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Commercial Law Course OutlineFall 2015

Joshua Morry

Table of ContentsIntroduction to Agency..........................................................................................................10

American Law Institute’s Restatement of Agency.............................................................................10Fridman’s Definition of Agency.........................................................................................................10Firestone Tire & Rubber Co. v Canada (Commissioner of Income Tax).............................................11Scott Maritime Pulp Ltd. v BF Goodrich Canada Ltd..........................................................................11Gardner v Ontario.............................................................................................................................11

Requirements for an Agency Relationship.............................................................................12Can a Minor Principal empower an Agent?.....................................................................................13

Re Shaw (1915, BCCA).......................................................................................................................13Johansson v Gudmunson (1909, MBCA)...........................................................................................13

Capacity of Corporations................................................................................................................13Can a Mentally Incompetent Principal Empower an Agent?............................................................13

Hill Estate v Chevron Standard Ltd. (1992, MBCA)............................................................................14Godelie v Ontario (Public Trustee) (1900, Ont. Dist. Ct)....................................................................15Axler v Axler......................................................................................................................................15

Capacity of the Agent.....................................................................................................................16s. 16 - The Powers of Attorney Act (Manitoba).................................................................................16

Formal Requirements Respecting Agency Empowerments..............................................................16s. 10(1) - The Powers of Attorney Act (Manitoba).............................................................................16Standard Realty Co. v Nicholson.......................................................................................................17Berkeley v Hardey.............................................................................................................................17

Agency by Agreement............................................................................................................18Express Actual Authority................................................................................................................18

Royal Bank v Bauman........................................................................................................................18Magrath v Collins..............................................................................................................................18Globe & Rutgers Fire Insurance Co...................................................................................................18Saint John (City) v Lockwood.............................................................................................................19Arpin v Leclaire.................................................................................................................................19Sample Problem................................................................................................................................19Sample Problem................................................................................................................................20

Implied Actual Authority................................................................................................................21McDonald v Lawlor (1980, Sask. KB).................................................................................................21CPR v Rosin.......................................................................................................................................21Re Deutsch........................................................................................................................................21Lafontaine v Hartford Accident & Indemnity Co...............................................................................21Dickenson v Stonehenge...................................................................................................................22Earl Paddock Transportation Inc. v Accuride Canada Inc. (1991, Ont. Div. Ct)..................................22Percy Lumber Co. v Oppenheimer Brothers & Wood Ltd.................................................................23Hely-Hutchinson v Brayhead Ltd.......................................................................................................23Prager v Blatspiel..............................................................................................................................24Hastings v Semans (Village) (1946, Sask. CA)....................................................................................25Sachs v Miklos; Monroe v Wilmot.....................................................................................................26

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Beck v Duncan (1913, Sask. CA)........................................................................................................26Robert Simpson Co. v Godson (1937, ONCA)....................................................................................27

Agency by Statute..................................................................................................................27s. 153(3) - The Highway Traffic Act of Manitoba...............................................................................27s. 28(1) - The Sale of Goods Act of Manitoba....................................................................................28

Agency by Ratification...........................................................................................................28Koenigsblatt v Sweet (1923, Eng. CA)................................................................................................28

The Seven Requirements................................................................................................................28Firth v Staines (1897, Eng. QB)..........................................................................................................28

Requirement #1.............................................................................................................................29Watson v Swann (1862, England)......................................................................................................29Chapman v Robinson (1969, Alta. Dist. Ct).......................................................................................30Watson v Davies (1931, England)......................................................................................................30

Requirement #2.............................................................................................................................30Kelner v Baxter (1866, England)........................................................................................................31Black v Smallwood (1966, England)...................................................................................................32Application of the Common Law.......................................................................................................33CBCA s. 14.........................................................................................................................................33Sherwood Design Services Inc. v 872835 Ontario Ltd. (1998, ONCA)................................................341394918 Ontario Ltd. v 1310210 Ontario Inc. (2002, ONCA)............................................................35

Requirement #3.............................................................................................................................36Bird v Brown.....................................................................................................................................36Walter v James (1871, Eng. Exch. Ct)................................................................................................37Bolton Partners v Lambert (1889, CA)...............................................................................................37PMSA v Secunda...............................................................................................................................38Sample Problem................................................................................................................................38

Requirement #4.............................................................................................................................40Bailey v Dawson (1912, Ont. HC).......................................................................................................40Soames v Spencer (1822, KB)............................................................................................................40Oxford Corp v Crow (1893, England).................................................................................................40Chapman v Robinson (1969, Alta. Dist. Ct).......................................................................................40Edmonton Steam Shovellers v Gunn & Sons (1913, Alta. TD)...........................................................40Forman v The Liddesdale (1900, NBCA)............................................................................................41McKay v Tudhope Anderson Co. (1918, Alta. CA).............................................................................41Crown Manufacturers Ltd. v Texas Refinery Corp of Canada Ltd. (1984, Sask. QB)..........................42Buenneke v Buenneke (1966, Sask. CA)............................................................................................42Bontex Importing Co. v Panar (1921, Sask. KB).................................................................................43Sample Problem................................................................................................................................43Canadian Laboratories v Englehard...................................................................................................44Sample Problem................................................................................................................................45Sample Problem................................................................................................................................46Stevens v Merchants Bank (1919, MBCA).........................................................................................46

Requirement #5, 6, and 7...............................................................................................................46Midland Bank Ltd. v Reckitt (1933, HL).............................................................................................47Bank of Toronto v Matheson (1927, Sask. CA)..................................................................................47Sample Problem................................................................................................................................47Sample Problem................................................................................................................................48

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Chart Summarizing Principles...........................................................................................................49

Agency by Estoppel (Apparent Authority)..............................................................................49Circumstances of Apparent Authority.............................................................................................49

Imperial Elevator Co. v Hillman (1915, Sask. CA)..............................................................................50Dogwood Drilling Ltd. v Fitterer (1988, BC Co. Ct)............................................................................51Kaestner & Hecht v Housie (1914, Sask. CA).....................................................................................51Drew v Nunn (1879, Eng. CA)............................................................................................................52Ramelson v Northwest Hide & Fur Co. (1914, MBQB)......................................................................52

The Ingredients of Apparent Authority...........................................................................................52Crown Manufacturers Ltd. v Texas Refinery Corp of Canada Ltd. (1984, Sask. QB)..........................52

The Representation........................................................................................................................53A.G. of Ceylon v Silva (1953, PC).......................................................................................................54De Tchihatchef v Salerni Coupling Ltd. (1932, Alta. CA)....................................................................54Calgary Hardwood & Veneer Ltd. v CNR (1979, Alta. CA)..................................................................54Jensen v South Trail Mobile Ltd. (1972, Alta. CA)..............................................................................54Canadian Laboratory Supplies Ltd. v Englehard Industries of Canada Ltd. (1977, SCC)....................55Sample Problem................................................................................................................................56Howard v Carline...............................................................................................................................56Hedley Byrne v Heller........................................................................................................................57Crampsey v Deveney (1968, SCC)......................................................................................................57Gowans-Kent Western Ltd. v Assiniboia Club (1915, Sask. CA).........................................................58Reid & Keast v AE McKenzie Co. (1921, Sask. CA).............................................................................59Piper Group Ltd. v Shearson Equities Ltd. (1986, Nova Scotia TD)....................................................59Caledonia Inc. v Tractors & Equipment Ltd. (1980, NBQB)...............................................................59Bank of Nova Scotia v Ukrainian Greek Orthodox Congregation of Holy Trinity (1932, Alta. QB).....60

The Reliance..................................................................................................................................60Stevens v Merchant Bank (1919, MBCA)...........................................................................................60Canadian Laboratory Supplies Ltd. v Englehard Industries of Canada Ltd. (1977, SCC)....................61Crampsey v Deveney (1968, SCC)......................................................................................................62Farquahrson Bros & Co. v King & Co. (1902).....................................................................................62Sample Problem................................................................................................................................62Sample Problem................................................................................................................................63Summary of the Law.........................................................................................................................64Sample Problem................................................................................................................................64Sample Problem................................................................................................................................65Hastings v Semans (Village) (1946, Sask. CA)....................................................................................66Robin Line Steamship Co. v Canadian Stevendoring Co. (1928, SCC)................................................66

Apparent Authority and Corporations............................................................................................66Freeman & Lockyer v Buckhurst Park Properties Ltd........................................................................67British Bank of the Middle East v Sun Life Assurance Co. of Canada (1983, HL)...............................68Sample Problem................................................................................................................................69

The Apparent Authority of Lawyers to Settle..................................................................................69McIvor v McIvor (2002, Sask. CA)......................................................................................................70Shewchuk v Preteau (1999, MBQB)..................................................................................................71Yannacopoulos v Maple Leaf Drilling Co. (1962, BCSC).....................................................................71Scherer v Paletta (1966, ONCA)........................................................................................................71Martin v Busenius.............................................................................................................................71

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Summary of Principals......................................................................................................................72Nelson v Murphy (1957, MBCA)........................................................................................................72Morris v Gilbert (2006, NBQB)..........................................................................................................72Sample Problem................................................................................................................................73

Apprarent Authority and Criminal Plea Bargains............................................................................78Prosser v R (1980, Sask. Dist. Ct).......................................................................................................78

Apparent Authority and the Crown................................................................................................78JE Verreault & Fils Ltee v Quebec (AG) (1975, SCC)..........................................................................78Grannum v North West Territories (1991, NWTSC)..........................................................................78

Agency by Usual Authority....................................................................................................79Watteau v Fenwick (1893, QB)..........................................................................................................79Sign-O-Lite Plastics Ltd. v Metropolitan Life Insurance Company (1990, BCCA)...............................80Summary of Principles......................................................................................................................81

Contractual Liabilities of Principals, Agents, and Third Parties...............................................81Disclosed Principals........................................................................................................................81

Timmerman’s Enterprises Ltd. v Painter (1986, MBQB)....................................................................81Scott v Merit Investment Corp (1988, ONCA)...................................................................................82Sunshine Exporation Ltd. v Dolly Varden Mines Ltd. (1967, BCSC)...................................................82Cohen v Dominion Atlantic Railway Co. (1931, NSCA)......................................................................82Porter v Pelten (1903, SCC)...............................................................................................................83Friedman Equity Development v Final Note Company (2000, SCC)..................................................83Margolius v Diesbourg (1937, SCC)...................................................................................................83Schmaltz v Avery (1851, QB).............................................................................................................83Canadian Laboratory Supplies Ltd. v Englehard Industries of Canada Ltd. (1977, SCC)....................84

Undisclosed Principals....................................................................................................................84Humble v Hunter (1848)...................................................................................................................84Bowmanville Machine Co. v Dempster (1876, NSTD).......................................................................85Sample Problem................................................................................................................................86Sample Problem................................................................................................................................87

The Doctrines of Election and Merger.............................................................................................88Clarkson Booker Ltd. v Andjel (1964, Eng. CA)..................................................................................89Tedrick v Big T Restaurants Ltd. (1983, Sask. QB).............................................................................90Scarf v Jardine (1881, HL)..................................................................................................................91Davidson v McClelland (1900, CA)....................................................................................................91Smith v Lasko (1986, MBQB).............................................................................................................92Sample Problem................................................................................................................................92Sample Problem................................................................................................................................93

Factors Legislation.........................................................................................................................94The Factors Act of Manitoba – s. 2(1)...............................................................................................94Thorensen v Capital Credit Corp (1933, Ont. Co. Ct).........................................................................95Bush v Fry..........................................................................................................................................95Peoples’ Credit Jewelers Ltd. v Melvin..............................................................................................96Sheriff of Edmonton v Kozack (1965, Alta. Dist. Ct)..........................................................................96St. Bernard De LaFond Savings & Credit Union Ltd. v Spicer (1982, QB)...........................................96Barry v Bank of Ottawa (1908, CA)....................................................................................................96Oppenheimer v Attenborough & Son (1908, CA)..............................................................................96Peoples Credit Jewelers Ltd. v Melvin...............................................................................................97

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Terra Power Tractor Co. v Champan (1977, Alta. Dist. Ct)................................................................97Bank of Nova Scotia v Tissington (1981)...........................................................................................97

Tort Liability, Principals and Agents................................................................................................98Polhill v Walter (1832, England)........................................................................................................98Collen v Wright (1857, England)........................................................................................................98AE LePage Ltd. v Kamex Developments Ltd. (1988, CA)....................................................................98TD Trapp & Co. v Prescott (1912, BCCA)...........................................................................................98Bent v Arrowhead (1909, MBCA)......................................................................................................99Coit v Dowling (1901, NWTSC)..........................................................................................................99Salter v Cormie (1993, Alta. CA)........................................................................................................99Young v Toynbee (1910, CA).............................................................................................................99The Powers of Attorney Act of Manitoba – s. 4..............................................................................100Sample Problem..............................................................................................................................100Austin v Real Estate Listing Exchange (1912, BCCA)........................................................................101Sanford v Milburn (1983, QB).........................................................................................................101Wickberg v Shatsky (1969, BCSC)....................................................................................................101Greaves v Sprauge (1920, NBCA)....................................................................................................101

Smith v Thompson (1842, UCQB)..................................................................................................102Bright v Kerr (1939, SCC).................................................................................................................103Sample Question:............................................................................................................................103The Highway Traffic Act s. 153(3)....................................................................................................103Sample Question.............................................................................................................................103

The Agent’s Right to Remuneration..............................................................................................104

Powers of Attorney..............................................................................................................104Types of Empowerments..............................................................................................................104

Ordinary/General versus Enduring Powers of Attorney..................................................................104The Powers of Attorney Act ss. 10-25 (Enduring Power of Attorney).............................................104Ordinary/General versus Specific Powers of Attorney....................................................................104Springing Powers of Attorney.........................................................................................................105The Powers of Attorney Act ss. 6-9 (Springing Powers of Attorney)...............................................105Re Potasky (2000, MBQB)...............................................................................................................105Living Wills, Powers of Attorney for Personal Care, and Health Care Directives.............................106Power of Attorney Template...........................................................................................................106

Termination and Revocation of Agency Relationships...................................................................106Wilkinson v Young (1972, Ont. HC).................................................................................................106The Powers of Attorney Act s. 13 – Termination of an Enduring Power of Attorney......................107Termination of Revocable Agency..................................................................................................107

Powers of Attorney and Mental Competency...............................................................................108Sample Problem..............................................................................................................................108Canada Permanent Trust v Parks....................................................................................................108The Powers of Attorney Act s. 4 – Acts of Attorney After Authority Terminates............................109Sample Question.............................................................................................................................109Sample Question.............................................................................................................................111

The Formation of Partnerships.............................................................................................113Introduction to Partnerships........................................................................................................113

The Partnerships Act s. 2(1) – The Three Types of Partnerships.....................................................113The Business Names Registration Act.............................................................................................114

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The Partnerships Act s. 3 – The Essential Elements of a Partnership..............................................114The Partnerships Act s. 4 – Rules for Determining the Existence of Partnership............................114Mendelssohn Piano v Graham & West (1829, England)..................................................................116Cox v Hickman.................................................................................................................................116AE LePage........................................................................................................................................116Hemming v LeMarquand (1909, MBKB)..........................................................................................116

What Comprises “The Relationship Which Subsists Between Persons?”.......................................117The Partnerships Act s. 1(1) – Definition of Person.........................................................................117The Partnerships Act s. 6 – Meaning of Firm...................................................................................117The Partnerships Act s. 7 – Firm May be Partner............................................................................117Backman v The Queen (2001, SCC).................................................................................................117Spire Freezers Ltd. v Canada (2001, SCC)........................................................................................118The Partnerships Act s. 36(1) – Dissolution by Bankruptcy, Death or Charge.................................119

When is There an Agreement?.....................................................................................................119Wiener v Harris (1910, CA)..............................................................................................................120Backman v The Queen (2001, SCC).................................................................................................120Kahn v Miah (2001, HL)...................................................................................................................120

What Comprises Carrying on a Business in Common?...................................................................121The Partnerships Act s. 1(1) – Definition of Business......................................................................121Backman v The Queen (2001, SCC).................................................................................................121Continental Bank Leasing Corp v The Queen (1998, SCC)...............................................................122Kahn v Miah (2001, HL)...................................................................................................................123

What Comprises “With a View to Profit?”....................................................................................123Backman v The Queen (2001, SCC).................................................................................................123Continental Bank Leasing Corp v The Queen (1998, SCC)...............................................................124Summary of Indicators of Partnership............................................................................................124

Full Case Briefings........................................................................................................................125Backman v The Queen (2001, SCC).................................................................................................125Spire Freezers Ltd. v Canada (2001, SCC)........................................................................................127Continental Bank Leasing Corp v The Queen (1998, SCC)...............................................................128

The Legal Nature of a Partnership & The Partnership Relationship......................................129No Separate Legal Entity..............................................................................................................129

Thorne v New Brunswick Workmen’s Compensation Board (1962, NBCA).....................................129The Partnerships Act ss. 6 & 7 – The Firm.......................................................................................130The Partnerships Act s. 23 – Partnership Property.........................................................................130AE LePage........................................................................................................................................130The Partnerships Act s. 24 – Property Bought with Partnership Money.........................................131Queens Bench Rules R8 – Suing Partnerships.................................................................................131Backman.........................................................................................................................................131

Introduction to Partner Liability...................................................................................................131The Partnerships Act s. 8 – Power of a Partner to Bind the Firm....................................................131The Partnerships Act s. 9 – Partners Bound by Acts on Behalf of Firm...........................................132The Partnerships Act s. 12 – Liability of Partners............................................................................132The Partnerships Act s. 13 – Liability of the Firm for Wrongs.........................................................132

Life of a Partnership.....................................................................................................................132The Partnerships Act s. 36(1) – Dissolution by Bankruptcy, Death, or Charge................................132

Default Rules Governing the Relationship of Partners vis-à-vis Each Other...................................133

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The Partnerships Act ss. 20(3)-36 – The Default Rules....................................................................133The Fiduciary Duty of Partners.....................................................................................................133

The Partnerships Act ss. 31-33........................................................................................................133Assignment of the Partnership Interest........................................................................................134

The Partnerships Act s. 34(1) – Rights of Assignee Share in Partnership........................................134Backman.........................................................................................................................................134The Partnerships Act s. 27(g) – Consent of Partners.......................................................................135

Rules Governing the Relationship of Partners with Third Parties..................................................135The Partnerships Act s. 20(1) - Liability of a Joining Partner for Existing Debts..............................135The Partnerships Act ss. 8-12 – Liability of Partners.......................................................................135The Partnerships Act s. 20(2) – Pre-Retirement Debts....................................................................137Sample Question.............................................................................................................................137JL Montrose on s. 8 of the Partnerships Act....................................................................................137The Partnerships Act s. 17(1) – The Liability of Non-Partners.........................................................138Tower Cabinet Co. v Ingram............................................................................................................138Bet-Mur Investments Ltd. v Spring.................................................................................................138The Partnerships Act s. 39 – Liability of a Retiring and Deceased Partner......................................139Tower Cabinet Co. v Ingram............................................................................................................139Sample Question.............................................................................................................................140

Tort Liability of Partners...............................................................................................................142The Partnerships Act ss. 13, 14, & 15 – Vicarious Liability of Partners............................................142Ernst & Young v Falconi..................................................................................................................1433464920 Canada Inc. v Strother (2007, SCC)...................................................................................143Sample Question.............................................................................................................................144Poulos v Carvelle Homes Ltd. (1995, Alta. CA)................................................................................145The Partnerships Act s. 15 - Joint and Several Liability of Partners in Tort.....................................146The Partnerships Act s. 12 – Joint and Several Liability of Partners in Contract..............................146

Limited Partnerships............................................................................................................146Requirements for a Limited Partnership.......................................................................................147

The Partnerships Act s. 52 – Constitution of a Limited Partnership................................................147The Partnerships Act s. 55 – Partnership not Formed Until Registered..........................................147The Partnerships Act s. 56(2) – Failure to Renew............................................................................147The Business Names Registration Act ss. 2, 3, 5, & 7 – Registration of Limited Partnerships.........148791007 Alberta Ltd. v 703358 Alberta Ltd. (1999, Alta. QB)...........................................................148

Naming the Limited Partnership...................................................................................................148The Partnerships Act s. 58(2) – Use of the Word “Limited” in the Partnership Name....................148The Partnerships Act s. 58(1) – Limited Partnership Name.............................................................148Sample Question.............................................................................................................................148

Rights and Obligations of Limited Partners...................................................................................149The Partnerships Act s. 53 – Limited Liability of Limited Partners..................................................149Limited Partner’s Partnership Interest............................................................................................149The Partnerships Act ss. 62-63 – Rights of Limited Partners to Participate in the Business............150The Ontario Partnerships Act s. 13(1) – Loss of Liability of a Limited Partner.................................151The Partnerships Act s. 54(1) – General Partners only to Transact Business..................................151

Limited Liability Partnerships...............................................................................................151Introduction to LLP’s....................................................................................................................151

The Partnerships Act s. 69(1) – Additional Requirements for LLP...................................................151

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The Partnerships Act s. 69(3) – Limited Partnerships Not Eligible..................................................152The Partnerships Act s. 69(4) – Effective Date and Period of Status...............................................152The Partnerships Act s. 71 – Notice to Clients Upon Becoming LLP................................................152The Partnerships Act s. 74(1) – Use of LLP in Firm Name................................................................152The Legal Profession Act s. 25 – Lawyers Practicing as LLP.............................................................152Sample Problem..............................................................................................................................152

The Limited Liability Provisions....................................................................................................153The Partnerships Act s. 75 – Limited Liability of Limited Partners..................................................153Alberta Partnership Act s. 12 – Limited Liability.............................................................................154The Ontario Limited Liability Partnerships Act s. 10 – Limited Liability...........................................155Sample Question.............................................................................................................................156Sample Question.............................................................................................................................156

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The Law of AgencyIntroduction to Agency

- The law of agency is a fundamental principle of the law, it is as fundamental as contract, tort or property

- It has to do with situations, where one person, the agent, can affect the legal position of another, the principal, vis-à-vis a third party

- The principle is that we are capable, through an agency relationship, of empowering someone else to act on our behalf with a third party

- Without this principle, we would have to act for ourselves all the time, which would be inconvenient and perilous

American Law Institute’s Restatement of Agency

Unlike partnership relationships that have a statutory definition, there is no commonly accepted definition of agency.

“Agency is the fiduciary relationship that arises when a principal manifests asset to an agent that the agent shall act on the principal’s behalf and subject to the principal’s control, and the agent manifests assent or otherwise consents to so act.”

This definition is misleading because not all agency relationships are consensual in nature, consent is not fundamental to an agency relationship. The other misleading term in this definition is “control”, which is also not fundamental to an agency relationship (see agency by necessity and cohabitating women).

The reference to the fiduciary nature of the relationship is also misleading. Some duties owed by an agent are fiduciary, some are contractual. The fiduciary nature of the relationship is not definitional. It is not the key to the relationship.

Fridman’s Definition of Agency

“Agency is a relationship that exists between two persons when one called the agent, is considered in law to represent the other, called the principal, in such a way as to be able to affect the principal’s legal position in respect of strangers to the relationship by the making of contracts or the disposition of property.”

The main inaccuracy about this definition is that it seems to suggest that the relationship only exists for the purpose of making a contract or disposing property. A principal can empower an agent to do much more than that. For example, a principal can empower an agent to register an office on his behalf at the Land Titles Office, or to renew a license, or to oversee a construction process and sign off on progress payments. When a client retains a lawyer to represent him in

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an action, in retaining the lawyer, the lawyer has been empowered to move the case forward or settle it, that’s not making a contract or disposing of property.

- It’s a pointless exercise for us to try to distinguish agency relationships from bailment, master/servant, employer/independent contractor, trust, and vendor/purchaser relationships

- Suffice it to say that except for vendor/purchaser, the relationships are not mutually exclusive from agency

- A bailee for example can be an agent for the bailor as well as the bailee

Firestone Tire & Rubber Co. v Canada (Commissioner of Income Tax)Facts:

The issue of whether a relationship is agency or vendor/purchaser can arise in several contexts, including seizure of goods pursuant to a floating charge debenture, bankruptcy, damage or destruction, and tax liability.

In this case, Firestone manufactured tires in Ontario and supplied them to an individual in BC. The individual in BC then sold them to garages around the province. Pursuant to the BC Income tax act, the Commissioner of Income Tax went after Firestone for the revenue generated by the sale of its tires in BC. Whether Firestone was liable to pay depended upon whether its relationship with the individual in BC was that of agency or vendor/purchaser. IF pursuant to their agreement, the BC individual sold the tires as Firestone’s agent, Firestone was liable to pay tax. If instead the BC individual had purchased the tires pursuant to an agreement then resold the tires, the BC individual would pay the tax.

While this issue doesn’t come up very often, it can be very difficult to resolve.

Holding:

The Supreme Court of Canada ended up characterizing the relationship as a vendor/purchaser agreement, and Firestone was not liable for the tax. However, out of the 12 judges called upon to determine the case at trial, appeal, and the SCC, 6 said that it was agency, the other 6 said it was vendor/purchaser. This highlights the difficulty of this analysis.

Scott Maritime Pulp Ltd. v BF Goodrich Canada Ltd.Ratio:

People who are essentially bailees are seldom agents for their bailors, but people who are essentially agents are often incidentally bailees for their principals

Gardner v OntarioRatio:

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While it is always important to argue the facts that support the contention that an agency relationship exists, the question of whether or not an agency relationship has arisen out of the factual context is a question of law

- Agency relationships come in five forms:o Agency by Agreemento Agency by Statuteo Agency by Ratificationo Agency by Estoppelo Agency by Usual Authority

- Generally, the name of the authority exercised pursuant to an agreement, express or implied, is actual authority

- Similarly, an agent exercising authority pursuant to a statute is exercising actual authority

- Ratification occurs when someone without any antecedent authority deals with a third party on behalf of the principal, and the principal subsequently ratifies what the agent has done

- When ratification occurs, ex post facto, the agent can be said to have acted with actual authority after the agent acted without antecedent authority

- In agency by estoppel, the agent is said to have acted with apparent authority, as the principal, through words or conduct, has indicated that apparently, the agent had authority

- Sometimes, apparent authority is referred to as ostensible authority- Finally, usual authority comes from the case Watteau v Fenwick, a controversial case

that may or may not still be part of our law- In that situation, the agent is said to have acted with usual authority- Absent an express agreement, it can also be found that by an implied agreement, the

agent had actual authority to act- The leading case on the general case of implied actual authority is the Hely-Hutchinson

Requirements for an Agency Relationship- Such agency agreements can be contractual in nature, or mere agreements- To be contractual, there needs to be the fulfillment of the ingredients for a contract

(covered in first year contracts law), although it is not much of a concern for our purposes

- Most powers of attorney are not contractual because there is not usually consideration flowing between the parties

- Whether an agency agreement is contractual or not, the principal must have the capacity to enter into such a relationship

- This issue comes up for minors, corporations, and the mentally incompetent

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Can a Minor Principal empower an Agent?- For minor principals, there are two relatively old Court of Appeal decisions that state the

opposite

Re Shaw (1915, BCCA)Ratio:

The BC Court of Appeal held that a minor cannot empower an agent to act on his behalf

Johansson v Gudmunson (1909, MBCA)Ratio:

The Court held that two minor sons could empower their father to act on their behalf in a certain transaction, although this was not the main basis of the judgment.

If this case is the law, and it is in Manitoba as it was our Court of Appeal, then the capacity of a minor principal to empower an agent should be the same as a minor to contract for himself. With respect to contracts made by a minor, the following rules apply:

1. Contracts for necessaries are valid2. Contracts made for non-necessaries are voidable by the minor, even after consumption

of the goods3. Contracts of employment are valid4. Contracts made that impose penalties for non fulfillment are void

Capacity of Corporations- With respect to corporate principals, remember from Corp I that there are various

methods by which a corporation can come into existence:o Registration (English companies)o Articles of Associationo Letters Patento Statutory Companies

- Depending upon the method of incorporation, a corporation may have more or less capacity

- For registration and statutory companies, a corporation only has as much capacity as what is expressly listed in the registration form or enabling statute

- For companies incorporated through articles of incorporation or letters patent, they have all the capacity of an adult human being

Can a Mentally Incompetent Principal Empower an Agent?- Mental incompetence comes in two varieties:

o Mental incompetence so declaredo Mental incompetence not so declared

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- There doesn’t seem to be any controversy that a mentally incompetent principal so declared does not have the capacity to empower an agent to act on her behalf

- If it is attempted, and a person does act on their behalf, the third party cannot enforce what has been transacted, it will be voidable on behalf of the mentally incompetent

- The controversy exists with regard to the mentally incompetent not so declared- There is some law supporting that a mentally incompetent principal not so declared can

empower an agent, and some law stating the opposite- The following case is controversial from the MBCA, and later affirmed by the SCC

Hill Estate v Chevron Standard Ltd. (1992, MBCA)Facts:

The defendant was interested in acquiring an oil and gas lease on land owned by an elderly resident of a personal care home named Mr. Hill. His affairs were looked after by his grandson-in la. When the defendant was informed that Mr. Hill could only sign with an X, it was suggested to the grandson in law by the defendant that he arrange for a power of attorney to be given to Mr. Hill. This was done, and the lease was executed on behalf of Mr. Hill by the attorney. The defendant made payments to Mr. Hill pursuant to the lease prior to his death and after. However, the estate challenged the validity of the power of attorney on the basis of Mr. Hill’s mental incompetence at the time the power of attorney was made.

Mr. Hill was mentally incompetent at the time he gave the power of attorney, but the defendant thought the problem was a physical disability. The disagreement between the trial court and the Court of Appeal was whether an empowerment by a mentally incompetent principal was void or voidable, and thus whether the contract pursuant to the power of attorney was void or voidable.

Trial Decision:

The trial court focused on the validity of the contract (the lease) made by Mr. Hill’s attorney, and not the validity of the power of attorney (the agency empowerment). The court found that a contract made by an agent with a third party in such circumstances is merely voidable.

This is because the law is that a mental incompetent not so declared, in making a contract with someone, creates an enforceable contract against the mentally incompetent if the other party did not know of the mental incompetency, and even if the other party did know, the contract is fair and reasonable from the point of view of the mentally incompetent person.

Court of Appeal:

The Court of Appeal looked at the issue from the perspective of the power of attorney itself. The Court said that the law is the same with a mentally incompetent not so declared as one so declared. A mentally incompetent principal cannot enter into an agency agreement.

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It is now imperative for third parties to obtain from attorneys a declaration representing the mental capacity of the donor at the time the power is exercised (assuming it is not enduring), and the time when it is given.

Class Comment:

Prof. Harvey prefers the Hill trial decision with its focus on the contract made by the agent, not the agency agreement. This decision better protects the interests of the donor and the third party.

Although generally contracts made on behalf of a mentally incompetent principal are void, an empowerment given during a lucid interval should be valid, and a contract made pursuant to such an empowerment should be enforceable, assuming the lucid interval continued to the making of the contract by the agent with the third party, regardless of what the agent knew or ought to have known of the principal’s mental condition.

Similarly, contracts for necessaries should be enforceable, regardless of what the third party knew or ought to have known.

Godelie v Ontario (Public Trustee) (1900, Ont. Dist. Ct)Issue:

When the mental competency of a principal is in question, what is the test to determine if the principal is in fact competent.

Ratio:

Agency is not different than contract. The criteria will be the capacity to understand the nature of agency and the nature of the terms of the particular appointment under consideration. If the particular appointment is confined to one specific act or circumstance, less capacity is required than if the appointment is a general one. If the appointment is a general one, then the capacity to appreciate the extent of the donor’s estate (such as in a power of attorney) would become part of the criteria.

Moreover, like with a will, not only must the donor of a power of attorney have the mental capacity to make it, the donor must make it freely and voluntarily, subject to no undue influence, and with a full understanding of the nature and effect of the power of attorney. This comes up often with situations where the donor could not speak English well enough to understand the empowerment.

Axler v AxlerRatio:

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Ideally, when there is concern about a person’s capacity to execute a power of attorney or similar document, a proper assessment of the person’s capacity to do so by a qualified expert should precede its execution.

Capacity of the Agent - Aside from the mental capacity of the agent, which is a necessary ingredient, generally

speaking, the capacity of the agent- This is because once the agent has acted pursuant to the empowerment and dealt with

the third party, the agent is viewed by the law as a mere catalyst, and drops out of the picture

- The contract is between the principal and the third party- It is very rare that a statute would have something to say about this, but the following

statute does:

s. 16 - The Powers of Attorney Act (Manitoba)

s. 16 An individual is eligible to be an attorney under an enduring power of attorney if, at the time the donor signs the document, the individual is an adult and mentally competent and is not an undischarged bankrupt.

