AGENCY

General rule: If A and B have a contract, they cannot confer rights or impose
liabilities upon a third party, C. Consequently, C has no rights under the contract and
cannot sue or be sued under the contract. This is the “privity of contract” rule.

Exception: Agency

1. Actual Authority (by contract, sometimes under an employment contract)

Two Types of AA – Express AA and Implied AA

An Agent (A) may bind his Principal (P) if his P has given A actual authority.
Actual authority can be:
1. Express (e.g., a well drafted Agency agreement, employment contract, etc.,)
or
2. Implied (reasonable customs and usages of a particular place, trade or market).
For e.g., a broker is authorized to sell shares on the Stock Exchange; he has
implied authority to sell under the rules and regulations of the Stock
Exchange.

Note: You cannot imply authority that contradicts with an A’s express authority.

2. Apparent or Ostensible Authority

If the evidence (facts) does not show AA, then a TP can still have rights against
the P if A has P’s ostensible authority (sometimes referred to as apparent
authority). This is a form of Estoppel.

Requirements of Estoppel
The leading case on Ostensible/Apparent Authority is Freeman & Lockyer v
Buckhurst (1964) UKCA. Diplock LJ summarised the conditions which must be
fulfilled to entitle a third party to enforce against a Principal a contract entered
into on behalf of the Principal by an agent who had no actual authority to do so:
(1) that a representation that the agent had authority to enter on behalf of the
company into a contract of the kind sought to be enforced was made to the
third party
(2) that such representation was made by a person who had "actual"
authority
(3) that the third party was induced by such representation to enter into the
contract, i.e., that he in fact relied upon it

In summary, the main elements are:

 Representation (words or conduct) by P to TP
 TP relies on P’s representation
 TP suffers loss

Note 1: Representation must come from P and directed at TP. If A makes a

representation that he has P’s authority, generally this will fail to give rise to an
agency unless (a) P knew (or ought to know) about A’s representation but P, by

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 his conduct, does nothing to correct the record; (b) P authorized A to make such a
representation. In (a), P is estopped from denying that A has his authority. P’s
inaction when he knows that his agent does not have actual authority is called
‘acquiescence’.

Note 2: The claim of apparent or ostensible authority is put forward by TP. It is

not available for P to raise this cause of action.

If P is bound by A’s apparent or ostensible authority and suffers loss, P may have
a right of action against A for breach of an agent’s duties.

[What happens if the principal terminates the agent’s actual authority? How does
the principal manage the former agent’s ostensible authority and prevent such
authority from causing mischief in future?

This was the question I posed my students on 30 Oct 2018:

“One of the questions raised during the Agency Seminar had to do with the issue of
what the principal could do to ensure that his former agent's ostensible authority is
curtailed so that it does not cause future mischief. In the case of Abdul Jalil (SBL at p
407), Prakash J opined that "... constructive knowledge cannot be sufficient for this
purpose as when you are dealing with an apparent position the only way of nullifying
such appearance would, logically, be actual knowledge that what appears to be the
case is, in fact, not the case" (emphasis mine). Does this mean that all forms of
constructive notice is ineffective to extinguish the former agent's ostensible authority?
Surely not?
Let me argue by analogy: in the case of a general partnership, section 36 provides:

Rights of persons dealing with firm against apparent members of firm

36.—(1)  Where a person deals with a firm after a change in its constitution, he is entitled
to treat all apparent members of the old firm as still being members of the firm until he has
notice of the change.
(2)  An advertisement in the Gazette shall be notice as to persons who had no dealings
with the firm before the date of the dissolution or change so advertised.

The Gazette is defined under section 2 of the Interpretation Act to mean:

“Gazette” or “Government Gazette” means the Gazette published in electronic or
other form by order of the Government and includes any supplement thereto and
any Gazette Extraordinary so published;
Section 36 (2) is a type of constructive notice in that it deems that "an advertisement
in the Gazette shall be notice" that he is no longer a member of the firm (partner).
Whilst this provision applies specifically to general partnerships under the Partnership
Act, and is rationally sensible, why can't an argument be sustained at common law
that a similar (not identical) principle ought to also apply to the case of former
agents? What do you think?”]

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Another question which was raised by a student was whether a principal’s act of
ratification can amount to ostensible authority in the future?

See: SAL Annual Review on Agency and Partnership at (2015) 16 SAL Ann Rev at p
87, where Pearlie Koh wrote:

“Apparent authority

3.8 Apparent authority arises where a person (referred to here for convenience as the
“principal” although he is not technically one), by his words or conduct, leads another (the
contractor) to believe that he has authorised a particular person to act as his agent. Where the
contractor transacts with the apparent agent on the faith of this belief, the principal may be
bound by the acts of his apparent agent as though the latter had indeed been authorised.
Returning to the facts of Singapore Salvage Engineers Pte Ltd v North Sea Drilling
Singapore Pte Ltd, it may be readily appreciated how the conduct of the defendant, in
repeatedly affirming the unauthorised acts of Choo, could very well amount to a
representation to the plaintiff that Choo possessed the requisite authority to transact for the
defendant. The same end result, that the defendant was bound by the transaction, could
therefore be arrived at on this very different conceptual basis.”

3. Ratification (when P wants the contract despite A’s lack of actual

authority)

If (1) or (2) above is not satisfied, then P can still bind TP to the contract if P
ratifies the contract.

Principles of Ratification:
1. P must be in existence , and ascertainable (identified), at the time of A’s
contract with TP
2. P must have capacity both at the time of A’s contract and at the time of
ratification
3. A’s contract with TP must not be conditional, i.e., subject to ratification,
subject to P’s consent or approval. There must be an unconditional contract
between A and TP.
4. P must ratify within a reasonable time (‘reasonableness’ is a question of fact)

Manner of Ratification
P’s act of ratification may be by words - (e.g., P communicates to TP words such
as ‘I ratify my agent’s contract with you!’ - or by conduct, e.g., tendering payment
of contract price). Apparently, there is no legal requirement that the P
communicates his ratification to the TP.

Also, carefully study and understand the principle in Bolton Partners v Lambert
(1888).

Facts: A, purporting to act as P’s agent but without P’s authority, accepted TP’s
offer for the purchase of some sugar works belonging to TP. TP then withdrew his
offer, but P ratified A’s acceptance.

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Held: TP was bound. Ratification related back to the time of A’s acceptance and
“cured” A’s lack of authority so that he had the ability to accept. An agreement
arose with the acceptance, which cannot subsequently be revoked.

RATIFICATION

TP makes A accepts TP withdraws P Ratifies

Offer without Offer
authority

Offer

Note: Ratification goes back to the time of A’s lack of authority and clothes him
with proper authority (sometimes known as the doctrine of ‘relation back’). Thus,
if A had made an offer (without authority), the act of ratification goes back to the
point of offer and empowers A with the ability to make a valid offer.

4. Breach of Warranty of Authority (BOWA)

If the agent did not have authority above and P refused to ratify his acts, TP may
have recourse against A for BOWA and hope that A is not a ‘man of straw’.

© Assoc Prof Dennis Ong

Oct 2018