Agency and Contract Law

This assignment delves into the concepts of agency and contract law, examining their relationship and application. It analyzes the concept of apparent authority in agency, particularly its influence on contractual obligations. The assignment also discusses the scope of reliance required for establishing apparent authority and its legal implications. Various sources, including legal texts, academic articles, and online publications, are cited to support the analysis.

LEGAL ASPECTS OF
BUSINESS

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
Actual Authority..........................................................................................................................1
Apparent Authority.....................................................................................................................3
Usual Authority...........................................................................................................................4
TASK 2 ...........................................................................................................................................5
CONCLUSION................................................................................................................................7
REFERENCES .................................................................................................................8

INTRODUCTION
Law of Agency is a constituent of the Commercial law of the nation, which essentially
governs the relationship of principal and agent. This system provides for rules and regulations
for smooth operation of a business. An agent can be characterized as a person who carries out
tasks or acts as a representative of a third party. On the other hand, Principal is the person who
fundamentally employs an agent to act on their behalf. In the year 1986, the Directive
86/653/EEC was enacted by the European Communities for self employed commercial agents. In
pursuance to this directive these laws were inculcated in the National Commercial laws of UK in
the year 1993 (Anson and et. al., 2010). The present study shall focus on the kinds of authority
exercised by the agents under the periphery of Law of Agents. Furthermore, the capacity of
parties to enter into such relationships shall be illustrated, particularly in context of minors.
TASK 1
In order to evolve the relationship of agency it is manifested by the principal that the
agent would act on his behalf as well as act under his supervision and control. The genesis of this
relationship may be implicit by words or conduct of the individuals involved and also the
surrounding facts. However, presence of the intention to form such a relationship is one of the
essential elements which is required by law. Both the principal and agent are required to develop
a relation on mutual consent and intention. It can also be characterized as a fiduciary relation
which is primarily owed by the agent in favour of the principal to act towards the interests of the
principal. Therefore, to prove the existence of such an association, firstly it should be established
that the principal consented to authorize the agent to act as the representative, while the said
consent can be both express or implied (McKendrick, 2014). Secondly, it should also be proved
that the agent was working under the control and supervision of the principal. The nature of the
relationship so formed is purely contractual in nature and hence all the rules and interpretations
shall be applicable to ascertain the scope of the Act. The authority of an agent is derived from the
intention as well as manifestation of the principal towards the agent. The following types of
authorities shall be conferred on the agent is respect to the Agency relationship: Actual Authority
This kind of authority is conferred on the agent by a principal which in essence allows
him to act as a representative of the principal. The conferment of the power from the end of the
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principal can be either express or implied. This is one of the fundamental authorities which also
requires the agent to act within the periphery of the actual authority so as to be entitled to receive
remuneration as well as the reimbursements (Bingham, 2011). In such situations the principal is
said to be responsible for all the acts which the agents undertake under the course of the agency.
Therefore, a vicarious liability shall be imposed on the principal for all the acts of his agents
within the course of the agency, whether authorized or unauthorized in nature. This form of
liability is based on the Common Law principle in accordance to which the the superior is
responsible for the acts of the subordinates. In the case of Watteau v. Fenwick (1893) it was
reiterated by the court that the principal shall be made primarily liable for all the acts which his
agent undertaken within the scope of authorized acts. In the case of Freeman & Lockyer v.
Buckhurst Park Properties (Mangal) Ltd. (1964) the courts characterized actual authority as an
element of a consensual agreement between a principal and agent only. The scope of such a
relationship is ascertained by application of principles of construction of contract, which is
inclusive of consequences of the express words used, or implication from the course of the
business. In a recent judgement of Kemeh v. Misitry of Defence (2014), the courts upheld the
view that if a degree of direction can be established originating from the end of a principal, or the
degree of proximity, then in such a case the application of principal – agent relationship can be
upheld (Fudge, Peters and Wade, 2012). Finally in pursuance to this relationship the principal
shall bear the vicarious liability originating from the Common law. Hence, every third party
sustaining injuries from the act of an agent, during the course of agency, shall be entitled for the
damages or compensation from the principal. On the other hand, if the agent acts outside the
actual authority and conducts himself to act cause harm or injury to a third person then, the agent
himself shall be responsible to pay compensation to the aggrieved parties.
