An agent is a person who officially represents and acts on behalf of a principal in cases where third parties are concerned. Ekanem (2020) states that “the function of the law of agency is to enable agents to bring commercial parties into contractual relations to render the parties liable on, and able to enforce the contract” (p. 1). The business that offers the agent services is usually called an agency, for example, real estate agency, law and accounting firms, or travel agencies.
- Case 10.1 Mignault vs. Palmer (2013) explores the liability of the principal for the agent’s fraud. Palmer, who was an agent, and later, a broker for GWL Assurance Company, has misled his clients Mignaults to transfer their investment funds from GWL to his own company, claiming that they remained GWL investments. He then used the money for his personal expenses. Mignaults sued both him and GWL Company, claiming that Palmer was GWL’s agent, and, therefore, acted on their behalf.
An agency relationship is usually established through a contract between an agent and a principal. The contract covers the details of an agreement, such as agent’s duties, authorities, and the nature of payment. The legality, consideration, consensus, and other aspects are also to be present in a contract. Express authority of an agent is stated in the contract by the principal, while the implied authority is determined by the circumstances.
When the principal leads the third party to believe that the agent has an authority, the principle of estoppel is applied. Estoppel stops the principal for escaping responsibility for agent’s actions by claiming they did not truly give the agent the required authority. Meanwhile, promissory estoppel is the principal’s commitment to do a specific action in the future. Principal also can be held responsible for agent’s unsanctioned actions today, if similar actions were allowed in the past.
- Case 10.2 Gooderham v. Bank of Nova Scotia (2000) explores the principle of apparent authority. The Bank Nova Scotia forgot to forwards Mr. Gooderham’s mortgage insurance application to healthcare insurer which resulted in the insurer refusing to cover expenses to Mrs. Gooderham when Mr. Gooderham died. The Court decided the bank had an apparent authority, and rewarded Mrs. Gooderham.
Ratification of a contract happens when agent has acted outside his authority boundaries, but the results satisfy the principal. With ratification, the principal grants the agent the authority to act post-factum, which also bounds the third party to oblige.
- Case 10. 3 Selta International Trade Inc. v. Duboff, Edwards, Haight & Schachter (2005) explains the breach of fiduciary duty due to inadvertent ratification of agent’s authority. Murphy represented the power of attorney as an agent of Duboff, and he persuaded the Selta’s stakeholder Lysenko to transfer $300,000 to Duboff. However, Lysenko did not authorized Murphy for such deals, thus, Selta was able to sue for their money.
Agency by necessity is a principle that authorizes the agent’s actions on the basis of unexpected conditions that had arisen in the process of conducting business.
Reducing risks of agents acting unauthorized is the principal’s duty to third parties. The principal should clearly state the limits of agent’s authorities to the clients, as well as give them notice on the termination of that authority.
The agent’s duties to the principal are usually stated in the authority limitations. The agent also has the duty of care to the principal, wherein the agent should not only possess the needed skills and expertise, but also be able to execute them when needed. In general, the agent should strictly follow the contract’s terms in any situation.
Case 10.4 Forbes v. Morrison (2014) explores the consequences of an agent’s breach of duties. Forbes purchased a cabin from Morrisons, whose son Leo acted as a real estate agent. Leo misinterpreted the cabin’s boundaries and condition, which resulted in undesirable consequences for Forbes. The Court stated that Leo have breached his duty of care to Forbes as a real estate agent.
References
Ekanem, Y. (2020). The summary ambits of Agency of Necessity. SSRN Electronic Journal. doi:10.2139/ssrn.3657037
Forbes v. Morrison (2014) 437 Sask.R. 124 (QB), VLex Canada (Court of Queen’s Bench of Saskatchewan (Canada) 2015).
Gooderham v. BNS, [2000] O.T.C. 179 (SupCt), VLex Canada (Superior Court of Justice of Ontario (Canada) 2000).
Mignault v. Palmer, 2013 MBQB 300, VLex Canada (Court of Queen’s Bench of Manitoba (Canada) 2013).
Selta Intl. v. Duboff (2005) 201 Man.R.(2d) 104 (CA), VLex Canada (Court of Appeal (Manitoba) 2005).