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Legal Aspects of Business

Legal Aspects of Business



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Contents

Introduction 1
Law and Law of agency 1
Types of Law 1
Commercial Law 2
Theories 3
History of the statement 4
Positive of the Statement 5
Negative of the Statement 7
Decisions regarding the statement 9
Conclusion 10
Reference(s) 11


Introduction

Agency law is considered as important part of commercial law of the UK and all rules and regulation of the authority has ensured in the laws. Business it is very significant to look at the legal aspects which will affect the company in the future. In this part of the information file there will be the most important legal aspects for running a company. First there is the selection of business form, in which there will be a comparison between the different possible forms. Afterwards a description of how the company will work with contracts and partners. And finally there is an explanation of the typical legal aspects such as profit tax and dividend. Watteau v Fenwick has mentioned a difficult type of explanation.



Law and Law of agency

Law is a system of rules, usually imposed through a set of institutions. It forms politics, economics and society in various ways and serves as the foremost social mediator in relations between people. The law of agency is the concept of commercial law dealing with a set of contractual, quasi-contractual and non-contractual fiduciary relationships that involve a person, called the agent, that is authorized to act on behalf of another (called the principal) to create legal relations with a third party. Commercial law is called business law that applies to the relations, rights, businesses engaged in commerce and conduct of persons and trade and sales (Sealy & Hooley, 2003).

Types of Law

Law governs a wide variety of social activities. Actually there are 3 types of law. Those are
Contract or Commercial law: It regulates everything from buying a bus ticket to trading on derivatives markets.
Property law: It defines rights and obligations related to the transfer and title of personal and real property.
Criminal law: It offers means by which the state can prosecute the perpetrator.

Commercial Law

If P (the principal) instructs A (the agent) to act in the purchase or sale of goods from or to T (the third party seller), the contract of sale that arises is enforceable between P and T. In general, A has no liability to either P or T on that contract. There are three parties, P, A and T, and three relationships.
1.      The relationship between P and A
2.      The relationship between A and T
3.      The relationship between P and T
It may be difficult to determine for whom A is acting – A’s function in bringing together the consumer and the vendor can make it hard to choose which party appointed A. A may assume personal liability to T, although this is unusual. A may be an organization and so itself act through an agent in its dealing with T, and both P and T may act with A through agents.  For example we can say that P’s employee appoints A to conclude the deal with T, who also deals with A through its own agent. One party may be simultaneously agent and principal. In a contract of sale on credit, S (seller) reserved title in the goods (in essence, S retained ownership of the goods) and required B (buyer) to account to S for the proceeds of any resale of those goods. This meant that on resale B was an agent for S and under an obligation to account for the resale proceeds, but B was also a principal in relation to the contract of sale to the new buyer. It is important to recognize that the appointment of an agent does not preclude the principal from acting though it cannot act other or from appointing another agent, unless the agency agreement stipulates to the contrary. An agent who acts outside the authority granted by the principal will be in breach of the contract by which the agent was appointed (Sealy & Hooley, 2003).
If the 3rd party knows the limits of the agent’s actual authority, there is no difficulty and the apparent authority will be the same as the actual authority of the agent. However, usually the 3rd party will not distinguish the terms of selection of the agent and must depend on the apparent authority. Where, on the other hand, someone represents to the third party that they have the authority to act as an agent for another person, there is neither actual authority (the ‘agent’ has not been appointed by the ‘principal’) nor apparent authority (the ‘principal’ has not represented to the third party that the ‘agent’ has authority). In this situation the ‘principal’ is not bound and the third party is left only with an action against the ‘agent’ for breach of warranty (that is, breach of the promise by the ‘agent’ of authority to act for the ‘principal’). However, in this situation, the principal may decide to adopt the transaction – in other words, to ratify the action of the ‘agent’ and by doing so establish a contractual relationship between the principal and the third party (Philip, 2011).

