BU231 Chapter Notes - Chapter 17: Fiduciary, Franchise Agreement, Independent Business

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Agency and Franchising
Defining Agency
Agency is a relationship where one person, known as an agent, is authorized by another person,
known as a principal, to form contracts with third parties on the principal's behalf
o Agent - a person acting for another person in contractual relations with third parties
o Principal - the person on whose behalf the agent acts
An agency relationship if usually contractual, with the agent being paid by the principal
o The most obvious example of this is employment, where the employee may enter contracts
with other companies on behalf of their employer
A distinction is sometimes made between a dependent agent and an independent agent
o Dependent agent - an agent who acts exclusively, or mostly, for a single principal
o Independent agent - an agent who carries on an independent business and acts for a
number of principals
For example: lawyers, stockbrokers, auctioneers
A person may also be a commission agent, one who sells on behalf of a principal to third parties
and receives compensation through commissions on those sales
Creation of an Agency Relationship
Any person who has the capacity to contract can appoint an agent to contract on his behalf
o An agent's power to contract is limited to the principal's capacity
In the law of principal and agent, there are two contractual relationships:
o The relationship between principal and agent, usually expressed in the form of an agency
agreement
Agency agreement - the agreement between principal and agent whereby the agent
undertakes to act on behalf of the principal
o The relationship between the principal and third parties whom the agent contracts with
By Agreement
An agency agreement may be express or implied, oral, written, or in writing under seal
Agency agreements that extend beyond one year must be in writing to be enforceable
The agreement should clearly define the limits of the agent's authority, in other words how far he
can go in making a contract without obtaining further instructions from the principal
A power of attorney is a special type of express agency agreement, and is usually issued under seal
o Power of attorney - a type of agency agreement authorizing the agent to sign documents on
behalf of the principal
Other Ways to Create an Agency Relationship
Agency may be implied by the conduct of the principal and the agent
o Agent - negotiating a contract with a third party
o Principal - allowing the agent to act like his agent in dealings with third parties (estoppel
principle - if he allows this, he cannot later deny it)
Agency may also be created retroactively; if an unauthorized agent forms a contract with a third
party on another person's behalf, that person has the option to ratify it and make it his own
Duties Owed by an Agent to the Principal
Duty to Comply with the Agency Agreement
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The duties of the agent are determined by the terms (express and implied) of the agreement with
the principal
The breach of any term gives the aggrieved party the usual remedies against the other for breach
of contract
Duty of Care
An agent owes a duty of care to his principal, even when he acts without payment; he must be
diligent in keeping his principal informed about all important developments affecting their
relationship
Personal Performance
In some circumstances, an agent may need to delegate some or all of her duties to a sub-agent
o For example, a bank acting for its customers may require other banks to represent it in
countries where it has no branches itself
Privity of contract exists only between the principal and the agent, so the principal cannot sue the
sub-agent for breach of contract
Good Faith
An agent owes a fiduciary duty to the principal; the duty of good faith requires that an agent be
loyal, act in the best interests of the principal, and keep the principal fully informed
Duties Owed by the Principal to the Agent
A principal does not owe a fiduciary duty to the agent
Where the agency is created by contract, the principal's duties will be set out in the contract
For other agencies, the law imposes only two duties on a principal:
o The duty to compensate the agent for his or her effort (by commission or otherwise)
o The duty to pay the agent's expenses and compensate for losses
In the absence of an express term regarding the agent's commission, an agent is entitled to a
reasonable fee (quantum meruit)
In the case of real estate, once the real estate agent has introduced the seller to a prospective
purchaser who is "ready, willing, and able to purchase", he is entitled to commission regardless of
whether the sale is actually made
There is an implied term that the principal will reimburse the agent for all reasonable expenses
incurred when acting within the scope of her authority
The Authority of the Agent
Actual Authority
The authority given expressly or impliedly to the agent by the principal
Express authority means either orally or in writing
Authority may be implied by conduct (as mentioned earlier) or by commercial usage
o Commercial usage refers to, for example, when a person is appointed as an insurance agent
Apparent Authority
Often the third party will not have any knowledge of the contents of the agency agreement or the
agent's authority, in which case they must rely on the apparent authority of the agent
o Apparent authority - the authority that a third party is entitled to assume that the agent
possesses
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