, but at all material times up to the date of trial his whereabouts were unknown, and
he was never served with the proceedings. The action accordingly proceeded against the
defendant company alone. The trial took place before His Honour JUDGE HERBERT at
Westminster Country Court on three days during March and April, 1963, and by a reserved
judgment which he delivered on May 2, 1963, he found in favour of the plaintiffs. The
defendant company now appeals to this court, contending that the liability is not theirs but
that of the second defendant.
It appears that the second defendant was a gentleman who carried on business as a
property developer, i.e., his business was to purchase properties for the purpose of developing
them. His practice was, as and when he purchased a property, to form a company for the
purpose of dealing with it.
In September, 1958, the second defendant entered into a contract to purchase Buckhurst
Park Estate for a sum of £75,000. Unfortunately for him he had not sufficient cash resources
to enable him to complete the purchase. In these circumstances he sought and obtained
assistance from a Mr. Hoon, who was willing to advance a sum of approximately £40,000.
On Oct. 11, 1958, the two men entered into a written agreement (a copy of which is before us)
whereby they agreed to form a private limited company with a nominal capital of £70,000
which they were to subscribe in equal shares. The directors of the company were to be the
second defendant and Mr. Hoon and a nominee of each. The object of the company was as
soon as practicable to complete the purchase of the Buckhurst Park Estate. In due course the
defendant company was formed, and it was provided by art. 12 of the articles of association
that the directors were to be the second defendant and Mr. Hoon, together with Mr. Cohen
(described in the memorandum of association as a company director but in fact a managing
clerk employed by the second defendant’s solicitors), who was the second defendant’s
nominee, and Mr. Hubbard (a managing clerk employed by Mr. Hoon’s solicitors) who was
Mr. Hoon’s nominee. Article 14 of the articles of association made provisions for alternate
directors to act in the place of any director who might be unable to be present at a meeting.
By art. 19 it was provided that the quorum necessary for the transaction of the business of the
directors should be four. After entering into the agreement with the second defendant, and
even before the formation of the company, Mr. Hoon went abroad, and thereafter was at all
material times out of the country except for a short period from June to August, 1959. In his
absence he left his interest to be protected by his nominee, Mr. Hubbard. It was clearly never
contemplated that Mr. Hoon should take any material part in the management of the company.
Whatever the legal formalities, the substance of the transaction was a loan by Mr. Hoon to the
second defendant to enable him to acquire and resell the Buckhurst Park Estate. The second
defendant in fact thought that he had a purchaser in view, and expected to make a quick
profit, which it was agreed should be shared equally between him and Mr. Hoon.
Unfortunately for both of them, the prospective purchaser never materialised.
The property was duly conveyed to the company, and the minutes of the first meeting of
the board held on Dec. 11, 1958, record that it was resolved that the company’s seal should be
affixed to the conveyance. It had been agreed between the second defendant and Mr. Hoon
that, pending resale of the property, the running expenses of maintaining it were to be
defrayed by the second defendant personally, and that he was to be reimbursed out of the
profit of the resale. This agreement appears to have been accepted by the board, although I
cannot find that it was ever the subject of any resolution at a board meeting. A board meeting
was held on April 3, 1959, by which time it is clear from the minutes that any prospect of a
quick resale of the property had already disappeared.
In the summer of 1959 the second defendant instructed an architect, one Mr. Hayler, to
make application for planning permission for certain development in respect of Buckhurst
Park Estate. So far as concerned the work done in respect of the Buckhurst Park Estate, Mr.
Freeman gave evidence, which was corroborated by Mr. Mackay, that he was instructed by
the second defendant on behalf of the defendant company. This evidence was specifically
accepted by the judge.
About the time that the plaintiffs were first instructed, Mr. Hoon was in this country; but
he was not apparently consulted about the matter, and there is no minute of any resolution of
the board authorising the employment of the plaintiffs. Throughout the autumn of 1959 the
plaintiffs were in constant communication in relation to the work which they were doing both
with the second defendant personally and with Mr. Macklay at the office of Reevaham, Ltd.
