Copyright © 2004 by Nelson, a division of Thomson Canada Limited CANADIAN BUSINESS AND THE LAW Second Edition by Dorothy Duplessis Steven Enman Shannon O’Byrne Sally Gunz Presentation prepared by Allan Elliott, Southern Alberta Institute of Technology

Copyright © 2004 by Nelson, a division of Thomson Canada Limited CHAPTER THIRTEEN THE AGENCY RELATIONSHIP OBJECTIVES:  The agency relationship and its relevance to business  How an agency relationship comes into being  Agency duties and liabilities  How the agency relationship ends

Copyright © 2004 by Nelson, a division of Thomson Canada Limited THE AGENCY RELATIONSHIP THE NATURE OF AGENCY  agency – a relationship that exists when one party represents another in the formation of legal relations  agent – a person who is authorized to act on behalf of another  principal – a person who has permitted another to act on her or his behalf

Copyright © 2004 by Nelson, a division of Thomson Canada Limited AGENCY DEFINED THE AGENT – PRINCIPAL RELATIONSHIP PA (Principal)(Agent) Figure 13.1

Copyright © 2004 by Nelson, a division of Thomson Canada Limited AGENCY DEFINED THE OUTSIDER – PRINCIPAL RELATIONSHIP P OS A (Outsider or Third Party) Figure 13.2

Copyright © 2004 by Nelson, a division of Thomson Canada Limited THE CONCEPT OF AUTHORITY AUTHORITY  actual authority – the power of an agent that derives from either express or implied agreement  apparent authority – the power that an agent appears to have to an outsider because of conduc or statement of the principal  express authority – written or oral authority granted by a principal to an agent  implied authority – agent’s authority that is implicit only

Copyright © 2004 by Nelson, a division of Thomson Canada Limited CREATION OF AGENCY CREATION OF AGENCY AGENCY BY ESTOPPEL  an agency relationship created when the principal acts such that third parties reasonably conclude that an agency relationship exists

Copyright © 2004 by Nelson, a division of Thomson Canada Limited CREATION OF AGENCY CREATION OF AGENCY AGENCY BY RATIFICATION  an agency relationship created when one party adopts a contract entered into on his or her behalf by another who at the time acted without authority

Copyright © 2004 by Nelson, a division of Thomson Canada Limited DUTIES IN THE AGENCY RELATIONSHIP DUTIES IN THE AGENCY RELATIONSHIP DUTIES OF THE AGENT  must perform in accordance with the principal’s instructions, or failing instructions, then performance must meet the standards of the industry  fiduciary duty – a duty imposed on a person who has a special relationship of trust with another

Copyright © 2004 by Nelson, a division of Thomson Canada Limited DUTIES IN THE AGENCY RELATIONSHIP DUTIES IN THE AGENCY RELATIONSHIP DUTIES OF THE PRINCIPAL  pay the agent a fee or percentage for services rendered  assist the agent in the manner described in the contract  reimburse the agent for reasonable expenses  indemnify against losses incurred in carrying out the agency business

Copyright © 2004 by Nelson, a division of Thomson Canada Limited LIABILITY IN THE AGENCY RELATIONSHIP LIABILITY OF THE PRINCIPAL TO THE OUTSIDER  when an agent enters into a contract on behalf of a principal with a third party, it is the principal, not the agent, who ordinarily is liable on the contract

Copyright © 2004 by Nelson, a division of Thomson Canada Limited LIABILITY IN THE AGENCY RELATIONSHIP LIABILITY OF THE AGENT TO THE OUTSIDER  an agent will be personally liable on a contract with an outsider when he exceeds his actual or apparent authority

Copyright © 2004 by Nelson, a division of Thomson Canada Limited LIABILITY IN THE AGENCY RELATIONSHIP LIABILITY OF AN UNDISCLOSED PRINCIPAL  a Principal whose identity is unknown to a Third Party, who has no knowledge that the Agent is acting in an agency capacity  the general rule is that the principal is still liable on the contract so long as the agent is acting within her authority

Copyright © 2004 by Nelson, a division of Thomson Canada Limited LIABILITY IN THE AGENCY RELATIONSHIP LIABILITY OF THE AGENT TO THE PRINCIPAL  when an agent exceeds her authority, the principal can sue the agent for breach of contract or for negligence  a breach of fiduciary duty is also actionable

Copyright © 2004 by Nelson, a division of Thomson Canada Limited SUMMARY OF LIABILITY IN AGENCY 1. P OS A ACTUAL AUTHORITY A acts within actual authority P is liable to outsider Figure 13.4 (1)

Copyright © 2004 by Nelson, a division of Thomson Canada Limited SUMMARY OF LIABILITY IN AGENCY 2. P OS A PA ACTUAL AUTHORITY APPARENT AUTHORITY A exceeds actual authority but acts within apparent authority P is liable to OS unless knew or ought to have known of any limitation of A’s authority A is liable to P for breaching authority Figure 13.4 (2)

Copyright © 2004 by Nelson, a division of Thomson Canada Limited SUMMARY OF LIABILITY IN AGENCY 3. P OS A P AA ACTUAL AUTHORITY APPARENT AUTHORITY A exceeds both actual and apparent authority A is liable to OS for breach of warranty of authority Figure 13.4 (3)

Copyright © 2004 by Nelson, a division of Thomson Canada Limited SUMMARY OF LIABILITY IN AGENCY 4. P OS A (undisclosed) A acts without P’s authority P is liable to OS if P adopts the contract Figure 13.4 (4)

Copyright © 2004 by Nelson, a division of Thomson Canada Limited TECHNOLOGY AND THE LAW ELECTRONIC AGENTS:  computer programs, or other electronic means, used to independently initiate an action or to respond to electronic messages without review by an individual  Legislation – Electronic Commerce Act (Ontario )

Copyright © 2004 by Nelson, a division of Thomson Canada Limited TERMINATION OF AGENCY AGREEMENTS AN AGENCY AGREEMENT CAN COME TO AN END IF:  the parties agree to bring their relationship to an end  one party gives notice of termination to the other  the agency relationship ceases by operation of the law. This most commonly occurs due to the death, dissolution, insanity or bankruptcy of one of the parties.