University Law Report: Agency Law, Agent Authority, and Business

This report offers a detailed exploration of agency law, essential for understanding business operations. It begins with an introduction to agency law's significance, followed by a discussion on the different types of agents, including general, special, and sub-agents, and their respective authorities. The report then defines agency and outlines three key relationships: principle-agent, agent-third party, and principle-third party. A significant portion of the report is dedicated to the different types of agent authority, categorized as consent-based (express and implied actual authority) and non-consent-based (apparent authority). Each type of authority is defined, and its characteristics are explained with the help of relevant case studies, providing a practical understanding of agency law principles and their application in real-world scenarios. The report concludes with a concise summary of the key concepts covered.

LEGAL ASPECTS OF
BUSINESS

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
Importance of agency law to the business..............................................................................1
Different type of agent authority............................................................................................2
Definition of agency and type of relationships.......................................................................3
Different type of agent authority............................................................................................3
Agency by necessity...............................................................................................................7
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
Law is a group of rules and regulations that determine roles and responsibilities of
specific entities in their life and day to day business and professional activity. In this project
report an attempt is made to create a broad understanding about the agency. In respect to this, in
the report importance of agency law is described in detail. Along with this different type of
agents and their authorities are also discussed in detail in the report. Additionally, agency is
defines and along with this three type of relationships are also explained in an appropriate
manner. After that in the end part of the report various types of agent authorities are discussed in
detail. In respect to this, authorities are divided in to two parts consent and without consent.
Authorities in this section are defined their characteristics are explained and relevant cases are
discussed in detail.
Importance of agency law to the business
In order to understand agency law it is necessary to understand agency. Agency is a
relationship between two entities in which one of them is one person is obligated to the other
person. The person who is able to give order is known as principle and person who receives an
order is agent. The principles is bound by the actions that agent perform on his behalf. Following
are the importance of agency law for corporations. Corporate structure – Companies are entities that have status of individual like human
being. They can enter in to contract and business transactions on their name. Moreover,
they can sue and be sued by others. Board of directors and employees are the agents of
the company and due to this reason corporation is liable for the actions taken by the agent
on their behalf1. But if they do anything beyond their authority then company is not liable
for their action. Hence, for wrong action of agent company cannot be made responsible. Accountability – Companies are responsible for the action taken by the agents on their
behalf. Hence, if mistake is committed with in authority then company is made liable for
the mistakes committed by its agents. In such sort of cases one company have an
authority to sue on other firm provided mistake is committed within given authority. On
1 Callon, M. and Law, J., 2005. On qualculation, agency, Agency by necessity law and legal
definition. 2016and otherness. Environment and Planning. 23(5). p.717.
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other hand, if agent performs an act which does not fall in its scope of authority then
principal cannot be sue by the third party.
 Board protection – This law also provides protection to the company board of directors.
As per law if any board of director commit any mistake which create lots of the problems
for the firm then they cannot be sued by same. Means that if board of directors do any
mistake within scope of authority unknowingly or without any intention then company
cannot take action against them2. This is because in law it is assumed that board of
directors performs any action for helping an organization in achieving its interests.
Hence, in this way mentioned law provides protection to the shareholders.
Different type of agent authority General agents – These are general agents of the firm and they look after all business
activities in behalf of their principle. For these agents there are no limitations in law and
they can perform any activity or can take any action on their own level for the best of
their principle. In such a case if agent does anything wrong then principle will be abided
by his mistakes and third party may sue on the principle. In order to abstain from this
situation there is a provision in the law3. As per this provision principle can set a limit for
his agent and agent needs to work within the prescribed limit. For example in absence of
specific limit agent can purchase real estate for the principle. If limit is set that without
approval of principle agent cannot enter in to any transaction even it is profitable for the
firm. Then without taking approval from principle agent cannot take any action. Special agent – These are those agents that are in contract for performing operations
related to the specific task. Due to this reason they have authority to perform specific
tasks. Apart from the specific task agent cannot perform other task. Hence, this is specific
type of agent. Agency coupled with interest – This is an agent whose income depends on the continuity
of his work. Due to this reason this kind of agent is known as agency coupled with
2 Jolls, C. and Sunstein, C.R., 2005. Debiasing through law (No. w11738). National Bureau
of Economic Research.
