Legal Aspects of Business
Contents
Introduction 1Law 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].