- At common law, when the principal who’s made a valid and enforceable power of attorney subsequently becomes incompetent, by common law, that terminates the power of attorney

- This isn’t practical when powers of attorney are given by older people who are reaching a point in their lives where they can no longer deal with their financial matters

- S. 16 creates an enduring power of attorney, one that endures despite the incompetence of the donor

- However, the section requires that the attorney of an enduring power of attorney not be a minor

- Note that registration and statutory corporations cannot act as agents unless the statute or the registration grants the corporation the capacity to do so

Formal Requirements Respecting Agency Empowerments- At common law, there are no formal requirements respecting agency agreements- A statutory example is listed below

s. 10(1) - The Powers of Attorney Act (Manitoba)

Requirements for enduring power:The authority given by a donor to an attorney is not terminated by the mental incompetence of the donor after the execution of the power of attorney if the power of attorney

(a) is in writing;

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(b) is signed by the donor, or the donor acknowledges his or her signature, in the presence of a witness;(c) is signed by the witness in the presence of the donor; and(d) provides that it is to continue despite the mental incompetence of the donor.

While for most other agency empowerments there does not need to be a witness, it is a good idea to have one or two.

- Like with any other contractual or mere agreement, an agency agreement can be oral or in writing

- The Statute of Frauds required certain contracts to be in writing, such as interests in land

- An agency agreement is not one of those contracts, it can be wholly oral- In Manitoba, the Statute of Frauds has been abolished, but it exists elsewhere in the

common law world

Standard Realty Co. v NicholsonRatio:

Even if the agent is being empowered to make a contract on behalf of the principal, which by the statute of Frauds must be evidenced in writing, the agreement or empowerment need not be in writing

- There is however one bizarre continuation of the common law that sets out a requirement

Berkeley v HardeyRatio:

Where the agent is empowered to make a document with a third party that requires a seal, the agency agreement must be by way of a seal agreement, which means it must be in writing.

Therefore, a principal could empower an agent to purchase a parcel of land by instructions given orally or in writing, because to purchase a parcel of land, the agent only has to execute an offer to purchase, which is not a sealed instrument. However, a principal must empower an agent to transfer a parcel of land by sealed power of attorney because a registry system transfer requires a sealed document. Even though a Land Titles Transfer is not sealed, the Land Titles Office may require a sealed power of attorney.

Class Notes:

In class we asked the question of whether a Manitoba principal could orally empower an agent to purchase OR sell and convey a parcel of land in Saskatchewan.

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The Statute of Frauds applies in Saskatchewan, meaning that a contract for a parcel of land must be in writing. However, the agency agreement need not be in writing to purchase the land because the buyer has nothing to do with the transfer document, it is made solely by the vendor. However, as the seller, you’re empowering an agent to sell land and execute the transfer document on your behalf. It must be in writing (by the statue of frauds), but if the land is in the registry system of Saskatchewan (or even the land titles system), it needs to be sealed. Therefore, the empowerment of the agent needs to be sealed as well.

Agency by Agreement- Most agency situations involve agents whose authority is derived from an agreement

between the principal and the agent- They may be expressly created, as is the usual case, but also an agency agreement can

be found to exist by implication from the circumstances

Express Actual Authority - The agent who is vested with authority by either an express or implied agreement

exercises actual authority, which can itself be of two types, express or implied- The scope of an agent’s express actual authority is determined in the case of an oral

agreement first by resolving to what terms the principal and agent agreed- With either oral or written agreements, it may be necessary to construe the terms

delegating the authority to the agent

Royal Bank v BaumanRatio:

With oral agreements and written agreements not under seal, the ordinary rules of construction apply. If necessary, the court will construe the terms in the context of the surrounding circumstances.

Magrath v CollinsRatio:

When courts have to construe ambiguous authority, they usually do so favoring the agent and the third party. If a principal authorizes an agent in ambiguous language, the authority for the agent extends to whatever may fairly be taken to be the meaning of the authority, both to authorize the agent and bind the principal.

Globe & Rutgers Fire Insurance Co.Ratio:

Where the authority of an agent is conferred in such ambiguous terms, or the instructions given to him are so uncertain ss to be fairly capable of more than one construction, every act done by

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hi in good faith which is warranted by any one of those constructions is deemed to have been duly authorized through the construction adopted and acted upon by him.

Saint John (City) v LockwoodRatio:

With sealed powers of attorney, the courts are reluctant to infer terms, and they are similarly inclined to construe the terms of the document in the context of the document itself, without resorting to the surrounding circumstances.

Arpin v LeclaireRatio:

In construing a document, specific wording governs the construction to be faced on subsequent general wording, and the wording of a power of attorney cannot be secretly limited.

Sample ProblemQuestion:

P empowers an A “to sell and convey my cottage property for a reasonable cash consideration and generally do all things in connection with the sale as I might do”. A enters into the agreement of purchase and sale which involves a 75% mortgage back and gives the purchaser possession before the closing date. P consults you about having the deal quashed.

Answer:

What follows the express authority given in this agreement? This depends on whether the agreement is oral or in writing, and whether it’s sealed or not. If you’re dealing with an oral agreement, like with any contractual or mere agreement, there may be an issue with what the terms to the agreement actually are. Having determined what the terms are, we then look to what those terms actually mean.

The content and meaning will be determined for an oral agreement or a written agreement not under seal by looking at the words used and the surrounding circumstances (a basic tenant of contract law).

When dealing with a written agreement under seal, the Court will only look at the words used and not the surrounding circumstances.

When looking at words in a list, whatever is excluded is presumed not to have been intended. Another rule is that when you have wording that is specific in nature followed by general wording, the general wording must be construed in light of the specific.

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Application:

The question has specific wording concerning the empowerment followed by general wording. The specific wording is cash consideration. The 75% mortgage back is not cash consideration, as the agent has exceeded the express actual authority delegated, and the principal can have the deal quashed. Giving possession before the closing date however is not uncommon, and could be within the authority granted.


P empowered A “to make and execute any note, bond, or bonds, or other instrument, or contract, in my name…and to make, execute, and acknowledge all contracts, orders, deeds, writings, assurances, and instruments which may be requisite or proper to effectuate the business of the P”. Pursuant to the Power of Attorney, A leased land owned by X, a term of the lease being that P would make certain improvements to the land. No rental payments and none of the required improvements were made. Eventually, X commenced an action for the arrears in rent. You were consulted by P, what do you think?

Answer:

First, look at the wording of the empowerment, does it include the permission to enter into leases? No it does not. Second, look to see whether it is sealed, if it is, then the opinion is restricted to the wording of the empowerment and the court cannot look to the surrounding circumstances to see if we can infer the leasing of land.

In looking at the list, it does not include leases, and it should therefore be presumed that leases do not come within the meaning of the list because if it is not excluded, it is presumed to be excluded. However, the list includes contracts and assurances, and a lease is both a contract and an assurance (a document conveying an interest in land). Making the lease therefore comes within two of the empowerments here.

If the empowerment is not sealed take into account the surrounding circumstances such as (1) whether the principal’s business involves leasing the land, and if so, (2) whether the principal leased land himself or usually involved an agent.

The lease is burdensome as it requires leasehold improvements, arguably taking the lease outside the empowerment of the agency agreement.

There is a principle that if the wording of an empowerment is ambiguous and is capable of two constructions, the court will give a construction favorable to the agent and the third party, not the principal. The reason is that the principal is in control of the wording of the empowerment, he is the least innocent of the three.

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In the end, Prof. Harvey would suggest that P negotiate a settlement, as this is too unpredictable.

Implied Actual Authority - There are five kinds of implied actual authority

o Implied incidental actual authority (part of express)o Implied customary actual authority (part of express)o Implied generally (as in Hely-Hutchinson)o Implied by necessityo Implied by women in certain circumstances

Implied Incidental ActualMcDonald v Lawlor (1980, Sask. KB)Ratio:

The implied authority of an agent extends to all subordinate acts which are necessarily incidental to the exercise of express actual authority.

According to Prof. Harvey, it is as difficult to get a court to imply additional authority to what is express as it is to get a court to find an agency agreement by implication, as courts are loathe to imply terms into an agency agreement.

CPR v RosinRatio:

Having ascertained the scope of the express actual authority, it will usually be very difficult to persuade a court that there is, in addition, some implied incidental authority. Assuming that there is a difference between construing and inferring, it seems that courts are more receptive to an argument inviting a construction of the wording favorable to the agent or a third party than to an argument urging an inference of additional implied incidental authority.

Re DeutschHolding:

Express authority to expedite the administration of the estate was found by the court to include the implied incidental authority to sub delegate authority to a lawyer to apply to be named personal representative of the estate.

Lafontaine v Hartford Accident & Indemnity Co.Holding:

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An employer with express authority to arrange for automobile insurance on behalf of its employees had implied incidental authority to cancel insurance on the termination of the employment

Dickenson v StonehengeHolding:

The court ruled that the express actual authority to buy certain goods from a designated third party, implied the incidental authority to buy the goods from another third party if the designated third party was unable to sell them.

Implied Customary Actual- For implied customary actual authority, in certain marketplaces, with certain professions

such as engineering, law, architects, accountants, etc., agents dealing on behalf of principals have in addition to the express authority, authority by custom

- If a principal employs an agent who carries on a particular trade, business or profession, the agent may have in addition to the express actual authority with which the agent is vested, some implied authority from custom or usage

- For example, a lawyer’s ability to settle, if not express, can be characterized as either implied incidental authority, or implied customary authority

- A custom or usage must be:o Notoriouso Certaino Continuouso Reasonableo Not contrary to the wording of the agency agreement

Earl Paddock Transportation Inc. v Accuride Canada Inc. (1991, Ont. Div. Ct)Facts:

Freight Express, a freight broker, contracted on behalf of Earl Paddock to carry some goods for Accuride to a customer. Accuride paid Freight Express pursuant to the bill of lading, but Freight Express did not pay Earl Paddock. The issue is whether Accuride, the company that paid Freight Express, did so at its peril, and must now pay the plaintiff the cost of the shipment.

Ratio:

Where the debtor, instead of paying the creditor, chooses to pay a third party, he does so at his peril. Where the money is not turned over to the creditor, the onus is then on the debtor to establish either:

1. That the creditor actually authorized the third party to receive money on his behalf;2. That the creditor held the third party out as being so authorized;

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3. That the creditor, by his conduct or otherwise, induced the debtor to come to that conclusion; or

4. That a custom of the trade exists to the effect that in that particular trade and in those particular circumstances, both the creditor and the debtor normally would expect payment to be made to the third party

Even where it is established that a person is an agent of the principal and has acted on his behalf, this does not mean that the agent is necessarily authorized to receive the payments that are due to the principal from the other party to the contract.

Application:

Here, the bills were marked prepaid, signifying that the carrier must look for payment to the shipper and not the ultimate customer. The bill was sent to Freight Express, and the plaiantiffs expected to be paid by Freight Express. It was a custom in the trade for the carrier not to send a copy of the invoice to the shipper, and the carrier expected FreightExpress to collect payment.

The plaintiffs deliberately did not send Accuride an invoice, knowing Freight Express would be in charge.

The court found that the plaintiffs, by their conduct, induced Accuride to come to the conclusion that Freight Express was authorized to receive the money.

The Court also found that paying the broker was a uniform custom, and so universally recognized in the carriage trade that everyone in the trade knew or ought to have known about it

With respect to implied customary authority in commercial areas, principals will generally be deemed to know of the lawful and reasonable customs of the market place within which the agent operates

Percy Lumber Co. v Oppenheimer Brothers & Wood Ltd.Holding:

An agent was entitled to deduct in his accounting with the principal for allowances he made pursuant to a custom in the trade for shrinkage in connection with the sale of oranges to the third party wholesalers so long as the deduction was not unreasonable.

Implied Generally Hely-Hutchinson v Brayhead Ltd.Facts:

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Hely-Hutchinson was the managing director of Perdio Co., and had personally guaranteed the repayment of a loan to Perdio by a bank. Perdio then needed more money. The chairman and de facto managing director of Brayhead wanted control of Perdio. Hely-Hutchinson sold 750,000 of his Perdio shares to Brayhead, and was subsequently named a director of Brayhead. Perdio required more cash, and Hely-Hutchinson agreed with the chairman that Brayhead would advance more funds to Perdio, and would indemnify Hely-Hutchinson against any losses on his first loan. The chairman entered into these agreements with Hely-Hutchinson without the approval of Brayhead’s Board of Directors (without actual express actual authority). Perdio went bankrupt, and Hely-Hutchinson sued Brayhead for the guarantees.

Holding:

In the Court of Appeal, Lord Denning held that Brayhead was bound by the agreements that the chairman had made. Even though he did not have express actual authority, he had implied actual authority. The board had conferred implied actual authority in the circumstances of the case to enter into that agreement.

The chairman had always been allowed to make final policy and financial decisions for Brayhead without first involving the Board. He made deals, then reported them back to the board, and the board always agreed.

We should also note that the trial court determined that this was agency by estoppel, and Lord Denning conceded that such a characterization could also be justified. It is very difficult to prove actual authority by implied agreement as Courts are loathe to do so. There have only been about 6 instances where such an argument has worked.

Agency by Necessity - Agency of necessity is not to be confused with the restitutionary doctrine of necessitous

intervention, said by some authors to be analogous to the Roman law doctrine of neogiorum gestio

- Necessitous intervention has to do with situations where a person acts to preserve the property, or to care for the life or health, or fulfil the duty of another person and the necessitous intervener is either seeking reimbursement from the beneficiary or is defending a suit commenced by the beneficiary

- Often necessitous intervention does not involve affecting the beneficiary’s legal position with a third party

- An example of this is going onto your neighbor’s property to put out a fire- The leading case on agency by necessity is the following English decision:

Prager v BlatspielFacts:

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Prior to this case, the law of agency by necessity was restricted to two situations, carriers by land or sea, or acceptance of bills of exchange. As a result of this case, agency by necessity generally applies to any situation where the three ingredients can be established.

The defendants had purchased pelts for the plaintiff, a fur merchant in Romania right before Romania was occupied in WWI. After two years, the defendants, without being able to contact the plaintiff, decided to sell the pelts for fear of them becoming stale. After the war, the plaintiff sued the defendants for conversion. The defendants argued that the acted as agents of necessity.

Ratio:

To make out agency of necessity, three elements must be established by the defendant:

1. The agent must not have been able to communicate with the principal2. There must be an actual and definite commercial necessity for the sale3. The defendant must be acting bona fide in the interests of the parties concerned

Application:

For the second requirement to be made out, there must have been a real emergency to do what the agent did. The court determined that instead of selling the pelts, the defendant could have put them in cold storage. Prager would have then had to pay the cold storage costs. The result was that there was no emergency for the defendant to do what he did, there were other options.

Prof. Harvey notes that for the third requirement, we should read this as acting bona fide in the interests of the principal.

Note:

If the defendant had not sold the furs and they had rotted, the plaintiff could not sue on the basis that he failed to act as an agent of necessity, but he could sue on the basis that as a bailee, he failed to take reasonable care of the goods, and should have put them into cold storage.

Hastings v Semans (Village) (1946, Sask. CA)Facts:

A woman was struck by a car late one night, and required immediate medical treatment. The village medical health officer, in excess of his express actual authority, ordered her to be taken for treatment at the plaintiff’s private hospital. The only way she could have been treated at the hospital was if the village had passed a bylaw or a regulation. He argued he acted as an agent of necessity.

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Ratio:

In this case, the court restated the first requirement from Prager differently. The court held that it must be impracticable to communicate with the principal. Does this lessen the requirement?

Application:

It clearly would have been impractical to call the council together when this woman was seriously injured. He was not able to communicate with his principal.

The situation was an emergency, and the court found that he took a reasonable and prudent course of conduct in the circumstances.

Sachs v Miklos; Monroe v WilmotFacts:

These are two cases where the relationship started off as a bailment. Both defendants had taken goods from the plaintiffs for storage (a bailment relationship). In both cases, the bailor did not take the goods back in a timely fashion, so the bailees sold the goods because they wanted to use the space.

Holding:

In this case, the defendants acted for the purposes of their own convenience. The agent’s act must have been necessary in the sense of a real emergency from the perspective of the principal, not the agent, and there must have been no other reasonable lesser course of action that the agent could have taken, even if that course of action involved an expense (so long as that expense was reasonable).

Agency of Cohabitating Women, Separated, and Deserted Wives- This is the third and last kind of agency by necessity- By common law, not only can a cohabitating wife, but a cohabitating woman has limited

implied actual authority to make purchases for the household pledging the husband/man’s credit as the case may be

Beck v Duncan (1913, Sask. CA)Ratio:

There is no complementary authority possessed by a man to pledge the credit of a woman with whom he is cohabitating. Similarly, children have no implied or presumed authority to pledge the credit of a parent.

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Robert Simpson Co. v Godson (1937, ONCA)Ratio:

The drawing of the inference or presumption of authority will be refuted by proof that:

1. the husband expressly forbade the third party to provide the wife the goods or services on credit, or

2. that he had already adequately provided the goods or services in question, or3. adequately provided her with the means of purchasing them, or 4. that he forbade her to pledge his credit, or 5. that the goods or services procured are extravagant or excessive, 6. or that she contracted for the goods or services personally

- With regard to deserted and separated situations, it is only a wife who can make purchases with actual authority pledging the husband’s credit

- This is only with regard to necessaries, which is much more limited than the cohabitating wife

- Different from cohabitating women, the presumption can be defeated only on the basis that the deserted wife has the means to pay for the goods or services, or that she has committed adultery

- In Prof. Harvey’s view, it’s hard to imagine a merchant not allowing a woman to buy on credit in today’s society, forcing her to pledge her husband’s credit

- Prof. Harvey calls this authority implied actual authority stemming from an implied agreement between the man and the woman

- Others characterize this authority as presumed authority by the law in the circumstances, but this is all just semantics anyways

Agency by Statute- We’ve now dealt with all of agency by agreement- The second type of agency relationship is that which exists by statute- There are very few examples of this, but an agency that exists by statute would consist

of the agent exercising express actual authority

s. 153(3) - The Highway Traffic Act of Manitoba

Certain drivers deemed agents of owner:In an action for the recovery of loss or damage sustained by a person by reason of a motor vehicle upon a highway, every person driving the motor vehicle who is living with, and as a member of the family of, the owner thereof, and every person driving the motor vehicle who has acquired possession of it with the consent express or implied of the owner thereof, shall be deemed to be the agent or servant of the owner of the motor vehicle and to be employed as such and shall be deemed to be driving the motor vehicle in the course of his employment; but nothing in this subsection relieves any person deemed to be the agent or servant of the owner

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and to be driving the motor vehicle in the course of his employment from liability for such damages.

- This section is necessary because letting someone drive your car is a bailment relationship, and bailors are not otherwise liable for the actions of their bailees

s. 28(1) - The Sale of Goods Act of Manitoba

Delivery of goods, etc., by buyer in possession thereof:Where a person having bought or agreed to buy goods obtains, with the consent of the seller, possession of the goods or the documents of title to the goods, the delivery or transfer by that person or by a mercantile agent acting for him, of the goods or documents of title, under any sale, pledge, or other disposition thereof, to any person receiving the same in good faith and without notice of any lien or other right of the original seller in respect of the goods, shall have the same effect as if the person making the delivery or transfer were a mercantile agent in possession of the goods or documents of title with the consent of the owner.

- By this section, the seller is your agent with actual authority to resell your goods to a third party

- That innocent third party (known as equity’s darling) is protected- You can sue the seller, but you cannot sue the third party purchaser

Agency by Ratification- This is the third heading of agency, where anyone deals with a third party purportedly

on behalf of a principal, however they do so without actual or implied authority- In other words, they acted without any antecedent actual authority- Despite the lack of authority, in certain circumstances, the purported principal is able to

ratify what the agent has done- When the principal ratifies what the agent has done, the agent is then said to have

acted with actual authority

Koenigsblatt v Sweet (1923, Eng. CA)Ratio:

Ratification is equivalent to antecedent authority, and when there has been ratification, the act that is done is put in the same position as if it had been antecedently authorized

The Seven RequirementsFirth v Staines (1897, Eng. QB)Ratio per Lord Wright:

To constitute a valid ratification, three conditions must be satisfied:

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1. The agent whose act is sought to be ratified must have purported to act for the principal2. At the time the act was done, there must have been a competent principal3. At the time of the ratification, the principal must be legally capable of doing the act

himself

There are actually seven requirements to effective ratification:

1. The agent must have purported to act for the principal2. At the time the agent acted, the principal must have been in existence and competent 3. The ratification must not wreak identifiable hardship on a third party from a material

change in circumstances4. The principal must have intended to ratify the agent’s act5. The principal’s ratification must follow the agent’s act6. The principal’s ratification cannot affect fourth party rights7. The agent’s act must be capable of ratification

Requirement #1- There are three kinds of principals:

o Namedo Unnamedo Undisclosed

- In a named principal situation, the third party knows for certain for whom the agent is acting

- When an agent acts without antecedent authority for a named principal, that fulfils the first requirement as named principals can ratify

- Calling a principal undisclosed, by definition, means that the third party does not know that the agent is not acting for herself, but for someone else

- The third party thinks he’s making a deal between himself and the agent- Such a principal cannot subsequently step in and ratify- If a principal acts with antecedent authority on behalf of an undisclosed principal

however, they can ratify.

Watson v Swann (1862, England)Facts:

If a person says to the third party “I’m not acting on my own behalf, I’m dealing with you for someone else”, is this named, unnamed, or undisclosed. If the agent did not have the actual authority at the time, can this principal subsequently ratify pursuant to the first requirement?

Ratio:

The law requires that the person for whom the agent professes to act must be a person capable of being ascertained at the time. It is not necessary that he should be named; but there must be

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such a description of him as shall amount to a reasonable designation of the person intended to be bound by the contract.

Application:

The principal here was unnamed and not ascertainable. There can be no ratification.

Hypothetical #1:

If X, without antecedent authority says “I’m acting for the owner of MNO Ltd”, can the owner ratify X’s deal with the third party?

In this situation, the unnamed owner can ratify because if the third party had cared enough to find out who the principal was, they could have. It was an unnamed principal, but ascertainable.

Chapman v Robinson (1969, Alta. Dist. Ct)Ratio:

It is not necessary that the agent explicitly profess to act for the principal, this can be implied from the circumstances.

Watson v Davies (1931, England)Facts:

Davies offered to sell land to a charitable organization run by a board. The board sent a delegation to inspect the land. After viewing the land with Davies, the delegation accepted his offer subject to the approval of the board. On the morning of the day of the general meeting of the board (where the deal would be approved), Davies sent a note withdrawing his offer. The board then “approved” the offer at the meeting and sued for the land.

Ratio:

Recall from first year contracts that acceptance by the agent subject to the owner’s approval is of no legal consequence. There is no deal to be ratified, and ratification is therefore not possible. If a contract is eventually entered into, it is the principal who brought himself into the contract.

Requirement #2- Notice that in Prof. Harvey’s restatement of the Firth v Staines quote he articulated the

second requirement adding in the word “existence”- If a principal is competent, it could be said that they’re necessarily in existence, but ex

abundanti cautela, it’s best to state it this way

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Pre-Incorporation Transactions – The Common Law - Pre-incorporation transactions are a reality of doing business, and are often done on the

golf course, or at the bar because lawyers are usually not brought in until later in the process

- When that happens however, you run the risk of creating a pre-incorporation transaction, a situation where there is a contract with the corporation, but the corporation does not exist yet

- Just like with general agency, we once again have three players:o The corporationo The promoter (rather than agent)o The third party

- At common law, if there is a pre-incorporation transaction, the corporation is never bound by it

- A corporation can subsequently contract for the same thing, but this is not a pre-incorporation transaction, it is just a new one

- If you want to bind the corporation directly at common law, you have to wait for it to come into existence (referred to as novation)

- The common law applies to oral contracts in most Canadian incorporation jurisdictions (except Ontario)

Kelner v Baxter (1866, England)Facts:

The plaintiff was a wine merchant, and the defendant ran a hotel. The plaintiff offered to sell wines to a hotel company that was yet to be incorporated, but to which the defendant was planning to transfer the hotel business after incorporation. The offer contained the words “on behalf of the proposed Gravesend Royal Alexandra Hotel Company Ltd.”. This implied that both parties knew the company was not incorporated. Wines were sold pursuant to the contract, and were used as part of the hotel business. The hotel company was subsequently incorporated, and purported to ratify the agreement made. The plaintiff never paid, and the company went into insolvency. The plaintiff sued the defendant for the cost of the wine supplied.

Ratio:

Where a contract is signed by one who professes to be signing it “as an agent” but who has no principal existing at the time, and the contract would be altogether inoperative unless binding on the person who signed it, he is bound thereby, and a stranger cannot by subsequent ratification relieve him from that responsibility. Ratification can only be done by a person ascertained at the time of the act done, a person in existence either actually or in the contemplation of law.

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Application:

The corporation was an entirely new creature, having rights and obligations from that time, but no rights and obligations by reason of anything which had been done before. The defendants, having no principal who was bound originally, or who could become so by subsequent ratification, were themselves bound. The contract was in substance “I, the plaintiff, agree to sell you, the defendants, on behalf of the company, my wine”. To make a contract valid, there must be parties existing at the time who are capable of contracting.

Notice that this result is based on the finding that at the time of contracting, the parties knew the corporation did not yet exist. Therefore, the intention of the parties is presumed to be that they be personally bound.

Black v Smallwood (1966, England)- Kelner was thought to have created a general rule that every pre-incorporation contract

created a situation where the promoter was personally liable- Notice how this case is differentiated in that there is no consensus ad idem because one

or both parties did not know it was a pre-incorporation transaction

Facts:

The appellants purported to enter into a contract for sale of land to Western Suburbs Holdings Pty. Ltd. The contract said the name of the company, and the promoters signed it with the word “directors” written under their names. It was subsequently found that the company had not been incorporated at the time of signing, but all the parties thought it had been, and that the promoters were in fact directors. This is a suit for specific performance against the promoters to buy the land.

Issues:

Can the promoters be held personally responsible for the obligations in the contract?

Ratio:

Persons who contract as agents are generally personally responsible where there is no other person who is responsible as principal (Kelner v Baxter). The word generally acknowledges that there are exceptions to this rule however, and we must examine the instrument to see if, in the circumstances, an intention should be imputed on the promoters to bind them personally. In Kelner, the phrase “on behalf of” showed intention.

Application:

In the present case, the promoters did not contract, or purport to contract on behalf of the non-existent company. They added their signatures as directors in the bona fide belief that the

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company had been formed and they were its directors. The fact that their signature appeared as part of the company’s signature did not make them parties to the contract, nor could it. It was not possible to impute an intention to be bound as it was in Kelner. They are not to be held liable.

Notice how important writing is in both cases. Here it was the word “director” in the contract, whereas in Kelner it was “on behalf of”.

Application of the Common Law- We get four situations that emerge out of the common law framework

o Common intention to bind the promoter (Kelner) The promoter is bound

o Common intention to bind the company (Smallwood) Nobody is bound

o Different intentions No contract

o Unilateral mistake Here, the agent knows the company doesn’t exist, but the third party

thinks it does Still not binding on anyone, this is a matter of contract law There may however be torts involved (breach of warranty of authority)

- The application of the common law today depends- If you never form a corporation, the common law applies to everything- The common law will still apply if a corporation is incorporated provincially in Manitoba

or under the CBCA for oral pre-incorporation contracts- Statute applies for written pre-incorporation contracts

Pre-Incorporation Transactions – Statutory Reform CBCA s. 14

s. 14(1) Personal Liability – Subject to this section, a person who enters into or purports to enter into a written contract in the name of or on behalf of a corporation before it comes into existence is personally bound by the contract and is entitled to its benefits

s. 14(2) Pre-Incorporation and Pre-Amalgamation Contracts – A corporation may, within a reasonable time after it comes into existence, by any action or conduct signifying its intention to be bound thereby, adopt a written contract made before it came into existence in its name or on its behalf, and on such adoption

(a) The corporation is bound by the contract and is entitled to the benefits thereof as if the corporation had been in existence at the date of the contract and had been a party thereto; and

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(b) A person who purported to act in the name of or on behalf of the corporation ceases, except as provided in subsection (3) to be bound by or entitled to the benefits of the contract

s. 14(3) Application to Court – Subject to subsection (4), whether or not a written contract made before the coming into existence of a corporation is adopted by the corporation, a party to the contract may apply to a court for an order respecting the nature and extent of the obligations and liability under the contract of the corporation and the person who entered into, or purported to enter into the contract in the name of or on behalf of the corporation. On the application, the court may make any order it thinks fit.

[This in other words allows the court to apportion liability between a corporation and a promoter. This is rare, you have to mislead the other party and usually occurs in situations where the promoter realizes he made a bad deal, forms the company then tries to avoid liability]

s. 14(4) Exemption from personal liability – If expressly so provided in the written contract, a person who purported to act in the name of or on behalf of the corporation before it came into existence is not in any event bound by the contract or entitled to the benefits thereof.

[This allows a promoter to say I am not taking liability or the benefit of the contract, therefore, obligations and liability will only crystalize when the corporation becomes liable]

Sherwood Design Services Inc. v 872835 Ontario Ltd. (1998, ONCA)Facts:

An agreement to buy the assets of Sherwood Inc. was signed by three people in trust for a corporation to be incorporated. Sherwood informed its clients it was closing, causing them to lose business with them. The numbered company was incorporated that year for the purpose of the asset purchase. Several days before the closing, the purchaser’s solicitor sent a letter to the vendor saying that the numbered company has been assigned as the corporation that will complete the asset purchase. The transaction was not completed, but it didn’t have any assets to sue on. The lawyer who incorporated the company for the purchaser then gave it to another client for the purposes of completing a different transaction. The numbered company thus became a company with assets able to cover any earlier liability, and Sherwood sued it.

Ratio:

s. 14(2) does not specify the language needed to adopt a pre-incorporation contract. Because of the modern world of doing business, a minimum of formality is required, sufficient in essence to permit the parties to prepare for closing.

Application:

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The letter from the lawyer is more than an identification of the corporate vehicle, it is the signification of the company’s intention to be bound by, and accordingly adopt the contract. The solicitors were the directors of the corporation (as solicitors usually are at first), and had the authority from their clients to convey an intention to be bound. The letter is sufficient to constitute an adoption, and the corporation is bound.

Analysis:

The dissent in this case was vicious about how much it’s hurting the innocent third party, but MacPherson says their recourse is by suing the lawyers.

1394918 Ontario Ltd. v 1310210 Ontario Inc. (2002, ONCA)Facts:

The appellants are the vendor company and the individuals associated with it. The purchaser was “Raymond Stern in trust for a company to be incorporated and not in his personal capacity”. This is a good example of a s. 14(4) exclusion. When the vendor repudiated the contract because he didn’t want to go through with it. Stern accepted the repudiation and then incorporated the plaintiff company to sue for damages. The question was whether or not this was possible.

Ratio:

s. 14(2) applies to a s. 14(4) contract, and the position of the corporation after adoption is identical whether or not the promoter was personally bound before adoption.

Repudiation puts an end to the contract in the sense that it releases the innocent party from the further duty of performance, but it does not abrogate the whole contract, the innocent party can still sue for damages. Only future obligations under the contract are extinguished. Accrued obligations and rights under the contract continue to exist, and a corporation can adopt those as well.

Application:

The court found that the filing of the statement of claim was sufficient to constitute adoption by the corporation, and the corporation could subsequently sue.

Prof. MacPherson’s Thoughts on this Case:

If Raymond Stern was not bound under the s. 14(4) exclusion, then nobody is, and is there therefore a revocable offer (a case in BC says there is)? However, judges have said that this is a statutory contract, and you don’t need two people to be bound as the statute can do whatever it wants in regards to the common law.

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Prof. MacPherson also thinks its interesting that a corporation can sue on a breach of a contract that it was never bound by. Furthermore, s. 14(2) says that you only need to adopt in a reasonable time after the corporation comes into existence, meaning that if you have a s. 14(4) exclusion, you can sit forever and wait. The statute is therefore very badly written.

Make note of the fact that that the s. 14(4) has to be in writing, it cannot be oral.

Ratification and Competence - The second component of Lord Wright’s test requires that the agent purport to act on

behalf of a competent principal, which has to do with the capacities discussed previously

o Minor principalso Incompetent principalso Corporate principals

- As for mentally incompetent principals, conventional wisdom is that when an agent acts without antecedent actual authority on behalf of a mentally incompetent principal, that principal cannot subsequently ratify, with three caveats

o The principal was in a lucid intervalo Someone can be appointed as the committee and ratifyo During the lucid interval an enduring power of attorney was made

- If a minor can empower an agent (see Johanneson), then a minor principal should be able to ratify any contract that the minor principal could otherwise make for himself (excluding contracts void ab initio or for void terms)

- For example, a minor cannot go into a car dealership and buy a car pursuant to a conditional sale agreement, as that contract usually contains a penalty clause saying that if the purchaser misses a payment, the dealer can repossess the car

- Recall that minors cannot enter into contracts that impose penalties

Requirement #3- Prof. Harvey’s restatement of the third requirement is very different than Lord Wright’s- When Lord Wright rendered his judgment, he didn’t look at any statements to

substantitate what he said were the three requirements of ratification- With regard to the third requirement, he likely had cases like Bird v Brown in mind, as

there were many cases like it in existence

Bird v BrownFacts:

The principal lived in New York, and shipped some goods to a third party in England. While the goods were in transit, the third party was thrust into bankruptcy. Immediately, upon the arrival of the ship in England, the principal’s agent, without actual authority, issued a stoppage in transit order. Such an order is only available while the goods are in transit. As a result of the order, the third party’s trustees in bankruptcy was refused delivery of the goods. After the

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goods had been unloaded, the principal received information of the third party’s bankruptcy, and issued a power of attorney authorizing the agent to stop delivery of the goods.