Throughout the whole of this correspondence no mention whatsoever of the defendant
company’s name is to be found. On the face of it the plaintiffs were purporting to act entirely
for the second defendant personally. The appeal from the refusal of planning permission was
submitted in his name, and a certificate under s. 37 of the Town and Country Planning Act,
1959, was submitted by the plaintiffs certifying that the second defendant was the estate
owner in respect of every part of the land to which the appeal related. These circumstances
were strongly relied on at the trial as going to show that the plaintiffs throughout were
regarding the second defendant as their employer, and that they were looking exclusively to
him for payment of their fees. The explanation which Mr. Freeman gave in evidence was that
he simply identified the second defendant in his own mind with the defendant company. As I
have said, however, the judge specifically accepted Mr. Freeman’s evidence that he was
instructed by the second defendant on behalf of the defendant company, and counsel for the
defendant company has not sought to challenge this finding. Having regard to this, the fact
that in the correspondence the plaintiffs throughout appeared to regard the second defendant
personally as their employer loses its significance. The only question which remains is
whether, in view of the fact that the second defendant contracted with the plaintiffs in the
defendant company’s name, the latter are bound by his act.
The plaintiffs contended: (i) that on the true inference from all the fact the second
defendant had actual authority to engage the plaintiffs on behalf of the defendant company:
alternatively (ii) that the second defendant was held out by the defendant company as having
ostensible authority, so that the latter is estopped from denying responsibility for his acts.
The submissions on behalf of the defendant company are conveniently summarised in paras 2
and 3 of the defence as follows:
“(2) The said [second defendant] was at all material times a director of the [defendant
company], but the [defendant company] denies that he was authorised expressly or
impliedly to enter into the alleged or any agreement with the plaintiffs for and on
behalf of the [defendant company]. (3) Further, or in the alternative, the [second
defendant] at all material times acted without the knowledge and/or the approval of
the [defendant company], and/or outside the scope of his authority as a director of the
defendant company.”
The judge found that the second defendant, although never appointed as managing
director, had throughout been acting as such in employing agents and taking other steps to
find a purchaser, and that this was well known to the board. In the light of this finding he gave
judgment in favour of the plaintiffs, basing himself on the principles stated by LOPES, L.J.,
in Biggerstaff v. Rowatt’s Wharf, Ltd., Howard v. Rowatt’s Wharf, Ltd. [(1896) 2 Ch. 93,
104]. I take this to be a finding, not that the second defendant had actual authority to employ
the plaintiffs, but that in doing so he was acting within the scope of his ostensible authority.
In this court the plaintiffs have adhered to their contention that the second defendant had
actual authority to employ the plaintiffs; but I do not think that this view can be supported.
Actual authority might, of course, be either express – e.g., if the second defendant were
specifically authorised to engage the plaintiffs – or it might be implied – e.g., if the second
defendant had been appointed to some office which carried with it authority to such a contract
on behalf of the defendant company. There is certainly no resolution of the board specifically
authorising the second defendant to engage the plaintiffs. The articles of association,
however, incorporate art. 102 and art. 107 of Table A, Part I, of the Companies Act, 1948. By
the former, directors may delegate any of their powers to a committee of one. By the latter,
they may appoint one of their body to the office of managing director. But there was never
any resolution of the board whereby the directors here purported to exercise either of these
powers. Nor can I find any trace of any resolution in writing signed by all the directors such
as would be validated by art. 106 to the same extent as a resolution passed at a board meeting.
In these circumstances I think that it is hopeless to contend that the second defendant was ever
clothed with authority to do what he did.
