Legal Aspects of Business

Introduction

Agency refers to a relationship subsisting between a principal and an agent, who has received authorization to act for him, or rather, represent him while dealing with others (Beale et al., 2019; cited in Knapp et al., 2019). In this regard, agency entails two contracts and they include, first, a contract made between an agent and a principal, whereby, the agent gets his authority to represent the principal and secondly, a contract created between a third party and a principal by aid of the agent’s work. The agency law principles enable corporations to act, whereby, the corporation can act just like an individual whilst conducting business (Singleton, 2015). In this case, corporations are able to operate companies, engage in contracts, carry out business transactions, be used and sue. The relationship between agency, actual authority, as well as apparent authority works in such a way that the actual authority relies on the existing agreement between the agent and the principal, whilst apparent authority relies on the representation of the principal to the third party. As such, it is evident that these types of authorities do not rely on each other. In line with this, it is then evident that agency authority is concerned with an agent’s authority, which could be apparent or actual. In this regard, actual authority is established through the manifestations of the principal to the agent, whilst apparent authority is established through the manifestation of the principal to the third party (Saintier & Scholes, 2017).

Different types of authority

There are two different types of authority, which include the consent authority and non-consent authority.

Consent

This refers to a legal relationship that exists between the agent and the principal, which Is created through a consensual agreement of the parties. Its scope is ascertained by the application of ordinary principles on contract constructions that include proper implications derived from expressed words that have been used, the course, or the trade between the involved parties (Malkawi, 2019).

The simplest type of authority is the express authority, in which case, the agency agreements acts upon delaminating the agent’s authority as stipulated in the case of Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480. In this case, it was held that a representation that purposes to create apparent authority can take various forms, and as such, the commonest can be representation by conduct. Moreover, according to the case of SMC Electronics Ltd v Akhter Computers Ltd and Others [2001] 1 BCLC 433) it was held that the extent to which an agent expresses actual authority poses as a matter of construction of the agreement of the agent. However, the court did not require every transaction to be provided expressly in order to ascertain the existence of authority.

Implied authority is inferred, based on the position that the agent occupies or can be inferred to be reasonable necessary in carrying out or conducting express authority (signing of contract. For instance, in the case of Chan Yin Tee v. William Jacks and Co. (Malaya) Ltd [1964] MLJ 290, it was held that when a person allows another to order goods on his behalf and pays for them habitually, agency can be implies as he will be bound by contract, just as if he expressly authorized them. This is also similar to the case of Armogas LTD v. Mundogas SA [1986] Ac 717, it was held that implied authority arose as the actions of the parties was assumed, owing to the fact that there was an agency relationship created through implied authority.

It is significant noting that actual authority can as well be implied, owing to the relationship existing between the agent and the principal, or even based on their conduct. Notably, implied authority often serve towards extending the express authority that is granted to the agent, and as such, it is demonstrated in three particular forms, provided as follows.

Usual

Second, is the usual authority that provides an agent significantly implied authority of doing what is deemed as usual, given the role that he undertakes as provided in the case between Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549. In this case, it was held that Richards did not have express actual authority of entering into the agreement with Hely-Hutchinson, owing to the fact that the board acquiesced to him to act as the managing director. Although, it is evident that he has implied authority of entering into any transaction, which his office consented to. Moreover, in the case of Waugh v HB Clifford & Sons Ltd (1982) 1 All ER 1095 CA, the court held that there usual authority from the side of the solicitor, in terms of legal authority on settlement. Notably, the case raised controversy as other authors believed that the decision would have been different had it been decided during the current development.

First, is the incidental authority, which provides the agent with a significant implied authority of doing whatever seems necessary or incidental onto the execution of his or her actual authority expression and in a usual way (Dewing, 2015). This was provided in the case of Rosenbaum v. Belson, [1900] 2 Ch. 267, where an agent provided express authority of selling a house, and this also entailed incidental authority of entering into a signing a contract of the sale. Moreover, in the case involving Earner v Sharp (1874) LR 19 it was held that an agent does not have incidental authority of entering into a sale contract, in an instance where he is granted the authority of finding the buyer, but not selling.

Thirdly is the apparent authority that provides an agent with significantly implied authority of doing whatever is deemed as customary within certain locations, markets, and even trades as implied in the case of Cropper v. Smith [1884] 26 ChD 700. Moreover, in the case of Robinson v Mollett (1875) LR 7 HL 802, it was held that in an instance where custom is noted to be unreasonable, it can then only bind the principal, had he has prior knowledge.

