Agency and Franchising

Question 1

Agent

Answer 1

a person acting for another person in contractual relations with third parties (acting as their agent, real estate agent)

Question 2

Three Parties

Answer 2

Principal – one who hired an agent
Agent – one facilitating – acting on behalf of another to enter into a contract with a third party
Owes a fiduciary duty to the principal
Third-party – another party entering a transaction

Question 3

Two Contracts:

Answer 3

Principal and agent – agency contract
Principal and third party – contract for goods/ services

Question 4

Agency Agreement

Answer 4

The K between principal and agenet whereby the agent undertakes to act on behalf of the principal

Question 5

types of agency contracts
power of attorney

Answer 5

Power of attorney – a type of agency agreement authorizing the agent to sign documents on behalf of the principal
Commonly used when unable to enter contracts on tour own (out of country, health issues)

Question 6

Apparent / Ostenible Authority

Answer 6

• Authority that is not real, but is acquired from a past manner of transacting business or trade custom
• Agent is not bound by the agreement (realestate agent cannot be sued if buyer does not pay)

Question 7

Test for Apparent Authority:

Answer 7

• 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 has the authority in question
• If the agent had apparent or ostensible authority, then the principal is bound by the contact even if the agent exceeded their authority or did not have authority
  - Otherwise would always need to be due diligent on an agents authority before entering a business transaction with them

Question 8

Holding out

Answer 8

representing by words or conduct that a person is one’s agent or has a particular authority

Question 9

Ratification

Answer 9

• Process of confirming the terms of the contract
• Where an agent exceeds their authority, and the principal of apparent authority does not apply, then principal may still ratify the contract
• Subsequent adoption by the proposed principal of a K made by an agent acting without authority

Question 10

Requirements of Ratification

Answer 10

• Must be timely
• Must be of entire K
• Can be by conduct
• Principal must have been capable of entering K at a time of formation
• Principal must be ascertainable at time of K formation

Question 11

Requirements of Ratification

Answer 11

• Must be timely
• Must be of entire K
• Can be by conduct
• Principal must have been capable of entering K at a time of formation
• Principal must be ascertainable at time of K formation

Question 12

Duty of Agent to Principal

Answer 12

• Duty to comply with the agency agreement:
• Duty of Care
• good faith
• (acting for 2 parties, acting as a contracting party)

Question 13

Duty to comply with the agency agreement:

Answer 13

• Just like any other K – binding on both parties
• Principal can sue for breach of K where agent acts outside authority
• Agent has the duty to keep principal informed as courts have deemed that what the agent knows, the principal also knows
• The relationship is a fiduciary relationship (cannot act in a conflict of inte

Question 14

Duty of Care

Answer 14

• At a minimum: reasonable care, dilligence and skill in transacting business on behalf of the principal
• Standard of care will depend on agent’s knowledge and skill. As well as the nature of the task

Question 15

Good Faith

Answer 15

• A fiduciary relationship (agent owed fiduciary duty to principal)
• Agent must put principal’s interests ahead of their own
• Agent cannot make secret profits on any transactions made for the principal
• Agent has the duty to disclose any and all relevant information

Question 16

Acting for two principals

Answer 16

• potential for a conflict of interest
• potential to breach duty of care/ fiduciary duty

Question 17

Acting as a contracting party

Answer 17

• must disclose to principal and obtain approval prior to the transaction

Question 18

Remuneration -
- principal to the agent

Answer 18

• obligation to pay as per K or as per reasonable fees of industry (often commission basis)

Question 19

Rights and Liabilities of Principal and Agent to Third Parties
Principal alone is liable when:

Answer 19

-Agent is acting with real or apparent authority
-Agent must make it clear to third party that they are acting fro a principal – even if an undisclosed principal
- When principal alone is liable, payment made or delivery must be made to the 3rd party and not the agent – if agent absconds with money/ goods, principal remains liable to 3rd party

Question 20

Agent alone is liable:

Answer 20

• Where agent represents themselves to be the principal
• Under these circumstances the principal has no rights or liabilities under the contract

Question 21

Either the Principal or the Agent is liable

Answer 21

• Where agent did not disclose status as an agent – third party can sue either the agent or principal but not both
• If agent is sued successfully by 3rd party then principal has no liability
• If existence of principal beocmes apparent during court processings, 3rd party can have the action discontinued agaisnt the agent and brought agasint principal instead

Question 22

Rights of Undisclosed Principal

Answer 22

• Right to enforce a contract against a 3rd party where - - They can show that the contract was made with their authority
• The authority must be real and not apparent
• Exception: the undisclosed principal cannot enforce a K that is essentially personal in nature
• 3rd party cannot hold undisclosed principal liable in a situation where the agent acted without real authority

Question 23

Liability for torts – joint/ several

Answer 23

Principal is jointly and severally liable for torts committed by agent within real or apparent authority

example - Fraudulent misrepresentation (Deceit) – 3rd party has the right to:
Rescind K or sue both agent and principal for tort of deceit