The real question to be determined is whether the judge was right in finding that the
second defendant had ostensible authority to engage the plaintiffs. This is partly a question of
fact and partly one of law. So far as the facts are concerned, counsel for the defendant
company has attacked the judge’s finding that the second defendant acted throughout as
managing director to the knowledge of the board. He has argued that there is no evidence to
support this finding. I find myself unable to accept this submission. In my judgment there
was abundant evidence; indeed, when the realities of the case are examined, I think that it is
the only inference that could properly be drawn. I hope that I can summarise quite briefly the
considerations which impel me to that conclusion. It is, I think, to be remembered that the
whole of what I may call the Buckhurst Park Estate venture was essentially the second
defendant’s affair. It was he who had contracted to buy the property, and it was only because
he could not find sufficient capital to pay for it that Mr. Hoon’s assistance was enlisted and
the defendant company was to resell the property as quickly as possible and to make the best
possible profit. This was the evidence of Mr. Hoon himself. For this purpose it was clearly in
the interest of the defendant company to obtain planning permission to develop the property,
and that made it desirable, to say the least, that experts such as the plaintiffs should be
engaged to act on behalf of the company. For most of the time with which we are concerned
Mr. Hoon was out of the country and unable to take any part; he left nobody but a solicitor’s
managing clerk to act on his behalf as his nominee. The inference is that it was always
intended that the second defendant should be the person to find the prospective purchaser.
That this was indeed the plan is again confirmed by Mr. Hoon’s own evidence. This, no
doubt, explains why it was agreed that pending resale the second defendant should be
responsible for the expenses of maintaining the property. This would provide the best possible
incentive to him to find a purchaser as quickly as possible. It was Mr. Hubbard’s evidence
that the second defendant had authority for day to day management. This is in accordance
with the letter of Sept. 2, 1959, written by the second defendant’s solicitors acting for Mr.
Hoon, in which they said:
“We … trust that you have now received your client’s confirmation that he has at all
times agreed that [the second defendant] should bear the responsibility for
management of the property.”
Mr. Hoon’s solicitors did not write to confirm that this was so – at least no such letter is
included in the bundle of correspondence before us; but the assertion made by the second
defendant’s solicitors was certainly never challenged. The judge also relied (and, I think,
rightly relied) on the minutes of the board meetings of April 3, 1959, and March 3, 1960. As
to the latter, para 5 of the minutes records Mr. Hubbard as complaining:
“that [the second defendant] had never given proper or full information to the board
of the steps he had taken in the past to dispose of the property or of any application
he had made for development.”
This, I think, makes it clear that it must always have been contemplated by the board that
the second defendant should not only manage the property, but should also be responsible for
disposing of it and for making any planning application necessary for that purpose. That in
turn must involve such steps as would ensure the best chances of resale – for instance,
employing agents and surveyors to assist in obtaining the necessary planning permission. As
to the minutes of the earlier meeting, although no quorum was present, they are of some
evidential value as showing what was being done and what was in the minds of the directors
at the time. These minutes were indeed relied on by counsel for the defendant company as
showing that express authority was thought to be required to pay the fees of the agent who
had been employed. He suggested that this would be inconsistent with the second defendant’s
having authority to engage agents or professional persons such as the plaintiffs without
express authorisation. But as against that these minutes do show that as early as April, 1959,
outside persons were being engaged with the approval of the board to assist in obtaining
planning permission. It is true that it was Mr. Cohen, and not the second defendant, who
raised the subject and reported on what had been done. But it is to be remembered that
Mr. Cohen was the second defendant’s nominee, and I think that the inference is that the
various agents named had been engaged by the second defendant.
Lastly, I would refer to the fact that it was the defendant company’s own case (and indeed
a subject-matter of complaint on their part) that the second defendant was acting throughout
as if he were himself the owner of the property. Thus it was complained that he appeared on
television and behaved as if he were the owner. Reliance was also placed on the fact that the
second defendant dealt with the plaintiffs themselves as if he were the owner of the property.
All this, as it seems to me, goes to support the view that the second defendant was acting
throughout as managing director. It is not without significance that when, on January 28,
1960, the local authority wrote to the defendant company’s solicitors, explaining that the
respective applications for planning permission had been submitted on behalf of the second
defendant, as owner, the solicitors by their reply did no more than point out that the second
defendant was not in fact the owner of the property, and never had been. No suggestion was
made by them at that time that the second defendant was acting without the authority of the
board in causing the respective applications for planning permission to be made. Having
regard to all these considerations I can see no good ground for interfering with the judge’s
finding of fact that the second defendant throughout was, to the knowledge of the board,
acting as managing director of the defendant company.
