Question

. Agency (this part is worth 15 marks) A key issue in the law of agency is the authority of the agent. In order to bind the principle by the actions of the agent, the agent must have been acting within some level of authority. The authority of the agent comprises: • Express actual authority • Implied actual authority • Ostensible authority You have a small problem scenario, but this time dealing with agency. The same instructions apply, addressing the research question and methodology. You are simply adapting the requirements to address this new research problem. Scenario Sam and John are two partners in Crystal Motor Company Pty Ltd for selling and buying used cars. John and Sam both have an actual authority to make order on behalf of the company for an amount not exceeding $ 10000. Sam and without authorization of John bought a used car worth of $ 15000 from the Elite Car Sale Company Ltd. The seller, Elite Car Sale Company Ltd contacted Crystal Motor Company Pty Ltd to make the payment, but it later refused to pay because it was outside the $ 10000 limit.

Answer 1

According to this apparent authority a principal, whose conduct leads a third party reasonably to believe that the agent has authority to act on its behalf, is prevented from invoking against the third party the lack of authority of the agent and is therefore bound by the latter’s act.
Apparent authority, which is an application of the general principle of good faith and of the prohibition of inconsistent behaviour , is especially important if the principal is not an individual but an organisation. In dealing with a corporation, partnership or other business association a third party may find it difficult to determine whether the persons acting for the organisation have actual authority to do so and may therefore prefer, whenever possible, to rely on their apparent authority. For this purpose the third party only has to demonstrate that it was reasonable for it to believe that the person purporting to represent the organisation was authorised to do so, and that this belief was caused by the conduct of those actually authorised to represent the organisation (Board of Directors, executive officers, partners, etc.). Whether or not the third party’s belief was reasonable will depend on the circumstances of the case (position occupied by the apparent agent in the organisation’s hierarchy, type of transaction involved, acquiescence of the organisation’s representatives in the past, etc.).

Thus Crystal Motor Company Pty Ltd is bound by the agreement entered between Sam and Elite Car Sale Company Ltd.