LAW 603 Study Guide - Final Guide: Intangible Property, Apparent Authority, Corporate Law

211 views31 pages
Published on 18 Apr 2013
School
Ryerson University
Department
Law and Business
Course
LAW 603
Agency and Methods of Carrying on Business 09/01/2013 17:12:00
An agent is a person who acts on behalf of someone else for some specific purpose
A principal is a person whom an agent represents for some specific purpose
An agency is the legal relationship between a principal and an agent
Explain how an agency relationship can be created
Express agreement
o Principal and agent enter into contract sets out terms on which agent is
appointed
o Statute of Frauds Contract must be in writing if relationship is to last longer than
a year; if agent is going to have authority to sign cheques on behalf of principal
o Commercial Representation Agreement: Occurs when a manufacturer of goods
agrees to allow someone to enter into contracts with customers on its behalf to sell
its goods
o Agreement describes authority given to agent
Ratification: Someone accepts a contract that was negotiated on their behalf but without
their authority
o Contract is not binding unless later agreed to by principal ratification
o Must be clear; express or implied from behaviour
o Must occur within reasonable time after creation of contract
o Principal must accept whole contract or none of it
o Principal must be identified by agent; agent cannot create a contract then find
someone to ratify it
o Legal capacity required
Distinguish between the actual authority of agents to enter into contracts on behalf of their
principals and their apparent authority to do so
Actual authority: Exists when the principal actually authorizes the agent to act on its behalf
Can exist through oral delegation of authority
Agency relationship exists when a principal represents someone as its agent in discussions
with a third party
Apparent authority: When the principal creates the reasonable impression that the agent
is authorized to act on the principal’s behalf
A contract created by an agent within its apparent authority is just as enforceable as if the
agent had actual authority
Describe situations in which an agent’s fiduciary duty to act in the best interests of a principal may
limit the agent’s business opportunities
Fiduciary duty: Requires an agent to act in good faith and in best interests of principal
Avoid situations in which agents interests conflict with the best interests of their principals
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Must disclose to the principal any information that may be relevant to the principal’s
interests
Cannot personally profit from unauthorized use of information or opportunities that arose
as a result of the agency relationship
Cannot compete with principal If appointed to sell goods for principal, agent cannot sell
same kind of goods for agent or competitor
Fiduciary duty can be waived by principal; agent has duty to follow principal’s wishes
Duty of care: Agent must take reasonable care in performance of its responsibilities
If breached, agent must compensate the principal for any loss that it suffers
Principal denied recovery if they knew agent was incompetent
Identify events that will terminate an agency relationship
Either party gives notice of termination
Event occurs that results in termination under terms of the agency contract
Agent appointed for specific project or particular period; project is completed or period
expires, even if agency contract does not provide for termination in these circumstances
Performance of the agency becomes impossible
Principal loses capacity to contract as a result of death, insanity, bankruptcy; practical
difficulties if agent is unaware principal has lost capacity; third party may hold agent
personally responsible breach of warranty of authority
Requires reasonable notice period before termination; employment relationship can be
terminated only for just cause
Describe practical and legal strategies that a principal can use to manage the risk that its agent will
bind it to obligations that it has not authorized
Contracts
o Principal is liable for contracts created on its behalf by agent with apparent/actual
authority
o Principal can use agency agreement to clearly state what the agent is authorized to
do (Actual authority)
o Principal must carefully monitor communications with third parties to avoid giving
apparent authority
o Apparent authority can exist after agency relationship ends
o If agent is unaware of termination, can enforce new agreements against principal;
principal should notify all customers when it terminates agent’s authority
Explain the circumstances in which a principal may be liable for the torts of its agents
Principal is vicariously liable to victim if:
o Agent was employed
o Tort was committed within course of employment
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Can be liable if agent was not employee; if agent is acting within scope of actual/apparent
authority, principal is liable for negligent misrepresentation
Carefully select, train, supervise, require reporting from agents
Explain how questions may arise as to whether a person is an agent in several kinds of business
relationships
Joint Ventures
o Legal arrangement in which 2+ parties combine their resources for a limited
time/purpose
Strategic Alliances
o Any arrangement in which 2+ parties agree to co-operate for some purpose
o Informal/formal; involve varying degrees of co-operation
o Conduct research project together; jointly market products; share information
If a joint venture/strategic alliance is purely contractual, participants are not
automatically agents
Can agree to set up agency relationship
Joint ventures Each will have authority to create obligations for both
parties in connection
Apparent authority based on venture actions
Distributorships
o One business enters into a contract to sell another’s product
o May also agree to perform some of the responsibilities that would normally be
performed by manufacturer/supplier
o Does not normally involve agency relationship
o Most agreements state that distributor is not an agent and has no authority to bind
the suppliers
o Supplier does not want unwanted obligations; must avoid apparent authority
Franchises
o Purely contractual relationship under which franchisor gives the franchisee the right
to operate its “system” in return for a set of fees
o Agreements:
License that allows franchisee to use franchisor’s trademark
Obligations of the franchisor to assist in operation of franchised business
Obligations of the franchisee to maintain certain standards and follow
certain rules in carrying on the franchise business and to pay fees based on
the volume of sales
o Franchisee may appear to be an agent of the franchisor
o Could be set up as agency relationship where franchisee conducts business on
behalf of the franchisor Usually not the case; minimizes risk to franchisor out of
liabilities of the franchisee’s business
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Document Summary

An agent is a person who acts on behalf of someone else for some specific purpose. A principal is a person whom an agent represents for some specific purpose. An agency is the legal relationship between a principal and an agent. Explain how an agency relationship can be created. Distinguish between the actual authority of agents to enter into contracts on behalf of their principals and their apparent authority to do so. Actual authority: exists when the principal actually authorizes the agent to act on its behalf. Can exist through oral delegation of authority. Agency relationship exists when a principal represents someone as its agent in discussions with a third party. Apparent authority: when the principal creates the reasonable impression that the agent is authorized to act on the principal"s behalf. A contract created by an agent within its apparent authority is just as enforceable as if the agent had actual authority.

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