In the old case, The Queen v. Levy Bros. Ltd., [1961] S.C.R. 189, Ritchie J. cited a passage from Story on Agency (7th ed.). Ritchie J. quoted that the principal “is held liable to third persons in a civil suit for the frauds, deceits, concealments, misrepresentations, torts, negligences, and other malfeasances, or misfeasances, and omissions of duty, of his agent, in the course of his employment, although the principal did not authorize, or justify, or participate in, or, indeed, know of such misconduct, or even if he forbade the acts, or disapproved of them.” This is the general rule of agency. The Supreme Court of Canada has confirmed this principle in Boma Manufacturing Limited v. Canadian Imperial Bank of Commerce, [1996] 3 SCR 727. This brief article aims to describe the fundamentals of the law of agency, the basic duties in a relationship of agency, a case law illustration of the facts relating to an agency.
An agency is a relationship between a principal and an agent that represents and acts with authority on behalf of a principal in dealings with third parties. A relationship of agency is created by the granting of authority by: (1) an express or implied contract, (2) estoppel, (3) ratification, or (4) necessity. This brief article will primarily focus on an agency formed from an express or implied contract.
The question of authority is an essential element in a relationship of agency as the existence of an (1) actual or (2) apparent authority by an agent binds a principal. Actual authority may be expressed or implied. Expressed actual authority can be through a written agency agreement or an oral agreement. Implied actual authority can arise out of inference from the terms of a written or oral agency agreement or from the implied agreement/consent that created the agency when the agreement is silent. Apparent authority derives from a representation by the principal that the agent has authority to enter on behalf of the principal into a contract within the scope of the ‘apparent’ authority that renders the principal liable for any obligations imposed by the contract. The agent has ‘actual’ authority when the agency relationship was formed by contract or by ratification. The agent has ‘apparent’ authority if the agency was created by estoppel.
By nature, an agency is a fiduciary relationship; an agent owes a duty to act in good faith, with fidelity and honesty to its principal. The agent is obligated (1) to perform the agency agreement (2) to obey the scope of authority stipulated in the agreement (3) not to delegate or appoint a subagent to perform the agreement (4) to exercise an appropriate care and diligence in the performance of the agreement (5) to avoid conflict(s) between personal interest and the fidelity to the principal (6) to account for the principal’s property during and following the performance of the agreement (7) to disclose fully and fairly circumstances material to the relationship. A principal has the duty to indemnify or compensate the agent against losses, liabilities and expenses incurred in the performance of the agreement; this may be stipulated in the contract or implied. The scope of the principal's liability will depend on the nature of the authority granted to the agent and whether the agent acted intra or ultra vires.
To illustrate a relationship of agency, the case of Hav-A-Kar Leasing Ltd. v. Vekselshtein, [2012] ONCA 826 provides a simple set of facts which concerns an automobile lease agreement.
There are three parties in the facts: (1) Zorik Vekselshtein (“ZV”), (2) Ghasem Gil (“Gil”), a manager and salesperson at Prestige Toys Ltd. (“Prestige”) and (3) Hav-A-Kar Leasing Ltd. (“HAK”). In 2008, ZV negotiated an agreement for the lease of a BMW vehicle with Gil, a manager and salesperson at Prestige, a seller of luxury used cars. HAK, a financing company, was arranged to purchase the BMW from Prestige in order to lease the vehicle to ZV. On 15 March 2008, ZV entered into an automobile lease agreement with HAK for the rental of the BMW. Under the Lease, ZV was described as the ‘lessee’ and HAK as the ‘lessor’ while Prestige and Gil were not parties and/or signatories to the Lease. Under the Lease, ZV agreed to pay HAK a monthly rental payment during a four-year term. On 25 September 2008, ZV returned the BMW to Prestige and purchased a 2007 Mercedes vehicle. ZV paid all monthly lease payments due on the BMW to HAK from March 2008 until September 2008. The lease payments from October 2008 to December 2008 were remitted to HAK when Prestige provided ZV with cheques for the BMW lease payments upon the purchase of the Mercedes.
On 1 April 2009, HAK sued ZV for damages and the return of the BMW. ZV argued that the Lease was subject to an alleged collateral agreement (the “Oral Agreement”) with HAK. The Oral Agreement was alleged to have been agreed by the parties that if ZV entered into the Lease and was dissatisfied with the vehicle, ZV would be entitled to return the BMW and ZV would have no further obligations under the Lease. ZV argues that since Gil and/or Prestige had HAK’s authority to negotiate the Oral Agreement, HAK is bound by that contract. On that basis, HAK has no claim against ZV for any payment or damages under the Lease because ZV has performed the Oral Agreement by returning the BMW to Prestige.
Cronk J.A. of the Ontario Court of Appeal confirmed two principles. First, on paragraph 38, Cronk J.A. confirmed that “the burden of proof to establish agency rests with the party who asserts its existence”. Second, on paragraph 42, Cronk J.A. reaffirmed that “[i]t is well-established that the actual authority of an agent requires a “manifestation of consent” by the principal to the agent that the agent should act for or represent the principal”. On the question of agency, on paragraph 43, the Court of Appeal held that “[t]here [was] no evidence…that HAK authorized Prestige – impliedly or otherwise – to act on its behalf in respect of any collateral agreement with ZV concerning the Lease, or the rental of the BMW”.
The facts of Hav-A-Kar Leasing Ltd. (2012) exemplifies the fundamentals in the law of agency. The case also reaffirms (1) the burden of proof of establishing an agency falls on the party relying on the relationship and (2) an agency relationship necessitates a principal’s consent in granting authority to an agent.
Another example of a relationship of agency is a Power of Attorney. A Power of Attorney is a written authorization which grants power to another person to make decisions on your behalf. The following are examples of Power of Attorney: (1) Power of Attorney for Personal Care; (2) Power of Attorney for Property; (3) Power of Attorney Disputes; (4) Power of Attorney in Negotiating; (5) Power of Attorney for the Purposes of Contracting.
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