Contract Law – Prepare 2 19.10.21
Unit 2 – Consideration, Contractual Intention & Agency
Tutorial 1 – Contract and Agency
1 – Introduction
Agency’s a very common feature of business and commercial life
o If you’re in business, you can’t do everything for yourself
o You need expertise of others to conduct dealings on your behalf
Agents are people who have the ability or power to change the legal relations of the person
they’re agent for – main legal relationship we’re concerned with is relationship of contract
Agent = a person acting on someone else’s behalf (principal’s behalf) – Raiola
Principal = the person the agent acts on behalf of – Haaland
Third party = person with whom the agent contracts on behalf of the principal – Clubs
o Means someone who’s a third party to the relationship of agency between principal
and agent
o They aren’t a third party to any contract formed with the principal – they are party
to the contract with the principal
3 – Actual Authority
Simplest way agency can be created = principle giving requisite authority to the agent to
contract on its behalf
o Extent of this authorisation is known as the agent’s “actual authority”
Lord Justice Diplock defined actual authority as – “a legal relationship between principal and
agent created by consensual agreement to which they alone are the parties”
We work out what the actual authority of the agent is by looking at what the parties have
said and done
If an agent acts in accordance with the express terms of the authority, then that agent had
“express actual authority”
If an agent goes beyond the terms of the authority you gave them, then the agent has no
actual authority to contract on the principal’s behalf
The law regards an agent as having implied actual authority to do things that are incidental
to the exercise of what they’ve been expressly authorised to do
o Such as a shop assistant receiving money when the shopkeeper employed them to
sell goods
o “Incidental authority”
4 – Apparent/Ostensible Authority
1
,Contract Law – Prepare 2 19.10.21
Sometimes agents purport to act for their principals in circumstances where they don’t have
actual authority
This may happen for a variety of reasons:
o Agents not doing as they’re told
o Agents not sure of the extent of their authority
o Agents having their authority revoked
There are some circumstances where the law regards the acts of the agent as binding on
the principal, despite the lack of actual authority
o The most important is where the agent is regarded as having what’s called apparent
authority – otherwise known as ‘ostensible’ authority
For apparent authority to exist, there must be a representation by the principal to the third
party that the agent has authority
o E.g. X is authorised to sell products for £250, if a customer comes in and buys a £300
product from X, then he has apparent authority
o E.g. X is authorised to sell products for £250, if a customer knows this and buys a
£300 product from X, then he has no authority at all
The agent doesn't have any real authority from the principal at all
It’s not sufficient that the so-called “agent” just appears to be authorised
o The appearance of authority must be created by the principal, and must be relied on
by the third party
Defined by Lord Justice Diplock as “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 the kind within the scope of the “apparent authority””
5 – Ratification
Ratification validates the unauthorised acts of the agent and back-dates the authority – it’s
as if the agent had been properly authorised all along
There are some restrictions on the operation of the doctrine
E.g. you’d have to decide whether to ratify the contract to buy the Mini Cooper within a
reasonable time – if you told the seller that you weren’t going to ratify the contract, and
they then sold the car to someone else, you couldn’t subsequently change your mind
Purpose of restrictions is to stop ratification being effective where it unfairly prejudices the
third party – perhaps it seems the principal can hedge their bets, as they can ratify the
contract if they want to enter it, but not if they don’t want to
o Doctrine of ratification can be justified on the basis that allowing the principal to
ratify the contract only puts the third party in the position they expected to be in
anyway
After all, they presumed they were dealing with an authorized agent all along, and that a
deal on behalf of the principal had been done
One might think that ratification wouldn’t be necessary if the agent at least had apparent
authority – after all, couldn’t the principal just rely on the appearance of authority to say
that there was a binding contract – in just the same way that the third party is entitled to do
o There may be good reason for a principal to ratify a contract even where the agent
had apparent authority to enter it
2
, Contract Law – Prepare 2 19.10.21
6 – Principal & Third Party (Haaland and Clubs)
Contract between principal and third party – each party can sue the other on it
