Importance of Agency Law in Business Operations

This essay provides a comprehensive overview of agency law and its significance in commercial practice. It discusses the different types of authority, liabilities, and termination of agency contracts, highlighting the importance of understanding these concepts for businesses to operate effectively. The essay also explores the relationship between principals and agents, as well as the responsibilities of both parties.

Legal Aspects of Business

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................7

INTRODUCTION
Legal aspects of business also covers law of agency and this law has significance
importance in the area of business For Example partners of a partnership firm are acts as an
agent of the partnership firm, a company relies on its board of directors to run its operations here,
board of directors act as an agent of the company and a business firms relies on its agent to
collect money from its debtors. Agency law is a contract which establishes fiduciary(legal
relationship of trust) relationship between the agent & principal in which a contract is made
between principal & agent where the principal give authority to agent to act on his behalf. So,
according to this law the principal make a legal contract with the agent that authorizes the agent
to deal with the third party & to negotiate with the third party. According to the Law of Agency
there are three types of relationship exists, relationship between agent & principal, principal &
third party, agent & the third party. With the respect of this law, role of principal in principal
agent relationship is to give authority to the agent and to give payment to the agent and role of
agent is to complete the task by following due diligence. Authorities are transferred to the agent
either with the consent of principal or not & on that basis it is divided in to two types actual
authority & apparent authority respectively. Actual authority can be express or implied whereas
apparent authority is further classified in to necessity & usual authority.
MAIN BODY
Commercial law is a law which describes all the provisions & rules regarding trade &
commerce, merchandise and sales. Agency Law in United Kingdom is part of Commercial Law
of UK. Law of Agency is a law which authorizes agents to act on the behalf of principal and it
establishes fiduciary or legal relationship among principal, agents & third party. Without this act
a company cannot perform various task and apparently it reduces productivity & profits of that
particular business or company. This law is important in the area of commercial law and it is
used in the all area of business such as real state, stock brokerage, accountancy, insurance &
business management. According to this law relationship among the principal & agent can be
contractual, quasi contractual & non contractual. The main objective of this law is to transfer of
authority to the agent and it can be transferred wither by taking consent of the principal or not.
Law of agency provides smooth functioning of business of any company and organisation
because authorities & powers are divided which reduces work load and that results in effective
results(Mitnick, 2015).
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Types of Authorities-
The main function of this law is to transfer authority to the agents so that they can
perform in a prescribed manner. If authorities are not given by the principals than they can not
perform their task. Two types of authorities are transferred to the agents, that are discussed
below-
Actual Authority- An authority which is given by taking consent of the principal is known as
actual authority. In this principal authorizes the agent to act on his behalf either by words or in
written form. Actual authority defines all the powers and work to the agent which in turn
improvise the performance of the agent and establishes effective & efficient work and that leads
to achieve profits of the company. For Example- a mutual fund company made a contract with an
agent and authorize him to sell 15 mutual funds per day than it is an expressed authority in
which the agent has to sell the mutual funds only. Actual authority is principal expressly or
implicitly transfers specific powers to the agent so that the agent can work accordingly(Clarke
and et.al, 2017). Following are the types of Actual Authority-
Expressed Actual Authority- In this type of authority principal expressly specify the
scope with in which the agent as to perform. All the powers & task are expressly known to the
agent and if agent does any other work for which he has not received any authority than the agent
is liable for that. Express authority can be written & oral. For Example, board of directors of the
company passes a resolution which contains all the roles and responsibility of its members so the
members have to perform according to the roles & responsibilities specified in the resolution.
Implied Actual Authority- According to this authority, agent have an authority to
complete task which is indirectly related to his main task. Implied authority can also be said as
usual authority because in both the authority agent has to perform normal task. For Example, if
principal authorizes the agent to sell insurance policy in the market than it is the implied
authority of the agent is to promote the policy in the market and to give the information to the
interested parties.
