Legal Aspects of Business: Agency Relationship and Authority Types

This article discusses the legal aspects of business, specifically focusing on agency relationships and the types of authority involved. It explores the definition and key features of an agency relationship, the different types of authority in agency relationships, and relevant case laws in the area of agency law. The article emphasizes the importance of legal aspects in governing agency business and ensuring a secure and effective business environment.

Legal Aspects Of
Business

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................2
Definition and key features of an agency relationship................................................................2
Agents authority and its different types in agency relationship..................................................3
Relevant case laws in the area of agency law.............................................................................4
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................8

INTRODUCTION
Legal aspects are the system of rules that are usually enforced the state or legislation.
Legal aspects in business are provided in such manner so that regulations of business can be used
to ensure a effective business law in the legal system of the country. Business environment is
comprised with number of business organisations and to govern those organisations in best
manner set of government rules and regulations are required. Legal aspects of business are the
key that helps in introducing a successful and well defined business structure. It defines the
policies and regulations that are provided by government and other regulating authorities to
defined legal business structure in UK (Bank, 2015). Legal aspects helps to ensure that every
company or business organisation is performing its operations as per statutory framework of the
country. Business environment is changing and it is becoming more complex and involving huge
amount of uncertainties. In this case these legal aspects helps in introducing certain amount of
certainty in business. When these legal aspects are implemented in agency business then
different legal terms and regulations are introduced. Apparent authority is one of the core issue
that arises in agency business and to resolve the issue regulations and legislations are introduced
by government in United Kingdom. Apparent authority is a situation in which principal involved
in agency relationship acts in certain manner that leads to concluded that agent possess authority
to act on behalf of principal (Boguslavski and et. al., 2019). In this case scenario apparent
authority is created and principal involved in the agency is geld liable for all the acts performed
by agent.
Introduction of business at national and international level leads to generation of
requirement of more and more agency relationship establishment. When businesses are started
operating through agency relationship then in that case it leads to generation of more and more
issue and requirement of more defined legal system was required to govern agency.
Establishment of apparent authority is one of the most productive step taken in agency
relationship as it minimises chances of fraud done by agents or principals with third party. With
implication of legal aspects in agency business transaction are more secured and third party gets
protected against plained misrepresentations (Laudon and Traver, 2016). In this report a detailed
information will be provided on agency relationship and together with this different types of
authorities and regulations for governing agency is mentioned in the report.
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MAIN BODY
Definition and key features of an agency relationship
Agency relationship is a fiduciary relationship in which one individual named as
principal allows an individual known as agent to perform certain defined activities on his or her
behalf. In agency relationship principal is at controlling position as guidance for performing
various activities is provided by the principal to agent. Agents needs to follow all the rules and
regulations that are imposed by principal in agency relationship. When agency relationship is
existed then three different relationship comes into existence (Agency relationship, 2011). One of
the the principal and agent, third party and principal and in last agent and third party. Their are
some important features which are essential to create agency relationship and these features are
elaborated as below-
Source: Agency relationship, 2011
Participants of agency: Principal and agent both are termed as participants in agency
relationship. In order to establish a agency relationship their must be presence of an two
individuals who will act as principal and agent to create agency relationship.
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Illustration 1: Agency relationship, 2011

