Legal Aspects of Business

This document discusses the legal aspects of business, specifically focusing on agency relationships and contracts. It explains the concept of apparent authority and the law of estoppel. It also provides a case law example in the area of agency law. Students can find study material and solved assignments on legal aspects of business at Desklib.

Legal Aspects of
Business

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................2
Agency relationship and its features...........................................................................................2
Agents authority and its types.....................................................................................................3
Case law in the area of Agency Law...........................................................................................5
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................8

INTRODUCTION
Apparent authority is referred to a principal by which a principal in the agency
relationship either by word or act causes third party to reasonability believe that agent has
authority to act for principal. In this agent performs act on behalf of the principal and when third
party changes legal position by relying on principals representations then it leads to creation of
law of estoppal from denying agent had authority to contract. With apparent authority third party
acts on the representations made by the agent believing that performance is done on actual
authority basis. When apparent authority is proved then in that case principal is held liable for act
of the agent to third party (Kemp, 2018). Legal aspects are the science or philosophy of law that
provides indivisible part of policies and framework of government rules and regulations to
govern successful business environment. Through legal aspects all rules and regulations that
governs business in such manner that all the activities can be performed in legal and profitable
manner. Each business organisation is performing work in the changing and complex
environment and it is important to follow all the legal aspects of business to operate in more
profitable manner. These legal aspects of business helps in finding loop holes in the
organisational structure and various issues can be located smoothly through following the legal
system and regulations.
When various legal aspects are implied among business organisations and specially in
agency relationship then it leads to govern various contracts, agreements and relationship of
agency business. Legal aspect helps in governing agency in most effective manner through
creating apparent authority and law of estoppal when any misrepresentation is made. When rules
and regulations are provided in the business then in that case it leads to adaptation of changes
that are taking in the business place (Znikin and Zharikov, 2018). Together with this an
enhancement of agency relationship legal status and legal aspects in business provides more and
more expansion of business at global level. When business environment of other nations are
secured with laws then it leads to generate more opportunities for growth and development of
each type of business organisations. In this project report focus will be provided on agency
relationship and rules and regulations that are applicable in UK businesses will be elaborated in
detail under this report.
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MAIN BODY
Agency relationship and its features
A relationship that is based to trust and good faith between two individuals, one of the is
allowed to perform work on behalf of other. The person who act is termed as an agent and on
who's behalf the task is performed is known as principal. In this relationship principal controls
act of agent by providing them specific authority to act (Bank, 2015). All the activities
performed by agent must be in consideration of principal. Instructions for performing various
activities are provided to agent by principal. In a agency there are three different relationships
available; principal and agent, principal and third party and between agent and third party.
Source: Agency Theory, 2019
Certain key features that helps to find the existence of agency relationship are described
as follows-
Competent Individuals: A legal existence of agency relationship requires that parties
involving in the agency must be capable to contract or make agreement. Such as a minor can not
become an agent and a individual prohibited by law can not be appointed as agent by any
principal (Boguslavski and et. al., 2019).
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Illustration 1: Agency Theory, 2019

Agency Document: To bring a agency relationship into existence their must be certain
document that specifies that agency relationship exists among principal and agent. For this a
agreement in written, oral or can be in form of implied agreements needs to be present.
Fiduciary Relationship: Agent and principal must possess a relationship of trust and
utmost good faith to perform each activity in the best interest of each other.
Liability of Principal: When agency relationship existed among principal and agent then
in that case principal will be held liable of all the acts of agent performed as per provided
authority (Agency Theory, 2019).
Agents authority and its types
Agents authority is the rights and responsibilities that are provided to them by principal
in agency relationship. Through this agents are provided with specific areas in relation to which
they needs to perform their part of activities. Agents in general term are provided with actual and
implied authority. These authorities are elaborated as below-
Source: Agents Authority, 2019
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Illustration 2: Agents Authority, 2019

