Analysis of Legal Aspects of Business: Freeman and Lockyer Case Study

This report examines the legal aspects of business, with a specific focus on agency law within the UK legal system. It uses the case of Freeman and Lockyer v Buckhurst Park Properties as a central example to illustrate the key differences between actual and apparent authority. The report provides a summary of the case, critiques the court's findings, and offers recommendations. It defines and differentiates between express and implied actual authority, as well as the concept of apparent authority, highlighting the requirements for enforcing a contract against an organization when an agent lacks actual authority. The report emphasizes the importance of understanding these legal concepts for entrepreneurs and businesses to avoid legal obligations and protect their interests. The analysis includes a discussion of the roles of the agent, principal, and third parties in commercial transactions, and the significance of these authorities within the framework of agency law. The report concludes by summarizing the key takeaways regarding the implications of authority in business contracts.

Legal aspect of Business
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TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Summary of the case..............................................................................................................4
Criticism of the above statement............................................................................................5
Recommendations..................................................................................................................8
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10
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INTRODUCTION
Before establishing any company, it is very important for an entrepreneur to develop the
understanding about the legal aspects of business. Gaining knowledge about the legal aspects is
crucial, as this will assist business entity in eliminating the legal obligations. Legal issues can
have direct as well as significant effect on the image as well as performance of company. Laws
provides the various authority and rights to companies. There are basically two types of
authorities these are actual and apparent. These both authorities are interdependent of each other.
Agency is a part of commercial legislation is English legal system. Agency law governs set of
contracts as well as non-contractual fiduciary relationships which involves person recognised as
agent.
In the present report case of Buckhurst Park properties as well as Freeman and Lockyer
organisation has been used for analysing the main difference between actual as well as apparent
authority under law of agency.
MAIN BODY
Agency law is a part of commercial legislation in UK legislative system. This legislation
consists of set of rulers which are required for smooth functioning of business. Agency laws
assist in identifying whether an individual have the power to develop or change rights
relationship of other person. It governs the relationship which exist between agent and principal.
Agent is recognised as a person who facilitates contracts or agreement between the third
party and principal. They are generally appointed to make contracts with the third parties. The
agents appointed has mainly two types of authority these are apparent and actual authority. Due
to rise in trades conflicts, in commercial field agency law has great importance. There are two
types of actual authorities these are express and implied (MCCAbe Rabin, P.A., 2017). Express
authority means an individual actually been informed through contract that they have power to
act on behalf of principal. For instance, in the case study, managing director through article of
association has been told to enter into a legally binding contract or agreement with third party on
behalf of firm. Implied authority an agent by virtue of being reasonably execute their authority.
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As per the section 126 (1) of corporation act., the authority to enter into a legally binding
contract or agreement can be executed by a person acting on the basis of power given by the
board in the company.
Summary of the case
In report the famous case of Freeman and Lockyer (A Firm) v Buckhurst Park Properties
company has been taken as an example. The subject matter of case is all about determining the
scope of managers’ authority. As per the case, managing director in an organisation has been
appointed as per the article of association attached with the contract facilitated with third party.
In present case, Freeman and Lockyer company is doing business of architect. Buckhurst Park
Properties is the defendant organisation. Two persons named Nirmarjit Singh Hoon and Mr. shiv
Kumar Kapoor has been nominated for the position of managing director in a company. The
present case was initially filed in court of Westminster country. The decision taken in court of
Westminster country was in favour of plaintiff. But the fact was that Mr. Kapoor was never
appointed for the post of managing director. As per the case, Buckhurst Park Properties
(defendant organisation) was aware about the fact that MR Kapoor is acting as a managing
director. This is the reason defendant firm was not satisfied with the decision passed by judge in
the court. As per the higher tribunals, such as supreme court the defendants company is liable to
pay fees to plaintiff.
In short, the director in Buckhurst Park Properties managed the whole business in
systematic manner and has acted on behalf of principal. Role assigned to plaintiff architect is to
design plan for the development of lands. Unfortunately, land collapsed and plaintiff has filed
law suit against an organisation in order to get their fees. But an organisation denied that no
managing director has been appointed by board for appointing architects.
Judgment of the Lord
Considering the case, it has been found that after analysing the decision made by the
country court, the judge in supreme court has felt the need to make differentiate between actual
as well as apparent authority.
