COMM231 Chapter Notes - Chapter 13: Apparent Authority, Law Of Agency, Fiduciary

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14 Feb 2016
Chapter 13 – agency relationship
Key concepts
This chapter explains the concept of agency and its relevance to business,
including formation of the agency relationship, the duties and liabilities of
the various parties in the relationship, and ending the relationship. This is
important material as it forms the basis of relationships in partnership and
corporate law. Since duciary duties are very important in agency law, some
of this material will already familiar to you. You are responsible for
everything in the chapter, however key concepts to focus on are:
oUnderstand the terms agency, agent and principal, and the two gures
at page 288 and 289. Understand also the di%erence between actual and
apparent authority of an agent.
oConsider why a business would use an agent to act on its behalf when
there are considerable risks to the business. How can the risks be
oRealize that there are various ways an agency relationship can come into
being. Know what they are. In particular, make sure you understand that
the agency relationship can come about without the principal intending
oThe duties of the agent and principal are critical to understanding
agency, as are the various liabilities that can attach to the parties in the
relationship. This is where duciary duties are particularly important
Study notes:
Agency: a relationship that exists when one party represents another party
in the formation of legal relations
oAgent: person who is authorized to act on behalf of another
oPrincipal: person who has permitted another to act on her behalf
oE.g. travel agent, insurance agent, stockbroker, etc.
Principal use agent because: he may not necessarily have the
expertise to handle given matter, or he cannot manage and promote
business singlehandedly
oAlmost every business transaction, at least one of the parties is acting as
an agent
Corporation enters into a contract through the agency of its directors
or employees
Outsider: party with whom the agent does business on behalf of the
Creation of agency
oMost often, relationship arises by contract between parties
Contract: principal authorizing an agent to act on her behalf and the
agent agreeing to do so in return for some fee or other remuneration
oArise by conduct
Not specically agree to an agency relationship, but by words or
actions, outsiders are led to believe the relationship is one of agency
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Concept of authority
oPrincipal will obligated by the contract when the agent has actual
authority or when the agent has apparent authority
Actual authority – power of an agent that derives from either express
or implied agreement
Express authority: written or oral authority
Implied authority:
oInferred from the position the agent occupies
oReasonably necessary to carry out or otherwise implement the
agent’s express authority
oArise by virtue of a well-recognized custom in a particular
trade, industry or profession
Nature of authority given to the agent is inherently 5exible and
easily customized
Apparent authority – power that an agent appears to have to an
outsider because of conduct or statements of the principal
Authority that a 3rd party or outsider would reasonably believe the
agent has, given the conduct of the principal
O long as an agent is acting within his apparent authority, the
principal will be bound by the transaction unless the 3rd party
knew or ought reasonably to have known of the limitation on the
agent’s authority
Agency by estoppel: an agency relationship created when the
principal acts such that 3rd parties reasonably conclude that an
agency relationship exists
E.g. agent may exceed his actual authority but act within his
apparent authority and bind a principal to a contract against his
E.g. suppose the owner introduce A as his vice president of
marketing to his customer. It is reasonable for customer to infer
that A has authority to act on behalf of the owner with respect to
selling and promotion. But end up not hiring A and forgot to tell
the customer. If A enter a contract relating selling with the
customer, the owner probably will be liable – both owner and
customer are a%ected by A’s behavior, law sides with the
E.g. principal may bind by an agency relationship that has been
terminated or agent’s authority has been curtailed
SUMMARY: principal should inform outsiders when a person
ceases to be their agent, and have responsibility to inform
outsiders of any limitation on their agent’s usual authority =>
otherwise, principal will be liable
Agency by ratication
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