Same applies where the actual authority is supplied after the event, by the principal
ratifying the contract made by the agent (assuming they can ratify)
Agent having apparent authority but no actual authority:
o Third parties POV = they can sue principal on the contract – but whether & when the
principal can enforce contract is less straightforward
Two competing legal analyses
Legal Analysis 1
We could say apparent authority is a type of authority which should have the same effect as
actual authority – apparent authority = actual authority
We’d say that the principal should stand or fall by the objective appearance of agency which
they’ve created and upon which the third party has relied
Thus, principal becomes bound by the contract, but at least they can enforce it irrespective
of the third party’s wishes
The contract is “as if” made with real authority, and both principal and third party are
bound by it
Legal Analysis 2
Could argue that the reason the third party can sue the principal is not because there was
authority – rather, the principal is in no position to deny the authority
o This is when the third party (MUFC) has relied on the principal’s (Haaland’s)
representation of the agent’s (Raiola’s) authority and wishes to enforce the contract
This view sees apparent authority as a form of estoppel – the principal (Haaland) can defend
or sue only if the third party (MUFC) seeks to enforce the contract
o Where third party (MUFC) asserts that the absence of real authority means that no
contract is formed, the principal (Haaland) derives no right to sue the third party
Thus, its entirely up to the third party whether the contract stands or not – this view has
generally held sway in English law – less of a problem for principals than it might seem, as
the doctrine of ratification comes to principal’s aid
Principal can ratify the agent’s act to make good the authority in that way, then can enforce
the contract against the third party
7 – Agent & Third Party (Raiola and MUFC)
As between agent and third party, the general rule is that the
contract made by the agent is the contract of the principal
Usually assumed that the agent drops out – acquires no rights
or liabilities in relation to the third party, whether the agents authority is apparent or actual
When an agent enters into a contract with no authority (actual or apparent), the problem
may be cured by ratification – whereby the problem disappears, and the contract is treated
as one between principal and third party
3
Unit 2 – Consideration, Contractual Intention & Agency
Tutorial 1 – Contract and Agency
1 – Introduction
Agency’s a very common feature of business and commercial life
o If you’re in business, you can’t do everything for yourself
o You need expertise of others to conduct dealings on your behalf
Agents are people who have the ability or power to change the legal relations of the person
they’re agent for – main legal relationship we’re concerned with is relationship of contract
Agent = a person acting on someone else’s behalf (principal’s behalf) – Raiola
Principal = the person the agent acts on behalf of – Haaland
Third party = person with whom the agent contracts on behalf of the principal – Clubs
o Means someone who’s a third party to the relationship of agency between principal
and agent
o They aren’t a third party to any contract formed with the principal – they are party
to the contract with the principal
3 – Actual Authority
Simplest way agency can be created = principle giving requisite authority to the agent to
contract on its behalf
o Extent of this authorisation is known as the agent’s “actual authority”
Lord Justice Diplock defined actual authority as – “a legal relationship between principal and
agent created by consensual agreement to which they alone are the parties”
We work out what the actual authority of the agent is by looking at what the parties have
said and done
If an agent acts in accordance with the express terms of the authority, then that agent had
“express actual authority”
If an agent goes beyond the terms of the authority you gave them, then the agent has no
actual authority to contract on the principal’s behalf
The law regards an agent as having implied actual authority to do things that are incidental
to the exercise of what they’ve been expressly authorised to do
o Such as a shop assistant receiving money when the shopkeeper employed them to
sell goods
o “Incidental authority”
4 – Apparent/Ostensible Authority
1
,Contract Law – Prepare 2 19.10.21
Sometimes agents purport to act for their principals in circumstances where they don’t have
actual authority
This may happen for a variety of reasons:
o Agents not doing as they’re told
o Agents not sure of the extent of their authority
o Agents having their authority revoked
There are some circumstances where the law regards the acts of the agent as binding on
the principal, despite the lack of actual authority
o The most important is where the agent is regarded as having what’s called apparent