Competency of individuals: When a agency relationship is established then competency
of individuals are assessed so that legal requirement to enter into an agreement can be complied.
No individual in agency must be prohibited by legal guidance to enter into an agreement or to
form agency relationship (Mohamad, 2018).
Relationship of Trust: Agency relationship is established on the backbone of the trust
that principal and agent will have on each other. Trust will act as an essence to govern all the acts
of agency business.
Agency Proof: No relationship of agency will come into legal existence when no agency
proof existed. In terms of agency proof oral, written or implied document must be present.
Agents authority and its different types in agency relationship
When agency relationship is established the it leads to generation of certain among of
authority with agents position. Agents authority is termed as the rights and responsibilities that
an individual acting as an agent possess while working as an agent of the principal (O’Regan,
2018). Agents in the real term are provided with actual and apparent authority that are defined
below-
Actual Authority: It is referred to specific power, expressly provided by a principal to
an agent to act in a particular manner on behalf of principal. All the powers that are available to
agent is specifically provided by principal and it can be general or can be limited by principal to
some extent. As actual authority is provided in described manner then it leads third party to
indulge in the transaction with agent who is performing activities on behalf of an individual. This
form of authority is well defined and helps an agent to understand the scope of authority
provided and manner in which each task of the principal will be performed. In actual authority
rights and responsibilities can be provided in expressed form. A document that possess all the
details of agency on the basis of which this relationship will be governed is available in written
form. In actual authority which is provided expressly then authority can be provided in written
form also (Roome and Louche, 2016). Expressed authority helps in providing detailed
information regarding role and responsibilities performed by an agent the chances of
misunderstanding among agents and principal will be minimised to some extent. The other form
of authority in actual authority is implied. It is termed as rights and responsibilities that are
exercised by an agent while performing required or determined activities as per agency
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relationship. Implied authority is exercised by agent so that main activities that are important for
agent to perform can be accomplish. For example in agency relationship of sales then agent can
offer complementary services to consumers to accomplish sales.
Apparent Authority: In this form of authority principal through his or her actions or
through words leads third party to believe that all the authority to perform an activity lies with
the agent. This criteria is not sufficient in terms of establishing a apparent authority. As in the
present time to establish apparent authority there are three conditions that needs to be
accomplished. First of all their must be a representation by the principal to reflect third party
regarding authority with agent (Schaltegger and Wagner, 2017). After that reliance on the
representation made by principal of that of the third party is important. In the last third party
must change his or her position as a result of such reliance. When all the three criteria is
accomplished then it will leads to generation of apparent authority. Establishment of apparent
authority will make principal liable for all the acts done by agent by maintaining fiduciary
relationship. Some of the essential elements that makes apparent authority in existence are as
follows-
No actual authority: Apparent authority will be created only when agent is not provided
with actual authority in relation to certain activities. When agent do not possess any authority to
act but performs an activity for principal then only it can be termed as apparent authority.
Representation by principal: Establishment of apparent authority will become
successful when principal through his or her words or actions make third party believes that
agent possess all the authority to perform a particular activity.
Fiduciary relationship: Apparent authority will be termed viable only when agent will
perform activity in the good faith. The relationship among principal and agent must be of the
good faith and not of any misrepresentation or fraud with third party.
When all the three elements required for establishing apparent authority is fulfilled then
in that case apparent authority will be established and principal will be held liable for act of
agent (Schaltegger, Lüdeke-Freund and Hansen, 2016).
Relevant case laws in the area of agency law
In the present time large number of business organisation is performing their operations
through agency relationship. The in that case number of issues and law suits are filled in the
courts that involves issue in relation to agency business. In agency relationship certain cases
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which are important and termed as benchmark while resolving the cases. Some of the cases that
are important in agency business are as follows-
Hely-Hutchinson v Brayhead Ltd [1968] is one of the important case law that helps to
decide actual and apparent authority. Facts of the cases reflects that Hely-Hutchinson was an
individual who invested an specific amount in a business. This investment is protected by Mr.
Richards who was a managing director of Brayhead on behalf of the company. Mr. Richards was
formally engaged as chairman in the business. Brayhead organisation purchased the business
then also it leads to liquidation. Now, the issue of the case is whether Mr. Richards possess
authority to indemnify (Hely-Hutchinson v Brayhead Ltd, 2012). In this case assessment was
made on the basis of the level of authority lies with Mr. Richards while acting as and director
and also formally as chairman of the organisation. It was decided in the court that Mr. Richards
while acting as a director possess apparent authority to indemnify. While he is acting as a
chairman of the organisation in formal manner then in that case he possess actual authority to
indemnify. These authorities are their with the position of chairman in the organisation till they
are not specifically limited.
The given case in the project that provides one of the essential elements that leads to