According to case of Hely- Hutchinson v Breyhead Ltd [1967] there is both express &
implied authority. Board has given expressed actual authority when the board of director of the
company passes a resolution in the board meeting of the company that specific power is given to
two of its members to sign the cheque. Implied actual authority is when the board of director of
the company appoint one of its member as a managing director of the company So, now the
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managing director has implied authority to do all the task which is to be performed by a
managing director in the normal course of business(Huffman and Charo, 2017).
Liability of an agent increases in the case of actual authority because if an express actual
authority is given to an agent than he cannot perform out of that and if an agent performs out of
scope given by the principal than the agent is liable for that(Reddy and Canavan, 2015).
Apparent Authority- An authority which is not based on the consent of the principal is known
as apparent authority. In this authority principal inform the third party that some authorities are
given to the agent but in reality agent is not authorized for any task. According to this authority
following conditions must be satisfied, a representation must be made by the principal(who has
actual authority) to the third party that the agent is acting on his behalf, representation is also
given by principal to the agent and memorandum & article of the company also authorizes to do
so, if all this conditions are satisfied than it is an apparent authority and the principal is liable for
all the acts of the agent(Gillespie, 2017.).
According to the case of Freeman and Lockyer v Buckhurst Park Properties
(Mangal) Ltd [1964] board of directors of the company satisfies all the conditions such as
Representation is made by principal (Buckhurst Park Properties Ltd) to the contractor(Freeman
and Lockyer) which describes that the agent(Shiv kumar kapoor) has an authority to act on the
behalf of the principal and the agent is not aware about the authority, representation is made by
Buckhurst Park Properties Ltd to Shiv Kumar Kapoor and memorandum & article of association
of company gives right to the company to enter in this type of contracts. In the above case
company satisfies all the conditions So, the companies board of directors & agent (Shiv kumar
kapoor) is liable to pay all the unpaid fees to Freeman and Lockyer. As the board of directors
fulfills of the conditions so the agent is also liable in this case.
Apparent Authority is an authority where the third party believes that the agent is liable
to the any consequences occurred during the contract but the agent does not know about the
contract. For Example in case of Hely- Hutchinson v Breyhead Ltd[1967] board of directors of
the company appoints one of its members as managing director so he has implied authority to
perform all; the task related to that job but according to the other members of the company it is
an apparent authority because they think that the managing director is working in the normal
course of business(Busch, Macgregor and Watts, 2016).
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According to case of Rama Corporationn Ltd. V Proved Tin and General
Investments Ltd [1952] apparent authority creates estoppel by agency because agent does not
have to perform any task he is only represented. According to this case three conditions must be
satisfied for an apparent authority which representation is made by principal to the third party
that the agent is authorised to act on his behalf, reliance of the third party on that representation
& impact on the position of the third party from the result of the that reliance. According to this
case reliance means the third party (Sofa Ltd.) believes the representation given by the principal
(Rama Corporation Ltd.) and after that it gives its consent to the sell the sofa. According to this
case an actual express authority is also given to the Lan (agent) as not to enter in a contract to
buy red siofa's but here is also apparent authority given to the lan so he is not liable if he made
any contract to buy red sofa and he has no need to indemnify his principal(Kleinschmidt, 2017).
Usual Authority- Usual authority is also not based on the consent of the principal. Usual
authority is an authority given by the principal to the agent which authorizes the agent to perform
all the operations & task occurs during the normal course of business. Usual Authority & Implied
actual authority are almost same because, in both the cases agents performs day to day task. This
type of authority increases scope of work of the agent because the agent has to perform all the
task which comes under the preview of business of the principal. For Example- if principal gives
authority to maintain debtors of the business than it expand his work because the agent has to
perform all the task related to debtors such as collecting the data of debtors, contacting with
debtors and collecting the amount due from the debtors. Thus, the scope of agents work is
increases in the case of usual authority and in the case of usual authority principal is liable
because agent has an authority in the usual course of business. According to the case of Watteau
v Fenwick the principal is liable to the third party because there is a relationship of principal &
agent between Fenwich (principal) and Humble (Agent) because Fenwich was a principal once
and at the time of contract third party is unknown about the fact. All the task performed such as
supply of cigar is during the usual course of business so that the principal is liable to pay the
third party(DeMott, 2018).
