Week 7: Chapters 15, 16, 17

Question 1

Principle definition (of an agency relationship)

Answer 1

A person on whose behalf the agent acts

Question 2

Agent Definition

Answer 2

A person appointed to act for another, usually in contract matters

Question 3

What is the nature of the agency relationship?

Answer 3

Principal -> Agent -> 3rd party

Acts of the agent bind the principal

Agent acts for the principal in contractual relations with 3rd parties, creating a contract between the principal and the 3rd party

Question 4

Does a real estate agent meet the definition of an agent?

Answer 4

No
When an agent is acting within their scope of authority it binds the principal and 3rd party

Real estate agents actions don’t do this

Question 5

Agency by express agreement:

Answer 5

An agency agreement established by an express oral or written contract

Question 6

Duties of the principal in an agency relationship

Answer 6

Act in good faith

Principal to pay agent fee fixed or reasonable amount

Principal obligated to indemnify (repay) agent for reasonable expenses

At common law, agents paid immediately on performance

Question 7

Duties of the Agent in an agency relationship

Answer 7

Act in utmost good faith of principle

Obey all lawful instructions

Keep confidential information given by principal

Keep in contact with principal

If a professional, they must adhere to profession’s standards
- Breach of standard means the agent is liable to principal

if agent receives money on behalf of the principle they must keep it in a seperate trust account

Question 8

What is Agency by conduct?

Answer 8

An agency relationship inferred from the actions of the principal

The impression allows the “agent” to contract with third party, principal cannot then deny contract

Question 9

Agency by estoppel

Answer 9

When a person permits affairs to occur that result in an agent entering a contract with a 3rd party based on the representation that the person was actually acting as agent

can’t be later denied if the 3rd party relies on that representation

Agent has apparent authority

Question 10

What happens when the principle fails to notify termination of agency to 3rd parties

Answer 10

If principal does not notify third parties regarding limits on authority or liability, breaches of authority will render agent liable for damages to principal

Question 11

Agency by operation of law

Answer 11

Agency that may arise in certain circumstances out of necessity where it isn’t possible to obtain the authority of the principle to act

Cases of emergency - possible to obtain authority from principal

eg, ship-master - preservation of ship and cargo, where can’t contact owner

Question 12

Ratification by the principal to 3rd party in agency

Answer 12

Where agent had no actual authority but now the principal may wish to ratify, to bind third party

Must ratify within a reasonable time

Can be express or implied

Failure to promptly repudiate where agent exceeded authority may imply acceptance and bind the principal

Ratification effective from the time agent enters agreement with third party

Question 13

Disclosed Agency: (how agent signs contract, rights of agent in contract)

Answer 13

agent discloses acting for principal, binds principal and third party

Signs principal’s name and affix own name “as agent” of

Disclosure of agency means third party has no remedies against agent

An agent has no rights to benefit of principal contract

Question 14

Liabilities of the Agent: Think about Authority

Answer 14

• When an agent does not have the authority claimed, either actual or apparent, sthey may be sued by the third party for breach of “warranty of authority”
• An agent who intentionally misleads the third party into believing that they have authority, when they do not, may be sued by the third party for the tort of deceit
• Agents who inadvertently exceed their authority can be sued for the tort of negligence

Question 15

Liability of the Principal for the Agent in Tort

Answer 15

The principal is liable for tortious acts of agent if done when carrying out duties of agency agreement

Question 16

Termination of the Agency Relationship (why/how does this happen)

Answer 16

Can be express or implied

Must have notice

If the agency agreement is for a particular act, agency automatically expires after act

Incapacity (death, bankruptcy, etc.) can terminate (except where minor is concerned)

Question 17

Bankruptcy of the principle in an agency relationship

Answer 17

This terminates agency agreement

If the agent contracts after bankruptcy of its principal, liability of agent to 3rd party for breach of warranty of authority

For ongoing agency relationships, principal must inform 3rd parties of termination of agency agreement

Failure to inform creates liability on principal as 3rd party can rely on apparent authority of agent

Question 18

Sole proprietorship

Answer 18

A business where the sole owner is responsible for the management, debts, and liabilities of the business

Easy to start

Question 19

Partnership

Answer 19

A legal relationship between 2 or more people for the purpose of carrying out a profitable business

Easier to raise capital

Question 20

Partnership vs Joint Ownership

Answer 20

Partnership is a contractual relationship

Partnerships as personal relationships, not freely alienable, whereas joint ownership can be

