Chap_20

MANAGING THE LAW(4TH EDITION)

Chapter 20: Agency and Other Methods of Carrying On Business

Managing the Law, 4e

Copyright © 2014 Pearson Canada Inc.

Chapter 20-2

Chapter 20 Overview

basic rules of agency creation liabilities of principal and agent duties of principal and agent termination

risk management issues in contracts and torts

business relationships raising agency issues joint ventures and strategic alliances distributorships franchising agents governed by special statutes



Chapter 20-3

Basic Rules of Agency

agent acts on behalf of principal agency: legal relationship between agent

and principal agent may be able to bind principal to contract agent may merely be able to assist principal

agency governed by common law and statute



Chapter 20-4

Methods of Creation of Agency

methods of creating agency: express agreement (some requirement of

writing) includes commercial representation agreements

partners in partnership acts on behalf of corporation person being represented as being agent subsequent ratification



Chapter 20-5

Actual and Apparent Authority

Actual authority: created through express agreement Authority given to an agent to act on behalf of a

principal Apparent authority: created through actions

created when principal’s actions give reasonable impression to third parties that agent has authority to act on behalf of principal

Contract created by agent with apparent authority just as enforceable as if agent had actual authority



Chapter 20-6

Ratification

when “agent” purports to contract without authority and principal lager ratifies actions contract enforceable as if agent authorized at

outset ratification must be clear, and

agent must identify principal at time of contract principal must have capacity at time of contract principal must ratify within reasonable time principal must ratify whole contract



Chapter 20-7

When Is Principal Liable?

principal liable if agent acts within authority

to determine if authority, courts balance risk of binding principal to unwanted

contracts with requiring parties to expend resources

investigating validity of agent’s authority



Chapter 20-8

When is Principal Liable?

usual authority Putting someone in a particular position Usual authority determined by reference to the

authority of agents in similar situations in similar businesses

Principal that is business organization is liable when individual giving authority to agent is permitted to do so under the allocation of responsibility within the organization



Chapter 20-9

When is Agent Liable?

agent usually not personally liable agent nevertheless liable if

agent and third party agree or court determines

agent purports to act as principal undisclosed principal or agent may be held

liable to third party agent lacks authority

fraud – intentional deception: agent knew they lacked authority

breach of warranty of authority – careless error



Chapter 20-10

Agent’s Duty to the Principal

perform contractual duties personally performance may be delegated in certain

circumstances carry out principal’s instructions satisfy duty of care

use reasonable care in the performance duties

fulfill fiduciary duty (next page)



Chapter 20-11

Fiduciary Duty

act in good faith and in best interest of principal avoid conflict of duty between self and principal do not profit from position as agent do not compete with principal disclose all information relevant to principal’s

interests agent strictly liable for breach of any duty

eg breach actionable even if no loss to principal breach excused if principal instructs or

consents



Chapter 20-12

Principal’s Duties to the Agent

perform agency contractual obligations pay reasonable remuneration indemnify agent for liabilities and

expenses reasonably incurred by agent principal’s obligations may be terminated

upon breach by agent see general contract rules of discharge on

breach



Chapter 20-13

Termination

methods to terminate agency relationship either party may provide notice of termination

some agency agreements modify this to require reasonable notice

agency agreement may contemplate terminating event eg agency agreement may contemplate specified

period performance may be rendered impossible principal may lose capacity

eg death, insanity, bankruptcy



Chapter 20-14

Risk Management Issues for Principals

contracts apparent authority and unauthorized

contract torts

vicarious liability torts of agent if employee of principal

liability for agent’s actions actions within actual or apparent authority



Chapter 20-15

Risk Management Strategies for Principals

specify agent’s actual authority in contract

monitor agent’s actions with customers prevent creation of apparent authority

notify customers when agent terminated carefully select, train, and supervise

agents



Chapter 20-16

Business Relationships in which Agency Arise

joint ventures strategic alliances distributorships franchises certain agents governed by special

statutes



Chapter 20-17

Joint Ventures and Strategic Alliances not distinct legal entities

joint venture (JV): parties combine resources for limited purpose, limited time, or both

strategic alliance (SA): parties co-operate for a purpose

if use corporation or partnership, other rules apply

if JV or SA purely contractual: no agency unless parties agree or appearance of apparent authority



Chapter 20-18

Distributorships

one business agrees to sell another’s product distributor may also sell services (such as warranty

services) distributorship generally not agency

relationship distributor buys from supplier and sells for itself supplier does not want risk of liability through

agency normal distributorship agreements disclaim agency if distributor looks like agent, however, agency may

exist



Chapter 20-19

Franchises

contractual relationship between parties franchisor: party with business system to

license franchisee: party wishing to operate system

franchise agreement franchisor provides business plan, expertise,

and licenses intellectual property franchisee pays fees, follows plan, and

conforms to certain standards and rules normally disclaim agency status



Chapter 20-20

Agents Governed by Special Statutes some agents governed by specialized

statutes eg real estate agents, lawyers, insurance

agents, stock brokers, and travel agents typical features of regulatory schemes

licensing scheme to ensure competence and integrity

rules of conduct complaints process

Documents

Chap_20