Holding:

The court held for the trustee, for by the time the principal executed the power of attorney to ratify what had been done, the goods were no longer in transit, and the principal himself could no longer have made the order. The party making the order must have been legally allowed to do it himself at the time he made it.

Notes:

Note that this case was decided before Prager v Blatspiel, there is a potential agency by necessity argument to make here. The facts of the case occurred before the invention of instantaneous communication across oceans.

Walter v James (1871, Eng. Exch. Ct)Facts:

The plaintiff performed a service for the defendant, but the defendant did not pay pursuant to the terms of their agreement. The plaintiff sued the defendant. A settlement was negotiated between the plaintiff and the defendant’s lawyer. The defendant instructed his lawyer to pay the plaintiff according to the terms of the settlement, however soon after, he changed his mind and fired his lawyer. Not disclosing that he had been fired, the lawyer paid the plaintiff out of his own funds. He then regretted that decision, explained the true state of affairs, and asked for his money back, the plaintiff complied. The plaintiff continued going after the defendant for the payment, but the defendant attempted to ratify the unauthorized payment of the lawyer and say that the ratification had discharged his obligation.

Holding:

The defendant could not ratify the payment, as when he tried to do so, it was too late. The money had been returned.

Bolton Partners v Lambert (1889, CA)Facts:

An offer of purchase was made by the defendant to someone purporting to act as an agent of the plaintiffs. However, this person was not authorized to make any contracts for sales. The offer was accepted by the agent on behalf of the plaintiff. The defendant subsequently withdrew his offer on the grounds that he had been misled. After the withdrawal, the plaintiffs ratified the agent’s acceptance.

Ratio:

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In this controversial decision, the Court accepted the ratification. However, pursuant to Lord Wright’s third requirement, a withdrawn offer should not be capable of being accepted.

PMSA v Secunda Facts:

The plaintiff, PMSA, a Panamanian company, claimed a copyright in the musical work of Jimi Hendrix. By 1987, the company was dissolved. By Panamanian law, a dissolved company could initiate legal proceedings for up to three years after its dissolution. In 1988, upon instruction by a director of PMSA, who had no legal authority to give the instruction, an English law firm issued a writ against Secunda for breach of copyright. The unauthorized instruction was ratified by PMSA’s liquidators in May of 1991, clearly beyond the three-year limitation.

Holding:

Secunda defended itself on the basis of Bird v Brown, but the trial judge and the Court of Appeal dismissed the motion. Two Court of Appeal judges agreed with the result, but for different reasons. One judge agreed with Bird v Brown and stated that if a time is fixed for doing an act, whether by statute or agreement, the doctrine of ratification cannot be allowed to apply if it would have the effect of extending the time. The other judge wrote that because the defendant suffered no hardship, the ratification should be effective.

Ian Brown’s Restatement:

The third condition should be based solely on prohibiting identifiable hardship accruing to the third party from a material change in circumstances. A third party should not be able to plead hardship simply on a contract being enforceable as in Bolton, or allowed to proceed as in a case like this one.

Prof Harvey agrees with this principle (which is why his articulation of requirement #3 is different than Lord Wright’s). This articulation accommodates Bird v Brown as well as Bolton Partners. It gives the Court reasonable discretion to validate or uphold ratification or not. We should note that the law here is uncertain, which is good for an exam question.


The articles of partnership of R.S & Co. provide that on the death of either of the partners, R or S, the survivor has the option, exercisable within two months, to purchase the deceased partner’s share of the business on an FMV basis, but without any account being taken of the value of the goodwill of the business.

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R dies. S, the surviving partner became an incompetent “not so found” two months prior to R’s death. With less than 24 hours left in the two-month period, S’s spouse, who was only then appraised of the option by S’s lawyer, gave notice to R’s estate that S was exercising the option. A week later, the spouse was appointed committee for S and as such, gave another notice on S’s behalf exercising the option.

You act for R’s estate. They want your advice on the validity of the purported exercises of the option on behalf of S; does S have any arguments? Explain.

Answer:

When dealing with a fact situation like this one, refer to the chart of agency and run through each of the possibilities and arguments. It is clear that she did not have express or implied actual authority. There was no power of attorney, and she could not have had incidental or customary authority.

As for agency of necessity, there is no problem with fulfilling the second and third requirements. The problem is with the first one. She could argue that because of her husband’s incompetency, it was impossible for her to communicate with him, thus fulfilling the first requirement, empowering her with actual authority to do what she did. However, there is a counter argument. R’s estate can argue for the court to extend or apply the Hill estate case to agency of necessity. The court should come to the conclusion that an incompetent person cannot empower an agent, and therefore, there can be no agency of necessity because S was an incompetent person. According to Prof. Harvey, it’s very likely that a court would extend the Hill estate case to such a situation, even though Hill involved an express actual agent.

For ratification she can fulfill the first requirement because she was purporting to act on behalf of her husband, a named principal. However, for the second requirement, the principal she was purporting to act for was not competent at the time she acted, and this argument would flounder. This of course all supposes that at the time she first gave notice, the husband was not in a lucid interval.

Follow Up Question:

Suppose, instead of becoming mentally incompetent, S was canoeing down the Nelson River when 24 hours to go his wife contacted him, and his response was “I’ll think about it”. When she did not hear from him, S’s spouse gave notice to R’s estate, and several days later, S telephoned the lawyer for R’s estate to confirm his wife’s notice; but by then, there is another offer.

Answer:

The issue here is the third requirement of ratification, whether it’s too late for him to ratify. For Lord Wright’s requirements, it is too late (see Bird v Brown). For Ian Brown and Prof Harvey,

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there is a case to be made that it is valid ratification pursuant to PMSA v Secunda. You would have to argue that it didn’t cause hardship on the other party.

Requirement #4Bailey v Dawson (1912, Ont. HC)Ratio:

A principal can ratify (either named or ascertainable unnamed) either expressly to the agent or to the third party

Soames v Spencer (1822, KB)Ratio:

Express ratification an be oral or in writing, even if what the agent did without authority was to make a contract that needed to be in writing pursuant to the statute of frauds

Oxford Corp v Crow (1893, England)Ratio:

If what the agent did had to be done by deed, the ratification needs to be in writing

- Alternatively, a principal may be deemed to have ratified by his conduct following the agent’s unauthorized act

- With regard to ratification that is deemed, and not express, there are a few examples- In the case of a purchase made without authority, and the purchaser takes possession

or makes payments pursuant to the purchase and sale agreement, courts would likely find ratification by implication

- Similarly, if an agent sells goods of the principal without authority, and the principal accepts payments, this could be construed as ratification

Chapman v Robinson (1969, Alta. Dist. Ct)Ratio:

The court held that commencing a legal action against the third party is a form of implied ratification

Edmonton Steam Shovellers v Gunn & Sons (1913, Alta. TD)Ratio:

Standing by and not immediately or forthwith repudiating the unauthorized contract once the principle becomes aware can lead to a deemed ratification

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Forman v The Liddesdale (1900, NBCA)Facts:

The Liddesdale an English ship docked in in an Australian port. The Englishman authorized an Australian to contract for certain repairs. When the repairs were being done, the dry dock repairer recommended additional repairs to be done to the ship. The Australian agent authorized, without authority, the additional repairs. When the ship was repaired, the owner took possession. He was only willing to pay for the repairs that he had authorized the agent to contract for, not the additional unauthorized repairs. He repudiated what the agent had done as soon as he became aware of the situation. The repairman sued the owner.

Ratio:

For ratification to be inferred, the principal must have had full knowledge of all the material facts, and it must not be inequitable to find ratification. The conduct must be clear and unequivocal, and inconsistent with any other intention.

Application:

Here, the ship owner did all that he could do. He repudiated the contract immediately, the repairs could not be undone, and it would be inequitable to find that he ratified the repairs simply by taking back his ship.

McKay v Tudhope Anderson Co. (1918, Alta. CA)Facts:

This case is the counter argument to the previous case. The principal’s agent made an unauthorized repossession and seizure of some of the third party’s own goods, in full satisfaction of a debt owed to the principal. After the principal received the goods, not knowing of the actual terms of the seizure, he did not bother to contact the third party to acknowledge the agent’s sanction and its terms. Two years later, the principal had the third party’s crop seized, claiming that the earlier repossession satisfied only part of the debt.

Holding:

The court justified ratification on estoppel, saying that ratification is to be implied in the circumstances where it is inequitable to deny it. Prof. Harvey says it should have been justified under constructive knowledge, the principal should have known that the seizure was odd.

Crown Manufacturers Ltd. v Texas Refinery Corp of Canada Ltd. (1984, Sask. QB)Facts:

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The plaintiff contracted with the defendant’s agent for the purchase of roofing material. The agent suggested a roofer to the plaintiff, with whom the plaintiff separately contracted with. The roof leaked, and the plaintiff complained to the defendant. Eventually, the plaintiff sued the defendant, alleging that he was liable on the basis that either his agent had acted with apparent authority to arrange the roofing contract, or that the defendant had, by its reaction to the plaintiff’s complaint, ratified the unauthorized act of the agent in arranging the contract.

Ratio on Agency by Estoppel:

This will come up later in the outline, but for agency by estoppel to arise, there must be:

1. A representation2. Reliance on that representation3. An alteration of a party’s position arising from that reliance

The representation must be from the alleged principal, not the alleged agent, and there must be some statement or conduct amounting to the representation that is clear and unequivocal. An equivocal representation cannot found estoppel, and the representation must be intentional.

Ratio on Ratification:

Ratification is a question of fact, the burden of proof resting on the person alleging it. It can be evidence by either clear adoptive acts, or acquiescence equivalent thereto. If one takes any benefit or profits from the agent’s act, it’s strong evidence that he has elected or formed an intention to ratify them or adopt them. A principal cannot adopt whatever is advantageous to him while repudiating whatever is onerous. For ratification to be found, the principal must:

1. Have full knowledge of all the material facts2. The ratification must not be inequitable3. The principal’s conduct must be clear and unequivocal, and inconsistent with any other

intention

Application:

The court found that the agent did not purport to act for the defendant, the defendant did not know of all the facts, and did not ratify the contract. The defendant did extra work for the plaintiff on the roof not to ratify the alleged agency, but merely as a gesture of good will.

Buenneke v Buenneke (1966, Sask. CA)Facts:

The principal purchased farming equipment from a third party, signing a promissory note payable on demand for the balance of the purchase price. Four years later, the third party

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called the principal’s residence to collect on the note. The principal was not home, but his wife paid $60. A year later, the third party went again to the principal’s residence to ask for more money, saying that the wife only paid $60. The principal replied that he had no more money for the third party at that time, he has none. The third party sued on the note. The principal’s defence was that the limitation period had run out, which is true if the principal, by his response, did not ratify the wife’s payment. If it was ratification, then the limitation period runs from that time, and time has not run out.

Holding:

The judges based their decision on whether the principal’s response was a clear and unequivocal ratification of the wife’s payment. The court said that no ratification can be implied from this statement. He was replying to the demand, and was not talking about the wife’s. It was not unequivocal in character, and thus fails to prove ratification.

Bontex Importing Co. v Panar (1921, Sask. KB)Holding:

The principal should be held to have ratified the entire authorized purchase when he sent back to the third party vendor all of the goods purchased by the agent except a sufficient number of them to negate the necessity of the third party vendor refunding a part payment that the agent had made to the third party vendor


The manager of a lumber yard was expressly authorized to sell lumber and collect payment in cash or by promissory note of the purchaser. The defendant, who had an overdue account with the plaintiff lumber yard owner, made another purchase. The manager accepted as payment an assignment by the defendant of a promissory note and a channel mortgage in security thereof in favour of the defendant, which the defendant had received from X. The plaintiff owner of the lumber yard repudiated the purchase as soon as he learned of it and sued the defendant for the return of the lumber purchased. However, the plaintiff lumber yard owner retained the assigned promissory note and chattel mortgage. The plaintiff’s lawyer asks you for your thoughts. What arguments can you anticipate from the defendant.

Answer:

Once again, with a question like this one, scan the agency chart to see which one we can hang our hat on. We should ask the plaintiff’s lawyer if the plaintiff has accepted the manager doing deals involving payment other than within his express actual authority (found on examination for discovery. If he has, then we can expect the defendant’s lawyer to argue that the lumber yard manager acted pursuant to an implied agreement with implied actual authority pursuant to Hely-Hutchinson, although this likely won’t be successful.

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Secondly, we should tell the plaintiff’s lawyer that he can expect the defendant to argue that what the lumber yard manager did was within his implied actual authority incidental to his express actual authority (also very difficult to argue)

The defendant will also argue for ratification by conduct on the part of the plaintiff when he retained the note and the mortgage notwithstanding the repudiation. The plaintiff can respond that he repudiated the deal immediately, and kept the note and mortgage to cover the defendant’s existing overdue account.

Canadian Laboratories v Englehard Facts:

Canlab purchases refined platinum from Englehard, then supplies it to its customers by way of a lease agreement. Pursuant to the lease agreement, they return the used platinum to Canlab, which then resells it back to Englehard. Englehard then refines the platinum, and the cycle continues.

An employee of Canlab named Cook, without authority to purchase platinum from Englehard (he was in sales, not purchasing), entered into a purchase agreement with Englehard purportedly on behalf of Canlab. He managed to have the platinum used up, then negotiated a repurchase of the platinum directly from a fictitious customer. Pursuant to the repurchase agreement, Englehard pays the fictional customer. Ordinarily, Englehard would purchase the platinum from Canlab, but here they purchased it directly from the fake customer.

When Canlab found out about this scheme, they sued Englehard for conversion of its platinum. They had to prove that they had acquired title to the platinum, for which they had several arguments. One of the arguments was that by commencing the action against Englehard, they were ratifying the unauthorized purchase. Englehard’s response was that if you’re ratifying by conduct, then you must be deemed to have ratified the resale of the platinum as well.

Issue:

Can a principal ratify only part of what an agent has purported to do on behalf of the principal, or will it be inferred from a partial ratification that the principal intended to ratify all that the agent purported to do?

Holding:

The answer to this question depends on how the transactions should be characterized. In other words, were the purchases and resale discrete transactions, or two components of the same transaction. You cannot suck and blow. The majority of the ONCA decided one way, the dissenter decided another way.

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A principal cannot approbate and reprobate; he cannot ratify that part of a transaction which is favorable to him, and disavow another part which is unfavorable.


When Mr. and Mrs. P retired from their jobs in Sanford, they each went to live on the Sunshine Coast in BC. Before leaving Sanford, they each gave a non-sealed power of attorney to Mr. A “to sell and convey my lands in the RM of MacDonald in consideration for any sum of money that you should deem reasonable…and generally do all things in connection with the premises as I might do”. Mr. and Mrs. P owned as tenants in common several parcels of land.

Pursuant to the power of attorney and without contacting them or subsequently informing them, A conveyed a strip of land from one of their lots in Sanford to the RM of MacDonald for consideration of $1.00 to enable the RM to improve substantially the street upon which the lot fronted. Not long thereafter, Mr. and Mrs. P decided to separate and in this connection, to partition their lands. As a result of the partition, Ms. Q became the owner of the parcel from which the strip had been conveyed to the RM. Attached to the transfer of Mr. P’s interest to Ms. P was a plan that showed the parcel as it was after the conveyance of the strip. The transfer was perused by Ms. P prior to its registration.

Upon returning to Sanford for a visit, Ms. P became aware of the conveyance of the strip. She is considering suing the RM. On what basis can she argue that she is not bound by what has transpired. What arguments does the RM have?

Answer:

The power of attorney was not sealed, so she may be able to argue that this invalidates what the agent did on her behalf because it involved a sealed conveyance document with respect to the lands in question. This will only work if the lands that she’s concerned with are in the registry system. If they’re in the land titles system, which the LTO may “insist” on a sealed document, there is no basis for the LTO to insist that legally, a transfer document must be sealed.

Furthermore, specific wording is followed by general wording in the power of attorney. It can be argued that selling a strip does not come within “selling my lands”, and giving it up for $1 does not come within the definition of sell.

The RM will counter argue by saying that it came within the specific wording of the actual authority, or within the implied actual authority incidental to the express actual authority expressed in the specific wording of the power of attorney. The RM can argue that whenever wording of an express actual authority in an empowerment is ambiguous, it should be construed against the principal in favour of what the agent has done.

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Finally, the RM can argue that she ratified the act of her agent by registering the transfer. To this, she can argue that she only paroozed the transfer, but she didn’t realize what she was looking at. She had constructive notice, but not actual notice. She wasn’t aware of all the material facts.


Suppose one co-owner lists a parcel of land and accepts an offer on behalf of herself and the other co-owners without naming them. Can the other co-owners ratify or be deemed to have ratified the agreement?

Answer:

To answer this question, we’ll need to look at the requirements for ratification. The other owners are not undisclosed, as she purported to act on their behalf. However, they are unnamed. As unnamed principals, their identity is ascertainable. All the purchaser has to do is search their names in the land titles office to find the certificate of title. They can therefore ratify what she did on their behalf. Whether or not they in fact did ratify will depend on the fourth requirement of ratification, they must have intended it.

Stevens v Merchants Bank (1919, MBCA)Facts:

This case had to do with an extraordinary loan repayment guarantee made by a branch manager of the bank. The loan was between Stevens, the lender, and a customer of the bank who had used up his line of credit. Stevens argued that by receiving the money from the borrower, the bank ratified the repayment guarantee.

Ratio:

The principal and not the agent must ratify the agent’s actions. Here, the branch manager cannot ratify the unauthorized act because he did not have the authority to do so.

Requirement #5, 6, and 7- You cannot in law ratify by anticipating an agent acting without authority

Midland Bank Ltd. v Reckitt (1933, HL)Facts:

Some powers of attorney, will contain the clause “AND…I…ratify and confirm whatever my said attorney…shall do or cause to be done…”

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Ratio:

This is absolutely meaningless, it has no legal effect whatsoever, for ratification in advance seems to contradict the essential attributes of ratification as generally understood.

Bank of Toronto v Matheson (1927, Sask. CA)Facts:

The defendant’s power of attorney contained the same clause as the one above

Ratio:

Such a clause cannot be the basis for a ratification argument, but they can be treated as a representation of apparent authority, limited by the specific terms of the power of attorney.

- As for the 6th requirement, anything that an agent does on behalf of a principal that a principal himself cannot do is not capable of ratification

- Bail bonds in Canada are illegal, and therefore you cannot enter into a bail bond contract on behalf of someone in jail


Dior gave Armani a licence to cut hay on his land. The licence was subject to termination upon the land being sold. Prior to Armani exercising the licence, Dior’s agent accepted an offer from Carolina to purchase, subject to the approval of Dior, who only approved the agent’s acceptance several weeks after Armani exercised the licence. Carolina sued Armani for damages suffered from Armani exercising the licence and taking away the hay, arguing that Dior’s ratification of the agent’s acceptance of her offer to purchase resulted in her being the owner of the land from the date of the agent’s acceptance, and thus Armani was a trespasser when he cut the hay.

Answer:

In the actual case that this is based on, the judge dismissed the action saying “the plaintiff says that Dior’s acceptance of the sale was a ratification of the agreement by his agent, and that such ratification relates back to the making of the agreement, but if the doctrine of relation back [i.e. the retroactive effect of ratification] prevails the defendant would be deprived of the benefit of all the work performed, although he was within his rights performing it. I entertain a very clear opinion that the doctrine of relation back cannot be applied to perpetrate so great an injustice upon the defendant, a fourth party”.

Prof. Harvey agrees with the result of the decision, but not the reasoning. Although it does relate to the sixth requirement. What Prof Harvey says is that referring to Watson v Davies, this

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is a subject to clause, and is not a valid contract. There is no contract waiting to be ratified to revert back to.


P owns an antique store in Winnipeg. He purchases the bulk of his inventory by travelling around to auctions and junk dealers in rural Manitoba, buying up items which he thinks will sell well in the city. Over the years however, it became increasingly difficult for P to take time from business to go on these buying trips. He decided to employ an agent to represent him and chose A for this purpose. Regarding the purchase of bedsteads, P told A that A was to purchase only “brass beds” as P had found that any other sort of antique bed did not sell well in Winnipeg.

Thus instructed, A set off on his first solo trip. A went to the premises of one of his listed sellers, a Mrs. J of Neepawa. She had a number of iron bedsteads for sale. They had shiny brass knobs at the four corners. A wasn’t sure if they would qualify as brass beds, but nonetheless expressly on P’s behalf, he agreed to buy five of them.

Upon A’s return to Winnipeg, P was less than pleased about the iron beds, but finally decided to take them. Mrs. J however, when asked for delivery, replied that she had in the meantime received a better offer for beds and had sold them to a Mr. Q, a competitor of P.

Answer:

P can sue Mrs. J on two bases, that the agent acted within antecedent express or implied incidental authority, or if not, then on the basis of ratification (we’d go through the full analysis on an exam). As for ratification, she has no counter argument.

If Mr. Q is an innocent purchaser for value without notice, then there is no point in suing Q as well because he has counter arguments that will be successful. The ratification cannot affect third party rights pursuant to Firth v Staines. Furthermore, he has s. 28 of the sale of goods act, she became P’s agent with express actual authority to convey the goods. Notice that it provides a defence for Q but not for J. He can sue J for damages, but not Q for possession.

Chart Summarizing Principles

January 8th January 9th January 12th January 14th

TP offers to sell to A A accepts w/o authority

TP revokes the offer P ratifies

For Lord Wright, it’s too late to ratify. The third party has revoked the offer. However, this is the fact situation of Bolton Partners, and there, the court found effective ratification

A accepts w/o TP does not revoke P ratifies or approves

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TP offers to sell to A authority subject to ratification or approval

This is like Watson v Davies, there is an effective agreement as of January 14th

TP offers to sell to AA accepts w/o authority subject to ratification or approval

TP revokes the offer A ratifies or approves

No contract, these are the facts of Watson v DaviesTP offers to sell to A stating that the offer must be accepted by January 13th

A accepts w/o authority

TP does not revoke P ratifies

This is a third requirement question, same as the first. Look at the hardship, the offer wasn’t revoked, but a volatile stock could affect the finding.TP offers to sell to A A accepts w/o

authorityTP and A rescind P ratifies

This is like Walter v JamesTP offers to sell to A A accepts w/o

authorityTP revokes and sells to X

P ratifies

This deals with the 6th requirement, and ratification cannot affect fourth party rights. There’s an effective ratification as far is the TP is concerned, but it doesn’t affect X. P can sue TP, but cannot include X.

Agency by Estoppel (Apparent Authority)Circumstances of Apparent Authority

- Apparent authority can co-exist with actual authority, and it may be equal to or greater than the agent’s actual authority

- As an example, a CEO of a corporation has co-equal actual authority to act on behalf of a company, and apparent authority to act on behalf of a company

- In Hely-Hutchinson recall that the trial judge decided that the head of Brayhead had the apparent authority to make the deal (although the CA preferred to decide on the basis of implied actual authority)

- This is a good example of how both can be found on the same facts, as apparent authority may supplement or enlarge an agent’s actual authority

- The CEO of a corporation may have the apparent authority to do what the Board of Directors has restricted in regards to his actual authority with a third party

- Finally, apparent authority can exist in its own right such as Drew v Nunn discussed later- Insofar as they arise out of a course of dealing (and we will soon discuss how apparent

authority can come into existence as a course of dealing amongst other ways), apparent authority can be similar to an implied agency by agreement

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- However, the course of dealing is just one type of conduct, they are not completely interchangeable

- We will soon discuss that apparent authority can arise in ways other than a course of dealing (such as an express representation or conduct)

- They also aren’t interchangeable insofar as the remedy of a principal for an agent having acted pursuant to an implied agreement versus agency by apparent authority

- Cases in which an agent may be said to have acted with apparent authority can be sorted into three categories:

o Cases in which the principal has allowed a person to appear as if he were the principal’s agent when in fact he was not

o Cases in which a known agent exceeds the actual authority delegatedo Cases in which the principal allows an agent to continue to appear to be his

agent after the agency relationship has ceased to exist, or the agent’s actual authority has been limited

The principal has allowed the person to appear as an agent when in fact he was not

- This constitutes easily 2/3 of all apparent authority cases

Imperial Elevator Co. v Hillman (1915, Sask. CA)Facts:

C wanted to operate a hotel in Limerick Saskatchewan. Because he thought he could not secure a liquor license, he persuaded the defendant H to apply for it. To substantiate the façade that H was the true applicant, they entered into a lease of land in Limerick owned by C, he went to Limerick and introduced H around the town as the applicant. They also made arrangements for the construction of a hotel with the plaintiff lumber company. H indicated to both that C would be his agent on the spot. After receiving an estimate from the contractor, H passed it along to C and had nothing more to do with the matter. C proceeded with the construction, purchasing the materials for the plaintiff ostensibly on behalf of H. H received the invoices, and handed them over to C without appraising the plaintiff of the true state of affairs. When the bills were not paid, the plaintiff sued H

Holding:

The Court found H liable on the basis that he made a representation to the plaintiff that C had the authority to act for him as an agent.

Dogwood Drilling Ltd. v Fitterer (1988, BC Co. Ct)Facts:

The defendant principal, the common law husband of M, together with M, arranged for some dry welling. They both told the plaintiff third parties that M would be at their home on the

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arranged day to “look after things”. When the first drill did not find water, M, without the actual authority to do so, had the plaintiff drill further test holes.

Holding:

The Court held that the conduct of the defendant was sufficient for any reasonable person to conclude that M was the agent of the defendant. The defendant was found liable on the basis of ostensible authority.

Cases where an agent exceeds the actual authority delegatedKaestner & Hecht v Housie (1914, Sask. CA)Facts:

K&H, a Chicago manufacturer, sold en elevator to Housie through their local agents in Saskatoon, FOB Saskatoon. K&H shipped the elevator to itself in Saskatoon, and forwarded the shipping documents to its agent, who attended the customs office with H, and had H pay the freight as an advance on the purchase moneys payable. The agent gave H a receipt to this effect. Subsequently, after the elevator was installed and H had not paid the balance owing, K&H sent its agent a letter instructing the agent to expedite payment of the account. The agent went to H, showed him the letter, handed over the account, and requested the balance owing, which H paid to the agent. In receiving the payment, with which the agent absconded, the agent had exceeded his actual authority.

Holding:

The court viewed the conduct of K&H respecting the payment of the freight and duty charges, and the expedition of the balance owing as conduct reasonably leading H to believe that the agent had the authority to receive the payment of the balance owing.

Frequently, courts will say that a third party cannot be affected by a secret limitation of the agent’s actual authority

Cases in which the principal allows an agent to continue to appear to be his agent after the agency relationship has ceased to exist or the agent’s actual authority has been limitedDrew v Nunn (1879, Eng. CA)Facts:

The defendant had appointed his wife as his agent. Pursuant to her actual authority, the wife dealt with the plaintiff over a period of time. The defendant then became mentally incompetent. His wife continued to deal on behalf of the defendant with the plaintiff, who was unaware of his mental condition. When the defendant recovered, he refused to pay for the goods that his wife had purchased during his mental incompetency.

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Holding:

The court held the defendant liable on the basis that after her actual authority terminated with the onset of his mental incompetence, she continued to have apparent authority to act for him, based on her dealings with the plaintiff when the defendant was competent.

Ramelson v Northwest Hide & Fur Co. (1914, MBQB)Facts:

On three occasions, the plaintiffs sold furs to the defendant through the defendant’s agent. In June, the plaintiffs made two further sales to the defendants through the agent. At first, the defendants repudiated both sales. Ultimately, it acknowledged one, but repudiated the other, claiming the sale had been made after the defendant terminated the agent’s contract.

Holding:

The ratio in this case is exactly the same as Drew v Nunn. This is a good example of the principle applied in other case.

The Ingredients of Apparent Authority Crown Manufacturers Ltd. v Texas Refinery Corp of Canada Ltd. (1984, Sask. QB)Facts:

Outlines Supra

Ratio:

Agency by estoppel arises where one person has so acted as to lead another to believe that he has authorized a third person to act on his behalf, and that other person, in such belief, enters into transactions with the agent within the scope of that ostensible authority. There may at the start be no relation at all actually in existence, there may be at the start a certain relationship of principal and agent, and an excess of actual authority by the agent.

For an agency by estoppel to arise, there must be:

1. A representation2. Reliance on that representation3. An alternation of a party’s position resulting from such a reliance

The representation or holding out must be from the alleged principal, not the agent. Such statement or conduct must be clear and unequivocal, and if it is capable of being interpreted in

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a way which does not accord with the granting of authority to the agent, no estoppel can arise. An equivocal representation cannot ground estoppel.

Notes:

The representation can be made directly (expressly), or indirectly (impliedly). The principal standing by once fully aware of the situation can ground both ratification and estoppel. Whether the situation is characterized as ratification or estoppel will be important to the principal and agent, but not the third party. When a principal is liable to a third party for an agent having acted with apparent authority, the principal has a cause of action against the agent. This is not the case for ratification

The Representation- Recall from inferred (deemed) ratification from a principal’s standing by, i.e. when a

principal becomes fully aware of an unauthorized act by an agent on the principal’s behalf and the principal does not forthwith repudiate the act

- Apparent authority stemming from a representation by a principal mutely standing by while an agent acts on behalf of the principal, albeit without or in excess of actual authority is very similar

- The only difference in occurrence is that the standing by that results in an inferred ratification occurs after the unauthorized act of the agent, while the standing by that represents apparent authority occurs at the same time as or contemporaneously with the unauthorized act

- In a requisite fact situation, it could be both (note the differences with respect to the agent and the principal)

- An implied representation is made by conduct, allowing the third party to infer that the agent has the authority

- The principal can appoint the agent to a position where authority can be readily inferred (such as being appointed CEO). This is referred to as clothing an agent with apparent authority (see the Assiniboia Club Case)

- The trial judge in Hely-Hutchinson based his conclusion on this concept as well- If a principal supplies a representative with business cards, letterhead, or contract forms

of the principal, that conduct may be an implied representation of authority- The Kaestner case is a good example of clothing an agent with apparent authority

through stationary of the principal - The second way to empower an agent is through a course of dealing (also found in

Kaestner)- Drew v Nunn outlined above is an example of apparent authority through a course of

dealingA.G. of Ceylon v Silva (1953, PC)Ratio:

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Usually, the representation must be made by the principal. A third party cannot ordinarly rely on a representation that comes from the agent.

De Tchihatchef v Salerni Coupling Ltd. (1932, Alta. CA)Ratio:

While no representation by the agent can amount to a holding out by the principal, a principal can authorize expressly the agent to make a representation about the agent’s authority. There is no possibility of an agent being found to have implied incidental actual authority to represent his authority.

Calgary Hardwood & Veneer Ltd. v CNR (1979, Alta. CA)Ratio:

Courts will not infer a representation of such authority from the mere appointment of a person to a particular office

Jensen v South Trail Mobile Ltd. (1972, Alta. CA)Facts:

In selling their trailers, the sales representative of the defendant company did not have the actual authority to make the deal with the customer (this is common for sales representatives). The sales representatives took the offers to purchase from the customers, which were accepted or rejected by supervisors. The manager of the Whitehorse dealership conveyed to the dealership in Edmonton Jensen’s offer to purchase. The manager in Edmonton purported to accept the offer even though he did not have the authority to do so.

Holding:

The Court of appeal held that the manager’s representation of his authority was not effective representation that could be held against the company because an agent cannot create their own authority.

Dissent:

The dissenting judge held that by creating the sales format, the dealership impliedly represented that the manager had the authority to make the deal. The majority judgment is still the conventional wisdom with regard to the representation, but this is a good case to use for both sides of the argument.

Note that the Jensen plaintiff should be otherwise successful if he sues the agent for deceit or breach of warranty of authority.

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Canadian Laboratory Supplies Ltd. v Englehard Industries of Canada Ltd. (1977, SCC)Issues:

There were two issues in this case:

1. Did Canlab acquire title to the platinum that Englehard sold2. In making the repurchases with Cook, was this conversion

With regard to the second issue, one of Englehard’s defences was that Cook acted as Canlab’s agent with apparent authority to make the repurchases from the fake customer. Englheard also argued that Canlab’s representations of Cook’s apparent authority occurred in two ways:

1. Englehard phoned Canlab on two occasions, and spoke to a couple of employees named Snook and Fabian. Englehard argued that the responses to its inquiries constituted a representation of Cook’s authority vesting him with apparent authority

2. The other argument was that Canlab put Cook into a position where he could represent that he had the authority to do what he did

Holding:

As for the argument that Cook was put into a position where he could represent his authority, Blair, JA in the Court of Appeal dealt with this and agreed with it. This was decided on the same basis as the dissent in Jensen.

