Legal Aspects of Business: Agency Law and Agent Responsibilities

This essay provides a comprehensive overview of the legal aspects of business, with a specific focus on agency law and the principal-agent relationship. It delves into the various duties and responsibilities of agents, including following instructions, exercising care and skill, avoiding conflicts of interest, accounting for actions, and refraining from delegating work or earning secret profits. The essay highlights the importance of these duties in protecting the principal from liability and ensuring the smooth functioning of the business. It also examines relevant case studies, such as Liley v Doubleday, Keppel v.Wheeler, and Aberdeen Railway Co v Blaikie Bros, to illustrate the practical application of agency law principles. The essay emphasizes the significance of understanding and adhering to these legal obligations for both agents and principals in order to maintain ethical conduct and achieve business goals. It underscores the legal implications of agent actions and the importance of clear communication and adherence to agreements within the agency relationship.

Legal Aspects of
Business

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................2
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
Legal aspects of the business is one of the most important aspects for business which
allows to perform all of the legal activity in a systematic manner. It is one of the most important
aspects which allow to take those decision through which goals can be achieved. It is the House
of Parliament who commences the law which is to be followed by every firms for the purpose of
effective results. Discussing about the point legal system, it doesn't give permission to any of the
business to take those decision which are not effective and helpful for the business organisation.
When it comes to agency law, it is determined as the most important law where there is a
fiduciary relationship among the two parties. This types of relations is also known as principal-
agent relation who has the important role in accomplishing the goals of an organisation. Under
this types of relation, principal are those person who has the responsibility to delegate some of
the authority to agent who can perform those activity to achieve the desire result (McNay, 2016).
It becomes the responsibility of agent that they must communicate with agent for every single
action taken by them in order to ensure the principal that all of the work is being performed as
per the requirement. This types of relations are developed through the process where principal
takes the decision to appoint someone who can act on his behalf. It is crucial that agreement
should be formed which can be either oral or written can be also formed. Here, the process of
formation of agreement will be based on agency law as well as contract law i.e., process of
entering into the legal agreement.
The law of agency is totally connected within tripartite relation, where it can be easily
identified about the relationship between employer and employee. This is one of the approach
which can allow to perform any of the organisational activity. Under tripartite relation, there are
some of the relation which is to be discussed where it is explained that agent are just the service
provider where are under the obligation of the agreement which has been formed by them. In
context of the file, there will be detail discussion about the laws and regulations and importance
of principal-agent relation. The statement “An agent is subject to a number of duties imposed by
the general law as legal incidents of the agency relationship. Where the agency is contractual,
some of the duties may take effect as implied term in the contract, or be modified by its
express terms. However, certain duties are imposed on the agent automatically”, will be
discussed in detail.
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MAIN BODY
Agency law is one of the most important law where number of duties and responsibilities
are to be followed by either party i.e., principal as well as agent. The duties which are given to
them is a obligation which must be followed on specific time period. It is said that in any of the
situation all of the terms an condition must be completed because that is that way through which
they can mark principal safe from any of the liability (Coman-Kund, 2018). It is needed to
understand that if any of those activity will be performed by agent then ultimate liability will
occur upon principal. There are number of duties which are given to agent and if they can
perform all of those activity, then there are rear chances that company will have to suffer. This
duties are also required to be followed for the purpose meeting out the requirement of agency
law.
The first duty or obligation which agent must focus at the time of performing the duty
which has been delegated by principal to them is “ to follow the instruction and perform them
according to lawful manner”. Each and every agent who has been performing the duty for their
principal they must ensure that operations are being conducted as per the standing order given to
them. It is also necessary that requirement must be met which has been instructed to them. It is
because if agent fails to do so then it will be the principal who will have to bear all of the
expenses and even that can create issues in financial stability of the organisation. There are
number of case related to agent and principal but one of the famous case is between them is Liley
v Doubleday. In this respective case, agent has been given the responsibility to store the product
in specific godown but he didn't perform the task in required manner. Agent store the same
product in another store which shows his carelessness. It is the reason that judgement was given
in the favour of principal and agent was held personally liable for the damages which has
incurred by Liley. In simple words, it is said that agent has the responsibility to perform the duty
of performing the task in given form of instruction (Duties of Agent, 2015). This types of duty
are not just performed by obtaining the necessary information from principal but its equally
important for agent to have some of the knowledge regarding laws and regulation. If agent will
have the knowledge regarding law, they will be able to do comparison which will automatically
allow to achieve better result.
