1 OUTLINE PROFILE: Author: Robert Buisson School: University of Manitoba Course: Trusts Year: Fall 1997 Professor: Neil Osborne Book: Agency Primer 1st ed. Cameron Harvey. ________________________________________________________________________________________ SOURCE OF THIS OUTLINE: ILRG Law School Course Outlines Archive Internet Legal Resource Guide LawRunner: A Legal Research Tool ________________________________________________________________________________________ MESSAGE FROM THE AUTHOR: If you have any questions, feel free to e-mail me at . Good luck! Sincerely, Robert Buisson ________________________________________________________________________________________ USAGE NOTICE AND DISCLAIMER: Although the Internet Legal Resource Guide (ILRG) has tried to assemble the best possible outlines, we make no warranties as to the accuracy of the information they contain. Use them at your own risk, and do not rely on them for legal advice. 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Otherwise, the authors of these outlines and the ILRG genuinely hope you derive benefit from them. 2 Agency Outline -Professor Ozzy Osborne -1997 -By Robert Buisson This outline is based entirely on Rob Buisson’s notes, with a few lines borrowed from Cam Harvey’s “Agency Primer”. Usually there are three actors in an Agency Relationship: The Principal -This is the person who the Agent is acting for. ("P") The Agent -The Agent assumes the power that the Principal has conferred upon him, or his unconferred actions that the principle later ratifies. ("A") The Third Party -This is the person that the Agent contracts with on behalf of the Principle. ("TP") In essence, the Agent has the power to change the Principal's legal relationship with the Third Party. Some use a trust analogy to explain agency, suggesting that the Agent holds the Principal's legal relationship in trust. The P can give Actual Authority to the A (confers certain Powers to the A). The P can also give "Apparent Authority" to the A. In such an instance, very little actual power was given to the agent, but the A was held out to the TP to have greater Authority than he had. In such instances, the P is bound by the A's actions so long as he appeared to have the authority to act in the manner he did, and the TP had an honestly held belief that the A could exercise such power. Lastly, if a P has economic interests in immediate peril, an Agent can come in and save the day without authority, and the P will be expected to reimburse A. This is called "agency of necessity". Agency and Sale One must be careful in areas of Agency and Sale, as two different relationships may arise. Firstly, you may have a sale to A and a resale to TP, or you may have a sale to TP from P through the Agent. Also, the label of "Agent" means nothing. If a person is called an agent, but does not look like one, the court will see through the label. Control and intention are the keys to deciding agency. Actual Authority: Express Authority Real Authority: Statutory Authority Deemed Actual Authority: Ratification Apparent Authority: Estoppel based Presumed Authority: Necessity Implied Agency: Surrounding Circumstances imply agency, without expression of authority. Extemely difficult to successfully argue. Healy Hutchinson v Brayhead Perdo electronics was managed by HH. P got loan from the bank, then sold shares to B for more money. B wanted to take over, and encouraged HH to put more into the company. HH agreed, but only if B would guarentee his loans. B"s employee R said "OK". HH did this, then went bankrupt. R was the chairman of the B"s Board. Was B liable? B said no, had no authority. the defacto managing director, and had been doing this for years, and had implied authority. The CA bought the agument. If overwhelming evidence is in existance, the court will implyagency. NOTE: due to the fact that HH was on B"s board, he could not argue apparent authority, because he knew he did not have it. Therefore, they argued implied authority. McCannel v Maybe Motors Doctrine of privity came into play between car dealers who agreed on sale territories with the manufacturer. There was no privity between the dealers, although all agreed to the territorial allignment. Held: There was an implied agency between the dealers and the manufacturer, and a contract between all the dealers resulted. 3 Incapacity Children: two views 1. Children can"t appoint agents, due to lack of judgment to choose appropriately. 2. Minors can make contracts, can thus appoint agents. However, like any contract made by a minor, they are voidable. Adult Incapacity -based on contract principles -two views 1. Incapacitated X attempts Contract with Y. Contract is voidable if Y has actual or contructive notice of X’s incapacity 2. Voidable if you prove actual/constructive knowledge AND contract is unfair in the circumstances. Hill Estate v Chevron Hill has land with oil. C is interested in leasing it. C is told H is in a care home and can only sign with an X. This could mean he is physically incapacitated, or is also mentally incapacitated. Either inference is acceptable. C asks H"s spouse to get Power of Attorney, and contracts through her. Years go by, both H and his wife die, the price of oil skyrockets, and the family tries to get rid of the lease. Held -TD -At the QB, they rule that they knew he was incapacitated, but theagreement was fair at that time, and could not be struck down Held -CA -At the CA, they ruled that contract principles don"t apply, that the Power of Attorney was void ab initio if a principal is incapacitated. This also leaves a breach of warrant of authority suit against the Agent in such cases, as the A, in law, cannot have the authority he purports to have. The Mental Health Act Agency is allowed under certain circumstances under the Act, through the issuance of a certificate of incompetence. If outside a mental institution, the person must first be given an order of supervision, then the certificate. Also, see Section 88(1) of the Vulnerable Persons Act. If P gives A authority, and then goes Bonkers later, what happens then? Common law: Agency becomes void upon insanity. Possibility of lingering apparent authority until notice of insanity reaches the Agent. The Power of Attorney Act 4(1): Deals with TP are valid if he didn"t know of mental incapacity. 4(2): Agent is also protected if he didn"t know of mental incapacity. Also, Power of Attorney will not automatically terminate due to mental incapacity of the Principal. Under 20(3), the PofA will only be void if person who granted it was already nuts. Can also have a springing power of attorney under the act, whereby the Agent does not get a PofA until the Principal is certifiably insane. 3 Power of Attorney Situations 1. Written Empowerment -Deed -general and complete powers can be conferred 2. Specific empowerments made by deed 3. Any written empowerment, not necessarily by deed. The third one is contentious, as there is no definition of this in the PofA Act. No one really knows if a deed is really necessary anymore. Express Agency Agreement No need to be in writing, unless agent is is entering into a deed. There are several stupid rules about deeds in agency law. ("SD") SD1: Agent deals in deeds, empowerment must be in form of a deed. SD2: If empowerment is given by way of deed, court will only look at written words for the deed's powers. if terms of agency are vague, court will try to interpret it, using the best meaning, and outside evidence (unless SD2 rule is applicable). Where 2 reasonable interpretations exist, it will be construed in favour of the TP and A (usually amounts to a broader meaning). 4 Q7: No express power to lease in the example. However, if not a deed, can look to outside factors (like nature of business) to read it in. Implied Incidental Authority and Implied Customary Actual Authority Giving of ancillary powers, as it would be impossible to use agency powers without these additional ancillary powers. Very rare that this happens (five cases in Canada) Fine Made Garments v Golds P gave express Actual Authority to A to sell clothing. Took the order, TP noticed that 6 coats they received were the wrong ones. The called A, and A said to hang on to the coats, try to sell them, and if they remained unsold, they could be returned. TP tried to return them at the end of the season, P said no way, and that A did not have authority, and P refused to ratify. Held: Argument that there was implied incidental authority was shot down. This sort of thing was not incidental to the power to negotiate a sale. There was no apparent authority either. This was never done before, P did not hold out that he could do this. Also, it was not a tradepractice. TP had to sue A for breach of warranty of authority if he wanted damages. Agency by Necessity 1. Necessitous intervention 2. Agency by Necessity Necessitous Intervention applies to situations where intervenor at own expense provides goods and services or money to take care of somebody else’s health, goods, and money. It is not intended to be a gift. Question of unjust enrichment. Example would be to fight a fire at a vacationing neighbour’s house. Agency by Necessity has two different sub-catagories. 1. Person who accepts a bill of exchange for the honour of the drawer. Person holds funds for drawee, Person who promises it will be payed is the drawer, and person you pay it to is the payee -A intervenes, pays it off for the honour of the drawor. 2. Owner of ships and captain of ships -between Owners and Captain there is express actual authority, but rather limited. It may be necessary due to lack of communication for the Captain to exceed that authority to save the ship, cargo’s, etc. Requirements of Agency of Necessity 1. Must prove A could not Communicate with P 2. Must prove transactions were necessary, not just "a good idea" 3. Agent must be acting Bona Fide in the best interest of P. Praser v Blatspiel, Stamp and Heacolk Romanians take furs, about to sell them for P, then Germany invades and can't communicate with P. A, after two years, sells the furs without authority. The War ends, fur prices skyrocket, and P sues for conversion Held: Acted in good faith and lost communication, but there was no necessity, as furs don't go bad or deteriorate with age. P wins. Sachs v Miklos P gives furniture to A to store during the winter. Germany starts sending V-2 rockets into Britain, making contact with P impossible. Kept furniture for 3 years, and finally sold it for 15 pounds. 