Syeda Kanwal Zehra

LLB-II

COMMERCIAL LAW

Assignment 2
(a) Uxbridge Ltd is proposing to sell machinery that it owns. The board of directors instructs
Richard, who is the chief executive, to obtain offers, which will then be considered by the board.
Later, Richard agrees to sell the machinery to Acton Ltd. The board of directors of Uxbridge Ltd
does not think the price sufficient and does not wish to perform the contract.

Advice Acton Ltd.

(b) Jake agrees to buy a quantity of widgets from Fred. Shortly afterwards Fred discovers that the
purchase is being made on behalf of Tom.

Is Fred obliged to go ahead with the sale?

(c) Harry is appointed by Euston Ltd to sell ground nuts. On 1st January, Harry is approached by
Mary, the agent of Merton Ltd, who knows Harry is acting for Euston Ltd. Mary offers to buy a
quantity of ground nuts, but says that Merton Ltd cannot afford to pay for six months. Harry tells
her that he needs to refer the granting of credit to a senior manager at Euston Ltd for approval.
Later that same day, Harry tells Mary that Euston Ltd has agreed to grant her time to pay. In fact,
Harry had been unable to contact a senior manager, but he did not think Euston Ltd would
disapprove because the price being obtained was so good. On 3rd January, Mary discovers that
Euston Ltd has no knowledge of the transaction. She has also discovered an alternative source of
supply for the ground nuts at a lower price and no longer wishes to go ahead with the purchase.

Could Euston Ltd insist that Mary is bound by the deal?

This proposition brings to the attention the issues relating to the doctrine of agency and the matters
pertaining to the liabilities and enforcement of the contracts in the given three scenarios. We will be
discussing the relevant issues of authority accordingly.

Agency, as defined by Bowstead and Reynolds is a fiduciary relationship which exists between two persons,
one of whom expressly or impliedly manifests assent that the other should act on his behalf so as to affect his
relations with third parties and the other of whom similarly manifests assent so to act or so acts pursuant to
the manifestation." Hence, agency agreement is a tripartite agreement between principal, agent and third
party. The principal may authorize the agent to perform a variety of tasks or may restrict the agent to specific
functions, but regardless of the amount, or scope of authority given to the agent, the agent represents the
principal and is subject to the principal's control. More importantly, the principal is liable for the
consequences of acts that the agent has been directed to perform.

(a) As explained above, in the first scenario the board of directors of Uxbridge Ltd (more precisely Uxbridge
Ltd) can be regarded as a principal for our purposes. Richard, being an agent of Uxbridge Ltd contracted with
Acton Ltd (the third party) to sell the machinery. However, we are required to advise Acton Ltd for initiating
an action either against Uxbridge Ltd or Richard, or both for the enforcement of the contract. The first
question that arises is that of the authority of Richard whether his act falls within the realm of actual
authority or apparent authority as there are different consequences of both.
Before determining the liabilities of Uxbridge Ltd or Richard, it is important to explain actual authority and
apparent authority. If Richard's act falls within the realm of actual authority then Acton Ltd can bring an
action against Uxbridge Ltd and if it does not fall within the realm of actual authority given by the principal
then Acton Ltd can plead apparent authority, provided the requisite requirements are met or can make
Richard liable for breach of warranty of authority. Actual authority is when the principal intentionally
confers expressed or implied powers on the agent to act on his behalf. When the agent exercises actual
authority, it is as if the principal is acting and is bound by the agent's acts and is liable for them. If an agent
acts within the actual authority that they are able to claim an indemnity from the principal for any expenses
incurred or remuneration under the agency contract with the principal. Also, an agent who acts outside their
actual authority may be liable to the third party for breach of the implied warranty of authority. On the facts
of the scenario provided, Richard only had an actual authority to obtain offers from the third parties
regarding the sale of the machinery owned by Uxbridge Ltd. It can be argued that Uxbridge Ltd would not be
liable for the contract concluded by Richard under the established principle laid down in Jacobs v Morris
that a principal would not be liable for an agent's act that goes beyond the scope of his actual authority.

However, Acton Ltd can also plead apparent authority if the requirements are fulfilled. In this case, the
principal, either knowingly or even mistakenly, permits the agent or others to assume that the agent
possesses authority to carry out certain actions when such authority does not, in fact, exist. If other persons
believe in good faith that such authority exists, the principal remains liable for the agent's actions and cannot
rely on the defense that no actual authority was granted. The requirements that need to be met are laid down
by Slade J in Rama Corporation v Proved Tin (i) the principal or someone acting with the actual authority
of the principal represents to the third party that the agent is authorized to undertake the transaction which
is subsequently concluded by the agent and third party (ii) the agent purported to make the contract as the
principal (iii) third party was induced by to enter into the transaction in reliance upon that representation
(iv) the third party altered their position to their detriment. These were approved in Freeman & Lockyer v
Buckhurst Park Properties, where Lord Diplock held that the company had held the director to be its
managing director and as such they were bound by his action of engaging the firm of architects as it was
within the usual authority of a managing director. Hence, if Acton Ltd can meet the requirements then
Uxbridge Ltd can be held liable for Richard's act.

However, if for some reasons any of the requirements do not get fulfilled then Acton Ltd can bring an action
against Richard for breach of warranty of authority and he can be held personally liable. To succeed in its
claim, Acton Ltd has to prove that the agent (Richard) had made a representation or warranty and that the
representation was false. This can be done by showing that when Richard signed the contract he impliedly
made a representation that he has an authority to do so. Therefore, if the claim against Richard succeeds then
Uxbridge Ltd can deny him remuneration and indemnity for any expenses incurred.

(b)