Page 137 - Microsoft Word - 00 Prelims.docx

Agency law

Agency by estoppel

This arises where the principal implies that there is an agency relationship. This is
also called ‘estoppel by holding out’ where the principal by his words or his conduct
holds out another as having the authority to make contracts on his behalf. The
principal is then prevented from denying that the person has this authority and is
bound by such contracts as if he had expressly authorised them. The authority here
can also be known as ‘apparent’ or ‘ostensible’ authority.

Estoppel arises:

 Where the principal fails to notify third parties who have dealt with his agent that
the agent’s authority has been terminated

 Where the principal allows his agent to appear to have more authority than he
actually has.

To create agency by estoppel:

 There must be a representation by the principal either expressly or impliedly to
a third party who relies upon it and believes that the agent has authority to enter
contracts of that type.

It is important to note that it is the principal’s actions which can create
agency by estoppel, not the agents.

Illustration 1 – Creation of agency

FREEMAN & LOCKYER v BUCKHURST PARK PROPERTIES LTD 1964

Facts:

D had four directors; none of them had ever been appointed as managing
director. One director effectively managed the business and entered into
contracts. On previous occasions, the board of directors had honoured the
contracts. On this occasion they refused, saying the director had no authority to
make the contract as he was not the managing director.

Held:

The director had no express authority but he had acquired ‘authority by estoppel’.
The company had honoured contracts in the past and had given the impression
that the director had the authority to deal with this sort of contract. The claimants
had relied on this representation when dealing with the director. They were
bound to honour the contracts.

133