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Law and Business
LAW 603
Nick Iannazzo

LAW 603 Course NotesChapter 20 AgencyOther Methods of Carrying on BusinessAn agent is a person who acts on behalf of someone else for some specific purposeA principal is a person whom an agent represents for some specific purposeAn agency is the legal relationship between a principal and an agentIn provinces where the Statute of Frauds is still enforce the contract must be in writing if the relationship is to last longer than one yearthe agreement must also be in writing if the agent is going to have the authority to sign cheques on behalf of the principalA commercial representation agreement occurs when a manufacturer of goods agrees to allow someone to enter into contracts with customers on its behalf to sell its goodsBusiness relationships created by express agreement may have the effect of making someone your agent even if they are not referred to by that nameIndividuals acting on behalf of a corporation are acting as agents corporations dont have a choice since they dont have mouths to speak for themselvesThe authority a principal gives an agent to act on its behalf is called actual authorityAn agency relationship can also arise without the principal taking any action to appoint the agent and give them specific authority even if that person was never properly appointed by the principal as an agenta contract created by an agent within its apparent authority is just as enforceable as if the agent had actual authorityApparent authority exists when the principal creates the reasonable impression that the agent is authorized to act on the principals behalfA contract is ratified when someone accepts a contract that was negotiated on their behalf but without their authorityfor ratification to be effective it must meet these requirementsoIt must be clearoIt must occur within a reasonable timeoThe principal must accept the whole contract of none of itoThe principal must have been identified by the agentoThe 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 ratificationIf the principle does not ratify the contract then the agent is NOT personally liable unless the third party and the agent intend the contract to be binding on the agent personallyIn large transactions each party to the contract will do significant research to satisfy themselves the agent has actual authority so that the contract is enforceableWhen the principals actions create a reasonable impression that the agent is authorized that gives the agent apparent authority and the principle is bound to any contract that the agent creates within the scope of that apparent authorityoIt is the principals responsibility to ensure that their agent is not giving a false apparent authorityOn type of apparent authority is usual authority which allows a person appointed to a particular position to exercise the authority usually associated with that positiona principal will be bound by contracts within the agents apparent authority only if the third party relied on that appearance of authoritya third party cannot enforce a contract if it knew or should have known that the agent did not have authorityWhen a Principal Is Bound by the Acts of an AgentAgent acts within the scope of the actual authority given by the principal to the agent createdBy express delegation to the agentBy appointing the agent to a position with that authorityBy implication from the circumstancesAgent acts within the scope of the apparent authority created by principals representation to a thirdparty which may consist of1LAW 603 Course NotesThe principals statement or conductThe principal acquiescing to the agent acting with that authorityThe principal appointing the agent to a position that would usually have that authorityAgent enters into a contract on behalf of an identified principal but without the principals authority and the principal subsequently ratifies the contractThe agent can also be held personally liable if it presented itself to the third party as the principalthis can also happen if the agent fails to disclose that it was acting on behalf of the principalAn undisclosed principal exists when the agent purports to contract without disclosing that is acting on behalf of a principaloIf the third party later discovers that the person it dealt with was only an agent and if that agent DID have authority to act on behalf of the undisclosed principal the third party can either hold the agent or the principal liableoIf an agent purports to contract on behalf of a principal but does not have actual authority to do so then the agentthe agent is not personally liable under that contract unless it and the third party specifically agreed to itIf the third party suffers a loss because of this then it may be liable to the third party for fraud and deceitA breach of warranty authority occurs when an agent indicates that it is authorized to act for a principaloLiability arises even if the agent honestly but mistakenly thought it had principals authoritythe third party will not bear the risk of loss when it was mislead by the agentAn agent must comply with those duties and follow any instruction given by the principalan agent may have duties that are not mentioned in the contract but that arise from circumstances related to the contractIn general an agents duties cannot be delegated to anyone elseCommon low imposes two other types of duties on agentsoFiduciary duty requires an agent to act in good faith and in the best interests of the principalAgents must avoid situations in which their personal interests conflict with the best interests of their principalsA fiduciary duty may be breached even if the principal did not suffer any lossFiduciary duties requireAn agent must disclose to the principal any information that may be relevant to the principals interestsAn agent cannot personally profit from the unauthorized use of information or opportunities that arose as a result of the agency relationshipAn agent cannot compete with the principaloDuty of care requires an agent to take reasonable care in the performance of its responsibilitiesLike an agent a principal must fulfill any obligation that is set out in the agency contract and must also satisfy certain obligations imposed by law includingoPaying reasonable remuneration for the agents servicesoIndemnify the agent for liabilities and expenses that are reasonably incurred in connection with the agency relationship Ways to terminate an agency relationship includeoGiving notice of termination often require reasonable noticeoAn event occurs that results in the termination under the terms of the agency contractoThe agent is appointed for a specific project or a particular period2LAW 603 Course NotesoPerformance of the agency becomes impossibleoThe principal loses capacity to contractA principal is liable for contracts created on its behalf by an agent with either actual or apparent authorityoApparent authority may exist even after the actual agency relationship has come to an endif a third party dealt with the agent before the agency relationship was terminated and that third party was unaware of the termination it may be able to enforce any new agreements that the agent purports to enter into against the principal To avoid that possibility the principal should notify all of its customers whenever it terminates an agents authorityIf 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 committed within the course of employmentoA principal may be liable even if an agent was not an employee In general if the agent is acting within the scope of its actual or apparent authority the principal is liable for the agents fraud or negligent misrepresentationA joint venture is simply an legal arrangement in which two or more parties combine their resources for a limited purpose or limited time or bothA strategic alliance is any arrangement in which two or more parties agree cooperate for some purposemay be used to i conduct a research project together ii jointly market products iii share informationoJoint ventures often agree that each will have authority to create obligations for both parties in connection with the joint venture businessA distributorship exists when one business enters into a contract to sell anothers productoA distributorship does not normally involve an agency relationship The parties can agree that the distributorship acts on behalf of the supplier when it deals with customers for some purposesmost distributorship agreements expressly state that the distributor is not an agent and has no authority to bind the supplierA franchise is a purely contractual relationship under which the franchisor gives the franchisee the right to operate its system in return for a set of feesTypically the franchisee agreement will include a commitment by the franchisee to indemnify the franchisor for any liability that it incurs that relates to the operation of the franchised business by of the franchiseeChapter 21 Basic Forms of Business OrganizationsSole Proprietorships exist when a person carries on business on their own without adopting any other form of business organizationoLegally and practically there is no separation between the sole proprietorship business organization and the individual who is the sole proprietoras a sole proprietor you cannot be an employee of the business because you cannot contract with yourselfoThe sole proprietor is legally responsible for performing all contracts and is exclusively responsible for all torts committed in connection with the businessoUnlimited personal liability means that third parties may take all of the sole proprietors personal assetsnot just those of the businessto satisfy the business obligationsoThe name of the sole proprietorships must be registered if that name is something other than or more than the proprietors personal nameoA business license is government permission to operate a certain kind of business eg most municipalities require taxidriving businesses and restaurants to obtain licensesGeneral Partnerships are a form of business organization that comes into existence when two or more persons carry on business together with a view to profit3
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