Express Actual Authority was explained by the court in the case of Ireland v.
Livingstone (1872), that the circumstances in which the principal expressly confers an authority
or responsibility on the agent to act in a particular manner, then it is called as Express Actual
Authority. Hence, presence of a clear communication from the end of the Principal authorizing
the agent to act on behalf of the principal shall be mandatory. These terms can be both in written
form as well as oral form, and the courts shall construe them in accordance to the circumstances
of the case (Macgregor, 2011).
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Implied Actual Authority imposes the liability to undertake the express obligations in a
reasonable manner. It is implicitly made applicable by virtue of the position occupied by the
agent. Pursuant to this authority the agent is expected to undertake all the collateral as well as
incidental tasks, attached to the express terms. Hence, this requires the agent to accomplish all
the ancillary works which are necessary to fulfil the obligation under the express terms. This
authority has been characterized by the courts as the necessary auxiliary requirements of the
tasks which are undertaken in pursuance to the direct communications by the principal.
Additionally, this authority can also be inferred by the manner in which the parties to the agency
relationship conduct themselves while fulfilling the obligations (Tuohy, 2013). For instance
when the Board of Directors decide to appoint someone as a Director, then it is implied that such
a person would be required to act in accordance to the usual scope of work a director undertakes.
A similar finding was made by the court in Hely-Hutchinson v. Brayhead Ltd. (1968), wherein it
was opined that actual authority both in the form of express or implied authority shall be
considered binding even in the case of a company and agent, and even otherwise. Apparent Authority
Apparent authority can also be termed as Ostensible authority, which in essence is
representation of existence of an agency to a third person. Such a person is made to believe that
the purported principal and agent have are sharing an agency relation. Such a representation is
made by the words or actions of the principal, and are capable of making any reasonable person
believe the same. This type of agency has been developed to protect the interests of the third
person who has acted relying on the actions of the principal and can also be termed as Agency by
Estoppel or the doctrine of holding out (Ostensible Authority: Scope of Reliance Requirement,
2013). In pursuance to this doctrine the principal shall be estopped from negating the existence
of such a relationship and shall be responsible towards the third person. In the case of Rama
Corporation Ltd. Proved Tin and General Investments Ltd (1952) the courts defined apparent
authority as a form of agency by estoppel and required the presence of the following three
elements:
1. representation from the end of the principal;
2. reliance on such a representation by the third person, and
3. alteration in the position of the third person by relying on the representation (Cotton,
2010).
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Therefore, it is a necessity that the concerned principal has acted to represent existence of
an agency, relying on which the third person has acted in a particular manner, which in effect is
in detriment to the interests of such a third person. It is further essential to establish the proximity
of the principal's representation and the action of the third person. Further in the case of Armagas
Ltd. v. Mundogas Ltd. (1986), it was held by the court that an agent is not empowered to use the
concept of ostensible authority as a shield for protecting him selves from the liabilities arising
from his own acts. Therefore, an agent cannot clothe himself under the disguise of the apparent
authority. In Hely-Hutchinson v. Brayhead Ltd. (1968) it was viewed by the courts can be termed
as the authority of an agent, in the manner it is conceived by a third person. It has often been
observed that it coincides with the actual authority, and does not cause any harm or injury to a
third person (Clarke and Lancaster, 2013). However, in the even there is no such co-incidence, a
third party may get misrepresented and act to his own detriment. In such cases the apparent
authority shall come into action and protect the interest of the third party and make the principal
liable for the same. In another case of British Thomson – Houston Co. Ltd. v. Federated
European bank Ltd. (1946) a similar view was upheld by the courts to make the principal liable
towards the third person under the apparent authority.