6 years after the furniture was stored, P asks for it back. Furniture prices skyrocketed, and sued for conversion. Held: same as above. The sale was not necessary, only did if for convenience. Hastings v Semans Village Person breaks leg, SV provides medical services. A was the medical health officer, who put the victim in a hospital on behalf of P. A could not wait for a town council resolution, as this was an emergency. A entered into contract on behalf of P with the hospital. The stay in the hospital turned out to be 76 days. P, not wanting to pay for this, argued that A had no authority. A argued Agency of necessity. 5 Held: Communication was once again the big concern. Since there was no way to pass a resolution this soon, it was ruled that no communication could occur. Note that agency of necessity was not necessary to P, but to an injured non-party. Note: Ozzy thinks this was a situation of Necessitous Intervention, and not Agency of Necessity. Buisson: I disagree with Ozzy on this one. Can’t be necessitous intervention as their does not appear to be any unjust enrichment, in the traditional sense (getting medical care is hardly unjust enrichment). If there is necessity, then actual authority is the result. Family Agency arose from a radically different environment then today (women could not contract, no family law, no social welfare). There is no real situation where it would apply today. Requirements for Family Agency: 1. Don't have to be legally married (Common Law Spouse) 2. Must be living together 3. Necessaries must be related to living standard 4. Husband can forbid the Credit 5. If the wife has her own means, then its not necessary. 6. Husband can't pledge his wife's credit. Legislation The Highway Traffic Act creates an agency between owner and driver. This Agency is applicable to personal injury claims. The Sale of Goods Act creates an agency when seller retains possession over sold goods. The Powers of Attorney Act (4(1) and 4(2)) protects TP and A until they receive notice that agency is disolved. Ratification Where No Actual authority or no pre-existing agency relationship, the Principal may ratify the contract the A negotiated on his behalf. Once Ratification has occurred, there is deemed retroactive actual authority. The TP will be bound even if they changed their mind between the date of the purported contract and the ratification. Lindbergh v Halifax City Former owner asked city for bigger water pipes. They put them in, and then a dispute over the cost occurred. Former Owner didn"t ever pay, and he sold his premises. City went after new owner, and he paid after the City threatened to turn off the water. Then new owner went after prior owner, who in turn went after the city of Halifax. Former Owner claimed new owners where his agents, hence they acted without authority by paying the city, so he ratified the agreement by paying them back, hence he wanted his money back. Held: CA reversed TD and said the new owners were not acting on behalf of the old owner and could not ratify. This shows the difficulty of asking courts to infer or imply that the agent was acting on the Principal's behalf. Here, it was not clear that they were acting on anyone's behalf but their own. Named Principal: Ratification is ok. Unnamed Principal: Ratification may be difficult. So long as the principal is identifiable (they know he exists), and the A makes it clear they are acting on the behalf of P, they will be allowed to ratify. Undisclosed Principal: big problems with ratification. If TP doesn’t know you are acting on hehalf of someone, and you don"t have the authority of the P, it is difficult to ratify. Keighley, Maxstead and Co. v Durant R was agent, principal was undisclosed. R acted beyond the authority of KM, by paying more for grain then was allowed. KM refused to accept the grain. D sued KM. Initially, before price of grain jumped, KM had initially agreed to take the week, which was argued to be implied ratification. Held: Ratification is simply not possible when principal is undisclosed. OZZY: The Reasoning for this is unconvincing. In a nutshell, even if TP doesn't know P exists, P can theoretically come out of shadows and enforce the contract. The courts see no need to push the anomaly further. Rule applied by SCC, Crampsey and Deveney Spiro v Linter Husband is sole owner of the house. Authorized his wife to find a purchaser, but not to sell the home. Wife finds 6 purchaser, and sells home as though it were hers. TP has no idea she is an Agent for H. Husband comes back from trip, is introduced to "the new owners". He doesn"t say anything, and allows them to bring in a gardener, architect and construction workers to fix up the house before the deal is closed. H then leaves again, and authorizes wife to complete the transaction. Instead, she sells it to someone else. H thinks this is good, and tries to get out of first sale by saying wife had no authority to sell it the first time, and that it was not ratified, since ratification is impossible in this circumstance. Held: CA refused to get rid of the rule in Keighley, as it was a pillar of the common law. However, CA decided to outflank the rule, by finding that the Husband was Estopped from selling to a fourth party, as he impliedly accepted the terms and let the Defendent think that everything was ok. As a result, the court found for the Defendant. If an Agent makes a deal "subject to ratification", it is ruled by courts that the TP knows the A has no authority and that no binding contract exists. In fact, courts will construe this to mean that the A will transmit the Offer to P, and P will either accept or reject. There is no real ratification of a contract, but instead, just the transmission of an offer. (Watson v Davies) Non-Existing Principals At Common Law: 1. Can't contract with non-existing entity 2. Rule of Ratification: Can’t be agent for non-existing P. Added Wrinkle: Could end up with contract with the purported Agent Kelnar v Baxter B knows hotel is unincorporated. Purports to be Agent for it anyways, and buys wine from K on its behalf. K thinks corporation exists. It never does get incorporated, and K sues B for payment. Held: B was ascribed to be principle. He knew that there was no corporation, and thus, he must have intended to contract on his own behalf. Theintention to contract with corporation could not be there, as he knew it did not exist and could not legally contract on behalf of it. Newborne v Sensolid N purports to be A for NCorp. He thinks it exists, as does S. In reality, it did not. S sues N for payment. Held: Because both parties though the corporation existed, the intention was to bind the corporation, and therefore A could not be the party to the contract, as that was not be the intention of either party. Black v Smallwood Same result as Newborne. NOTES A corporation cannot sue a third party unless an agreement is ratified. Can't be a party to a contract without ratification, and therefore, the corporation cannot sue. In a Kelnar v. Baxter situation, only the Agent and TP can sue one another (they have the contract). In a Newborne v. Sensolid situation, Third Party can't successfully sue the agent, as the contract was thought to be between the corporation and the TP, and the Agent is therefore not a party. In a situation where the TP knows corporation is not in existence and intends a contract with A, but A signs in a corporate style, can TP successfully sue? This could go either way. Ozzy says that Kelnar was driven by an unjust enrichment, so in this situation, court will likely follow Sensolid. Westcom Radio Group Ltd Newborne v. Sensolid situation. Intent was contract with Corporation, and the courts followed Sensolid and found no contract. Neon Products v Zaret Newborne situation that went the other way, finding a contract between the Agent and TP. This was likely caused by the equities of the situation, and has not been followed since. 7 S.14, Corporations Act 14(1): written contracts only. Intention is to say where Agent contracts on behalf on non-existant corporation, Agent is responsible and is a party of the contract in place of the corporation. 14(2): Corporation may, in reasonable time after contract is made, ratify a contract set out under 14(1) and take A’s place. 14(3): Whether or not ratified, judges can apportion liability between a corporation and an agent 14(4): A can expressly exclude self from the contract right from the outset. Problems with S.14 14(1): word "contract" is used. Can diminish scope of section, as contract is a specific term. Should have used the word agreement. Also, "Corporation" is used, and that word is defined as a "Manitoba Corporation". Thus, a Corporation incorporated out of province is not covered. Lastly, if Corporation is never incorporated, Section 14 is useless. Where an agreement is made and no corporation is ever created, and the party who contracted on behalf of the corporation tries to sue the TP, several defences can be raised: 1. Never incorporated. IF there was a corporate intention, X can"t enforce contract using S.14 2. This is not a contract at common law either. X company is non-existant, and the contract can"t exist. (Also could be a strike against S.14(1) Question 20: Moose Hall scenario (good exam type question) General Notes: Moosehall could sue Leo under 14(1), and sue the corporation using 14(3). Could also argue Neon if common law is allowed in. Leo could use technical objections of 14(1) (no contract, incorporated out of province?) Could sue Leo for breach of warranty of authority. Exceptions to Ratification Theory Occasionally, ratification will cause injustice. As a result, a few exceptions have been made. Bolton v Lambert TP offered to sell land on Dec 8. Board, as agent made unauthorized acceptance on Dec 13. Dec 17, deal begins to unravel. Jan 13, offer is revoked by TP. Jan 17, P issued writ to enforce the contract (implied ratification), and on Jan 28, there was a final ratification. Ratification, under the common law, is retroactive to the date of the original agency acceptance (Dec 13). Held: Common Law is applied, even though it creates a bizarre and unfair situation. Bird v. Brown P is consignor, ships goods to consignee in England. No arrangement made to pay for it. TP goes into bankruptcy before goods arrive. P"s Agent in UK secured a "stoppage in transit" order. The Action was unauthorized. The goods arrive, the P ratifies A"s action. Held: Exception applied. Ratification occurred after transit is over, too late to ratify. Note: this is a very old decision, that has no clear ratio. Could mean two things: 1. Date is only retroactive if the principal has the capacity to do the act at the time of the ratification (contra Bolton) 2. Wouldn"t permit ratification because rights were vested in trustee for bankruptcy. Subsequent ratification cannot divest those rights. #2 is the more Popular Theroy Walter v James Defendant appoints solicitor (his Agent). Plaintiff and Solicitor (TP and A) hammer out a settlement. Defendent (P) backs out before money is paid. A, who feels bad about this, feels obligated to the TP, feels he should be paid, and pays TP with his own funds. A regains his senses, and asks for the money back. TP obliges. P then ratifies what A did, and says TP can no longer sue him, as he was paid, and its not his fault he gave the money back to A. Held: P is in need of a good beating. Equities are clear. Followed Bird v Brown. When TP gave money back to A, they rescinded the settlement, and you cannot ratify after rescision. 