3 Merrill, T.W., 2011. Article III, Agency Adjudication, and the Origins of the Appellate
Review Model of Administrative Law. Columbia Law Review. pp.939-1003.
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interest. Their authority is related to the tasks that principle deliver to them4. Thus, it can
be said that this kind of agent is different from above mentioned type of agents.
 Sub agent – These are those agent who works under someone who is an agent to the
principle. Means that there is a one principle and one agent is working under him. Under
that agent there will be another agent who will work. Under this type of agent same may
or may not be authorized by the principle. Means that if sub agent is not authorized then
principle will not be abide by his acts.
Definition of agency and type of relationships
Agency is a relationship between two people out of which one is in position to give order
and other is obliged to follow received order. There are three types of relationships in agency and
these are explained below. Principle agent relationship – Under this relationship there is a principle and its agent.
On behalf of the firm agent negotiate with the third party. Means that there is no direct
contact of principle with the third party in initial stage. So, entire success or failure of
business deal depends on the agent because he is one who is negotiating with the third
party. However, powers of the agent entirely depend on the principle discretion. It is the
principle who will decide the scope of authority of the agent working for him5. In the
given case study this relationship will be applied because in same it is clearly mentioned
that Fenwick is a principle and Humble is agent. Hence, in this way relationship of both
fall in this category. Agent third party relationship – Here also agent negotiates with the third party on behalf
of principle. The only difference is that in this relationship sometimes agent become
liable for actions he taken on behalf of principle. But in case of previous relationship he
does not bear any liability.
4 Vajdic, CM. McDonald, SP. McCredie, MR. van Leeuwen, MT. Stewart, JH. Law, M.
Chapman, JR. Webster, AC. Kaldor, JM. and Grulich, AE. Cancer incidence before and
after kidney transplantation (2006) Jama. 296, page 2823-2831.
5 Grattet, R. and Jenness, V. The reconstitution of law in local settings: Agency discretion,
ambiguity, and a surplus of law in the policing of hate crime (2005) Law & society review
39, page 893-942.
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 Principle and third party relationship – In this relationship in which agent abide
principle by his own decisions6. Even agent commit a mistake principle will be held
responsible for same. Sales contracts are best example of principle and third party
relationship.
Different type of agent authority
On basis of consent
On the basis of consent there are two kinds of authorities. These authorities are explained
below.
Express actual authority Definition – It refers to the authority that is expressed by the principle to his agent either
verbally or in written form. As per rules regarding these authorities agent cannot act
beyond scope of the delegated authority7.
 Main features
 Authority can be given on verbal or written form.
 Agent cannot work beyond his scope of authority.
 In case of violation of limit principle is not bound by the action of the agent.
Case Case 1 – In case of Humble Fenwick expressly authorizes his agent to purchase cigars on
his behalf. But he also states that Humble is not authorized to purchase cigar on credit.
This was express authority in which Fenwick clearly state the boundaries with in which
his agent needs to work. Hence, on this basis this case in terms of type of authority falls
in this category. Case 2 – Ireland Vs Livingston is one of the well known case and in same former was
agent and later was principle. Livingston order Ireland to purchase 500 KG of sugar and
supply to him. Mentioned quantity of sugar was not available and due to this reason
6 Hawkins, DG. Lake, DA. Nielson, DL and Tierney, MJ. eds. Delegation and agency in
international organizations (2006) Cambridge University Press.
7 Sarat, A. The worlds cause lawyers make: structure and agency in legal practice (2005)
Stanford University Press.
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Ireland makes purchase of 400 KG sugar8. Principle deny from accepting delivery. As per
law Livingston was bound to accept delivery because agent follows his order and it was
not possible to deliver entire quantity of sugar. So he supplied 400 KG of sugar to the
principle. Hence, on this basis Ireland was bound to accept sugar.
