Copyright © 2008 Pearson Education Canada13-1 Chapter 13: Agency and Partnership.

Copyright © 2008 Pearson Education Canada 13-1

Chapter 13:Chapter 13:

Agency and Agency and PartnershipPartnership


Agents Agents

Represent and act for a principal in Represent and act for a principal in dealings with third partiesdealings with third parties

Agency is the service an agent providesAgency is the service an agent provides Agency relationship is created by the Agency relationship is created by the

granting of authority by:granting of authority by: an express or implied contract an express or implied contract estoppelestoppel ratificationratification gratuitouslygratuitously


Formation by Contract Formation by Contract

Agency contractAgency contract Principles of contract applyPrinciples of contract apply

All the elements of a contract must be All the elements of a contract must be presentpresent

Should set out nature and extent of Should set out nature and extent of authority to actauthority to act


Formation by Contract/2 Formation by Contract/2

Agency contracts longer than one Agency contracts longer than one year must be in writing in some year must be in writing in some jurisdictionsjurisdictions

Power of attorney is an agency Power of attorney is an agency contract under sealcontract under seal


Authority of Agents Authority of Agents

Actual authority - agency agreement sets Actual authority - agency agreement sets out limits of agent’s authorityout limits of agent’s authority

express authority - when clearly stated express authority - when clearly stated implied authority - conveyed by actions of implied authority - conveyed by actions of

principalprincipal Agent who exceeds actual authority may Agent who exceeds actual authority may

be liable for injury their conduct causes be liable for injury their conduct causes principal.principal.


Apparent Authority Apparent Authority

A principal who acts in a way to A principal who acts in a way to make a third party believe that an make a third party believe that an agent has authority to act will be agent has authority to act will be bound.bound.


Apparent Authority/2 Apparent Authority/2

Estoppel - if a third party relies on the Estoppel - if a third party relies on the principal’s representation that the agent principal’s representation that the agent has the authority to act, the principal has the authority to act, the principal cannot then claim the agent had no cannot then claim the agent had no authority.authority.

Reasonable person test used to Reasonable person test used to determine apparent authority.determine apparent authority.


Ratification Ratification

A principal can ratify a contract even A principal can ratify a contract even if the agent acted beyond both if the agent acted beyond both actual and apparent authority.actual and apparent authority.

Agent must have been acting for a Agent must have been acting for a specific principal for ratificationspecific principal for ratification


Ratification/2 Ratification/2

Principal must have been capable of Principal must have been capable of entering into the contractentering into the contract

Inadvertent ratification by accepting Inadvertent ratification by accepting a benefita benefit


Agent’s Duties Agent’s Duties

Agent must act within limits of contractAgent must act within limits of contract may be sued for breach by principalmay be sued for breach by principal may be liable for acting beyond may be liable for acting beyond

authorityauthority must perform functions set out in must perform functions set out in

agreementagreement owes duty of care of a reasonable owes duty of care of a reasonable

personperson


Agent’s Duties/2 Agent’s Duties/2

must not go against specific must not go against specific instructionsinstructions

cannot delegate responsibility cannot delegate responsibility unless stipulated in contractunless stipulated in contract

must account for fundsmust account for funds


Fiduciary Duty Fiduciary Duty

Agent has duty to act only in the best Agent has duty to act only in the best interests of the principal:interests of the principal:

Cannot take personal advantage of Cannot take personal advantage of opportunity because of positionopportunity because of position

Duty to disclose information that would Duty to disclose information that would benefit principalbenefit principal

Must not compete with principal and must Must not compete with principal and must turn over all benefitsturn over all benefits


Duties of Principal Duties of Principal

Principal must honour terms of contractPrincipal must honour terms of contract pay a reasonable amount for servicespay a reasonable amount for services reimburse for reasonable work-related reimburse for reasonable work-related

expensesexpenses Ambiguities re authority will be Ambiguities re authority will be

interpreted in favour of broader agent’s interpreted in favour of broader agent’s authorityauthority

but not to borrow moneybut not to borrow money


Undisclosed Principals Undisclosed Principals

Agent may be held liable to a third party Agent may be held liable to a third party when acting for an undisclosed principalwhen acting for an undisclosed principal

Third party is usually bound to contract Third party is usually bound to contract even when principal is undisclosed even when principal is undisclosed except where the identity of principal is except where the identity of principal is importantimportant

Only identified principals can ratify a Only identified principals can ratify a contract.contract.