8 Dibbons v Dibbons Partner dies, other partner can give notice to buy his partners shares within three months of death. Surviving Partner is insane at the time. The day before three months are up, lawyer gives unauthorized notice on Survivors behalf. It gets ratified by Committee a month after deadline passes. Held: Followed Bird. Presentaciones Musicales (PMSA) v Secunda PMSA is a Panamanian company with exclusive rights over Jimi Hendrix' music. In June 1987, P goes into bankruptcy. 1988, company directors, without authority, instruct lawyers to sue S for copyright infringement. May, 1991, PMSA ratifies the litigation. Under Panamanian Law, you can only bring litigation three years after liquidation. Held: The court ignored Bird, and allowed the ratification. No hardship created in so doing. One notices that in cases where there are hardships, there are exceptions to the General Rule, while in cases where no hardship is created, the general rule is allowed. Ratification can be express or implied, written or oral (even if contract was written). Only transactions by way of deed need a ratification to be also by deed. Rex Grocery v Higgs Existing dispute of indebtedness, where RG was the creditor. Claimant told H to sell his car for at least $140. Anything more, he could keep. Is this agency or resale? H sold car for $50 and another car that would be easier to sell. This was unauthorized, but Claimant later authorized it. Then plaintif (RG) took the second car as part of judgment, claiming it was the defendents. Who"s car was this? Claimant said this was an agency relationship, making the car his, but if ratified, it was only communicated to the defendent/Agent, and not the TP (who paid $50 and the other car). Held: Court held that this was an Agency relationship, and the ratification was good enough. -Ratification does not appear to have to be communicated to the TP. TP believed A had authority, so it did not matter that it was not communicated to him. We don"t know if this rule would be applied in every case. Implicit Ratification (by conduct) Crown Manufacturing v Texas Communications of Canada T supplies roofing materials. Sold them to CM. Don's roofing did the labour (installation). T had Agent who was believed by CM to be working for both T and Dons, representing both of them. CM knew they were separate companies, but didn't know the details of the relationship. Roof later leaked and Don"s was bankrupt. CM"s lawyers saw Texas had the money and decided to go after them. They formulated a scenario where Texas was the contractor, and Dons was merely T's subcontractor. They Ratified this deal through conduct, by checking out the leaky roof upon first complaint. Held: The Facts did not support his scenario. Was a nice try though. Court found that neither Texas nor Don's were liable for the leaky roof, as an unusually powerful storm had done the damage. OZZY: This may have worked had Don's done a dreadful job and was unreliable, and Texas has still allowed the deal to go through. In that case, the argument may have worked. Bontex Importing v Panar The Principle was held to have ratified an entire unauthorized purchase when the principal sent back to the TP vendor all the goods purchased by the Agent except a sufficient number of them to negate the necessity of the TP vendor refunding a part payment that the agent had made to the TP vendor. Therefore, you can"t ratify only part of the contract. Must ratify all or nothing. McDonald v Lawlor Manager (A) accepted another contract from indebted customer (TP). TP paid with a chattel mortgage and Promissory note. P repudiated the deal, but held on to the mortgage and note, as payment for previous debts. TP argued ratification, as they kept the securities. Held: This was not ratification, but instead was a clear attempt by P to keep what was previously owing to him. 9 Winnipeg Piano Company v Wawryshyn Abbot v McDougall & Cowans Toronto Dominion Bank v Coopers & Lybrand Hendry v Wismer Barret Brothers v Bank of Toronto Pulford v. the Loyal Order of Moose The above cases are all authorities for the proposition the ratification can be implied. The unifying theme in all of them is that A carried out an unauthorized action, involving a principle who accepted benefits or is suing for benefits without having ratified, causing an unjust enrichment. Therefore, implied ratification is found. Note: in some circumstances, Silence can be consent, but only in cases of executory contracts (executed contracts necessitate the parties being in action, and inactivity won"t cut it). Ratification is not effective unless person has full and complete knowledge of transactions, benefits and burdens that come with the contract. Only with full knowledge can good decision be made. Foreman & Company Proprietary v. The Littlesdale Repairs were done to a ship. The Agent carries out unauthorized repairs. The shipowner takes the ship back. Repairs can"t be undone. He then sells the ship. TP says P ratified by taking ship back. Held: There was no ratification. Both parties were innocent victims of another's wrong doing, but the Defendent was the most innocent. The repairs were permanent, and there was nothing the owner could do to change that. Can't pick and choose elements of the contract that you want to ratify and then repudiate other parts. This is unfair to the TP, who contracted on the basis of the complete contract. Canadian Laboratory Supplies v Engelhard Industries TP supplies Platimum. A, an employee of Can Lab, bought Platinum from TP, and then resold the Platinum to Can Lab at a higher price and pocketed the money. P, wanting to recoup its losses on A's scam, decided to ratify the original sales to A, but not the resales. TP said "can't do that, you must ratify the whole deal". Held: There were two separate contracts, and therefore Can Lab was within its rights to ratify one and repudiate the other. Hazen v. Town of Portland Mr and Mrs P retire and move to BC. They give Power of Attorney to A to sell and convey "my lands" in consideration of reasonable sum of money and generally all things in connection with the premises that "I might do". A sold a strip of land to the RM for $1.00 to allow the RM to improve the street that fronted the land. Mr and Mrs. P divorce and they partition their lands. As a result, Mrs. P unknowingly became the owner of the half of the land that had a strip partitioned off. However, during the original tranfer of the half to Mrs P, she was given a map of the new arrangement, she looked at it prior to registration. She became aware of this only after returning to her land. Held: Mrs. P argued that "Sell and Convey" land meant to sell all of it, not just one strip, and the A exceded his power of attorney by doing so. Also "Anything Else.." power was incidental to the first power given, and did not allow for the strip to be sold. Secondly she argued that she had incomplete knowledge, and therefore could not have ratified upon the separation, as A argued. The court sided with Mrs P. P offering to ratify all acts of A in advance What if the P tells the A he will ratify all his acts, in advance of A doing the unauthorized acts? Powers of Attorney could say that. Courts do not recognize "pre authorization". Ratification must follow the Act. This rule is absolute. The Principal's ratification cannot affect a second third party's rights. If A makes an unauthorized deal, and the TP, on reliance of that deal makes a subsequent deal with a second TP before P can ratify, ratification cannot be done. 10 At that point it is a done deal, and the P can"t get goods off of a second TP. Oliver v Slater Landowner gives licence to cut hay, terminable on the sale of the land. A of Landowner accepts TP offer to purchase, subject to approval. D then cuts hay, then the landowner sells, and then TP sues D for cutting hay, saying that the ratification dates the sale back to before D cut hay. Held: Can't use the fiction of retroactive ratification to screw a the defendant (Bird v Brown). Also "Subject to Approval" shows that their cannot be retroactivity anyway. Remedy is to sue the A for damages. Note: You Can't ratify unlawful action. NOTE: Q.36 in the notes is a good exam question. APPARENT AUTHORITY When P holds A out to do more then he is actually authorized to do, and the TP relies on this, the A has Apparent authority to do what he did in the eyes of the TP, and therefore, the transaction stands. Where there is only apparent authority, the TP is protected, but the A can be sued by the P. Representation by P: Contract stands. Can be inferred by position A holds, or by conduct of P. Representation by A: Contract will not stand, but TP can sue A for breach of warranty of authority. Academic debate du jour: Can P sue on an apparent authority contract? Probably, but it will never go to court, as P will just ratify. (More proof that academics have WAY too much time on their hands). P allowing person to appear as if he were P's agent when he is not Imperial Elevator v Hillman C wants liquor licence and open hotel. He gets the idea that it would be difficult for him to get the licence in that town, so he asks H to do it for him, and C will pretend to be agent for H, even though he is really the P. They