LAW 603 Chapter Notes - Chapter 20: Photocopier, Apparent Authority, Strategic Alliance
Chapter 20: Agency and Other Methods of Carrying on Business
In business, one person often represents another for a specific purpose
Agent: the person acting on behalf of someone else
Principal: the person being represented
Agency: legal relationship between the principal and the agent
A principal may agree to be represented by an agent because the agent can achieve the
principal’s business purpose more effectively than the principal on their own
You may use a travel agent because the agent can get you a better price or routing for a
trip; Senior managers in a business many delegate the responsibility for negotiating
some contracts with outsiders to particular employees because that is more efficient
than having the senior managers may negotiate all the contracts
Sometimes, the agent has authority to bind the principal to a contract
oIn a car dealership, the manager likely has authority to agree to the terms on
which the dealership will sell you the car. Sometimes, a question will arise as to
whether the manager has acted within the authority the dealership has granted.
On the other hand, if the dealership has not authorized the manager to give you
a price reduction of more than 10%, it will not want to be bound to see you the
car if the manager agreed to give you a 20% discount
oOn the other hand, if the person negotiating the contract with the agent, you will
want to be able to reply on the manager having authority to bind the dealership
if the manager offers you the discount
The legal rules of agency govern the circumstances on which an agent’s actions bind the
principal and, as a result, define when you can rely on an agent having authority to
contract with you
These rules have a significant impact on the risks for principals and third parties when
they deal through agents and define the risk management strategies available to each
The rules regarding the scope of an agent’s authority to contract are one of the
important subjects of this chapter
Agents do not always have authority to enter into legal obligations on the principal’s
behalf. They may represent the principal’s interests only in some other way
oIf selling your house, your real estate agent will not have the authority to commit
you to selling for a particular price, but the agent will be responsible for finding
prospective purchasers and assisting with the sale process
Agents are subject to legal standards of behaviour that are designed to protect
principals from some of the risks to which their agents may subject them
oAgents must not be negligent in carrying out their responsibilities
Principals have much more limited set of obligations to their agents, such as to
reimburse them for expenses they incur on the principal’s behalf
Basic Rules of Agency
Creation of an Agency Relationship
Several ways to create agency contract – most commonly done by express agreement
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Principal and agent enter into a contract that sets out the terms on which the agent is
appointed, including the scope of the agent’s remuneration
In provinces where the Statute of Frauds is still in force, the contract must be writing if
the relationship is to last longer than one year
The agreement must also be in writing if the agent is going to have the authority to sign
cheques on behalf of the principal
The listing agreement that you sign with a real estate agent is an example of an agency
relationship that is created by express agreement
Commercial representation agreement (a form of express agreement): occurs when a
manufacturer of goods agrees to allow someone to sell its good on its behalf
oA manufacturer of sportswear could allow an individual to enter into contracts
with retail sporting goods stores for the purchase of its clothes
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 – if you
authorize a lawyer to act on your behalf in closing a real estate transaction, the lawyer is
acting as your agent
Agency issues usually arise in corporations
Corporations are separate legal entities that can only act through human being –
therefore individuals acting on behalf of a corporations are acting as its agents
The directors and officers of a corporation as well as its salespeople, purchasing clerks,
and other employees may all have authority to act as agents of the corporation for
particular purpose
When an agency is created through as express agreement, usually the agreement
describes the authority given to the agent
Actual authority: the authority a principal gives an agent to act on its behalf
oAn express grant of actual authority could be given in an employment contract
with the agent through a resolution of the corporation’s board of directors or in
an agency agreement
Actual authority can also be granted less formally, such as, through an oral delegation of
authority to principal
Appointing an agent to a particular position, such as sales manager, that has certain
authority in the principal’s organizations gives the agent the actual authority of that
position
Agents will be considered to have implied powers to do what is necessary to fulfill the
responsibilities of their position, even though these powers are not expresses anywhere
An agency relationship can also arise without the principal taking any action to appoint
the agent and give them specific authority – Apparent authority: an agency relationship
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can exist when a principal represents, or holds out, someone as their agent in
discussions with a third party
oThe person will have the authority to deal with the third party that is suggested
by the principal’s actions, even if that person was never properly appointed by
the principal as an agent
oThe authority is created when the actions of the principal give a third party the
reasonable impression that the agent has authority to act on behalf of the
principal
oApparent authority could be created by a statement to you by the president of a
corporation that the sales manager has authority to sign contracts to buy office
supplied for the corporate principal
oA contract created by an agent within their apparent authority is just as
enforceable as if the agent had actual authority
Agency can arise as a matter of law
oUnder partnership law, each partner is an agent of the partnership and can bind
the partnership to obligations that arise in connection with carrying on the
business of the partnership in the usual way
Ratification
oEven if agency relationship doesn’t exist, a person can still enter into an
agreement that ultimate binds someone else in limited circumstances
Gary has no authority to act on your behalf – nevertheless, Gary purports
to enter into a contract to buy you a tablet computer from a third party,
telling the third party that he is your agent
Gary knows that you wanted to buy a tablet computer and hopes that
you will reward him if he negotiates a good price for you to buy one
Since Gary has no authority to act for you, the contract he negotiated is
not binding on you
However, you could agree to ratify the contract by choosing to accept
the contractual obligation – if you do so, the contractual will become
binding upon you – it will be ads if you had given Gary authority to act on
your behalf before he started negotiating with the third party
oFor Ratification to be effective, it must meet the following requirements:
It must be clear. Ratification can be either express or implied behaviour –
your ratification of the contract would be implied if you took delivery of
the tablet computer and used it
Must occur within a reasonable time after the creation of the contract.
What is reasonable depends upon the facts. If someone without your
authority purported to act on your behalf to enter into a fire insurance
contract on a building that you owned, you could not ratify it after the
building had been burned down
Principal must accept the who contract or none of it – if you developed
software and someone purported to license the software to a third party
on your behalf, you could not accept the royalties under the licence
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Document Summary
Chapter 20: agency and other methods of carrying on business. In business, one person often represents another for a specific purpose. Agent: the person acting on behalf of someone else. Agency: legal relationship between the principal and the agent. A principal may agree to be represented by an agent because the agent can achieve the principal"s business purpose more effectively than the principal on their own. Sometimes, the agent has authority to bind the principal to a contract: in a car dealership, the manager likely has authority to agree to the terms on which the dealership will sell you the car. Sometimes, a question will arise as to whether the manager has acted within the authority the dealership has granted. The legal rules of agency govern the circumstances on which an agent"s actions bind the principal and, as a result, define when you can rely on an agent having authority to contract with you.