Actual Authority: It is referred to powers and responsibilities that are provided by
provided to agent in actual terms. When specific powers are expressly provided to agent by
principal to agent then this form of authority is termed as actual authority. This form of authority
defines the scope of agents behaviour in which performance can be made to perform all the
required activities necessary to act and support business transactions. Actual authority can be
provided in expressed form where principal has expressly gives rights and responsibilities to an
agent in oral and written form (Glinkowska and Chebotarov, 2019). When agent is provided with
expressed authority then chances of misunderstanding is minimised in agency relationship. For
example in agency agreement it is expressly written that agent is only responsible to make sales
and purchase for business operations. Another form of actual authority is implied authority in
which agents are not provided with certain rights and responsibilities. In this case agents are
provided with jurisdiction to perform acts which are reasonably necessary to accomplish the
purpose of an organisation. When implied authority is provided to an agent then some activities
that are necessary to accomplish main activity is done in correct manner for mutual benefits of
principal and agent. For example- agents are appointed by a sales organisation then while
negotiating with consumers several future discounts can be promised by agent to accomplish
sales.
Apparent Authority: In agency relationship, agent possess all the rights to deal with
third party and this leads to have a positive or negative impact on legal rights and responsibilities
offered to principal. Information that is available to third party in relation to agency agreement
become irrelevant to the agent's legal authority to act. Agency relationship and its authority runs
form principal to agent. As long as the authority provided to agent in actual terms it will be
legally binding to principal for all the acts performed. When the agent performs in a particular
manner which is out of the authority provided by principal then in that case liability of principal
depends on existence of apparent authority (Ha, 2017). When third party reasonably believes
form actions or words of principal that all the activities are performed under authority provided
then it leads to generation of apparent authority. In case of apparent authority principal will be
held liable for act of the agent event if they are done out of authority granted to them. Apparent
authority requires certain elements that are essential to prove it as apparent authority. Some of
the essential elements are as follows-
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No Actual Authority: To establish apparent authority in relation to act performed by
agent it is essential that their must be no actual authority provided to agents in relation to task
performed. Activities that are performed must not be mentioned in the agreement entered to
create agency relationship.
Act of Principal: When apparent authority is created then in that case it is essential that
principal through actions or words made third party to believe that authority to act in certain
manner is granted by principal. When third party relies on the act of principal and enters into
agreement then it leads to generation of apparent authority (Kemp, 2018).
Fiduciary Relationship: One of the essential element that must be considered while
establishing apparent authority is intention of agent to act. When principal and agent both with
act in trust and good faith then for act of agent it will become viable to create apparent authority
that will make principal liable for acts of agents.
Case law in the area of Agency Law
In agency relationship there are large number of cases that are reported on daily basis in
the various courts in UK. One of the famous case that set as a benchmark for all other cases of
named as Rama Corp Ltd v Proved Tin and General Investments Ltd [1952] 2 QB 147
(QBD). In this case apparent authority which negatives the existence of actual authority in form
of estoppel is elaborated in details. As per the agency case aid of estoppel can not be created
unless the three main essentials are available. These essentials are a representation, a reliance on
the representation and in last an alteration of position resulting from such reliance. When law of
estoppal is applied to any transaction initiated under agency business then in that case a doctrine
will be applied to protect third party form act of agency relationship.
This case is in relation to the plaintiffs who contracted with the defendant co and gave a
cheque under the contract. The director could have been authorise but in reality was not authorise
for the same. The plaintiffs had not read terms of the article and the director misappropriated the
cheques and plaintiffs sued (Laudon and Traver, 2016).
An example to justify whole scenario of apparent authority started with a activity in
which an agent named as A was appointed to buy and sale cotton for principal named as P. T the
third party who entered into an agreement with A for selling 200 bales of cotton initiated the
contract. In terms of making transportation of the promised sales amount T loaded the whole
stock to a boat. When the boat was in the process of transportation it caught fire and all the
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material got wasted. In this case P ask A to make purchase and sales of goods at a price
prevailing in the market. When the boat got destroyed in that case loss at an average rate of 30