do this, and then bills don't get paid. IE goes after H. Held: H liable for the contracts, as he created the impression that C was his agent. Dogwood Drilling v Fitterer Couple lives together. Wife decides to get a well drilled. Water diviner says "there is water at 38 feet". Based on that, wife expects to pay $250 ($7 per foot). Wife goes away, tells Husband to take care of it. "Sure thing, babe". They drilled for 38 feet, found nothing. H says "Keep on drilling". They drill to 350 feet, where they find salt water. Then they drill 100 feet elsewhere, and find nothing. Bill is over $3000. DD says that since Hans would "take care of it" he was held out to be the Agent with the authority to instruct the drilling team. Held: Court agrees with DD Cynic: Did they rely reasonably on this. Sympathetic judge may have sided for the Wife. Known Agent exceeds his actual authority Kaestner & Hecht v Hosie P is in Chicago. Wants to install elevator in Saskatchewan, where his A and TP live. D ships Elevator to A (sends it to himself under the law), and A asks TP to pay customs duty and deduct it from the price owing. Elevator is installed, P is never paid. P tells A to get TP to pay the money. TP pays money to A, and absconds. P says A had no actual authority to collect money. Held: Apparent Authority here. Always had dealt through A, A was the one always talking money, and thus appeared to have authority. In fact, TP never ever dealt directly with P. "Secret Limitation Case" A had secret limitation. Principal allows Agent to continue to appear to be his agent, after Agency relationship is terminated. Drew v Nunn P appointed wife as A. Had actual authority and dealt with TP repeatedly. P becomes mentally insane, and thus the 11 agency relationship ends. TP did not know this, and A continued to deal with TP as P's A. When P regained his marbles, he rejected what A had done, and refused to ratify. Held: Apparent authority lingers until notice reaches TP. (NOTE: Codified in S.4(1) of the Power of Attorney Act. Act in favour of TP who doesn"t know about insanity is still valid). 3 elements of apparent authority 1. Representation from P to TP 2. Reliance on representation by the TP 3. Alteration of position on TP due to this representation. AG of Ceylon v Silva Customs official thought that various seized goods belonged to the crown, and decided to auction them all off. Sold some of the goods to TP. Crown freaks out, and refused to ratify. Test #1 says that you need a representation from P, here no such representation occurred. A therefore had no real authority. Held: No apparent authority, P did not make the representation. TP can sue A. What if P who authorizes agent to make representation to TP -given express authority to self authorize? -2 possibilities 1. Could be actual authority: Could argue you are in essence giving A actual authority. 2. Apparent authority: Permission for A to tell other people he has more authority then he has. Jenson v. South Trail Mobile Limited South Trail Edmonton has an agent, South Trail Whitehorse. At start, TP told all deals have to be ratified by Edmonton. Tells TP he had the approval, when he did not. Edmonton refused to ratify. No Actual authority given, this was clear. Jenson argued that P gave A authority to make statements outside of actual authority, and make it binding on TP. Held: No contract, no ratification, no apparent authority. P made no representations. Dissent: Structure made it difficult for TP to know what was going on, implied apparent authority to make representation about this authority. Ozzy Agrees with Dissent. Implied Representation: 3 ways; -Particular position in organization. -saying nothing while A continues to exceed his bounds (Estoppel) -Course of dealing that leads TP to believe A has authority. 1. Appointment to position Corporate authority -Key in corporations Diplock's four criteria for corporate agency: 1. Representation of authority to TP 2. Such representation made by person who had actual authority to make such representation (highly debatable point) 3. Contract induced by representation 4. Under articles of incorporation, corporation had the capacity to do this. (This is not a problem in Canada, due to our corporations act. Will apply to UK corporations). 2 situations where appointment causes problems 1. Appointment by corp of a person to a position that usually has certain powers that go with it. 2. Corporation and employee\agent of corp makes express representation to a TP about the authority of another employee. Gowan's-Kent Western v Assiniboia Club Assiniboia describes employee as "manager" or "head steward". He entered into a contract, AC refused the contract. In the past, employee had dealt with the TP and others, and had multiple contracts negotiated. Employee"s 12 predecessor had the same powers, nature of the position also indicates this power was allowed. Lastly, an Ad in the paper searching for predecessor"s replacement suggested the position was for "full management". Held: Doubtful TP relied on the Ad, however, enough in course of dealing to create an apparent authority. Treasure Book v. Laundrall Ltd TB negotiated contract to have coupons in the Treasure Book, would pay fee for this. Board of Laundrall nixed this. Manager manages the store, does not have authority to promote the store. Was clearly outside his scope. Held: Managers have wide authority. Appeared to be in full command of the company (bought supplies, hired, fired, etc). Therefore, he had Apparent Authority. 2. Express Representation about company employee -person making express representation must have actual authority to do so (per Diplock). Canadian Laboratory Services v Engelhard Industries Several employees had represented that rogue employee had the authority to do what he was doing (told inquiring party to "go ask Mr Cook about this".) This was sufficient to give apparent authority. British Bank of the Middle East v Sun Life Assurance of Canada Bank has a hierarchy as follows head office, regional offices, branch offices, unit offices. Here, unit manager gave loan to TP. Concerned about this authority, TP sends a letter to the GM of the head office. Received a letter back from the Branch manager saying its ok. Loan went bad. Is TP on the hook? Held: Only had authority from branch manager, (lower middle management), and this was not high enough to make the representation. No apparent authority could thus flow. Applicable Legislation: S.18, Corporations Act: A corporation cannot claim that someone held out by it as a director, officer of agent of the corporation does not have the authority to exercise the powers and duties normally association with the position, except where the third party against whom the claim is made has or ought to have, by virtue of his position with the company, knowledge to the contrary. NOTE: representation need not be to anyone in particular. Just needs to be made. S.8, Partnership Act: Every partner is an agent of the firm and his other partners for the purpose of the business of the firm, and the act of any partner in carrying out the kind of business carried out by the firm will be binding on the firm, unless the partner so acting has no authority to act for the firm in the particular matter and the third party either knows this or does not believe him to be a partner. Mutely Standing By -Where a P mutely stands by while an A makes a deal outside his authority, apparent authority may flow. Freeman v Lockyer K and H are 2 directors of the Principal/Corporation. K ran the show, although was never appointed the managing director. K made transaction with F, P never paid, F sued P. P said K had no actual authority. Held: Company held out K. Silence of company in allowing these acts in past is a holding out, "passive aquiessence". Welling: The self proclaimed Agency know it all has a problem with this case. Claims passive acquiessence is not a representation to the TP. F never knew of past conduct, and did not rely on it. 3 ways of rescuing the FvL decision: 1. May have been an actual authority: Acted like a managing director for so long, consent to K being managing director. 2. Apparent Authority: Representation to general class of outsiders of whom TP was one, but not to TP directly. 3. Suggestion that implied ratification exists, and causes an actual authority. (took too long to repudiate, did nothing, silence equals ratification). Stapleton v Stratton D owns land, P owns different land. D and P brought into relationship by an Agent. D was to transfer his land and 13 $10,000 to P in exchange for his land, which was subject to a $15,000 mortgage that P promised to discharge. D told by to to give $3000 advance which would go to mortgage. P was there at the time and said nothing. Later, Made a second payment to A of $3000, P was not there that time. Finally, D gave P $4000, thinking that this adds up to $10,000. A absconded with $6000. P refused to take responsibility for the $6000, . P argues A is D"s agent, while D argues A is P"s agent. Held: First $3000, there was silent authority by P. Mutely stood by. Second $3000, this gave A apparent authority for second $3000 transaction. Also, could argue that accepting the $4000 cheque was a ratification of the $6000 in previous transactions. Either way, they are screwed. McBride v West P, through Lawyer/Agent, invests money into mortgage loans. A would bring in prospective loan applications, P would sign, A would take care of payments. In one renewal case, mortagagor asked if he could accelerate payment. He did this, and A absconded. Did A have authority to accept the accelerated payment? Held: A had lots of power, and it was no stretch to imply that through his course of dealing he had this power to accept accelerated payments, even though he had never exactly done this before. Section 39, The Partnership Act 39(1): where a person dealt with a firm that subsequently undergoes a change in membership, and continues to deal with that firm thereafter, he is entitled to treat all apparent members of the old firm as still being partners until notice of the change. 39(2): Form of notice: registration under the Business Names Registration Act is sufficient to TP's with no prior dealings. Otherwise, the minimum standard is publication in the Manitoba Gazette. 