5 Agency

Question 1

What is “agency”?

Answer 1

Refers to the relationship that subsists between two persons when one, called the agent, is considered in law to represent the other, called the principal, …to affect the principal’s legal position in respect of strangers to the relationship by the making of contracts or the disposition of property.

The corporation cannot sign a document, nor can it manifest assent in the way that an individual can, so we need a mechanism by which somebody else can asset on behalf of the corporation – this mechanism is “agency”.

Question 2

Who are the parties involved in any contract created via the application of “agency”?

Answer 2

1. The Principal: This is the person on whose behalf the agent is acting (the corporation);
2. The Agent: one of the people who is a signatory, or otherwise concludes the contract at issue; and
3. The Third Party: the party that has allegedly contracted with the agent. Sometimes referred to as the “contractor”.

Question 3

What is “actual authority”?

Answer 3

The legal relationship between principal and agent created by a consensual agreement to which they alone are parties.

Question 4

What are the subtypes of “actual authority”?

Answer 4

• Actual Express Authority
• Actual Implied Authority
• Presumed Actual Authority (Necessity)
• Antecedent Actual Authority (Ratification)

Question 5

What is “actual express authority”?

Answer 5

Authority created by contract (Freeman & Lockyer) or statute (The Sale of Goods Act, the Highway Traffic Act etc.).

Question 6

What is “actual implied authority”?

Answer 6

Authority created by implications drawn from the words used in the contract through authority which is necessarily incidental to achieving the larger purpose of the agency or authority based on position.

Also arises from the course of conduct (usually involves independent action by the agent and some passive, seeming acquiescence by the principal).

Question 7

What is “presumed actual authority (necessity)”?

Answer 7

Authority where the “agent” acts to protect the life of the property of the “principal”, in circumstances where there is insufficient time to go get specific authority from the principal to protect the principal, or his, her, or its property. Even though the principal did not give the agent authority, if the agent took reasonable steps to protect the life or the property of the principal, the law presumes that the authority was given.

Question 8

What is “antecedent actual authority (ratification)”?

Answer 8

Authority where at the time the agent did the act, the agent did not have the authority to do the act, but Afterward, the principal wishes to give the agent the authority now to have done what the agent did back then.

Question 9

What are the requirements of ratification within the context of agency?

Answer 9

At the time that the agent acted, he or she must have purported to:
- acted on behalf of the principal;
- the principal must have been in existence and competent;
- The act of the agent must be capable of ratification, and legal
for the principal to do (that is, not void at law);
- The ratification, if permitted, must not work a hardship on the
rights of third (or subsequent) parties;
- The act of ratification must follow the agent’s act; and
- The principal must have the intention to ratify.

Question 10

What is “ostensible/apparent authority”?

Answer 10

A legal relationship between the principal and the contractor [third party] created by a representation, made by the principal to the contractor, intended to be and in fact acted upon by the contractor, that the agent has authority to enter on behalf of the principal into a contract of a kind within the scope of the ‘apparent’ authority, so as to render the principal liable to perform any obligations imposed upon him by such contract:Freeman & Lockyer.

Question 11

What are the requirements to establish ostensible/apparent authority?

Answer 11

1.There must be a representation made to the third party;
2.The actions taken by the agent must fall within the scope of the authority to enter into this type of contract on behalf of the principal;
3. The representation must be made by the corporation (a person with actual authority to manage the business of the corporation “either generally or in respect of those matters to which the contract relates”);
4. There must be reliance by a third party, such that the representation induced to enter into the contract; and
5. There must be a corporate capacity.

Question 12

What is the ratio from Freeman v. Lockyer v. Buckhurst Park Properties (Mangal) Ltd.?

Answer 12

Four conditions to entitle a contractor to enforce against a contract entered into on behalf of the company by an agent who had no actual authority to do so:
1) Representation that the agent had authority to enter on behalf of the company into a contract of the kind sought to be enforced was made to the contractor;
2) That such representation was made by a person or persons who had “actual” authority to manage the business of the company either generally or in respect of those matters to which the contract relates;
3) The contractor was induced by such representation to enter into the contract, that is, that he in fact relied upon it; and
4) That under its memorandum or articles of association the company was not deprived of the capacity either to enter into a contract of the kind sought to be enforced or to delegate authority to enter into a contract of that kind to the agent.

Question 13

What is the ratio from Canadian Laboratory Supplies Ltd. v. Englehard Industries of Canada Ltd.?

Answer 13

Ask yourself; 1) Who did the something that the corporation does not want to be responsible for? If they don’t have authority, then you need to find 2) Someone who has actual authority who gave it to the first person.

Question 14

Agency Flow Chart

Answer 14

1. Is there actual express authority
2. if not, is there actual implied authority?
3. If not, is there presumed actual authority? (aka “agency of necessity”)
4. If not, is there actual antecedent authority? (aka ratification)
5. Is there ostensible authority in the agent? (if not, did the principal do anything that might lead the court to believe there is OA)
6. How does the statute affect this analysis? (Section 18 or common law)

Question 15

How can you determine whether an agent has “actual authority”?

