Textbook Notes (368,794)
Canada (162,165)
LAW 603 (76)
Gil Lan (22)
Chapter 20

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Law and Business
LAW 603
Gil Lan

Chapter 20 – Agency & other Method of Carrying on Business Agent – person who acts on behalf of someone else for some specific purpose Principal – person whom an agent represents for some specific purpose Agency – the legal relationship between a principle and an agent AGENT Agent EX: Stockbroker working on your behalf, car dealership manager negotiating sale of car on behalf of dealership • May hire an agent because they can achieve the principal’s business purpose more effectively than the principal on their own • SOMETIMES AGENT HAS THE AUTHORITY TO BIND PRINCIPAL TO A CONTRACT - Agents must act within their authority to contract; binding Principal to contract with a third party - EX: can negotiate a 10% decrease in price; their authority for price decrease cannot exceed a discount greater than 10% BASIC RULES OF AGENCY – CREATION OF AN AGENCY RELATIONSHIP EXPRESS AGREEMENT • One of most common ways to create agency relationship; express agreement – principal and agent enter contract; setting out terms on which agent is appointed, including scope of AGENT’S AUTHORITY and AGENT’S REMUNERATION. - Agency agreement must be in writing if agent is to have authority to sign cheques on behalf of principal - In some provinces still under STATUTE of FRAUDS; contract must be in writing if relationship is to last in excess of 1 year • EXAMPLE: listing agreement you sign with a real estate agent is agency relationship created through express agreement • COMMERCIAL REPRESENTATION AGREEMENT – Occurs when a manufacturer of goods agrees to allow someone to sell its goods on its behalf. Also created through express agency. • Commercial representation agreement Ex: sportswear allowing individual to enter into contracts with retail sporting goods stores for purchase of its clothes CREATION OF AGENCY RELATIONSHIP PRINCIPAL  appoints  AGENT  negotiates contract on behalf of principal  THIRD PARTY rd contract formed between principal & 3 party ACTUAL & APPARENT AUTHORITY ACTUAL AUTHORITY exists when the principal authorizes the agent to act on its behalf • Can be granted FORMALLY: an employee contract or agency agreement • Can be granted LESS FORMALLY: oral delegation of authority by principal • Appointing agent to particular position (sales manager) in principal’s organization gives actual authority of that position to agent - Agent then given ‘implied powers’ to do what necessary to fulfill position’s responsibilities APPARENT AUTHORITY exists when the principal creates the reasonable impression that the agent is authorized to act on the principal’s behalf • Can be created by a statement to by the president of a corporation that sales manager has authority to sign contracts to buy office supplies for the corporate principal • Contract created by agent within their apparent authority just as enforceable as if agent had actual authority • Apparent Authority EX: car dealer tells you particular person has authority to negotiate to sell you a car on behalf of dealership; that person has apparent authority to do so. ***Agency can arise as a matter of law • EX; partnership law; each partner an agent of 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 A contract is RATIFIED when someone accepts a contract that was negotiated on their behalf but without their authority rd ***The contract is NOT LEGALLY BINDING TO 3 party however  once principal chooses to ratify, the contract then becomes legally binding REQUIREMENTS FOR RATIFICATION TO TAKE EFFECT; • MUST BE CLEAR – can be express or implied from behaviour. (ex; implied; if you accepted the delivery of a new tablet someone negotiated the purchase of for you) • MUST OCCUR WITHIN REASONABLE TIME after the creation of the contract. (ex; cannot ratify contract for fire insurance after building burns down) • PRINCIPAL MUST ACCEPT WHOLE CONTRACT OR NONE OF IT – (ex; licensing of technology; cannot accept royalties discussed in contract without fulfilling support duties) • PRINCIPAL MUST HAVE BEEN IDENTIFIED BY AGENT – agent cannot make contract without principal to ratify (ex; cannot negotiate with 3 party and find someone to ratify later) • PRINCIPAL MUST HAVE LEGAL CAPACITY TO ENTER INTO CONTRACT BOTH AT TIME AGENT CREATED IT AND AT TIME OF RATIFICATION – children or mentally disabled persons have no capacity or limited to contract IN THE EVENT A PRINCIPAL DOES NOT RATIFY – rd • Agent is NOT personally liable to 3 party under contract rd • UNLESS 3 party and agent intended the contract to be binding on the agent personally WHEN IS PRINCIPAL LIABLE? Rules regarding when principal is liable in contract balance interest of principal with