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Lecture 6

Bus 393 - Lecture 6

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Business Administration
BUS 393
Colin Hawes

BUS 393 October 15, 2010 Lecture 6 Agency and Partnership Colin Hawes Agency  Agency: Service performed by an agent Relationship  Agency Agreement: The contract between an agent and the principal (employer) (382)  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 When a  Contract may still be binding only of actual and apparent authority are within reasonable bounds of Contract is Bound by the agent’s position Authority (384)  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 contract  Agency by Necessity: Where an agent has no authority, by is forced to contract under necessary circumstances  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 Rights and Responsibilities  The Agent’s Duty of the parties  Agent who violates actual authority but exercises apparent authority can be sued by the principal (390)  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 faith relationship)  Keep any communications that come through the agency function confidential  Act in best interests of principle, even if agent loses some personal benefit  Not to take advantage of any personal opportunities which may have came to his knowledge through the agency relationship  Not to disclose to the principle any personal benefit the agent gains  Agent cannot act for both principal and third party without consent of both  Agent must not profit at principal’s expense  Agent must not compete with principal  The Principal’s Duty (395)  Principal must honor terms of contract and pay reasonable amounts for services  Principal must reimburse agent’s expenses  Ambiguous authority will be interpreted broadly  Except when money is involved  Undisclosed Principals: When the identity of the principal is undisclosed  When an agency makes it clear she is acting as agent for undisclosed principal, the third party cannot sue or be sued by the agent  Where agent acts as principal, only the agent can sue or be sued by the third party  Where agent acts ambiguously as to role of agent or principal, third party can choose to sue either, but sues only one  Apparent authority does not apply where principal undisclosed  Undisclosed principal cannot ratify  The Third Party  Third party can sue agent when agent does not have authority claimed, either actual or apparent Liability for  Third party can repudiate when identity of undisclosed principal important Agents (398)  Vicarious liability limited only to employment, employment between employer and independent contracto
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