NANYANG TECHNOLOGICAL UNIVERSITY
NANYANG BUSINESS SCHOOL
AB1301 - BUSINESS LAW
OCT 2019
Worksheet 9:
AGENCY
Key Learning Points:
 To understand how an agency relationship arises
 To recognise the different sets of relationships present in an agency situation
 To be able to identify the legal issues that arise in respect of each different set of
relationship
 To understand the rights and obligations of each party vis-à-vis the other party in each
set of relationship
 To know the various ways in which an agency relationship can terminate and impact
of termination on the agent's authority
Question 1
Tim, an enterprising businessman, was looking to rent a warehouse for his expanding storage
business. Prime Co owns a huge warehouse complex which it commercially leases to several
tenants. Tim contacted Prime Co and expressed an interest in one of the units in the complex,
and Prime Co assigned their employee, Alex, to attend to him. Alex turned up with the keys
and access cards and showed Tim the vacant unit in the warehouse and the environs. After
some negotiation, Tim and Alex signed the lease agreement. Although Tim insisted that a
director of Prime Co should also co-sign the lease agreement, the glib-tongued Alex assuaged
him that he had Prime Co’s authority to enter into the lease agreement. Allayed by Alex’s
assurances, Tim then paid Alex the rental deposit.
Required
Answer all the questions, treating each part question as separate and independent.
a)
When Tim moved in the warehouse a week later, Prime Co informed him that they had
no record of any lease with him and that the warehouse had been leased to another tenant
the day before. Prime Co added that Alex was only a clerical staff with no authority to
enter into any lease agreements. Tim was also dismayed to discover that Alex had quite
abruptly resigned and run off with his rental deposit.
Advise Tim whether he can enforce the lease agreement against Prime Co and, failing
which, whether he has any remedies against Alex to recover his rental deposit.
-
Actual authority: Alex was only a clerical staff, which means he has no authority to
enter into any lease agreements
Agency by ratification cannot work because Prime Co has already leased the
warehouse to another tenant.
Agency by operation of law is not applicable
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-
What about Apparent/Ostensible Authority?
1. Representation as to agent’s authority to third party – Alex’s possession of the
warehouse keys and access card is not sufficient representation
2. Representation made by principal or person who had actual authority of principal
– no representation made by Prime Co (the principal) that Alex actually had
authority to enter into the lease. Alex gave the assurance.
3. Third party (TP), who does not know about the agent’s lack of authority, was
induced into contract by representation (made by principal) – Since Tim insisted
that a director of Prime Co should also co-sign the lease agreement, this shows
that he has doubts as to whether Alex had authority to sign. Hence, he was not
induced. Furthermore, no representation was made by Prime Co in the first place.
4. Principal has capacity to enter contract
Alex has no ostensible authority. Hence, there is no binding lease agreement, so Tim
cannot enforce the lease agreement against Prime Co.
……………………………………………………………………………………………
To see if Tim has remedies against Alex, we must look at the Breach of warranty of
authority
-
Consider the summary of law on breach of warranty of authority in Yonge v Toynbee
(1910):
“liability of the person who professes to act as agent arises if:
1. Alex has been fraudulent – fulfilled, as he has run off with Tim’s deposit.
2. Alex has without fraud untruly represented that he had authority when he had
not – not applicable, as Alex has been fraudulent.
3. He innocently misrepresents that he has authority where in fact is either
a. That he never had authority or – not applicable
b. That his original authority has ceased by reason of facts of which he has
no knowledge or means of knowledge, it is immaterial whether he knew
of the defect of her authority or not – not applicable because Alex knew
from the start he has no authority to enter lease agreements




By professing to act as agent, Agent impliedly contracts that he has authority.
Furthermore, since Alex knows that he does not have Prime Co’s authority and
intentionally presents otherwise to Tim, Tim may also bring an action in the tort of
deceit.
If Alex’s representation was made carelessly, Tim may also be in a position to bring an
action in the tort of negligent misstatement
Restrictions on Agent’s liability for breach of warranty of authority:
i. Agent’s lack of authority is known to TP – Not satisfied. Tim did not know of
Alex’s lack of authority.
ii. Principal liable on main contract – Not satisfied. Prime Co is also not liable on
main contract.
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Since there is indeed breach of warranty of authority by agent, Alex is liable to Tim.
(b)
Briefly explain whether Tim can enforce his lease agreement against Prime Co in each
of the following separate situations:

Situation 1: Assume that Alex is the Leasing Manager of Prime Co. As a matter
of industry practice in Singapore, leasing managers have the authority to
negotiate and enter into leasing transactions on behalf of their principals.
As Leasing Manager of Prime Co, Alex has actual implied authority even though
Prime Co did not expressly authorize him. This is because in general practice of
the industry, leasing managers have authority to negotiate and contract leasing
transactions.
Hence, Tim can enforce his lease agreement against Prime Co.

