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Chapter 20 Agency and other methods of carrying on business.docx

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Law and Business
LAW 603
Gil Lan

Chapter 20Agency and other methods of carrying on business Agent- is a person who acts on behalf of someone else for some specific purpose Principal- is a person whom an agent represents for some specific purpose Agency- is the legal relationship between a principal and an agent • Sometimes the agent has authority to bind the principal to a contract • Agent do not always have the authority to enter into legal obligations on the principal’s behalf , they may only rep the principal’s interest Basic Rules of Agency Creation of anAgency Relationship • Common way to create an agency relationship through Express Agreement • Principal and agent enter into a contract that sets out the terms on which the agent is appointed and scope of power/authority (ex real estate listing agreement) • If Statue of Frauds is in force the contract must be in writing if the relationship is lasting longer than a year Commercial representation agreement- occurs when a manufacturer of goods agrees to allow someone to enter into contracts with customers on its behalf to sell goods • Refer to figure 20.1 pg 501 for diagram on creation of agency • Agency issues arise in corporations • Individuals acting on behalf of corporations are acting as agents (directors to sales people to all employees may have the authority to act as an agent for particular purposes Actual Authority- exists when the principal actually authorizes the agent to act on its behalf • Actual authority can be given in an employment contract • Can also be granted through oral delegation of authority by a principal ApparentAuthority- exists when the principal creates the reasonable impression that the agent is authorized to act on the principal’s behalf • Acontract created by an agent within its apparent authority is just as enforceable as if the agent had actual authority • Agency can show up in partnership law, each partner is an agent of the partnership and can bind the partnership to obligations that connect to business Ratification - when “agent” purports to contract without authority and principal lager ratifies actions – contract enforceable as it agent authorized at outset Ratify- a contract is ratified when someone accepts a contract that was negotiated on their behalf without their authority For ratification to be effective it must meet these requirements 1. It must be clear, can be either express or implied from behaviour 2. It must occur within a reasonable time after the creation of the contract 3. The principal must accept the whole contract or none of it 4. The principal must have been identified by the agent 5. The principal must have held the legal capacity to enter in the contract, both at the time the agent created the contract and at the time of ratification WHEN IS THE PRINCIPALLIABLE? THE SCOPE OFANAGENTSAUTHOORITY • What if the agent enters a contract without authority on behalf of the principal and the principal does not ratify it?? • In that situation the agent is not personally liable to the third party unless the third party and agent intended for the contract to be binding on the agent personally • The rules regarding when a principal is liable in contract balance the interests of the principal rd with the interests of 3 parties seeking to enter into contracts with it • 3 party that enters into a contract with an agent goes by the indicator the agent gives for rd authority (ex: letter of intro with principal letterhead), the rules that determine when a 3 party can rely on an agents apparent authority allocate the risk that a principal will be bound by the acts of agent that it never authorized • In large transactions each party of the contract will do massive investigations to satisfy themselves that the person executing a contract has the authority to do so rd • The law allows 3 party to rely on words or conducts by the agent • Principal liable to 3 party under any contract the agent creates within the scope of apparent authority Usual Authority- allows a person appointed to a particular position to exercise the authority usually associated with that position Concept summart pg 202 20.1 WHEN IS THEAGENT LIABLE • When it presents itself as the principal • 3 party and agent make a contract and agent does not state it is acting on behalf principal, rd undisclosed principal comes into effect and 3 party can hold either principal or agent liable Undisclosed principal- exists when the agent purports to contracts without disclosing what it is acting on behalf of a principal Breach of warranty of authority- occurs when an agent indicates that it is authorized to act for a principal when it is n
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