Pol/Soc Sci 3165 6.0A
Tuesdays, 2:30-5:30 pm
Simon Archer sarcher@torys.com

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See updated sked on web page: www.arts.yorku.ca/politics/sarcher/revise doutlinejan04.doc
Dropped a couple of topics, will move more deliberately through remaining topics
Note drop date: Feb 6
Papers back: end of January, excepting those handed in late, which may take longer

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Court system, legal procedures, constitutional arrangements pertaining to business matters
Introduction to administrative law
Law of torts
Law of contract
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 employment K, collective bargaining consumer protection and sale of goods
Law of trusts and fiduciaries
 income trusts, fiduciary duties

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How businesses are formed, what forms they take
 business associations, statutes and rules governing those associations
Some ways businesses raise money for their operations
 securities, rules governing securities
Special issues or topics in business (as many as we can get to)
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Intellectual property
International trade
Bankruptcy and insolvency
Regulation of competition

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Overview of types of business association
Discussion of law of agency

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Four basic types of business relationships
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Sole proprietorships
Contractual relations
• partnerships, franchises, joint ventures
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Trusts (discussed last term)
Corporations
The law of agency is relevant to all forms

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Most common method in Canada today.
Includes anyone working for him/herself.
• Can have employees i.e. doctor’s with receptionists.
Taxed as income from business.
Taxpayer can deduct more items.
Full liability for actions of business.

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Partnerships
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Formed when two or more persons
“carry on a business in common with a view to profit”, a statutory definition,
Partnerships Act (Ont.).
• Can be set up for a single horizontal project and then called a “joint venture” or a “syndicate”
Full liability USUALLY
• Exception, some LLP forms

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Franchising or vertical arrangements
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Can be set us as a supplier/ distributor/retail business, then called a
“franchise”
Top entity sets standards for independent outlets.
• Pizza Hut
• IGA

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Horizontal arrangements
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Ownership of assets used in business separated from the entity exploiting those assets
• e.g. author’s royalties from publisher
• These are all partnerships of some sort

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Used mainly in financial investment vehicles in Canada, such as mutual funds, real estate investment trusts (REIT’s), or
Income Trusts.
Taxed much like an individual would be taxed on income from a business, to the extent not distributed to beneficiaries.
Discussed last term, briefly.
Remember the liability discussion.

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Only exist if created pursuant to a statute.
Legal concept that has become the central commercial vehicle in our society.
Single most useful concept the law has ever invented?
Separate legal entity that owns assets and carries on a business.
Can also be not-for-profit institutions.
Liability limited to investment.

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Statutory requirements (e.g. doctors cannot incorporate).
Taxation.
Expense of incorporation - ongoing, not just initial - avoid lawyers.
Liability issues
 unilimited versus limited personal liability
Corporate and trusts have perpetual succession.

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The role of an agent, vocabulary
Historical development
The nature of the relationship
Ratification of contracts by a principal
Third parties and the agency relationship

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Expansion of mercantile dealings beyond ones own community spurred need for agents
Agent removes need for direct principalthird party contact
Agent acts on your behalf within the scope of their duties as an agent and can legally bind you to agreements within that scope, and you are liable for their actions within that scope

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Principal = the person for whom the agent acts
Agent = the person designated or deemed to be acting for the principal
Third party = the person with whom the agent deals with on behalf of the principal
If not an principal-agent relationship, could be
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A power = a form of authority to manage property you do not own beneficially, a more discretionary power
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A trustee relationship (where, for e.g., a transfer of property, etc.), greater responsibility re: the property

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Can be an agent by:
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 express agreement conduct (essentially, an estoppel)
• Cannot deny fact you represented that the agent was working for you even if it was not true, you will be bound by agreements, you “clothed them with authority” by your actions
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“necessity” (deemed by law)
• Not much used -- comes from seafaring days when communications were slow or non existent

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Duties
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To act within scope of instructions
• Limits on normal or reasonable actions must be brought to third party’s attention, or else principal will be bound by agent even if acting outside the scope of the agency. Difficult area.
Agent owes duty of utmost good faith
• Act in principal’s interest, not your own
• Not to make profit at principals expense
• Not to conflict with principal
• Not to act for third party
• Exception: consent of both parties
• Not to commingle trust funds!!!!
Cf. fiduciaries and trust law

AGENCY
CONTRACTUAL RELATIONSHIPS
EXAMPLE:
PRINCIPAL AGENT
Authority to Enter into Contract on Behalf of Principal
(Contract Usually Between
Principal and Agent)
THIRD
PARTY
RESULT
PRINCIPAL
AGENT
THIRD
PARTY
Negotiation of
Contract on Behalf of
Principal (Within
Scope of Authority)

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Ratification of K by a principal
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Lack of authority by Agent, but ratification sets acceptance at time of contract, not at time of ratification
• Principal must have been in existence at time of K, and must be contemplated by the K.
• Within a reasonable time, whole K, deemed by conduct, etc.

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If A acts within authority and follows procedure, rights of
TP are only against P
If A contracts on own behalf (with view to later assigning to P), the rights of TP are against A
If A does not disclose P-A relationship to TP, but acts according to rules, TP rights are against P, not A
If A represents a fictitious P, TP has rights against A
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Could be actions in fraud or deceit
If A acts beyond scope of directions, can be TP rights against P and A
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Could be actions in breach of warrant of authority

AGENCY
RIGHTS OF THIRD PARTIES
DISCLOSED PRINCIPAL
Right of Action
Authority
PRINCIPAL AGENT
Contract on Behalf of Principal
THIRD PARTY
UNDISCLOSED PRINCIPAL
Right of Action Against Agent or Principal
PRINCIPAL
Authority
AGENT
Contract on Behalf of Undisclosed
Principal
THIRD PARTY

AGENCY
RIGHTS OF THIRD PARTIES, cont’d
AGENT HOLDING SELF OUT AS PRINCIPAL
PRINCIPAL
Authority
AGENT
Right of Action
Contracts as
Principal
THIRD PARTY

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Vicarious liability for acts within scope of agency agreement, or those ratified by principal
Where agent is deceitful, both are liable in tort
Principal liable in fraud where allowing agent to innocently make false claims

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Express termination
Specific purpose complete
Incapacity of principal or agent
Bankruptcy of principal
Notification requirements to third parties
• But, umm, what about reason for having agent?
• Fairness to TPs - hard to find info about P, so make a rule to make P liable in absence of notice.

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For a fee, someone provides you with investment advice on an ongoing basis, and on your orders, buys and sells some junk bonds on your behalf. Is this person an agent?
Is the World Bank an agent of the
Canadian federal government?

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Fees are paid
Advice is provided
Acts are undertaken on your behalf
Why is this an important distinction?
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Because of the legal liability -- advisors may not have same duties as agents
What else could this relationship be?
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Employee? Independent contractor?

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Canada and many other nations are
“members” of WB by a contractual relationship (the Articles of Agreement)
They provide some money to WB which then raises more money in capital markets and provides members with loans
Some members form a “Board of Directors” of the WB that makes broad decisions (only the
U.S. has a veto in decision-making)
WB makes contracts with needy members to provide loans
What else could this relationship be?

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Partnerships...