Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd

Facts

• The company was formed to buy and resell a large estate.
• Kapoor, one of its directors, acted throughout as if he were managing director, although never appointed as such.
• The board knew of and acquiesced in his conduct of the company's affairs.
• Kapoor engaged the plaintiffs, a firm of architects, to do work in connection with the estate.
• The architects carried out the work and rendered their fees.
• The company denied liability, contending Kapoor had no authority to engage them.

Issue

1. Whether a company is bound by contracts made by a person whom the board permitted to act as managing director without any formal appointment.

Held

• The company was bound. Diplock LJ identified four conditions which must be satisfied for a contractor to enforce a contract made by an agent with only ostensible authority: first, a representation that the agent had authority to enter on the principal's behalf into a contract of the kind sought to be enforced; second, that the representation was made by a person or persons who had actual authority to manage the business, either generally or in respect of the matter in question; third, that the contractor was induced by the representation to enter into the contract, that is that he in fact relied on it; and fourth, that the principal had capacity to enter into such a contract. All four were satisfied, the board having represented by its acquiescence that Kapoor had the authority of a managing director.

Ratio Decidendi

Ostensible authority operates as an estoppel arising from the principal's own representation. The representation may be made by conduct, including acquiescence in a course of dealing, but it must emanate from those with actual authority to manage. An agent cannot create his own ostensible authority.