In context of legal relationship between agent and principal, actual authority is gained by
mutual understanding between parties. The ordinary principles of construction of contracts can
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be analysed for discovering the scope of an agency agreement. On the other hand, apparent
authority is gained by parties through false representation made by the third party to the
principal. As per the commercial law, agent is only a person who has actual authority to enter
into the contract with the third party.
As it has been identified in the present case study that Mr Kapoor was not appointed as the
managing director by the board, but still has made major decision as managing director. In
addition to this by representing himself as a director Mr Kapoor has entered into contract with
third party which is illegal as per the law (Saintier and Scholes, 2017).
As per the agency law there are mainly 4 requirements which are required to be fulfilled by
the parties or contractor for enforcing a contract against an organisation entered by an agent
without having the actual authority:
A representation made by the firm to the contractor that an agent has right as well as
power to enter into agreement or contract on behalf of business entity.
Representation made by the member of firm who has been given power to manage the
business by the board or higher authorities in a firm.
The third condition is contractor is convinced and has relied on the fact. Next condition
is, if in an organisation in article or memorandum of association has not clearly mention the
authority of an individual to enter in the contract with third party in the behalf of an organisation.
As it has been identified in the given case study that, Buckhurst Park Properties (Mangal)
Ltd., under the article of association, firm was not destitute of the capability either to enter into a
contract which is more likely to be applied or to give power to enter into an agreement of that
kind to the agent (Gillespie, 2017).
In order to determine that whether Mr Kapoor has implied actual or apparent authority has
conducted the test. The result of which was that Company in which MR Kapoor was working is
liable for the act executed by their agents. As in present case, board in an organisation was aware
about the unauthorised activities of employee. Result was apparent authority was proved.
Consequently, its conclusion was "mistaken”.
Criticism of the above statement
The major difference between both the authorities is that, in order to gain the actual
authority, firstly parties need to form the legal relationship which is created by entering into a
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valid agreement. On the other hand, party represents other as principal. Such actions conducted
by an individual to act upon the third party.
As it has been identified in present case study that, Mr Kapoor has represented himself as
principal on behalf of company, his intention was to act upon third party. It is understood when it
is concluded from the conduct of the parties or the situations of the case, such as when the board
of directors appoint one of them as managing director (Cahn and Donald, 2018). As per the
agency law, it is the apparent authority.
According to the present case, actual authority is completely based on the contracts or
agreement between parties that is an agent and principal. On the other hand, apparent authority is
based on representation made by the principal to the third party. In the present case, Mr. Kapoor
is defendant who have been liable for holding apparent authority.
As per the agency law, actual authority can be given by expressing words. It is required by
board of directors in an organisation to pass a written resolution providing the authority to
managing director to appoint architect (Actual and apparent authority: Don’t’t Run The risk,
2018).
The other difference between both authorities are actual authority is quite reliable as
compare to apparent authority. Actual authority is a power given by company to an individual
that specific person can enter into contracts on behalf of firm. On the other hand, apparent
authority is power given to a person indirectly.
As per the view of Diplock L.J., the third party is not at aware about the relationship
between principal and agent. On the other hand, in context of apparent authority, principal can
make plan representation to third party. Such type of strategies is rarely applied by companies in
real-life. As it involves high risk. Apparent authority is seen from the perspective of principal.
On the other hand, apparent authority is seen from the perspective of the third party.
It has been identified in case study that, Mr. Kapoor has hold both the authorities actual
as well as apparent authority. Mr. Kapoor held actual authority as it has been mentioned in the
article of association that he is the managing director and have the power to enter into a contract
on behalf of an organisation (Ashworth and Perera, 2018). It is apparent authority from the
perspective of other party as they have not gone through article of association.
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The difference between both the authorities is that the agent's apparent or ostensible
authority will not be affected by any limitations on the agent's actual authority of which the third
party is unaware.
The another major difference between both is that Actual authority is gained from a
manifestation that an individual should represent for principal. Whereas, apparent authority is
considered to be as an outcome of such manifestation made by the principal to the third party. As
per the law of agency in UK, the principal is bounded by unauthorised act of the agent.
Considering the case, a company is responsible and bounded to pay the plaintiff an amount for the
losses suffered by them due to misrepresentation made by managing director or board. According
to the agency law, a principal is bound by the disposition of property made by the agent acting
within the extend up to which they are given authority to manage business (Saintier and Scholes,
2017).