Theories

There are mainly three theories that seek to describe and explain agency: power-liability theory, consent theory and qualified consent theory.
Power-liability theory: The power-liability theory says that an agency exists when a person (the agent) acquires the power to alter the principal’s legal relations with a third party so that only the principal (and not the agent) can sue or be sued by that third party. The problem with this definition is that it focuses on the external relationship with the third party – that is, the relationship between the principal and the third party, which has been enabled by the agent (Philip, 2011).
Consent theory: This deals with the criticism of the power-liability theory by focusing on the fiduciary duty owed by an agent to a principal. Since someone will not become a fiduciary unless they have the ability to affect the legal rights and obligations of another person, this definition stresses the need for the ‘agent’ to have functions that are more than merely ministerial (Philip, 2011).
Qualified consent theory: This approach is discussed by McMeel. It combines the consent theory with the protection of ‘misplaced reliance’ to account for actual and apparent authority.

History of the statement

The decision in Watteau v Fenwick [1893] has proved troublesome. Although it has almost no impact on the courts’ approach to matters of agency law, it is worth discussing because it provides an opportunity to consider certain distinctions in agency law. Various questions surround this case of which the most important is: was there an agency and, if not, why was the ‘principal’ liable? Reading the case for the first time, one might be surprised at the fuss: the reader would be forgiven for thinking this is clearly a case on agency, not least because that is what the court believed.
In outline, in this case X, who owned a hotel, appointed Y as manager. Y was expressly forbidden from buying any goods other than mineral water and bottles of beer. Y had previously owned the hotel and his name remained above the door as the licensee. Y ordered cigars from W, who believed he was the owner of the hotel. X was held liable for the price of the cigars. It might be argued that W did not think Y was an agent; he believed Y to be the principal, so if W had not been allowed to enforce the contract against X, W would have lost nothing because he was unaware of X’s existence. Against this it might be said that X’s action in allowing his agent, Y, to represent himself as the principal placed W in a weakened position. W had every reason to suppose that Y was the principal and this misconception was facilitated by X.
In the case, Wills J based his conclusion on usual authority, that is, on the implied authority of an agent who is appointed to a particular role by the principal or represented by the principal as occupying that role. But this leaps over the main question as to whether an agency exists – consideration of the scope of implied authority is relevant only if it is established that an agency exists. Leaving that aside, W did not know that H was an agent and so could not make assumptions about his authority. W believed that H was the principal, not an agent, and so made assumptions as to the implied authority of H. Might it be a decision on apparent authority? Again, the answer must be no because F made no representation to W that H was acting as F’s agent (nor did H): W believed H was acting as principal in the transaction. Similarly, the principal cannot ratify the transaction (this is where P adopts an unauthorized transaction: see 2.7) because it is essential to the doctrine of ratification that the third party is told that the ‘agent’ is acting as such. H did not tell W that he was an agent and, in any event, it seems hard to argue that F adopted the transaction. The other possibility is the doctrine of undisclosed agency/principal (where the existence of the agency is not disclosed to the third party at the time of the transaction), but that requires the agent to have entered the transaction with the actual authority of the principal (Kinahan & Cov, 1911).

