Chpt 17: Agency/Franchise Flashcards
What is an agent?
Someone who acts on behalf of a principal in contractual relations with third parties
What is a common example of an agent
Employees can be agents, some employment contracts give employees authority to make contracts for the company (e.g. insurance agents)
What is the difference between a dependent and an independent agent?
Dependent agents only have one principals (e.g. insurance agents only work for one insurance firm)
Independent agents can have many principals (e.g. stock brokers can have many client)
What is a commission agent?
Someone who sells goods or services on behalf of a principal and receives commissions from the principal for those sales
Why isn’t a real estate agent a real agent?
Can’t sell a property on behalf of a client
Who can have an agent?
Anyone who has capacity to form a contract may employ an agent
What is the main way of forming agency relationships?
An agency agreement between the agent and the principal.
Rules of a contract apply to an agency agreement
What form can an agency agreement take?
It can explicit, implicit, oral, written or written under seal
T/F: Any agency agreement can extend beyond a year
F: Any agency agreement extending beyond a year must be written
I let Mison make contracts with third parties on behalf of me. Is he considered my agent?
Yes, this is agency by estoppel
What duties are owed by an agent to the principal?
1) Duty to comply with the agreement (both explicit and implicit terms)
2) Duty of Care to keep principal informed of all important developments
3) Do all the work him/herself unless permission is given by the principal
4) Fiduciary duty to the principal (act in the best interest of the principal, obedience/diligence, competence, good faith)
What duties are owed by a principal to his/her agent?
1) Any duty listed in the agency agreement
2) Duty to compensate
3) Duty to pay expenses/account for losses
What is the difference between actual and apparent authority?
Actual authority is the authority that the principal has either explicitly or implicitly given an agent
Apparent authority is the authority that a third party is entitled to assume an agent has
Kyle wants to make a contract with Austin. Mitch says he is an agent of Austin and arranges a contract on behalf of him.
As it turns out, Mitch isn’t his agent!
Is this contract binding?
Yes, the contract is binding since Kyle has the right to assume Mitch’s apparent authority, even if Mitch’s actual authority is non-existent.
However, because Mitch was never implicitly or explicitly given authority, he is now liable for any losses Austin incurs.
What are the two ways apparent authority can arise?
1) Commercial Usage/Usual Authority - A third party can assume an agent has the authority usually granted to agent in that industry
2) Holding out/Estoppel - When the principal acts in a way that suggests an agent has a certain authority (or doesn’t deny it)
What is ratification?
When a principal validates a contract made by an agent without authority
What is necessary for a contract to be ratified?
1) Implicit or explicit ratification from principal
2) Reasonable time must pass
3) Principal must be named
4) Rights of an outsider must not be affected
5) Principal must have capacity to create a contract (both at ratification and creation)
Who is liable when an agent forms a contract on behalf of a principal?
ONLY THE PRINCIPAL IN ALMOST ALL SITUATIONS
When is the principal not liable for contracts formed by her agent?
If the agent has insisted that the contract is between the third party and the agent but the agent is actually signing as an agent to the principal.
Kyle makes a contract with Mitch. Mitch doesn’t mention that he is an agent of Austin, but he also doesn’t say he is going to be the other party.
Who is liable for the contract’s terms, Mitch or Austin?
Kyle can choose either Mitch or Austin.
Mitch is Austin’s agent. He says experts say there is a 110% chance of Austin scoring a million goals next season, so Kyle signs a contract.
This turns out to be a fraudulent misrepresentation. Who is liable?
Either Mitch or Austin is liable for a deceit or negligent misrepresentation tort
Mitch pretends to be Connor’s agent and signs a contract with Kyle. Can Kyle sue Mitch?
Yes, under the breach or warranty of authority if Connor doesn’t ratify.
When can agency be terminated?
- Time specified by agreement is reached
- Reasonable notice given by either party
- Project for which the agreement was made is completed
- Death or insanity of either party
- Bankruptcy of principal
- Event that makes fulfillment of the agency agreement impossible
What is Franchising?
When a Franchisor licenses IP, confidential information and know-how of a business to a franchisee
The franchisee is a separate business from the franchisor.
What is in a typical franchise agreement?
- Services to be provided by franchisor
- Licensing of IP
- Provision of Financial Assistance
- Arrangements for inventory/materials supply
- Capital to be provided to Franchisor
- Franchise fee
- Ongoing payments to Franchisor
- Activities and geographies limits
- Provisions on business conduct
- Duration of relationship
- Termination
- Restrictive covenants - Non-competition, non-solicitation, confidentiality
- Dispute resolution
What is the franchisee’s duty to the franchisor?
Must act with Utmost Good Faith
- Honestly
- Responsibly
- Fairly in negotiation and performance of contract (for both parties)
- Enhance and protect the value of the brand
What legislation governs franchising?
- Arthur Wishart Act -> Financial statements must be given to prospective franchisors
- Right to Associate -> Franchisees may form associations without interference
- Franchisor Disclosure Agreement -> Disclosure document given at least 14 days before signing
- > Franchisee has right to rescind
- > Franchisor liable for misrepresentations