Situation 2: Assume that Alex is the Leasing Manager of Prime Co, with express
authority to enter into leasing contracts with clients and charge rentals not
exceeding $10,000 a month. Tim is not aware of the monetary restrictions
imposed on Alex’s authority. As far as Tim knows from speaking to other tenants
in the warehouse, Prime Co has always honoured the lease agreements signed by
Alex. Tim also learnt that Alex had signed a $15,000 a month lease agreement of
a comparable unit with a tenant which Prime Co did not object to. Relying on this
precedent, Tim assuredly signed the lease agreement with Alex for the same
rental.
The fact that Alex has express authority to enter into leasing contracts charging
rentals NOT EXCEEDING $10,000 a month is irrelevant, because Tim is not
aware of the monetary restrictions.
As far as Tim knows, Prime Co has always honoured leased agreements signed
by Tim. Hence, Tim can rightly assert that Prime Co, through its past actions, has
clothed Alex with ostensible (apparent) authority for his lease agreement.
Hence, Tim can enforce his lease agreement against Prime Co.
(c)
Despite Alex’s lack of authority to enter into the lease agreement, the General Manager
of Prime Co found out about the unauthorised lease a week later but was delighted with
the transaction and complimented Alex for his resourcefulness, and allowed Tim to
proceed with the lease. On the other hand, Tim regretted his hasty bargain with Alex and
intended to avoid liability when he found out that Alex never had such authority.
Advise Prime Co whether it can hold Tim liable to the lease agreement.
Law: Agency by ratification, where a principal retrospectively confirms or ratifies an
agent’s act, binding the principal to the third party as if the agent has actual authority to
do so in the first place
Apply: In this situation, Prime Co wants to ratify Alex’s act, binding itself to Tim as if
Alex had actual authority to do so in the first place.
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The conditions for ratifications should be analysed as follows:
1. Principal must be named or identifiable –Identified because Tim knows Alex was
acting for Prime Co
2. Principal must exist when contract made – Prime Co already exists at the time of
Tim’s lease agreement
3. Principal must have capacity – Fulfilled. Prime Co owns a huge warehouse complex
which it commercially leases to several tenants
4. Ratification must be within reasonable period – Fulfilled. General Manager of Prime
Co ratified a week later after the unauthorised leased was discovered. This is a
reasonable amount of time as it is still in time for Tim to honour their fair share of
bargain of the agreement to Prime Co.
Hence, the lease agreement can be ratified, and Prime Co can hold Tim liable to his
agreement.
However, the contract between Prime Co and Tim was only formed when Prime Co
ratifies.
Therefore, Tim is entitled to withdraw his offer, but only if he intended to do so in the
one-week window before Prime Co’s acceptance.
(d)
Assume that Alex had validly entered into a 2-year lease agreement with Tim and also
had the authority to receive the deposit and rental payments on behalf of Prime Co. When
the General Manager of Prime Co found out that Alex had run off with the rental deposit,
he instructed his secretary to place a notice in the Straits Times to inform the public that
Alex had ceased to be their employee and no longer had any authority to transact on
behalf of Prime Co.
Unaware that Alex had left Prime Co and ignorant of the notice in the Straits Times, Tim
coincidentally bumped into Alex just before the lease expired and Alex happily signed
his lease renewal to spite his former employer, Prime Co, for sacking him.
Briefly advise Prime Co whether they had valid grounds to terminate Alex’s contract of
employment and whether they are bound to Tim on Alex’s unauthorised extension of the
lease.
Part 1: whether Prime Co has valid grounds to terminate Alex’s contract of employment
Revocation of authority allows for termination of Ms Chio’s employment.
Discharge: termination of agency agreement – Yes because there was a breach of contract.
 RDC Concrete situation 2 – where a party, by his words or conduct, renounces all
his obligation under the contract, the innocent party is entitled to terminate the
contract. – Alex ran off with the money, which indicates he is renouncing his
obligation, Prime Co is entitled to terminate Alex’s contract of employment
…………………………………………………………………………………………………...
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Part 2: whether Prime Co are bound to Tim
To prevent third parties from raising the argument of ostensible authority, some principals
chose to disclose third parties the limits of authority granted to their agents. Applying to this
question, Prime Co has done so by publishing a public notice of Alex’s termination in the
Straits Time. These steps are intended to give notice so Prime Co’s leaseholders cannot raise
ostensible authority as basis to bind them. This is because ostensible authority can only be
successfully argued when the third party had no knowledge of the agent’s lack of authority.
However, in order to nullify the third party’s reliance on ostensible authority, such knowledge
must be actual knowledge rather than constructive knowledge.
In this question, while Prime Co had published a public notice in the Straits Time, they did not
notify their leaseholders individually. This means Tim has no actual knowledge of Alex’s
termination.
Hence, Tim can assert that, as far as he knows, Alex had ostensible authority at the time of the
lease renewal. Prime Co is therefore bound to Tim on Alex’s unauthorised extension of the
lease.
[Adapted by Associate Professor Dennis Ong from an earlier draft by Associate Professor Erin Goh, Oct
2019]
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