generation of apparent authority among agent and principal. Rama Corp Ltd v Proved Tin and
General Investments Ltd [1952] is a landmark case that helps to establish apparent authority. A
statement is provided which reflects that apparent authority negatives the existence of actual
authority is merely a form of estoppal. This statement was proved through this case law. Issue in
the case was involved that a individual was provided with a cheque on the name of business
organisation by director. Director of the organisation was not authorised to provide the cheque
and third party did not make any inquiry regarding authority of director. The director
misrepresented the cheque and third party sued. This is a clear case of identifying the authority
possessed by the director (Rama Corp Ltd v Proved Tin and General Investments Ltd, 2016). In
this case director was not held liable for the case because the act was outside the authority of the
principal. The the present case the ingredients of apparent authority was not present. As
representation is required and director do not made any representation to third party to believe
that authority to provide cheque existed. When no representation is made then case of reliance on
the representation does not existed. In the last act of third party was not influenced through such
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reliance. This case is served as a benchmark when apparent authority is established in the
disputes arises in future.
Agency business is operated at global level and this leads to generation of number of
conflicts that is based on different issues arises in the business. To resolve the issue that arises in
agency law regulations that are formed by government of the country will be used. Together with
these laws case laws that are decided for previous cases will be served as a tool while resolving
the cases. Issues that are involved in the case will be resolved through accessing the whole
scenario and decision which are most suitable to decides the cases will be taken on the basis of
existing laws. These cases are served as a tool for formation or generation of new rules and
regulations that will address the problems generated while operating day to day operations
through agency business (Singh and Singh, 2015).
CONCLUSION
Agency relationship and legal aspects of the business that governs agency is elaborated in
the project and from that detailed information it has been concluded that introducing of various
laws and regulations governing agency is important. Business is operated in the complex
environment that involves uncertainty while operating activities and establishing the legal system
is important so that operations can be done in most legal manner. Expanding business at
international level leads to introducing of different business environment and to govern agency it
is very important to possess a specific law to govern agency relationship. Agency business all
over the world is suffering through high amount of fraud by principal or through agent. This
leads to generation of huge amount of uncertainty and insecurity in the business and scale of
business is affected at global level. When business in an economy is negatively affected then it
leads to slow economic growth. To overcome the situation government of all the nations make an
intervention in agency laws and make it a well established system.
To resolve the issue of misrepresentation in agency establishing apparent is one of the
most favourable tool of legal aspects of agency business. Through apparent authority third party
is held secured for the actions of the principal and agent and also in uneven situation liability can
be imposed on the reliable individual. When actual authority is not provided to an individual then
who is acting as an agent in the business then it may leads to generation of apparent authority.
Ingredients for apparent authority must be present to establish apparent authority as specified in
one of the most remarkable case law of Rama Corp Ltd v Proved Tin and General
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Investments Ltd [1952]. With passage of time more and more cases are taking place in relation
to agency dispute. While resolving the dispute laws governing the agency relationship is
considered and together with this decision of the case laws are taken into consideration. New
issues are based on the challenging working environment is created and decision of these cases
are served as a source for establish new laws and regulation for governing agency relationship.
Forming each agency business in legal manner will minimise the chances of dispute and also
leads to enhancing more and more effective business environment in the UK economy.
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REFERENCES
Books and Journals
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Boguslavski, M. M. and et. al., 2019. The Reorganization of Soviet Foreign Trade: Legal
Aspects: Legal Aspects.
Laudon, K. C. and Traver, C. G., 2016. E-commerce: business, technology, society.
Mohamad, A. M., 2018. Legal aspects of electronic communication involving the Malaysian
courts. The European Proceedings of Social & Behavioural Sciences, pp.247-253.
O’Regan, G., 2018. Legal Aspects of Computing. In World of Computing (pp. 267-280).
Springer, Cham.
Roome, N. and Louche, C., 2016. Journeying toward business models for sustainability: A
conceptual model found inside the black box of organisational
transformation. Organization & Environment. 29(1). pp.11-35.
Schaltegger, S. and Wagner, M., 2017. Managing the business case for sustainability: The
integration of social, environmental and economic performance. Routledge.
Schaltegger, S., Lüdeke-Freund, F. and Hansen, E. G., 2016. Business models for sustainability:
A co-evolutionary analysis of sustainable entrepreneurship, innovation, and
transformation. Organization & Environment. 29(3). pp.264-289.
Singh, S. and Singh, N., 2015, October. Internet of Things (IoT): Security challenges, business
opportunities & reference architecture for E-commerce. In 2015 International
Conference on Green Computing and Internet of Things (ICGCIoT) (pp. 1577-1581).
IEEE.
Online
Agency relationship. 2011. [Online]. Available through:
<http://www.elimchurch.org.sg/live-wisely-as-children-of-light/>
Hely-Hutchinson v Brayhead Ltd. 2012. [Online]. Available through:
<https://crunchcaselaws.wordpress.com/2019/01/23/hely-hutchinson-v-brayhead-ltd-
1967-1-qb-549/>
Rama Corp Ltd v Proved Tin and General Investments Ltd. 2016. [Online]. Available through:
<https://global.oup.com/uk/orc/law/company/baskind_concentrate3e/resources/
problem/ch13/>
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