Counsel for the defendant company recognised that, if that finding be accepted, his task in
challenging the judge’s conclusion must be rendered so much the more difficult.
Nevertheless, he submitted that in law the defendant company was entitled to succeed. The
doctrine of ostensible authority in relation to a limited company necessarily gives rise to
difficult legal problems. For a company can act only through its officers, and the powers of its
officers are limited by its articles of association. It is well established that all persons dealing
with a company are affected with notice of its memorandum and articles of association, which
are public documents open to inspection by all. However, by the rule in Royal British Bank
v. Turquand, re-affirmed in Mahony case, it was also established, in the words of LORD
HATHERLEY in the latter case,
“that, when there are persons conducting the affairs of the company in a manner
which appears to be perfectly consonant with the articles of association, then those
dealing with them, externally, are not to be affected by any irregularities which may
take place in the internal management of the company.”
In the same case LINDLEY, L.J., said:
“The persons dealing with him [the apparent managing director] must look to the
articles, and see that the managing director might have power to do what he purports
to do, and that is enough for a person dealing with him bona fide.”
I take the lord justice to mean, not that persons dealing with the supposed managing
director must actually look at the articles, but that, being affected with notice of them, they
must have regard thereto. Consequently, if in that case the articles of association had
conferred no power to appoint a managing director, the plaintiffs could not have been heard to
say that the person with whom they contracted had been held out by the company as its
managing director.
Though I have no doubt that Rama [(1952) 1 All lER 554] case was rightly decided on its
own facts, I cannot agree with the view expressed by SLADE, J., that the previous decisions
of this court were conflicting. I do not think that, when properly understood, the cases relied
on by the defendant company here are in conflict with the decision in the British ThomsonHouston case [(1932) All ER Rep. 448] or with the principles which I have already stated. If
I correctly understand them, the cases relied on by the defendant company deal with a much
narrower point. They were all cases of most unusual transactions, which would not be within
what would ordinarily be expected to be the scope of the authority of the officer purporting to
act on behalf of the company. Thus in Houghton case [(1927) 1 KB 246] a director purported
to make on behalf of his company an agreement with the plaintiffs whereby the plaintiffs
were to sell on commission goods imported by the defendant company on terms that the
plaintiffs should retain the proceeds of sale as security for a debt due form another company.
In the Kreditbank case [(1927) All ER Rep. 421] a branch manager of a company carrying on
business as forwarding agents purported to draw bills of exchange on behalf of his company,
which he subsequently endorsed on their behalf. In Rama case a director of the defendant
company purported to make an agreement with a director of the plaintiff company whereby
the two companies were to join in subscribing to a fund to be used for financing the sale of
goods produced by a third company, the defendant company being responsible for
administering the fund and accounting to the plaintiffs. Thus in none of these cases were the
plaintiffs in a position to allege that the person with whom they contracted was acting within
the scope of such authority as one in his position would be expected to possess. There was
accordingly no ground for saying that the officer in question was in fact being held out by the
company as having authority to perform the act relied on. The plaintiffs indeed had nothing to
go on beyond the fact that in each case power to do the acts relied on might, under the articles
of association, have been delegated to the person with whom they contracted. But in none of
the cases did the plaintiffs have any knowledge of the articles of association.
In the circumstances the three decision relied on by the defendant company are to my
mind no more than illustrations of the well established principle that a party who seeks to set
up an estoppel must show that he in fact relied on the representation that he alleges, be it a
representation in words or a representation by conduct.
In the present case the plaintffis do not have to rely on the articles of association of the
defendant company in order to establish their claim. They are thus not caught by the ratio of
the decision in Haughton case. The plaintiffs here rely on the fact that the second defendant,
to the knowledge of the defendant company’s board, was acting throughout as managing
director, and was therefore being held out by the board as such. The act of the second
defendant inengaging the plaintiffs was clearly one within the ordinary ambit of the authority
of a managing director. The plantiffs accordingly do not have to enquire whether he was
propertly appointed. It is sufficient for them that under the articles there was in fact power to
appoint him as such.
