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The authority of the agent 163

Example

If Peter gives Andy a job as a salesperson at his car showroom then Andy will have actual

authority to sell the cars on display and will also have apparent authority to do so. Andy will

have actual authority because Peter, by giving him the job, agreed with Andy that he should

sell the cars. Andy will have apparent authority because Peter, by giving Andy the job,

represented to the showroom’s customers that Andy had authority to sell the cars. When

an agent has both actual and apparent authority to make the same contract, the apparent

authority is not relevant. The agent had actual authority and that is all that matters. For this

reason, when considering problem questions on the authority of an agent actual authority is

always considered first. It is when there is no actual authority that apparent authority has to

be considered. For example, if Andy told Peter not to sell a particular car then Peter would

not have actual authority to sell that car. However, if Tom bought the car from Andy, not

knowing that Andy had been forbidden to sell it, then Andy would have had apparent

authority to sell it and Peter would be bound by the contract with Tom.

Ratification

In certain circumstances a principal can ratify a contract made previously by an agent who
had no actual authority to make the contract at the time when he did make it. If the principal
does ratify the contract then the agent is regarded as having backdated actual authority.

Example

On Monday Alex buys a car from Tim on Phil’s behalf, even though Phil has not asked him

to do this. Alex had no actual authority to make the contract, and so Phil cannot enforce it

against Tim. Tim would be able to enforce the contract against Phil only if Alex had apparent

authority. (If Tim did enforce the contract against Phil, and this caused Phil to suffer a loss,

Phil could sue Alex for acting outside his actual authority.) If Alex had neither actual nor

Waugh vHB Clifford and Sons Ltd (1982) (Court of Appeal)

The principals, a firm of builders, were being sued by third parties who had bought two

houses which had been negligently built. The principals took on agents, a firm of solicitors,

to defend the legal proceedings. The third parties suggested a compromise to the solicitors.

The solicitors suggested to the builders that they settle the case according to the proposed

compromise. The builders told the solicitors not to agree to the compromise with the third

parties, but the solicitors agreed to it anyway.

HeldThe solicitors had no actual authority to make the compromise because they were

told not to make it. However, they did have apparent authority to make the compromise

because by appointing the solicitors to handle the proceedings the builders had repre-

sented to the third parties that the solicitors could agree to a compromise (because

solicitors defending legal proceedings could usually do this). So the third parties could

enforce the compromise against the builders. The builders could sue the agents for not

obeying their instructions.

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