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162 Chapter 6Agency

the representation, by agreeing the contract with the agent, the principal is not allowed

to deny the truth of what he said. He is estopped from denying it. It is essential that the

representation is made by the principal or by someone authorised by the principal. It can-

not be made by the agent. Nor will apparent authority arise if the third party either knows

or ought to know that the agent has no actual authority.

Example

Parveen gives Adrian a job as shop assistant in her shoe shop. Parveen tells Adrian to try to

sell one particular pair of red shoes. Adrian has express actual authority to sell this pair of

red shoes and implied actual authority to sell all the other pairs of shoes. Both types of

authority arose because Parveen agreed with Adrian that they should arise. Adrian also has

apparent authority to sell any of the pairs of shoes. This authority arose because Parveen

has represented to third parties, the shop’s customers, that Adrian has the authority. This

representation was made by giving Adrian the job.

Consequences of types of authority

We need to tell which type of authority an agent has because the different types of author-

ity have different consequences.

If an agent with actual authority makes a contract with a third party on behalf of a prin-

cipal then the consequences are as follows. The contract takes effect between the principal

and the third party, just as if the principal had made it personally, and either the principal

or the third party can enforce the contract against the other.

If an agent who has onlyapparent authority makes a contract with a third party then the

consequences are not the same. The third party can enforce the contract against the prin-

cipal, because the principal made a representation which he is estopped from denying.

However, the principal cannot enforce the contract against the third party, because the third

party did not make any representation. Also, if the agent acts with apparent, but not actual,

authority the agent will be liable to the principal if this causes the principal to suffer a

foreseeable loss.

Example

Phil, a garage owner, appoints Anjana as a salesperson at his garage. Phil tells Anjana to sell

any of the cars except the red Volvo. He also tells her to try to sell the office furniture in the

garage. Anjana has implied actual authority to sell any of the cars except the red Volvo. She

also has express actual authority to sell the office furniture. If Anjana does sell any of these

things then either Phil or the third party, the buyer, could enforce the contract against the

other. Anjana has no actual authority to sell the red Volvo, but she does have apparent

authority to sell it (because by giving Anjana the job, Phil has represented to outsiders

that she can do what a salesperson could usually do, that is to say, sell any of the cars on

display). If Anjana does sell the red Volvo to Terry then Terry can enforce this contract

against Phil. However, if Terry changed his mind about buying the car, Phil could not enforce

the contract against him. If the red Volvo was sold to Terry, and he knew that Anjana had no

actual authority to sell it, then Anjana would have had neither actual nor apparent authority

to make the contract. It would not therefore be binding on either Phil or Terry.

The following case shows the difference between actual and apparent authority.