Business Law: Agency Relationship and Liability of Principal

Running head: BUSINESS LAW
BUSINESS LAW
Name of the Student:
Name of the University:
Author Note:

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ANSWER 1:
Issue:
The issue arising out of the current scenario is the whether LLA has any obligations
towards the Glitz Cruisers.
Rules:
The present case study is to be discussed in the light of the Partnership Act 1963 as well
as agency law. In order to assess the present scenario, the relationship of an agent with the
principal is required to be discussed (Bennett, 2014). An agency relation is created where one
person is authorized and empowered by another party so that the former has the right to act on
behalf of the former party. In this type of relation, the former party is denoted as an agent
whereas the latter one is called the principal. According to the principle of agency, power and
authority of a principal are delegated towards the agent such that the latter can represent the
former when dealing with third parties.
The principle of agency is also found under the common law of agency (Dal Pont, 2018).
Similar to the Partnership Act, under the common law too, the agency relation is created through
an agreement as per the law of contract, law of partnership and others. The rights and duties of
the agent as well as the principal are contained under the provisions of the agreement.
Under the agency law, this type of agent and principal relation is formed on mutual trust,
repose and confidence (Thampapillai et al., 2015). It enumerates that each and every agent in an
agency relation are bound by mutual trust and confidence towards one another. The agent
possesses a fiduciary duty to perform while acting for his principal. This is laid in Re

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Agriculturist Insurance Co (1870) LR 5 Ch App 725. The agent is required to be true and loyal
towards the principal. He shall not involve in any act that will cause detriment to the interest of
the principal. Moreover, the agent must abide by the rules and instructions of the principal. In
addition to these, the agent is required to act carefully and diligently while dealing with outsiders
and while representing the principal.
The principal can delegate his powers and can authorize the agent to act on his behalf in
three ways mainly, firstly by delegating actual authority expressly, secondly by delegating actual
authority impliedly and thirdly by delegating apparent or ostensible authority (Latimer, 2016).
Actual authority is delegated when the principal authorizes the agent for acting on behalf of him
by means of an agreement or by conduct and customs. This type of authority arises usually by
either operation of law or from necessity. This is found in Rosenbaum v Belson [1900] 2 Ch.
267.
The second category is found when agent is authorized to perform anything which is
incidental to acts carried out with the actual authority of the principal. This is regarded as
implied actual authority.
The third category is found where the agent acts for the principal without having being
authorized actually. Here the agent though has not authorized to act for the principal but to the
outsiders it appears that the principal has authorized and empowered him to act on his behalf as
seen in Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549 at 583. Here the principal has
knowledge that the agent is performing for him while making transactions with third parties like
outsiders. Since the principal knows this and has permitted to represent him, later on he cannot
deny his liability for the acts done by the agent. The principle here ratified the agent’s act either

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by his behavior or conduct. Such ratification is found where the principal has previously asked
the agent to act on behalf of him but later on due to some reason such relation is terminated but
the outsiders are not informed of this. This is called the apparent or ostensible authority and this
can be supported by First Energy (UK) Limited v Hungarian International Bank [1993] BCLC
1409.
Moreover any act committed by an agent for the purpose of carrying on business in usual
manner will not only bind the firm but also other partners of the firm unless such agent is doing
an act without having any authority to do the same and when the agent is dealing with those
persons who are already aware of the fact that the agent is acting without any authority or has no
knowledge that he is the partner of the firm. Moreover, if the act is performed beyond the scope
of the business, then also it will not bind the firm or other agents. Here in the case of Wilson v
Tumman (1843) 6 Man & G 236 at 242, it is seen that in case that if an agent is acting without
authority and such act is ratified by the principal then the principal will be held responsible.
However, if it is seen that the agent is acting for purposes which are not related to the
business of the firm, then such act will not bind the firm until and unless the partner has been
assigned to act so by other partners of the firm. However this does not affect the liability of the
partner in its personal capacity. This can be further supported by London Chartered Accountant v
Kerry (1878).
In this regard, the observations of Freeman and Lockyer v Buckhurst Park Properties
(Mangal) Ltd [1964] 2 QB 480 made by Justice Diplock can be referred. In this case, four
conditions are made which must be fulfilled in order to make a company liable for the acts done
by its agents when the latter is not authorized to act in that manner. It must be seen that there