Business Law Chapter 11.docx

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Management and Organizational Studies
Management and Organizational Studies 2275A/B
Cristin Keller

Business Law Chapter 11  Agents - represent and act for a principal in dealings with third parties o agency is the service an agent provides o principal (the person or entity an agent acts for) vicariously liable for agent’s acts o anyone who works for someone is an agent o the role of an agent is to broker a contract between the principal and a third party o the contract is between the principal and the third party, agent steps out of it to limit liability o Agency relationship is created by the granting of authority by:  An express or implied contract  Estoppels  Ratification  Gratuitously  Formation by Contract o Was there a contract that formed a principle-agent relationship? o Agency contract o Principles of contract apply  All the elements of a contract must be present  Should set out nature and extent of authority to act o Agency contracts longer than one year must be in writing in some jurisdictions under Statute of Frauds o Power of attorney – contractual relationship where one person gives a power of attorney to someone else – to be that person’s agent for medical or financial care - is an agency contract under seal (i.e. give daughter or son to make medical decisions for that person)  Has to be under seal – when there is a problem with consideration but you still want the contract to be valid, therefore put it under seal- because there is no consideration – usually used among family members  Basic contract principle say when a person becomes incapacitated mentally or physically, their decisions are not valid  Condition precedent: this contract is not valid until something happens… “until I become incapacitated, my son doesn’t have power of attorney”  Authority of Agents o Actual Authority – agency agreement sets out limits of agent’s authority  Express (actual) authority - when clearly stated (be very specific)  Implied (actual) authority – conveyed by actions of principal o Is there an agency relationship? If there is, does this agent have the authority to do what they did? o Agent who exceeds actual authority may be liable for injury their conduct causes principal o Apparent Authority – a principal who acts in a way to make a third party believe that an agent has authority to act will be bound by the agent’s acts o Estoppel – if a third party relies on the principal’s representation that the agent has the authority to act, the principal cannot then claim the agent had no authority o Reasonable person test used to determine apparent authority o Implied and apparent authority is not the same thing  Ratification – a principal can ratify a contract even if the agent acted beyond both actual and apparent authority o Ratification – a principal wants to be a part of the contract even when agent acts beyond his actual and apparent authority – can only do it if the principal has capacity at both points in time –i.e. doesn’t have mental disorder (at the time the agent enters into deal and at the time the principal is trying to ratify the contract) and he has to be named o agent must have been acting for a specific principal for ratification o must be timely o it’s okay to act as an unknown principal as long as the agent acts within his authority o If the agent acts outside his authority and the principal wants to ratify, in order for the principal to step in, the third party has to know who the principal is o A principal cannot ratify his contract if they are unnamed (even if agent declares to third party there is an unnamed principal) o But principal can sue agent for breach of employment contract and supplier can sue for warrant of authority – made the supplier think the agent had the authority to make the contract and can also sue principal for vicarious liability o Principal must have been capable of entering into the contract o Inadvertent ratification by accepting a benefit o Parties must still be able to perform the object of the contract  Agency by necessity o Deteriorating goods must be sold to preserve any value o Spouse purchase of necessities (a single mother needing to buy necessities for her and her children, and bills it on her husband – the husband is bound to it)  Actual or apparent authority  Relationship breakdown  Agent’s Duties o Agent must act within limits of contract  May be sued for breach by principal  May be liable for acting beyond authority  Must perform functions set out in agreement  Owes duty of care of a reasonable person  Must not go against specific instructions  Cannot delegate responsibility unless stipulated in contract  Must account for funds (lawyer holding trusts)  Fiduciary Duty o Agent has duty to act only in the best interests of the principal  Cannot take personal advantage of opportunity because of position  Duty to disclose information that would benefit principal – any information that might be relevant to principal- good or bad  Must not compete with principal and must turn over all benefits  Duties of Principal o Principal must honor terms of contract  Pay a reasonable amount for services  Reimburse for reasonable work-related expenses o Ambiguities regarding authority will be interpreted in favor of broader agent’s authority  Exception: but not to borrow money  Undisclosed Principals o Agent may be held liable to a third party when acting for an undisclosed principal o Third party is usually bound to contract even when principal is undisclosed except where the identity of principal is important o Only identified principals can ratify a contract  Third Party o A third
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