The second most important duty which is applicable upon any of the agent is “Duty of
care and skills”. It become mandatory for agent to understand the situation before performing
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any of the task because that can allow to improve the chances of obtaining the positive result. If
in any of the situation agent fails to do so then in that respective situation, principal are held
liable. But, at the end of the day, agent can be held liable by principal if agent do not perform
their duty with care and proper skills. In addition, this situation is not applicable in those
circumstance where principal becomes insolvent. One of the landmark case for this respective
duty is between Keppel v.Wheeler. It is the case where agent was given the responsibility to
deliver all of the information to principal but it was agent do fails to transfer the required
information due to which principal has to suffer from losses. Looking at the requirement of case,
judges decided that it was the default performed by agent because he was not active towards
given responsibility due to which he was held personally liable (Brito, 2014). It is also one of the
duty which automatically imposed upon the agent and they must have to consider it in any of the
circumstances.
The duty are not limited up to above mentioned facts but they are also required to
understand that they must try to avoid conflicts. It is one of that duty which it becomes necessary
for the agent to try and avoid any of the conflicts. This types of condition only occurs in that
respective circumstances where agent tries to earn hidden profit by misusing the power which
has been delegated to them by principal. For example: agent has given the responsibility to sell
the property but secretly, agent tries to sell that particular property to himself which is
completely unauthorised. If any of the agent tries to do this then in that respective circumstance
they must disclose about all of the information. Talking about the case of Aberdeen Railway Co
v Blaikie Bros, is the case where it was found one property was purchased and it was suggested
by the company (Bahli and Rivard, 2017). Here, it was necessary to provide all of the necessary
information about the case to other director because that is one of the reason that chances of
conflict and personal interest increases automatically.
It is necessary to understand that whenever any of the agent will perform any of his duty
as per the requirement that results or outcome will change automatically. Although this duties are
given to agent automatically but it becomes the responsibility of principal and agent to discuss
on all of this point because it will directly allow to uplift the standard. The another duty of agent
after entering into the contract with principal is “duty to account”. It is one of the duty which is
necessary for any of the agent (Vitolla, Raimo and Rubino, 2019). Here, they are needed to
ensure that if in any of the circumstance, principal is willing to have a overview of accounts then
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agent will have to show as per standing order. Here, it is the responsibility of agent that personal
profit should not be included with the profit of organisation because that may create confusion in
the minds of principal and problem might occur for him. The duty is not limited up to here, but it
is also necessary that the duty which has been delegated to them must returned to principal even
after the cease of relation.
There have been number of occasion where number of roles and responsibility is given to
agent. This duties directly or indirectly increases the percentage of burden on agent. Here,
additional duty which has been delegated to agent is “duty not to delegate work”. The general
rules and regulations of agency law explains that agent is not able to delegate the work which has
been given to them and if in any of the circumstance they does the same then action can be taken
against them. If agent wants to hire sub-agent who can give their support to them, then they are
required to take legal consent from the principal (Fahamsyah and Suri, 2019). For example: if
agent hires the sub-agent and he performs those task which create problem for principal, then it
will be agent who will have to bear all of the losses because prior permission was not taken in it.
One of the similar case is between John McCain and Co. v Powai, in this case it was decided
that any of the agent is not allow to hire any of the employee or sub agent to work in their behalf
without obtaining any of the approval from agent. Also, one of the case is between De Bussche v
Atl, which is related with distributing the authority to sub-agent. Here, agent was required to
work on behalf of principal. It was found that partner of agent had taken some of the important
decision regarding selling of property. Here looking at the circumstances of the case, the court
decided that any of the losses which has been incurred by principal will have to be paid by agent.