Answer 15

a. Do the words of the agency agreement between the principal and the agent specifically cover the actions taken by the agent?
b. Is there a statute that provides the specific authority needed?

Question 16

How can you determine whether an agent has “implied authority”?

Answer 16

First Look at the contract b/t principal and agent:
- Do the words, through the application of basic contractual principles, imply such a term?
- Is the authority claimed incidental to the larger purpose of the agency, for which the agent clearly has authority?
- Does the title of the position to which the agent has been appointed provide a basis for saying that the authority of the agent is so notorious or customary that simply giving the person that title implies the giving of the authority that one would expect would go with the title?

Second, look to the course of conduct between the alleged principal and the agent –
- the principal gives specific instructions to the agent to go beyond the agent’s original authority or
- the agent asks for additional authority, and the principal impliedly agrees; or
- the principal knows that the agent is going beyond the agent’s original authority and does nothing to stop him.

Question 17

How can you determine whether an agent has “antecedent authority” (aka ratification)?

Answer 17

a. At the time that the agent acted, he or she must have purported to act on behalf of the principal;
b. At the time that the agent acted, the principal must have been in existence and competent;
c. The act of the agent must be capable of ratification
d. The ratification (if permitted) must not work a hardship on the rights of third or subsequent parties
e. The act of ratification must follow the agent’s act;
f. The principal must have the intention to ratify

Question 18

How can you determine whether an agent has “ostensible authority”?

Answer 18

a. Was there an express or implied representation made with respect to the authority of the agent?
b. Did the actions of the agent fall within the scope of this representation?
c. Was the representation made by a person with actual authority to make it?
d. Was the third party induced into the contract by the representation of the principal?

Question 19

What are pre-incorporation transactions?

Answer 19

Transactions entered into by an agent purporting to act on behalf of a corporation that, at the time that the transaction is entered into, did not exist. The need to do this is pushed forward by the fact that businesses really can move very quickly

Question 20

How do oral contracts function pre-incorporation?

Answer 20

Common law usually applies to oral contracts. At common law, you cannot contract with a person who does not exist at the time that the contract is entered into. You can use novation – you can agree to the same terms in a new agreement once the corporation is incorporated

Question 21

What are four situations in which pre-incorporation transactions are relevant?

Answer 21

• If both parties knew the corporation didn’t exist = personally bound
• If one party thinks the corporation exists but turns out it doesn’t = no contract
• If the promoter thinks he is acting on behalf of the corporation and it doesn’t exist and whether the other side thinks it does or not = no contract, Needs consensus ad idem
• i.e. unless both parties knew there wasn’t a corporation, there is no contract at common law

Question 22

What is the ratio from Kelner v. Baxter?

Answer 22

Where the parties know that the corporation does not exist and know that a non-existent entity cannot contract, yet intend to contract with each other, their intention is held to be have been to contract with each other personally. If both parties know that the corporation does not exist, and nonetheless attempt to contract, they must intend to contract personally, unless a contrary intention is clear.

Question 23

What is the ratio from Newborne v. Sensolid (Great Britain) Ltd.?

Answer 23

English Court of Appeal ruled that there was never a contract because they believed the corporation existed, so they intended to contract with the corporation, not the individual. Created a presumption when both parties KNEW that the corporation didn’t exist when they entered into the transaction.

Question 24

What is the ratio from Black v. Smallwood?

Answer 24

If the parties both believed that the corporation existed at the time that the contract was entered into, the intention of the parties could not have been to bind the agent personally and neither the corporation or agent will be held liable.

Question 25

What typically governs written contracts pre-incorporation?

Answer 25

Statutory rules usually applies to written contracts.

Question 26

What is the ratio from Sherwood Design Services Inc. v. 872935 Ontario Limited (1998) 39 OR (3d) 576 (CA)?

Answer 26

When arguing whether there was an adoption, ask: Would the lawyer’s letter be sufficient to satisfy statutory requirements for adoption of the pre-incorporation transaction? any conduct that signifies an intention to adopt is enough, If so, did the letter signify intention of the corporation? Authority based on s.18(1)(d),

Question 27

What is the distinction between Section 21 of the CBCA vs Section 14 of the CBCA?

Answer 27

Section 21 covers both oral and written contracts while section 14 covers only written.

Question 28

What is the ratio from
1393918 Ontario Ltd v. 1310210 Ontario Inc.?

Answer 28

Understanding 14(4) – The general rule that when the promoter signs their name in the name of a company that does not exist, the signor is bound until the company adopts.

DMac notes: If you’re able to get a 14(4) inclusion, it basically gives you a free run.

Question 29

What is the ratio from Benedetto v. 2453912 Ontario Inc.?

Answer 29

In this case there was a 14(4) inclusion and the promotor had paid a deposit to keep the transaction on foot. Purchaser refused to complete, and promoter argued he was owed the deposit back.

Deposits are non-refundable - otherwise they’re not deposits.