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Apparent authority binds a company
By George Coucounis
A company limited by shares, either private or public, is a legal entity always administered by the board of directors, who are vested with the relevant powers and their decisions bind the company. They have authority and are considered to act on behalf of the company and not for themselves, baring no personal liability. This does not prevent a company from consisting of a single shareholder, who may also be the director and secretary of the company. The way a company is involved into transactions and represented before the public is the cornerstone of commercial certainty, as far as current and future economic actors are concerned, as well as the company’s very own shareholders.

It has to be noted that in the course of a company’s day–to-day running, the board or the general meeting may delegate powers to individuals who in turn may have authority to represent and bind the company. Hence, their authority will be actual or apparent. Actual authority may be express or implied, being given orally or in writing. An implied authority may be ascertained from the circumstances of the case, which may include anything said or written in the ordinary course of business. Ostensible or apparent authority arises where the appointed person reasonably gives the impression to a third party that he has the authority to act on behalf of the company. Thereby, any third person who deals with him, in the normal course of business, is right to believe that he is empowered to bind the company.

The above principles were applied by the Supreme Court in a number of cases such as the judgment dismissing the claim of an insurance company against a client for alleged owed insurance premiums. The client argued that he paid the amount to their agent with whom he was dealing with. It was not disputed that the money were paid to the agent, however, the issue lied on whether the agent, whose co-operation with the insurance company was terminated in the meantime, received the payment on behalf of the insurance company. The Court dismissed the claim of the insurance company, basing their judgement on the existence of ostensible authority, since the agent was acting on behalf of them. It was the agent who found the client, received the client’s proposal form, forwarded it to the insurance company and it was him who was collecting, from time to time, the premiums from the client and transferring it to the company. Under the circumstances, there was no doubt that the agent was acting on behalf of the insurance company with authority to collect premiums and especially the disputed payment from the client. Therefore, the payment to the agent was considered as a payment to the company. The client was led to believe that the agent represented the company and payment made by him to the agent was made to the company.      

Similarly, a director of a hotel company used to purchase supplies from a local store creating a debt. Although the company admitted his authority to buy goods, they disputed the debt since, at some point, he ceased from being a director. The store was not notified by the company and the Court accepted the claim of the store for the debt. It was held that a representative, who acts within the bounds of his authority during transactions made with third parties, binds the principal. Likewise, where the director could be held liable, the company is liable. Moreover, the director was not acting beyond his authority and his acts were within his express or implied authority as a director. Consequently, he bound the company for the purchases made on behalf of the company. The unilateral revocation of his office terminating the agency relationship could not affect the position of third parties when the agent acts are within his actual or apparent bounds of authority.                

Companies to avoid similar duties should expressly clarify to their directors, agents and third parties the extent of authorization they gave.  

George Coucounis is a lawyer specializing on the Immovable Property Law, Leading Partner in George Coucounis LLC based in Larnaca - Cyprus
www.coucounislaw.com - E-mail coucounis.law@cytanet.com.cy

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