Third Party Third Party

A third party can sue when agent goes A third party can sue when agent goes beyond authoritybeyond authority

breach of warranty of authoritybreach of warranty of authority intentional deception on part of agent may intentional deception on part of agent may

lead to the award of damageslead to the award of damages tort remedies may be available for fraud or tort remedies may be available for fraud or

negligencenegligence


Vicarious Liability Vicarious Liability

When agent is employee, principal may When agent is employee, principal may be vicariously liable for agent’s tortious be vicariously liable for agent’s tortious conductconduct

Where fraud or negligent misstatement is Where fraud or negligent misstatement is involved, principal may be liable even involved, principal may be liable even where the agent is not an employeewhere the agent is not an employee


Termination of Agency Termination of Agency

As set out in contract or by agreementAs set out in contract or by agreement If agent’s duties are changed, principle of If agent’s duties are changed, principle of

frustration may terminate agent’s frustration may terminate agent’s authority.authority.

Death, insanity or bankruptcy of principal Death, insanity or bankruptcy of principal will terminate agency relationship.will terminate agency relationship.


Question for Discussion Question for Discussion

Specialized agencies in such areas as Specialized agencies in such areas as real estate, travel, and insurance employ real estate, travel, and insurance employ agents to promote and market their agents to promote and market their services. Customers of such services services. Customers of such services may be subject to abuse.may be subject to abuse.

What principles of agency law protect What principles of agency law protect consumers when they have been taken consumers when they have been taken advantage of by agents?advantage of by agents?


Types of Business Organization Types of Business Organization Sole ProprietorshipSole Proprietorship - an individual carrying on business alone - an individual carrying on business alone

1 person1 person Unlimited personal liabilityUnlimited personal liability Few formalities to establish of Business licence, Trade name registrationFew formalities to establish of Business licence, Trade name registration

PartnershipPartnership - two or more people carrying on business together for the - two or more people carrying on business together for the purpose of making a profitpurpose of making a profit

2 or more persons carrying on business with a view to profit2 or more persons carrying on business with a view to profit Contact law including agencyContact law including agency Fiduciary relationships applyFiduciary relationships apply Partnership Act governs unless Q to contraryPartnership Act governs unless Q to contrary Can be created inadvertentlyCan be created inadvertently

CorporationCorporation – an incorporated company that is a legal entity separate – an incorporated company that is a legal entity separate from the people who make it up.from the people who make it up.

An artificial state sanctioned legal entity (legal person) that has a separate An artificial state sanctioned legal entity (legal person) that has a separate Legal existence apart from its shareholders, directors, managers and Legal existence apart from its shareholders, directors, managers and EmployeesEmployees


Sole Proprietorship Sole Proprietorship

An individual carrying on business aloneAn individual carrying on business alone Must comply with government Must comply with government

regulationsregulations avoid restricted/illegal activitiesavoid restricted/illegal activities meet zoning bylawsmeet zoning bylaws comply with workers’ compensation, comply with workers’ compensation,

employment insurance and income tax employment insurance and income tax regulationsregulations


Sole Proprietorship/2 Sole Proprietorship/2

Unlimited liability for debtsUnlimited liability for debts Vicarious liability for torts of Vicarious liability for torts of

employeesemployees


Partnership Partnership

Group of people carrying on business Group of people carrying on business together for the purpose of making a together for the purpose of making a profitprofit

Regulated by Regulated by Partnership Act Partnership Act common to common to common law provinces.common law provinces.

Sets out circumstances that do not Sets out circumstances that do not create a partnership such as create a partnership such as

owning property in commonowning property in common sharing gross returns from business activitysharing gross returns from business activity


Creation of PartnershipCreation of Partnership

By Inadvertence - implied from conductBy Inadvertence - implied from conduct the finding of a partnership has serious the finding of a partnership has serious

financial liability implications for partnersfinancial liability implications for partners By Agreement - primarily a contractual By Agreement - primarily a contractual

relationship - oral or written relationship - oral or written must contain all the elements of a contractmust contain all the elements of a contract

Estoppel applies to representations that Estoppel applies to representations that a partnership existsa partnership exists


