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Lecture 6

BUS 393 Lecture Notes - Lecture 6: Uberrima Fides, Apparent Authority, Fiduciary

Business Administration
Course Code
BUS 393
Colin Hawes

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BUS 393
Lecture 6
October 15, 2010
Agency and Partnership
Colin Hawes
When a
Contract is
Bound by
Authority (384)
Rights and
of the parties
Agency: Service performed by an agent
Agency Agreement: The contract between an agent and the principal (employer)
Is granted authority
Principal grants actual and implied authority
Agent agrees to act on behalf of principal
Power of Attorney: An agency agreement in writing and under seal
All elements of a contact must be present, else it may void the agency agreement, but the
contract between buyer and seller is still binding
Ex.: Clarke is underage and acts as Drinkwater’s agent in the sale of Drinkwater’s car to
Skoye, the agency contract between Clarke and Drinkwater may be voidable, but the contract
between Drinkwater and Skoye for the purchase of the car is still binding
Contract may still be binding only of actual and apparent authority are within reasonable bounds of
the agent’s position
Beyond reasonable authority acts are bound only if principal has sanctioned similar acts in past
Actual Authority: The authority specifically given by the principal to the agent
May be expressly stated by the principal
Or implied from the circumstances given the position of the agent
Apparent Authority: When a principal does something by conduct or words to lead a third party to
believe than an agent has authority, the principal is bound by the agent’s actions
Estoppel: Remedy that stops a party from trying to establish a position or deny something that
would create an injustice
Apparent Authority does not apply where principal is undisclosed
The reasonable person test is used to test authority bounds
Ratification: If an agent has completed a contract beyond his authority, the principle is not bound by
the contract, but could make himself bound by ratification
Ratification must be within reasonable time
Agent must be working for specific principal who is now trying to ratify
The principal has to be fully capable of entering into the contract at the time the agent was
claiming to act on his or her behalf
The object of contract must still be existent
If principal has benefitted in someway from the object, then he is automatically ratifying the
Agency by Necessity: Where an agent has no authority, by is forced to contract under necessary
Ex.: Food being shipped to China from Canada is about to rot, ship crew has no authority, but may
be forced to sell the food en route due to possible rotting
Exception in Marriages: When a husband and wife divorce, because of the dealings in the past and
in the absence of notice, the wife still authority
The Agent’s Duty
Agent who violates actual authority but exercises apparent authority can be sued by the principal
Owes a duty of care (reasonable care) to the principal, else agent must compensate principal
Agents cannot go against the specific instructions of the principal
Agents are not permitted to share their authority/responsibility with and to other people
Agents must turn money over to the principal
Agents owe their principal a positive duty of full disclosure
Agents have a duty to act in the best interests of their principals (Fiduciary Duty, utmost good
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