Bus Law Chapter 13

Fiduciary Duty & Profit and Conflict Rule

A duty imposed on a person who has a special relationship of trust with another. Requires "utmost good faith to the principal". The profit rule: fiduciary cannot personally profit by virtue of her position. Conflict Rule: Fiduciary must not place herself in position where her own interests conflict with the interests of the principal. Exist outside agency relationships too.

Principal Ratification Limitations

A principal can only ratify (authorize or approve) contracts his agent enters into within a reasonable time, the principal had the capacity to create the contract at the time the agent entered into it and at the time of ratification, and the agent identified the principal at time of entering the contract. Principal ratifications can be express or implied.

Agent exceeds both Actual and Apparent Authority

Agent is liable to the the third party for breach fo warranty of authority.

Major Risks of Agencies

Agent may exceed his actual authority but act within his apparent authority and bind a principal to an unwanted contract. Principals must inform outsiders when a person ceases to be their agent and to inform outsiders of limitations on agent's usual authority.

Tort Liability in the Agency Relationship

An agent is personally liable for any torts that she commits. The fact she may have been acting on behalf of another is no defence. The principal is liable for torts committed by the agent when he's acting within his authority. I.E Principals are vicariously liable for agent's if they're acting within express, implied, or apparent authority.

Liability of the Agent to the Outsider

An agent who acts without authority and contracts with an outsider is liable to the third party for breach of warranty of authority. No contract between either the principal and the outsider or the agent and the outsider. Principals can adopt contracts of agents who act outside of authority, but aren't bound because contract is not within actual or apparent authority Agents may also be bound when he contracts on his own behalf to be a party to the contract along with his principal.

Categories of Fiduciary Relationships

Are not closed and can exist outside settled categories. Duty can arise in any relationship where one party possesses power and influence and the other possesses reliance, vulnerability, and trust through express or implied undertaking to act with loyalty. Must create discretionary power to unilaterally affect vulnerable party's legal or practical interest. Not all power dependency relationships are fiduciary (conduits or information and simply taking orders) Since relationships can be easily defined as fiduciary, it's incumbent on those who offer services to others to understand the indicators of fiduciary relationships and where fiduciary duties exist. The innocent party can look to remedies outside of one's found in contract or tort like equitable remedies.

5 Fiduciary Duties

Contents of duties vary with circumstances but these are the general rules: Make full disclosure of all material information that may affect the principal's position, avoid any conflict of interest that affects the interests of the principal, avoid acting for two principals in the same transaction, avoid using principals property, money, or information to secure personal gain, Avoid accepting or making secret commission or profit.

Duties of the Agent

Contractual Duty: Failing to perform duties is breach of contract, Must perform in accordance with principals instructions. When the principal hasn't given instructions on how to perform duties, performance must meet standard of the trade or industry. Expected that agents personally perform obligations, but express or implied provisions for delegation maybe present. Fiduciary duty (best interests): Highest duty there is, breach of trust = breach of diucairy duty, agent must act in best interest of principal, put principal interest above all interests, act honestly, in good faith, full disclosure, can't compete, take side,s delegate authority without consent.

Agency by Estoppel

Created when the principal's actions make third parties reasonably conclude that an agency relationship exists (Apparent) and when the principal indicates that another person is his agent when he isn't or represents to the outside party the Agent has authority in excess of actual authority given (Actual and Apparent). The principal is not permitted to avoid contracts by claiming (even if true) that no agency relationship existed, because the principal gave the appearance one did. Law sides with the customer through estoppel in disputes. Another situation is when an agency relationship has been terminated or an agent's authority has been curtailed without notifying the other party (Apparent).

Agents Are

Employees, Partners, Independent Contractors, Officers of the Corporation

Estoppel vs Ratification

For both, the agent has no authority to do what he does. The distinguishing factor is whether the principal has conducted himself in a misleading way. Estoppel forces principals to be bound by unauthorized contracts, but by ratification, the agent may equally be out of line, but not due to any fault or misrepresentation by the principal.

Promissory Notes and Power of Attorney

If agents issue promissory notes or sign cheques in the name of the principal, agency agreement must be in writing. Power of attorney is a grant of authority under seal permitting the agent to sign documents on behalf of the principal under seal.

Unnamed Principal

If the agent tells the seller he is acting for a principal, but that he isn't at liberty to reveal the principals identity, the principle will be liable on any contract he enters into with the seller. The agent has no liability since the seller chose to make a deal with an unnamed principal. If the principal is unnamed, the agent has no apparent authority, just actual authority. If the agent acts outside his actual authority, that contract isn't binding unless he chooses to ratify it. Cannot sue for breach of contract, can sue for misrepresentation (fraudulent or negligent) un tort. Damages compensated for harm caused (difference between where you were and where you are). Breach of contract, you can sue for position you'd be in if contract were in place

Examples of Fiduciary Duties outside of Agents & Principals

Lawyers and clients, accountants and clients, partners, directors and senior officers of corporations and the corporations, senior employees and employers.

Law of Agency

Little legislation pertaining to this, except special statues governing the duties and responsibilities of specific kinds of agents

Creation of Agencies

Most often arise by contracts between parties, sometimes by conduct. Parties don't specifically agree to relationships but through words or actions, outsiders are led to believe relationships are agencies.