Partners are agent of other partners, co-owners are not

Partners share in assets can only be determined by liquidation (unless agreement provides otherwise)

Question 21

Partnership by estoppel

Answer 21

When someone holds themselves out to be partner to third parties and the real partners don’t refute, the relationship cannot be denied

The person becomes “liable as a partner” under the Act

Question 22

Liability of partners (3 types)

Answer 22

Liability through agency:
Every partner has authority to bind the firm (for activities in course of business)

Vicarious liability:
- whole firm is liable for tortious acts committed in regular business

Unlimited liability:
- personal and business assets are exposed in liability

Question 23

Jointly and Severally liable

Answer 23

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

Under several liability, each partner can be sued separately

Question 24

Rights and duties between partners as defined by the partnership act

Answer 24

If not otherwise stated in the partnership agreement:

all property brought into partnership by partners is partnership property, and must be used to the benefit of the partnership

Land brought into partnership is presumed to be in trust for benefit of partnership unless established otherwise

Can only expel partner by dissolution and formation of new partnership

Partners are in a contract of utmost good faith

Question 25

The Partnerships Act sets out a number of other circumstances that, though they involve the sharing of income, by themselves will not establish a partnership:

Answer 25

1. Owning property in common, even when it is rented out for profit 2. When a debt is repaid by the creditor taking a share of the debtor's profits 3. When the payment of an employee is based on a share of sales or profits, such as commission selling or profit-sharing schemes 4. When the beneficiary of a deceased partner receives the deceased partner's share of the profits 5. When a loan is made in relation to a business and payment of interest varies with the profit 6. When a business is sold and the payment of the goodwill portion varies with the profitability of the business

Question 26

For what reasons does the dissolution of a partnership occur?

Answer 26

- Usually a partnership is easy to dissolve, requiring only notice to that effect by one of the partners - Subject to the partnership agreement, a partnership is dissolved by the death or insolvency of any partner - A partnership that has been entered into for a fixed term is dissolved by the expiration of that term - A partnership that is entered into for a single venture or undertaking is dissolved by the termination of that venture or undertaking - A partnership is automatically dissolved if the business engaged in by the partnership becomes illegal

Question 27

A partner can apply to the court to dissolve the partnership if any of the following factors are present:

Answer 27

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 28

Distribution of Assets and Liabilities upon partnership dissolution

Answer 28

- 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 - All partners are liable to pay the creditors no matter what the partnership agreement says - they must also inform the public of the dissolution

Question 29

Limited Partnership

Answer 29

A partnership in which some partners are limited, in that their liability is only the amount of money they have invested Every limited partnership needs one or more general partner who has unlimited liability

Question 30

Limited Partner

Answer 30

Limited liability, can't actively manage the business or be named in the company name

Question 31

Information required to file for a limited partnership

Answer 31

Name of the firm, nature of the business, names of general and limited partners, capital contributed by limited partners, place of business, date of formation, term of partnership Changes require re-filing to take effect To provide creditors with enough info to decide if they want to do business with firm - provide enough information to enable creditors to sue

Question 32

Limited Liability Partnership

Answer 32

- A creature of statute - NOTE: Limited Partnership is different from a Limited Liability Partnership A form of partnership in which only the partner responsible for the loss faces unlimited liability with regards to negligence only Also, each partner still personally liable for debts of the firm

Question 33

Characteristics of a corporation

Answer 33

- A separate legal entity from those who it's made up of - Has limited liability meaning shareholders are shielded from liability for the corporation's debts; shareholders can only lose their initial investment - legally must operate to make a profit - Authorized agents of the corp. (directors) have authority to bind corp. to contracts

Question 34

Shareholder in a corporation

Answer 34

A person who holds a share interest in a corp. - part owner

Question 35

Director of a corporation

Answer 35

Under corporate law, a person elected by the shareholder of the corp to manage its affairs

Question 36

Officer of a corporation

Answer 36

A person elected or appointed by the corp.'s directors to fill a particular role obliged to report info to shareholders When major changes in the corp. occur they must hold a shareholder vote

Question 37

Control of the corporation

Answer 37

directors manage, shareholders generally have no ability to manage or to bind the corporation, only officers delegated by directors can bind corporation in contract

Question 38

Limited liability of shareholders of a corp.

Answer 38

Shareholder losses are limited to their investment in the corporation Creditors can only seize the corp.'s assets

Question 39

Transfer of interest in a corporation

Answer 39

Corporations are free to sell shares to the public Identity of the shareholder doesn't matter since they aren't liable for debts As long as payment is given for shares issued there is no other action that must be taken by the shareholder

Question 40

Term of a corporation

Answer 40

Company can live forever Or can be wound up or dissolved, does not depend on the health of shareholders.