Partner as Agent Partner as Agent

Partners are each agents of each otherPartners are each agents of each other agency law applies to partnersagency law applies to partners contracts made by a partner are binding on contracts made by a partner are binding on

all the partnersall the partners Vicarious liability - all partners are liable Vicarious liability - all partners are liable

for the tortious conduct of a partner or an for the tortious conduct of a partner or an employeeemployee


Unlimited Liability Unlimited Liability

Partners’ liability is not limited to the Partners’ liability is not limited to the assets of the partnershipassets of the partnership

personal assets may be used to satisfy personal assets may be used to satisfy claims against partnership claims against partnership

third party can collect from any partnerthird party can collect from any partner Registration - failure to register where Registration - failure to register where

required may increase liabilityrequired may increase liability


Rights and Obligations Rights and Obligations

Fiduciary Duty - a partner must act in Fiduciary Duty - a partner must act in best interest of other partners:best interest of other partners:

account for all profitsaccount for all profits not use partnership property for personal not use partnership property for personal

benefitbenefit cannot compete with partnershipcannot compete with partnership disclose all information and not use it for disclose all information and not use it for

personal gainpersonal gain


Rights and Obligations/2 Rights and Obligations/2

Partnership Act governs partner Partnership Act governs partner relationship:relationship:

partners share profits equallypartners share profits equally expenses are reimbursed by expenses are reimbursed by

partnershippartnership all partners have right to participate in all partners have right to participate in

managementmanagement


Rights and Obligations/3 Rights and Obligations/3

no right to salary or wages no right to salary or wages major changes must have unanimous major changes must have unanimous

agreementagreement no right to assign their partnership status no right to assign their partnership status

without consent of all partnerswithout consent of all partners can be modified by contractcan be modified by contract


Advantages Advantages

Disadvantages may be reduced by Disadvantages may be reduced by insuranceinsurance

Requirements of unanimous consent Requirements of unanimous consent protects partnersprotects partners

Less expensive to set up than Less expensive to set up than incorporationincorporation

Some tax advantages availableSome tax advantages available



Partners participate equally in the Partners participate equally in the management of a partnership and management of a partnership and therefore must reach consensus on therefore must reach consensus on any major change in the business.any major change in the business.


Question for Discussion/2 Question for Discussion/2

Consider the advantages and Consider the advantages and disadvantages of such a requirement. Is disadvantages of such a requirement. Is the right to modify this arrangement by the right to modify this arrangement by agreement inconsistent with the agreement inconsistent with the principles of partnership?principles of partnership?


DissolutionDissolution

Notice of intention to dissolve can bring Notice of intention to dissolve can bring partnerships to an end, or partnerships to an end, or

The death of a partner The death of a partner AgreementAgreement Bankruptcy of one partnerBankruptcy of one partner The court of business is deemed illegal, etc.The court of business is deemed illegal, etc.


Dissolution/2 Dissolution/2

Public notice must be given of Public notice must be given of dissolution to escape further dissolution to escape further liabilityliability


Limited Partnerships Limited Partnerships

Limited partners are liable only to the Limited partners are liable only to the extent of their investmentextent of their investment

must follow provisions set out in the Actmust follow provisions set out in the Act to avoid risk of being considered a general to avoid risk of being considered a general

partnerpartner• should register as limited partnershould register as limited partner• refrain from participating in decision-refrain from participating in decision-

makingmaking


LLP Partnerships LLP Partnerships

Several provinces not permit limited Several provinces not permit limited liability partnershipsliability partnerships

Available for professionsAvailable for professions A partner is not personally liable for A partner is not personally liable for

conduct of other employees or partnersconduct of other employees or partners Must be registered and include LLP Must be registered and include LLP

namename



It is possible to create partnerships in It is possible to create partnerships in which a partner has limited liability.which a partner has limited liability.

Is such an arrangement consistent with Is such an arrangement consistent with partnership law? Should the advantages partnership law? Should the advantages of a limited partner be extended to all of a limited partner be extended to all partners?partners?

Fraud: Intention to cheat somebodyFraud: Intention to cheat somebody

Copyright © 2008 Pearson Education Canada13-1 Chapter 13: Agency and Partnership.

Documents

Transcript of Copyright © 2008 Pearson Education Canada13-1 Chapter 13: Agency and Partnership.