Chapter 10: Agency and Partnership

Question 1

LO 10.1 Describe the agency relationship

Answer 1

LO 10.1 Describe the agency relationship

Question 2

Agent

Answer 2

a person authorized to represent or act on behalf of a principal in dealings with third parties

Question 3

Prinicpal

Answer 3

the person who authorizes an agent to represent him or her

Question 4

Agency

Answer 4

the service an agent performs on behalf of a principal

This service may be performed as an employee, as an independent agent, or gratuitously

Key element is the granting of authority

Question 5

LO 10.2 Explain how an agency relationship can be created

Answer 5

LO 10.2 Explain how an agency relationship can be created

Question 6

The agency relationship can be created by an

Answer 6

• express or implied contract,
• by estoppel,
• by ratification,
• or by necessity,

The key element being the granting of authority , the right or power to act on the principal’s behalf.

Question 7

Authority

Answer 7

the right or power to act or to make a decision

Question 8

How is an agency relationship created?

Answer 8

Usually, an agency relationship is created through a contract (an agency
agreement ) between the agent and the principal.

Question 9

Agency agreement

Answer 9

an agreement creating an agency relationship between principal and agent

an cover such things as the authority of the agent,
the duties to be performed, and the nature of payment to be received

Question 10

Power of attorney

Answer 10

an agency agreement in writing and under seal

*although the seal is no longer required
in most provincial powers of attorney acts.

Question 11

Do the elements of a contract need to be present for the agreement to be binding?

Answer 11

All the elements of a contract, such as consensus, consideration, legality, intention to be bound, and capacity on the part of both parties, must be
present for an agency agreement to be binding.

Question 12

What happens if any of the contract components are missing?

Answer 12

The lack of any one of these elements may void the agency agreement, but that will not affect
the binding nature of any contract the agent enters into on behalf of the principal

Question 13

An agent who is a minor

Answer 13

An agent who is a minor may not be bound by his agreement with the principal, but any contracts he enters into with authority on the principal’s behalf will still be binding on that principal, unless of course
the agent is so young or insane that he doesn’t understand what he is doing.

However, a contract entered into by an agent for a principal who is a minor will be voidable as if the minor had entered into the contract directly.

Question 14

Actual authority

Answer 14

authority given to an agent expressly or by implication

May be express (ie. verbal or written in agency agreement)

Question 15

Express authority

Answer 15

a contract in which the parties have expressly stated their agreement, either verbally or in writing

Question 16

Implicit authority

Answer 16

when the authority of the agent is implied from surrounding circumstances, such as the position or title given (by the principal) to the agent

Question 17

Apparent authority

Answer 17

authority as suggested to a third party by the conduct of a principal; may exist even when there is no actual authority

Question 18

Estoppel

Answer 18

an equitable remedy that stops a party from trying to establish a position or deny something that, if allowed, would create an injustice

Question 19

Promissory estoppel

Answer 19

the principle that when a gratuitous promise to do something in the future causes a person who relies on that promise to incur an expense, the promisor will not be allowed to enforce other contractual rights that
are inconstant with that promise; the promise can only be used as a defence by the promisee; also known as equitable estoppel

Question 20

Reasonable person test

Answer 20

in a negligence action, the judicial standard of socially acceptable behaviour; the standard used to determine the existence of apparent authority of an agent

Question 21

To determine whether a principal is bound in contract with a third party
by the actions of an agent, a person must first ask,

Answer 21

“Was the agent acting
within the actual authority given by the principal?”

If the answer is yes, then there is a contract, provided all the other elements are present.

If the answer is no, then the question to ask is “Did the principal do anything to lead the third party to believe that the agent had the authority to act?”

In other words, was the agent acting with apparent authority? If the answer is yes, and the third party relied on that apparent authority, then there is
a contract between the principal and the third party.

It is only when the answer to both these questions is no that there is no contract and the
third party can only look to the agent for redress.

Question 22

Ratification definition

Answer 22

when the majority agrees with the terms of a collective bargain; when a
principal confirms a contract entered into by his agent

See slide 24 for the 5 qualifications of ratification

Question 23

What can you ratify a contract

Answer 23

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

Question 24

In fact, the power of the principal to ratify must meet the following qualifications:

Answer 24

1) The third party has the right to set a reasonable time limit within
which the ratification must take place.

