1. Copyright © 2004 by Nelson, a division of Thomson Canada Limited. 13-1 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

2. Copyright © 2004 by Nelson, a division of Thomson Canada Limited. 13-2 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

3. Copyright © 2004 by Nelson, a division of Thomson Canada Limited. 13-3 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

4. Copyright © 2004 by Nelson, a division of Thomson Canada Limited. 13-4 AGENCY DEFINED THE AGENT – PRINCIPAL RELATIONSHIP PA (Principal)(Agent) Figure 13.1

5. Copyright © 2004 by Nelson, a division of Thomson Canada Limited. 13-5 AGENCY DEFINED THE OUTSIDER – PRINCIPAL RELATIONSHIP P OS A (Outsider or Third Party) Figure 13.2

6. Copyright © 2004 by Nelson, a division of Thomson Canada Limited. 13-6 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

7. Copyright © 2004 by Nelson, a division of Thomson Canada Limited. 13-7 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

8. Copyright © 2004 by Nelson, a division of Thomson Canada Limited. 13-8 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

9. Copyright © 2004 by Nelson, a division of Thomson Canada Limited. 13-9 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

10. Copyright © 2004 by Nelson, a division of Thomson Canada Limited. 13-10 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

11. Copyright © 2004 by Nelson, a division of Thomson Canada Limited. 13-11 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

12. Copyright © 2004 by Nelson, a division of Thomson Canada Limited. 13-12 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

13. Copyright © 2004 by Nelson, a division of Thomson Canada Limited. 13-13 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

14. Copyright © 2004 by Nelson, a division of Thomson Canada Limited. 13-14 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

15. Copyright © 2004 by Nelson, a division of Thomson Canada Limited. 13-15 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)

16. Copyright © 2004 by Nelson, a division of Thomson Canada Limited. 13-16 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)

17. Copyright © 2004 by Nelson, a division of Thomson Canada Limited. 13-17 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)

18. Copyright © 2004 by Nelson, a division of Thomson Canada Limited. 13-18 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)

19. Copyright © 2004 by Nelson, a division of Thomson Canada Limited. 13-19 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 )

20. Copyright © 2004 by Nelson, a division of Thomson Canada Limited. 13-20 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.