39(3): The estate of a partner who dies or becomes bankrupt, or a silent partner who retires, will not be liable for partnership debts contracted after the partner"s departure. Q46: Rogers and Company scenario 2 partners, S and R, deal with J. S leaves April 1, B replaces him. J doesn't know of this. Oct 31, changes the partnership register, Nov 5, change published in Gazette, Dec 24, J gets actual knowledge. -If J knew S to be a partner, could be liable for debts from Apr1-Nov5. Drew v Nunn Insanity not enough to get a partner off, still liable for obligations. Bank of BC v Andrews The possession of a certificate of title by only one tenant in common was not an unequivocal representation by the other of authority to deposit the certificate to create and equitable mortgage of interest of both tenants in common. "Possession of title is not apparent authority". NOTE: for apparent authority, P need not have the intention to mislead TP, only needs to intend to say the words he did or make appointment he did that caused the TP to think that A had authority. Negligent Misrepresentation Howard v Carline P was a car dealer. A was a salesperson who had been dismissed, who happened to hang around the car lot. He intercepted a customer, negotiated a trade in, convinced him to leave his car, and pick up the new car when his loan came in. A stole the trade-in. Argued it was negligent of P to just allow any guy off the street to go into the lot and pretend to be a salesman. Held: Negligence showed was insufficient. No duty of care needed to prevent apparent authority. Also, even with negligence, there is no representation by the P. Reliance Rama Corporation v Proved Tin and General Investments Ltd TP not aware of principal, could not rely on representation of principal that he did not know existed. 14 Merchants Bank of Canada v Stevens Winnipeg Motor Corporation (TP) is in financial trouble, and looks for money. Manager (A) of the Bank (P) goes to Stevens and asks if he would like to lend money to WMC. S hesitates, as if the bank won't lend WMC money, why should he? Manager then decides to guarentee the loan that S makes, and threw in a bonus for consenting to making the loan. TP defaults, S sues. Bank account of WMC goes to creditors, not the Bank. Bank refuses to ratify, and argues no apparent authority. Held: S's reliance was unreasonable. No apparent authority here, S should have known better. Ozzy: If bank would have received the proceeds in the bank account (profited from the situation), the court would have tried harder, probably finding an implied ratification by accepting the money. Zerebesky v Powell For more then 6 years, D, through an A, sold lots subdivided out of a large parcel of land. Six months after the termination of the arrangement, P sought out A and purchased from him one of the remaining lots. P did not know who owned the land and sought out A on the advice of someone other then D. A absconded. Held: No Apparent authority, as P relied not on the representation of D, but on the representation of some other person. Farquharson Brothers v C.King & Co. F (P) is timber merchant who imports timber. When it arrives, it was stored at the dock by the dock company. C had limited authority to sell timber to known customers. C made up a bogus sale to an unknown "Mr Brown" who was a ficitious person, took the wood from the dock company using CK, a trucking firm, as "Brown"s Agent", and then C sold the wood for profit. F sued CK, the trucking company, for conversion. CK argued apparent authority. Held: No apparent authority, no reliance on holding out by the P, TP thought A was owner. Was a case of undisclosed P, can never be apparent authority. Canadian Laboratory Services v. Engelhardt Attempted to argue Farquharason because of A"s reliance on a pseudonym, but this was distinguished because TP had always dealt with this A, who they knew to be an agent of the company; the invented character was just peripheral. Crampsey v Deveney Mr C leaves property to wife and 3 kids in 1943 as joint tenants. 20 years pass by, with wife treating self as sole owner for all those years. Wife decides to sell. 2/3 kids find out about this. In 1963, buyer is found, W accepts the offer. One kid present when document found, one finds out the next day, third doesn't have a clue. Draft deed drawn up, which finally discloses that there are four owners, not just one, to the TP. TP starts repairs and moves in before closing. Someone finally decides three kids should also sign, and they refuse. TP sues for specific performance. Held: 1. No actual authority, the kids never gave actual consent to mom. 2. No apparent authority, as TP did not know kids had any interest until after acceptance. Was undisclosed principal, no apparent authority. 3. No ratification. Act of undisclosed P cannot be ratified. Ozzy: Could have argued "mutely standing by", but it only applied to one of the three kids. O'Riordon v Central Agnecies Camrose Clerk for insurance company discusses insurance with her neighbour. Although not a sales agent, she shows neighbour her sample policies, and tells her she will make sure she gets coverage she is seeking. Clerk then forgets. Neighbour suffers loss, sues insurer. Held: No apparent authority, was clerk. O argued that giving her sample policies was apparent authority, but there was no evidence that they were given by someone who had the authority to give her the samples. Lawyer Settlement Pre-litigation vs. post litigation dividing line. 15 Pre Litigation disputes, where a lawyer is retained to get an opinion, or negotiate, there is no implied acutal or apparent authority to settle the litigation, as no litigation in fact exists. Therefore, settlement are likely not binding. If the makes a representation "I have a lawyer , deal with him", apparent authority exists. Express authority is also binding (evidently). If express authority, settlement binding. If Lawyer settles after litigation commences, you can argue one of two things: 1.Argue implied authority. 2.Apparent authority arising from appointing lawyer to conduct litigation. Yannacopolous v. Maple Leaf Milling Stands for presumption that upon hiring a lawyer, there is express authority against settlement. No actual or apparent authority exists. As a result, the Lawyer is protected when he screws up, and the TP is not. Others suggest there is an apparent authority based on the position the lawyer is appointed to. Once litigation is commenced, there is a power to settle. Therefore, the settlement would be binding, the Third Party is protected, and you can sue the lawyer for breach to carry out instructions. (Shearer v. Palletta, Pearson v Pleister) The General rules is that if you have not started litigation, there is no power to settle, if you do have litigation, there is power to settle. Courts have an overriding discretion to uphold or invalidate settlements by lawyers (settlement on behalf of minor, settlements that are improperly authorized, etc), as a Summary Judgment is needed for settlement approval, and a pain in the ass kind of judge could scuttle the settlement by not granting a judgment. Question 56 at Page 19 of the materials is a good overview of a Lawyer settlement scenario. Usual Authority Robin Line Steamship Company v Canadian Stevedoring Co Academic Debate Du Jour: Anglin J. had the audacity to suggest that customary authority is apparent authority, when in fact it is implied actual authority Usual Authority can be found in implied actual authority, therefore, if you intend to confer usual authority on Agent, can be found in apparent authority, as it is based on the position of the Agent. Watteau v Fenwick H ran a pub. Dealt with W in buying pub materials. Course of conduct was thus shown. H then sold the pub to F, but F kept the sale secret and kept H on the job to buy stuff for the pub. H continued to appear on the liquor licence, and buy supplies. F wanted to limit buyiing authority of H, and thus told him to buy only mineral water and liquor. Eventually, H also bought Cigars. They were consumed, by F refused payment. The truth came out to W about H and F. There was an undisclosed principal (so ratification is out the window), no actual authority for the unauthorized transaction. What is the remedy? Usually, you would sue H, as that is who the contract is with. But W wanted to go after the deep pockets. Held: H was the manager of the bar, and acted with the usual authority of a person in that position. After the sale, he continued as though he were in that position. Is the usual scope such an agent to buy cigars, and with past course of conduct between the two men, it appears as this is a usual transaction. Also, it is not unfair for the court to force F to pay, as he sold the cigars and was being unjustly enriched. Could not rely on S.18 of the Corporations Act (if he were incorporated), as F did not hold W out to be the manager. Could not rely on S.8 of The Partnerships Act, as you can't bind a silent partner (don't know he exists, how can you bind him?) Sign-o-lite Plastic v. Metropolitan Life Right on point with Watteau v Fenwick. Man sold signs to a mall. Ownership changed, but it was kept secret, same man sold the signs to the old mall owner, who was still employed with the mall, but was not the owner. He did not have authority to buy the sign, so the Mall refused to pay. 16 Held: Court rejects Wateau, saying its stupid. Remedy is to sue the Agent, that is who you have a contract with. Contractual Rights and Liabilities Disclosed v. Undisclosed Principals, and Named v Unnamed Principles. Instances where Agent can be held liable for the contract 1. Could take contract upon himself 2. Showed that there was intention to be acting not only for P but A undertaking liability for himself. This would make both P and A liable. TP would have to choose who to sue. 3. 19th Century Rule. Where A is acting for foreign P, there there is a presumption that A is taking personal liability. 4. If Deed is entered into by agent, then the deed must be clearly entered in P's name, and executed in the name of P, or else A is liable. ("This Deed is signed by A on behalf of P") 5. Beware the Bills of Exchange Act 6. Auctioneers, must know of no defect of owners' title, makes special representations, can be liable for defects, and can be sued for the sale price. Where an agent purports to act on behalf of a named or unnamed principal in contracting with a third party, it is not entirely clear that the agent can subsequently reveal that the agent was in reality acting on his own behalf, and sue on the contract. (Layton v Smith held for the agent). However, that case was one which had an undisclosed principal, not an unnamed principal, and is therefore not really on point. In L v S, the actual owner of logs told TP that they belonged to X, so TP dealt with X. By doing so, the actual owner held himself out to be the Agent. Eventually, The Owner/Agent demanded payment. TP had paid X, who absconded. Here, it was decided that as soon as P emerges from the weeds, TP must deal with him, and had to pay P. Undisclosed Principals 1 -No ratification where Principal is not disclosed. 