2) The agent can’t make the deal and then search for a principal to ratify it.
3) The principal has to be fully capable of entering into the contract at the time the agent was claiming to act on her behalf
4) The parties must still be able to perform the object of the contract at the time of the ratification

Question 25

Agency by Necessity definition

Answer 25

consent to act as an agent that is implied when there is an urgent reason For example, an agent might have to sell deteriorating goods to preserve some value for the principal Extremely rare today due to easy communication through cellphones

Question 26

LO 10.3 Review the duties of the parties in an agency | relationship

Answer 26

LO 10.3 Review the duties of the parties in an agency | relationship

Question 27

What happens if an agent abuses their authority

Answer 27

An agent violating the contract but exercising apparent authority can be sued for breach and will have to compensate the principal for any losses suffered.

Question 28

Does the agent owe a duty of care to the principal?

Answer 28

Oh Yes, absolutely! An agent owes a duty of care to the principal.

Question 29

Can an agent go against the instructions provided to them?

Answer 29

However, an agent cannot go against the specific instructions received, even if it might be in the principal’s best interests to do so.

Question 30

Delegation

Answer 30

Entrusting someone else to act in one’s place; an agent normally cannot delegate his responsibilities to someone else This either needs to be express or implied by the customers and traditions of the industry

Question 31

When is the work delegated?

Answer 31

The authority of an agent is commonly delegated to subagents when that agent is a corporation or large business organization, such as a law firm, bank, real estate agency, or trust company

Question 32

Fiduciary Duty

Answer 32

a duty to act in the best interests of another; such duty may arise between directors and officers and the corporation they serve, between business associates including senior employees and their employer, between agents and their principals, and between partners, also called utmost good faith

Question 33

Utmost good faith

Answer 33

a duty to act in the best interests of another; such duty may arise between directors and officers and the corporation they serve, between business associates including senior employees and their employer, between agents and their principals, and between partners; also called fiduciary duty

Question 34

The relationship between the principal and the agent are often referred to as an ___________________, requiring the agent to put the interests of the principal ahead of her own

Answer 34

utmost good faith relationship

Question 35

Full disclosure

Answer 35

the obligation to reveal all relevant details of a transaction

Question 36

Can you conduct two sided deals? Aka represent both the principal and the third party? Duel-agency Double-ending deals

Answer 36

An agent cannot act for both a principal and a third party at the same time Why? It would be very difficult for an agent to extract the best possible price from a third party on behalf of a principal when the third party is also paying the agent.

Question 37

Can the agents collect any profits or commission without the principal knowing?

Answer 37

Also, the agent must not collect any profits or commissions that are hidden from the principal, but must pay over all the benefit resulting from the performance of the agency agreement

Question 38

Other examples of fiduciary duty require an agent to do the following:

Answer 38

-Keep in strict confidence any communications that come through the agency function and communicate that information to the principal -Act in the best interests of the principal, even if the agent may lose some personal benefit -Not take advantage of any personal opportunity that may come to her knowledge through the agency relationship

Question 39

Fiduciary Duty Owed to Indigenous | Peoples

Answer 39

Fiduciary Duty Owed to Indigenous | Peoples

Question 40

The Royal Proclamation of 1763

Answer 40

recognized Indigenous title to Indigenous lands but reserved to the Crown the exclusive right to negotiate the giving up of Indigenous title. This was reflected in the Constitution Act, 1867, which granted the federal Parliament legislative authority over “Indians and Lands Reserved for the Indians.”

Question 41

The Indian Act

Answer 41

requires reserve lands to be surrendered to the federal government before they can be sold or leased

Question 42

There have been many cases in which Indigenous peoples have claimed that they were owed a fiduciary duty. The Courts have held that:

Answer 42

1) Federal boards and tribunals, even though they are appointed by and are agents of the Crown, do not have a fiduciary duty to Aboriginal peoples 2) When an Aboriginal group sues the Crown, the Crown does not have a fiduciary duty to act in the Aboriginals’ interest during the litigation 3) It remains unclear whether the Crown has fiduciary duties to fund social services such as health care and education in Aboriginal communities because lower courts have made conflicting decisions.