In my judgment the judge here, having found that the second defendant was throughout
acting as managing director to the knowledge of the board of the defendant company, rightly
applied the principle enunciated by LOPES, L.J., in Biggerstaff case. I think that he came to
the right conclusion, and I would accordingly dismiss the appeal.
PEARSON, L.J. – I agree. The defendant company was formed with a view to purchasing
the Buckhurst Park property and making a quick and profitable resale, which was thought to
be in prospect. After the defendants company had been formed and had purchased the
property, the intended resale was not achieved. Thereafter, as the judge has found, the whole
purpose of the defendant company was to dispose of the property as advantageously as
possible. The second defendant was a director of the defendant company and he was, with the
knowledge and approval of the other directors, carrying on the business of the defendant
company. In the course of carrying on the defendant company’s business and professing to
act on its behalf, he instructed the plaintiffs to render the services for which they are claiming
remuneration in this action. The instructions were to take over the conduct of a planning
application and appeal relating to the property, and to survey and prepare a plan of the
property, and the plaintiffs did that work. Clearly the instructions were within the natural and
ordinary scope of the defendant company’s business. That is a very short, but I think at this
stage sufficient, summary of the judge’s view of the facts of the case. There were difficult
questions of fact to which he refers in his judgment, but his findings were to that effect, and
there was undoubtedly evidence to support his findings, as WILLMER, L.J., has shown.
The ground of the judge’s decision in favour of the plaintiffs is stated in these two
sentences of his judgment:
“In my judgment a company is bound by the acts of persons who take on themselves,
with the knowledge of the directors, to act for the company, provided such persons
act within the limits of their apparent authority, and strangers dealing bona fide with
such persons have a right to assume that they have been duly appointed… In my
opinion, in the present case, the second defendant was acting as managing director,
certainly as a director acting for the company with the knowledge of his board, and I
hold that the company is bound by his action in employing the plaintiffs.”
Rama Corpn., Ltd. v. Proved Tin and General Investments, Ltd. [(1952) 1 All ER 554]
was another case of an unusual transaction, and it was decided on the ground that the
plaintiffs, having no knowledge of the defendant company’s articles of association, could not
claim to have acted in reliance on a provision for delegation contained therein. It was
expressly recognised in the judgment:
“it is possible to have ostensible or apparent authority apart from the articles of
association, though not where it is inconsistent with or beyond the articles of
association.”
In my view the judgment cannot reasonably be regarded as saying or implying that a
person dealing with a director of a company in a normal transaction within the ordinary scope
of the company’s business is not protected by the director’s ostensible authority, unless that
person obtained and studied the company’s articles of association and the incorporated
provisions of Table A and made sure that the directors had power to delegate to a single
director. Such a requirement would be an absurd example of legal pettifoggery. There is no
difficulty in applying the principle of Rama case to any case where there is an unusual
transaction outside the scope of the ordinary business which the single director is (in the sense
indicated above) held out by the company as authorised to conduct on its behalf. In my
judgment the interesting arguments presented for the defendants must fail, and the appeal
must be dismissed.
DIPLOCK, L.J. – We are concerned in the present case with the authority of an agent to
create contractual rights and liabilities between his principal and a third party whom I call
“the contractor.” This branch of the law has developed pragmatically rather than logically,
owing to the early history of the action of assumpsit and the consequent absence of a general
jus quaesitum tertii in English law. But it is possible (and for the determination of this appeal
I think it is desirable) to restate it on a rational basis. It is necessary at the outset to
distinguish between an “actual” authority of an agent on the one hand, and an “apparent” or
“ostensible” authority on the other. Actual authority and apparent authority are quite
independent of one another. Generally they co-exist and coincide, but either may exist
without the other and their respective scopes may be different. As I shall endeavour to show,
it is on the apparent authority of the agent that the contractor normally relies in the ordinary
course of business when entering into contracts.
