FREEMAN & LOCKYER (A FIRM) V. BUCKHURST PARK PROPERTIES (MANGAL) LTD. (1964) 1 ALL ER 630

FREEMAN & LOCKYER (A FIRM) V. BUCKHURST PARK PROPERTIES (MANGAL) LTD. (1964) 1 ALL ER 630

 

FACTS

• Buckhurst Park Properties (Mangal) Ltd., a construction company, hired Freeman & Lockyer, an architectural firm, for a construction project.
• A subcontractor was appointed without the knowledge or permission of the company. Once the project was completed, the subcontractor demanded payment from the company for the work done.
• The company’s articles said that all four directors of the company (another Mr Hoon, who was never there, and two nominees) were needed to constitute a quorum.
• Originally the company planned to simply buy and resell the land, but that fell through. Kapoor had acted alone (as if he were a managing director) in engaging the architects, without proper authority. The company argued it was not bound by the agreement.
• Judge Herbert at Westminster County Court held the company was bound, and the company appealed.

 

ISSUE

• Whether the board should pay the architect despite the fact that they had let Kapoor assume the duty of a managing director?

HELD

Diplock LJ held that the judge was correct in ruling that the company was obligated to pay Freeman and Lockyer for their architectural services.

• He noted that if actual authority is conferred by the board without a formal resolution, this renders the board liable for a fine.
• If a person has no actual authority to act on a company's behalf, then a contract can still be enforced if an agent had authority to enter contracts of a different but similar kind, the person granting that authority itself had authority, the contracting party was induced by these representations to enter the agreement and the company had the capacity to act.
• All those conditions were fulfilled on the FACTS, because (1) the board knew about Kapoor’s general activities and permitted him to engage in these kinds of activities; such conduct represented his authority to contract for these kinds of things (2) the articles conferred full power to the board (3) Freeman and Lockyer were induced to contract by these ‘representations’ and (4) the company had capacity.
• An "actual" authority is a legal relationship between principal and agent created by a consensual agreement to which they alone are parties. Its scope is to be ascertained by applying ordinary principles of construction of contracts, including any proper implications from the express words used, the usages of the trade, or the course of business between the parties. To this agreement the contractor is a stranger; he may be totally ignorant of the existence of any authority on the part of the agent. Nevertheless, if the agent does enter into a contract pursuant to the "actual" authority, it does create contractual rights and liabilities between the principal and the contractor.
• An "apparent" or "ostensible" authority, on the other hand, is a legal relationship between the principal and the contractor created by a representation, made by the principal to the contractor, intended to be and in fact acted upon by the contractor, that the agent has authority to enter on behalf of the principal into a contract of a kind within the scope of the "apparent" authority, so as to render the principal liable to perform any obligations imposed upon him by such contract. To the relationship so created the agent is a stranger. He need not be (although he generally is) aware of the existence of the representation but he must not purport to make the agreement as principal himself.
• The representation, when acted upon by the contractor by entering into a contract with the agent, operates as an estoppel, preventing the principal from asserting that he is not bound by the contract. It is irrelevant whether the agent had actual authority to enter into the contract.
• In the present case the findings of fact by the county court judge are sufficient to satisfy the four conditions, and thus to establish that Kapoor had "apparent" authority to enter into contracts on behalf of the company for their services in connection with the sale of the company's property, including the obtaining of development permission with respect to its use.
• The judge found that the board knew that Kapoor had throughout been acting as managing director in employing agents and taking other steps to find a purchaser. They permitted him to do so, and by such conduct represented that he had authority to enter into contracts of a kind which a managing director or an executive director responsible for finding a purchaser would in the normal course be authorized to enter into on behalf of the company.

 

COMMENTARY

“It was held that the company was liable for the fees claimed because K throughout acted as managing director to the knowledge of the company and thus was held out by the company as being managing director, and the ostensible authority thus conferred could bind the company since its articles of association in fact provided for there being a managing director of the company. K's act in employing the plaintiffs was within the ordinary ambit of the authority of such a managing director. The fact that the plain tiffs had not examined the company's articles and had not enquired whether K was a properly appointed managing director did not prevent them from establishing their claim against the company based on their reliance on K's ostensible authority.”