Positive of the Statement

The decision of Watteau v Fenwick faces various position of the different point of views. The decision in Watteau v Fenwick is difficult to explain or defend but it has few positive impacts.  In spite of having trouble and difficultness, it is not evitable in the scope of decision making. The case discourses the liability of an undisclosed principal.
The principal will be bound where it validly ratifies a transaction entered into by someone purporting either to act as its agent when that person has not previously been appointed as such, or by someone purporting to possess authority beyond that granted by the principal. This is not apparent authority because the agent represents their own authority, and it does not seem to fall within Watteau v Fenwick because there the agency was not made apparent. At the time of the relevant act, the agent must have intended to action behalf of the principal. This intention is gathered from the terms of any contract and surrounding circumstances (Oilwell v Off shore, 1993).
The purported agency must be revealed to the third party before the transaction is concluded. There can be no ratification where A makes the contract as principal. In this case, the justification is, according to Lord Macnaghten, that ‘civil obligations are not to be created by, or founded upon, undisclosed intentions’. The identity of the principal need not be disclosed, ‘but there must be such a description of him as shall amount to a reasonable designation of the person intended to be bound by the contract (Keighley, Maxsted & Cov 1901).
The third party must believe that the person with whom they are dealing has authority to act for another. If, for example, the agent tells the third party that the agreement is subject to ratification, any action by the principal will not bring it within the doctrine of ratification because, in effect, the agent is saying there will be no contract until the principal has approved it. In such circumstances the principal’s ‘approval/ratification’ may, however, amount to an acceptance of the third party’s offer so that the contract comes into existence at that point and does not date back to the time of the original agreement.
The principal must be competent to enter the contract at the time of the original act by the agent. Did the principal have capacity to contract given that the ratification dates back to the time of that original act? For instance, did the company have authority under its constitution to do this act?(Sealy & Hooley, 2003).
The principal must also be competent at the time of ratification. For example, an enemy alien cannot ratify, even if at the time of the contract P was not an enemy alien (contracts with an enemy alien – someone who is resident in a country with which this country is at war – are void for illegality). Since ratification relates back to the moment of the original act, there is an argument for looking solely at whether the principal was competent at that time, but, of course, a principal who lacks competence (such as a company that has been wound up or a person who has lost mental capacity or an enemy alien) would not be able to signify ratification.
The law of Inherent agent power indicates provide the support for the actions. The actions of the agent were unknown to the principle and the principle of the hotel had paid the payment. The decisions of the organization clearly provide the surety of the success. It is very common that Inherent agent power indicates inspire the liability to the authority to the principle organization and ensures successful action (Boyer, Hiriart and Martimort, 2006).
Partnership act of the UK of 1890 has strong support in the decisions of the court. Actually the partnership comes from agents’ ship.  Both parties of the contract sign the contract and had come a common goal to ensure the success of their hotel business. In this case, Humble took some decisions for the development of the business organization. In this case, the person faced some problems in term of the payment of the credit of the business (Boyer, Hiriart and Martimort, 2006).
Watteau had the authority of getting the right on money from the principle authority because of the dormant partnership act. Here the Humble is considered as a dormant partner of the agreement and Fenwick would take the responsibility of the dormant partner. In the partnership act of 1890 of UK, active partner of the business takes the responsibility of the inactive partners and Humble is considered on that class of the business organization (Busch and Macgregor, 2009).

