The general principle is that the agent (A) will bind the principal (P) when he acts within the scope of his authority. However, in order to work out what this means, it is necessary to distinguish between different kinds of authority.
In order for the third party (T) to be liable to P, it is necessary to show that A acted within the scope of his actual authority. Such actual authority may be either express or implied. The authority is express where P has given A express instructions. Other than in relation to powers of attorney, the courts have been prepared to allow express instructions to be interpreted flexibly. Thus, in Ireland v Livingston (1872), an instruction to buy and ship 500 tons of sugar was stated to be variable by ‘50 tons more or less’, if the agent could thereby secure a suitable vessel.
Implied actual authority
In many cases, little or nothing may have been said by way of express instructions and what will be important is what is to be implied. It may be argued that authority is to be implied because what has been done is necessarily incidental to what was expressly instructed; or that A has been appointed to the position which, in the natural course, of things carries with it implied authority; or authority may be implied from the place or market in which the agent is to carry out the transaction.
Although T is only liable to P if A has acted within the scope of his actual authority, the reverse is not true. T will have a claim against P, not only where A acts within the scope of his actual authority, but also where A acts within the scope of his apparent or ostensible authority. This is a fundamental principle of agency law. In practice, in the vast majority of cases, T will have no idea what A’s actual authority is and will rely on the authority which A appears to have. The arguments as to A’s apparent authority are likely to be based on two different lines of thought, though they may well overlap in some cases.
Disclosed and undisclosed principals
There are three possibilities: A may reveal the identity of the principal whom he represents; A may make it clear that he is acting as an agent but not reveal the identity of his P; A may, in fact, behave as if he is himself the principal. English law has come to accept the doctrine of the undisclosed principal so that even though T thought he was contracting with A, it is possible for P to come in and take over the contract. It is hard to explain the rationale of this principle and the rule is not to be found in many other legal systems. Nevertheless, it is well established. However, the consequences of transactions carried out by a are different.
Where P is disclosed, whether named or unnamed, the general rule is clear. P is liable and entitled to sue on the contract; A is neither liable nor entitled. If A acts outside his actual authority, but within his apparent authority, then P will be liable but will not be entitled to sue unless he ratifies the contract. There are some cases where A is also liable and these are discussed at 10.3, below.
Bills of exchange
There are some special and complicated rules about bills of exchange signed by agents: see ss 23–26 of the Bills of Exchange Act 1882. The general rule is that a principal is not liable on a bill of exchange, promissory note or cheese, unless his signature appears on it. However, it is not necessary that he should sign himself; it is sufficient that his signature is written by some person acting under his authority. Where P is a corporation, the bill or cheese will normally be signed by an agent. The critical question is whether the signature is that of the corporation or of the agent. Section 26(1) of the Bills of Exchange Act 1882 provides:
A recent case on the implied warranty has held that it can be sued on by anyone who has acted on it to their detriment, whether or not they have entered into a contract with P. In Penn v Bristol and West Building Society (1997), a solicitor agent had innocently misrepresented his authority to a building society. The solicitor’s principal was the vendor of a property; the building society lent money to the purchaser on the basis of the solicitor’s misrepresentation.