An “actual” authority is a legal relationship between principal and agent created by a
consensual agreement to which they alone are parties. Its scope is to be ascertained by
applying ordinary principles of construction of contracts, including any proper implications
from the express words used, the usages of the trade, or the course of business between the
parties. To this agreement the contractor is a stranger; he may be totally ignorant of the
existence of any authority on the part of the agent. Nevertheless if the agent does enter into a
contract pursuant to the “actual” authority, it does create contractual rights and liabilities
between the principal and the contractor. It may be that this rule relating to “undisclosed
principals”, which is peculiar to English law, can be rationalised as avoiding circuity of
action, for the principal could in equity compel the agent to lend his name in an action to
enforce the contract against the contractor, and would at common law be liable to indemnify
the agent in respect of the performance of the obligations assumed by the agent under the
contract.
An “apparent” or “ostensible” authority, on the other hand, is a legal relationship between
the principal and the contractor created by a representation, made by the principal to the
contractor, intended to be and in fact acted on by the contractor, that the agent has authority to
enter on behalf of the principle into a contract of a kind within the scope of the “apparent”
authority, so as to render the principal liable to perform any obligations imposed on him by
such contract. To the relationship so created the agent is a stranger. He need not be (although
he generally is) aware of the existence of the representation. The representation, when acted
on by the contractor by entering into a contract with the agent, operates as an estoppel,
preventing the principal from asserting that he is not bound by the contract. It is irrelevant
whether the agent had actual authority to enter into the contract.
In ordinary business dealings the contractor at the time of entering into the contract can in
the nature of things hardly ever rely on the “actual” authority of the agent. His information as
to the authority must be derived either from the principal or from the agent or from both, for
they alone know what the agent’s actual authority is. All that the contractor can know is what
they tell him, which may or may not be true. In the ultimate analysis he relies either on the
representation of the principal, i.e., apparent authority, or on the representation of the agent,
i.e., warranty of authority. The representation which creates “apparent” authority may take a
variety of forms of which the commonest is representation by conduct, i.e., by permitting the
agent to act in some way in the conduct of the principal’s business with other persons. By so
doing the principal represents to anyone who becomes aware that the agent is so acting that
the agent has authority to enter on behalf of the principal into contracts with other persons of
the kind which an agent so acting in the conduct of his principal’s business has normally
“actual” authority to enter into.
In applying the law, as I have endeavoured to summarise it, to the case where the
principal is not a natural person, but a fictitious person, viz., a corporation, two further factors
arising from the legal characteristics of a corporation have to be borne in mind. The first is
that the capacity of a corporation is limited by its constitution, i.e., in the case of a company
incorporated under the Companies Act, by its memorandum and articles of association; the
second is that a corporation cannot do any act, and that includes making a representation,
except through its agent. Under the doctrine of ultra vires the limitation of the capacity of a
corporation by its constitution to do any acts is absolute. This affects the rules as to the
“apparent” authority of an agent of a corporation in two ways. First, no representation can
operate to estop the corporation from denying the authority of the agent to do on behalf of the
corporation an act which the corporation is not permitted by its constitution to do itself.
Secondly, since the conferring of actual authority on an agent is itself an act of the
corporation, the capacity to do which is regulated by its constitution, the corporation cannot
be estopped from denying that it has conferred on a particular agent authority to do acts
which, by its constitution, it is incapble of delegating to that particular agent. To recognise
that these are direct consequences of the doctrine of ultra vires is, I think, preferable to saying
that a contractor who enters into a contract with a corporation has constructive notice of its
constitution, for the expression “constructive notice” tends to disguise that constructive notice
is not a positive, but a negative doctrine, like that of estoppel of which it forms a part. It
operates to prevent the contractor from saying that he did not know that the constitution of the
corporation. It does not entitle him to say that he relied on some unusual provision in the
constitution of the corporation, if he did not in fact so rely.
