The fact that someone works as, say, a branch manager or agent for a bank does not mean they have express or implied authority to bind the bank to a transaction of any kind. They can only bind the bank to transactions which are the ordinary kind of business done by the branch manager or agent. There is no free hand to bind the bank at will.
An outsider dealing with the branch manager or agent is only entitled to assume that their functions include the activities that a branch manager or agent would commonly be known to perform.
Ostensible authority arises when the bank, by words or conduct, represents that the agent has authority to conclude the agreements and that this ostensible authority is reasonably relied upon by a third party who acts to their prejudice.
In Absa Bank Limited v Mohamed, the plaintiffs intentionally colluded with the financial agent Mistry to open investment accounts in fictitious names to facilitate tax evasion. Receipts for the alleged deposits were issued without any official bank stamp.
An outsider dealing with the branch manager or agent is only entitled to assume that their functions include the activities that a branch manager or agent would commonly be known to perform. In this case the plaintiffs could not reasonably have believed that it was within the agent’s functions to engage in fraudulent conduct or that the bank authorised Mistry to represent the bank in unlawful activities. There was no express or implied authority to do so.
There was also no ostensible authority (so the plaintiff could not use estoppel to counter the bank’s defence of lack of authority). Nothing the bank had done had represented by words or conduct that Mistry had the authority to behave as he did.
The only surprising thing about this case is that the plaintiffs were successful in the lower court.