Question 43

The Principal’s Duties

Answer 43

The Principal’s Duties

Question 44

The principal’s primary obligation to the agent is to

Answer 44

honour the terms of the contract by which the agent was hired

Question 45

Payment upon completion

Answer 45

Thus, if an agent is to receive a commission upon the sale of a house, even if the agent puts considerable effort into promoting a sale, there is generally no entitlement to commission if no sale occurs.

Question 46

LO 10.4 Discuss the liabilities that may be incurred by the parties in an agency relationship

Answer 46

LO 10.4 Discuss the liabilities that may be incurred by the parties in an agency relationship

Question 47

The Agent’s Liabilities

Answer 47

The Agent’s Liabilities

Question 48

When an agent does not have the authority claimed, either actual or apparent, she may be sued by the third party for ___________________________

Answer 48

breach of “warranty of | authority.”

Question 49

What other tort can agents be sued for

Answer 49

1) ^^^^ 2) an agent who intentionally misleads the third party into believing that he has authority, when he does not, may be sued by the third party for the tort of deceit 3) Agents who inadvertently exceed their authority can be sued for the tort of negligence.

Question 50

The Principal’s Liabilities

Answer 50

The Principal’s Liabilities

Question 51

Vicarious liability

Answer 51

When an agent is also an employee of the principal, the principal is vicariously liable for any tortious acts committed by the agent in the course of that employment.

Question 52

There are some situations in which vicarious liability will apply even if the agent is acting independently.

Answer 52

The courts appear willing to hold the | principal responsible for theft or fraudulent misrepresentation by an agent, even when no employment exists

Question 53

As is the case with employment law, vicarious liability makes the principal responsible, but it does not relieve the agent of liability for her own tortious conduct.

Answer 53

Both can be sued, but the principal can then seek | compensation from the agent.

Question 54

Undisclosed Principals

Answer 54

a principal whose identity is concealed from the third parties with whom the agent is dealing; the rights and obligations of the parties depend on whether the agent makes it clear that she is representing an undisclosed principal rather than operating on her own behalf

Question 55

Note that there are some types of contracts that cannot be enforced by an undisclosed principal

Answer 55

One example is when the identity of the parties is important. For the same reason, you cannot go to a job interview and be hired and then claim you were acting as an agent for someone else

Question 56

To avoid the problem of an undisclosed principal, individuals acting as agents should be extremely careful to make it clear that they are acting in an agency capacity

Answer 56

This is normally done by writing “per” immediately before the signature of the agent

Question 57

LO 10.5 Examine how an agency relationship can be terminated

Answer 57

LO 10.5 Examine how an agency relationship can be terminated

Question 58

When does an agents authority end?

Answer 58

An agent’s authority ends when the agent is notified

Question 59

How can the principal end the agents authority

Answer 59

When the principal wants to end the agent’s authority to act, simple notification is usually sufficient, for there is no requirement that the notice be reasonable, only that it be communicated to the agent

Question 60

Similarly, an | agent’s authority to act on behalf of a principal is terminated when

Answer 60

the actions the agent is engaged to perform become illegal. An agent’s authority to act on behalf of a principal will also end upon the death, bankruptcy or insanity of the principal

Question 61

Enduring Powers of Attorney

Answer 61

Enduring Powers of Attorney

Question 62

Loss of sanity on the part of the principal will terminate an agency;

Answer 62

consequently, authority to act under a power of | attorney terminates when the principal loses capacity

Question 63

Enduring Power of attorney

Answer 63

the power to act as the donor’s trustee or representative following the donor’s lack of capacity The attorney generally can make all financial decisions on behalf of the donor Through use of an enduring power of attorney, a person can decide, in advance, whom to entrust with the future handling of her financial affairs. It is now also possible for individuals to exercise some control over who will make health-care decisions and similar personal decisions for them

Question 64

LO 10.6 Introduce the three major types of business | organization

Answer 64

LO 10.6 Introduce the three major types of business | organization

Question 65

3 types of major types of business organizations

Answer 65

1) Sole proprietorship 2) Partnership 3) Corporation

Question 66

Sole proprietorship

Answer 66

an individual carrying on business alone Employees may be hired and business may be carried on through the services of an employee or agent, but the business is the sole responsibility of one person, the owner

Question 67

Partnership

Answer 67

when the ownership and responsibilities of a business are shared by two or more people with a view toward profit Also, each partner acts as an agent for the other partners and has a fiduciary duty to them

Question 68

Corporation

Answer 68

a business organization that is a separate legal entity from its owners, the shareholders By statute, it has been given an identity separate from its owners. Thus, contracts with a corporation are dealings with the corporation itself as if it were a person in its own right.