Necessity Authority- Necessity authority is an authority which is given by the principal to the
agent in the case emergency or various situations occurring in the business. Necessity authorities
are the authority which are compulsorily performed by the agent and if the agent does not able to
perform this authority than the agent is liable to the principal and the agent has to indemnify the
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principal to the amount of loss incurred. Agency in necessity authorizes the agent to act in the
case of any emergency or any adverse situation emerging in the business and in this principal
also gives authority to act on the behalf of the other person in the emergency situation. An agent
has an authority to take an action in the difficult situation and he is authorizes in taking all the
possible action which are in the favour of that adverse situation. Necessity authority is also not
based on the consent of the principal(Watts, 2017).
Liability of Agent- Agent is liable towards the third party & principal and the liability of agent
is described below-
Liability of Agent to Third Party- In case of Actual & Apparent authority there is no
liability of agent if the agent performs all the task as authorizes by the principal but, if an agent
perform any task which is not specifically expressed by the principal than it is the liability of the
agent as to beach of authority.
Liability of Agent to Principal- Agent is liable to indemnify the principal if the agent
performs any task which is out of the scope given by the principal.
Liability of Principal- On the other hand it is liability of principal to provide fund to the agent.
Principal is also liable towards the third party if any misconduct is done by the agent.
Duties of Agent- Role & duty of the agent is to perform the task as authorized and directed by
the principal. An agent has to perform all his duties well otherwise it is the liability of the agent
to indemnify all the parties involved in the contract. It is mandatory for an agent ton perform its
duties and to follow all the provisions of the law of agency. An agent can to violet any of the
provision stated under this act.
Termination of Agency- A contract of agency made between the principal & agents is
terminated, if an agent is not interested in performing a task than the agent can refuse to
participate in the contract and when the agent is not interested in doing the business of agency
than also he withdraws his consent. The contract is also gets terminated in the case of death,
insanity & insolvent of either party involved in the contract(Dal Pont, 2018).
CONCLUSION
This essay outlines various provisions of agency law of United Kingdom and importance
of this law in the business operations. After that, this essay summaries that law of agency is a
contract between the principal & agent and it establishes relationship between the agent and third
party. This essay also concludes that the agency law is a part of the commercial law. Further, this
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essay outlined that authority & power is given by the principal to the agent so that the agent can
perform the task accordingly. Furthermore, this essay outlined different types of authorities given
by the principal to the agent such as actual authority & apparent authority. Further, this essay
outlined expressed & implied authority which are the part of actual authority and this essay also
summaries various cases of united kingdom related to the types of authority. Furthermore, this
essay summaries apparent authority, necessity and usual authority. Moreover, this essay outlined
liabilities of the agents towards principal & third party and liabilities of principal towards agent
& third party. After that, the essay outlined duties of the agents in the context of law of agency.
At last, the essay concludes termination of agency.
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REFERENCES
Books and Journals
Mitnick, B.M., 2015. Agency theory. Wiley encyclopedia of management, pp.1-6.
Dal Pont, G.E., 2018. The Law of Agency.
Watts, P., 2017. Actual Authority: the Requirement for an Agent Honestly to Believe that an
Exercise of Power is in the Principal's Interests.
DeMott, D., 2018. Fiduciary Principles in Agency Law.
Kleinschmidt, J., 2017. Agency and authority of agents. In Encyclopedia of Private
International Law (pp. 29-39). Edward Elgar Publishing Limited.
Busch, D., Macgregor, L. and Watts, P. eds., 2016. Agency Law in Commercial Practice. Oxford
University Press.
Reddy, J. and Canavan, R., 2015. General Principles of Agency. In Q&A Commercial Law (pp.
139-154). Routledge.
Clarke, M.A. and et.al, 2017. Commercial law: Text, cases, and materials. Oxford University
Press.
Gillespie, J., 2017. Transplanting Commercial Law Reform: developing a'rule of law'in
Vietnam. Routledge.
Huffman, M. and Charo, V., 2017. Not So Common: Commercial Law in a Common Law
Jurisdiction. Universite St. Esprit de Kaslik Law Review.
Online
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