In the March edition of CK Momentum, we looked at the
formalities of signing contracts. However, in some commercial
dealings following the formal rules of, for example, having two
directors sign a document or asking for a copy of a board
resolution to verify a representative is authorised to bind the
company, is not always practical or possible. Senior associate Brad
Vinning looks at the circumstances in which you may be able to
assume the person you are dealing has authority to bind the company
because of implied or apparent authority.
IMPLIED OR APPARENT AUTHORITY
An outsider may assume a person has implied or apparent
authority where there is the appearance of authority conferred on
that person. Where a person has such authority, as between the
company and the outsider, the company is prevented from denying
that the person lacked authority and a valid contract will
However, to be able to assert the person you are dealing with
has implied or apparent authority, the company or someone with
actual authority must represent the person's authority, either
Appointing the person to a particular position For example, you could assume that a managing director has
authority to bind the Company with respect to matters regarding the
daily running of the company.
Allowing the person to carry out particular
tasks that are beyond their usual authority. For example, a
Company over time does not object to being bound by arrangements
entered into by a senior executive or single director. Although
typically a single person would not have authority to bind the
company, the Company's acquiescence creates the appearance of
authority in that person.
However it is important to remember that a person who purports
to act on behalf of the company must act within the limits of their
actual or apparent authority. Whilst it is difficult for an
outsider to know what the limit of a representative's authority
is, you should always apply common sense and consider:
the size of the company;
the nature of its business; and
the position held in the company by the person holding
themselves out to have authority.
For example, the authority of a managing director probably does
not extend to a decision to sell the entire business of the
If you are in any doubt as to the authority of the
representative you are dealing with and their ability to bind the
company, then you should always seek to have their authority
verified by someone that you know has actual authority.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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We discuss whether certain clauses commonly found in ordinary commercial contracts could be considered to be penalties.
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