Chapter 20: Agency & Other Methods of Carrying On Business
When a Principal is Bound by the Acts of An Agent:
• Agent acts within the scope of the actual authority given by the principal to the agent
o by express delegation to the agent
o by appointing the agent to a position with that authority
o by implication from the circumstances
• Agent acts within the scope of the apparent authority created by the principal’s
representation to a third party, which may consist of:
o the principal’s statement or conduct
o the principal’s consent (acquiescing) to the agent acting with that authority
o the principal appointing the agent to a position that would usually have that
• Agent enters into a contract on behalf of an identified principal but without the principal’s
authority, and the principal subsequently ratifies the contract
Requires an agent to act in good faith and in the best interests of the principal.
• Agents avoid situations in which their personal interests conflict with the best interests of
• Agents must disclose to the principal any information that may be relevant to the
• Agents cannot personally profit from the unauthorized use of information or opportunities
that arose as a result of the agency relationship.
• Agents cannot compete with the principal.
Duty of Care:
Requires an agent to take reasonable care in the performance of its responsibilities. If duty is
breached, agent must compensate principal for any loss. If the agent was incompetent, the
principal may be denied recovery.
When Is The Agent Liable?
• When an undisclosed principal exists: the agent does not reveal they are acting on
behalf of a principal. The third party can then hold the agent or the principal liable.
• Breach of warranty of authority: occurs when an agent indicates that it is authorized to
act for a principal when it is not.
• It must be clear, but it can be either express or implied from behaviour.
• Must occur within a reasonable time after the creation of the contract.
• Principal must accept all of the contract or none of it.
• Principal must have been identified by the agent.
Contracts & Torts:
Contract: principal is bound to a contract created through apparent and actual authority. principal
should use an agency agreement to state what agent can and cannot do to mitigate risk Tort: if an agent commits a tort, the principal is vicariously liable to the victim if (i) the agent was
an employee and (ii) the tort was commitment within the course of employment. they could be
liable even if they are not an employee, as long as they are acting within the scope of their
apparent or actual authority.
Chapter 21: Basic Forms of Business Organizations
• Exclusively responsible for performing all contracts
• Exclusively responsible for all torts committed
• The income or loss from the proprietorship is included in calculating personal tax liability
• Unlimited personal liability: third parties may take all of their assts to satisfy business
Factors Suggesting the Existence of a Partnership:
• sharing profits
• sharing responsibility for losses, including guaranteeing partnership debts
• jointly owning property
• participating in management, including having signing authority for contracts and bank
accounts, and enjoying access to information regarding the business
• holding oneself out as partner or allowing others to do so
• Liability: each partner is liable to the full extent of the obligation. all of their personal
assets may be seized to satisfy debt.
• Manging liability: each partner owns a fiduciary duty to the other partners. partnership
agreements can limit some of the risk.
• limited liability