interests of rd 3 parties seeking to enter into contract with principal Both sides of situation: • Principal does not want to be bound by contract agent purports to enter into on their behalf if contract was outside authority that principal granted agent • 3 party does not want to spend time investigating whether principal has given authority to agent to enter into contract. Want to be able to rely on commonly accepted indicators of authority; EX; letter of introduction from principal’s president on principal’s letterhead • Where it looks like person is agent of principal with authority to enter into contract; 3rd party wants to be able to rely on agent having such authority RISK MANAGEMENT STRATEGIES • For large transactions, companies will conduct investigations with back up from documentation to demonstrate that agent has authority to enter into contract on principal’s behalf – this ensures contract is enforceable • Size of transaction often does not justify incurring the large costs associated with these investigations/risk management strategies THE PRINCIPAL IS BOUND BY ANY OBLIGATION THAT THE AGENT CREATES WITHIN RD THE SCOPE OF THAT AUTHORITY. THIS IS TRUE WHETHER OR NOT 3 PARTY KNOWS EXACT SCOPE OF AGENT’S ACTUAL AUTHORITY. Apparent Authority • 3 RDparty does not have access to records stating authority granted to agent rd rd • 3 party permitted to rely on words or conduct by principal that indicate to the 3 party that agent has authority to enter into contract 3 party wants to enforce • Apparent Authority – when principal’s actions create reasonable impression that agent is authorized rd • Principal liable to 3 party within scope of agent’s apparent authority • ONLY PRINCIPAL’S CONDUCT IS RELEVENT IN APPARENT AUTHORITY – NOT AGENT’S APPARENT AUTHORITY CAN ARISE FROM DIRECT AND INDIRECT FORMS OF COMMUNICATION • Ex – DIRECT – letter from president to supplier granting agent apparent authority to negotiate buying photocopier • Ex – INDIRECT – permitting lawyer to defend a lawsuit may give them apparent authority to settle claim on your behalf - Principal may then be bound by settlement - Principal may sue lawyer if they exceeded scope of authority principal gave ACTUAL & APPARENT AUTHORITY OVERLAP IN PRACTICE; EX: office manager of business conducted through corporation; in employment contract manager has ACTUAL AUTHORITY to buy new photocopier for the business; president of corporation also writes letter to photocopier supplier stating manager has APPARENT AUTHORITY to negotiate deal. • One form of authority can exist without the other • If employment contract stated only VP had authority; letter would grant only apparent authority IF PRINCIPAL ALLOWS AGENT TO ACT AS IF THEY HAVE AUTHORITY  THIS BEHAVIOUR MAY BE REPRESENTATIVE THAT AGENT HAS AUTHORITY CASE: SPIRO V LINTERN (1973) • John (PRINCIPAL) directed his wife Iris (AGENT) to list property with real estate agent but did not give authority to sell • Iris (AGENT) negotiated sale of house with Lintern (3 PARTY) – John aware, but did nothing • John permits Lintern to bring architect to look at house • Lintern unaware Iris did not have authority to sell – John refuses to sell • COURT DECISION: by allowing Iris to act as she had, John gave her APPARENT AUTHORITY to sell house – JOHN ACTING AS PRINCIPAL REPRESENTED TO LINTERN THAT IRIS WAS HIS AGENT WITH AUTHORITY TO SELL HOUSE USUAL AUTHORITY • Allows person appointed to a particular position to exercise the authority normally associated with that position • WHAT IS USUAL? – determined by reference to authority of agents in similar positions in similar businesses PRINCIPAL WRDL BE BOUND BY CONTRACTS WITHIN AGENT’S APPARENT AUTHORITY ONLY IF 3 PARTY RELIED ON APPEARANCE OF THAT AUTHORITY. • Reliance hard to prove, 3 party cannot enforce contract if they knew have should have known agent did not have authority • When the Principal is a business organization – person who represents that agent has authority to contract must be someone who is permitted to make this representation under allocation of responsibility within the business organization Agent acts within scope of actual authority given by principal to agent created by: • express delegation to agent • appointing agent to position with that authority • implication from circumstances rd Agent acts within scope of apparent authority created by principal’s representation to 3 party, which may consist of the • principal’s statement or conduct • principal’s acquiescing to agent acting with that authority • principal appointing agent to position that would usually have that authority Agent enters into contract on behalf of identified principal but without principal’s authority, and principal subsequently ratifies contract WHE
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