cents per pound was incurred. Now a dispute arises among P and A in relation to who will suffer
the loss incurred by this accident. As contract entered by A was out of the terms of agency
relationship because transactions was entered was more then market price for cotton. When the
dispute arises and case is filled in the court existence of apparent authority is identified. Three
ingredients such as representation was present because P did not provide information to third
price regarding what amount must be their for sale and purchase of cotton to make it a valid
contract. T relied on the representation made by P and he changes his position on the basis of this
reliance. In court it was held that P was liable for all the acts performed by A in agency
relationship (Mohamad, 2018).
Scope of agency business is very wide and it leads to generation of various conflicts in
relation to agency relationship. When these issues are not solved among all the parties to conflict
then they are sent to judicial system to decide the case. These cases are resolved on the basis of
rules and regulations that existed to govern agency relationship all over the nation. All the
matters are assessed on the basis of facts involved and together with this its other implications
are also verified on the legal system. When the given case is filled in the court three essential
elements to apply law of estoppal in the Rama Corp Ltd v Proved Tin and General Investments
Ltd [1952] 2 QB 147 (QBD) case so that apparent authority can be created. As per first element
it was assessed that if the representation is made by principal or not. Here the director did not
made any representation to third party. Second element is reliance on the representation. When
no repre4sentation is made then in that case reliance on that become ineffective. Act performed
by third party on believing such reliance then it will be termed that no existence of apparent
authority is their in the case filled. The court decides the case in favour of director and held that
director is not liable for the cat as it was outside his authority to perform such activity.
CONCLUSION
From the above described elaboration in relation to agency relationship it has been
concluded that introduction of legal aspects to business is one of the suitable activity performed
by government. As business is operated or conducted in the environment which gives global
reach to every interested person then it leads to generation of more and more legal complexities
in the businesses and their structures. Businesses while operation its activities at national and
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international faces issues like fraud, misrepresentation, dispute in internal and external business
environment. Together with this legal compliances for not following ethics and legal guideline in
the system. When legal aspects are introduced all these issues will be minimised to a great
extend as business organisations will start following laws and legal hurdles will no more
available to them. In the era of globalisation where representing internationally to any business
has become one of the important source for generating more and more agency relationships. As
all the businesses requires agents to represent them in global market. As this relationship is
growing at international level laws and regulations that monitors and guides these relations are
required to maintain it with legal terms. Agency relationship works on how the authority is
provided to each agent to perform activities. Their are two forms of authorities one is actual and
other one is apparent authority. The term apparent authority is most important in agency
relationship and to introduce doctrine of estoppal. As various forms of misrepresentations are
made by principal and agents while dealing with third party and to protect third party against act
of agent or principal apparent authority is introduced. When all the essential elements to create
apparent authority is available in the transaction then in that case it leads to establishment of
apparent authority. Rama Corp Ltd v Proved Tin and General Investments Ltd [1952] is one of
the most important case law in relation to agency-theory and decision will always be considered
while deciding other issues in relation to agency in the present business world.
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REFERENCES
Books and Journals
Kemp, R., 2018. Legal aspects of cloud security. Computer Law & Security Review. 34(4).
pp.928-932.
Znikin, V. and Zharikov, E., 2018. Legal Aspects of Industrial Enterprise Security in Mining
Region. In E3S Web of Conferences (Vol. 41, p. 04018). EDP Sciences.
Bank, R., 2015. Modern security paradigm of business activity: administrative and legal aspects.
Administrative law and process. (1 (11). pp.73-79.
Boguslavski, M. M. and et. al., 2019. The Reorganization of Soviet Foreign Trade: Legal
Aspects: Legal Aspects.
Glinkowska, B. and Chebotarov, V., 2019. Establishing a Business in Ukraine–the Initial
Regulatory Organizational and Legal Aspects for Polish Entrepreneurs.
Ha, H. T. H., 2017. Legal aspects of pension product-review of the client's rights and tax
incentives related to voluntary pension insurance business.
Kemp, R., 2018. Legal aspects of cloud security. Computer Law & Security Review. 34(4).
pp.928-932.
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.
Online
Agency Theory. 2019. [Online]. Available through:
<http://knowledgegrab.com/learners-zone/study-support/performance-management
review/framework-introduction-to-hrm/agency-theory/>
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