Question 41

Methods of Incorporation: Royal Charter

Answer 41

Historically the only way to incorporate Permission granted by Crown to incorporate for specific purpose no longer used

Question 42

Methods of Incorporation: Letters Patent

Answer 42

A government document granted by a representative of the Crown that creates a corporation as a legal entity The corporation may have limited abilities No longer used

Question 43

Methods of Incorporation: Special Act Corporations

Answer 43

A corporation created by an act of parliament for a specific legislative purpose Expressly limited to the purpose they were created for

Question 44

General Incorporation Status

Answer 44

A form of incorporation whereby a corporation may be created by filing specific information required by the statute Must file a memorandum of association and articles of incorporation These corporations must adhere to the powers set out in the statue and memorandum

Question 45

Memorandum of association

Answer 45

The constitution of a corporation in a registration jurisdiction

Question 46

Articles of Association

Answer 46

Internal regulations setting out the procedures for governing a corporation in a registration jurisdiction

Question 47

Indoor Management Rule

Answer 47

A party dealing with a corporation may assume that the officers have the valid and express authority to bind the corporation Protects 3rd parties who may not have info regarding the internal management of corp.

Question 48

Corporate Securities: Common Shares

Answer 48

The usual form of shares have voting rights These are the shareholders who will elect directors of the corp.

Question 49

Corporate securities: Preferred Shares

Answer 49

Shares with special rights attached to them like first dividend rights

Question 50

Debt Securities: Fixed Charge

Answer 50

attaches to fixed assets of a corp as security for debt with a 3rd party

Question 51

Debt Securities: Floating Charge

Answer 51

Various assets of the corp. like inventory or AR are pledged as security The corp. is free to use these assets regularly, but if they default the debt crystallizes on the assets

Question 52

Debt Securities: Debentures

Answer 52

May or may not have specific assets pledged Lowest debt in priority

Question 53

information about directors of a corporation (how many directors? dividends?)

Answer 53

- Every corp must have a minimum 1 director - They have the exclusive right to declare dividends - Shareholders elect the directors of the corp.

Question 54

Director's Fiduciary duty

Answer 54

The director must act in utmost good faith for the corporation, if they fail to do this they may be personally liable They have the duty to exercise duties of office with care and skill of a reasonably prudent person in the circumstances The director cannot use corp.'s reputation for personal profit, nor can they make profit at corp.'s expense Actions of the director can't be illegal, fraudulent, or oppressive to shareholders

Question 55

Doctrine of Corporate Opportunity

Answer 55

A director is prohibited from using corporate information for personal benefit that will be detrimental to the corp. Applies to things like property and insider trading

Question 56

Director's Personal Liability

Answer 56

Directors can be held liable for a corporate loss if they committed the corporation to an act of ultra vires (out of its scope) Also personally liable if they sell shares at a discount

Question 57

Director's defense of Due diligence

Answer 57

If the director exercised the care and skill that a reasonable person would exercise in comparable circumstances they can raise a defense

Question 58

Right of Minority Shareholders to take action

Answer 58

Minority has ability to take action against majority on behalf of corporation where: - Act is ultra vires - Affects rights of minority shareholders - Corp failed to comply with procedural requirements of approval - Act constitutes fraud on minority shareholders

Question 59

The Canada Business Corporations Act

Answer 59

Provides relief to shareholders who believe the corp. has been injured by the directors May apply if: - Reasonable notice given to directors of intention to go to court + directors refused to act - in best interest of corp to act - Complainant acting in good faith Court can allow the action, and can also require corp to pay the shareholder complainant's legal fees

Question 60

Dissolution of a corporation

Answer 60

- Dissolution can take place either voluntarily or involuntarily, and the procedure can be induced internally, by the directors or shareholders, or externally, by the courts or creditors - Bankruptcy - One of the most common ways for corporations, especially small, closely held corporations, to come to an end is for the principals simply to neglect to file the annual return

Question 61

Case Example: | Salomon v. A. Salomon & Co. Ltd.

Answer 61

* The leading case on the corporation as a seperate entity * Salomon was initially a sole proprietorship * He then created a corporation called Salomon & Co. Ltd. * He sold the sole proprietorship to the corporation, and personally loaned the corp. money as a priority creditor so that it could buy the business * When his corporation failed, other creditors challenged his priority status as a creditor * The courts held that he is not the company.