In this case, Lacoucierre, JA was the dissent in the ONCA, holding that he was unable to agree that the facts supported the premise of Blair JA. Notice that he doesn’t say that in principle he disagrees that an agent can be put in a position to have the authority to represent his authority, he just says that the facts don’t support this finding.

In the SCC, Laskin, CJ says that he agrees with Lacoucierre, J that the facts don’t support this finding, once again saying implicitly that it is possible to make this argument, giving influential support to the dissent in Jensen.

Fridman commenting on agency says that this was not dealt with properly by Laskin, CJ. He argues that no principal can be liable for apparent authority stemming form an agent, and no principal can be liable for putting an agent in a position where they can effectively convey their authority. Prof. Harvey says that it’s clear to him that this conventional wisdom was overturned, not by Jensen, but by the ONCA and the SCC in Canlab.

Sample Problem

Recall that Crown Manufacturers says that the representation must be clear and unequivocal.

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Question:

X stores some welding equipment in his son’s garage. His son sells the equipment to Y telling him that his father has given him the equipment to sell. X repudiates the sale and sues Y. Similarly, M and N own a house as tenants in common. M arranges a loan from O, giving O the certificate of title to create an equitable mortgage in the house title. Is possession of the welding equipment or the certificate of title a clear and unequivocal representation by conduct of X and N of the son’s and M’s apparent authority to do what they did?

Answer:

Arguably not

Question:

TP goes to P’s “buy and sell used cars” lot and sells his car to X, who appeared to be operating the lot; X came out of the shack that served as the office to greet TP. Actually, the lot was closed and X was an interloper waiting for a sucker like TP. X had TP complete one of the lot’s purchase and sale agreements, and forged one of P’s company cheques to pay X, which in due course was not honored by P’s bank because X had no signing authority. TP has sued P for damages for the loss of the car with which X absconded. X is a former employee of P, from whom P neglected to retrieve the office key upon his termination.

Answer:

The first point made in Crown Manufacturers was that the representation needs to be clear and unambiguous. The second is that it must be intentional and not merely negligent, as agency by estoppel is very limited.

Howard v CarlineHolding:

The car dealership example is taken from this case. The action was dismissed because at worst the principal was negligent. There was no intentional representation. The representation of conduct by the principal to allow X to do what he did was a negligent representation, and the court held that a negligent representation cannot create apparent authority.

This was decided in 19555, prior to the next case.

Hedley Byrne v HellerHolding:

This case established the common law tort of negligent misrepresentation. In Howard v Carline, the court did not see negligent misrep as a wrong. If Howard were decided today, the court

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would still not find apparent authority, but would find for the plaintiff for negligent misrepresentation.

Crampsey v Deveney (1968, SCC)Facts:

In 1943, pursuant to the will of William Crampsey, the husband of the appellant Anna, the trust corporation, as executor, transferred the property to Anna and her three majority aged children as joint tenants and not tenants in common. Anna managed the property exclusively, and received the rents from it, some of which were distributed amongst the children. In 1960, Anna, without consulting any of the children, listed the property for sale. In 1963, Deveney offered to purchase the property.

Teresa was present when her mother signed the agreement. Anna phoned Patricia and told her of the sale. James was not informed immediately, but he came to know of it before closing. At the request of the purchaser’s solicitor, the vendor’s solicitor sent a deed that indicated that all four were the grantors. The former wrote back asking for proof. Upon closing, the children, when they were informed that their signatures were required, refused to sign, and refused to close on the closing date. The respondent commenced this action for specific performance.

Issue:

Was Anna an agent for her children with authority to sell the property on the above recited terms, and if not, were the children estopped from denying that she had the authority to sell their respective interests in the property.

Ratio:

Agency by estoppel arises when one person has so acted as to lead another to believe that he has authorized a third person to act on his behalf, and that other, in such belief, enters into transactions with the third person within the scope of such ostensible authority.

Application:

In this case, the majority held that the three children negligently or culpably stood by and allowed their mother to contract on the faith of a fact which they could have contradicted.

Dissent (with whom Prof. Harvey agrees):

The silence of the children after all three had learned of the contract cannot be built up into a representation by them to the purchaser that their mother had the authority to sell their interests in the property. Silence and inactivity in the circumstances of this case are not a representation to the third party that the mother had the authority to sell. In terms of a ratification argument, they are not evidence of the approval and adoption of the contract, but

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rather disquiet disapproval and ignorance of rights, and in the case of one of them, lack of knowledge that the contract had been made. The mother did not purport to act as an agent for the others, she acted as though she herself had the right.

Notes:

The majority held that the three children negligently or culpably stood by and allowed their mother to contract on the faith of a fact they could have contradicted. In using the term negligence, he’s acknowledging that a negligent representation can be a representation. Maybe the court’s writing style was too casual here.

Gowans-Kent Western Ltd. v Assiniboia Club (1915, Sask. CA)Facts:

One of the issues in this case is a representation through a course of dealing.

This case had to do with goods purchased for the defendant by its chief steward, Mr. Stamper. The goods in question were ordered of the plaintiff by Mr. Stamper. Invoices were sent by the plaintiff to the defendant, received in the ordinary course of business by the defendant. When checking over the goods, some objections were made to the size of the cups, and a deduction was granted by the plaintiff for the difference in size and certain breakages. The order in question was apparently given without knowledge of the principal officers of the club, and sometime after the receipt of the goods, objection was taken by the officers to the liability of the club for the goods. Subsequently, all liability was repudiated, saying Stamper had no authority to order the goods.

Ratio:

The question is not what the exact relationship between the alleged principal and agent was, but whether the alleged principal so conduced himself and held out the agent as to lead the third party to reasonably suppose that the agent was in fact the defendant’s general agent for the purpose of ordering goods. It was held that one instance of recognized agency by a servant by the master to purchase goods on his credit was sufficient to make the master liable for the subsequent orders of the servant until the authority was known to have been withdrawn.

Application:

Without deciding whether Stamper had actual authority, under these circumstances, the defendant is estopped from denying authority. The person to whom the order in question was given had been told by the former head steward that more goods would be required. There is nothing in the correspondence to lead the plaintiffs to suppose that the goods were not properly ordered. IN fact, the whole conduct of the course of dealing was such as to lead the plaintiff to believe that the goods were properly ordered. The court also found that appointing

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Stamper to the title of head Stewart was a representation, just as how appointing someone CEO can be a representation.

It also could have been found that he had actual authority. The ad in the newspaper said the club was looking for someone to take full management and entire charge of the club. An argument of ratification however would not work because the BOD was unaware of the transaction.

Reid & Keast v AE McKenzie Co. (1921, Sask. CA)Holding:

A contract made by a company representative who had been given contract forms with unarticulated limited actual authority to sign on behalf of the company was valid.

Piper Group Ltd. v Shearson Equities Ltd. (1986, Nova Scotia TD)Holding:

A contract made by a salesman who had no actual authority to make the contract in question, but whom the company permitted to use a business card describing himself as a company VP was valid.

Caledonia Inc. v Tractors & Equipment Ltd. (1980, NBQB)Holding:

The plaintiff could not have been relying on a representation by the defendant that S was dealing with the plaintiff as an agent of the defendant because the plaintiff knew that the defendant was allowing S to appear as its agent for customs purposes.

Notes:

Fridman in his text refers to this as proximate cause. The alleged representation must be the proximate cause of the third party’s action.

Bank of Nova Scotia v Ukrainian Greek Orthodox Congregation of Holy Trinity (1932, Alta. QB)Facts:

The officers of the church, arguably in excess of a secret limitation on their actual authority, signed a loan on behalf of the church. In arranging for the loan, the officers gave the bank several documents.

Holding:

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In finding that the officers had the apparent authority to make the loan, the court found that the election of the officers, their possession of the corporate seal, the execution and delivery of borrowing resolutions complete with the secretary’s certification under the seal and incumbency certificates under the seal as part of the loan documentation all constitute a holding out. Those documents together with the financial statements provided to the bank were clearly relied upon by the bank in approving and advancing the loan.

Notes:

We know from earlier that a representation of apparent authority must come from the principal. Clearly the election of the officers and their possession of the corporate seal comprise a representation as to apparent authority from the church to the bank. However, we must ask whether the borrowing resolutions and financial statements supplied to the bank by the officers can comprise part of the representation.

The Reliance - A third party cannot rely on a representation of an agent’s authority if the third party

knew or ought to have known of the limited nature of, or had been reasonably suspicious of A’s authority

Stevens v Merchant Bank (1919, MBCA)Facts:

The defendant bank’s branch manager arranged a loan to be made by the plaintiff to one of the bank’s customers who had fully utilized her line of credit with the bank, and thus to whom the bank would not loan more money. The loan, with a 30% interest rate, was made by several post dated cheques deposited at the bank. The manager guaranteed the repayment of the loan by the bank. When the customer defaulted on repaying the loan, the plaintiff sued the bank on the guarantee for repayment.

Cameron, JA Ruling:

The giving of the guarantee or undertaking was not authorized by the Bank Act, and this disposes of the whole case. There could be no ratification or granting of authority for such a void contract.

Fullerton, JA Ruling:

On cross-examination, the plaintiff admitted that he thought it was an unusual transaction, and would think that the explanation he received for the transaction would have aroused his suspicions. The extraordinary character of the transaction itself should have put the plaintiff on enquiry as to the powers of the bank to enter into it, and she only has herself to blame if in the result she lost her money.

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Dennistoun, JA Ruling:

There are only two arguments to be made in this case. (1) the bank is liable for actual or ostensible authority, and (2) even if there was no antecedent authority, there was ratification by the bank in keeping the profits.

The transaction is not only outside the category of ordinary business, but it is of such an unusual character that it is startling in its feature. We should note that ostensible authority may vary in respect of the class of person to whom such authority is apparent. The plaintiff is an active grain merchant in Winnipeg, familiar with the banking business, and should have known better. He should know that the method of giving post dated cheques was most unusual, and he admitted that he had never heard of a transaction like this one.

Notes:

Prof. Harvey believes that there could not have been an argument for ratification in this case. The first was that there cannot be ratification of a void contract. This is the seventh requirement. For effective ratification, the principal must be capable of performing the act himself. The second is that ratification must be performed by the principal, not the agent. Here, the manager would be ratifying his own act, which isn’t possible.

Canadian Laboratory Supplies Ltd. v Englehard Industries of Canada Ltd. (1977, SCC)Ratio on Reliance:

Where a transaction is of such an unusual nature that any reasonable person would be put on inquiry, a person cannot shelter under the doctrine of apparent authority. Where the circumstances are suspicious, it would be absurd to inquire into the legitimacy of the transaction by contacting the agent whose real authority should be questionable and whose whole efforts are naturally directed to the suppression of the real incriminating facts.

- A second point respecting reliance is that the third party cannot claim to have relied upon a representation from an unknown principal

Crampsey v Deveney (1968, SCC)Facts:

One of the arguments was on reliance from the alleged children principals

Holding:

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Deveney understood throughout that the mother was the sole owner of the property. His solicitor had not informed him of the draft deed showing all four joint tenants as grantors, and he could therefore not rely on their representation.

Farquahrson Bros & Co. v King & Co. (1902)Facts:

The plaintiffs were timber merchants, and warehoused imported timbers with a dock company. They gave written instructions to the company to accept delivery orders signed by their clerk capon. Capon had limited authority to make sales to known customers. Under the assumed name “Brown”, Capon fraudulently sold the plaintiff’s timber to the defendants, who knew nothing of the plaintiffs or the clerk under his real name. The plaintiffs did not hold Capon out as their agent, nor did the defendant’s rely on Capon’s position with the plaintiff as a determining factor in proceeding with their decision to purchase timber.

Holding:

The defendants did not know that the plaintiffs existed, and accordingly, could not establish that they acted to their detriment in reliance of a representation made to them by the plaintiff. It is the concept of detrimental reliance that provides the underlying rationale for the doctrine of estoppel, which the concept of ostensible authority is built.


D and P make a contract whereby D agrees to convey to P certain land plus $10k and P agrees to convey to D certain land, which is subject to a mortgage, the outstanding principal of which is $15k. P has further agreed to continue to be responsible for the mortgage. D and P were brought together to make the deal by A, who was present when D and P signed the agreement of purchase and sale. At that time A asked D to make a cheque payable to her in the amount of $3l so that she could make the next payment on the mortgage which was coming due. In response to a glance by D, P nodded in acquiescence. The balance of the $10k was not payable until the deal was to close. However, prior to that time, A obtained a further cheque in the amount of $3k from D, not in the presence of P. At the closing of the deal, D gave P a cheque for $4k noting that she had paid A the further $3k. P cashed the cheque. A absconded with the $6k. Now P is refusing to take responsibility for the $6k portion of the mortgage principal, claiming that in effect, D paid A as D’s agent to pay the money to him, P, although directly to the mortgagee. P has sued D for the $6k. You are the judge; decide the case with full reasons.

Answer:

Regarding the first $3k cheque, without bothering with whether A had antecedent actual authority from P to receive the cheque on behalf of P, P’s nodding to D was an implied representation by conduct that A had the apparent authority to receive the cheque. P’s

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argument is rejected that the nod was at worst equal to an equivocal representation, and that he intended only to indicate that D, if he wished, could pay the money on the mortgage as D’s agent. Prof. Harvey says that the representation was clear and unequivocal.

D’s argument that P’s nodded constituted a ratification is also rejected, it cannot be a ratification of A’s authority because it fails to pass the 5th requirement. The act of ratification must follow the unauthorized act, and the nod here precedes the reception of the cheque by the agent.

Regarding the second cheque, without bothering with actual authority, Prof. Harvey agrees with D’s argument that the first cheque comprises a course of dealing, constituting a representation that A has the apparent authority to receive the second. P’s argument that the reception of the first payment not being a clear and unequivocal representation is rejected. P’s argument that one act cannot comprise a course of dealing is also rejected. A course of dealing can be one or more transactions preceding the transaction in question.

With respect to D’s argument of ratification by P, that argument is accepted. P cashed the cheque immediately. For the second $3k cheque, there was a course of dealing setting out apparent authority. As for ratification, P did not immediately repudiate the payment when he learned of it, and he cashed the $4k final payment, indicating that he had accepted payment of the second $3k cheque. P’s argument that he did not have full knowledge of all the material facts is in Harvey’s view ridiculous.


For 6.5 years, the defendant sold lots subdivided out of a large tract of land through A. six months after the defendant terminated the agency of A, the plaintiff, who did not know who owned the land, and on the advice of someone other than the defendant, sought out A and purchased from A one of the remaining lots. Of course, when the plaintiff contacted the defendant he repudiated the sale, and A absconded with the purchase money. Does the plaintiff have a good case for specific performance?

Answer:

The answer is no. the reason that the plaintiff cannot sue on the basis that A had antecedent actual authority or actual authority by ratification is because the defendant’s agent never purported to act on his behalf in selling the lot to the plaintiff. Similarly, the plaintiff cannot argue apparent authority because there was no representation made by the defendant to the plaintiff because the plaintiff did not know of the existence of the defendant.

Summary of the Law

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1. While routinely, A’s naturally represent their authority to TP’s without having actual authority to do so, ordinarily, a TP can only rely on a representation which emanates from the P [Silva], although extraordinarily, an A can have express actual authority that includes authority to represent her authority [Salerni], or apparent authority to represent authority [Jensen dissent, Canlab].

2. The representation can be made by a P either expressly or impliedly by conduct (appointing the A to a position, etc. standing by, course of dealing).

3. The representation must be unequivocal, and perhaps, intentional, not negligent [Crown Manus, Howard, Crampsey]

4. The representation must be one on which it is reasonable for the TP to rely [Stevens, Canlab]

5. It is almost unnecessary to state that a TP cannot argue apparent authority against a P of whom the TP did not know when the TP dealt with the A [Crampsey, Farquharson Bros.]


Goldi Lox is a 16-year-old singing sensation from Bangor, Maine. She makes big bucks. She is managed by her parents who have no bucks. While in Winnipeg, a riot occurs at her concert when counterfeit tickets turn up. Unknown to Goldi Lox, her father is arrested, bail is set for him at $25k, and Goldi’s mother somehow persuades the police to allow her to sign the bail document as agent on behalf of Goldi Lox. Thoroughly fed up with Winnipeg, her parents decide to get out of Winnipeg as soon as possible. They are unable to book for an immediate air flight, so Goldi’s mother on behalf of Goldie, rents an executive jet. Goldi’s mom informs her of the jet rental as the plane is making its way down its runway. Off they fly to Maine. Suits are being considered against Goldi in connection with her father’s skipping jail and the airplane rental. The lawyers for the government and the airplane lessor want your thoughts on whether she’s suable.

Answer:

The fact that she’s a minor is crucial to this question. It follows from that that there’s uncertainty in the law as to whether a minor has the capacity to empower an agent. We do have Johannson that says a minor can. Assuming she can however, she can only empower contracts that she herself could make. A minor cannot make a contract that imposes a penalty. The mother did not make the contracts on her behalf, she made them on behalf of Goldi. Regarding the jet rental, because Goldi is a minor, it is necessary for the jet lessor to persuade the court that leasing the plane is a contract for necessaries. If it isn’t, it’s voidable by the minor, even though the minor may have taken full benefit.

We should go through the list of authorities that Goldi’s mother would have. The express and implied incidental authority are all fact based, and whether they’re sustainable would be learned through discovery, so plead them. The agency of necessity would be contentious for

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the second requirement. With regard to ratification, the controversial one is her competency, the seventh requirement. For apparent authority, the problem is the representation. The fact that Goldi’s mother is her manager is important. It could be argued that Goldi appointing her mother could be a representation of her authority to rent the jet, but the lessor cannot rely on its knowledge of Goldi’s mother’s job from her mother, this knowledge needs to be in the public domain.


Ms. X, who to the knowledge of the plaintiff, is employed as a clerk and not as a sales agent by the defendant insurance company, on her own initiative, discussed insurance coverage with the plaintiff, who lives above her in a duplex. She showed her specimen policies, and undertook to obtain coverage for her. Ms. X did not obtain the coverage. When the plaintiff suffered a loss which she thought was covered, the defendant refused to pay. She sued the defendant. This question is based on O’Riordan v Central Agencies Camrose.

Answer:

The first question is to ask who she acted as agent on behalf of. If she acted as an agent on behalf of the plaintiff, the case is dismissed. If she acted on behalf of the insurance company, we must ask what authority she had. She did not have actual authority, but she may have had apparent.

The insurance company could rely on the Howard case to say that a negligent representation is not a representation at all, which was echoed in Crown Manufacturers. The plaintiff can argue that Howard preceded Hedley Byrne, which sets out the tort of negligent misrepresentation, and Howard is superseded. She would argue that Crown Manufacturers is mistaken.

The final argument of the insurance company is that the plaintiff should have been suspicious of her authority, she knew she was only a clerk. Prof. Harvey says this argument may be a winner.

Ratio from O’Riordan:

For agency by estoppel to arise, there must be some relevant representation by the responsible management. There was no such representation here. At the end of the day, the question is whether the circumstances under which a servant has made the fraudulent misrep which has caused the loss to an innocent third party contracting with him are such as to make it just for the employer to bear the loss. Such circumstances exist where the employer, by words or conduct, has induced the injured party to believe that the servant was acting in the lawful course of employer’s business.

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Hastings v Semans (Village) (1946, Sask. CA)Facts:

Recall that we did this case in agency by necessity. The court said that the plaintiff’s “whole case rests” on whether the MHO had acted as an agent of necessity. On the contrary, what other bases of authority might Hastings have argued in this case.

Comments:

Presumably, the MHO told the village clerk or reported to the village counsel soon after he admitted the patient to the hospital. Instead of allowing 76 days to lapse before the village did anything, it would have had to repudiate his action forthwith. Otherwise, this could be taken to be ratification by conduct. Hastings could also argue that by appointing the doctor to be position of MHO, that would constitute clothing the MHO in apparent authority to do what he did.

Robin Line Steamship Co. v Canadian Stevendoring Co. (1928, SCC)What’s Wrong with this Statement?

When actual authority of an alleged agent has been negative by a plaintiff seeking to hold the alleged principal liable on the basis of ostensible authority, either must shew a holding out by the principal of the alleged agent as such…or must give proof of some custom on which ostensible authority can be predicated.

Notes:

Ostensible authority cannot be established on the basis of custom. It can only be established by a holding out or a representation by the principal

Apparent Authority and Corporations - Corporations cannot act through themselves, they must act only through an agent- Corporate contractual liability has to be based on either:

o Proof of antecedent express or implied authorityo Ratification of the unauthorized acto The corporate agent having the apparent authority to make the contract

- Regarding a corporate agent having apparent authority, the next case is the commonly referred to case in this matter:

Freeman & Lockyer v Buckhurst Park Properties LtdFacts:

K, a property developer, entered into a contract to purchase a parcel of land. He did not have enough money, so he sought to obtain financial assistance from H. The two formed a company

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together, which is the defendant in this action. Although not appointing managing director by the BOD of the defendant, K acted as such, including hiring the plaintiff to prepare the planning application. The plaintiff ended up suing for its unpaid fee for service. For reasons important to us, the court did not find for the plaintiff on the basis of implied actual authority but rather on the basis of apparent authority.

Lord Diplock:

The representation as to the authority of the agent which creates his apparent authority must be made by some person or persons who have actual authority from the corporation to make it. The contractor cannot rely on the agent’s own representation as to his actual authority, he can only rely on a representation by a person or persons who have actual authority to manage or conduct that part of the business of the corporation to which the contract relates. When the BOD, which has the actual authority under the articles, permits the agent to act in the management or conduct of the company’s business, it thereby represents to all persons dealing with such agents that he has the authority to ented on behalf of the corporation into contracts of a kind which an agent authorized to do all acts of the kind which he is in fact permitted to do normally enters into the ordinary course of business.

Unless the articles of the company either make such contract ultra vires the company or prohibit the delegation of such authority to the agent, the company is estopped from denying to anyone who has entered into a contract with the agent in reliance on such apparent authority that the agent has the authority to enter into contracts on behalf of the company.

If the foregoing analysis of the law is correct, it can be summarized by stating the conditions that must be fulfilled to entitle a third party to enforce against a company a contract entered into on behalf of the company by an agent who had no actual authority to do so.

1. That a representation that the agent had the authority to enter on behalf of the company into a contract of the kind sought to be enforced was made to the third party

2. That the representation was made by a person or persons who had actual authority to manage the business of the company, either generally or in respect of those matters to which the contract relates

3. That the third party was induced by such a representation to enter into the contract (that he relied upon it)

4. That under its memorandum or articles of association, the company was not deprived of the capacity either to enter into such a contract, or to delegate authority to enter into that kind of contract.

If the authority doesn’t stem from the BOD or the CEO, it may be difficult to prove the actual authority of the appointing person.

Application:

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The BOD clothed K with artifacts, giving him an appearance of apparent authority. It was by their conduct of mutely standing by while he made deals concerning the development of the parcel.

Notes:

Neither the analysis of the ONCA nor the SCC in Canlab conform to Diplock’s second condition. Prof. Harvey thinks that the British Bank Case’s (see below) restatement of the law is important, and should be applied in Canadian cases. He believes that it may be technically possible to build one apparent authority on another, but this is very rare.

To do so, it would take one person (agent 1) with actual authority to make a representation that a second person (agent 2) is empowered to make a representation that a third person (agent 3) has authority. Agent 2 must then make a representation within the scope of what was said by agent 1 as to the authority of agent 3. Agent 3 must then enter into a contract with someone who knows of these representations in reliance of these representation.

It should also be noted that Diplock’s fourth requirement only deals with companies of limited capacity, and does not apply to most Canadian companies.

British Bank of the Middle East v Sun Life Assurance Co. of Canada (1983, HL)Facts:

The respondent carried on its life insurance and mortgage business by dividing the UK into several regions. Within each region, there were several branch offices. For each region, there was a manager, for each branch officer there was a manager, and within each branch office there were unit managers. None of these managers had the authority to approve mortgage loans, that authority was vested int eh officers of the respondent at its UK head office. The appellant loaned money to N Ltd, upon a repayment undertaking given on behalf of the respondent by a unit manager named Dehnel. The manger of the appellant sought confirmation of the authority of Dehnel by addressing a letter to the general manager of the respondent at the London branch office. A reply was sent by the London branch manager, confirming Dehnel’s authority. The confirmation satisfied the appellant’s manager, and upon it, the appellant made two further loans. When the loans were not repaid, the respondent denied liability, and the appellant sued.

Holding:

In rendering its judgment, the Court considered whether the London branch manager had the actual authority to give the confirmation (which he did not). However, the court also considered whether he had the ostensible authority to give the confirmation. While the court concluded that he didn’t have either kind, the analysis flies in the face of Diplock’s second

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requirement in Freeman. This makes the law somewhat unclear here, although Prof. Harvey believes that this is the law in Canada.


Suppose that TP of Winnipeg contracts DWP Eavestroighing Co., an English registration company, wanting to purchase some of its product. The president and CEO, D. Wayne Pipe, informs TP that it does not deal directly with foreign customers, who must deal with a local agent of the company. Mr. Pipe informs TP that A of Toronto is their Canadian sales representative, and that he will be in contact. A has actual authority to take orders (offers), but not to make contracts. Nonetheless, A makes a contract with TP which the company later repudiates. What would TP have to establish to sue the company successfully?

Answer:

In suing the company, TP, or TP’s lawyer, in the pleading, would plead that A made the contract on behalf of the company with either actual or apparent authority. At examination for discovery, TP will learn that A did not have express actual authority. If TP sues in the MBQB, TP can argue s. 18(d) of the MB Corporations Act that A had statutory actual authority. This is a situation where TP has a choice, sue in the QB, or the English Court of QB. Where he chooses to sue could depend on a few factors including which law the court will apply.

If TP sues in the English QB instead of the MBQB, and if the English legislation does not contain a section like our s. 18(d), then the court will determine whether A had apparent authority by applying the judgment in Freeman.

The Apparent Authority of Lawyers to Settle- There are four aspects to the authority of lawyers to settle litigation disputes:

o Pre-litigation settlementso Litigation settlement where the lawyer’s authority to settle has not been

expressly prohibited or limitedo Litigation settlements where the lawyer’s authority to settle has bee expressly

limited or prohibited, and this is known by the other party’s lawyero Litigation settlements where the lawyer’s authority to settle is expressly limited

or prohibited, but this is not known by the other party’s lawyer

Pre-Litigation Settlements- It is said that pre-litigation settlements made before a statement of claim are only

binding on the client principal if they are made pursuant to express actual authority or ratification

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- No court has held that it can be inferred from the other party merely retaining a lawyer that the lawyer has the actual authority to settle, and no court has held that the mere hiring of a lawyer is is a representation of the lawyer’s authority to settle

- However, there is no reason why settlements cannot be binding on the basis of apparent authority if an express or implied representation of authority can be established

- Even absent an express representation, given that once a lawyer has been retained, all communication with the lawyer’s client must occur through the lawyer and not directly through the client, perhaps it is arguable that a retainer is a representation of authority o do whatever is reasonable to deal with the litigation as the dissenter in Jensen was of the opinion, and Laskin, CJ thought in Canlab

Settlements After Litigation has Commenced - Once litigation has commenced, settlements made pursuant to express actual authority

are of course binding on client principals, as well, in the absence of express authorization or prohibition, lawyers have both actual authority either implied incidental to the lawyer’s express actual authority, or implied customary authority to settle a matter of litigation, and apparent authority to settle

- A client who stands by either before or after litigation has commenced while his lawyer makes a settlement in his presence is bound either by ratification or on the basis of the lawyer acting with apparent authority

- Occasionally, settlements will not be enforced by the court because:o A lack of the constituent elements of a contracto The settlement embodying materials collateral to the litigationo A lack of bona fideso The settlement was not fair and reasonableo The overriding discretion of the courts (Neale v Gordon Lennox)

- However, the courts have narrowed the discretion to cases requiring their participation to perfect the settlement, such as cases involving a minor or where the settlement includes a term whereby the parties agreed to obtain a consent or summary judgment on the basis of the settlement

McIvor v McIvor (2002, Sask. CA)Ratio:

The overriding discretion ceases to exist as does any jurisdiction of the court to set aside a settlement once the judgment has been entered.

Shewchuk v Preteau (1999, MBQB)Ratio:

Of course, a settlement made by a lawyer who lacked actual authority to make it, and this lack of authority is known to opposing counsel cannot be enforced

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- Are litigation settlements binding if they have been made notwithstanding an express prohibition or in excess of a limitation placed on express actual authority not known to the other party?

- There are two irreconcilable lines of cases

Yannacopoulos v Maple Leaf Drilling Co. (1962, BCSC)Ratio:

This case looks at the situation from the point of view of the unhappy client, and deals in actual authority holding that the lawyer did not have the authority to settle.

Scherer v Paletta (1966, ONCA)Ratio:

This case looks at the situation from the point of view of the other party, and deals in terms of apparent authority holding that the lawyer did have the authority

Notes:

The court indicated here that the retainer obtained by the plaintiff’s lawyer was an oral one, which is common practice in Manitoba. This is not good practice. The best practice is to draw up the retainer, including whatever the authority is to settle expressly prescribed, and have the client sign it.

- The latter line of cases is the longest in Canada, and has virtually eclipsed the former line of cases, and includes the decisions of five Courts of Appeal

- Note that it’s being deemed apparent authority, not ratification- It’s harsh enough to hold a client to a representation of apparent authority in such

intimidating circumstances from the point of view of the client, without taking away recourse for the client against the lawyer by deeming ratification in such circumstances (see the following case)

Martin v BuseniusRatio:

Lawyers are agents for their clients. When lawyers speak, they speak on behalf of their clients. When they agree, they agree on behalf of their clients. The justice system would fall apart if these basic principals did not apply. The standards are not Draconian; a client can sue a lawyer who abuses the agency relationship between them.

Summary of Principals

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Contemplating an action to enforce a settlement with P being the party suing to enforce the settlement against D, your analysis should be:

1. Was the settlement made pre or post-commencement of the action2. If it was pre-commencement, did D’s lawyer have express actual authority to settle, or

did D expressly or impliedly represent to P or his lawyer, her lawyer’s authority to settle3. If it was post-commencement of the action

a. Did D clearly limit or prohibit her lawyer’s authority to settle? If not, then her lawyer has implied incidental or customary actual or apparent authority to settle

b. If it is not clear that D limited her lawyer’s authority to settle, what are the principles of construing ambiguous agency instructions

c. If D clearly limited or prohibited her lawyer’s authority to settle:i. Was the limitation known to P or P’s lawyer when the settlement was

madeii. If not, there are two irreconcilable lines of cases; has your court adopted

one or the otheriii. For settlements requiring court approval, there is Neale v Gordon Lennox

discretion4. If a settlement is binding in terms of the law of agency, it is nonetheless impeachable in

terms of the law of contract for lack of bona fides or that it deals with a collateral matter5. If the settlement is upheld, the recourse of D may be to sue her lawyer for breach of

retainer6. If the settlement is not upheld, the recourse of P may be to sue D’s lawyer for deceit or

breach of warranty of authority

Nelson v Murphy (1957, MBCA)Holding:

The court threw out a settlement made by the defendant’s lawyer with the plaintiff, ignoring the lawyer.

Morris v Gilbert (2006, NBQB)Facts:

Gilbert represented Morris in a personal injury action. Morris disputed the fee of Gilbert’s firm, and sought a taxation. Gilbert took issue with the jurisdiction of the appointed taxation officer, and retained counsel personally to pursue the matter. Consequently, the taxation hearing was initially adjourned. On the day of the continuation, Gilbert’s counsel was not present, but he gave his consent to counsel for Morris and the taxation officer to proceed with the hearing and deal directly with Gilbert. Gilbert’s law firm was not discretely represented. Following the hearing, counsel for Morris and Gilbert reached a settlement, the terms of which Gilbert drew up. Subsequently, Gilbert repudiated the settlement, relying on Nelson v Murphy.

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Holding:

The Court distinguished Nelson v Murphy on the basis that neither Gilbert nor his firm was represented by counsel respecting the substantive issues of taxation. Counsel for Gilbert was retained only to deal with the jurisdictional issue, and he had given his approval to the hearing on the substantive issue to continue, reserving the jurisdictional matter to be pursued in due course. As for the settlement binding Gilbert’s firm, notwithstanding the settlement making no reference to the firm, and Gilbert not having any express actual authority from the firm to make the settlement, the court held the firm personally liable pursuant to the partnership act.