Question 69

Other ways to run a business

Answer 69

1) Non-profit society 2) Holding corporation 3) Joint venture

Question 70

1) Non-profit society

Answer 70

a separate legal entity with different procedures of incorporation and liabilities of its members than corporations This also creates a separate legal entity, but the procedure of incorporation and the obligations of those involved are quite different from those of a corporation.

Question 71

2) Holding corporation

Answer 71

a corporation that owns shares in other corporations

Question 72

3) Joint venture

Answer 72

the collaboration of several businesses, usually to complete a major project

Question 73

LO 10.7 Discuss Sole Proprietorship

Answer 73

LO 10.7 Discuss Sole Proprietorship

Question 74

A sole proprietor also bears full responsibility for all the

Answer 74

costs, losses, and obligations incurred in the business activity

Question 75

Goody to know

Answer 75

As a general rule, sole proprietors are subject to less government regulation than partnerships and corporations

Question 76

Unlimited liability

Answer 76

the liability of the sole proprietor or the partners for all debts incurred by the business to the extent of their personal resources

Question 77

Firm

Answer 77

a partnership

Question 78

Creation of a Partnership | LO 10.9 Explain how a partnership can be created

Answer 78

LO 10.9 Explain how a partnership can be created

Question 79

Creation by Inadvertence

Answer 79

Creation by Inadvertence

Question 80

The Partnerships Act

Answer 80

provides that a partnership is created when two or more people carry on business in common with a view toward profits A partnership can therefore be created inadvertently, even when two or more people don’t have an express contract, if they meet this criterion.

Question 81

Evidence of the following will usually give rise to a | presumption of a partnership:

Answer 81

- Joint contribution of capital to establish a business - Intention to share profits or losses - Joint participation in the management of a business.

Question 82

Creation by Contract

Answer 82

Creation by Contract

Question 83

A partnership agreement should deal with all of the matters important to the partnership, such as

Answer 83

the duties of each partner what type of work or talent each is expected to contribute the amount of time to be committed to the business how the profits are to be shared and how the capital is to be distributed any limitations on the powers or authority of each partner methods of resolving any disputes between the partners and how the business is to be managed the circumstances in which the partnership will be dissolved

Question 84

Registration

Answer 84

Most provinces require that a partnership be registered. Some provinces, such as British Columbia and New Brunswick, require registration only when the partnerships involve trading, manufacturing, and mining

Question 85

Rights and Duties of Partners | LO 10.10 Review the rights and duties of partners

Answer 85

LO 10.10 Review the rights and duties of partners

Question 86

The rights and duties of partners

Answer 86

1) The partners will share profits equally between them. 2) The partners are entitled to reimbursement for any expenses they incur in the process of the partnership business 3) All partners have the right to take part in management. 4) A partner is not an employee and is not entitled to wages or other remuneration for work done, only to a share of the profits 5) No major changes can be made to the partnership business without the unanimous agreement of all the partners 6) Partners do not have the right to assign their partnership status to some other party without the consent of the other partners 7) The business records of the partnership must be kept at the partnership office, and all the partners have the right to inspect them.

Question 87

Some provisions that would likely be found in a partnership agreement include the following:

Answer 87

Names of the partners and the name of the partnership What each partner brings to the partnership, including specific duties and responsibilities and the capital contribution of each partner Nature of the partnership business and limitations on the authority of the partners How profits and losses are to be shared and any right to take a draw against profits The decision-making structure and a provision for dispute resolution How (and when) changes are to be made to the agreement, such as retirement, adding a new partner, or changing the nature of the business, and under what circumstances the partnership is to be dissolved Reference to specific sections of the Partnership Act where appropriate

Question 88

Fiduciary Duty

Answer 88

Each partner has a fiduciary duty to act in the best interests of his/her partners. This duty imposes an obligation to account for any profits that have been made or for any partnership funds or property used.