Also, decision was taken without obtaining the permission which is against the law.
The last and the most important duty for agent which they are required to consider is
related with “duty not to earn secret profit or accept the bribe”. Any of the agent is required to
ensure that they must work as per the requirement principal. In addition, agent should not forget
that they are not going to take any of those decision which can create issues for principal. In
short, if any of the agent decides to take any of those decision where they can earn profit which
is not disclosed in front of principal, then principal will get the option to take legal action against
agent. This types of situation falls under the category of breach of agency law or agreement law
(Dharmapala, Garoupa and McAdams, 2016). For example: Principle has given the property to
agent for personal use but agent has different plan to place is for rent. It is completely against the
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agency law. Here principal is allowed to file the case against agent for not disclosing the
information related to use of property. But, if agent takes prior permission and principal gives his
approval then in that respective circumstances, agent will not be held personally liable for
renting the property (Agent's duties to principal under common law, 2018). Tthe landmark case
between Boston Deep Sea Fishing and Ice company v Ansell, (1888), director has been
performing the duty of directors in two different organisation. It has a direct or indirect impact
on business organisation because profit was reducing significantly. By having the overview of
case, the judges of this respective landmark case decided that it is the default performed by agent
because it was his duty to inform both the principal. So, looking at the requirement of case and
losses borne by principal, agent was held personally liable in this case.
These are some of the duties and responsibilities must be followed or considered by agent
at the time of taking any of the decision. If in any of the circumstance, they fails to do so then
legal actions can be taken upon them.
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CONCLUSION
It is concluded from the file that legal aspects are one of the most important topic which
simply explains that any of the business requires agent and principal. It is the essential aspects
for business at the time of attaining goals. Whenever relations is created among principal and
agent, they must understand that agent has the liability to perform those task which has been
assigned by principal. It is the responsibility of principal to ensure that they must guide agent
that how are needed to perform any of the task in any of the situation. It is the responsibility of
agent that they must perform all of the work in a systematic manner and if fails to do then
liability occurs upon principal.
In simple words, agent helps to reduce the overall workload form principal which can
allow them to focus on other work through which desire results can be accomplished. This law is
effective for principal as well a agent but in any of the circumstance problem occurs then it is
principal who has to suffer. Looking at the current situation of Agency law, some of the changes
can be made within the law where benefits can be given to principal as well because whenever it
will be done then agent will become more careful towards their roles and responsibility. Also,
some of the changes can be made within the law which can increase the benefit for business
organisation.
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REFERENCES
Books & Journals
Bahli, B. and Rivard, S., 2017. The information technology outsourcing risk: A transaction cost
and agency theory-based perspective. In Outsourcing and Offshoring Business
Services (pp. 53-77). Palgrave Macmillan, Cham.
Dharmapala, D., Garoupa, N. and McAdams, R. H., 2016. Punitive police? Agency costs, law
enforcement, and criminal procedure. The Journal of Legal Studies. 45(1). pp.105-141.
Fahamsyah, E. and Suri, F. A., 2019. Post-Notification Settings in Incorporation of Business
Agency (Merger) as the Efforts to Prevent Unfair Business Competition. Lentera
Hukum. 6(2).
Vitolla, F., Raimo, N. and Rubino, M., 2019. Board characteristics and integrated reporting
quality: an agency theory perspective. Corporate Social Responsibility and
Environmental Management.
Brito, J., 2014. Agency Threats and the Rule of the Law: An Offer You Can't Refuse. Harv. JL
& Pub. Pol'y. 37. p.553.
Coman-Kund, F., 2018. European Union agencies as global actors: a legal study of the
European Aviation Safety Agency, Frontex and Europol. Routledge.
McNay, L., 2016. Agency. In The Oxford handbook of feminist theory.
Online
Duties of Agent. 2015. [Online]. Available Through:
<https://www.lawctopus.com/academike/duties-agent/>
Agent's duties to principal under common law. 2018. [Online]. Available Through:
<https://www.eaa.org.hk/en-us/Information-Centre/Publications/Agency-Law/-5-
Agents-duties-to-principal-under-common-law>
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