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Chapter 10

Management and Organizational Studies 2275A/B Chapter Notes - Chapter 10: Equitable Remedy, Apparent Authority, Quality Of Life

Management and Organizational Studies
Course Code
MOS 2275A/B
Susan Toth

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Agency and Partnership
Agency: Refers to a service performed by an agent
an agent represents and acts for the principle
I. The Agency Relationship
The agency relationship can be created by an express or implied contract
1. Formation of Contract
Agency Agreement: An agreement creating agency relationship between principal
and agent
The agency contract can cover such things as authority of the agent, the duties to be
performed, and the nature of payment to be received
Putting this agreement in writing is wise and man be mandated by the Bills of
Exchange Act in some situations
Power of Attorney: An agency agreement in writing and under seal
-When an agency agreement is written and under seal, it is called power of attorney
(the seal is no longer required)
All elements of contract must be present in order for an agency agreement to be
An agreement an underage agent enters will not be bound on the agent, but will
however be bound of the principle
-Unless the agent is TO young or insane
II. Authority of Agents
Many disputes that arise in agency relate to the extent of the authority of the agent
when dealing with third parties
2. Actual Authority
Authority given to an agent expressly or by implication
may be Express Authority (Actual stated permission) or Implied authority
(Implied by the surrounding circumstances)
3. Apparent Authority: Authority Created by Estoppel
When a principle dos something by conduct or by words to lead a third party to
believed that an agent has authority, the principle is bound by the agent’s actions
Apparent Authority: Authority as suggested to a third party by the conduct of a
principle; may exist even when there is no actual authority
This is an application of the principle of Estoppel (An equitable remedy that stops a
party from trying to establish a position or deny something that, if allowed, would
create an injustice)
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-If someone tells a car dealership that someone else has there authority to buy things
for them, then that person buys a car in their name, the principle is bound because of
the apparent authority was appeared to be given
4. Ratification
A principle can still ratify a contract even if the agent has acted beyond bot actual and
apparent authority
Ratification: When a principal confirms a contract entered into by his agent
The power of the principle tp ratify must meet the following criteria:
A. The third party has the right to set a reasonable time limit within which the
ratification must take place
-If no time limit is set, the power to ratify expires in a reasonable amount of time
B. The agent can’t make a deal then search for a principle to ratify
-A specific principle must be mentioned at the time of the transaction
C. The principle has to be fully capable of entering into the contract at the time the
agent was claiming to act on his behalf
-If the principle was drunk or insane at the time the agent acted on their behalf, he
cannot ratify the contract
D. The parties must still be able to perform the object of the contract at the time of the
A principle can inadvertently ratify by knowingly accepting some sort of benefit under
the agreement or otherwise acting in a way consistent with the existence of the
5. Agency by Necessity
Consent to act as an agent that is implied when there is an urgent issue
Today will the ability to constantly communicate, it is rare for this instance to occur
III. The Rights and Responsibilities of the Parties
1. The Agent Duties
E. The Contract
When an agreement has been created by contract, they under an obligation to act
within the actual authority given in such agreement
Using an over reaching apparent authority or not completing the obligations of
contract both constitute a breach of contract lawsuit
An agent owes a duty of reasonable care to their principle
The agent must also have the skills and expertise claimed but must exercise them to
complete their obligations fully
Agents usually have considerable discretion, but they must always follow specific
instruction if given by the principle, and must also act with considerable tradition
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-If a stock broker is instructed to sell at a certain price even if it going to rise way
above, they must sell at the price their principle told them too
F. Delegation
An agent has an obligation to perform the agency agreement personally, and agent
is not permitted to delegate responsibility to another party unless there is consent to
such delegation
-Even if there is delegation, the primary agent is responsible to ensure the obligation
is fully performed
G. Fiduciary Duty
An obligation an agent holds to act only in the best interest of their principle
-This relationship is often referred to as an utmost good faith relationship
H. Accounting
The agent must turn over any monies earned pursuant to the agency function
If the agent acquires any property, goods or money on behalf of the principle, it
must be turned over to the principle in even if the agent gets a portion
I. Full Disclosure
The obligation to reveal all details of transaction
-The agent can not arbitrarily decide what would likely influence the conduct of the
principle and what would not
Examples of what Fiduciary Duty require an agent to do:
-Act in the best interest of the principle
-Not take advantage of any personal opportunity that myth come to her knowledge
during the agent relationship
-The agent must disclose any personal benefit to the principle they might upturn
throughout the duration of the agency agreement
If failure to disclose is present, the principle can sue for accounting of all the
profits made off the personal gain
An agent cannot act for both the principle and a related third party at the same time (it
would make it to hard to act in the best interest of both parties
A lot of “agency on both sides” occurs in real estate (the buyer and seller are
represented by the same agent)
-If the agent does not discloses that situation, there is a breach of fiduciary duty
An agent must not operate his own business within the field of the principle
The S.C.C has made it clear fiduciary duty will only arise when someone is putting his
trust bin another, and the other accepts the responsibility
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