Apparent authority

A person could be estopped from having to claim that an agency relationship is not existing, in an instance where his conduct or even words indicates that the relationship is apparent. In such cases, there exists no agency agreement, which is either expressed or implied (Beale et al., 2019; cited in Knapp et al., 2019). However, the apparent agent would be given authority of binding the third parties (who are not aware that the agent is not entitled to actual authority) to the apparent principal (Smits, 2017). The requirements bestowed in apparent principal were provided by Slade, who pointed out the following in the case of Rama Corporation Ltd v Proved Tin and General Investments Ltd [1952] 2 QB 147: He noted that ostensible, or rather, apparent authority that negatives the presence of actual authority is regarded as a mere form of estoppel. He stressed that it has been termed as agency by estoppel, and as such, it cannot be called in aid, an estoppel, not unless there is the presence of three significant ingredients, which include representation, reliance on representation and finally, alteration of position that results from such kind of reliance. Notably, apparent authority can be significant, in an instance where the principal restricts the actual authority of his appointed agent, or in an instance where the apparent agent, previously, has never appointed an agent. Between the agent and the principal, the restriction id thus, binding and the agent would be liable to the principal if at all he ignores it. However, third parties that are entitled on relying on the said apparent authority are significantly not bound by the restriction, and as such, they are unaware (Adriaanse, 2016).

The first requirement is clear that that the principal represents the third party and the agent is granted the authority of engaging in the act in question. The representation has to be factual. However, based on case of Kleinwort Benson Ltd. v Lincoln City Council [1999] 2 A.C. 349, the decision made resulted into mistakes, as well as misrepresentations of the law. As such, the limitation required reconsideration. The second requirement is reliance, which requires that the third party rely on the representation. This requirement established a connection between the actions of the third party and the representation. In the case of Overbrooke Estates Ltd v Glencombe Properties Ltd [1974] 3 All ER 511, it was held that the third party who is not aware of the representation or rather, who knew of ought to have been aware that the agent did not have actual authority cannot be deemed to have depended on it. The final requirement is position alteration, where courts have highlighted a lack of consistency that relates to the requirement. However, Slade made it clear in the case of Rama Corporation Ltd v Proved Tin and General Investments Ltd [1952] 2 QB 147, by stating that alteration in position is necessary whereas other cases have made it clear that in it is not enough that a third party would also be required to show that he suffered detrimentally, owing to relying on the representation.

Problems with ascertaining apparent authority

Apparent authority brings forth legal impacts between the parties involved. In this regard, when all goes according to plan, the agent purposes to effect the authorized contract, as well as the key relationship between the third party and the principal. However, it is worth noting that problems can arise and significantly, in certain situations, the agent often becomes jointly liable, with the principal towards the third party (Poole, 2016). Some of the problems are as discussed below, aligned with how the problems affect the position of apparent authority and the manner in which the law or courts respond to the problems affecting the position of apparent authority. In an instance of a disclosed principal, it is worth noting that a contract is often formed between the third party and the principal, in which case, either of the involved parties is able to sue or be sued (Beale et al., 2019; cited in Knapp et al., 2019). However, it is evident that when the principal is disclosed, the privity doctrine normally hinders the third party from having to sue the agent or vice versa. However, the court solves this situation, especially by ensuring that an agent is able to enforce the contract that is against or rather, is jointly liable with the disclosed principle to the third party (Narciso, 2015).

Secondly, it is significant noting that based on the right to be able to sue, based on the contract, it is clear that the third party can sue a third party in case of a breach of authority warranty. Notably, such a breach often happens when a person that know that he or she does not have actual authority represents himself to a third party that he has dull authority and that the third party can rely on such a representation and consequently sustain a loss (Duncan & Christensen, 2016). Clearly, such a rule poses as a strict one, as implied in the case of Yonge v Toynbee [1910] 1KB 215. In this case, it was held that the solicitors were needed to pay the costs of Yonge. On the other hand, the certification of Toynbee, of insanity had significantly terminated their authority and as such, it is evident that they had breached their warranty authority. Clearly, having said that they were not aware of their authority was terminated and termed as irrelevant. Putting into account the provisions of this case, it is evident that the rule is considered a strict one, and the court often considers the agent to be in breach, even in an instance where he or she honestly, yet mistakenly believes that he had the authority (Beale et al., 2019; cited in Knapp et al., 2019). In this regard, courts often respond to such a problem through enforcing three significant mitigation factors. Firstly, it ensures that no breach should lie in an instance where the third party had known or ought to have known that the agent did not have authority as held in the case involving Halbot v Lens (1901) 1 Ch 344. Secondly, no breach should be committed, in an instance where the principal purposes to ratify the act of the agent. Thirdly, the court ensures that the representations should be factual and not law. However, given the abolishment of the distinction in some areas of contract law, it remains to be regarded whether the limitation is to be upheld in future or not.

