The Agent Without Authority and the Third-Party Buyer
Corvus Trading Ltd sells industrial pumps. Its regional sales manager, Ilya, has authority to negotiate orders up to £40,000. The board has never told customers of this limit, and Ilya's business cards and email signature describe him as 'Regional Sales Manager - authorised to conclude sales.' Ilya signs a £95,000 order with a new customer, Meridian Ltd, which has dealt with Corvus only twice before and has always dealt with Ilya. Corvus's managing director learns of the order and refuses to supply, saying Ilya exceeded his authority. Meridian has already contracted to resell the pumps to its own customer and will lose £20,000 if Corvus does not deliver. Meridian had not seen Corvus's internal authority schedule.
1. Advise Meridian whether Corvus is bound by Ilya's order, applying the rules on apparent authority.
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Corvus is bound if Ilya had actual or apparent authority. Actual authority is the authority Corvus actually gave him; the internal £40,000 limit suggests he did not have actual authority for a £95,000 order. The question is therefore apparent authority, which arises where the principal makes a representation that the agent has authority, the third party relies on it, and the principal has not revoked it before the contract is made.
Here the representation is strong. Corvus gave Ilya business cards and an email signature describing him as authorised to conclude sales, and it never communicated the £40,000 limit to customers. A regional sales manager who negotiates and signs orders is precisely the kind of officer a customer would expect to have authority to conclude a sale. Meridian dealt with Ilya on both previous transactions, reinforcing the representation. Meridian did not know of the internal limit, so it cannot be said to have had notice that would defeat reliance.
The internal schedule is irrelevant to Meridian unless it was brought to Meridian's attention. The managing director's refusal after the contract was made cannot retrospectively revoke authority that had already been exercised. Corvus is therefore likely bound by the £95,000 order, and its remedy is against Ilya for exceeding his actual authority, not against Meridian.
2. If Corvus is bound but refuses to deliver, what remedies does Meridian have and how does the £20,000 resale loss feature?
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If Corvus is bound, its refusal to deliver is a repudiatory breach of the sale contract. Meridian may accept the repudiation, terminate, and claim damages, or affirm and insist on delivery. Because Meridian has already contracted to resell the pumps, its loss includes the £20,000 it will lose on that resale. That loss is recoverable if it was within the reasonable contemplation of the parties when the contract was made. Corvus knew it was selling industrial pumps to a trading company, and resale is the ordinary commercial purpose of such a purchase, so the resale loss is likely contemplated.
Meridian must prove the £20,000 with evidence of the resale contract and its margin. It must also mitigate by sourcing substitute pumps in the market; if it can buy equivalent pumps at the same price, its loss is limited to any difference in price and incidental costs. If substitute pumps cost more, the additional cost is recoverable as the cost of cover.
Meridian may also seek specific performance if the pumps are unique or not readily available, but damages are the usual remedy for ordinary goods. If Corvus had a valid reason to refuse, such as Meridian's insolvency, the analysis would differ, but no such fact is stated.