authority – otherwise known as ‘ostensible’ authority
For apparent authority to exist, there must be a representation by the principal to the third
party that the agent has authority
o E.g. X is authorised to sell products for £250, if a customer comes in and buys a £300
product from X, then he has apparent authority
o E.g. X is authorised to sell products for £250, if a customer knows this and buys a
£300 product from X, then he has no authority at all
The agent doesn't have any real authority from the principal at all
It’s not sufficient that the so-called “agent” just appears to be authorised
o The appearance of authority must be created by the principal, and must be relied on
by the third party
Defined by Lord Justice Diplock as “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 the kind within the scope of the “apparent authority””
5 – Ratification
Ratification validates the unauthorised acts of the agent and back-dates the authority – it’s
as if the agent had been properly authorised all along
There are some restrictions on the operation of the doctrine
E.g. you’d have to decide whether to ratify the contract to buy the Mini Cooper within a
reasonable time – if you told the seller that you weren’t going to ratify the contract, and
they then sold the car to someone else, you couldn’t subsequently change your mind
Purpose of restrictions is to stop ratification being effective where it unfairly prejudices the
third party – perhaps it seems the principal can hedge their bets, as they can ratify the
contract if they want to enter it, but not if they don’t want to
o Doctrine of ratification can be justified on the basis that allowing the principal to
ratify the contract only puts the third party in the position they expected to be in
anyway
After all, they presumed they were dealing with an authorized agent all along, and that a
deal on behalf of the principal had been done
One might think that ratification wouldn’t be necessary if the agent at least had apparent
authority – after all, couldn’t the principal just rely on the appearance of authority to say
that there was a binding contract – in just the same way that the third party is entitled to do
o There may be good reason for a principal to ratify a contract even where the agent
had apparent authority to enter it
2
, Contract Law – Prepare 2 19.10.21
6 – Principal & Third Party (Haaland and Clubs)
Contract between principal and third party – each party can sue the other on it
Same applies where the actual authority is supplied after the event, by the principal
ratifying the contract made by the agent (assuming they can ratify)
Agent having apparent authority but no actual authority:
o Third parties POV = they can sue principal on the contract – but whether & when the
principal can enforce contract is less straightforward
Two competing legal analyses
Legal Analysis 1
We could say apparent authority is a type of authority which should have the same effect as
actual authority – apparent authority = actual authority
We’d say that the principal should stand or fall by the objective appearance of agency which
they’ve created and upon which the third party has relied
Thus, principal becomes bound by the contract, but at least they can enforce it irrespective
of the third party’s wishes
The contract is “as if” made with real authority, and both principal and third party are
bound by it
Legal Analysis 2
Could argue that the reason the third party can sue the principal is not because there was
authority – rather, the principal is in no position to deny the authority
o This is when the third party (MUFC) has relied on the principal’s (Haaland’s)
representation of the agent’s (Raiola’s) authority and wishes to enforce the contract
This view sees apparent authority as a form of estoppel – the principal (Haaland) can defend
or sue only if the third party (MUFC) seeks to enforce the contract
o Where third party (MUFC) asserts that the absence of real authority means that no
contract is formed, the principal (Haaland) derives no right to sue the third party
Thus, its entirely up to the third party whether the contract stands or not – this view has
generally held sway in English law – less of a problem for principals than it might seem, as
the doctrine of ratification comes to principal’s aid
Principal can ratify the agent’s act to make good the authority in that way, then can enforce
the contract against the third party
7 – Agent & Third Party (Raiola and MUFC)
As between agent and third party, the general rule is that the
contract made by the agent is the contract of the principal
Usually assumed that the agent drops out – acquires no rights
or liabilities in relation to the third party, whether the agents authority is apparent or actual
When an agent enters into a contract with no authority (actual or apparent), the problem
may be cured by ratification – whereby the problem disappears, and the contract is treated
as one between principal and third party
3