The other circumstances are that, as in the case study, principal that is company has made
representation to third party that an agent has power to act on an organisation behalf. When acted
upon by that third party by entering into an agreement with the agent, operates as an estoppel,
which restricts the principal from refusing that the contract is binding. If a principal creates the
impression that an agent is authorized but there is no actual authority, third parties are protected
against liabilities so long as they have acted realistically (Bertino, 2018). On the other hand, if an
agent holding actual power or authority of entering into an agreement with third party, then in
such case an agreement will create contractual rights as well as responsibilities between agent
and principal. As per the commercial act, written express actual authority involves bylaws as
well as resolutions from the directors those who grants an individual a permission to execute
specific tasks on behalf of business entity.
Other difference between both authorities is that actual implied authority is provided by
board in an enterprise to managing director for executing at the time of necessity or to be
executed for improving performance of duties. On the other hand, apparent authority is in
appearances only, but no actual authority has been bestowed by the principal (Cohen, 2017).
It has been identified from the above case that plaintiff has relied that MR. Kapoor is
managing director and has authority to form contract, as per the agency law in UK, the effect of a
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successful reliance on estoppel is that the person who has been estopped is liable as though he or
she had authorised the other to act.
Critical element in above case study is that the agent, not the principal must have made
representations to the relying party in order for an apparent agency to be created that binds the
agent.
Recommendations
As per the agency law in UK, in the given case plaintiff has the right to file law suit against the
company. The suggestion to the companies is that they should develop understanding about the
both types of authorities, as this strategy will assist them in ensuring the elimination of legal
issues. In addition to this it is required by board in an organisation that they should be aware
about their important role in eliminating or reducing the circumstances or situations of implied
authority specifically in cases of appointed of managing directors in a firm (Kraakman and
Armour, 2017). It is important for top level management in an organisation to review as well as
control the activities executed by managing directors. Management in an enterprise should
formulate policies which is very much essential for preventing unethical or illegal activities.
Business entities are provided with suggestion to review the employees listed in documents those
who have power to enter into an agreement or contract with external parties. As this strategy will
assist firm in ensuring that external parties are not misunderstood.
According to the agency law a principal is accountable for a contract signed by the agent
who is acting within the scope of power provided to an individual (Siems, 2018). If in
circumstances where company is also not aware about the unauthorised act of managing
directors or other employees, them in such situation principal cannot be held responsible, in such
case agent is a person who will be liable.
The other situation is if in any circumstances, third party is aware about the fact that person
who is entering into the contract does not have power then in such case agent cannot be held
liable.
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CONCLUSION
It has been concluded from the above study that protection offered by actual implied
authority has much wider scope as compared to apparent authority. Report has also concluded
that apparent authority is less reliable than actual authority. It has also been concluded from the
assignment that principle of implied actual authority is very effective, as this helps in protecting
both insiders and outsiders. Project also concludes that board was also aware about the
authorities’ activities of managing director. This is the reason; company is liable to make
payment to plaintiff.
It has been recommended that third party is not liable or is not required to provide
evidence related to their reliance on implied actual authority. As it has been clear that they have
relied because misrepresentation has been made by board related to the apparent authority of
managing director. The another suggestion given to board is that they should provide authority to
an individual in written so that it can be used as evidence during the time of legal issues.
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REFERENCES
Books and journals:
Ashworth, A. and Perera, S., 2018. Contractual procedures in the construction industry.
Routledge.
Bertino, L., 2018. Agency Agreement: From Innominate Contract to the Reference Model of
Commercial Distribution Agreements. European Business Law Review, 29(4), pp.643-
669.
Cahn, A. and Donald, D.C., 2018. Comparative Company Law: text and cases on the laws
governing corporations in Germany, the UK and the USA. Cambridge University Press.
Cohen, G.M., 2017. Law and Economics of Agency and Partnership. The Oxford Handbook of
Law and Economics: Volume 2: Private and Commercial Law, p.399.
Gillespie, J., 2017. Transplanting Commercial Law Reform: developing a'rule of law'in Vietnam.
Routledge.
Kraakman, R. and Armour, J., 2017. The anatomy of corporate law: A comparative and
functional approach. Oxford University Press.
Saintier, S. and Scholes, J., 2017. Commercial agents and the law. Informa Law from Routledge.
Siems, M., 2018. Comparative law. Cambridge University Press.
Online
Actual and apparent authority: Don’t’t Run The risk, 2018. [Online]. Available through: <
https://acapmag.com.au/2016/06/actual-apparent-authority-dont-run-risk/>.
MCCAbe Rabin, P.A., 2017. [Online]. Available through: <
https://www.mccaberabin.com/business-copyright-faq/what-is-an-apparent-agent/>.
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