Implied actual authority Definition- Implied actual authority refers to the authority that agent automatically get
due to the responsibility given to him by the principle. Agent on behalf of his principle
can make a contact with the prospective clients9. This is best example of the implied
authority.
 Main characteristics
Powers are given to the agent in proportion to his responsibility.
Authority is given only to that extent implied which is required to perform areas of
responsibility.
Cases Case 1 – The case of Humble does not fall in this category because as per law implied
actual authority is one in which according to the responsibility agent automatically get
equivalent authority. In this case scene was different and principle already define
authorities of his agent. Due to this reason case of Humble does not fall in this category. Case 2 - John visits a local bar and server told him that he can receive a free drink if e
orders an entree. John thinks that server is an employee of business and due to this reason
he is an agent of the firm. John assumes that server has an authority to offer free drink on
behalf of business. This is implied authority.
Without consent
It refers to an authority that an agent gets without getting consent from his principal.
Some of these authorities are explained below.
Actual express (Apparent) authority
8 Rosenberg, D. and Sullivan, JP. Coordinating Private Class Action and Public Agency
Enforcement of Antitrust Law (2006) Journal of Competition Law and Economics 2. Page
159-187.
9 Meier, L. Using Agency Law to Determine the Boundaries of the Free Speech and
Establishment Clauses (2007) Indiana Law Review 40 page 519.
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 Definition-It refers to the authority that agent get with the consent of the principle either
expressly or implied. Means that on the basis of principal past behavior third party
assume that agent have relevant authorities to act on behalf of the principle10. So, that
even principle does not give any authority agent gets authority automatically.
 Main features
This authority agent automatically gets when principal expressly or implied state about the
specific action that an agent can take on his behalf directly to the third party. If principle does not
communicate any information about the act that an agent can take on his behalf then this sort of
authority will not comes in existence.
This authority is applied only when third party assumes its responsibility that comes in
existence due to signing a contract with agent who is working on behalf of the principle. This
means that if agent is not prepared to bind by the obligations that occur due to signing a contract
with agent then this sort of authority cannot be used by the agent11.
It is an authority in which principle make third party believe that agent has an authority which he
actually does not possess. This is a unique kind of authority in which agent does not have an
authority to perform a specific task but that authority is granted to him by the principle and agent
does not know about same. At place of agent third party have information about such kind of
authority. So this is a very special kind of authority.
Case Case 1 – Bob was working as a cashier at the stationary shop owned by the company. His
work was to do accounting work and to listen customer queries. Bob was not authorized
to price a product but he was always engaged in customer queries. Due to this reason he
had contacts with the customers. This gives him apparent authority to act on behalf of a
firm for selling a product. On analysis of the case study we can observe that Bob was
performing multiple responsibilities one was of cashier and second was to give guidance
to the customers. Accounting was his primary work and along with this it also used to
10 Venzke, I. International bureaucracies from a political science perspective–agency,
authority and international institutional law (2010) In The Exercise of Public Authority by
International Institutions page 67-98.
11 Law, KL. et.al. Plastic accumulation in the North Atlantic subtropical gyre (2010)
Science 329. Page 1185-1188.
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providing information about the price quotes of the stationary products. This make people
believe that he has authority to sell company product12. On the basis of assumption people
start purchasing product from Bob. Agent already has a contact with the customers and
due to this reason it also does not have any problem in selling products on behalf of
company. Hence, in this was concept of apparent authority applied on the firm. Case 2 – In the case of Freeman summer vs. Solomon former is a principle and second is
agent. Freeman summer makes purchase of jewelry from various companies. It employed
a manager to look after its business in proper manner. On behalf of Freeman summer
manager purchase jewelry from Solomon several times. Suddenly manager leaves his job
and after that Freeman summer enters to trade with the Solomon13. After taking delivery
of jewelry it absconded with it. Summer was bound to make payment to the Solomon
because he does not provide information about the manager resignation from the job. In
this trade Solomon supply jewelry by believing that manager is at job. But that was not
true and summer was culprit for hiding facts from the summer. Hence, summer was
bound to pay an amount to the Solomon.