Sample ProblemQuestion #1:

Benny Factor, a well-known Winnipeg businessman and philanthropist, retained a lawyer to act for him with respect to damage caused to his Lear jet as a result of a collision with a Cessna 185 piloted by a Miss Creant. The collision occurred on a dark and stormy night on the Tarmac of the Winnipeg Airport. At the first meeting with his lawyer, Factor gave him a preliminary estimate by Perimeter Aviation of the required repairs, totaling $29,000.00 and instructed his lawyer to initiate an action against Creant. The lawyer asked factor about settling the matter; Factor instructor her to “negotiate by all means, but talk to me before you make a settlement”.

While she was preparing the statement of claim, Factor’s lawyer received a telephone call from Creant’s lawyer. In the course of their conversation, a settlement was reached and confirmed by correspondence. When Factor learned of the settlement, he was furious, and repudiated it. Factor has now asked you if Creant’s lawyer can enforce the settlement?

Answer:

The settlement is only binding if there was actual authority, which here, there wasn’t. There was no ratification or apparent authority on these facts. He won’t be bound by it.

Question #2:

Suppose the following changes to the facts of #1: On the dark and stormy night, Creant had said to Factor that Factor was responsible for the crash and that he was going to have to pay for it, and that Factor had replied that he was not prepared to Haggle about the matter on the spot, and that Creant should speak to his lawyer. Is the settlement enforceable?

Answer:

This is till pre-litigation, but he’ll likely be bound. This is because what he said to Creant could be construed as an express representation of apparent of his lawyer to deal with the matter, including the settlement that was made. This overrides the subsequent limitation that he put on his lawyer’s authority.

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Question #3:

Suppose the following variation on the facts of #1: Factor’s lawyer never asked Factor about settlement of the matter. Factor’s lawyer issued and served the statement of claim. Creant’s lawyer contacted Factor’s lawyer. Negotiations occurred by correspondence, all marked by each lawyer as being “without prejudice”. Ultimately, a fair and reasonable settlement was reached. Nonetheless, Factor does not agree with the settlement. Factor says to you “Am I bound”? I didn’t give my lawyer authority to settle, and after all, the letters were headed without prejudice.

Answer:

This isn’t pre-litigation anymore. Factor has said nothing about settlement, and the retainer makes no mention of this. The law is that Factor’s lawyer has implied incidental authority, and implied customary authority as well as apparent authority to settle. Marking correspondences without prejudice in this fact situation is irrelevant because a settlement was reached. Marking something without prejudice allows parties during negotiation to take any position without prejudicing the trial.

Question #4:

Suppose the following variation on the facts of #1: Factor’s lawyer never asked Factor about settlement of the matter. Factor’s lawyer issued and served a statement of claim. Creant’s lawyer contacted Factor’s lawyer. Negotiations occurred, both lawyers believing that Factor’s damage totaled $29,000.00. Ultimately, a settlement was reached. Factor does not agree with the settlement. Factor says to you “and look at what my lawyer settled for, a measely $12,000.00 when the final repair bill has come to $38,741.52”.

Answer:

This fact situation is a common mistake of the parties, they both thought it was one amount when it was in fact much higher. This will be held by the courts not to be an enforceable contract. Factor can argue that the settlement should not be upheld because of the common mistake of the lawyers in reaching the agreement.

Question #5:

Suppose the following variation to the facts of #1: Factor’s lawyer issued and served the statement of claim. Creant’s lawyer contacted Factor’s lawyer and offered to settle the matter for $16,000.00. Factor’s lawyer said that she would “recommend the proposed settlement” to Factor. The next day, without consulting with Factor, Factor’s lawyer told Creant’s lawyer “we have a deal, send over the money and I will provide in return a discontinuance and total release in favour of Ms. Creant”.

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When Factor’s lawyer informed his client of the compromise, advising him that in the circumstances, this was a reasonable settlement, Factor said that $16,000.00 was not enough because the repairs were going to cost $29,000.00, his pilot was completely in the right, and out of the $16,000.00 he would have to pay the legal fees. Factor reminded his lawyer of his specific instructions respecting the settlement. Again, Factor asks you whether he can avoid the settlement?

Answer:

Once a lawyer has been retained by a person, each party to the deal can only deal with the lawyer who has been retained, they cannot deal directly with the person. Factor can and will argue the majority judgment in Jensen that his lawyer had no actual authority to settle, which is evidence from her saying that she’ll recommend the settlement to her client. Creant will argue the dissent in Jensen, which is found in Canlab. It is only fair and reasonable that the law should provide in that situation that the lawyer has apparent authority, as they cannot deal directly with clients. There is no answer to this question, it’s either Jensen majority or Jensen dissent, and there is no Manitoba case on this issue.

Question #6:

Suppose the following variation of the facts of #1: the case has gone to trial. After the lunch break on the first day of trial, Factor’s lawyer, in the presence of Factor and the other side announces to the judge that a settlement has been reached. Factor’s lawyer briefly outlines the settlement to the judge and tells her that in due course, a judgment roll will be submitted to the judges to sign.

Outside the court, factor says to his lawyer “what the hell did you do that for? I didn’t authorize you to settle the case. I’m made as hell and I’m not going to stand for this, I’m getting a new lawyer”.

Answer:

What the lawyer said is related to the Neale v Gordon Lennox case. Courts have an overriding discretion, apart from any authority analysis. Clients can expressly ratify such statements. Whenever an agent acts on behalf of a principal and is found that the agent acted with actual authority, either antecedent, express or implied, or ratification, then the plaintiff has no recourse against the agent for what the agent has done with the third party. If an agent acts with apparent authority, by definition, they have not acted with actual authority of any sort. Although the principal cannot sue the third party, they can sue the agent. If we were to uphold the settlement on the basis of ratification, the principal cannot sue. However, if it’s upheld on the basis of apparent authority, the principal can sue.

Question #7:

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Suppose the following variation to #5: In response to the offer of $16,000.00 by Creant’s lawyer, Factor’s lawyer replied “make it $16,000.00 plus my legal fee and disbursements”, to which Creant’s lawyer agreed. The lawyer confirmed the deal by an exchange of the appropriate documents. Factor, not being in a philanthropic mood, is not satisfied.

Answer:

We now have two irreconcilable lines of cases. Prior to Pearson v Plester, our court would have had to choose which analysis to follow. The MBCA followed Scherer, and the settlement should be upheld.

make a deal with the lawyer, you cannot deal with the client, they are detached.

Question #8:

Suppose the following variation to the facts of #1: Creant’s lawyer tried in vain to negotiate with Factor’s lawyer. Creant’s lawyer happened to meet Factor at lunch at the Winnipeg Squash Club. They talked about the case and agreed to a settlement. Factor then had second thoughts about the settlement.

Answer:

The answer is that he wouldn’t be bound because of Nelson v Murphy. Once you make a deal with the lawyer, you cannot deal with the client, they are detached.

Question # 9

Suppose the following variation of facts of #1: Factor’s lawyer did not raise the question of settlement, and Factor, after giving his lawyer the Perimeter estimate said simply “I am counting on you to collect every nickel”. Factor’s lawyer proceeded to issue the statement of claim and settle the matter as in #7.

Answer:

Factor’s lawyer has the authority to make the settlement unless what Factor said can be construed to be an express limitation on this ability. The question raises an ambiguous agency empowerment. Factor will argue it’s an express limitation on the lawyer’s ability to settle on anything other than the estimate. Creant will argue that it’s not an express limitation, but mere bravado on his part. The court will likely favour what the agency has done in the face of ambiguous language. Even if the court comes to the conclusion that what Factor said to his lawyer was an express prohibition, the expression wasn’t known to Creant’s lawyer, and the court should apply Pearson v Plester due to the apparent authority.

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Question #10:

Suppose the following variation of the facts of #1: Factor attended at his lawyer’s to consult her about the accident. He did not instruct her to sue Creant, but she did commence an action against Creant, and she negotiated a settlement with Creant’s lawyer for $16,000.00 plus her legal fee and disbursements. Factor is dumbfounded and asks if he is bound.

Answer:

Factor is not bound by the settlement, his lawyer had no express actual authority to commence the action, much less to settle it. By his consultation, there cannot be an implied actual authority or a representation of authority to do what she did. She was not acting Bona fide. There is also the Neale v Gordon Lennox discretion.

Question #11:

Although this will come up later in the course when we cover breach of warranty of authority, the following is worth stating now:

1. In all of the foregoing situations, if the settlement is not upheld, Creant can sue Factor’s lawyer either for deceit or breach of warranty of authority except for cases involving:

a. Deceit (4)b. Neale v Gordon Lennox (8)

2. If the settlement is upheld, Factor:a. Can sue his lawyer, even though Factor is liable on the basis of apparent

authority, because his lawyer knew she lacked actual authority (2)b. Cannot sue his lawyer because she had actual authority (3)c. Can sue, answer the same as #2 (e)d. Can sue, if Factor is liable on the basis of apparent authority, same as #2, but

cannot sue if the basis of the decision is ratification (6)e. Can sue, answer the same as #2 (7)f. Cannot sue, he made the deal, not his lawyer (8)g. Cannot sue, because if the court upholds the settlement, it’ll be because of a

finding of actual authorityh. Can sue, answer the same as 2 (10)

Question #12:

Incidentally, when a client retains a lawyer who is a partner or an associate in a firm of lawyers, who does the client retain, the lawyer or the firm?

Answer:

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Generally speaking, the client retains the firm, not the lawyer, unless the retainer expressly retains the lawyer

Apprarent Authority and Criminal Plea BargainsProsser v R (1980, Sask. Dist. Ct)Ratio:

Not surprisingly, a guilty plea bargain made by a lawyer without actual authority will not be enforced

Apparent Authority and the Crown- Of course, a contract made on behalf of the Crown by an agent exercising actual

authority derived from express legislative authorization is binding on the Crown- However, can the Crown be bound by an agent with no legislative empowerment?

JE Verreault & Fils Ltee v Quebec (AG) (1975, SCC)Ratio:

The law of agency applies to the Crown, that is to say the government of Canada and presumably the governments of the provinces. Her majesty is clearly a physical person, and I know of no principle on the basis of which the general rules of mandate, including those of apparent mandate, would not be applicable to her.

Grannum v North West Territories (1991, NWTSC)Facts:

The plaintiff was interviewed for a teaching position by a panel comprising two senior employees of the department of personnel, and the principal of the school at which the job was. She was promised housing at a rent not to exceed $600 per month, including utilities. Once she moved there however, her rent was increased to $726 per month, excluding utilities. She sued for breach of contract.

Holding:

The court held that the interviewers did not have the actual authority to make the representation, but they held themselves out as having that authority, which the plaintiff could reasonably rely on.

This is a poorly worded ratio, as a third party cannot generally rely on a representation of authority by the agent, and the government did not empower that agent to make the representation. The court should have said that by appointing its employees and the principal to their senior positions, the government represented that they had apparent authority, even if they did not have the actual authority.

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Notes:

In reading cases, an agent may be described as having been empowered with general authority. Depending on the context, this is used as a synonym for either express actual authority or apparent authority. Do not use this term. This case also uses the word real authority as a synonym for actual. Don’t use this term either.

Agency by Usual Authority- The phrase usual authority has three usages

o In connection with an agent who otherwise could be said to be exercising either implied incidental or implied customary actual authority

o In connection with an agent who has been appointed by a principal to a position and who otherwise could be said to be exercising apparent authority

o Referring to a discrete authority in connection with an agent acting for an undisclosed principal

- As a result of Watteau v Fenwick (infra), it might be said that an undisclosed principal is liable for the actions of an agent who, although the agent has acted beyond the scope of the agent’s actual authority, can be said to have acted within the scope of the usual authority for such an agent

- Watteau is a controversial decision

Watteau v Fenwick (1893, QB)Facts:

Humble carried on a business of operating a pub. He sold the pub to the defendants, who retained Humble to manage it. The defendants continued to take out the pub’s license in Humble’s name, and Humble’s name remained over the entrance to the pub. By the terms of the agreement between the defendants and Humble, as the manager, Humble had the actual authority to buy only beer and water for the pub, but nothing else. The defendants were to supply all other confections. Nonetheless, Humble, without disclosing the change in ownership of the pub, continued to deal with the plaintiff, with whom he had dealt with over a number of years, for the purchase of certain confections sold in the pub. The plaintiff did not know of the defendants, and dealt with Humble on the assumption that he was now the owner. There was no other line of authority available to the plaintiff.

Ratio:

An undisclosed principal is liable for all the acts of the agent that are within the authority usually given to an agent of that character, notwithstanding limitations as between the principal and the agent put upon that authority. It is said that a principal is only liable for the acts of an agent that are within the authority usually confined to an agent of that character, notwithstanding limitations where there has been a holding out of authority, but I do not think

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so. In the case of a dormant partner, it is clear law that no limitation of authority as between the dormant and active partner will avail the dormant partner as to things within the ordinary authority of the partner.

Notes:

If we took the facts of Watteu to modern day Manitoba, and Fenwick bought Humble’s business to form a partnership with him, the case is superseded by the words “or does not know of or believe him to be a partner” in s. 8 of the Manitoba Partnership Act.

Also note that agents of known or unnamed principals cannot have usual authority, as the third party in such a circumstance knows that the person is only an agent. Usual authority applies to undisclosed principals only (if it exists at all).

- This case has not found favour in Canada- Until recently, McLaughlin v Gentles was the leading Canadian case, but now we have

Sign-O-Lite Plastics, where the court put an end to this doctrine- However, Sign-O-Lite is a questionable decision, as the judge’s recitation of the facts of

Watteau are inaccurate in key places- He missed Humble’s previous ownership of the bar, and the previous course of dealing

with the plaintiff- All other Canadian cases are not analogous as there was no previous ownership and

thus no trap laid out for the third party- Prof. Harvey has no quarrel with these other Canadian cases because they are not

analogous- However, Watteau is very fair if limited to its facts- We therefore have two completely irreconcilable cases, one looking at the issue from

the point of view of the third party (Watteau), favoring a finding of usual authority, and the other looking at it from the point of view of the undisclosed principal (Sign-O-Lite), favoring actual authority

Sign-O-Lite Plastics Ltd. v Metropolitan Life Insurance Company (1990, BCCA)Facts:

Metro Life purchased a shopping mall. The vendor continued to act as Metro Life’s agent with specified actual authority in connection with the operation of the mall. In excess of that actual authority, the vendor, in its own name, made a new sign contract with Sign-O-Lite to replace an existing contract. Sign-O-Lite had no knowledge of the sale of the mall. When the payments were not made pursuant to the new contract, Sign-O-Lite sued the vendor.

Ratio:

The decision in Watteau v Fenwick is dubious. It seems to be straining the doctrine of ostensible authority to apply it to a case where the fact of agency and the holding out were unknown to

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the person dealing with the so called agent at the time, and permit that person, when he discovered that his purchaser was only an agent, to recover against the principal on the theory that he is estopped from denying that he authorized the purchase. It is entirely different where there is a holding out as an agent and the fact of agency is known, but where neither is an element in the bargain, nor the reason why credit was given, and so not an additional security known to the vendor at the time, no equity should be raised in favour of the vendor as against the principal so as to make the latter liable.

It is astonishing that, after all these years, an authority of such doubtful origin and of such unanimously unfavorable reputation should still be exhibiting signs of life and disturbing the peace of mind of trial judges. I have no trouble in concluding that Watteau is not part of the law of this province.

Summary of Principles

We have now completed the introduction to the various types of agency relationships and authority. To recap, with facts which may or may not involve an agency relationship, your analysis should commence by identifying who might be the principal (and whether the principal is named, unnamed, or undisclosed), who is the agent, and who is the third party and how the agency relationship was created.

Second, you should consider what kinds of authority the agent could possibly have acted under, namely express actual, some kind of implied actual, statutory actual, actual as a result of ratification, apparent, or usual. Of course, with actual authority implied by custom or necessity, ratification and apparent authority, there are various requirements to be considered. And, with actual authority, there may be an issue of construction and the applicable principles thereof.

Contractual Liabilities of Principals, Agents, and Third PartiesDisclosed Principals Actual Authority

- When an agent acts with actual or presumed authority on behalf of a named or unnamed principal to make a contract with a third party, subject to a few exceptions, the contract is between the third party and the principal

Timmerman’s Enterprises Ltd. v Painter (1986, MBQB)Ratio:

Where an agent makes a contract with a third party pursuant to actual authority for a disclosed principal, the agent drops out of the picture and can neither sue nor be sued on the contract subject to the following exceptions.

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- There are five situations in which, in addition to the principal, the agent may be a party to the contract as well

o By custom

Scott v Merit Investment Corp (1988, ONCA)Ratio:

An agent can be liable on such a contract pursuant to custom

- The best example of this is an auctioneer who acts as an agent for the owners of the goods, but by custom, when they make a contract with a third party bidder, in addition to the owner being a party, the agent is as well

- Both the auctioneer and the owner can sueo Where the intention of the parties shows that in addition to the principal, the

agent is also a party to the contract

Sunshine Exporation Ltd. v Dolly Varden Mines Ltd. (1967, BCSC)Ratio:

An agent may be liable if it was the intention of the parties, to be inferred from the form and terms of the contract, how the agent signed the contract, and perhaps the surrounding circumstances

- This intention is drawn by inference from those named as parties (the agent may be named as a party), the terms of the contract, and how the agent signs the contract

- This can also be drawn from the surrounding circumstances other than the contract itself, especially where the agent acts on behalf of a foreign principal

Cohen v Dominion Atlantic Railway Co. (1931, NSCA)Ratio:

In the 19th century, it was virtually a rule that the agent is a party to the contract in such circumstances, enabling the third party to sue the local agent, but in the 20th century, this is merely a circumstance from which an inference can be drawn

o The principle from Harmer v Armstrong (carried on in Canada in the following case)

Porter v Pelten (1903, SCC)Ratio:

To empower an agent to make a sealed agreement, recall that the agency agreement between the principal and the agent must be by way of a sealed agreement. Sort of similarly, if an agent

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makes a sealed contract with a third party, whether or not the contract has to be sealed, by common law, the principal can only sue if the principal is named as a party to the contract, and the agent signs in the name of the principal

Signing in the name of is a “principal per agent”, or “agent for principal”. Signing on behalf of is “agent on behalf of principal”, or “Y pro X”. This common law extends from English common law

Friedman Equity Development v Final Note Company (2000, SCC)Ratio:

The SCC had a chance to do away with this archaic common law. It chose not to do so.

Margolius v Diesbourg (1937, SCC)Ratio:

Any principal, named, unnamed, or undisclosed, can sue on a sealed contract for one of the equitable remedies (specific performance as opposed to damages). This was decided in England in Harmer v Armstrong, and brought to Canada in this case.

Therefore, a principal cannot sue a third party for damages where the agent enters into a contract on behalf of a named principal, but that principal can sue for specific performance or another equitable remedy.

o An agent who purports to act for a named or unnamed principal can after the fact reveal that she was acting for herself, notwithstanding what she said

- She can then sue in such circumstances for damages or specific performance- This is possible so long as the identity of the other party was not material to the third

partyo Where the named or unnamed principal is non-existent

- This applies to pre-incorporation contracts, which we dealt with in Corp I and earlier in this outline

- This is codified in s. 14(1) of the Manitoba Business Corporations Act

Schmaltz v Avery (1851, QB)Ratio:

Where an agent purports to act on a named or unnamed principal, the agent can subsequently reveal that the agent was in reality acting on his own behalf, and can sue on the contract unless the third party proves that the identity of the principal was material.

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Agency by EstoppelCanadian Laboratory Supplies Ltd. v Englehard Industries of Canada Ltd. (1977, SCC)Issue:

Can a named or unnamed principal sue a third party on a contract which the principal alleges was made by the principal’s agent exercising apparent authority

Holding:

When a contract is made by an agent solely on the basis of apparent authority, certainly the third party can sue the principal. There is very slight controversy about whether the reverse can be true, whether the principal can sue the third party.

There is also some controversy about whether apparent authority is based on the concept of estoppel or not, but this is not relevant for the course.

Everyone except one author believes that a principal cannot sue a third party on the basis that his agent acted with apparent authority. Powell, the author who disagrees, was a prominent agency author. This slight controversy is reflected in this case. One of Canlab’s several arguments was that if Cook didn’t have actual authority, he had apparent authority. Blair, J in his reasons rejects this argument. However, Lacoucierre, J in his dissent accepts the statement of Powell. The SCC did not comment on this argument in its reasons for judgment, and therefore, the law is somewhat uncertain.

Undisclosed Principals- Generally, it is of no consequence to the enforceability by a principal of a contract made

by an agent that the agent did not disclose that she was acting for a principal at the time of making the contract

- However, there are four situations where an undisclosed principal cannot enforce a contract made by an agent

o The situation in Humble v Hunter

Humble v Hunter (1848)Facts:

An agent for a ship owner chartered out the ship to a third party. The charter contract described the agent as the owner of the ship. When the real owner of the ship wanted to sue the third party in connection to the contract, the court dismissed it because the intervention was contrary to a term of the contract

Ratio:

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The first situation is where the undisclosed principal’s intervention would be contrary to the term of a contract made by the agent with a third party. This was also approved in Margolius v Diesbourg (1937, SCC)

o On the facts, it’s clear that the third party would not have dealt with the agent, if he knew that the agent was acting on behalf of the undisclosed principal and the agent had made a misrepresentation of who they were acting for

- This occurs in situations where I want to purchase a parcel of land from you, and I know that you won’t sell it to me, so I hire an agent to act on my behalf, not disclosing that the agent is purchasing it

- In the process of the negotiation, you have to ask the agent who he’s acting for, and the agent has to lie

- The third party can then repudiate the contract o An undisclosed principal cannot step forward in connection with a contract that

brings the parties into a direct and continuing relationship where it clearly matters who the respective parties are (from Stoljar)

- This applies even without any misrepresentation by the agent- These are contracts where it matters to the third party that the other party is someone

of financial substance, good reputation or a possessor of a particular skill- An example could be a long term lease- The landlord may be concerned in these situations that the lessor has financial

substanceo Where the contract is one under seal

- Looking back at what was discussed above, if the contract is under seal, and it’s in connection with an undisclosed principal, and the agent hasn’t signed in the name of the undisclosed principal, the undisclosed principal cannot step in and enforce the contract

Bowmanville Machine Co. v Dempster (1876, NSTD)Ratio:

As for defences, any defence that the third party would have had with respect to the agent now applies against the undisclosed principal. This makes sense, as the third party thought they were contracting with the agent personally. The main defence that arises is that there is a debt between the agent and the third party, and that debt played a role in the making of the contract. For example, if the agent owed more money to the third party, and the two enter into a contract whereby in performing the contract, the agent is working off the debt. That kind of set-off is available against the principal as well

Sample ProblemQuestion and Answers:

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M and N live together in a house owned by M, some of the contents of which belong to N. M makes an insurance contract with XYZ Co. to cover burglaries. The policy issues in M’s name. A burglary occurs and some of N’s goods are destroyed. Can N make a claim pursuant to the policy in terms of the laws of agency supposing:

i) M and N did not discuss the matter of Insurance, but M told the instance agent that some of the contents belonged to N

We should scroll through the various types of agencies and authorities. On the facts, M and N did not discuss the matter, and therefore there is no antecedent actual authority to make the contract on behalf of M. The fact that M said that some of the goods belonged to N cannot be construed as a representation of apparent authority, and in any event, only Powell thinks that M can sue on the basis of apparent authority.

Can M argue that by making the claim he ratified N’s actions? We have to go through the conditions for ratification, and he can satisfy the first two. What’s problematic is the third requirement, as by the time the claim is made, the loss had already occurred If we take the third requirement as the one articulated by Wright, LJ in Firth v Staines. However, if we use the Ian Brown articulation, we must look to see if the material change has brought hardship on the third party. There is no certain answer to that question.

ii) Same as (i) but M made no mention of N to A

Now M is an undisclosed principal. N has no actual authority, no apparent authority, and an undisclosed principal cannot ratify. M can therefore not sue in this situation.

iii) N empowered M to insure his goods too, and M tells A that some of the contents belong to A

In this situation, even though the contract is in M’s name, N can argue that in the circumstances, from what M told A, it can be inferred that M had acted on his behalf as well as his own, indeed, he was empowered to act with express actual authority to act on his behalf.

iv) Same as (iii) but M did not mention N to A

In this case, M has express actual authority to act on behalf of M. Although M is an undisclosed principal, he should be able to sue unless the situation comes within one of the four exceptions to an undisclosed principal suing, which it probably doesn’t.

- As for whether principals of agents of necessity can sue, there isn’t much comment on this issue

- The Mundy text is of the view that like with apparent authority, a principal of necessity cannot sue

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- Prof. Harvey disagrees with this point of view because he doesn’t see the agency of necessity arising from presumed authority, but by operation of law

- Agency of necessity is an implied agency agreement, the agent acting with implied actual authority

- If agency of necessity is characterized as an implied agency, there is no reason why a principal should not be able to sue, as in other situations of implied agency, the principal can sue


A lawyer asks for your advice about a husband who wants to sue in connection with an alleged improper repair job done to his wife’s fur coat. The lawyer tells you that the husband arranged for the repair in the presence of his wife. Assuming that there is an arguable case on whether the repair job was done satisfactorily, what advice would you give the lawyer about in whose name to commence the suit, and on what agency basis to plead.

Answer:

Insofar as pleading the wife’s case, Prof. Harvey would plead the whole menu of possible authorities in the wife’s name. We want to say that he acted with either antecedent express actual authority, or that she ratified his making the work order on her behalf by commencing this action. We can also argue that he acted with apparent authority, her mutely standing by while he completed the order was a representation of his authority to act on her behalf.

Question:

i) Suppose in turn that there was a work order made out, and the husband contracted either:

(a) In the name of the wife and signed on her behalf, or(b) In the name of his wife and simply signed his own name, or(c) In his own name, and

ii) There was no work order made out and the husband either:

(a) Indicated that “the coat belongs to my wife”, or(b) The husband did not indicate whose coat it was

Answer:

i(b)

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Prof. Harvey would still sue in the wife’s name if he were the lawyer, but arguably, the suit could be brought in the husband’s name as plaintiff based on the way in which he signed the work order. The basis of authority would be the same as above (which is the answer to (a).

i(c)

In this situation, he’s either contracted personally for the repair of the coat, or he’s contracted on behalf of his wife as an undisclosed principal. The action could either be brought by the husband as plaintiff, or by the wife as plaintiff, but suing in the name of the wife could only work on the basis that he had antecedent actual authority. Because she’s undisclosed, there is no argument that he had apparent authority or that her bringing the suit was a ratification.

ii(a)

in this situation, the husband was acting on behalf of an unnamed principal, but she’s an ascertainable unnamed principal. Therefore, the wife is the proper plaintiff and only the wife, because the husband has dropped out of the picture and the contract is between the repairman and the wife. The pleading would be the same as i(a).

ii(b)

This is the same answer as i(c)

The Doctrines of Election and Merger- Election and merger have to do with situations when a third party can sue either the

principal or the agent on a contract made by the agent (see above)- We should look back to situations where both the principal and the agent are parties to

the contract - A third party cannot sue a principal and agent and find them jointly and severally liable

on a contract like when there are two parties to a contract- In agency, when they are both parties to the contract, the principal can only sue one to

a judgment- In such a situation, up until the judgment is rendered against one or the other, a third

party may be found to have elected to have sought satisfaction against principal or agent

- If the third party is found on the facts to have made that decision, this locks the third party into getting judgment against that particular party

- Once judgment is obtained against either, the judgment merges the third party’s cause of action against the other party who the third party has not obtained judgment against

- Election applies up until judgment, merger happens afterwards- Some people confuse these two doctrines, but they are completely separate doctrines

dealing with different situations - With respect to election versus merger, election is a matter of fact to be determined on

the facts of each case

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- There are two necessary ingredients from the case law to find that a third party has elected:

o The third party must have full knowledge of all the relevant factso There must be a deliberate and unequivocal choosing

- These two requirements also appear in ratification

Clarkson Booker Ltd. v Andjel (1964, Eng. CA)Facts:

The defendants acted as agents for a principal company when they entered into a contract with the plaintiff. The principal was undisclosed. When the principal did not follow through with the contract, counsel for the plaintiff wrote the following letter to both the agent and the principal: “in our client’s contention, this money may well be payable by [you the principal] or the agent, though not of course by both, and we would inform you that unless we receive your payment by Tuesday, proceedings against you for the recovery of the same may be commenced without further notice”. It is clear that no election had been made at that point, but a further letter to the principal was sent saying: “our clients have instructed us to proceed to obtain judgment against you in order to safeguard their interests. However, when this has been obtained, they may be prepared to consider terms for payment”. The plaintiffs issued writs against the principal, which was duly served. However, the plaintiffs did not proceed with this action because they soon found out that the principal was bankrupt and entered into voluntary liquidation. The plaintiffs have now started a proceeding against the defendant agent. The agent contends that the plaintiffs, having elected to start a proceeding against the principal, are debarred from asserting their claim against the defendant agent. The plaintiffs counter that only judgment will debar such a claim.

Ratio:

The short answer is that both the defendant and the third party are wrong. Election and merger are separate doctrines.

The institution of proceedings against either agent or principal is at least strong evidence of an election such as, if not rebutted, will preclude subsequent proceedings against the other. In other words, it raises a prima facie case of election. There are cases where there are exceptions, such as where it is issued for the purpose of preventing a limitation period from expiring, or suing a company not yet incorporated to preclude a subsequent action. In order to prove an election, two things must be established when the third party sues:

1. The decision must be shown to have been taken with full knowledge of all the material facts

2. It must be shown that the decision to institute proceedings against the party was truly an unequivocal act

a. The court also talked about prejudice here

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Application:

The court looked at whether the prima facie election could be rebutted. There was no doubt that it was taken with full knowledge, but it was not unequivocal. They never revoked their threat against the agent, and there was no suggestion that the defendant was prejudiced in any way. They also took no steps beyond issuing the statement of claim, which is different than cases were an election was found. On the whole however, this case is very borderline.

Obiter:

If the principal is an undisclosed principal, no act by the third party can amount to an election prior to the disclosure of the undisclosed principal. However, if the third party sues the agent to a final judgment, then the doctrine of merger prevents the third party from suing the undisclosed principal.

Notes:

Generally speaking, it takes an overwhelming amount of facts to convince a court that an election has been made. Because it is such an oppressive doctrine, courts like to keep a party’s options open until judgment, and therefore they prefer the doctrine of merger.

- Taking default judgment against one party that does not appear is sketchy for the third party

- You want to be careful in these circumstances because the default judgment will likely bring into play the doctrine of merger preventing a suit of the other party

- The courts will sometimes vacate a default judgment, but more often than not, it’s held against third parties

Tedrick v Big T Restaurants Ltd. (1983, Sask. QB)Facts:

According the Prof. Harvey, the reasons in this case, but the end result may be questionable.

G&H sued the defendants for the return of $20k paid to the defendant Big T Holdings for a franchise and a lease deposit. The sums were paid in anticipation of an outlet being constructed in Swift Current, with Big T Canada Ltd. as a sub-franchisor, Big T Holdings Ltd. as a franchisee, and the plaintiffs as a sub-franchisee. The outlet was never constructed, and so the operator’s franchise agreement between the parties became impossible to perform. The evidence is clear that the plaintiff, throughout the negotiations, dealt with the defendant Yorke, the owner of the defendant company Big T Holdings Ltd, and to a more limited extent, with the defendant Big T restaurants of Canada and its principal officer Watson. At all times, the defendant Yorke represented himself to be the owner of the defendant company and an agent. The $20k was misappropriated by Yorke and/or his company, and was never repaid.

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Following the issuance of the statement of claim, the statements of defence were entered into by all the parties. Because the defence failed to show up, judgment in default was taken out by the plaintiffs against Big T Holdings and Alan Yorke. Big T restaurants now submits that G&H can’t continue against it because its action was merged because of the default judgment.

The reason why this case is odd is because on the basis of the facts, G&H knew he was dealing with Yorke as an agent. This is the ordinary situation of an agent acting on behalf of a named principal, he had no right in law to include the agent as they dropped out when the final contract was signed. He therefore had no legal entitlement to a default judgment.

Ratio:

A plaintiff alleging an agency relationship cannot obtain judgment against both the principal and the agent, judgment against one operates as a bar to proceedings against the other, even if the judgment was obtained by default. The plaintiff may accordingly sue in one action, but the cause of action is one and only one, and it is for this reason that he can have only one judgment.

There is however a line of cases that says that the principal can be sued on the contract, and the agent can be sued not on the contract, but on the implied contract that he had the authority to act for the principal. This action may be laid out in tort, the causes of action are wholly different.

Application:

Here, the court did not accept that there were two causes of action, something Prof. Harvey also believes is odd. The default action should have been vacated here.

Scarf v Jardine (1881, HL)Facts:

Here, after the third party learned of the change in partnership, the third party not only instituted a suit against the two agents, but they filed a claim in bankruptcy against the principal.