Negative of the Statement

The decision in Watteau v Fenwick is tough to explain or defend. It does not fit into any of the well-defined types of agency and the general disinclination of the English courts to apply the decision or even to refer to it might suggest that it is to be treated either as an difference or as wrong.
This case has been criticized since it was decided. It is believed the decision was per incuriam because it failed to take into account earlier cases which had similar facts, yet were decided in the alternative. Miles v McIlwraith decided that an undisclosed principal cannot be liable for acts of his agent, who has acted beyond their authority. This view is supported by Montrose (1939) who states the “…decision was the result of  unsound  reasoning,  the  errors  in  which  involved  a  misstatement  of  the  existing law (Case Comment1893).
Collier (1985) believes that it is controversy and puzzlement surrounds the decision. it  is  believes  that the decision was based on apparent authority and it is submitted that this is incorrect because for apparent authority to  be applicable the principal needs to be disclosed and in the Watteau case the principal was  unknown.  Many  academics  are  opposed to the  decision  for, primarily,  bad reasoning  in  the  actual  decision. It is believed that, following established company law principles, Wills J got partnership law wrong.
Actual express authority of agent law had direct link within the trail of this case of Watteau v Fenwick. According to the actual express authority, principle of the contract will clear all connected activities of the agent and agent cannot take decisions without permission of the main agent. General rule of an agent is only permitted to indemnity from the principal if he or she has acted within the scope of her actual authority, and may be in breach of contract, and liable to a third party for breach of the implied warranty of authority (Pennington, Feldman and Meisel, 2006). In the case of Watteau v Fenwick, Humble had taken the business decisions where the main agent of the organization had provided a clear instruction regarding the power of the Humble but the decisions of Humble was not within his site (Casebriefs, 2014). Commonly, the rules of usual authority will not smartly apply in this section because the issues of the credit purchase had already mentioned.  The necessity of cigars for the hotel business defiantly needed by approving by the principle but Humble has not paid attention to inform the authority in actual reasons of the actions.  Humble had presented the logic of the commercial necessity but it definitely needed to inform the actual authority of the business organization.
According to some judge, the decisions was plaintiff and fallacious in overall consideration of the decisions. Here the consideration firstly comes from the agent law of the country and it will not supported by those rules and there not right of the Humble to take the decisions without knowing the final authority of the organization. Partnership act had provided a clear statement that the partner cannot make any decisions without informing the main authority of the organization (Pennington, Feldman and Meisel, 2006). Here the word fallacious was actually correct for the decisions of the judge in this case. Moreover English commercial law provides clear issues in term of the action of the agent and the partners. In consideration of those issues, the legality of the actions a next indemnity o the top authority regarding the contract was totally illogical for the principle organization (Legislation, 2014).
Commercial agreement provides a clear point of view regarding the action of the business organization. All parties of the contract have legal bound to ensure their duties and responsibilities of the parties (Casebriefs, 2014). Unless there is very clear contrary evidence, the presumption will not be rebutted. Here both parties of the Watteau v Fenwick case had completed a commercial agreement and the decisions of the credit purchase had already removed from the agent (Pennington, Feldman and Meisel, 2006).  According to the common laws agreement of the contract, parties cannot make any decisions in term of the binding of the mother organization but Humble had done that and the central authority will not responsible for the actions of the Humble. Wills J had provided decisions to pay the Watteau for the trail money and Humble had authority to avoid the rules of the agent ship. Watteau v Fenwick case was a clear view that the principle is not anymore responsible for the action of the agent but Wills J had provided decisions in side of the Humble. In this consecration, the decisions of the authority are highly controversial and cannot be a good example for the future trail as well as academic activities of the process (Agency.uslegal, 2014).
Watteau v Fenwick raises problems for both classic agency doctrines and everyday notions of fairness. There is no actual authority, either express or implicit, for the agent to order the cigars, because he was expressly instructed not to order them. There is no apparent authority, because the principal did nothing to convey the idea that the manager was acting as an agent. The plaintiff might be estopped from denying that Humble was his agent, since Humble was put in a position to so act, but estoppel would only permit recovery of the cost of the goods to the seller, not their price. Ratification does not apply. All that remains is "inherent agency power": the ability of the manager, based on his employment by the principal, to harm third parties by making contracts (Rasmusen, 2001).
The undisclosed principal problem arises when an agent makes an agreement with a third party who does not realize that the agent is acting as an agent rather than on his own behalf. The question then arises of whether the third party has a legal claim against the principal as well as against the agent.  Watteau v. Fenwick is a particularly dramatic example because the agent acted against the express wishes of the principal, but the problem exists even if the agent is obedient, as in Illustration (Rasmusen, 2001).

Decisions regarding the statement

Watteau v Fenwick case of 1893 was very controversial for the authority to take any decisions. After considering so many issues of the commercial law of UK, Wills J had concluded decisions for actions (TheFreeDictionary, 2014). The judge considered the decision on behalf of Watteau and Fenwick will pay the money of the trail. The judge has provided some rational statement regarding the case. Basically inherent authority, usual law rules, dormant partnership and undisclosed agent rules assisted the author for his actions. According to the decisions of those sections, Mother Organizations are mainly responsible for the action of the agent.  Here another issue came in mind that Humble had bought cigars for the business development. In the common rules of the agency rules, an agent can take logical decisions for the business development. Though the activities of agent were for the business purpose, decisions will go on the business side (Legislation, 2014).
On the opposite hand, there square measure some robust logical that the path was extremely polemical and therefore the dedications has completed the action that had no legal authority for the actions. Humble had resections and his actions was confided to the contract. Any credit purchase call concerning the business undoubtedly won't positive for the enterprise. During this case, agency law, business agreement and connected others actions has prime thought. Many judge had conclude different negative statement regarding the trail (TheFreeDictionary, 2014).
In all discussion, we can say that Watteau v Fenwick case is logical and become anti-logical by falling in a situation. The decisions of the judge regarding the Watteau v Fenwick case we logical on those situation. Actually the judge had not alternative and 100% correct formation of action regarding this case (O'Reilly, 2007). A clear call was terribly tough concerning the case and therefore the selections was correct. Within the statement of the Author has thought-about some negative side of the path however the case had created it as a path of that reality. In future thought of the path, the problems of the agency rules rebelliously makes clearer. Truly there was a lot of purpose that has created the actions additional complicated for the business (O'Reilly, 2007).

