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6 Pages

Course Code
MKT 100
Jennifer Fraser

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Chapter 20: Agency and Other Methods of Carrying on Business • Agent: a person who acts on behalf of someone else for some specific purpose • Principal: a person whom an agent represents for some specific purpose • Agency: the legal relationship between a principle and an agent • Principal may agree to get an agent because they can achieve the principal’s business purpose more effectively than the principal can on their own • Sometimes the agent has authority to bind the principal to a contract • Agents do not always have authority to enter into legal obligations on the principals behalf; they may represent the principal’s interests only in some other way • Agency relationships arise in partnerships(ch 21), corporations(ch 22) and commercial contexts • In some agency relationships, the general legal standards of behaviour for agents have been found to be insufficient to protect people dealing with agents Basic Rules of Agency CREATION OF AN AGENCY RELATIONSHIP • Most common way of creating a relationship is by express agreement; principal and agent enter into a contract that sets out the terms on which the agent is appointed • Agreement must be in writing if relationship is lasting over a year or if the agent is going to have the authority to sign cheques on behalf of the principal • Commercial Representation Agreement: occurs when a manufacturer of goods agrees to allow someone to sell its goods on its behalf • A business relationship created by express agreement may have the effect of making someone your agent, even if that person is not referred to by that name • When an agency is created through an express agreement, usually the agreement describes the authority is given to the agent • Actual Authority: exists when the principal authorizes the agent to act on its behalf • An agency relationship can also arise without the principal taking any action to appoint the agent and give the specific authority • Relationship exists when a principal represents, or holds out, someone as their agent in discussions with a third party • Apparent Authority: exists when the principal creates the reasonable impression that the agent is authorized to act on the principal’s behalf • Agency can arise as a matter of law • Ratification o Even if agency relationship does not exist, a person can still enter into an agreement that ultimately binds someone else in limited circumstances o Ratify: when someone accepts a contract that was negotiated on their behalf but without their authority o Effective ratification must meet these requirements:  Must be clear, can be expressed or implied from behaviour  Must occur within a reasonable time after the creation of the contract  Principal must accept the whole contract or none of it  Principal must have been identified by the agent; an agent cannot make a contract, either on their own behalf or on behalf of some person that the agent has not yet identified, and then try to find someone to ratify it  Principal must have had the legal capacity to enter into the contract both at the time the agent created the contract and at the time of ratification WHEN IS THE PRINCIPAL LIABLE? • The principal is bound by any obligation that the agent creates within the score of actual authority • The principal is liable to a third party under any contract that an agent creates within the scope of their apparent authority • Usual Authority: allows a person appointed to a particular position to exercise the authority normally associated with that position • A principal will be bound by contracts within the agent’s apparent authority only if the third party relied o that appearance of authority • In a business organization, the individual whose conduct constitutes the representation on behalf of the principal that the agent has authority to contract must be someone who is permitted to make such a representation under the allocation of responsibility within the business organization WHEN IS THE AGENT LIABLE? • Agent can be held personally liable if they gave the third party the impression that they are the principal • Undisclosed Principal: exists when the agent purports to contract without disclosing that they are acting on behalf of a principal • Agent will be responsible for any loss that a third party suffers as a result of a contract negotiated with them of the agent knew they were not authorized to act on the principals behalf • Breach of Warranty of Authority: occurs if an agent indicates that thye are authorized to act for a principal when they are not THE AGENT’S DUTIES TO THE PRINCIPAL • Agent will be held responsible for failing to comply with their duties and instructions given by the principal • Agent’s obligations cannot be delegated to anyone else, they are their personal obligations • Fiduciary Duty o Fiduciary Duty: requires an agent to act in good faith and in the best interests of the principal o Agent’s are required to avoid situations in which their personal interests conflict with the best interests of their principals o Fiduciary duty involves several obligations:  An agent must disclose to their principal any info that may be relevant to the principal’s interests  An agent cannot personally profit from the unauthorized use of info or opportunities that arise as a result of the agency relationship  An agent cannot compete with the principal o However, if the princip
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