Holding:

On these facts, the court concluded that Scarf had elected to look to the two agents, and not the former partner principal for debts incurred by the company. Today, Manitoba and other provinces would decide this case differently because of s. 12 of the Partnership Act.

Davidson v McClelland (1900, CA)Facts:

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The third party sued the agent and the undisclosed principal, but did not proceed with the suit when the agent gave a promissory note and the undisclosed principal gave the balance claimed in cash. When the agent did not honour the note, the third party sued both the agent and the undisclosed principal for the balance owing.

Holding:

The court held that the taking of the note did not constitute an election by the third party to look only to the agent for satisfaction of the debts.

Smith v Lasko (1986, MBQB)Facts:

The plaintiff purchased a car from Mr. and Mrs. Lasko, not knowing that the car was owned by Lasko Ents. Ltd. Mrs. Lasko misrepresented herself as the owner. The Laskos misrepresented the history and condition of the car; it was the mother of all lemons. Presumably, when Smith licensed the car, he learned of the Lasko Ents. Ltd. ownership. Smith sued Lasko Ents. Ltd. and the Laskos for recession of the purchase and sale agreement, return of the purchase price, and the cost of repairs he incurred for breach of the conditions implied by s. 58(11) of the Consumer Protection Act into sales of goods respecting fitness for purpose and merchantable quality and fraudulent misrepresentation.

Application:

The Court found the Laskos to have been acting as agents for an undisclosed principal, the defendant Lasko Ents. Ltd. The court found all three jointly and severally liable on the basis of fraud and on the basis of the alleged breaches of the implied contractual conditions. Apart from their liability on the basis of fraud, do you agree with the judgment respecting their contractual liability?

Notes:

The judgment is not correct in finding them jointly and severally liable on the contract. The doctrines of election and merger in the contractual cause of action, the agents having acted on behalf of an undisclosed principal.


L left a front end loader for repair with M. There were no identifying markings on the loader. L and M had no previous dealings with each other. No work order was signed. L wrote his name and cell phone number on a piece of paper, and simply said “Do what’s necessary, I need this as soon as possible. Here’s my name and where I can be reached”. The loader is owned by N

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Construction Co Ltd. L is the superintendent of N Co.’s excavation operations. L’s superior is 0 who is the Vice-President in charge of field operations. While L has a certain amount of authority to make purchases and authorize repairs, his authority is surprisingly limited to minor purchases of supplies and repairs not exceeding $200.00. Major work was required on the front and loader; L should have had 0’s approval, or turned the matter over to 0

0, on behalf of N Co. has told M that N Co. will not pay the $5,000.00 repair bill, it wants its machine back immediately and a proceeding will be commenced if M does not comply. M wants to know if he can sue L or N Construction Co. Ltd.

Answer:

M can certainly sue L because L acted on behalf of an undisclosed principal, and in such circumstances, they are part of the contract. M can only sue N Construction Ltd. if M can persuade the Court that L acted with some kind of authority on behalf of the construction company. The facts don’t support express actual or any implied authority. There is no necessity or ratification for many reasons (the principal is undisclosed and it’s like the Liddesdale, not to mention the repudiation). Apparent authority cannot be argued because the principal is not disclosed, and therefore could not have made a representation. The factors don’t fit into the Watteau usual authority framework, if that even exists anymore.

Question:

Would it make a difference if L handed to M a business card with the name of N Construction Ltd. on it, together with L’s name and job title?

Answer:

This increases the possibility that the company can be sued on the basis of apparent authority. However, we’ll have to see how L came by the business card, was it supplied by the company, or did he make his own.


X has a bad credit rating. X persuades Y to obtain a telephone in Y’s name for X. For some months, all went well. X paid the phone bill by personal cheques. However, eventually X ceased paying the monthly bills, and she ran up substantial long distance charges. When MTS became vociferous in demanding payment, X and Y attended an MTS office. Y explained that it was really X’s phone and her responsibility for the bill. X made a partial payment by cheque.

Now X has taken off. Her whereabouts are unknown. MTS is suing Y for the outstanding balance. Explain the “facts of life” to Y.

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Answer:

We’d say to Y that you acted, whether you realize it or not, as an agent on behalf of X. X is an undisclosed principal, because you acted as an agent, you are liable on the contract that you made with MTS, even though you only acted as an agent. This is because an agent who acts on behalf of an undisclosed principal is a party to that contract. MTS can look to both of you for satisfaction, but can only sue one of you to judgment. Unfortunately for Y, there is a case that has held that party payment shouldn’t be taken to be an unequivocal election, and there is a general principle to be drawn from the cases that courts are generally not inclined to find an election short of a judgment that involves merging a cause of action.

Factors Legislation - What is the legal position of the third party if the agent makes a transaction not within

his actual authority to make it with the third party?- If I tell an agent to sell a plaintiff for no less than $15,000.00, and he sells it for

$5,000.00, the legal position of nemo dat applies, and the third party is out of luck unless she argues:

o The agent acted with apparent or usual authority o The common law doctrine of apparent ownership applieso The transaction is effective pursuant to The Factors Act

- By the common law doctrine of apparent ownership, if an owner has allowed someone to have possession of goods or indicia of title, and has also in some way allowed the person to appear to be the owner of the goods, an unauthorized disposition may be valid

- The doctrine does not involve a representation by the owner, and applies even if the owner is unknown to the third party

- The doctrine applies to all types of dispositions including sales, but excludes pledges- The inapplicability of the doctrine of apparent ownership to a pledge led to to the

passage of The Factors Act to overcome this anomaly, and expand the application of the doctrine of apparent ownership

- Judges applying a Factors Act or derivative legislation have variously numbered the requirements to be fulfilled or questions to be answered with respect to what is s. 2(1) of the Manitoba Act

The Factors Act of Manitoba – s. 2(1)

Powers of agent:Where a mercantile agent is, with the consent of the owner, in possession of goods or of the documents of title to goods, any sale, pledge, or other disposition, of the goods made by him, when acting in the ordinary course of business of a mercantile agent, is, subject to this Act, as valid as if he were expressly authorized by the owner of the goods to make it, if the person taking under the disposition acts in good faith, and has not at the time thereof notice that the person making the disposition has not the authority to make it.

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- Here, we will treat this as five requirements, for which the defendant has the onus of proof:

o That the person with whom the third party dealt with is a mercantile agento That the person with whom the third party dealt with had possession of the

goods in question with the consent of the ownero That the person with whom the third party dealt had possession of the goods as

a mercantile agento That the person with whom the third party dealt disposed of the goods to the

third party when acting within the ordinary course of business as a mercantile agent; and

o That the third party acted in good faith and without notice that the mercantile agent had no authority to make the disposition in question

Requirement #1Thorensen v Capital Credit Corp (1933, Ont. Co. Ct)Ratio:

The term agent does not include a mere servant or care taker, or one who has possession of goods for safe custody or carriage; but only persons whose employment corresponds to some kind of commercial agent, like that class (factors) from which the act takes its name. As well, the judge could see nothing disqualifying in the fact that an alleged mercantile agent has never acted as a mercantile agent before.

Obiter:

A person who is not engaged in any commercial business whatsoever may be a mercantile agent within the meaning of the act simply by the person being appointed agent of another to act as a mercantile agent customarily does. This is flawed for two reasons. There is no reported case that supports this (and Bush v Fry is a contrary case). The case it does rely on is weak.

Bush v FryFacts:

A music teacher, F, solicited the shipping of a piano by the plaintiffs to him for sale by him as the plaintiff’s agent to a customer he had in mind. After F received the piano, he pledged it to the defendant. The plaintiffs sued successfully for the piano.

Holding:

It was held that as F was a music teacher being known in no other capacity, and his transaction with the plaintiffs was the first and only transaction he had ever had with them, he was a mercantile agent.

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Peoples’ Credit Jewelers Ltd. v Melvin Ratio:

It is not necessary for a mercantile agent to be carrying on a business independent of the owner. In this case, the mercantile agent was employed solely as the plaintiff’s agent to sell its jewelry. It seems from the cases that to be a mercantile agent, a person must be generally engaged in some way or another in the retail selling of goods, and to have been retained by the owner to sell or pledge the goods.

Requirement #2- The second requirement is statutorily presumed, requiring the owner to adduce

persuasive evidence to the contrary

Sheriff of Edmonton v Kozack (1965, Alta. Dist. Ct)Ratio:

It is of no consequence that the person with whom the third party dealt obtained possession of the goods or title documents from the owner by fraud.

St. Bernard De LaFond Savings & Credit Union Ltd. v Spicer (1982, QB)Ratio:

Owner means legal owner, not beneficial owner, in the situation of a chattel that has been mortgaged

Requirement #3Barry v Bank of Ottawa (1908, CA)Ratio:

The possession of the mercantile agent must have preceded the disposition in question, and the agent msut have been in possession of the goods qua agent, and not in some other capacity.

Requirement #4Oppenheimer v Attenborough & Son (1908, CA)Facts:

The plaintiff was a dealer in diamonds, the defendant was a pawnbroker. A diamond broker S went to the plaintiff and asked him to let him have some diamonds so that he might show them to prospective purchasers to whom he though he could sell. The plaintiff, relying on S’s statement, let him have a number of diamonds, and gave him a commission note saying how much the diamonds might be sold for. S pledged the diamonds with the defnednat pawnbroker for an advance to himself. Evidence was led that a diamond broker employed to sell diamonds

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had no authority to pledge this, this would be unheard of. It was held that S was acting as a mercantile agent, and that his disposal of the diamonds was made when acting in the ordinary course of the business as a mercantile agent, so that he defendant pawnbroker was entitled to retain the diamonds.

Ratio:

Acting in the ordinary course of business means that the sale or whatever the transaction is cannot take place outside normal hours, or in circumstances under which a mercantile agent in the trade would not ordinarily transact business. It means that a person must act in the transaction as a mercantile agent would act if he were carrying out a transaction which he was authorized to carry out. The question whether the person with whom the pledger was dealing believed him to be an agent, or believed him to be the owner of the goods is not material for the purposes of The Factors Act. The expression in the ordinary course of business of a mercantile agent means a mercantile agent, not the mercantile agent which that particular person happened to be.

Peoples Credit Jewelers Ltd. v MelvinRatio:

It is of no consequence that the disposition to the third party did not occur within the ordinary course of the mercantile agent’s business. It is sufficient for the third party to prove that the disposition was one within the ordinary course of business sof the mercantile agent, or the type of person with whom the third party dealt.

Requirement #5Terra Power Tractor Co. v Champan (1977, Alta. Dist. Ct)Ratio:

Good faith is fulfilled by a third party acting honestly, however carelessly. The relevant notice is actual notice.

Bank of Nova Scotia v Tissington (1981)Ratio:

Although a disposition by a mercantile agent may be effective against the person who puts a mercantile agent in possession of the goods, it will not affect the interests that other people have in the goods before the disposition

Tort Liability, Principals and AgentsAgents Acting Outside of Their Authority

- When an agent acts without authority and the principal is not liable, a question for the third party is what recourse they have available if they suffer damage

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- The third party can sue for deceit, negligent misrepresentation, or breach of warranty of authority

- Recall that it’s very difficult to prove deceit, but breach of warranty of authority can be proven

Polhill v Walter (1832, England)Facts:

The defendant attempted to do a friend a favour by acting as his agent in dealing with the plaintiff third party. The defendant honestly believed that the friend would ratify his act. When the friend did not ratify, the plaintiff suffered a loss. He sued the defendant for deceit (successfully).

Ratio:

An agent commits to deceit when the agent knowingly or recklessly acts without authority. Deceit (or fraudulent misrep) is clearly a tort, and thus the measure of damages is to put the plaintiff in a position that he would have been in but for the fraudulent misrepresentation. The Court does not concern itself, as it does with breach of warranty of authority, with what would have been the plaintiff’s position had the defendant’s authority created an effective contract.

Application:

Although the defendant had acted in good faith, the defendant knew that his representation of authority was false, and he fully intended the plaintiff to rely on his representation of authority.

Collen v Wright (1857, England)Ratio:

Breach of warranty of authority is the cause of action where the agent mistakenly thinks that he has the authority to act.

AE LePage Ltd. v Kamex Developments Ltd. (1988, CA)Ratio:

For courts to consider breach of warranty of authority, it has to be specifically pleaded.

TD Trapp & Co. v Prescott (1912, BCCA)Ratio:

The warranty of authority may be express, but most often, it is simply implied by the agent acting as such. Incidentally, while a warranty of authority will be readily implied, no other

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warranties will be readily implied, such as in the case of a sale of goods, a warranty of the principal’s title.

Bent v Arrowhead (1909, MBCA)Ratio:

The third party must have been misled or induced by the agent’s warranty of authority. If the third party knew or ought to have known of the agent’s lack of authority, then the third party cannot rely on the warranty of authority.

Coit v Dowling (1901, NWTSC)Ratio:

Generally, the third party must be able to prove that the contract would have been binding on the principal if the agent had the authority

Salter v Cormie (1993, Alta. CA)Ratio:

Liability for breach of warranty of authority is strict, the agent is liable even though he acted in good faith, and even though unknown to the agent, the authority which the agent had ceased to exist. A commonly cited case on this proposition is the next one.

Young v Toynbee (1910, CA)Facts:

Mr. Toynbee acted as solicitor to X, who was the defendant in an action initiated by the plaintiff. Unknown to Mr. Toynbee, his client became mentally incompetent. This event automatically terminated Mr. Toynbee’s actual authority to act further for X. Not knowing of X’s mental incompetency, Mr. Toynbee continued to pursue his client’s interests in the suit, which put the plaintiff to additional useless costs. The plaintiff sued Mr. Toynbee as a result.

Holding:

The court held for the plaintiff, and in so doing, refused to follow an apparently governing case called Smout v Illberry.

Notes:

While the basic point for which Yonge v Toynbee is often cited is not in doubt, it was pointed out in Canada Permanent Trust Co. v Parks that writers have expressed difficulty in reconciling the decision in Yonge v Toynbee and Drew v Nunn, a case decided on the basis that an agent

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whose actual authority has terminated can have express authority stemming from a course of dealing, to continue to act for the principal.

The Powers of Attorney Act of Manitoba – s. 4

Acts of attorney after authority terminates:s. 4(1) Where the authority of an attorney under a power of attorney terminates, an act by the attorney in favour of a person who does not know of the termination is valid and binding in favour of the person and any person claiming under the person.

Attorney’s liability for act after terminations. 4(2) Where the authority of an attorney under a power of attorney terminates, the attorney is not liable to the donor or the estate of the donor for acting under the power of attorney if the attorney did not know, and with the exercise of reasonable care could not have known, of the termination before acting.

Notes:

If a situation similar to Toynbee occurred in Manitoba, then s. 4 of the act might be applicable. If the empowerment is oral however, then the common law applies.


Ms. K, a Winnipegger, owns a franchise in Manitoba and Saskatchewan. Ms. K negotiated the terms of a five-year lease with the agent of an owner of the premises in Regina. The agent had Ms. K sign a blank offer to lease which the agent said she would complete and sign on behalf of the owner. The agent gave Ms. K the keys to the premises in order to enable her to go into possession immediately. Ms. K proceeded to make alterations to the premises. The agent never completed or signed the offer to lease because the agent lacked authority to lease the premises, and the owner refused to ratify the deal. As a result, Ms. K is out her alteration costs, and she is having to payer higher rent for other space. Assuming that apparent authority is not arguable, whom can Ms. K sue, on what basis, and what will she have to prove?

Answer:

She cannot sue the owner lessor because the agent lacked authority, and the lessor refused to ratify the lease. She can only sue the agent for deceit or breach of warranty of authority. It’s difficult for Ms. K to prove one element of the tort, that there would have been an enforceable agreement had the agent been telling the truth. This is because Saskatchewan has the statute of frauds. The statute requires that contracts having to do with an interest in land have to be in writing, which a lease is. Here, there is no evidence of a lease in writing, other than the blank signed lease form, but this is form the court to decide. There is the doctrine of part

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performance in contracts, which the court of chancery created to deal with the harshness of the statute of frauds, which Ms. K could potential argue as she was given the keys.

- The measure for damages for breach of warranty of authority is, in general, to put the third party in the position that the third party would have been in had the agent had the authority

Austin v Real Estate Listing Exchange (1912, BCCA)Holding:

For the real estate company, the measure of damages was giving the company the commission it would have earned had the agent actually had the authority.

Sanford v Milburn (1983, QB)Holding:

For an aborted sale of land, the damages include the difference between the contract purchase price and a higher market value.

Wickberg v Shatsky (1969, BCSC)Holding:

If the principal was never existent or is insolvent, the action should be dismissed, or only nominal damages and costs should be awarded.

Agents Acting Within Their Authority Greaves v Sprauge (1920, NBCA)Ratio:

Agents are personally liable for their torts, and principals are certainly liable for the torts of their agents which principals personably instigate or ratify

- Principals are vicariously liable, jointly and severally, with their agents, for torts committed by their agents acting within the scope of their authority

- The question however is whether the tortfeasor was an agent acting within the scope of their authority

- People who work for other people do so either as servants or independent contractors, creating either a master/servant relationship, or an employer/independent contractor relationship

- This applies to volunteers as well- A master of a servant is liable for torts committed by the servant within the scope of the

servant’s employment, the employer is generally not liable for the torts committed by

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an independent contractor, and a principal is liable for the torts of an agent acting within the scope of the agent’s authority

- Thus, in a given situation, the plaintiff will first want to try to establish that the actual tortfeasor was the servant of the other potential defendant in order to provide the broadest base for the other defendant to be vicariously liable

- While the servant can be the agent of the master too, this question will often be superfluous since the scope of employment will be broader than the scope of authority

- However, apparent authority can extend a master principal’s vicarious liability beyond the master principal’s liability qua master

- The classification of the actual tortfeasor as either a servant of the other potential defendant or an independent contractor with the other potential defendant will be made on the basis of various criteria depending on the circumstances, including:

1. The element of control; servants are generally subject to the control of masters respecting what to do, how to do it, and when to do it; an independent contractor is bound by the contract, but otherwise is his own master so to speak.

2. Chance of profit, risk of loss3. Method of payment4. Number of masters-employers5. Length of service, and6. Provision and maintenance of tools and equipment

Smith v Thompson (1842, UCQB)Facts:

The defendant employed an agent to collect his debts. In carrying out his authority, the agent could have debtors committed to prison in certain circumstances according to the governing legislation. Maliciously, and without statutory cause, the agent had the plaintiff arrested for a debt which the plaintiff did not owe. The plaintiff sued the agent and the principal vicariously for the tort of malicious arrest.

Ratio:

The court held that a principal cannot be liable for malice solely on the part of the agent. Robinson, CJ for the court held that where malice begins, the agency ends, for then, to serve a wrongful end of his own, the agent is going out of the scope of his authority and cannot make his principal liable for an act flowing from his own bad motives.

Notes:

Prof Harvey says that this ratio is very wrong, because if this were true, a principal could never be liable for the tort of an agent. The real question is whether the tort occurred while the agent was exercising its apparent authority, nothing more.

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Bright v Kerr (1939, SCC)Holding:

The court held that the appellant could not be liable for its delivery agent’s negligent driving because, as Kerwin, J held, there was no evidence of any authority for the agent to drive negligently.

Notes:

This case is wrong for the same reasons as Smith v Thompson.

Sample Question:

See page 28 of the syllabus.

The Highway Traffic Act s. 153(3)Question:

Is it necessary for the section to stipulate that a person who drives a car with the consent of the owner is deemed to be “the agent or servant of the owner” driving within the “course of his employment”?

Answer:

The answer to this question is yes and no. It’s necessary for the section to stipulate that a person who drives another person’s car is a servant or agent, because, without that provision, the person who drives is driving as a bailee, and the bailor cannot be found liable for vicarious liability. However, it’s overkill to deem the driver to be the servant of the owner and the agent, one or the other would be find. They could be a master/servant or principal/agent and liability would attach.

Sample Question Question:

Discuss the following statement: Principals and agents can be jointly and severally liable

Answer:

With regard to tort liability, they are jointly and severally liable because of the concept of vicarious liability. With regard to contractual liability, ordinarily, only the principal is liable based on a contract made by an agent, with a few exceptions. The doctrine of election and merger apply to make it so that the third party can get satisfaction from one or the other, never both. They are therefore not jointly and severally liable.

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The Agent’s Right to Remuneration- We skipped the chapter on remuneration, but we should be aware that agents are not,

generally speaking, entitled to remuneration- The common law does not provide for it except on a quantum meruit basis- Generally speaking, therefore, it’s true to say that an agent’s right to remuneration is

provided only by the agency agreement, contractual or otherwise- They have to agree at the creation of the agency agreement that the agent will be

remunerated- When drafting a power of attorney, have the attorney and the donor discuss

remuneration before the agreement is reduced to writing, and make sure that the entitlement is clear

Powers of AttorneyTypes of EmpowermentsOrdinary/General versus Enduring Powers of Attorney

A general/ordinary power of attorney is distinguished from an enduring power of attorney. In the sample power of attorney we’re provided in the syllabus, the clause stating “AND I do hereby provide that the authority of my said attorney shall not terminate, but shall continue, notwithstanding any mental incapacity which I may suffer”. An ordinary power of attorney will terminate upon mental incapacity (see Hill Estate). Once it terminates, someone then becomes the committee of the incompetent person, which takes time and money to appoint.

We should have a revocation provision at the beginning of every power of attorney that we draft.

The Powers of Attorney Act ss. 10-25 (Enduring Power of Attorney)

See text in act.

In connection with the execution of a power of attorney, our act requires one witness, some acts require two. Uniquely, in s. 11(1), our act has a list of people who can be a witness to an enduring power of attorney. No other jurisdiction enumerates who can witness.

Ordinary/General versus Specific Powers of Attorney

A general power of attorney is distinguished from a specific power of attorney. A general one would have a clause allowing the attorney to do “all the acts that I can do for myself”. A specific power of attorney has all of the powers listed expressly. It simply delegates express actual authority in specific terms to do specific acts. It’s a good idea in a general power of attorney to enumerate specific acts if they’re important so that you can be absolutely sure.

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Springing Powers of Attorney

Any power of attorney, including an enduring one, comes into effect as soon as it is created. However, a springing power of attorney only comes into effect once a certain event occurs, or more commonly, the attorney gets authority once the donor has become mentally incompetent. They are valid by common law, unlike an enduring power of attorney which is statutory in nature. They are fairly rare. One of the problems is precisely describing the triggering mental incompetency event that will bring the springing power of attorney into effect.

Most lawyers advise their clients to have an enduring power of attorney, and if the client is apprehensive about the immediate effect of the power of attorney, keep it with you. As long as you have the power of attorney, the attorney cannot use it.

The Powers of Attorney Act ss. 6-9 (Springing Powers of Attorney)

See text in act.

Re Potasky (2000, MBQB)Facts:

This case had to do with an enduring power of attorney. The donor became mentally incompetent, and the attorney who was appointed died. The empowerment did not provide for a substitute attorney. Someone made an application to the court asking to appoint him or her to be the successor attorney pursuant to the enduring power of attorney.

Holding:

The court refused the application, as there is no legislative empowerment for a court to appoint a substitute attorney for an enduring power of attorney. There are some provinces that provide for this, but Manitoba is not one of them. They need to apply for a committee position. No doubt, this applies to springing powers of attorney as well.

The lesson is to never draw an enduring power of attorney without a substitute provided for. For an ordinary power of attorney that’s not enduring in nature, it’s a good idea to have substitutes, but it’s not essential, as if the named attorney dies, the donor can appoint a substitute as they’re still competent (or else the power itself would have expired).

Living Wills, Powers of Attorney for Personal Care, and Health Care Directives

These are all the same thing. They are not to be confused with an ordinary or enduring power of attorney, as they don’t authorize the attorney to deal with the property of the donor. A living will deals with the physical health of the donor. Like an enduring power of attorney, living wills

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are only effective if legislation exists to make them effective, they don’t exist by common law. Such legislation exists in every Canadian jurisdiction.

There are two types of these documents. One appoints a proxy to make healthcare decision, the other prescribes the healthcare that the maker of the directive wants to receive.

Power of Attorney Template

See page 41 of the syllabus and the commentary on page 42.

Note that when drafting a power of attorney, recall from Hill estate that one of the ramifications of the decision is that it is now necessary for a third party to be assured that the donor was mentally competent at the time the power of attorney was exercised. If you look at a random selection of power of attorney affidavits of execution, you would not see wording that the witness swears to the mental capacity of the donor, although Prof Harvey thinks this is essential for a third party to see.

Termination and Revocation of Agency Relationships- Agency relations can be irrevocable, enduring, or revocable, but ordinarily, they are

revocable

Wilkinson v Young (1972, Ont. HC) Issue:

When is an agency irrevocable

Holding:

Ordinarily, agency relationships are revocable, but they can be irrevocable, and they can be agency of an enduring nature, which has special revocation rules.

Dealing first with an agency that is irrevocable, simply stating in the agency agreement that is irrevocable is of no legal effect. It is only irrevocable in two situations, one of which we need to know for the purposes of this course. When an agency is created either for valuable consideration, or by dead (seal), and the agency relationship is to secure a benefit tot eh agent, that agency relationship is irrevocable (it could be revoked by the agent, but it is irrevocable by the principal). An example would be that if P is indebted to A, her stockbroker. P empowers A by a sealed power of attorney to sell some shares, take the purchase price, and keep part of it. That amount of money will pay off the debt that P owes to A.

The other kind is a common law rule that has been codified in s. 5(2) of The Powers of Attorney Act below. Furthermore, although a principal cannot revoke an irrevocable agency, a principal can revoke it for breach of duty by the agent.

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Notes:

Fridman state that when an agent has begun to exercise the authority and has incurred liabilities therewith, the agency becomes irrevocable. Prof Harvey agrees with Bowstead, who says that in such a situation, the agency does not become irrevocable, but the principal cannot be terminating destroy the agent’s right to reimbursement and indemnification

The Powers of Attorney Act s. 13 – Termination of an Enduring Power of AttorneyTermination of authority under enduring power13 Subject to section 5(2) (irrevocable power of attorney for value), the authority of an attorney under an enduring power of attorney terminates if:

(a) a substitute decision maker is appointed for the donor under subsection 88(1) (substitute decision maker for property) of The Vulnerable Persons Living with a Mental Disability Act, and the appointment specifies that the powers of the substitute decision maker relate to the donor's estate;

(b) the custody, management and administration of the estate of the donor is taken over by the Public Guardian and Trustee or other committee by order of the court under The Mental Health Act;

(c) the donor becomes bankrupt, unless the enduring power of attorney provides otherwise;

(d) the attorney becomes bankrupt or mentally incompetent or dies;(e) the donor dies;(f) subject to section 21 (renunciation of appointment as attorney), the attorney renounces

the appointment and gives notice of the renunciation to the donor; or(g) the court terminates the power of attorney.

Termination of Revocable Agency

Ordinarily, agencies terminate once:

1. The agent has fully exercised the agency delegated (assuming it can be)2. One the expiration of a specific time period set out in the empowerment3. At the whim of either the principal or the agent4. When the relationship is frustrated

a. An example could be that the agent is imprisonedb. What the agent was empowered to sell was destroyedc. The authority vested in the agent becomes illegal

Regardless of how the agency is created, there are no restrictions for how a revocable agency can be terminated by notice. There does not need to be notice in writing. If it’s under seal, notice does not need to be under seal, although it’s always advisable to deal in writing.

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However, notice must always be reasonable, and if it’s not given, damages will be awarded. You should advise your client (the principal) to give reasonable notice in writing, and in addition, publish notice in a newspaper or on a website so that the parties aware. This is especially true if the agent was dealing with specific third parties, you should let them know personally.

Powers of Attorney and Mental CompetencySample ProblemQuestion:

By common law, is a contract made by an agent pursuant to a revocable (not an enduring) power of attorney on behalf of a principal who was competent to empower the agent, but who became incompetent before the agent acted, unbeknown to the agent and third party, void or voidable, and if voidable, by whom and on what bases.

Answer:

In answering this question, remember what we covered at the beginning of the course with connection to Hill Estate. By common law, a contract made by a mentally incompetent contracting party is enforceable against the contracting party if the other party did not know of the mental incompetency, or if the other party knew or ought to have known of the mental incompetency, if the contract is fair and reasonable from the view of the incompetent. If the power of attorney is void, Prof Harvey things that the contract should be void as well. That conclusion is supported by Yonge v Yoynbee. If the facts are like Drew v Nunn, then the contract will be enforceable, which reinforces the thought that it should be enforceable even if there is not a prior course of dealing.

Canada Permanent Trust v ParksFacts:

Parks empowered an agent to look after her financial affairs pursuant to a power of attorney, which the agent began to do immediately. This included making payments to her sister with whom she was living. The sister died, and Parks became mentally incompetent. The agent did not know this, and she continued to ake payments pursuant to the power of attorney to Canada Permanent Trust Company, Parks’ sister’s executor. When the truth came out, Parks’ committee sued Canada Trust for a refund of the payments made by the agent after Parks became mentally incompetent.

Holding:

The court held that the incompetence of Parks automatically terminated the power of attorney, and the payments were made without authority. The court didn’t say so expressly, but it considered the payments made post-mental incompetency to be void rather than voidable.

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The Powers of Attorney Act s. 4 – Acts of Attorney After Authority Terminates Acts of attorney after authority terminates4(1) Where the authority of an attorney under a power of attorney terminates, an act by the attorney in favour of a person who does not know of the termination is valid and binding in favour of the person and any person claiming under the person.

Attorney's liability for act after termination4(2) Where the authority of an attorney under a power of attorney terminates, the attorney is not liable to the donor or the estate of the donor for acting under the power of attorney if the attorney did not know, and with the exercise of reasonable care could not have known, of the termination before acting.

- This section codifies Drew v Nunn and Canada Permanent Trust. It changes the outcome of Young v Toynbee

- It does not apply to Hill Estate, as Hill was not competent when he made the power of attorney, he didn’t become incompetent after making it

- See question 110 on page 45

Sample QuestionQuestion:

Suppose that the retainer of a Manitoba lawyer by a client is oral, not written. The lawyer has proceeded to issue the statement of claim and has proceeded with all of the other pre-trial steps, including lengthy negotiations and setting the matter down for trial. Unknown to the lawyer, the client became mentally incompetent after exam for discover.

To whom can the defendant look for the costs to which the defendant has been put?

Answer:

The defendant can look to the client principal for all pre-mental incompetency costs. With regard to mental incompetency costs, the lawyer is arguably liable to the defendant for breach of warranty of authority is in Yong v Toynbee. If the defendant third party was ignorant of the mental incompetency, and what the lawyer did was reasonable, then the client should be responsible for the post-mental incompetency costs. If sued, the plaintiff’s lawyer should defend arguing Drew v Nunn, making the argument that the pre-mental incopetency steps taken were a course of dealing, raising apparent authority to continue to deal after mental incompetency.

Note that s. 4 does not apply, this issue needs to be resolved by the common law, and we have conflicting common law decisions. The MBCA would have to choose between them.

Question:

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Would your answer be different if the retainer was in writing?

Answer:

If the retainer was in writing, s. 4(1) of The Powers of Attorney Act applies, and the defendant can only look to the plaintiff for pre and post-incompetency costs. This codifies Drew v Nunn over Young v Toynbee.

Question:

Suppose in part 1, including the oral retainer, the plaintiff died

Answer:

Assuming s. 4 isn’t applicable to an oral agreement, the answer to this is different than part 1 insofar as the plaintiff’s lawyer’s Drew v Nunn argument is concerned. That case had to do with mental incompetence of the principal, not death. In obiter in Drew, the judge who decided the case said that he though the same apparent authority analysis would be appropriate had the husband died instead of becoming mentally incompetent, although there is no case that has taken up this suggestion.

Question:

Suppose in part 1, including the oral retainer, the defendant moved against the plaintiff and obtained an order, but the plaintiff turns out to be insolvent, could the defendant then sue the lawyer?

Answer:

This means that the defendant thought the person was competent if he moved against him. This means that the agent is not liable. An agent can never be liable to a third party for what he has done pursuant to some authority.

Question:

Suppose that in part 1, including the oral retainer, the plaintiff had become incompetent prior to the statement of claim being filed and served, although the discovery by the lawyer of the client’s incompetence only occurred just prior to the client’s examination for discovery. Against whom would the defendant be advised to take action.

Answer:

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Drew v Nunn isn’t applicable because there is no prior course of dealing during competency. By the Hill Estate case, the filing of the statement of claim is void, and thus the defendant only has satisfaction by way of breach of warranty of authority. Prof Harvey says that by the law of contracts, the client should be liable alone and not the lawyer.

Question:

Further to the previous question, including the oral retainer, if the defendant sued only the plaintiff for the costs, unsuccessfully, could the defendant sue the plaintiff’s lawyer for the costs and could she plead the doctrine of merger.