2 -Where there is a UP, A exceeds authority, but is usual for his position, you could go either way, (Sign-0-Lite case and Watteau Case). 3 -Where UP gives Actual Authority to A, A presents himself as P, and is within actual authority to do so, and TP believes that A is the actual Principal, two contracts are formed (one with A, one with UP). Two people can sue on the same contract. This goes against contract law, as the real contract appears to be between A and TP. UP can jump out of shadows and enforce. This bizarre exception can cause injustices, so the courts won't always enforce the rule. -Where A has expressly or impliedly, within the terms of the contract, promised that she is the only party to the contract, P has no right to jump in. -When is there an implied term? Humble v Hunter UP entered into contract to lease a ship, A contracted without disclosing the P, contract said A was owner. Was this an implied term, a warranty of that he was the sole party? Held: Yes. NOTE: -If TP would not deal with P, and A makes positive misrepresentation, A is not acting for the UP. -A contract which brings A and TP in direct personal relationship cannot be enforced by P. Therefore, an employment contract (where you hire an artist to paint your portrait, and instead, Undisclosed Principal Dennis Dale shows up with his crayons) can only be enforced by the A. To enforce a contract, UP needs to empower A to be Agent, A cannot hold self out to be sole party, and cannot fall into other exceptions where rule will not be enforced. If no power for A, better hope that he discloses UP and try to ratify later. If that fails, can toss a Usual Authority argument into the endzone on the last play of the game, and hope for a miracle. (ie: this won't work 99 times out of 100) Goldshlager v Royal Insurance Co Where an Agent takes out fire insurance for a P, without his approval, P can ratify AFTER the loss occurs, and then collect. 17 Some angles of attack 1. Express authority -Ratification -silent -by suing -express 2. Apparent Authority 3. If UP and no authority -Get A to enforce for you. 4. Argue unnamed principal, not undisclosed principal, and enforce contract yourself. Set-Off If A owes TP money from previous transaction, then A sells stuff for UP to a TP, TP can refuse to pay the money's that A owes him, and keep the stuff. UP can only make claim subject to that set off. 1. If Set off arises before the contract is entered into, and before the TP is aware of the UP, Set Off is allowed 2. If the set-off arises after the contract is entered into, but before UP is disclosed, Set off is allowed 3. If set off is after contract and after knowledge of UP, TP cannot claim set-off. Election and Merger (Alternative Liability) Where an Agent of a disclosed P takes personal liability of a contract, or an Agent for an Undisclosed Principal signs a contract with TP, TP can enforce against both. However, only one of the two can be held liable. TP must elect which one he is to collect from. Joint and several liability is not allowed at common law. Election is irrevocable. Once election is made, you can't go after the other party. Merger: once you've gone to judgment against one party, cause of action is extinguished. A merger occurs. There are no exceptions to this. NOTE: Courts are not quick to declare an election is made, in order to Keep TP's options open. In order for election, a clear and unequivical choice must be made to sue one party. Takes overwhelming collection of evidence and facts for irrevocable election to be found. Clarkson Booker v Andgel A booked airline tickets for UP. TP didn't get paid. Started claim against A, when he discovered UP existed. Lawyer sent letters to both, demanding payment and threatening to sue. Further demands were made to UP that were not made to A. Then issued a statment of claim against P (Scarf v Jardine = Statement of Claim is a presumption of election). P then declares Bankruptcy, Statement of claim revoked and one is started against A. Held: Court states that the presumption in Scarf v Jardine is rebutted, no election made, as TP did not attempt to make proof of debt in undisclosed, principal's solvency (real reason was poverty of UP, but the court did not want to find election, and grasped at straws). Ozzy: This is a borderline case. Bottom line, A not prejudiced by course of conduct of TP, and it was not unfair to allow a suit to go through. Merger: Where judgment is reached, no further actions can be brought. When the dispute has been tried and the proceedings have moved to judgment on the merits, merger occurs. Also usually applies to default judgments. However, there is a back door out. (Bell v Robutka, default judgment which is not final is not fatal, merger has not occurred. Swanton Seed Service v Kulba, where UP and A mislead TP to take default judgment that is disadvantageous, no merger is found). Tedrick v Big T Restaurant Big T Canada was the Principal, Big T Holdings was the Agent. BTH was selling a franchise. TP, who wanted to buy one, advanced a deposit to A (as A was authorized to do) and then BTH disapeared with it. Secured a default judgment against BTH, and then tried to sue BTC. BTC scream "Bloody Merger". Held: Not a situation of alternative liability. Not UP, and not a disclosed P who took personal responsiblity for the contract. Lang Transport v Plus Factor 18 TP is a trucker, who took cattle from Alberta to Ontario, and then brought back empty rigs to Alberta. He thought he's make it worth his while to return to Alberta, and sought to ship goods back to Alberta on the return trip. Contacted Candian Tire (the P), who tells him to contact Rene. TP assumes he is a Canadian Tire Employee. Is actually a Plus Factor employee. They contract to ship stuff. Eventually, TP doesn't get paid. Lawyer sues everyone. Default judgment against Plus Factor is granted, so Canadian Tire argues merger. Held: For Merger to apply, TP must have had choice to sue on either contract. Court argues that since TP did not know of Plus Factor all along, the contract was with Canadian Tire. Plus Factor did not take personal liability, and therefore, merger is not applicable, and this is not a case of alterante liability. Smith v Lasko TP buys car from A, finds odometer was rolled back, so sues A and UP. Sued on the contract and for fraud. Held: Both are liable. Theoretically, could win against one on the contract, and the other for fraud. However, the doctrine of merger was ignored. The Judge screwed up, but academics found a way to rescue the decision... Scenario L sends loader to M to fix. Loader is owned by N, L is superintendent for N corp. L's superior is O. L has limited authority and needed O's approval for this. O refused to grant the approval, and refused to pay. -No express authority. Was expressly prohibited (needed to ask first), and thus implied authority is not possible. -No Ratification (UP) -Could argue Watteau (Usual Authority) If court buys Watteau, then alternative liability, make election. Phone Scenario. X gets phone line in Y's name. X stops paying. They go after Y. X makes partial payment, then skips town. MTS can elect. Y could argue acceptance of X's partial payment is election. Not likely to work. Settlement Through an Agent TP paying money on contract to A instead of Disclosed P The rule of thumb is that you pay money's to the P, not the A. The P is your creditor. Paying A is not good enough, unless A is given authority by P thorugh apparent or actual authority or ratification. Earl Paddock Transport v. Accuride Canada TP paid agent, Agent had no authority to accept payment. He skipped town, P demanded payment from TP. Held: While payment to A is usually not good enough, there was a custom in this trade where paying your A was an accepted practice. Thererfore, TP wins. Four ways out: 1. Creditor authorizes A to collect 2. P held out A to have authority to collect 3. P induced payment to A through Conduct 4. Custom of Trade. P payes money on contract to his A, instead of TP -This is like paying yourself, and does not suffice as payment to the TP, unless TP agreed to allow payment to the A on his behalf. TP pays A, Principal is undisclosed TP has no clue of UP, thinks A is P, if TP finds out about UP before payment, then you treat this as though the TP is paying money on a contract to the A instead of disclosed P (above). If UP is still unknown at payment, then the payment is fine and UP can't collect from the TP. Armstrong v Stokes Always fine to pay agent of a UP to satisfy a debt. When TP went into the contract, only knew of A, could only sue A, Couldn't sue P, therefore, payment is fine. Arbuthnot v Dupare 19 Ignores Armstrong, and says that a TP can indeed sue the UP on a contract, unless she has estopped herself. Therefore, If UP is known at time of payment, its not ok to pay the Agent. Disposition of Property and Title where A has no power to Dispose of Said Property The Factors Act and common law doctrine of apparent ownership can come into play to protect The TP. Where Owner, by conduct, makes the A look like the owner (owner is UP), and then TP buys UP property through unauthorized sale of the Agent, and TP is bona fide purchaser, he may keep the property, provided Agent was authorized to deal with the object as though he were the owner (mere possession is not enough). The doctrine does not apply to pledges of property, nor does it create a contract between UP and TP (can't sue on quality of title). Gunn v Gillespie P revoked authority of Auctioneer to sell a piano after he could not sell it for a minimum price. Later, A finds buyer at the price, and pockets the money. P is pissed off. TP argues apparent ownership. Held: Court buys this. TP keeps piano Ozzy: Not apparent ownerhip. For God's sake, he was AN AUCTIONEER!!! Of course TP knew he didn't own it. Stupid decision. S.23, The Sale of Goods Act accepts the Common Law Doctreine of Apparent Ownership. The Factors Act Extends the Common Law to areas where disposition is merely pledged by an Agent, outside of Actual and Apparent authority and Apparent Ownerhip. 