If a customer/client enters into a Contract with a Public Limited Company and the Company representative signs where it states ‘On Behalf of ………Plc’, is that contract legally binding, even if at a later date the said company representative then states she was not authorised to sign for that company, and only a Director can? Please advise.
Alasdair Taylor's Answer
There are two ways that an individual employee may bind the employing company: by virtue of actual authority or ostensible (or apparent) authority. Assuming the company is correct that the person in question is not a director and did not have actual authority, then you are left with an argument based on ostensible authority.
The leading case is still (I think) Freeman & Lockyer v Buckhurst Park Properties. In that case, Diplock LJ set out the test:
“It must be shown: (1) that a representation that the agent had authority to enter on behalf of the company into a contract of the kind sought to be enforced was made to the contractor; (2) that such representation was made by a person or persons who had “actual” authority to manage the business of the company either generally or in respect of those matters to which the contract relates; (3) that he (the contractor) was induced by such representation to enter into the contract, that is, that he in fact relied upon it; and (4) that under its memorandum or articles of association the company was not deprived of the capacity either to enter into a contract of the kind sought to be enforced or to delegate authority to enter into a contract of that kind to the agent.”
(Copied from Wikipedia, here: http://en.wikipedia.org/wiki/Freeman_and_Lockyer_v_Buckhurst_Park_Properties_%28Mangal%29_Ltd)
A job title may itself be a representation. If the person who signed the contract has a job title which usually implies an authority to enter into the type of contract in question, then you may have an argument based on that.
NB you also have to have acted in good faith in relation to the contract to rely upon this type of argument.
ps If the company “ratified” the contract post-execution e.g. by facilitating the provision of services or by paying you, that could also mean that the contract is binding.