Conclusion

The case addresses the liability of an undisclosed principal. Humble was totally unaware regarding the information of the main authority. Watteau the sellers of the cigars had gone to court and won the case. Basically, Commercial law of the UK had provided many different sections and those sections were unable made clear curt decisions. But Wills J had provided the decisions for the payment to Fenwick. Fenwick lot in trail but some important factors of the law had missed on those trail. Basically the event provided distinctive management position that cannot elucidate selections concerning the problems. Essentially the court has thought-about Humble as a dormant partner of the contract. I thought of the dormant partner of the business, others partners of the business can complete the liability of the dormant partners. Fenwick was active partner of the contract and therefore the responsibility visited him to pay all liability. At a similar time, liability of the principle supports the selections of the organization in term of the selections creating.



Reference(s)


Agency.uslegal.com, (2014). Authority of Agents - Agency. [online] Available at: http://agency.uslegal.com/authority-of-agents/ [Accessed 27 Dec. 2014].
Boyer, M., Hiriart, Y. and Martimort, D. (2006). Frontiers in the economics of environmental regulation and liability. Aldershot, Hampshire, England: Ashgate.
Busch, D. and Macgregor, L. (2009). The unauthorised agent. Cambridge, UK: Cambridge University Press.
Case Comment[1893] LawQuaterley Review111 inwhich it was stated: “We do not feel clear that the Watteau v Fenwick ’93 1 QB 346 is right.” See also Recent Cases1893/4 HarvardLaw Review,page 49/50.
Casebriefs.com, (2014). Watteau v. Fenwick | Casebriefs. [online] Available at: http://www.casebriefs.com/blog/law/corporations/corporations-keyed-to-klein/agency/watteau-v-fenwick/ [Accessed 22 Dec. 2014].
Collier, J.G Authority of an Agent – Watteauv Fenwick revisited(1985) CambridgeLawJournal 363
Eric Rasmusen 2001, Agency Law and Contract Formation.  Harvard Law School Cambridge, The Center for Law, Economics, and Business is supported by a grant from the John M. Olin Foundation.
Keighley. Maxsted & Durant, C., (1901).  UK Encyclopedia of Law [online]. Available at: http://legaldictionary.lawin.org/keighley-maxsted-co-v-durant/ [Accessed 27 Dec. 2014].
Legislation.gov.uk, (2014). Partnership Act 1890. [online] Available at: http://www.legislation.gov.uk/ukpga/Vict/53-54/39/section/36 [Accessed 27 Dec. 2014].
O'Reilly, J. (2007). Administrative rulemaking. [St. Paul, Minn.]: Thomson/West.
Pennington, R., Feldman, D. and Meisel, F. (2006). Corporate and commercial law. London: Lloyd's of London Press.
Rawlings, P. (2011). Commercial Law at the Centre for Commercial Law Studies.   University of London International Programs, London, UK. P.18-25
Sealy, L. S. & Hooley, R. J. A. (2003). Commercial Law: Text, Cases & Materials. 3rd Edition, Oxford University Press.
Tettenborn, A. (1998) Agents, business owners and estoppel: Watteau v Fenwick, 1893.  The Cambridge Law Journal. 57(2) P. 274-283.
TheFreeDictionary.com, (2014). undisclosed principal. [online] Available at: http://legal-dictionary.thefreedictionary.com/undisclosed+principal [Accessed 25 Dec. 2014].



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