LAW603-Final-Notes

CHAPTER 20: Agency and Other Methods of Carrying on Business Agent: A person acting on behalf of someone else for some specific purpose  e.g. stockbrokers; independent business people but they represent you to execute your purchases/sale of shares Principal: The person being represented for some specific purpose  e.g. dealership; manager employed by a car dealership represents the dealership when negotiating terms under which the dealership will sell you a new car Agency: The legal relationship between the principal and the agent Reasons for agency:  Agent can achieve principal’s business purpose more effectively than principal individually (Travel agent – better pricing/routing for trip) Sometimes agent can bind principal to contract.  e.g. Manager has authority to agree to the terms in which the dealership will sell you a car Sometimes question will arise whether agent has acted within authority the principal has granted.  e.g. If dealership did not authorize manager to give price reduction, it will not want to be bound to sell you the car if manager gives you that price reduction  As the customer however, you want to rely on the manager having the authority to bind the dealership if they offer you the discount. The legal rules of agency govern the circumstances in which an agent’s actions bind the principal and, as a result, define when you can rely on an agent having authority to contract with you.  The rules have a significant impact on the risks for principals and third parties when they deal through agents and define the risk management strategies available to each. Agents do not always have authority to enter into legal obligations on the principal’s behalf. They may represent the principal’s interests only in some ways.  e.g. principal selling house, real estate agent will not have authority to commit you to selling it at a certain price – their job is to find prospective buyers and assisting with sale process. o In these situations, agents are subject to legal standards that are designed to protect principals from some risks to which their agents may subject them.  Agents must not be negligent in carrying out their responsibilities  Principals have much more limited set of obligations – reimburse agents for expenses incurred on the principal’s behalf Agency issues that arise in Other Commercial Contexts (e.g. Joint Ventures & Franchises)

 In some agency relationships, the general legal standards of behaviour for agents have been found to be insufficient to protect people dealing with agents. o Resulted in some agency relationships governed by special statutes  e.g. Legislation addresses the risk that stockbrokers may not have sufficient assets to pay claims against them by their clients. BASIC RULES OF AGENCY Creation of an Agency Relationship  Express Agreement : principal and the agent enter into a contract that sets out the terms on which the agent is appointed, including the scope of the agent’s authority and the agent’s remuneration (fee, compensation). o In provinces where the Statute of Frauds is still in force, the contract must be in writing if the relationship is longer than a year. o Agreement must also be in writing if agent is going to have authority to sign cheques on behalf of the principal ( Bills of Exchange Act). o The listing agreement that you sign with a real estate agent – agency relationship created by express agreement (in some provinces, listing agreements must be in writing). o Commercial representation agreement : occurs when a manufacturer of goods agrees to allow someone to sell its goods on its behalf.  Also a kind of express agency  e.g. Sportswear manufacturer could allow an individual to enter into contracts with retail sporting goods store for the purchase of its clothes. o A business relationship created by express agreement may have the effect of making someone your agent, even if that person it not referred to by that name.  e.g. If you authorize lawyer to act on your behalf in closing a real estate transaction, the lawyer is acting as your agent.  “you’ll hear from my lawyer” instead of “you’ll hear from my agent” o Corporations are separate legal entities that can act only through human beings.  Individuals acting on behalf of a corporation are acting as its agents.  E.g. directors, officers, salespeople, purchasing clerks may all have authority to act as agents

o Agency created through express agreement – usually describes the authority given to the agent.  Actual authority: exists when a principal authorizes agent to act on its behalf  Express grant could be given: o Employment contract with the agent through a resolution of the corporation’s board of directors o Agency agreement o Can also be granted less formally – oral delegation of authority by principal o Appointing an agent to a particular position, such as sales manager, that has certain authority in the principal’s organization gives the agent the actual authority of that position. o Agents considered to have implied powers to do what is necessary to fulfill responsibilities of their position, even if not expressed anywhere.  Apparent authority: authority created when actions of principal give 3 rd party the reasonable impression that the agent has authority to act on behalf of principal  When a principal represents, or holds out, someone as their agent in discussions with a third party o That person will have authority to deal with the 3 rd party that is suggested by the principal’s actions, even if they were never properly appointed by the principal as an agent  Can be created by a statement to you by the president of a corporation that the sales manager has authority to sign contracts to buy office supplies for the corporate principal. o A contract created by an agent within their apparent authority is just as enforceable as if the agent had actual authority o Agency can arise a matter of law.  Partnership law – each partner is an agent of the partnership  Can bind the partnership to obligations that arise in connection with carrying on the business of the partnership in the usual way.

