Podcast
Questions and Answers
In the context of company law, what is the primary factor that determines whether a company is legally bound by the actions of its agent?
In the context of company law, what is the primary factor that determines whether a company is legally bound by the actions of its agent?
- The agent's personal relationships with the company's directors.
- The profitability of the agent's actions for the company.
- The agent's authority to act on behalf of the company. (correct)
- The agent's compliance with industry-standard practices.
Which scenario best illustrates the creation of actual authority?
Which scenario best illustrates the creation of actual authority?
- A company's board of directors informally allows a manager to negotiate contracts, without any official resolution.
- A company remains silent while a sales representative consistently exceeds their sales quota.
- A CEO explicitly instructs a marketing director, in a written document, to launch a specific advertising campaign within a set budget. (correct)
- A junior employee starts making independent decisions, and their manager does not reprimand them.
What is the key difference between actual and apparent authority in determining a company’s liability?
What is the key difference between actual and apparent authority in determining a company’s liability?
- Actual authority always binds the company, whereas apparent authority never binds the company.
- Actual authority requires a written agreement, while apparent authority can be based on verbal agreements.
- Actual authority is determined by external auditors, while apparent authority is determined internally.
- Actual authority is based on an agreement, while apparent authority is based on the company’s representation. (correct)
In the case of Freeman & Lockyer v Buckhurst Park Properties, what critical factor led the court to rule that the company was bound by the director’s actions, despite his lack of formal appointment?
In the case of Freeman & Lockyer v Buckhurst Park Properties, what critical factor led the court to rule that the company was bound by the director’s actions, despite his lack of formal appointment?
If a company secretary, without express permission, enters into a supply contract on behalf of the company and the company has never previously indicated that the secretary has such authority, under what circumstances would the company be bound by this contract?
If a company secretary, without express permission, enters into a supply contract on behalf of the company and the company has never previously indicated that the secretary has such authority, under what circumstances would the company be bound by this contract?
A marketing manager exceeds their approved budget on an advertising campaign. Which action would be the MOST effective in preventing the company from being bound by these unauthorized expenses under the principle of apparent authority?
A marketing manager exceeds their approved budget on an advertising campaign. Which action would be the MOST effective in preventing the company from being bound by these unauthorized expenses under the principle of apparent authority?
How does the principle established in Smith Stone & Knight Ltd v Birmingham relate to the concept of actual authority?
How does the principle established in Smith Stone & Knight Ltd v Birmingham relate to the concept of actual authority?
A company's CEO publicly introduces a newly hired executive as the 'head of strategic partnerships,' even though the board has not officially approved this title or scope of authority. If this executive subsequently negotiates a major partnership agreement, is the company bound by this agreement, and why?
A company's CEO publicly introduces a newly hired executive as the 'head of strategic partnerships,' even though the board has not officially approved this title or scope of authority. If this executive subsequently negotiates a major partnership agreement, is the company bound by this agreement, and why?
Flashcards
Actual Authority
Actual Authority
Real authority an agent has to act on behalf of a company, created by express or implied agreement.
Apparent Authority
Apparent Authority
Authority an agent appears to have, even without real authority, based on the company's representations.
Creation of Actual Authority
Creation of Actual Authority
Authority is created by agreement between the company and the agent.
Creation of Apparent Authority
Creation of Apparent Authority
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Effect of Actual Authority
Effect of Actual Authority
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Effect of Apparent Authority
Effect of Apparent Authority
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Smith Stone & Knight Ltd v Birmingham
Smith Stone & Knight Ltd v Birmingham
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Freeman & Lockyer v Buckhurst Park Properties
Freeman & Lockyer v Buckhurst Park Properties
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Study Notes
- Authority in company law determines if a company is legally bound by its agent's actions.
- Actual Authority and Apparent (Ostensible) Authority are the two main types of authority
Actual Authority
- Actual authority means the agent has real, agreed authority to act for the company.
- It is created by express or implied agreement between the company and the agent.
- The company must honor the agent’s actions if within the scope of actual authority.
- Smith Stone & Knight Ltd v Birmingham is a case example
Smith Stone & Knight Ltd v Birmingham
- A subsidiary company acted as an agent of its parent company.
- The parent company controlled business decisions and treated the subsidiary’s profits as its own.
- The court lifted the corporate veil and held that the subsidiary had actual authority to act for the parent company.
- Actual authority is based on an agreement between the company and the agent.
- The company is directly responsible for the agent’s authorized actions.
Apparent (Ostensible) Authority
- Apparent authority means the agent appears to have authority.
- Even if the agent does not actually have authority
- It is created when the company represents (or allows others to believe) that the agent has authority.
- The company is bound by the agent’s actions if a third party relied on the company’s representation.
- Freeman & Lockyer v Buckhurst Park Properties is a case example
Freeman & Lockyer v Buckhurst Park Properties
- A director, not officially appointed as Managing Director, acted as one.
- Other directors allowed him to act in this role and did not stop him.
- The director hired a firm (the plaintiff) to do work for the company.
- The company argued he lacked actual authority, so the contract was invalid.
- The court ruled that the company was still bound because the director had apparent authority because the company had allowed third parties to believe he had authority.
- Even without actual authority, a company is still liable if it represented (or allowed others to believe) that the agent had authority.
Key Differences Summarized
- Actual Authority is authority actually given to an agent by the company.
- Apparent (Ostensible) Authority is authority that appears to exist based on the company’s conduct.
- Actual Authority is created by an agreement between company and agent, express or implied
- Apparent (Ostensible) Authority is created by representation by the company that the agent has authority.
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Description
Authority in company law determines if a company is legally bound by its agent's actions. Actual and Apparent Authority are the two main types of authority. A case example of actual authority is Smith Stone & Knight Ltd v Birmingham. The company is directly responsible for the agent’s authorized actions