 Usual Authority
This kind of authority is useful in ascertaining the extent of actual and apparent authority
which the agent is empowered as well as entitled to exercise under the relation of agency. In
accordance to the general rule of agency, a principal confers the actual authority to the agency
either in an express form or an implied form (Poole, 2012). Thought the express authority is
directly communicated by the principal, implied terms are made applicable on a supplementary
basis. Hence, in accordance to the law, every agent is under a strict obligation to assume the
implied authority for fulfilment of the obligations under the express authority. This is the usual
authority which is assumed on the part of the principal, that the agent shall undertake the
activities which are covered under the express terms as well as the implied terms. In the case of
Pickering v. Busk (1812) the courts considered the concept of usual authority. It was held that
under the relationship of agency, an agent is authorized to undertake all the incidental and
auxiliary work which are necessary for fulfilment of the express authority. In addition, even if
such work is required for effective performance of the responsibilities then also such an authority
shall be presumed to have been imposed on the agent (Hornby, 2009). In Hopkins v. TL Dallas
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Group Ltd. (2004) another aspect of application of these authorities was analyzed, wherein if an
agent is acting under his usual authority then, the third person shall assume the extent of the
agency and not inquire about it. In the case of Watteau v. Fenwick (1893) it was held by the
courts that the fact that the principal shall be held liable for the acts which his agent undertakes.
Such acts are required to be within the scope of agency which is wide enough to include all the
ancillary activities which can be characterized as supplementary to the express authorities can be
referred as 'usual authority' (Fried, 2015). In the case of Hely Hutchinson, the courts referred to
usual authority as implied actual authority or the inherent agency power, which entitles the
principal to make the agent work for it.
TASK 2
In law minor is considered as the person under certain age i.e 18 as per the law. The
general law which are associated with entering into contract with minor is that such contract is
voidable by the minor. This rule has been generally built with the motive to protect youngsters
who are not able to understand about any specific contract. It is generally believed that minors
lack capacity to contract and due to this specific reason courts have provided minors with the
ability to exit any kind of contract at the discretion. In case if the contract is regarded to be valid
then it is possible for minor to leave it as he or she sees fit. In the case of De Francesco v.
Barnum (1899) it was held that a minor entering into a contractual relationship cannot be
considered lawful, to the effect that such a contract shall be regarded as void in the eyes of law.
Every type of contract with minor is regarded to be void where it is possible for other parties to
refuse to enter into contract with them (Heeney, 2012). Considering the overall guidelines
provided by the law in case of certain goods and services contract is not voidable. All the range
of necessary items takes into consideration food, lodging, shelter etc. Along with this, economic
condition of the minor’s parents is undertaken for determining which item is necessary. In the
case of Chapple v. Cooper (1844), it was held by the court that a contract formed for serving the
necessities of the contract shall be enforceable in the court of law. Further it was also established
that the scope of necessities is wide enough to include essentials which are beyond the
requirements of just living. Hence, all items of luxuries are not included within this scope and
hence contract formed for luxury items shall be considered as not enforceable in the court of law.
Moreover, the court also considered the income of the minor while determining the
enforceability of the contract (Mitchels, 2015). In case of bank accounts majority of the courts
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require minors to comply with the terms associated with the banking agreement. They are
directly subject to some penalty or other sort of fees. In case of employment contract different
legislations have been introduced that limits such as right of minor to disaffirm the contract. On
the other hand it is possible for minor to void the contract in one of the two ways where first one
is linked with filing lawsuit asking the court to void the contact. Second one is linked with
raising the affirmative designees of lack of capacity in case if individual is sued. Minor is
necessarily required to pay restitution for the main advantages of the goods received. In case if
any minor signs the contract can either honour the deal or can void. Generally minor lacks
mental capacity where individual is not able to understand the meaning and effect of the words
associated with the transactions. Courts in every type of contract measures capacity with the help
of person’s ability to enter into specific type of contract. In case if minor does not prefer to enter
into contract then different rules of law are present in relation with the same which are associated
with the effect on property received by minor under the contract (Bowstead, Watts and Reynolds,
2012.). Further, parents of minor are not considered to be responsible under any type of contract.
However when parents or any relative of minor signs contract then individual can be held liable
for the same. Different restrictions are present in the contract law cases where minor is allowed
to disaffirm a contractual obligation. It is necessary that minor must disaffirm specific contract
within reasonable amount of time. Further, minor is not allowed to utilize disaffirm right if in
case the age of individual is not truly expressed. Large numbers of states are working in favour
of restricting the ability of minor to disaffirm contract if they have received benefit from the
contract in any way. Considering the guidelines present in the contract law minor liability to
parent or any other guardian is not at all extended. No party is allowed to enter into any type of
legal contract with minor and if in case such type of practices take place then it is regarded to be
voidable. Moreover, in case of minor parties are not allowed to claim for the damages or any
other type of loss which they have suffered in the contract. Minors do not have power to
understand about the key terms in the contract and due to this reason they are restricted to enter
into contract. State law has highlighted other type of contracts that minors cannot void for
instance if different state require minor to be held to entertainment type of contract or sports.
