Ostensible Authority

As has been explained, an agent’s actual authority is that authority given to him by his principal, either expressly; by implication or by necessity. The question therefore arises as to who will be liable – the agent or the principal – where the agent exceeds his authority. This question raises the doctrine of ostensible or apparent authority. What is important here is that in addition to being liable for those contracts arranged by the agent in the exercise of his actual authority, the principal will also be bound by the contracts organised by the agent in the exercise of his ostensible authority. An agent’s ostensible authority is that authority of the agent as it appears to others, namely that authority which a third person could, in the circumstances of their dealings with the agent, reasonably believe the agent to have. For example, suppose the Board of a company appoints a Managing Director but expressly limit his authority by saying he is not to order goods worth more than £500 without the sanction of the Board. In that case his actual authority is subject to the £500 limitation but to reasonable people in the outside world, his ostensible authority includes all the usual authority of a Managing Director. The company is bound by his ostensible authority in his dealings with those who do not know of the limitation. Another example could be where a ship chandler agrees with the Master and his chief steward, what supplies should be put on board and at what price.  Subsequently the chandler’s account is contested by the ship owner who had issued an instruction to all Masters that no prices for food may be agreed without first consulting the company’s procurement manager – which this Master failed to do.  The chandler could successfully argue that the prices must remain as billed because he had a right to assume the Master’s ostensible authority to agree them. The essential elements of ostensible authority are (1) a representation (2) a reliance on the representation and (3) an alternation of the third parties position resulting from such a reliance. The representation can be expressed or implied from conduct or previous dealings, and must be made by the principal himself or someone acting in accordance with the law of agency. The representation cannot be made by the agent himself. The representation must be made intentionally. There must be a representation to a third party and it must be shown that the third party relied on the representation. The principal will not be liable if the third party knew that the agent had no authority to bind the principal. There must be an alteration in the position of the third party resulting from reliance on the representation. Even in the absence of the requirements of apparent authority, one person may bind another by contract if the latter was precluded by his own subsequent conduct from denying that the contract was made on his behalf.