Usual authority Definition- It is a kind of authority authorized person usually possess in specific
circumstances. It frequently describes range of agent actual and apparent authority.
Means that it is a combination of both kinds of authority. Many times principal determine
a limit of authority for the agent and that limit is confined to few rights. Sometimes agent
does not get a right that he must have as per his job. In that case agent cannot exercise
that right that as per job he must have but do not get from the principle (Gawande and
Bohara, 2005). In case of this authority even agent does not have authority that must fall
under his scope of his duty he can perform that task for which he is not eligible.
 Main features
 This is a unique kind of authority that agent get from principle.
12 Ye, Q. and et.al. The influence of user-generated content on traveler behavior: An
empirical investigation on the effects of e-word-of-mouth to hotel online bookings (2011).
Computers in Human Behavior 27, page 634-639.
13 Sankaranarayanan, R. and et.al. Cancer survival in Africa, Asia, and Central America: a
population-based study (2010). The lancet oncology 11, page. 165-173.
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 This kind of authority is a combination of actual and apparent authority.
 In this sort of authority even agent works beyond his authority he can bind principle
from his act.
 Case
In context to usual authority case of Panorama Developments (Guildford) Ltd v Fidelis
Furnishing Fabrics Ltd is taken in to account. In this case company secretary of Fidelis purchases
cars like Rolls-Royce and Jaguar on company behalf. In this regard he uses company papers to
prove that firm wants to purchase these cars. But he was caught by the police and imprisoned.
Panorama developments file a case against Fidelis and claimed outstanding amount. But
managing director of Fidelis state that he is not obliged to make payment because this act was
done by the company secretary14. On hearing court gives his decision on the favor of Panorama
developments. It state in verdict that company secretary have a right to sign any contract on
behalf of company. Even managing director of the firm does not give authority to his company
secretary to do so it can not prevent itself from its obligations. This is because signing of a
contract comes under the scope of company secretary. Hence, Fidlis is liable to make payment of
outstanding amount to the Panorama Developments.
Agency by necessity
It is a unique kind of agency and under same one party can make essential decisions for
another party. This kind of agency relationship is acceptable by the court. This kind of
relationship is mostly used when one party is unable to make decisions. This inability may
happen due to any reason it may be due to some health disease etc. Agency by necessity refers
to a situation in which an agent makes a critical decision on behalf of the other party which is not
in position to make sound decision making. The main reason behind existence of this sort of
agency is that under this arrangement protection is provided to the person15 this law apply on
business widely and bill of exchange comes under this category of agency. In this regard if bill is
14 Harel, A. and Porat, A. Commensurability and Agency: Two Yet-to-Be-Met Challenges
for Law and Economics (2011) Cornell Law Review 96, page 749.
15 Agency by necessity law and legal definition. (2016). Found at:
http://definitions.uslegal.com/a/agency-by-necessity/
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not accepted by the drawee then by obtaining consent from the bill holder stranger may accept
bill of exchange. If stranger have to pay bill then he will be entitled to the rights of holder against
drawer.
Case
Mr Balford was unable to move due to accident and he does not trust on his relatives that
were residing with him at the home. Due to this reason he kept a servant with him who was
responsible to take all day to day decisions on his behalf. Hence, servant on behalf of Mr Blaford
was taking sound decisions. In this way agency by necessity apply on this case.
CONCLUSION
On the basis of entire discussion it is concluded that agency law is very important and it
becomes necessary for everyone to understand this law. This is because in these law liabilities
under various types of authorities that principle gives to the agent are discussed in detail. On the
basis of this law culprit can be easily identified by the third party and it can take wise decisions.
There are three kinds of relationships in the business and principle must determine in which they
must enter. In this regard an individual must evaluate a situation and on this basis it must make
relevant decisions.
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