Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480
Agency; grant of authority; actual authority; apparent (ostensible) authority.
Facts: Two business people, Kapoor and Hoon, formed a company (Buckhurst Park Properties) to acquire and then resell a piece of land. Kapoor, Hoon and two others were made directors of the company. The company's articles of association permitted the appointment of a managing director, but none was in fact appointed. Kapoor took it upon himself to carry out certain managerial acts, in particular, by employing Freeman & Lockyer to do work for the company. When their work was completed, Freeman & Lockyer claimed payment from the company. A dispute arose over whether Kapoor had the necessary authority, without any formal appointment as managing director, to engage Freeman & Lockyer on behalf of the company and to make the company liable on the contract.
Issue 1: Actual authority. Did Kapoor have actual authority to bind the company in a contract with Freeman & Lockyer?
Decision: The court held that Kapoor had no actual authority to bind the company.
Reason: There was no evidence of any resolution of the company that specifically authorised the transaction, or that gave Kapoor any general power to enter such transactions. In these circumstances, the court held that it could not be said that "Kapoor was ever clothed with actual authority to do what he did".
Note: Although Kapoor had no actual authority to bind the company, the court went on to consider whether he had a different kind of authority, called 'apparent' authority
Issue 2: Apparent (ostensible) authority. Did Kapoor have apparent authority to engage Freeman & Lockyer on behalf of the company, making the company liable on the contract?
Decision: The court found that the board knew Kapoor was acting as the managing director of the company. The company should therefore not be allowed to deny liability to third persons who dealt in good faith with Kapoor while relying on his apparent authority to act as an agent of the company.
Reason: To establish such 'apparent authority', four things need to be shown:
(1) A representation was made to the third party that the agent had authority to enter into the kind of transaction in question. The representation can be implied, for example, by a principal allowing the agent to engage in particular conduct from which the necessary inference of authority can reasonably be drawn.
(2) The representation was made by a person with actual authority to manage the relevant aspects of the company’s business.
(3) The third party was induced to enter the transaction by the representation and in fact relied on it.
(4) The company in fact had the power to enter into the type of transaction in question.
These requirements were all satisfied in the present case, and the company was therefore liable for the contracts entered into by Kapoor on the basis of his apparent authority.