The second characteristic of a corporation, viz., that unlike a natural person it can only
make a representation through an agent, has the consequence that, in order to create an
estoppel between the corporation and the contractor, the representation as to the authority of
the agent which creates his “apparent” authority must be made by some person or persons
who have “actual” authority from the corporation to make the representations. Such “actual”
authority may be conferred by the constitution of the corporation itself, as, for example, in the
case of a company, on the board of directors, or it may be conferred by those who under its
constitution have the powers of management on some other person to whom the constitution
permits them to delegate authority to make representations of this kind. It follows that, where
the agent on whose “apparent” authority the contractor relies has no “actual” authority from
the corporation to enter into a particular kind of contract with the contractor on behalf of the
Corporation, the contractor cannot rely on the agent’s own representation as to his actual
authority. He can rely only on a representation by a person or persons who have actual
authority to manage or conduct that part of the business of the corporation to which the
contract relates. The commonest form of representation by a principal creating an “apparent”
authority of an agent is by conduct, viz., by permitting the agent to act in the management or
conduct of the principal’s business. Thus, if in the case of a company the board of directors
who have “actual” authority under the memorandum and articles of association to manage the
company’s business permit the agent to act in the management or conduct of the company’s
business, they thereby represent to all persons dealing with such agent that he has authority to
enter on behalf of the corporation into contracts of a kind which an agent authorised to do acts
of the kind which he is in fact permitted to do normally enters into in the ordinary course of
such business. The making of such a representation is itself an act of management of the
company’s business. Prima facie it falls within the “actual” authority of the board of
directors, and unless the memorandum or articles of the company either make such a contract
ultra vires the company or prohibit the delegation of such authority to the agent, the company
is estopped from denying to anyone who has entered into a contract with the agent in reliance
on such “apparent” authority that the agent had authority to contract on behalf of the
company.
In each of the relevant cases the representation relied on as creating the “apparent”
authority of the agent was by conduct in permitting the agent to act in the management and
conduct of part of the business of the company. Except in Mahony v. East Holyford Mining
Co., Ltd., the conduct relied on was that of the board of directors in so permitting the agent to
act. As they had, in each case, by the articles of association of the company full “actual”
authority to manage its business, they had “actual” authority to make representations in
connexion with the management of its business, including representations as to who were
agents authorised to enter into contracts on the company’s behalf. The agent himself has no
“actual” authority to enter into the contract, because there had not been compliance with the
formalities prescribed by the articles for conferring it on him. In British Thomson-Houston
Co., Ltd. v. Federated European Bank, Ltd. [(1932) All ER Rep. 448]. Where a guarantee
was executed by a single director, it was contended that a provision in the articles, requiring a
guarantee to be executed by two directors, deprived the company of capacity to delegate to a
single director authority to execute a guarantee on behalf of the company, i.e., that condition
(d) ante was not fulfilled; but it was held that other provisions in the articles empowered the
board to delegate the power of executing guarantees to one of their number, and this defence
accordingly failed.
In the present case the findings of fact by the county court judge are sufficient to satisfy
the four conditions, and thus to establish that the second defendant had “apparent” authority
to enter into countracts on behalf of the defendant company for their services in connexion
with the sale of the company’s property, including the obtaining of development permission
with respect to its use. The judge found that the board knew that the second defendant had
throughout been acting as managing director in employing agents and taking other steps to
find a purchaser. They permitted him to do so, and by such conduct represented that he had
authority to enter into contracts of a kind which a managing director or an executive director
responsible for finding a purchaser would in the normal course be authorized to enter into on
behalf of the defendant company. Condition (a) was thus fulfilled. The articles of association
conferred full powers of management on the board. Condition (b) was thus fulfilled. The
plaintiffs, finding the second defendant acting in relation to the defendant company’s property
as he was authorized by the board to act, were indueed to believe that he was authorised by
the defendant company to enter into contracts on behalf of the company for their services in
connexion with the sale of the company’s property, including the obtaining of development
permission with respect to its use. Condition (c) was thus fulfilled. The articles of association,
which contained powers for the board to delegate any of the functions of management to a
managing director or to a single director, did not deprive the company of capactity to delegate
authority to the second defendant, a director, to enter into contracts of that kind on behalf of
the company. Condtion (d) was thus fulfilled. I think that the judgement was right, and would
dismiss the appeal.