Question 89

Liabilities of Partners LO 10.11 Discuss the liabilities that may be incurred by partners

Answer 89

Liabilities of Partners LO 10.11 Discuss the liabilities that may be incurred by partners

Question 90

Vicarious Liability

Answer 90

All partners are also vicariously liable in tort for both careless and intentional conduct of their partners in all business-related activities.

Question 91

Unlimited Liability

Answer 91

Like that of a sole proprietor, a partner’s liability is unlimited, and his personal fortune is at risk to satisfy the claims of an injured party With partners, however, they are liable not only for their own wrongful acts and those of their employees but also for the conduct of their partners.

Question 92

Jointly Liable

Answer 92

under joint liability, all parties must be sued together; partners may face joint liability for debts of the firm

Question 93

Severally liable

Answer 93

under several liability, each partner can be sued separately

Question 94

Explain how a partnership can be dissolved LO 10.12 Explain how a partnership can be dissolved

Answer 94

Explain how a partnership can be dissolved LO 10.12 Explain how a partnership can be dissolved

Question 95

Is it hard or easy

Answer 95

Usually a partnership is easy to dissolve, requiring only notice to that effect by one of the partners

Question 96

Death or insolvency

Answer 96

Subject to the partnership agreement, a partnership is dissolved by the death or insolvency of any partner

Question 97

British Columbia’s partnership legislation

Answer 97

is unique because it establishes that, when more than two partners are involved, the partnership will be dissolved only in relation to the partner who has died or become bankrupt.

Question 98

In addition, a partner can apply to the court to dissolve the partnership if any of the following factors are present:

Answer 98

1. One of the partners has become mentally incompetent or otherwise incapable of performing partnership responsibilities. 2. The conduct of one partner is prejudicial to the partnership relationship, or the partner is otherwise in breach of the partnership agreement. 3. It is clear that the partnership business can be carried on only at a loss. 4. It is just and equitable that the partnership be dissolved

Question 99

Distribution of Assets and Liabilities

Answer 99

Subject to the partnership agreement, when dissolving a partnership, the debts must be paid first out of profits and, if they are insufficient, out of the capital the partners originally invested If there is still not enough money to pay the debts, the creditors can then turn to the partners themselves, who are liable in the proportion in which they were entitled to share profits

Question 100

Advantages of Partnership LO 10.13 List the advantages of partnership

Answer 100

Advantages of Partnership LO 10.13 List the advantages of partnership

Question 101

Advantages

Answer 101

It may be less expensive to set up a partnership than a corporation and less costly to operate a partnership because there are few formal requirements once the business has been established.

Question 102

It should not automatically be assumed that, because of the unlimited liability and unwieldy management structure of partnerships, incorporation is a better way of carrying on business.

Answer 102

For a small business operating in a “low-risk” industry, for example, it may be advantageous to start up and then carry on business as a partnership until the business becomes profitable.

Question 103

Other Types of Business Organizations LO 10.14 Describe other types of business organizations

Answer 103

Other Types of Business Organizations LO 10.14 Describe other types of business organizations

Question 104

Limited partnerships

Answer 104

a partnership with general and limited partners

Question 105

Limited partners

Answer 105

a partner in a limited partnership whose liability is limited to the amount of her investment

Question 106

General partner

Answer 106

a partner in a limited partnership whose liability is unlimited

Question 107

Limited Liability Partnerships (LLP)

Answer 107

a form of partnership in which only the partner responsible for the loss faces unlimited liability

Question 108

The main advantage to professionals carrying on business in an LLP

Answer 108

is that potential liability is limited. The main advantage of LLPs is that a nonnegligent partner will not face personal liability when the insurance coverage is not sufficient to cover the loss.

Question 109

Keep in mind the distinction between a limited partnership and a limited liability partnership

Answer 109

A limited partner is in effect an investor who does not participate in the partnership business—his liability is limited to losing what he has invested. However, a limited liability partner is an active professional who practises her profession with other partners and who is liable for her own negligent acts and for those committed by others under her supervision

Question 110

Joint Ventures

Answer 110

Often two or more individuals or corporations wish to cooperate in completing a project together.