Answer:

The answer to this is yes, the defendant could sue the lawyer if the defendant’s suit against the plaintiff was unsuccessful. The doctrine of merger would not apply because the situation doesn’t deal with contract, and the causes of action against the client and the lawyer are discrete causes of action.


P gives a stamp collection to A with the instruction to deliver it “to TP after my death”. A does so saying to TP “P instructed me to give you this after his death. As you know, he died last week”. The executor of the estate asks you about the validity of what A did only in terms of the law of agency. Does it matter whether P’s instruction to A is oral or written?

Answer:

It matters if it’s oral or written. If it’s oral, s. 4 of the Powers of Attorney act does not apply, and the common law does. By common law, A’s authority terminates with P’s death, so the estate is entitled to get the stamp collection back from TP. If the instruction was in writing, that makes s. 4 potentially applicable. By common law, the agency terminates, and by being told of the death, that makes s. 4(1) relevant as he was not an innocent third party without knowledge.

Question:

Would it make a difference, if A instead says simply “P instructed me to give you this”, and TP does not know of P’s death?

Answer:

It makes no difference if the empowerment is oral, the common law would terminate the authority, and the state would be entitled to the stamp collection back. If the instruction is written, s. 4(1) validates the delivery of the stamp collection, and TP is entitled to it.

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Question:

Is A liable to the estate in part 2 if TP is entitled to keep the stamp collection?

Answer:

This makes us look to s. 4(2), which changes Young v Toynbee, it immunizes the lawyer from being liable.

See question 113 on page 46 for self study. Also review practice questions 2, 8, 10(b), and 12

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The Law of PartnershipsThe Formation of PartnershipsIntroduction to Partnerships

- Up until the late 19th century, the partnership was the usual way that two or more people carried on a business

- For those first 300 years, the law of partnerships was left by the UK Parliament to the Courts of the Law of Merchants, the Common Law Courts, and the Court of Chancery

- Until the very late 19th century, the law of partnerships was entirely based in the common law

- In 1890, the UK Parliament passed the Partnerships Act, which continued the existing common law and equity

- After the UK parliament passed the Partnerships Act of 1890, similar acts were passed throughout the common law world, each act being almost identical to the UK act

- Manitoba’s Partnerships Act was first passed in 1897, and has never really been amended

- Before we had a general partnership act, we had two additional statutes requiring the registration of partnerships, and enabling the creation of limited partnerships

- Those two acts in the early 1890’s were incorporated into one act, which was incorporated into the 1897 act

- The 1897 act had the registration sections removed and put into a different act- The partnership exists alongside the corporation and other business organizations called

joint ventures- There’s also cooperatives, commercial trusts, and various other ways to start business- Often, two people will start a partnership, then turn it into a corporation- A corporation is a distinct and separate legal entity from its owners, the shareholders- Comparatively, the partners are not legally distinct from the partnership- A partnership comes into existence by common law, codified in s. 3 of the partnership

act, which is not dependent on the required filings prescribed by the registration act- A corporation only comes into existence by the filing of documentation prescribed by

the Corporations Act- This course will not deal with drafting a partnership agreement, although we will look at

how poorly drafted partnership agreements result in litigation

The Partnerships Act s. 2(1) – The Three Types of PartnershipsApplication of Part I2(1) The provisions of this Part, so far as they are not inconsistent with the provisions of Part II or III, apply to every partnership, including a limited partnership, a Manitoba limited liability partnership and an extra-provincial limited liability partnership.

- There are three types of partnershipso General/ordinary

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o Limitedo Limited liability

- As we can see from s. 2(1), the partnerships act is divide into three parts- Part I applies to all three types of partnerships, Part II adds to Part I some provisions for

limited partnerships, and Part III adds some provisions for limited liability partnerships

The Business Names Registration Act

Look up the act.

- Alberta and BC treat everything in one act, including the registration- Ontario has general and limited partnerships in one act, LLP’s in another, and

registration in a third- At the end of the day however, the law is essentially the same in all provinces

The Partnerships Act s. 3 – The Essential Elements of a PartnershipMeaning of partnership3 Partnership is the relation which subsists between persons carrying on a business in common, with a view of profit; but the relationship between members of an incorporated company or association is not a partnership within the meaning of this Act.

- At the beginning of the course, we discussed that there is no settled definition of agency, different texts provide different answers

- The Partnerships Act in s. 3 however contains a skeletal definition of a partnership- In addition to s. 3, s. 4 adds to the definition of partnerships somewhat but neither

section is self-sufficient, we need the common law gloss

The Partnerships Act s. 4 – Rules for Determining the Existence of PartnershipRules for determining existence of partnership4 In determining whether a partnership does or does not exist, regard shall be had to the following rules:

(a) joint tenancy, tenancy in common, joint property, common property, or part ownership does not of itself create a partnership as to anything so held or owned, whether the tenants or owners do or do not share any profits made by the use thereof;

(b) the sharing of gross returns does not of itself create a partnership, whether the persons sharing the returns have or have not a joint or common right or interest in any property from which, or from the use of which, the returns are derived;

(c) the receipt by a person of a share of the profits of a business is prima facie proof that he is a partner in the business; but the receipt of such a share, or of a payment contingent on, or varying with, the profits of the business, does not of itself make him a partner in the business, and, in particular

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a. the receipt by a person of a debt or other liquidated amount by instalments or otherwise out of the accruing profits of a business does not of itself make him a partner in the business or liable as such,

b. a contract for the remuneration of a servant or agent of a person engaged in a business by a share of the profits of the business does not of itself make the servant or agent a partner in the business or liable as such,

c. a person being the surviving spouse or a child of a deceased partner, and receiving by way of annuity a portion of the profits made in the business in which the deceased person was a partner, is not by reason only of that receipt a partner in the business or liable as such,

d. the advance of money by way of loan to a person engaged, or about to engage, in any business on a contract with that person that the lender shall receive a rate of interest varying with the profits, or shall receive a share of the profits arising from carrying on the business does not of itself make the lender a partner with the person or persons carrying on the business or liable as such, if the contract is in writing, and signed by or on behalf of all the parties thereto,

e. a person receiving by way of annuity, or otherwise, a portion of the profits of a business in consideration of the sale by him of the goodwill of the business is not by reason only of such receipt a partner in the business or liable as such.

- The Partnerships Act isn’t really providing rules in s. 4; it’s giving guidelines to determine if a partnership exists

- Co-owners of land who don’t own it as partners are free to deal with their co-ownership interest however they like

- This happens all the time with tenancies in common when a will determines who succeeds the tenant in common

- When two or more people own something as partners, they are not free to deal with their interest in it

- Ownership of the estate is in the partnership, the partnership legally owns the property- Each partner can transfer their right to the share in the partnership, but they cannot

transfer the interest in the estate itself, only the partnership can do that- In understanding s. 4(b), you have to understand the difference between gross revenue

and net profit- A person who is entitled to a share of a gross return is entitled to those returns before

expenses are taken into account- Partners are entitled to net profits, after expenses are paid- A person who has a share in gross returns is different from a partner, because they only

care about how much gross revenue the business can earn, not the management of the venture

- An intention to earn a profit, and the making and sharing of profit is a sina qua non to a venture being a partnership, but s. 4(c) indicates that the sharing of profits is not in and of itself determinative

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Mendelssohn Piano v Graham & West (1829, England)Facts:

Graham owned and operated a store dealing in organs and pianos under the name PW Graham & Co. In financial difficulty, Graham sought an infusion of money from West, who gave him a total of $2,000. Graham signed several documents, one was worded “received from West $500 to be used for carrying on the business of dealers in pianos and organs in return for which I hereby agree to give West one-half of the profits of the business after all expenses, including a wage”. The second document referred to another amount received from west as a note payable. Eventually, when West refused to continue to put money into the business, Graham ceased running his business. Mendelssohn sued Graham and West for a piano sold on credit.

Discussion of s. 4:

He was going to be repaid his loan out of the profits earned by the company, but that, in and of itself, didn’t make him a partner, he could still be a creditor.

Cox v HickmanRatio:

Receiving a share of the profits is not conclusive, it is simply a factor to take into account

AE LePageHolding:

This case interprets s. 4(a). Having acquired the buildings to own for some period of time and not immediately flip, and manage it as landlords, the business could morph into a partnership. Despite holding the the building as joint tenants, that did not immediately make them partners.

If two grain farmers agree to share the costs of shipping grain to market, or lawyers agree to share premises or office staff does not make them partners.

Hemming v LeMarquand (1909, MBKB)Facts:

Hemming owned the Lyric theatre, LeMarquand owned the Starland theatre. Both were in Portage La Prairie. They agreed that H would close his theatre and become manager of the Starland. L would continue to operate the Starland for a specific period of time. They would share equally at the end of the month in any profit or loss, subject to H receive half the share of the profits as his remuneration. They shared access to the financial records. Six months after H closed the Lyric and took charge of the Starland, L gave notice that he was cancelling their agreement and firing H as manager, forcibly removing him from the premises for habitual drunkenness on the job. H sued L arguing that he was a partner.

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Notes:

Look at s. 4(c)(ii).

What Comprises “The Relationship Which Subsists Between Persons?”- In some situations, it’s obvious that there’s a partnership- If you and your friend agree to carry on a business next summer, you agree on a name,

you each find customers, you each contribute, you each share in the net profit, you obviously have a partnership, whether or not you reduced the relationship to writing

- In other situations, it can be extremely difficult to determine, and the parties will go to court

- While the legal principles concerning when a partnership exists are clear, the facts will determine how a case is decided

The Partnerships Act s. 1(1) – Definition of Person"person" includes a sole proprietorship, partnership, unincorporated association, syndicate or organization, a trust, and a natural person in his capacity as trustee, executor, administrator or other legal representative.

- This doesn’t include corporations, but corporations can be a partner in a partnership

The Partnerships Act s. 6 – Meaning of FirmMeaning of firm6 Persons who have entered into partnership with one another are for the purposes of this Act called collectively a firm, and the name under which their business is carried on is called the firm name.

The Partnerships Act s. 7 – Firm May be PartnerFirm may be partner7 A firm may be, and shall be conclusively deemed always to have had the capacity to be, a party to a partnership agreement and thereby to become a partner in a separate partnership relationship.

The Contractual Nature of PartnershipsBackman v The Queen (2001, SCC)Facts:

This appeal was heard along with Spire Freezers. Both cases raise the question of whether a valid partnership has been established for tax purposes. In 1985, a limited partnership was created by US residents under the laws of Texas called the Commons. The Commons acquired land and constructed an apartment building, which by 1988, the cost of the land and building exceeded its FMV. The appellant believed that through a series of transactions, eh could

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acquire and realize a portion of the losses incurred on the building. In order to secure the losses, the appellant and 38 other Canadians arranged to become assignees of the interests in the original American partners in the Commons. Although the alleged partnership purchased an interest in the property, it never produced a profit, and a tiny interest in an oil company purchased by the partnership also never produced a partnership. The CRA did not allow the partnership to claim the losses because it was not a true partnership. The FCA held, relying on the continental bank leasing case that there was no real albeit ancillary profit element.

Ratio on the Relationship:

There are three essential ingredients of a partnership as described by the continental bank case:

1. A Business2. Carried on in common3. With a view to profit

A Business Carried on in Common

In determining whether a business is carried on in common, it should be kept in mind that partnerships arise out of contract. The common purpose required for a partnership will usually exist when the parties entered into a valid partnership agreement setting out their respective rights and obligations as partners. The fact that the management of a partnership rests with a single partner does not mean that the business was not carried on in common. It may be relevant if the parties held themselves out as partners, but it is also relevant if the parties did not hold themselves out as such. Other evidence consistent with an intention to carry out a business in common includes:

(a) The contribution of skill, knowledge, or assets to the joint undertaking(b) A joint property interest in the subject matter of the adventure(c) The sharing of profits or losses(d) The filing of income tax returns as a partnership(e) Financial statements and joint bank accounts(f) Correspondences with third parties

The relationship must be contractual in nature, it cannot be a mere agreement, and in that connection, each of the partners must contribute some consideration to the venture for which the partnership exists. This could be chattels, land, knowledge, skill or effort. Partnerships arise out of contract.

The Time ElementSpire Freezers Ltd. v Canada (2001, SCC)Facts:

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For income tax purposes, Spire and others bought into a partnership that owned a condo building and an apartment building. Immediately after, they sold their interest in the condos at a huge loss, but they continued to manage the apartment building profitably. The MNR tried to disallow the loss, saying that there was no real partnership.

Ratio on Time:

The fact that a partnership is created for a single transaction is of no consequence. Furthermore, it is not necessary to show that the parties held meetings, entered into new transactions, or made decisions. And a business may be established even in circumstances where the sole business activity is the passive receipt of rent.

Age and Mental Capacity of Partners- There are two cases that indicate that a minor cannot be liable for the debts of a

partnership- One of these cases also indicates that a minor partner, upon attaining the age of

majority, must cease to be a partner by giving notice, or be deemed to continue as a full partner

- This is like a contract for necessities and reaching the age of majority- These cases do not speak, and there is no case that speaks to the significance of age

capacity with respect to partners vis-à-vis each other- If you have a falling out with your partner, and that partner is a minor, whether the

minor’s age affects the partnership between the two of you insofar as accounting is concerned is not dealt with by statute or the common law

- With respect to mental capacity, presumably, a mental incompetent cannot become a partner in a partnership, they do not have the capacity

- This also seems to follow from the ratio in the Hill Estate case, although it was not dealt with directly

- As for solvency/insolvency affecting capacity, there is no statement one way or another, however the following section does discuss insolvency

The Partnerships Act s. 36(1) – Dissolution by Bankruptcy, Death or ChargeDissolution by bankruptcy, death or charge36(1) Subject to any agreement between the partners, every partnership is dissolved as regards all the partners by the death or bankruptcy or insolvency of any partner.

When is There an Agreement?- No formal agreement is necessary, a partnership can be oral, express, or implied- An implied agreement will be found on the basis of what transpired, and whether or not

the individuals in question knew they were creating a partnership- When you have a partnership by implication, the text usually refers to this as common

law partnerships or partnerships at will

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- The Statute of Frauds requires certain contracts to be in writing, although a partnership agreement is not one of them, it can be wholly oral

- Whether such a relationship exists is a matter of substance, not to be determined subjectively, but objectively

- It doesn’t matter what the parties call the agreement, that will simply be one factor to take into account

- Even with an explicit term saying it is not a partnership, a court can find otherwise

Wiener v Harris (1910, CA)Ratio:

The parties do not have the final say on determining the nature of the relationship. It is for the court to judge based on the circumstances. Whether the parties have entered into a partnership relationship is a question of fact.

Backman v The Queen (2001, SCC)Facts:

Outlined supra.

Ratio on Determining Whether a Partnership Exists:

In determining the existence of a partnership, regard must be paid to the true contract and intention of the parties as appearing from the whole facts of the case. In other words, to ascertain the existence of the partnership, the courts must inquire into whether the objective documentary evidence and the surrounding facts, including what the parties actually did, are consistent with a subjective intention to carry on business with a common view to profit. Courts must be pragmatic in their approach to the three essential ingredients of a partnership. Whether a partnership has been established in a particular case will depend on a weighing of these three factors and the surrounding circumstances.

Kahn v Miah (2001, HL)Facts:

The question on this appeal is whether the parties ever carried on a business in partnership together. The question turns on whether they actually started to carry on the business prior to January 1994. Two people wanted to open up a restaurant, but they could not afford to. They approached the appellant, who was known to have some capital, to interest him in the venture. The judge found that the appellant was to have a 50% stake in the business, with the other 50% being shared between the other alleged partners. By December 1993, the parties had found suitable premises, taken a lease of the premises, opened a bank account, and taken a loan. The account was used solely to make payments to the builders, or for other services required to open the restaurant. The judge found that they held themselves out as partners. By January

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1994 however, the restaurant had not opened on time, and the parties began to fight. The appellant left the business, and there had been no settling of accounts with the appellant since the restaurant opened. He says that they’re partners and that he’s entitled to an accounting.

Ratio:

Whether partners who propose entering into a business venture in partnership together have actually done so is a question of fact. The Court of Appeal, in ordering that there was no partnership, recognized the distinction between a contemplated partnership or an agreement to become partners, and a partnership itself. While that distinction exists, it is not applicable here. The court of appeal took too narrow a view of the enterprise on which the parties agreed to embark. There is no rule of law that the parties to a joint venture do not become partners until actual trading commences. The rule is that persons who agree to carry on a business activity as a joint venture do not become partners until they actually embark on the activity in question. Any commercial activity that is capable of being carried on by an individual is capable of being carried on by a partnership.

Application:

The question in the present case is not whether the parties had so far advanced towards the establishment of a restaurant as to properly be described as having entered upon the trade of running a restaurant, for it does not matter how the enterprise should properly be described. The question is whether they had actually embarked on the joint venture upon which they had agreed. The mutual rights and obligations of the parties do not depend on whether their relationship broke up the day before or the day after they opened the restaurant, but on whether it broke up before or after they actually transacted any business of the joint venture. The question is not whether the restaurant had commenced trading, but whether the parties had done enough to be found to have commenced the joint enterprise in which they had agreed to engage. Once the judge found that the assets had been acquired, the liabilities incurred, and the expenditure laid out in the course of the joint venture, and with the authority of all parties, the conclusion that it was a partnership inevitably followed.

What Comprises Carrying on a Business in Common?The Partnerships Act s. 1(1) – Definition of Business "business" includes every trade, occupation or profession;

Backman v The Queen (2001, SCC)Ratio on the Definition of Carrying on a Business:

Carrying on a Business

In law, the meaning of carrying on a business may differ depending on the context in which it was used. The Partnerships Act and Blacks Law Dictionary defines it as “the holding of one’s self

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out to others as engaged in the selling of goods or services”. Another definition requires at least three elements to be met (from Gordon v The Queen)

(a) The occupation of time, attention, and labour(b) The incurring of liabilities(c) The purpose of a livelihood or profit

The existence of a partnership does not depend on the creation of a new business; it is sufficient that an existing business be continued. It is not necessary to show that the partners carried on the business for a long period of time, a partnership can be formed around a single transaction. As noted in Continental Bank, as long as the parties do not create what amounts to an empty shell that does not in fact carry on a business, the fact that the partnership was created for a single purpose is of no consequence. It is not necessary to show that the parties had meetings, entered into new transaction, or made decisions. A business may be established even if the circumstances of the sole business activity was the passive collection of rents.


The common purpose required for a partnership will usually exist when the parties entered into a valid partnership agreement setting out their respective rights and obligations as partners. The fact that the management of a partnership rests with a single partner does not mean that the business was not carried on in common. It may be relevant if the parties held themselves out as partners, but it is also relevant if the parties did not hold themselves out as such. Other evidence consistent with an intention to carry out a business in common includes:


- What constitutes a business can vary depending on the context, recall that in Kahn, the court says that any commercial activity capable of being carried on by an individual is capable of being carried on a partnership

Continental Bank Leasing Corp v The Queen (1998, SCC)Ratio:

Where parties have entered into formal written agreements to govern their relationship, the courts should determine whether the agreement contains the provisions typically found in a partnership agreement, whether the agreement was acted upon, and whether it actually governed the affairs of the parties. The fact that no new business was created does not negate the effect of the existing business that was continued during the time. The existence of a valid

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partnership does not depend on the creation of a new business, it is common that partnerships are formed when two parties agree to carry on the existing business of one of them, while the other party contributes the capital.

The fact that management of the partnership is given to one partner does not mandate the conclusion that he business was not carried on in common. One or more parties may in fact run the business on behalf of themselves and the others without jeopardizing the status of the legal relationship. What is relevant is if they hold themselves out as partners, the distribution of profits, and the intention. If a partnership is formed with a predominant motive such as tax avoidance, but there is also a real albeit ancillary profit element, it may be permissible to infer that the business is being carried on with a view to profit. If however it could be shown that the sole reason for the creation of the partnership is to give a particular partner the benefit of, say a tax loss, when there was no contemplation in the parties’ minds that a profit would be derived from carrying on the relevant business, the partnership could not be said to have formed with a view to profit.

Kahn v Miah (2001, HL)Obiter:

It is not sufficient that the partners to an alleged partnership have agreed to be partners to carry on a business, it is necessary, but not sufficient. The partners must actually have begun to implement that business venture and carry it on. This follows from the wording of s. 3, they have to carry on a business venture, which indicates that it is not enough to simply reach a partnership agreement.

What Comprises “With a View to Profit?”- The four points we should consider in this topic are:

o Motivation versus intentiono Overriding intention versus ancillary profit making intentiono Intention to make a profit, not making an immediate profito The amount of profit is one factor to take into account

Backman v The Queen (2001, SCC)Ratio on a View to Profit:

This requires an inquiry into the intentions of the parties entering into an alleged partnership. At the outset, it is important to distinguish between motivation and intention. Motivation is that which stimulates a person to act, while intention is a person’s objective or purpose in acting. A tax motivation does not derogate from the validity of transactions for tax purposes. Similarly, a tax motivation does not derogate from the validity of the partnership where the essential ingredients of a partnership are otherwise present. The question at this stage is whether the taxpayer can establish an intention to make a profit, whether or not he was

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motivated by tax considerations. Moreover, continental bank held that a taxpayer’s overriding intention is not determinative of whether the essential ingredient of a view to profit is present.

It will be sufficient for a taxpayer to show that there was an ancillary profit making purpose. In determining whether there was a view to profit, courts should not adopt or employ a purely quantitative analysis. The amount of expected profits or losses is only one of several factors to consider. A partnership may incur initial losses during its start up phase. That does not mean that the relationship is not one of partnership, so long as the enterprise is carried on with a view to profit in the future. Therefore, where a partnership is formed with the predominant motive of acquiring a tax loss, it will not be necessary to show an intention to profit by the amount necessary to produce a net gain.

Continental Bank Leasing Corp v The Queen (1998, SCC)Ratio on a View to Profit:

If a partnership is formed with a predominant motive such as tax avoidance, but there is also a real albeit ancillary profit element, it may be permissible to infer that the business is being carried on with a view to profit. If however it could be shown that the sole reason for the creation of the partnership is to give a particular partner the benefit of, say a tax loss, when there was no contemplation in the parties’ minds that a profit would be derived from carrying on the relevant business, the partnership could not be said to have formed with a view to profit.

Summary of Indicators of Partnership

1. Statement of intention to carry on an enterprise as partners2. A firm name3. Holding out in filings (BNRA, income tax returns, credit arrangements) and to TP’s4. Contributions of cash, other property, expertise5. Sharing of profits6. Bank or credit union account, singing authority for cheques7. Advertising, stationary, business cards8. Jointly owning business assets9. Participation in the business venture10. Existence of a written partnership agreement

VanDuzer suggests the following list

1. Sharing of profits2. Sharing of responsibility for losses, including guaranteeing partnership debts3. Jointly owning property4. Controlling the partnership business5. Participating in management6. Stating an intention to form a partnership in a contract

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7. Making government filings showing partnership (e.g. registration under business names legislation, tax returns, etc.)

8. Access to information regarding the business9. Signing authority for contracts, bank accounts10. Holding oneself out as a partner11. Contributing money, services, or property as capital12. Full time involvement in the business13. Use of a firm name, perhaps in advertising14. Firm having its own personal address

Full Case BriefingsBackman v The Queen (2001, SCC)Facts:

This appeal was heard along with Spire Freezers. Both cases raise the question of whether a valid partnership has been established for tax purposes. In 1985, a limited partnership was created by US residents under the laws of Texas called the Commons. The Commons acquired land and constructed an apartment building, which by 1988, the cost of the land and building exceeded its FMV. The appellant believed that through a series of transactions, eh could acquire and realize a portion of the losses incurred on the building. In order to secure the losses, the appellant and 38 other Canadians arranged to become assignees of the interests in the original American partners in the Commons. Although the alleged partnership purchased an interest in the property, it never produced a profit, and a tiny interest in an oil company purchased by the partnership also never produced a partnership. The CRA did not allow the partnership to claim the losses because it was not a true partnership. The FCA held, relying on the continental bank leasing case that there was no real albeit ancillary profit element.

Ratio:

There are three essential ingredients of a partnership as described by the continental bank case:

4. A business5. Carried on in common6. With a view to profit

Carrying on a Business

In law, the meaning of carrying on a business may differ depending on the context in which it was used. The Partnerships Act and Blacks Law Dictionary defines it as “the holding of one’s self out to others as engaged in the selling of goods or services”. Another definition requires at least three elements to be met (from Gordon v The Queen)

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(d) The occupation of time, attention, and labour(e) The incurring of liabilities(f) The purpose of a livelihood or profit

The existence of a partnership does not depend on the creation of a new business; it is sufficient that an existing business be continued. It is not necessary to show that the partners carried on the business for a long period of time, a partnership can be formed around a single transaction. As noted in Continental Bank, as long as the parties do not create what amounts to an empty shell that does not in fact carry on a business, the fact that the partnership was created for a single purpose is of no consequence. It is not necessary to show that the parties had meetings, entered into new transaction, or made decisions. A business may be established even if the circumstances of the sole business activity was the passive collection of rents.


The common purpose required for a partnership will usually exist when the parties entered into a valid partnership agreement setting out their respective rights and obligations as partners. The fact that the management of a partnership rests with a single partner does not mean that the business was not carried on in common. It may be relevant if the parties held themselves out as partners, but it is also relevant if the parties did not hold themselves out as such. Other evidence consistent with an intention to carry out a business in common includes:

(g) The contribution of skill, knowledge, or assets to the joint undertaking(h) A joint property interest in the subject matter of the adventure(i) The sharing of profits or losses(j) The filing of income tax returns as a partnership(k) Financial statements and joint bank accounts(l) Correspondences with third parties

A View to Profit

This requires an inquiry into the intentions of the parties entering into an alleged partnership. At the outset, it is important to distinguish between motivation and intention. Motivation is that which stimulates a person to act, while intention is a person’s objective or purpose in acting. A tax motivation does not derogate from the validity of transactions for tax purposes. Similarly, a tax motivation does not derogate from the validity of the partnership where the essential ingredients of a partnership are otherwise present. The question at this stage is whether the taxpayer can establish an intention to make a profit, whether or not he was motivated by tax considerations. Moreover, continental bank held that a taxpayer’s overriding intention is not determinative of whether the essential ingredient of a view to profit is present.

It will be sufficient for a taxpayer to show that there was an ancillary profit making purpose. In determining whether there was a view to profit, courts should not adopt or employ a purely quantitative analysis. The amount of expected profits or losses is only one of several factors to

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consider. A partnership may incur initial losses during its start up phase. That does not mean that the relationship is not one of partnership, so long as the enterprise is carried on with a view to profit in the future. Therefore, where a partnership is formed with the predominant motive of acquiring a tax loss, it will not be necessary to show an intention to profit by the amount necessary to produce a net gain.

The Approach to Determining Whether a Partnership Exists

In determining the existence of a partnership, regard must be paid to the true contract and intention of the parties as appearing from the whole facts of the case. In other words, to ascertain the existence of the partnership, the courts must inquire into whether the objective documentary evidence and the surrounding facts, including what the parties actually did, are consistent with a subjective intention to carry on business with a common view to profit. Courts must be pragmatic in their approach to the three essential ingredients of a partnership. Whether a partnership has been established in a particular case will depend on a weighing of these three factors and the surrounding circumstances.

Application:

The SCC held that at the time they entered into the transaction at issue, the appellant did not intend to carry on a business with a view to profit with respect to the apartment complex. There was no continuity of the business, in fact, one of the first acts of the alleged partnership was to terminate the building’s former business of managing the apartment. The putative partners did not hold themselves out to others as providers of goods or services derived from their business, they had no management duties, and they did not devote any attention to incur liabilities in the business. There was no business being carried on in common with a view to profit, and there was therefore no partnership.

Spire Freezers Ltd. v Canada (2001, SCC)Facts:

For income tax purposes, Spire and others bought into a partnership that owned a condo building and an apartment building. Immediately after, they sold their interest in the condos at a huge loss, but they continued to manage the apartment building profitably. The MNR tried to disallow the loss, saying that there was no real partnership.

Ratio:

The ratio was exactly the same as Backman.

Application:

There were essential differences between the transaction here and the one in Backman. The subordinate asset in Backman was a tiny interest in an oil reserve, here it was the apartment

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building which required a substantial management effort that the appellants provided, and from which they benefitted from profit. In Backman, there was no carrying on of a business, here there was. We know from Backman that the duration of the partnership or the reason why they entered into the transaction does not preclude us from finding a partnership. There was a partnership in this case.

Continental Bank Leasing Corp v The Queen (1998, SCC)Facts:

The continental bank, for tax purposes in connection with the winding up of its affairs, had a leasing subsidiary enter into an agreement with Central, whereby:

(a) The leasing subsidiary would form a partnership within a couple of central’s subsidiaries to carry on leasing’s business

(b) Leasing would transfer its partnership interest to the bank(c) The bank would transfer the interest to central

This was all over the span of three days. The tax issue turned in part on whether this created a partnership. Although in dissent, respecting the disposition of the appeal, the majority agreed with what Bastarache, J wrote about the formulation of the partnership, and his conclusion that the agreement created a partnership. The disagreement concerned an issue not relevant to this course.

Ratio:

The Partnerships Act defines a partnership as the relation that subsists between persons carrying on a business in common with a view to profit. The existence of a partnership is dependent on the facts and circumstances of each particular case. Regard must be paid to the true contract and intention of the parties appearing from the whole facts of the case. The indicia of partnership include:


Where parties have entered into formal written agreements to govern their relationship, the courts should determine whether the agreement contains the provisions typically found in a partnership agreement, whether the agreement was acted upon, and whether it actually governed the affairs of the parties. The fact that no new business was created does not negate the effect of the existing business that was continued during the time. The existence of a valid partnership does not depend on the creation of a new business, it is common that partnerships

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are formed when two parties agree to carry on the existing business of one of them, while the other party contributes the capital.

The fact that management of the partnership is given to one partner does not mandate the conclusion that he business was not carried on in common. One or more parties may in fact run the business on behalf of themselves and the others without jeopardizing the status of the legal relationship. What is relevant is if they hold themselves out as partners, the distribution of profits, and the intention. If a partnership is formed with a predominant motive such as tax avoidance, but there is also a real albeit ancillary profit element, it may be permissible to infer that the business is being carried on with a view to profit. If however it could be shown that the sole reason for the creation of the partnership is to give a particular partner the benefit of, say a tax loss, when there was no contemplation in the parties’ minds that a profit would be derived from carrying on the relevant business, the partnership could not be said to have formed with a view to profit.

The Legal Nature of a Partnership & The Partnership RelationshipNo Separate Legal EntityThorne v New Brunswick Workmen’s Compensation Board (1962, NBCA)Facts:

This appeal concerns a partner of a partnership applying for WCB benefits. He argues that he can be both an employee and a partner. The WCB says that he is only a partner, it is impossible for him to be both.

Ratio:

No person can enter into a contract with himself or be his own employer, and, as a partnership is regarded as having no legal existence distinct from the individuals composing it, no person could be an employee of a firm of which he was a partner. Under the Partnerships Act, a firm has no existence, partners carry on business both as principals and as agents for each other within the scope of the partnership business. The firm name is a mere expression, not a legal entity, although for convenience, it may be used for the sake of suing and being sued. It is not correct to say that a firm carries on a business, the members of a firm carry on business in partnership under the name or style of the firm.

Notes:

You can be an employee of the partnership, but an employee partner or a creditor partner cannot sue the partnership. This would amount to a partner suing himself or herself.

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The Partnerships Act ss. 6 & 7 – The FirmMeaning of firm6 Persons who have entered into partnership with one another are for the purposes of this Act called collectively a firm, and the name under which their business is carried on is called the firm name.

Firm may be partner7 A firm may be, and shall be conclusively deemed always to have had the capacity to be, a party to a partnership agreement and thereby to become a partner in a separate partnership relationship.

The Partnerships Act s. 23 – Partnership PropertyPartnership property23(1) All property and rights and interests in property originally brought into the partnership stock or acquired, whether by purchase or otherwise, on account of the firm, or for the purposes and in the course of the partnership business, are called in this Act "partnership property", and must be held and applied by the partners exclusively for the purposes of the partnership, and in accordance with the partnership agreement.

Land belonging to partnership23(2) The legal estate or interest in any land, that belongs to the partnership, shall devolve according to the nature and tenure thereof and the general rules of law thereto applicable, but in trust so far as necessary, for the persons beneficially interested in the land under this section.

Land not belonging to partnership23(3) Where co-owners of an estate or interest in land that is not partnership property, are partners as to profits made by the use of that land, and the co-owners from profits made by the use of that land purchase other land for the purpose of sharing the profits from the use thereof, the land so purchased belongs to them in the absence of an agreement to the contrary, not as partners, but as co-owners for the same respective estates and interests as are held by them in the land first mentioned at the date of the purchase.

