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Chapter 19

BU231 Chapter 19

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Keith Masterman

1 READING NOTES CHAPTER 19: Agency The Nature of Agency • Agency is a relationship in which one person, known as an agent, is authorized to bring its principal into contractual relations with third parties o An exception to privity rule, allows insurance company to sue you for default of payment. • Dependent Agents – Act exclusively for a Third Party single principal Agent o Functions of agency and employment may be entirely separate, ie. an agent need not be an employee just as an employee need not be an agent Principal • Independent Agents – Not an employee and acts on behalf of several principals or clients. Eg. Lawyers or stock brokers who act as agents for their clients when dealing with purchases of land, buildings, shares o So called real-estate agent does not have authority to sell the property of a client and thus is not a true agent… role is only to introduce prospective purchasers and buyers who contract directly with each other  Real estate agent can also act on behalf of buyer and seller which creates a conflict of interest • Note: Once a person begins to act as an agent in a particular transaction, that person is bound by all the duties of a contractual agent Creation of an Agency Relationship • Parties to the relationship o Agent and Principal  Relationship between agent and principal is expressed in the form of an agency agreement o Principal and third party  Agent makes contracts between these two parties on principal’s behalf o An agent’s power to contract on behalf of her principal is limited to the capacity that the principal possesses • Express Agreement o Agency agreement may be oral, written, or in writing under seal o Agreement should define the limit’s of the agent’s authority ie. how far they can go in making a contract with a third party without obtaining further instructions from principal o Power of attorney is a special type of express agency settlement o Agreements frequently contain implied terms which may supplement the express authority in the contract  ie. In a contract to buy goods internationally, the agent needs to have authority to have it shipped • Ratification 2 o Sometimes a person will pretend to act as an agent knowing they have no authority, but hoping that the proposed principal will later adopt this contract o Ratification, is exactly this subsequent adoption of by the principal o Need for ratification arises from:  Not actually being an agent of the principal  Because an agent has exceeded their limited authority o If a principal does ratify, the effect is establishing the contract with third party retroactively as if the agent had the power all along  Note: A principal need not ratify it expressly, it can do so impliedly by assuming the benefits of a contract  Note: Ratification cannot be partial, all or nothing o But, not all contracts can be ratified (i) Principal may not be able to ratify a contract made for them if they would’ve been unable to enter the contract themselves -Ie. Insuring a building after it burns down! (ii) Cannot ratify when the rights of an outsider is affected - Ie. If someone else has acquired the rights to good before ratification occurs (iii) Cannot ratify if the agent didn’t notify the third party that they were acting as an agent o Note: A conditional acceptance by an agent “subject to ratification” is not acceptance at all! • Estoppel o When one party allows another to believe that a certain exists and the other person relies upon that belief, the first party will be prevented from stating afterwards that the true state of affairs was different o Apparent Authority  In apparent authority, circumstances may make it appear to third parties that an agent has authority to make the bargain, when in fact they don’t have any real authority  Agents may exceed their real authority by venturing into sideline activities or act in violation of special restrictions  So when can a principal legally refuse to be bound by a contract? • Test is whether a third party should have been aware of the agent’s lack of authority, or had reason to be suspicious • A third party is expected to act with a reasonable measure of business acumen and common sense • Eg. If the proposed contract is not within an area usually entrusted to such agents check with the named principal about an agents authority if you believe it could be exceeding  But it would be impractical to have to check on an agent’s authority in every circumstance, thus a presumption of authority is established by trade  Result is that a principal seeking to abnormally restrict its agent’s authority runs the risk that the agent will have an apparent authority exceeding their actual authority… and thus not be able to deny liability on those contracts 3 o Holding out  Holding out is when a business impliedly represents someone to be their agent and will not be permitted to deny the existence of an agency • Eg. If a company describes someone as a ‘director’, they can’t later claim that the person was not properly appointed and consequently not an agent  Holding out may arise when an agency agreement ends, thus it is the responsibility of a principal to inform third parties that the agency has ended… if not they are bound by any contracts that agent creates • Agency by Necessity o English does not recognize agency by necessity  Eg. Put a temporary roof on your neighbors house if it was blown off while they were on vacation o All but gone now, S.45 of the Family Law Act o While there may be a
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