Authority of an Agent
1. Does the agent have actual authority?
a. Implied or
i. Whatever would be usual for that role/position (e.g. finance director
can borrow money or sign cheques)
ii. Based on the conduct of the parties (Hely-Hutchinson)
b. Expressed
i. Based on evidence (e.g. in constitution, board minutes or employee
contract)
2. Does S. 40 remedy the defect in the agent not having actual authority?
a. Person (insider: Smith)
b. Dealing with the company (EIC Services, ‘other act’ point)
c. In good faith (But when does mere knowledge cross the line and become bad
faith?)
i. Knowledge of lack of actual authority does not counts
ii. Presumption of good faith
iii. Burden of proof is on the company to show bad faith
d. Power of the directors (or authorise others to do so) (inquorate issue: Smith,
could mean not a decision of directors as no board meeting or still a board
meeting, merely inquorate – uncertain. Also, change from old regime which
was ‘board of directors’ – could be to give individual directors unlimited
power)
e. Free of any limitation (Smith, better protected than Turquand as not limited
to internal procedures only)
f. Under the company’s constitution (Broad definition including shareholder
agreements and resolutions)
3. Is there apparent authority? (Freeman & Lockyer, otherwise, the constructive notice
doctrine would be too strict, and third parties would never contract not being able to
reliably monitor internal procedures even with actual knowledge. Also, the company
can be deemed to have misled the third party)
a. Representation
b. By someone with actual authority (Sun Life Assurance)
c. Reasonable and factual reliance
4. Does the Turquand Rule assist?
a. Person dealing with a company (insider issue: Howard)
b. Can assume that there has been
i. But, cannot assume that there has been a delegation of power merely
because it is delegable (Houghton)
c. Due compliance/ regular procedures
d. With internal management/procedures
e. Required by the company’s constitution
f. So long as there is no bad faith
g. Knowledge of lack of actual authority counts
5. Has the company ratified the deal/contract?
a. Verification/confirmation of a contract
6. If none of the above, then the contract is not binding.
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1. Does the agent have actual authority?
a. Implied or
i. Whatever would be usual for that role/position (e.g. finance director
can borrow money or sign cheques)
ii. Based on the conduct of the parties (Hely-Hutchinson)
b. Expressed
i. Based on evidence (e.g. in constitution, board minutes or employee
contract)
2. Does S. 40 remedy the defect in the agent not having actual authority?
a. Person (insider: Smith)
b. Dealing with the company (EIC Services, ‘other act’ point)
c. In good faith (But when does mere knowledge cross the line and become bad
faith?)
i. Knowledge of lack of actual authority does not counts
ii. Presumption of good faith
iii. Burden of proof is on the company to show bad faith
d. Power of the directors (or authorise others to do so) (inquorate issue: Smith,
could mean not a decision of directors as no board meeting or still a board
meeting, merely inquorate – uncertain. Also, change from old regime which
was ‘board of directors’ – could be to give individual directors unlimited
power)
e. Free of any limitation (Smith, better protected than Turquand as not limited
to internal procedures only)
f. Under the company’s constitution (Broad definition including shareholder
agreements and resolutions)
3. Is there apparent authority? (Freeman & Lockyer, otherwise, the constructive notice
doctrine would be too strict, and third parties would never contract not being able to
reliably monitor internal procedures even with actual knowledge. Also, the company
can be deemed to have misled the third party)
a. Representation
b. By someone with actual authority (Sun Life Assurance)
c. Reasonable and factual reliance
4. Does the Turquand Rule assist?
a. Person dealing with a company (insider issue: Howard)
b. Can assume that there has been
i. But, cannot assume that there has been a delegation of power merely
because it is delegable (Houghton)
c. Due compliance/ regular procedures
d. With internal management/procedures
e. Required by the company’s constitution
f. So long as there is no bad faith
g. Knowledge of lack of actual authority counts
5. Has the company ratified the deal/contract?
a. Verification/confirmation of a contract
6. If none of the above, then the contract is not binding.
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