162 10: Agency law Part D The formation and constitution of business organisations
3.3 Actual authority
Express and implied authority are sometimes referred to together as actual authority. This distinguishes
them from ostensible or apparent authority.Actual authority is a legal relationship between principal and agent created by a consensual agreement
between them.3.4 Apparent/ostensible authority
An agent's apparent or ostensible authority may be greater than their express or implied authority. This
occurs where a principal holds it out to be so to a third party, who relied on the representation and altered
their position as a result. It may be more extensive than what is usual or incidental.The ostensible (or apparent) authority of an agent is what a principal represents to other persons that
they have given to the agent (authority by 'holding out'). As a result, an agent with express or implied
authority which are limited can be held in practice to have a more extensive authority.
Apparent/ostensible authority usually arises either
(a) Where the principal has represented the agent as having authority even though they have not
actually been appointed
(b) Where the principal has revoked the agent's authority but the third party has not had notice of
this.3.4.1 The extent of ostensible authority
Ostensible authority is not restricted to what is usual and incidental. The principal may expressly or by
inference from their conduct confer on the agent any amount of ostensible authority.3.4.2 Example: partnership
A partner has considerable but limited implied authority by virtue of being a partner. If, however, the
other partners allow them to exercise greater authority than is implied, they have represented that they
have wider authority. They will be bound by the contracts which they make within the limits of this
ostensible authority.3.4.3 Example: companies
Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd 1964
The facts: K and H carried on business as property developers through a company which they owned in
equal shares. Each appointed another director, making four in all. H lived abroad and the business of the
company was left entirely under the control of K. As a director K had no actual or apparent authority to
enter into contracts as agent of the company, but he did make contracts as if he were a managing director
without authority to do so. The other directors were aware of these activities but had not authorised them.
The claimants sued the company for work done on K's instructions.
Decision: There had been a representation by the company through its board of directors that K was the
authorised agent of the company. The board had authority to make such contracts and also had power to
delegate authority to K by appointing him to be Managing Director. Although there had been no actual
delegation to K, the company had by its acquiescence led the claimants to believe that K was an authorised
agent and the claimants had relied on it. The company was bound by the contract made by K under the
principle of 'holding out' (or estoppel). The company was estopped from denying (that is, not permitted to
deny) that K was its agent although K had no actual authority from the company.It can be seen that it is the conduct of the 'principal' which creates ostensible authority. It does not
matter whether there is a pre-existing agency relationship or not.Key termFAST FORWARD