Finally, it is worth noting that in case of an undisclosed principal, in which case the third party fails to know the existence of a third party, the principal is regarded as undisclosed. Notably, in such a situation, the is assumable that there is no existing contract between the undisclosed principal and the third party, and as such, neither of the parties is able to commences the proceedings of enforcement against each other, yet this is often not the case (Clarke et al., 2017). According to the case of Montgomerie v United Kingdom Mutual Steamship Association [1891] 1 QB 370, it was made clear that in an instance where an agent engages into a contract in place of an undisclosed principal, there is the creation of a contact between the third party and the undisclosed principal that any of the parties can enforce. Notably, the law often regards the contract to be between the third party and the agent, but provides the principal with significant right of intervening, suing and being sued by the third party. However, the problem arises when the third party believes that all along, he or she had been contracting with the agent, and as such the principal had been granted the privilege of suing and to be sued (Duncan & Christensen, 2016). This is controversial and often, it is regarded as contrary, as per the provisions of privity of a contract. Given that the rule governing undisclosed principal has existed prior to the full establishment of the privity doctrine, it is evident that the rule can make the third party to be fully bound to the principal, whom he or she had not known existed or with whom he or she had wished to have created the contract with. In response to this problem, the court has installed the following mitigation factors that can aid in solving the problem (Chen, 2016). First, the court requires that the principal is not in a position of enforcing the contract, especially in an instance where the contract has been expressly or even impliedly established, thereby, hindering his intervention. Secondly, the court ensures that the principal is not in a position of enforcing the contract, especially when he or she lacks the capacity to, especially in case of a corporation that had not existed at the time when the agent was contracting (Beale et al., 2019; cited in Knapp et al., 2019).

Conclusion

Alongside contract law, agency poses as a freestanding topic. Agency is a mechanism that aids in the facilitation of various contraction processes, and as such, it has become a fundamental aspect of various commercial dealings. Notably, the current position of agency is that it allows those running businesses to be able to authorize others towards entering into contracts in their place. This thus greatly facilitates the contractual process, and in turn reduces the involved costs, as well as the time spent on contractual negotiations (Beale et al., 2019; cited in Knapp et al., 2019). However, it is significant to note that the role of agents could be wider, other than just entering into contracts on behalf of principals. Apparent authority is noted to have become very significant in the modern contract law, especially where a principal has purposed to terminate the actual authority of appointed agent or when the apparent agent has previously never been appointed as an agent. Between the agent and the principal, the termination is binding and as such, the agent is deemed as liable to his principal in case he ignores it. However, third parties that do not depend on apparent authority are not bound by any termination, especially when they are unaware. This paper recommends that the legal position of agency law can improve when the general rules governing the agency law, as well as principals are made liable, especially in instances where their agents act whilst utilizing the apparent authority granted to them. In this regard, an agent appearing to have bestowed authority of making statements for his or her principal provides his statements with the weight of the reputation of the principal.

References

Cases

Armogas LTD v. Mundogas SA [1986] Ac 717

Cropper v. Smith [1884] 26 ChD 700

Waugh v HB Clifford & Sons Ltd (1982) 1 All ER 1095 CA

Chan Yin Tee v. William Jacks and Co. (Malaya) Ltd [1964] MLJ 290

Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480

Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549.

Montgomerie v United Kingdom Mutual Steamship Association [1891] 1 QB 370SMC

Electronics Ltd v Akhter Computers Ltd and Others [2001] 1 BCLC 433)

Overbrooke Estates Ltd v Glencombe Properties Ltd [1974] 3 All ER 511

Rama Corporation Ltd v Proved Tin and General Investments Ltd [1952] 2 QB 147

Rosenbaum v. Belson, [1900] 2 Ch. 267

Yonge v Toynbee [1910] 1KB 215

Earner v Sharp (1874) LR 19

Halbot v Lens (1901) 1 Ch 344

Robinson v Mollett (1875) LR 7 HL 802

Books and journals

Adriaanse, M. J. (2016). Construction contract law. Macmillan International Higher Education.

Beale, H., Fauvarque-Cosson, B., Rutgers, J., & Vogenauer, S. (2019). Cases, materials and text on contract law. Bloomsbury Publishing.

Chen, M. (2016). Empirical Research on Mandatory Rules Theory in International Commercial Arbitration. Int'l Trade & Bus. L. Rev., 19, 245.

Clarke, M. A., Hooley, R. J., Munday, R. J., Sealy, L. S., Tettenborn, A. M., & Turner, P. G. (2017). Commercial law: Text, cases, and materials. Oxford University Press.

Dewing, J. (2015). Howard Bennett, Principles of the Law of Agency.

Duncan, W. D., & Christensen, S. (2016). Real Estate Agency Law in QLD. Thomson Reuters.

Knapp, C. L., Crystal, N. M., & Prince, H. G. (2019). Problems in Contract Law: cases and materials. Aspen Publishers.

Malkawi, B. H. (2019). Bashar H. Malkawi, Reflections on Exclusivity and Termination of Commercial Agency in Jordan: The Intertwining of Domestic Regulation and International Trade Law. The Estey Journal of International Law and Trade Policy, 19(2), 98-116.

Narciso, M. (2015). Disputes under Agency Law. Ct. Uncourt 2-, 2, 3.

Poole, J. (2016). Textbook on contract law. Oxford University Press.

Saintier, S., & Scholes, J. (2017). Commercial agents and the law. Informa Law from Routledge.

Singleton, S. (2015). Commercial agency agreements: Law and practice. Bloomsbury Publishing.

Smits, J. M. (Ed.). (2017). Contract law: a comparative introduction. Edward Elgar Publishing.

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