Retroactive Authority: Ratification  Even if agency relationship does not exist, a person can still enter into an agreement that ultimately binds someone else in limited circumstances o Gary has no authority to act on your behalf – but he purports to enter into a contract to buy you a tablet from a 3 rd party, telling the 3 rd party he is your agent. o Perhaps Gary knows you wanted to buy a tablet and hopes you will reward him if he negotiates a good price for you to buy one o Since Gary has no authority to act for you, the contract he has negotiated is not binding on you o BUT, you could agree to ratify the contract by choosing to accept the contractual obligation  If you do so, the contract will become binding upon you  It will be as if you had given Gary authority to act on your behalf before he started negotiating with the third party o For ratification to be effective, it must meet these requirements:  Must be clear  However, can be either express or implied from behaviour  In Gary example, ratification of the contract would be implied if you took delivery of the tablet and used it  Must occur within a reasonable time after the creation of the contract  What is reasonable depends on the facts  If someone without your authority purported to act on your behalf to enter into a fire insurance contract on a building that you owned, you could not ratify it after the building had burned down  Principal must accept the whole contract or none of it  E.g. If you had developed software and someone purported to license the software to a 3 rd party on your behalf, you could not accept the royalties under the license without accepting the other obligations in the license agreement, such as providing technical support to the licensee  The principal must have been identified by the agent  Agent cannot make a contract, either on their own behalf or on behalf of some person the agent has not yet identified, and then try to find someone to ratify it  The principal must have had the legal capacity to enter into a contract both at the time the agent created the contract and at the time of ratification.  E.g. children or mentally disabled are examples of persons who have no capacity to limited capacity to contract o What happens if an agent without authority purports to enter into a contract on behalf of a principal but the principal does not ratify it?  Agent is not personally liable to the 3 rd party under the contract unless the 3 rd party and the agent intended to contract to be binding on the agent personally.  an agency relationship never arises (never really was an “agent” or a “principal”)

When is the Principal Liable?  Most disputes about agency relate to the scope of agent’s authority o E.g. dispute might arise if manager of car dealership offers 20% discount, but dealership refuses because it only authorized manager to give 10%  Principal does not want to be bound to a contract that an agent purports to enter into on their behalf if the contract was outside the authority that the principal granted to the agent  Third party who enters into contract with an agent on behalf of a principal o Does not want to spend too much time/money verifying if agent actually has authority from principal o Want to rely on commonly accepted indicators of authority (e.g. letter of introduction) o If it looks like the person is an agent of the principal with authority to enter into the contract, the third party wants to rely on the agent having such authority  From lecture slides: o For most commercial transactions  Third party is not aware of the agent’s actual authority and is rarely required or expected to find out  Third party relies on accepted indicators of an agent’s authority  Third party relies on the agent’s apparent authority o Question to be answered:  Was it reasonable in the circumstances for the third party to believe that the agent had authority to act on behalf of the principle?  Answer depends on:  Nature and content of the communication (direct and implied) with third party  Facts or circumstances surrounding the communication Liable for the actions of an agent when: o Agent acts within the confines of actual authority granted by principal o Agent acts within apparent authority created by the principal’s express or implied representations to the third party o The principal subsequently ratifies the actions of the agent initially undertaken without actual or apparent authority o Ref. Concept Summary 20.1, p. 521 Usual Authority  Test: authority of agents in similar positions in similar businesses o E.g. car dealership  Person appointed ‘sales manager’  Allowed to use office with title on door Third party: did they know?  If the third party knew that the agent did not have the authority, in that case, the principal will not be bound, contract won’t be enforceable