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BUS 393 (52)
Chapter 13

Chapter 13 – Agency and Partnership

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Department
Business Administration
Course
BUS 393
Professor
Richard Yates
Semester
Fall

Description
Chapter 13 – Agency and Partnership Introduction • Agent represents and acts on behalf of principal in dealings with 3 parties • Agency carries duties/obligations separate from employment relationship The Agency Relationship • Can be created by express/implied contract, estoppels, ratification, or gratuitously => key element is the granting of authority Formation by Contract • Power of attorney – agency agreement in writing and under seal • Basic rules of contract apply to agency contracts • Even if agency contract is void, agreements made by the agent on behalf of the principal may still be binding (only if agent is too young, drunk, or insane to understand what they are doing is the contract between principal and third party void) • Consent is the only essential requirement of agency Authority of Agents Actual Authority • Can be expressly stated by principal or implied from circumstances • Agent who exceeds actual authority may be liable for injury, but principal may still be bound if agent acts within apparent authority Apparent Authority – Authority Created by Estoppel • When principal does something by conduct/words to lead 3 party to believe agent has authority, principal is bound, even if principal had specifically prohibited it • Estoppel – stops party from trying to establish position or deny something that would be unjust • Agent acting on apparent authority will bind principal • If principal has sanctioned similar actions in the past, even though it is not within scope of agent’s authority, principal will be bound • Reasonable person test used to determine existence of apparent authority – should third party have been misled into believing agent had authority? • If agent was acting within authority, OR the principal did something to lead the third party to believe the agent had authority, there is a contract between the principal and third party. If neither are true, third party must look to agent for redress Ratification • If principal ratifies an unauthorized contract created by agent, it is binding. Must meet following qualifications: 1. Third party can set reasonable time limit within which ratification must take place 2. Agent must have been acting for a specific principal 3. Principal must be capable of entering contract at the time agent entered into it 4. Parties must still be able to perform the contract at time of ratification – contract cannot make any reference to a need for ratification, or else it becomes an agreement to enter into an agreement • If principal knowingly accepts some benefit under the agreement, he inadvertently ratifies it • Delay in repudiation can also be treated as ratification Agency by Necessity • Rarely used today, because of the prominence of instantaneous communication • Must be some duty/responsibility placed on agent to care for goods => not merely finding someone else’s property in danger  Exception in Family Relationships • Common for spouses to have actual/apparently authority, and when marriage breaks down, authority may continue if third party is not notified and continues to rely on that apparent authority The Rights and Responsibilities of the Parties The Agent’s Duties  The Contract • If agent exercises apparent authority and violates contract, he can be sued for breach of contract and will be responsible for losses caused • Agents owe a duty of reasonable care to the principal • Agent must perform specific instructions as required by principal, even if might not be in principal’s best interests  Delegation • Usually, agent has obligation to perform agreement personally – cannot delegate, unless there is consent to such delegation  Accounting • Agent must turn over money earned in agency function to principal • Agent has obligation to keep accurate records of all agency transactions  Fiduciary Duty • Agents must submerge personal interests in favour of principal’s interests • Positive duty of full disclosure – must disclose all information • Agent must act in utmost good faith: keep communications in confidence, act in best interests of principal even if agent may lose benefit, not take advantage of personal opportunities that come about through the agency relationship, disclose to principal any personal benefit agent stands to gain • Agent cannot act for both principal and third party at the same time, unless with consent of both • Agent must not profit at the principal’s expense or compete with principal The Principal’s Duties • Principal must honour terms of contract and pay reasonable amount for services • Principal must reimburse agent’s expenses • If agent’s authority is ambiguous, courts will interpret to give agent broadest power possible Undisclosed Principals • Agent can make it clear he is acting for undisclosed principal => no liability to third party, only principal can enforce the agreements • Agent can also act as principal => then only agent can sue or be sued and enforce contract • If agent acts ambiguously, third party can sue either, but only one • Undisclosed principal only liable when agent acts within actual authority • There cannot be apparent authority or ratification with undisclosed principals • Cannot be enforced if identity is important to third party The Third Party • Third party can sue agent, if: o Agent does not have authority claimed => breach of warranty of authority  Note: if sue under breach of contract, only foreseeable damages awarded o Agent intentionally misleads party into believe she has authority => tort of deceit o Agent inadvertently exceeds authority => negligence Liability for Agent’s Tortious Conduct • If agent is an employee, vicariously liable for tortious conduct (but courts have broadened definition of employment) • Employer is vicariously liable even when agent is acting independently, if he is deceitful (theft or fraudulent misrepresentation) • However, principal can also sue agent for compensation for losses • If principal is the origin of fraud, he is held directly liable Termination of Agency • Termination of agency relationship can be as per agreement or upon notification – notification does not need to be with reasonable notice, only needs to be communicated to agent • Frustration or illegal tasks may terminate agency • Death, insanity, bankruptcy of the principal will automatically end agent’s authority • Important for principals to notify customers that agent’s authority has been terminated, because they can still act out of apparent authority Enduring Powers of Attorney • Bestowing power upon trustee/representative to act on your behalf when you lose capacity Specialized Agency Relationships • Governed by special statutes and professional organizations, but general principles apply Types of Business Organization • Three types of business organizations: sole proprietorship, partnership, corporation • Nonprofit society – separate legal entity, but different obligations from corporations • Holding corporation – holds shares in other corporations • Joint venture – different corporations band together to accomplish major project The Sole Proprietorship • Individual carrying on business on her own, making all decisions and the only one entitled to benefits • Bears full responsibility for all costs/losses/obligations (unlimited personal liability) • No distinction between personal assets and those of the business Government Regulations • Must obtain licence to operate, must adhere to regulations • Relatively free of outside interference/regulations Liability • Sole proprietor has unlimited liability and vicarious liability for employees => can offset risk by car
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