BU231 Lecture Notes - Lecture 10: Franchise Agreement, Apparent Authority, Franchising
Agency & Franchising
Agency
• Agent: A person acting for another person in contractual relations with third parties
• Principal: the person on whose behalf the agent acts
• The agent acts on behalf of the principal to bring third parties into a contractual relationship
with the principal.
• Difference between agents and employees:
→ An employee’s work is often under direction and supervision of employer
→ An employee often has no ability or very limited ability to bind their employer to a
contract
→ Rights and responsibilities between employer/employee differs from principal/agent
• Who are the agents?
→ Legal agents
→ For example: lawyers, stock brokers, people who sell on commission
→ Partners in a partnership are agents for each other
→ Corporations cannot enter into any contract without an agent
→ Real estate agents are not agents because they cannot bind their principal
• Creating the Agency Relationship: any person who has the capacity to contract may appoint
an agent to contract on his/her behalf
→ Three-way relationship:
- Principal
- Agent
- Third Party Contractor
→ Contractual relationship between principal and agent, is the first relationship and the one
that creates the agency
→ Contractual relationship between principal and third party contractor: is the 2nd
relationship created by the contract formed between the principal and the third party
→ No relationship is formed between the agent and the third party
• Agency Agreement:
→ The contract between principal and agent whereby the agent undertakes to act on behalf
of the principal
→ Normal rules of contract formation apply
→ If the contract will extend beyond one year, then it must be in writing to satisfy the
Statute of Frauds - also if the authority includes issuing promissory notes or writing
cheques
→ Contract should set out limits to Agent’s authority – how far he or she can go in making a
contract with a 3rd party without obtaining further instructions from the principal
→ can be express or implied, oral written or writing under seal
• Power of Attorney: a special type of express agency agreement
→ A type of agency agreement
→ authorizes the agent to sign documents on behalf of the principal
→ Commonly used, and is issued under seal
→ Often for property or for person
Authority
• An agents authority may be actual or apparent
• Actual authority is the authority given expressly or impliedly to the agent by the principal
• Apparent authority is authority that is not real, but is acquired from a past manner of
transacting business or from trade custom (normal within a trade or industry)
• Agency law provides that a contract is valid and enforceable even when the agent has no
actual authority to enter into it – if they had the apparent authority to do so
• Test for Apparent Authority:
→ Should the 3rd Party have been aware of the agent’s lack of authority or at least been
suspicious?
→ Or is it reasonable to assume from the type of business that the agent is engaged in, that
the agent had the authority in question?
• Example: you are going to buy shoes but they have a mark on them, you ask the sales lady
for the discount, she says you can get 10%. You’re happy about the discount but you don’t
think about if he/she has the authority to give you the discount
• Some types of authority are not common and therefore should raise the suspicions of a 3rd
part
• Not practical for business to constantly have to check up on agent’s authority
• If principal chooses to restrict normal authority within an industry, s/he is estopped from
denying liability under the contract
→ Have to let 3rd party know about the restrictions made
• Apparent authority can arise in two ways: norm in the industry and holding out
→ Norm in the industry: if the third party is aware of a restriction on the usual authrotiy of
such agent or ought to be aware because they were suspicious then the third party cannot
claim that there is an apparent authority.
- If the proposed contract is not within an area ordinarily entrusted to agencts or if its
consequences are of unusual importance for the principal and third party the 3rd party
should first check with the principal of the agents authority
→ Holding Out: Representing by words or conduct that a person is one’s agent or has a
particular authority
- If the behaviour may be reasonably interpreted by the third party as consistent with
the agent having authority the principal cannot deny the authority to the agent
• Ratification: subsequent adoption by the proposed principal of a contract made by an agent
acting without authority
→ Where an agent exceeds his/her authority (breached agency agreement), principal must
ratify the contract
→ When they ratify the contract, the effect is to establish the contract with a 3rd party as if
the agent had possessed actual authority at the time she made the contract
→ Must be timely, reasonable period of time to be able to claim the benefits of the contract
→ Must be of entire contract, cannot be partial
→ Can be by conduct, doing
→ Principal must have been capable of entering contract at time of formation,
→ Principal must be ascertainable at time of contract formation; principal has to exist at the
time the contract was created
Duties of Agent to Principal
• Duty to comply with the agency agreement:
Document Summary
An employee"s work is often under direction and supervision of employer. An employee often has no ability or very limited ability to bind their employer to a contract. For example: lawyers, stock brokers, people who sell on commission. Partners in a partnership are agents for each other. Corporations cannot enter into any contract without an agent. Real estate agents are not agents because they cannot bind their principal: creating the agency relationship: any person who has the capacity to contract may appoint an agent to contract on his/her behalf. Contractual relationship between principal and agent, is the first relationship and the one that creates the agency. Contractual relationship between principal and third party contractor: is the 2nd relationship created by the contract formed between the principal and the third party. No relationship is formed between the agent and the third party: agency agreement: The contract between principal and agent whereby the agent undertakes to act on behalf of the principal.