2(1): Factors that must be in place for the law to be extended: 1. Individual who disposes must be a mercantile agent 2. A must have possession of goods with P's consent 3. Must have possession in capacity of Mercantile Agent (need authority to sell or deal with them) 4. Goods must have been disposed of in ordinary course of business, nothing fishy. 5. TP must act in good faith. NOTE: A needs no apparent authority. 1. Who is a mercantile agent? Courts try to push envelope of definition of Mercantile Agent. Not merely a retail seller, but a commercial seller (is a broader definition that way). Bush v Fry Music Teacher asked P to ship a Piano, because she found a buyer. Piano is shipped, is pledged as collateral, P does not get payment. TP argues the Factors Act. Held: Factors Act not applicable, A was a Music Teacher, not a Mercantile Agent. Budberg v Jerwood Owner of necklace smuggled it out of Russia in 1921. She gave it to lawyer years later, either for safekeeping, or to sell it. T pledged it, redeemed, it, then sold it, then died. Was he a mercantile agent? Held: No, not a mercantile agent. Not in the business of dealing with goods. 2. Must be in possession of Mercantile Agent with consent of P. -Consent is presumed. Is rebuttable. 3. Agent must have possession in capacity of a Mercantile Agent. ie: if you give a car to your mechanic, who also sells cars, and they sell it, they cannot argue the Factors Act, as you gave them the car in capacity of mechanic, not in capacity of car salesman. 4. Disposition must be within the ordinary course of business. 5. TP must act in good faith. In essence, these two factors asksthe question; “was there conduct that should have caused TP to make further inquiries? 20 Oppenheimer v Attenborough & Son Owner gives his diamands to a broker in hopes of sale. The Diamond Broker then pledges them to a pawn shop, and spends the money. Pawnbroker argues Factors Act. Does he satisfy test #4? O argued that the it is unheard of for a diamond broker to pawn off diamonds, and this should have raised a suspiscion. Held: This was a transaction at a proper place of business, and so it was a disposition in the ordinary course of business. The Pawn Shop could keep the diamond. Mortimer-Rae v Barthel Paintings were given to an art gallery so that they could be sold on consignment. The owner of the gallery then went on to sell the entire gallery, including M’s paintings, to a third party. M argued that selling an entire gallery is not within the normal course of business. Held: M’s argument is correct. It was not an ordinary transaction, and thus he got his paintings back. For a P to say that he is not bound by The Factors Act is not a good argument. The whole point of the act is to protect TP’s in the case of fraud. Contracts and Torts Remedy that TP has against an agent when A acts in an unauthorized manner, and has no apparent authority, and has not been bailed out by ratification, and disapoints an expectation of contract. Torts: Deceit\Fraud Contracts: Breach of Warranty of Authority Russelsteel v Consolidated Northern Drilling and Exploration TP sued both Agent and Principal Held: Not a case where A took personal liability for a contract. P liable on the grounds of ratification and apparent authority. If authority of any sort exists, the Agent is off the hook and you must sue the principal, and cannot sue the Agent, even he had warranted authority which he did not actually have. Fraud 2 meanings: 1. Saying something you know is untrue 2. Making a statment reckless as to its truth (don’t know statement to be true, don’t know its untrue) Polhill v Walter Agent/friend entered into a transaction with TP to help his friend, the Principal. No authority was given, and A knew this. However he assumed their would be immediate ratification, so he lied about his authority to TP. P was not happy and did not ratify. TP sued A in fraud. Held: A made representations known to be untrue, and thus lost the case. NOTE: Damages for tort put you in the position you would have been in if tort had not been committed. Contract Remedy Breach of warranty of authority: A asks for consideration, TP gives it. This is an implied contractual relationship, limited to promises about consideration, not about quality of goods. Is a law suit based on promise A made about his authority. Yonge v Toynbee T was a lawyer, acting on behalf of X. T was retained to defend an action brought by Y. Unknown to T, X became mentally incompetent, which destroyed his actual authority. T thus has no authority, but represents that he does have authority. Held: Breach of Warranty of Authority. T liable of extra costs of litigation and expenses incurred by Y. Ozzy: Why not argue apparent authority like in Drew v Nunn? Also, if this was today, you would be protected by S.4 of The Power of Attorney’s Act. 21 To sue on breach of warranty of authority, you must have several factors in place, such as... -Agent must be purporting self to be Agent (Disclosed Principal). If undisclosed principal, you sue A on the contract. -Agent must lack authority -Could have authority and lose it and be liable if no authority at time of contract formation -TP should not reasonably be suspiscious of A’s authority. Need reasonable reliance. -Must be specifically pleaded -TP must have suffered damage -Transaction must have been binding in A had actual authority (ie: Statute of Frauds, verbal contract not good enough). Contractual Damages: Expectation measure of damages. Party must be put in position he would have been in if the contract was carried out. Damages would be directly proportional to what benefit would have been. Therefore, if P is bankrupt or has no assets, don’t sue him in contract, as you will get nothing. Sue him in Tort. Corporations Issues 1. Where X is a CEO and acts for the corporation, and signs for the corporation (not as an agent, but as the corporate signature), there is not breach of warranty of authority, as the CEO is the corporation. 2. Where there is a non-existing corporation, and a CEO signs on behalf of it, there is a breach of warranty of a corporation existing. He may be sued on that ground (subject to S.14). 3. Where corporation exists, and Agent is clearly the Agent (is not a CEO, but tells TP he is), that is clearly a breach of warranty of authority. 4. If no corporation exists, and A is the Agent, can be personal contract (through intention), you may sue in both deceit and breach of warranty of authority, subject to S.14. Vicarious Liability Vicarious liability arises in employee-employer relationships, partner-firm relationships, and principal-agent relationships. They do not arise in Independant contractor relationships, unless an agency relationship can be found within the independent contractor relationship. The main point of vicarious liability is that you may sue both parties jointly and severally. Evidentury Hurdles Proof of Agency Relationship: If you put the TP on stand, and ask the TP if he told him of his authority or his agency, that is inadmissible hearsay. Agency Relationship Admitted: Where A makes an adverse admission on the stand negative to the P, now the P can be put on the stand and questioned, as the Agency relationship is admitted. What remains is a question of authority of making that representation. Duties of an Agent Is usually a contractual relationship. If not, its at least a relationship of proximity (tort law duty of care). Also, their is a fiduciary relationship, which has a Trust relations aspect to it. Courts view fiduciary duties stringently and strictly. It is a very high duty to live up to. Individual Duties of an Agent 1. You are obliged to carry out instructions. 2. Duty to exercise skill and care. -The Agency, once consented to, puts a duty on the agent to carry out the instructions. What about gratuitous Agency? The lack of consideration means you can’t sue in contract. However, the tort of Negligence can be used. If the proposed agent immediately turns down the assignment, then no damage is suffered. -authorities draw a distinction between contractual agency and gratuitous agency. In Contract, their is no question a high duty exists. For gratuitous agency, the older cases state their is no duty, while new cases do impose a duty. 3. Agent must carry out Agency function -Reliance of principal -Detrimental Reliance -Agent can pass off his duty to someone else. Can’t have a “sub22 agent”. Trust relationship, can’t sub-delegate unless it falls into the exceptions below. Bowstead’s 6 exceptions a. If Act done is ministerial, no confidence or discretion is needed. (ie: type a letter) b. Where principal knows of intention to delegate c. Where it is necessary to sub-delegate as a nature of the agency. d. Where sub-agents are custormary in the trade e. Unforseen emergency circumstances render it necessary to get a sub-agent f. Where it is reasonably perceived that the P intended to give the right to have a sub-agent. Common identifiable principle: All are circumstances were the Principal has expressly or impliedly consented to a sub-agent. 