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LAW 603 (75)
Chapter 20

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Ryerson University
Law and Business
LAW 603
George Ellinidis

Chapter 20 – Agency and Other Methods for Carrying on Business Introduction  Agent – a person who acts on behalf of someone else for some specific purpose o Agents must not be negligent in carrying out their responsibilities o Ex: your real estate agent will not have the authority to commit you for selling at a certain price  Principal – a person whom an agent represents for some specific purpose  Agency – the legal relationship between a principal and an agent o Some agency relationships are governed by special statutes  Legislation addresses the risk that stock brokers may not have sufficient assets to pay claims against them by their clients Basic Rules of Agency Creation of an Agency Relationship  Express agreement is a common way to create an agency relationship o Principal and agent enter into a contract that sets out the terms on which the agent is appointed (including scope of agent’s authority and remuneration) o In provinces where the Statute of Frauds is still in force, the contract must be in writing if the relationship lass longer than a year o Must also be in writing if agent an sign cheques on principal’s behalf o Ex: Listing agreement signed with real estate agent o Ex: Commercial Representation Agreement – when a manufacturer of goods agrees to allow someone to enter into contract with customers on its behalf to sell its goods o Relationships created by express agreement have the effect of making someone your agent, even if they are not called by that name. Ex: lawyer closing a real estate deal  Individuals acting on behalf of a corporation are agents o Ex: directors, officers, other employees  Actual Authority – when the principal actually authorizes the agent to act on its behalf o Sometimes stated in an employment contract, agency agreement or through a resolution from the corporation’s board of directors o Can also be granted through an oral delegation of authority by a principal  An agency relationship exists when a principal represents, or holds out, someone as its agent in discussions with a third party o That person will be able to deal with the third party by the authority suggested by the principal, even if that person was never properly appointed o Apparent Authority – when the principal creates the reasonable impression that the agent is authorized to act on the principal’s behalf o A contract created by an agent within its apparent authority is just as enforceable  Agency can arise as a matter of law o Ex: in partnerships each partner is an agent of that partnership Ratification  Even if an agency relationship does not exist, an agent can still enter into an agreement that ultimately binds a principal in limited circumstances  If someone has no authority to act for you, the contract negotiated is not binding  Ratification – when someone accepts a contract that was negotiated on their behalf but without their authority  If you do ratify the agreement, the contract is binding on you  If a principal does not ratify a contract, the agent is not personally liable to the third party o Unless the third party and agent intended the contract to be binding on the agent personally  For ratification to be effective, must meet requirements: o Must be clear - can be either express or implied from behaviours though  Implied if you accept a product and use it o Occur within a reasonable time after the creation of a contract o Must accept whole contract or none of it o Principal must have been identified by the agent  Agent cannot make a contract, either on its own behalf or on behalf of some person the agent has not yet identified, and then try to find someone to ratify it o Principal must have had the legal capacity to enter the contract both at the time the agent created the contract and at the time of ratification  Minors or mentally disabled do not have legal capacity When is the Principal Liable? The Scope of an Agent’s Authority  Where it looks like the person is an agent of the principal with authority to enter into contract, the third party wants to be able to rely on the agent having such authority  In large transactions each party will do a significant amount of investigation to satisfy that the person executing a contract on behalf of the other party has authority to do so, and that the contract is enforceable o Backed up by documentation demonstrating authority exists  Ex: corporation’s resolutions, lawyer’s opinion regarding authority  A third party usually does not know the extent of an agent’s actual authority o Common indicators - name tag with title o When the principal’s actions create a reasonable impression that the agent is authorized, that gives the agent apparent authority. the principal is liable to the third party under any contract created by the agent within the scope of that apparent authority (aka “ostensible authority,” “agency by estoppels,” “ agency by holding out”)  Apparent and actual authority often overlap, but one can exist without the other  Only the principal’s conduct – not the agent’s – is relevant o If the agent had apparent authority, but not actual, you would still be liable to the third party, but you could sue the agent for exceeding the scope of authority o If a principal allows an agent to act as if it had authority, such behaviour may be a representation that the agent has that authority  Usual Authority – allows a person appointed to a particular position to exercise the authority usually associated with that position o What is usual is determined by reference to the authority of agents in similar positions in similar businesses o A principal will be bound by contracts with the agent’s apparent authority only if the third party relied on that appearance of authority  Reliance is seldom hard to prove  Third party cannot enforce contract of it knew, or should have knew, that the agent did not have authority  When the principal is a corporation, one more requirement: o Agent must be someone who is permitted to make such a representation under the allocation of responsibility within the business organization o Third party could not rely on a representation from the agent alone if the agent did not have authority to enter contracts 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 created 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 apparent authority created by the principal’s representation o a third party, which may consist of: o Principal’s statement or conduct o Principal’s acquiescing (agreeing) to the agent acting with that authority o Principal appointing the agent to a position that would usually have that authority  Agent enters into a contract on behalf of an identified principal’s, but without the principal’s authority, and the principal ratifies the contract When is the Agent Liable?  If the third party and the agent agree, the agent may be personally liable o May be agreed implicitly  If the agent presented itself to the third party as the principal o Ex: agent fails to disclose that it was acting on behalf of a principal  If the third party later discovers that the person it dealt with was only an agent, and if the agent did have authority to act on behalf of an undisclosed principal, the third party can hold either the agent or the principal liable o Undisclosed Principal – when the agent purports to contract without disclosing that is acting on behalf of a principal o To avoid risk, agent sho
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