Country like New York has granted permission to minors to purchase life insurance policy with
such policy is not at all considered to be voidable (Reydams-Schils, 2011). So, the guidelines
framed by every state are different but in every case minors are not allowed to enter into
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contract. In the case of Steinberg v. Scala (Leeds) Ltd. (1923) the court after considering the facts
of the case, voided the contract as one of the party to the contract was a minor. In this case the
minor purchased some shares of the company Scala. The said shares were not fully paid up and
when the entity demanded the due payments, the minor could not fulfil the demands (DeMott,
2014). In pursuance to the same, Scala approached the court of law, wherein it was held by the
court that the said contract was void ab initio as it involved a minor as the party which is
completely against the essential elements of the contract.
CONCLUSION
It can be inferred from the laid down facts and case laws that Law of Agency basically
governs the relation of a principal and agent, and the said relationship is in nature of a
contractual relationship. In pursuance to the same, the parties to agency shall be capable to
contract, in accordance to the essential elements of a contract. Therefore, a minor entering in the
contract of agency cannot be considered as valid in the eyes of law, which is also subject to
exceptions. Further the said association entitles the agent to exercise the actual authority which
may be conferred expressly or impliedly by the agent. In addition, law provides for apparent
authority which in essence protects the third party from the mischief of the principal who merely
represents the existence agency to a third person.
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REFERENCES
Books and Journals
Anson, W. R. and et. al., 2010. Anson's law of contract. Oxford University Press.
Bingham, T., 2011. The rule of law. Penguin UK.
Bowstead, W., Watts, P. G. and Reynolds, F. M. B., 2012. Bowstead and Reynolds on agency.
Sweet & Maxwell.
Clarke, R. and Lancaster, T., 2013, July. Commercial aspects of contract cheating.
In Proceedings of the 18th ACM conference on Innovation and technology in computer
science education (pp. 219-224). ACM.
Cotton, E., 2010. Contract & agency labour: beyond self-regulation?.
DeMott, D., 2014. The Contours and Composition of Agency Doctrine: Perspectives from
History and Theory on Inherent Agency Power. University of Illinois Law Review. 2014
(5).
Fried, C., 2015. Contract as promise: A theory of contractual obligation. Oxford University
Press, USA.
Fudge, S., Peters, M. and Wade, J., 2012. Locating the agency and influence of local authorities
in UK energy governance. Centre for Environmental Strategy, University of Surrey:
United Kingdom.
Heeney, C., 2012. Breaching the contract? Privacy and the UK Census. The Information
Society. 28(5). pp.316-328.
Macgregor, L., 2011. Apparent Authority in Agency: Gregor Homes Ltd v Emlick. Edinburgh L.
Rev. 15. p.442.
McKendrick, E., 2014. Contract law: text, cases, and materials. Oxford University Press (UK).
Mitchels, B., 2015. Supervision in England, Northern Ireland and Wales.
Poole, J., 2012. Casebook on contract law. Oxford University Press.
Reydams-Schils, G., 2011. Authority and Agency in Stoicism. Greek, Roman, and Byzantine
Studies. 51(2). pp.296-322.
Tuohy, C. H., 2013. Models of professional regulation: institutionalizing an agency
relationship. Israel journal of health policy research. 2(1). p.1.
Online
Hornby., J. A., The Usual Authority of an Agent, 2009. [Online]. Available through:
<https://www.cambridge.org/core/journals/cambridge-law-journal/article/the-usual-
authority-of-an-agent/2ECB081F795F7E8AD1D9A3928928FD44>. [Accessed on 29th
October 2016].
Ostensible Authority: Scope of Reliance Requirement, 2013. [Online]. Available through:
<http://www.jordanpublishing.co.uk/practice-areas/company/news_and_comment/
ostensible-authority-the-scope-of-the-reliance-requirement#.WBSEV6W1Gko>.
[Accessed on 29th October 2016].
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