Director signed letters of undertaking on behalf of his company to pay £1 million to company B. He did so fraudulently for his own benefit. Company B attempted to get payment from director’s company. Held:
· Director does not have actual authority where he acts for:
i) Improper purposes
ii) Or in bad faith
· Thus where director acts contrary to interests of his company, does not have actual authority.
· This may be case where e.g. director signs contracts which are very onerous and disadvantageous for his company
· Director did not have actual authority to sign letters.
Ø Did not fall within scope of his implied authority as director
Ø He acted in breach of fiduciary duty when doing so
· In addition, Company B could not rely on ostensible authority
Ø very facts which amounted to breach of directors’ duty put Company B on notice of lack of authority
Ø i.e. transaction were sodisadvantageous to director’s own company that Company B should have known director was acting in breach of duty
– or at the least, should have asked the other directors to confirm validity of transaction
Ø thus party cannot rely on ostensible authority where he is on notice of lack of authority