Agency by Ratification

One party adopts a contract entered into on his behalf by another who at the time acted without authority. The law doesn't force the principal to adopt the contract, but permits him to make the decision for himself for his best interests. Agency is created when the principal adopts the transaction. Principal adopts actions of X, and X retroactively becomes an A. No authority until the Principal adopts X's actions

Agency Defined (2 main relationships)

Operate with few difficulties. The two main relationships within agencies is the relationship between the agent and principal and between the principal and party with whom the agent does business (outside or third party).

Express Authority

Part of actual authority. Written or oral authority granted by the principal to the agent. Authority that the agent actually possesses.

Termination of Agency Agreements

Parties may agree to bring relationship to an end, one party may give notice of termination to the other, agency relationship can cease by operation of the law due to death, dissolution, insanity, bankruptcy. Principal should give notice to third parties so customers don't assume agency relationships are continuing, as the principal may face liability to outsiders based on his agent's apparent authority without notice. When consent is withdrawn within contract, agreement, performance, frustration, breach, death or insanity, apparent authority might still exist.

Agency by Agreement

Principal authorizes an agent to act on his behalf in return for a fee. Often only for contracts for a single purpose or it arises as part of another, broader contract. Not all employees are agents for businesses that employ them. May be implied, oral, writing, writing under seal. Principal expressly or impliedly appoints X as an Agent. Agent has Actual (Expressed and or implied) and Apparent Authority.

Agent Acts Within Actual Authority

Principal is liable to the outsider

Agent Acts Without P's Authority

Principal is liable to the third party if he chooses to adopt the contract

Agent Exceeds Actual, but Acts Within Apparent

Principal is liable to the third party unless the third party knew or ought to have known of any limitation on the agents authority. Agent is liable to Principal for breaching authority

Agency

Relationship between two people permitting one person, the agent, to affect the legal relationships of another, known as the principal. Equivalent to principal signing contract themselves. Essential to the success of the principal, who may not have expertise to handle the given matter. Almost all business transactions have agents, like directors or employees representing the company. Results in a legally binding agreement between the Principal and 3rd party. Agency is exception to doctrine of privity as principals have an agency agreement with agent, have main contract with 3rd party, and agent negotiates with 3rd party. Usually created by contract, but all that is necessary involuntarily entering into an agreement = consent. Agent has scope of authority, duties to be performed, the fees to be paid in creation of contract

Actual Authority

The power of an agent that derives from express or implied agreements. Nature of authority given to agents is inherently flexible and easily customized. Authority agent actually has

Apparent Authority

The power that an agent appears to have to an outsider because of conduct or statements of the principal. As long as agents act within apparent authority, the principal will be bound by transactions unless third parties knew or reasonably should've known the limitation on the agent's authority. Authority agent appears to have, can have if she doesn't have actual authority. Limitation of apparent authority is what's considered reasonable by the third parties perspective. As long as the agent wants within actual or apparent authority, results in legally binding contract. If told what actual authority is before negotiations, should equal her apparent authority. Comes from words or deeds of the principal (not the agent). They must create the appearance that the agent has apparent authority

General Rule of Undisclosed Principles

The principal is still liable on the contract so long as the agent is acting within his authority, but the agent has no liability. If the agent pretends to be the principal and doesn't disclose the existence of the principal, the agent may be personally liable on the contract since if the written contract indicates the agent is the principal, the parol evidence rule may prevent admission of evidence of an undisclosed principal.

Liability of an Undisclosed Principal

The principal's identity is unknown to the third party. She doesn't know the agent is acting in an agency capacity. She doesn't know she is dealing with an agent and assumes that the party she is dealing with is acting only on his own behalf. If the principal is undisclosed, the contractual relationship is between the agent and 3rd party.

Absolute Prohibition (Fiduciary Duties)

There is no absolute prohibition against the 5 duties. The agent must not do any of the 5 duties secretly and must obtain fully informed consent of the principal.

Implied Authority

Under Actual Authority, authority agent actually has, but present by implication only. Exists when its inferred from the position the agent occupies, is reasonably necessary to carry out the agent's express authority, arises by virtue of a well recognized custom in a trade, industry, or profession. Contracts can contain implied terms concerning nature and the extent of agent's authority. Aren't less real than express terms, but exist in another, less tangible form

Duties of the Principal

Usually aren't as onerous as agent's and normally are set out in the contract creating the relationship. Pay the agent a specified fee or percentage for services unless it's free, assist the agent in the manner described in the contract, reimburse the agent for reasonable expenses associated with carrying out agency duties, indemnify against losses incurred in carrying out the agency business. Contractual (honour the contract, pay fees). Vicarious Liability: Principals liable when agents who are employees acting in scope of employment, agents acting in scope of agency duties and even fraud theft for non employee agents if agent is chosen.

Concept of Authority

When agents act outside their given authority, contracts may still bind the principal if the agent possesses actual or apparent authority.

Liability of the Principal to the Outsider

When agents enter into contracts on behalf of a principal with a third party, the principal is liable on the contract. The principals liability to the third party depends on the nature of the agent's authority.

Liability of the Agent to the Principal

When an agent exceeds his authority, the principal can sue the agent for breach of contract assuming one's in place.