4. Obligation to not be in conflict of interest. a. Agent Buying from or selling to the principal You can’t buy from or sell to the Principal if you are an agent, as that puts the Agent in a direct conflict of interest. Even if agent pays fair market price, it is a breach of a fiduciary duty. The Rule is not “will the agent make a profit”, but “will the agent be put into conflict”. As the Agent’s job is to get the highest price for the agent’s goods that he has the duty to sell, it would be a conflict for him to buy, as the buyer will want to pay the smallest price. These two duties are in direct conflict, and therefore, it is fundamentally wrong for the Agent to buy a Principal’s goods, or sell goods to the Principal. Well meaning intentions are irrelevant. b. Using the Principals information to your own advantage (to make a secret profit or go into competition). This is a straightforward principal, but it is difficult to draw a line in employer/employee situations. Generally, and Agent cannot use customer lists, take products, memorize lists or customer information, or canvass Principal’s customers, unless the principal allows you to. Agents are entitled to use general information about enterprise, and may keep “remembered” information (as opposed to “memorized” information). c. Agent can’t take bribes or secret commissions from third parties. Since the Agent has the power to decide which TP the P will deal with, accepting a bribe leads to the inference that you are looking out not for the best deal for the P, but the best bribe for yourself. Bribes are also contrary to the Criminal Code (as Brian Mulroney can attest to). d. Agent Cannot act as the agent for both the third party and the principal. This would cause divided loyalties and conflicting duties. NOTE: An agent can breach his duties of conflict of interest if he has the permission of his principal. Advanced Realty Funding Corporation v Bannink Defendant Principal gave the Agent the job of getting a mortgage. He was promissed a commission from the principal upon doing so. He also made an arrangement to accept a finders fee from the TP. This was expressly written in the contract with the P. A carried out the task. P found out about the finders fee, and refused to pay his commission, citing conflict of interest, by receiving a secret finders fee. A said it was not a secret, it was in the contract. Held: This term was not adequately disclosed. The commercial reality was that this was a standard form contract that nobody ever reads. Agents must perform the fullest disclosure, and must get informed consent from the principal. Court refused to speculate whether he would have accepted the term had it been brought to his attention, as that is not the court’s job. In essence, their is a Clendenning like onus for the agent to positively disclose and explain such clauses. Note: possible remedies for this include: Recision of contract, damages, accounting or an injunction. 5 Duty to Account The Agent must set up proper and distinct accounting records. 6. Duty in respect to money received from aThird Party on behalf of the Principal Monies can either be held by the agent in trust for the Agent or as a debtor to the Agent, depending on the circumstances. 23 Ontario Hydro-Electric Power Commission v Brown The Commission/Principal appointed agents to collect its bills. Agents would keep the money and pay it to Hydro in due course. Brown was an Agent who kept his money in a safe. The money was stolen. The issue is whether the money was held by A in trust for P (in which case P can’t sue), or by A as a debtor to P (in which case P can sue). Held: Since there was no evidence that the Agent had to keep his money separate from his own, it was ruled that a creditor-debtor situation existed. If there was a duty to keep the monies separate, then it would have been a trust relationship. Rights of the Agent against the Principal 1. Right of Remuneration 2. Reimbursement and indemnification (for costs and liabilities acting while agent that were necessary) 1. Remuneration If the right of remuneration is clearly in the contract, their is no problem. If the express right is not in contract, then the term will be implied. Lastly, if there is no contract, the Agent can claim remuneration based on a Quantum Meruit claims. * Problems tend to arise about time and amount of payment. Croasdaile v Hall Lawyer\Agent did big work for the P (went to England in the 1800’s to close a real estate deal), and thanks to his efforts, the sale occurred. The P refused to pay the Agent for his work, stating the contract said he was to be paid expenses and such further sums as the P considered right. Held: The term was very vague, and as such, no payment was needed. The court decided that the P need not use discretion in all honesty and good faith. Re Richmond Gate Property Company Payment due “as director determines”. Held: This was vague. No guarantee of payment, so no payment needed. Followed Croasdaile. Greenberg v Meffert Payment “at sole discretion of the Principal”. Held: P gave nothing, so A sued, and the court found that P must use his discretion honestly and in good faith. The court ordered a fair payment. MacDonald v Helgerson Held: In vague discretionary payment clauses, reasonable remuneration should be given. Being reasonable is an implied term of the contract. The general rule is the old cases suggest no payment is needed, and the newer cases suggest reasonable remuneration must be paid. Good Faith is needed on Principal’s part. Where an agency relationship exists, and an agent has expectation that he will receive some value for his services in a contract in the form of commission, he may be disapointed if the contract is cancelled, and may have a remedy, depending on the nature of the agency or the terms of the contract. Burns Fry v Khurana K wanted to sell property, and appointed BF to do so. BF was given a 70 day contract to sell the property, which would be automatically renewed for 30 day increments until written notice was given stating that the agreement would end. BF would be paid on a commission basis. BF put in a lot of work, but before the original 70 days were up, K decided in good faith that he didn’t want to sell the property, and ended the agency agreement. BF had received nothing. BF sued, giving two arguments. Firstly they argued they should be paid $120,000, citing that an implied term of the contract was that K would not change his mind for 70 days (the initial term). Secondly, the asked for $60,000 based on unjust enrichment. 24 Held: The implied term argument was summarilty shot down. BF consented to a contract on commission. They did this knowingly. By getting a commission contract, they would maximize their gain, but take a risk of getting nothing. Therefore, there was no justification for implied terms, and it was unwise to imply one and usurp the initial contractual intent of the parties. Secondly, the court found that in fact, their was no unjust enrichment. By consenting to a large commission and risking getting nothing, BF also gave K the opportunity to get services without paying for them. It would be unjust to K, having himself agreed to making a possible big payout to not enjoy his benefit to the contract, namely, not paying anything if no buyer was found. Here, he changed his mind in good faith, decided to keep the property, and didn’t owe BF anything for it. It would be unjust to deprive K of that advantage. Another contentious point is when is a commission payable? Can be payable upon bringing in an offer, on formation or performance of a contract, or upon payment. It all depends on what the terms say. Millar v Radford P instructed A to find either a Tenant or Purchaser for his property. A tenant got one commission rate, a Purchaser got the A a higher commission. A finds a tenant. 15 months later, Tenant bought the property. A demands payment for finding a purchaser. Held: Court rejected claim, citing that the Agent was not the cause of the sale, but cause of the tenancy. The Agents involvement was not direct enough. If you breach your duties as an agent, you forfeit your right to remuneration. 2. Right to reimbursement of expenses and indemnification of liabilities This right can be found in express terms in a contract. If it is not expressly set out, an implied term will be found in the contract. If there is no contract, you can make a claim in quasi-contract. Expenses must have been incurred as a necessary part of performing the agency function. Dickenson v Stonehenge P had a contract with A to secure goods on his behalf from several TP’s. P refused to pay for the goods. One of the TP’s sued the A, and somehow duped a trial division judge to rule against A. Later, relying on this decision, A pays off another TP out of court. Held: Court sorts out the mess. Says A should not have lost in court, and gets reimbursed from P for that one. However, voluntary, unnecessary payment to the other TP out of court is not deserving of reimbursement, as it was not necessary. Liens (pronounced “LEE-yens) 2 liens are available to lawyers who want to enforce payment. 1. Payment Lien: Lawyer has the right to hold on to any non-trust money, chattels, deeds or papers that is in your possession that belongs to the deadbeat client. 2. Particular Lien: Applies to money that should be paid to the client. You can get a court order holding on to a judgment in favour of your client, and take monies from that judgment to off-set monies that the client owes you. Termination of Agency There is a parallel between agency and contract termination principles. Actual authority, at common law, may be terminated in several ways. 1. If agency is carried out to complete a specific function, the agency ends upon completion of the purpose. 2. Fixed time agencies end at the arrival of the fixed time limit. 3. Agency can end on Mutual Agreement 4. Agency can end unilaterally by notice. 5. Frustration of Contract: Agency may end due to illegality or impossibility of performance. 6. Death of Principal or Agent 7. Principal becomes bankrupt (maybe if agent becomes bankrupt, cases go both ways) 8. Dissolution of Principal corporation or partnership. 9. Mental incompetance of Principal 25 10. Breach of duty of agent. Legislative Impacts The Power of Attorney’s Act. Section 4(1) protects contract in favour of TP where TP did not know of termination of the Power of Attorney (didn’t know P went loopy). NOTE: Enduring Powers of Attorney are also available under the Act. Common Law Concept of Irrevocable Agency Agency can be irrevocable when the Principal grants authority coupled with an interest. To qualify, 1. The Agency cannot be gratuitous, must be given for valuable consideration or under a deed, and; 2. The Agency must be designed to secure an interest or benefit to the Agent. Simple remuneration is not enough, the benefit or interest must be given to the Agent in the transaction to be carried out. For example, where P is indebted to A, and P empowers A to sell land on the condition that A keep all the money from the sale he is entitled to discharge the debt, irrevocable agency comes into play. The Power of Attoney Act makes provision for irrevocable agency in sections 5(1) and 5(2). The Power of Attorney must be for valuable consideration, expressly irrevocable and must have to do with the sale of property. Employee-Employer Relations: One final note: If your agent is also an employee, reasonable notice provisions found in The Employment Standards Act apply. You must give notice, or compensation in lieu.