- Where a partner brings property to a partnership, it becomes the partnership property, it ceases to be the property of the individual partner

AE LePageRatio:

A common intention that each partner should be at liberty to deal with his undivided interest in the land has his own would obviously be incompatible with an intention that both should be bound to treat the corpus as joint property, the property of the partnership. English law does not regard a partnership as a persona in the legal sense. Nevertheless, the property of the partnership is not divisible among the partners in specie. The partner’s right is a right to a division of the profits according to the special arrangement, and as regards the corpus, to a sale

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and division of the proceeds on dissolution after the discharge of liabilities. This right, a partner may assign, but he cannot transfer to another an undivided interest in the partnership property in specie.

The Partnerships Act s. 24 – Property Bought with Partnership MoneyProperty bought with partnership money24 Unless the contrary intention appears, property bought with money belonging to the firm is deemed to have been bought on account of the firm.

Queens Bench Rules R8 – Suing Partnerships

See text in rules.

BackmanRatio:

A partnership can be viewed as either an independent entity or a relationship between individuals, depending on the context in which it is observed. That a partnership may be considered an entity for some purposes is clear from the Partnerships Act, where it is prescribed that for the sake of convenience, a partnership may be referred to as a “firm”, and the name under which it carries on business is called the firm name. Likewise, for income tax purposes, the income from the partnership business is calculated at the firm level. And typically, rules of civil procedure provide for actions against a partnership to be commenced and defended using the partnership name, and any order made against a partnership may be enforced against the property of the partnership as well as the property of the partners.

Introduction to Partner Liability- The chief consequence of these rules is the joint contractual and vicarious liabilities of

partners, as when one partner makes a contract, the contract is made on behalf of all the partners

- The same thing happens when a partner commits a tort, all the partners are liable- The other important thing to consider is comparing a partnership to a corporation, each

partner has unlimited liability, like a sole proprietor, tot eh full extent of their personal assets for the liabilities of the partnership

- A shareholder is only liable up to the value of their shareholding - This is reflected in the following sections

The Partnerships Act s. 8 – Power of a Partner to Bind the FirmPower of partner to bind the firm8 Every partner is an agent of the firm and his other partners for the purpose of the business of the partnership; and the acts of every partner who does any act for carrying on, in the usual way, business of the kind carried on by the firm of which he is a member bind the firm and his partners, unless the partner so acting has, in fact, no authority to act for the firm in the

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particular matter, and the person with whom he is dealing either knows that he has no authority or does not know or believe him to be a partner.

The Partnerships Act s. 9 – Partners Bound by Acts on Behalf of FirmPartners bound by acts on behalf of firm9 An act or instrument relating to the business of the firm and done or executed in the firm name, or in any other manner showing an intention to bind the firm, by any person thereto authorized, whether a partner or not, is binding on the firm and all the partners; but this section does not affect any general rule of law relating to the execution of deeds or negotiable instruments.

The Partnerships Act s. 12 – Liability of PartnersLiability of partners12 Every partner of a firm is liable jointly and severally with the other partners, for all debts and obligations of the firm incurred while he is a partner; and after his death his estate is also severally liable in a due course of administration for the debts and obligations, so far as they remain unsatisfied, but subject to the prior payment of his separate debts.

The Partnerships Act s. 13 – Liability of the Firm for WrongsLiability of the firm for wrongs13 Where, by any wrongful act or omission of any partner acting in the ordinary course of the business of the firm, or with the authority of his co-partners, loss or injury is caused to any person not being a partner in the firm, or any penalty is incurred, the firm is liable therefor to the same extent as the partner so acting or omitting to act.

Life of a Partnership- While a corporation has infinite life, a partnership, by common law, terminates upon the

retirement, death, or bankruptcy of a partner- When a shareholder dies or becomes bankrupt, this does not affect the existence of the

corporation, someone steps into their shoes- This is the rule by common law, however, the following section supersedes this common

law rule

The Partnerships Act s. 36(1) – Dissolution by Bankruptcy, Death, or ChargeDissolution by bankruptcy, death or charge36(1) Subject to any agreement between the partners, every partnership is dissolved as regards all the partners by the death or bankruptcy or insolvency of any partner.

- This means that a partnership agreement can supersede the common law

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Default Rules Governing the Relationship of Partners vis-à-vis Each Other

- There are two sets of rules in the Partnerships Act, rules respecting the relationship between partners (which are called the default or presumptive rules because they can be superseded or varied by a partnership agreement), and rules governing relationships between others (dealt with later), these cannot be superseded

- These rules have not been updated since they were originally enacted in the 1891 UK Partnerships Act

- Many people argue that these rules are out of date, as they are appropriate for small partnerships where everyone contributes equally in capital and time

- When drafting partnership agreements, we’ll want to go over these rules to ensure that they’re what the client wants or intends

The Partnerships Act ss. 20(3)-36 – The Default Rules

See text in act

- VanDuzer sets out the rules that he thinks are the most important as being ss. 27(a), 27(b), 27(d), 27(c), 27(e), 27(h), 27(i), 29(g), 27(h), 28, 34, 29, 35, 22

- This will not be on the exam

The Fiduciary Duty of Partners- Except in the BC Partnerships Act, there is no statement of a general duty of partners to

deal with each other in utmost good faith- The so called fiduciary duty is that it exists between individuals in a certain relationship

with each other to deal in good faith- Insofar as principals and agents are concerned, we didn’t deal with the duties and rights

of agents in any detail, but there is a list of duties that agents owe to a principal- One of the duties is to not come into conflict with the interests of the principal- With regard to partners, it’s a relationship that involves the duty of utmost good faith,

because the fundamental nature of the relationship is that partners are both principals and agents of each other

- In the partnership act, there are three sections that reflect the general fiduciary duty that they owe to each other

The Partnerships Act ss. 31-33

See text in act

These are not absolute prohibitions, as a partner can do it with consent of the the other partners. These sections are not the sum total of the fiduciary duty that partners owe to each other, but they codify some of it.

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Assignment of the Partnership Interest- The acquisition of a partnership interest, either absolutely, or as security for the

repayment of a loan does not automatically make the assignee a partner of the partnership

- An assignee can simply be a bare assignee of a partnership interest, or a partner in the partnership interest

- This is reflected in the following section:

The Partnerships Act s. 34(1) – Rights of Assignee Share in PartnershipRights of assignee of share in partnership34(1) An assignment by any partner of his share in the partnership, either absolute or by way of mortgage or redeemable charge, does not, as against the other partners, entitle the assignee, during the continuance of the partnership to interfere in the management or administration of the partnership business or affairs, or to require any accounts of the partnership transactions, or to inspect the partnership books, but entitles the assignee only to receive the share of profits to which the assigning partner would otherwise be entitled, and the assignee must accept the account of profits agreed to by the partners.

- Based on the wording of this section, it appears as though an assignee is not entitled to the assignor’s share in the loss

BackmanFacts:

The first issue, as discussed above, was whether there was a partnership at all. The second question was whether the acquisition of the partnership interest by the Canadians made them partners, or assignees.

Ratio:

In order for an assignee to become a partner, it must satisfy s. 3 its common law gloss. It must persuade the court that in acquiring the interest, it thereby created a new partnership, and in this case, the decision that there was no partnership determined the answer to this second question.

For a person to become a partner by assignment, there must be a valid partnership at the time of entry of the new partner. In other words, at the time of entry, the criteria of a valid partnership must be reaffirmed in order for the partnership to continue in its new form. Otherwise the partnership will continue as formerly constituted, provided there has not been an event of dissolution. A bare assignee will have only those rights and entitlements provided for in the relevant statute or partnership agreement.

It follows from fundamental principles of partnership law that in order for a person to enter and become a new partner of a valid and preexisting partnership, that person and the existing

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members of the partnership must satisfy the essential elements of the valid partnership at the time of entry of the new partner. They must all be carrying on a business with a view to profit. The entry of new persons will be considered to constitute the creation of a new partnership.

The Partnerships Act s. 27(g) – Consent of PartnersRules as to interests and duties of partners27 The interests of partners in the partnership property and their rights and duties in relation to the partnership shall be determined, subject to any agreement, express or implied, between the partners, by the following rules:

(g) No person may be introduced as a partner without the consent of all existing partners.

- This is another outdated rule that needs to be overridden

Rules Governing the Relationship of Partners with Third PartiesThe Partnerships Act s. 20(1) - Liability of a Joining Partner for Existing DebtsLiabilities of incoming and outgoing partners20(1) A person who is admitted as a partner into an existing firm does not thereby become liable to the creditors of the firm for anything done before he became a partner.

- Strictly speaking, a new partner is not liable for contractual debts or other liabilities incurred by the partnership before the partner becomes a partner

- However, a joining or new partner will become affected by prior debts or liabilities by a firm that are subsequently satisfied, either by agreement or by a judicial decision if a partnership asset has to be sold or realized to satisfy the previous agreement

o 2011 - $5,00 debt incurredo 2011 – new partner admitted buying $25k for a 10% interesto 2013 – the preexisting debt is satisfied by selling property

- This diminishes the joining partner’s share of the partnership, they’re not liable for it, but they’re affected by it

The Partnerships Act ss. 8-12 – Liability of PartnersPower of partner to bind the firm8 Every partner is an agent of the firm and his other partners for the purpose of the business of the partnership; and the acts of every partner who does any act for carrying on, in the usual way, business of the kind carried on by the firm of which he is a member bind the firm and his partners, unless the partner so acting has, in fact, no authority to act for the firm in the particular matter, and the person with whom he is dealing either knows that he has no authority or does not know or believe him to be a partner.

- S. 8 provides that every partner has either actual or apparent authority to act on behalf of the firm, to bind it, subject to the proviso that the person with whom he is dealing knows that he has no authority, or does not believe him to be a partner

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Partners bound by acts on behalf of firm9 An act or instrument relating to the business of the firm and done or executed in the firm name, or in any other manner showing an intention to bind the firm, by any person thereto authorized, whether a partner or not, is binding on the firm and all the partners; but this section does not affect any general rule of law relating to the execution of deeds or negotiable instruments.

- What is the meaning of the second part of s. 9, referring to deeds or negotiable instruments?

- In order for a partnership to sue on a contract made by a partner on behalf of a contract made under seal, the partnership must be named as a partner to the contract, and the contract must be signed by the partner, but in the name of the partnership not on behalf of the partnership

- There have been no cases on this

Partner using credit of firm for private purposes10 Where one partner pledges the credit of the firm for a purpose apparently not connected with the firm's ordinary course of business, the firm is not bound, unless he is in fact specially authorized by the other partners; but this section does not affect any personal liability incurred by an individual partner.

- Suppose a partner of the law firm, without actual authority from the firm, for herself, but in the name of the firm, buys an expensive car by conditional sales agreement, then fails to make payments, so the purchaser becomes liable to pay the full price

- The dealer might want to sue the partnership, but this would be a waste of time because of s. 10

- There’s no way that the car was bought in the ordinary course of business

Effect of notice that firm will not be bound by acts of partner11 Where it is agreed between the partners to restrict the power of any one or more of them to bind the firm, no act done in contravention of the agreement is binding on the firm with respect to persons having notice of the agreement.

- What does the word notice mean?- There are no cases on whether it’s actual or constructive- Prof Harvey thinks this will be construed narrowly if there is ever a court case toe xclude

constructive notice, as it would have been easy for a legislature to require constructive notice

Liability of partners12 Every partner of a firm is liable jointly and severally with the other partners, for all debts and obligations of the firm incurred while he is a partner; and after his death his estate is also

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severally liable in a due course of administration for the debts and obligations, so far as they remain unsatisfied, but subject to the prior payment of his separate debts.

The Partnerships Act s. 20(2) – Pre-Retirement DebtsPre-retirement debts20(2) A partner who retires from a firm does not thereby cease to be liable for partnership debts or obligations incurred before his retirement.


With Watteau v Fenwick, what would have been the liability of Fenwick if he had bought into Humble’s business to form with Humble a partnership; in other words, what is the liability of a silent or dormant partner?

Answer:

Humble’s purchases would have been on behalf of the new partnership, and not on behalf of Fenwick. This now takes us back to s. 8 of the Partnerships Act. Every partner is an agent for the purposes of the business of the partnership. Humble had no authority to make these purchases, and this continues to be a fact, but the person who he’s dealing with has to know this. Watteau, on the facts, would not know of Fenwick’s being a partner, so the proviso would provide a defence to Fenwick from liability.

If we change the facts slightly again, supposing that Humble and his wife as partners own it, and Fenwick comes along and buys into the partnership (not as an assignment), and there are the same restrictions on their actual authority. Supposing Watteau knew that Humble and his wife owned the partnership, in that circumstance, the proviso doesn’t protect Fenwick. The word partner doesn’t mean a partner of the person you’re trying to hold liable, it just means that he had to know he’s a partner of someone.

JL Montrose on s. 8 of the Partnerships Act

Where a firm is composed of only two partners, and X is a dormant partner of Y, it is agreed that Y shall obtain all goods except for a few from X. Y purchases on credit from T. T cannot make X liable; for, by the express words of s. 8 of the Partnerships Act, the partner acting has no authority to act, and the person with whom he is dealing does not believe him to be a partner.

Where a firm is composed of more than two partners, s. 8 fails in some cases to protect a dormant partner, even though the active partner has exceeded his authority. The anomaly is due to an oversight in drafting. X is a dormant partner of Y and Z in a hotel. It is agreed that all foods other than ale will be obtained from X. T sells whisky to Y knowing that he is a partner of

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Z, but without any knowledge of the agreement as to buying goods from X. Since Y has done an act for carrying on in the usual way business of the kind is carried on by the firm, the act will bind the firm and its partners making X liable. He is not saved by the proviso, for while Y had no authority to purchase the whisky, it cannot be said that T did not know or believe Y to be a partner. They should have added did not know him to be a partner of the person he is seeking to make liable.

The Partnerships Act s. 17(1) – The Liability of Non-PartnersPersons liable by "holding out"17(1) Every one who by words spoken or written, or by conduct, represents himself, or who knowingly suffers himself to be represented, as a partner in a particular firm, is liable as a partner to any one who has on the faith of any such representation given credit to the firm, whether the representation has or has not been made or communicated to the person so giving credit by or with the knowledge of the apparent partner making the representation or suffering it to be made.

- A person who’s not a partner who represents himself or allows himself to be represented as a partner to has given credit to a firm is liable

Tower Cabinet Co. v IngramRatio:

The word knowingly in s. 17(1) does not include negligence or carelessness. The onus is on the defendant who’s being sued to persuade the court that he or she did not so represent himself or herself, or allow himself to be represented.

However, there is a reverse onus. With regard to the second element, that the representation was made to the person who gave the credit to the firm, the onus is on the plaintiff, he must prove that he gave the credit to the partnership because of the representation. This is a very heavy onus, and most cases fail here.

Bet-Mur Investments Ltd. v SpringFacts:

There were two lawyers, Spring and Alexander. They practiced law in a firm known as Spring Alexander, which was advertised on their signage, stationary, and bank account. However, they were not partners, Alexander was the servant of Spring. Alexander was paid a straight salary for what he did, he wasn’t paid out of profits. Spring introduced the plaintiff Bet-Mur Investments to a mortgage loan proposition. At the time Spring introduced them, Alexander was a member of the firm. Bet-Mur went ahead with the loan transaction, Spring did all the legal work, but it was all fraudulent. Spring prepared the fraudulent paperwork, lied about registering the mortgage, and took the advance payments from Bet-Mur and absconded with them. The

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plaintiff sued both Spring and Alexander. It got default judgment against Spring, and continued against Alexander.

Issue:

Was Alexander liable pursuant to s. 17(1)?

Holding:

The court was convinced that Alexander had allowed himself to be represented, the first element. However, it was not persuaded that Bet-Mur only made the payments to Spring because it thought Alexander was a partner. The action failed.

The Partnerships Act s. 39 – Liability of a Retiring and Deceased PartnerRights of persons dealing with firm changing membership39(1) Where a person dealt with a firm which subsequently undergoes a change in membership, and continues to deal with the firm after the change in membership, he is entitled to treat all the apparent members of the old firm as still being partners of the firm until he has notice of the change.

Form of notice39(2) The registration under The Business Names Registration Act of a declaration of a dissolution or a change in the membership of a partnership is notice to persons who had no dealings with the partnership before the date of the registration but is not notice to persons who had dealings with the partnership before the date of registration until notice of the registration is published as required by section 4 of that Act.

Liability of estate of deceased partner39(3) The estate of a partner who dies, or who becomes bankrupt, or a partner who, not having been known to the person dealing with the firm to be a partner, retires from the firm, is not liable for partnership debts contracted after the date of the death, bankruptcy, or retirement respectively.

- S. 39 provides that a retiring partner continues to be liable for post-retirement debts or obligations until, or unless notice is given to third parties who have dealt with the firm pre-retirement

- S. 39(1) does not apply to third parties who only dealt with the firm after the partner retires

- For that we turn back to s. 17(1)

Tower Cabinet Co. v IngramFacts:

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In this case, there was a partnership with two partners that was dissolved. Following the dissolution, new stationary was created by the continuing “partner”, continuing it as a sole proprietor. He made a purchase from the plaintiff after the dissolution, and inadvertently used the old partnership stationary, which listed the now retired partner as being a member of the partnership.

Holding:

With regard to s. 17(1), the court held that the plaintiff cannot get past the first element because, in the opinion of the court, the retirement had not represented himself or allowed himself to be represented.

With regard to s. 39(1), Tower cabinet argued that the phrase apparent members should be construed as applying to the world at large, and not to the plaintiff in question. On the facts of this case, Tower never had dealings with the former partnership, they did not know of the form of partnership. Nevertheless, the word “apparent” should be construed to mean apparent to the plaintiff in this case and the facts, not the world at large. The plaintiff failed on this point as well.

Remembering the treatment of apparent authority earlier in this course, s. 39(1) is another example of liability based upon a course of dealing being a representation by conduct of apparent authority.

Sample Question Question 1:

Mr. Jardine dealt with a partnership carrying on business under the name of Rogers & Co. known to Jardine to be composed of a Mr. Rogers and a Mr. Scarf. On April 1 last year, Scarf left and Rogers carried on as a sole proprietorship, but Jardine did not know of this change. He continued to sell goods to it on credit. On August 31 a declaration was registered pursuant to s. 4 of the Business Names Registration Act (BNRA) of the change in the partnership. Pursuant to s. 4(2.1) of the BNRA, the declaration was published in the Manitoba Gazette on September 5th. Jardine continued to deal with the partnership. Jardine actually learned of the change in partnership on September 24, and sued the two for the indebtedness to him as of September 24. Should Jardine succeed against Scarf?

Answer:

Looking again at s. 39, and bearing in mind that s. 39(1) and (2) deal with the BNRA, this constitutes notice to persons who had no dealing with the partnership before the date of registration, but is not notice for people who did have dealings until notice is published pursuant to s. 4. The fact that it’s not filed within 30 days doesn’t affect the liability of the partnership or the retiring partner, it’s permissive, not mandatory. You would say that Scarf is liable for the debts of Rogers & Co. up until April 1 by virtue of ss. 9, 12, and 20(2). Scarf is liable

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for the debts incurred by Rogers & Co. after his retirement up until September 5th, when the declaration was registered concerning the change in membership. This becomes the cutoff date. Incidentally, in connection with Scarf’s liability, up until September 1, as a practical matter, what Scarf should have done is:

1. Give actual notice himself2. Publish notice of his retirement in the appropriate format3. Get an agreement from the partnership promising to take forthwith the necessary

notice steps, particularly the filing of the BNRA registration4. Try to negotiate an indemnification agreement with the partnership that they’ll

indemnify him for debts after he retires if notice is not given properly

Question 2:

Would it make a difference if Jardine had not known the names of the partners at Rogers & Co. besides Mr. Rogers?

Answer:

s. 39(2) does not affect Scarf’s post-retirement liability for debts. It makes him not liable for debts following his retirement.

Question 3:

Suppose that Mr. Rogers had died or become bankrupt on April 1, that Mr. Scarf purchased Mr. Roger’s interest in the firm from his estate or trustee, that Mr. Scarf continued to operate the business as Rogers & Co., that he registered the change in the firm and it was gazette on August 31 and September 5, that Jardine only found out about the change on September 24, and that eventually, he sued Roger’s estate for debts accruing up to September 24. Is Roger’s Estate or trustee in bankruptcy bound on an apparent authority basis from the prior course of dealing during his lifetime as the husband was in Drew v Nunn?

Answer:

If you look at ss. 17(2) and 39(3), they give the answer to this question. He is not liable. You could say that those sections supersede the common law obiter of Drew v Nunn, and we dealt with that common law obiter earlier. These two sections in effect codify Yonge v Toynbee. If you describe the people involved in this fact pattern as agent, principal, and third party, the principal is the estate, the agent is Scarf, and the third party is Jardine. What they do is they excuse the principal from liability and make the agent liable for post death or bankruptcy debts.

Question 4:

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Suppose the facts of Question 1 were changed only by Scarf becoming mentally incompetent on April 1, Mr. Beach buys Mr. Scarf’s share from Scarf’s attorney pursuant to an enduring power of attorney, and Rogers and Beach continue to carry on business as Rogers & Co. Mr. Jardine sues Rogers, Beach, and Scarf; should he succeed?

Answer:

s. 39(3) deals with situations where the partner dies or becomes bankrupt, and s. 17(2) deals with situations where a partner dies. Neither deal with situations where they become incompetent, there is no section in the act that does. By common law, where a principal becomes incompetent, the agent’s authority is automatically terminated. With a partnership, each partner is a principal and agent vis-à-vis the other partners. It follows that when a partner becomes incompetent, that terminates the relationship. It is the common law test that applies here. This is the common law reflected in Drew v Nunn and Yonge v Toynbee, our court will have to choose which one to apply as they’re inconsistent. If the court applies Drew v Nunn, Scarf would be liable for the debts of the partnership after he became mentally incompetent. If Yonge v Toynbee is applied, then it would be the agent, Rogers, who would be liable on the basis of breach of warranty of authority.

Prof Harvey says it’s likely the court would find for Yonge v Toynbee because in ss. 17(2) and 39(3), the estate isn’t liable in similar circumstances.

Beach is not liable for pre-April 1 debts of the partnership pursuant to s. 20(1). Whether he’s liable for post-April 1 debts following his purchase depends on whether by purchasing that share, he became a partner or an assignee (bringing s. 34 into play). Only if he became a partner, and he likely did, is he liable for post-April 1 Liabilities.

Tort Liability of PartnersThe Partnerships Act ss. 13, 14, & 15 – Vicarious Liability of PartnersLiability of the firm for wrongs13 Where, by any wrongful act or omission of any partner acting in the ordinary course of the business of the firm, or with the authority of his co-partners, loss or injury is caused to any person not being a partner in the firm, or any penalty is incurred, the firm is liable therefor to the same extent as the partner so acting or omitting to act.

Misapplication of money14 Where

(a) one partner acting within the scope of his apparent authority receives money or property of a third person and misapplies it; or

(b) a firm in the course of its business receives money or property of a third person and the money or property so received is misapplied by one or more of the partners while it is in the custody of the firm;

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the firm is liable to make good the loss.

Liability for wrongs, joint and several15 Every partner is liable jointly and severally with is co-partners, for everything for which the firm, while he is a partner thereof, becomes liable under section 13 or 14.

- S. 13 has to do with situations where a partner commits a wrong while acting with either apparent or actual authority of the partnership

- We’re not concerned with s. 14 in this course, it has to do with defalcations, where a lawyer uses a client’s money without authority

- We’re essentially dealing with tort liability, and there are two cases here

Ernst & Young v FalconiFacts:

There were two men, Klein and Falconi who practiced law as partners. Their practice was described as a real estate commercial practice. Unknown to Klein, Falconi assisted some clients who were insolvent to dispose of assets so that they wouldn’t be available to creditors upon the clients becoming bankrupt. What he did was contrary to the bank act. It was a fraudulent disposition of an insolvent asset. Falconi was convicted. The creditors, through the trustee, sued both Klein and Falconi in tort. They sued Falconi for fraud, and Klein pursuant to s. 13 of the Partnerships Act.

Holding:

The judge found Klein liable under s. 13. The court said the court does not need to find that it is within the ordinary course of business for a partner to conspire to cheat creditors. It is sufficient that the partner used the facilities of the law firm to perform the duties it normally performs in facilitating actions. This is an echo of Prof Harvey’s comments with regard to Smith v Thompson and Kerr.

Application:

The court found that his actions were normal legal services provided by the lawyer, it was the preparation of legal documents to transfer title that was within the ordinary course of his business.

3464920 Canada Inc. v Strother (2007, SCC)Facts:

S, a tax partner at Davis, a law firm, pursuant to written retainers requiring exclusive representation, provided to M, the plaintiff, legal services regarding a tax shelter, which M marketed. In 1996, changes to the ITA ended the tax shelter structure developed by S for M, S

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advised M that there was no solution. In 1997, the written retainers expired and were not renewed, but Davis and S continued to give tax advice to M pursuant to an oral retainer. Subsequently, D, a former employee of M, consulted S about structuring a tax credit as opposed to a shelter. Eventually, S obtained a favorable ruling from CRA, and for his service, he acquired an ownership interest in D’s investment company Sentinel. S did not tell M of the ruling, although he continued to do legal work for M. S advised the management committee of Davis about the possible conflict of interest of his acting for both D and M and was told that so long as he did not have an ownership interest in D’s company (a fact that he did not reveal), there was no conflict of interest. When M learned of the tax ruling, it sued S and Davis for breach of fiduciary duty and breach of confidence. Eventually, the case made its way to the SCC.

Ratio:

s. 13 holds partners jointly and severally liable with his or her partners for everything for which the firm, while he or she is a partner in it, becomes liable under ss. 13 or 14. The words wrongful act or omission are broad enough to embrace an equitable wrong, there is nothing in the language of the section to confine vicarious liability to common law torts. Also, an injury without a loss is sufficient.

Nowhere is it suggested in s. 13 that prior knowledge of the delinquency by the other partners is a condition precedent to liability. On the contrary, proof of prior knowledge by the partners would raise questions of direct liability, and, if found, would render unnecessary resort to vicarious liability under s. 13 of the Partnerships Act. It is the nature of vicarious liability under s. 13 that the firm may be innocent of any fault other than the misfortune on having on board a rogue partner at the time of his delinquency.

As for vicarious liability itself, it is generally appropriate where there is a significant connection between the creation or enhancement of a risk and the wrong that accrues therefrom, even if unrelated to the employer’s desires. Where this is so, vicarious liability will serve the policy considerations of provisions of an adequate and just remedy and deterrence.

s. 13 of the Partnerships act should be interpreted in a manner that is consistent with those principles. The ordinary course of business test thus requires Strother’s act to be so connected with the partnership business that it can be said that Davis introduced the risk of the wrong that befell its client M, and is thereby fairly and useful charged with its management and minimization.


Lawyers who practice together either do so as partners, or in a master-servant relationship, or as sole practitioners who share some facilities. Suppose that C and D practice together as partners. One of C’s client’s is L. In connection with a conveyancing matter for L, C comes into

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possession of some funds which he deposits in the firm’s trust account. Subsequently, L asks C to invest the funds for him. C agrees to do so, and invests them in a hockey franchise, the principal owner is Mr. Z, which eventually fails and becomes bankrupt. L sues the firm of C & D, alleging negligence on the part of C which on the other facts is likely to be found by the court. D consults you on his personal liability.

Answer:

The answer to this question is whether C, in doing what he did, was acting in the ordinary course of business of the firm from s. 13. Prof Harvey thinks the answer to this is obvious, but on an exam we wouldn’t need to come to a definite answer.

Poulos v Carvelle Homes Ltd. (1995, Alta. CA)Facts:

DB, an independent trucker, moved mobile homes for various manufacturers and dealers. Behind on the purchase payments of his truck, and threatened with repossession, he approached one of his customers, XL, to purchase the truck and hire him to operate it. XL declined, but then did enter into an agreement with him, pursuant to which XL made up the payments in default and took over the licensing and insuring of the truck in its name, in return for which DB, as part of his use of the truck, agreed to move XL’s product at his usual rate to consignees, sharing the billing revenue less DB’s cost of delivery, comprising a stipulated allowance per KM and hourly rate for DB’s time plus any expenses such as tolls or police export.

During the unloading of one of XL’s units, in which the assistance of the consignee was requested by DB, the consignee, C, was seriously injured as a result of DB’s negligence. C has commenced an action against DB and XL.

Analysis:

We’re not asking about DB’s liability because he’s clearly liable as the tortfeasor. The first thing we need to do is examine the nature of their relationship prior to the agreement they made to deal with his financial difficulty. Their relationship was either master/servant or employer/independent contractor. Quite clearly it was the latter. An employer is not vicariously liable for a tort committed by an independent contractor in most circumstances. The question is whether the agreement they entered into changed that relationship to one of partnership. We would go through the analysis of whether it was a partnership pursuant to ss. 3, 4 and the common law gloss.

On an exam, have a checklist of what constitutes a partnership. If they were a partnership, XL is vicariously liable, if it was still an employer/independent contractor relationship, then XL is not.

Question:

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Would it change our analysis if the agreement provided for an equal sharing of the billing revenue without any deductions?

Answer:

This question brings into play s. 4(b), it creates a presumption.

- Generally speaking, only the principal is liable on a contract made by the agent, and by the doctrines of election and merger, only one can be sued to judgment

- However, for principals and agents who are partners, s. 12 supersedes the doctrine of election and merger so to speak providing for joint and severally liability as partners

- Notice the difference between the following two sections

The Partnerships Act s. 15 - Joint and Several Liability of Partners in TortLiability for wrongs, joint and several15 Every partner is liable jointly and severally with is co-partners, for everything for which the firm, while he is a partner thereof, becomes liable under section 13 or 14.

The Partnerships Act s. 12 – Joint and Several Liability of Partners in ContractLiability of partners12 Every partner of a firm is liable jointly and severally with the other partners, for all debts and obligations of the firm incurred while he is a partner; and after his death his estate is also severally liable in a due course of administration for the debts and obligations, so far as they remain unsatisfied, but subject to the prior payment of his separate debts.

Limited Partnerships- The law provides for two kinds of limited partnerships

o Limitedo Limited liability

- The limited partnership is a statutory creature, it doesn’t exist by common law- The purpose of a limited partnership is twofold; one is to enable a partnership to raise

capital for the partnership by the provision of limited liability for a partner who joins as a limited partner

- The quid pro quo is that the limited partnership has limited liability in so far as their personal assets are concerned, but they are still liable for up to their contribution

- There is also a tax purpose for limited partnerships that is beyond the scope of this course

- Limited partnerships are dealt with in Part II of the Act- Compared to the legislation with regard to general partnerships which has a huge

commonality in all jurisdictions, the limited partnership legislation varies considerably- Our Part II takes into account Part I, it is subject to all the sections of Part I, with some

additional sections that apply under Part II

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- Note that s. 2(1) holds that Part I applies to every partnership so long as it does not conflict with provisions in the other parts

Requirements for a Limited PartnershipThe Partnerships Act s. 52 – Constitution of a Limited PartnershipConstitution of limited partnership52 A limited partnership may consist of one or more persons, who shall be called "general partners", and of one or more persons who contribute a specific or determinable amount, whether in cash, kind, specie, or money's worth or by any other means whatsoever, as capital of the partnership, who shall be called "limited partners".

- This section says it may consist of one or more persons, but this seems to be a drafting error, as it shall consist of that

- There must be a general partner- Therefore, in order to come into existence, a limited partnership must meet the ss. 3

and 4 definitions of a partnership plus the common law gloss on those sections

The Partnerships Act s. 55 – Partnership not Formed Until Registered Partnership not formed until registered55 A limited partner is not entitled to the limited liability afforded by this Act until a declaration has been made and registered as required under The Business Names Registration Act; and where a false statement is made in the declaration which has been relied on by a person who suffers injury or loss by reason of the false statement, all of the partners are liable to that person as general partners, for the loss or injury suffered by that person.

- This is another difference between a limited partnership and a general one is that a general comes into existence pursuant to a contractual agreement and the commencement of the business, whereas a limited partnership must have the following plus it must be registered, there is no comparable section to general partnerships

- A general partnership will come into existence if its registered or not, it’s required to register and it will pay a fine if it doesn’t, but it will still exist

The Partnerships Act s. 56(2) – Failure to RenewFailure to renew56(2) Where the registration of a limited partnership has expired and the partnership continues to carry on business without renewing its registration as required under The Business Names Registration Act, it shall, for so long as it fails to renew the registration, be deemed a general partnership.

- Our s. 56(2) is different than it is in other jurisdictions, with ours, limited liability is lost, with others, there is just a fine

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The Business Names Registration Act ss. 2, 3, 5, & 7 – Registration of Limited Partnerships

See text in act

791007 Alberta Ltd. v 703358 Alberta Ltd. (1999, Alta. QB)Holding:

The court dismissed a motion by the general partner that the limited partners had no legal status to commence the proceeding against him for an accounting because the limited partnership was no longer in existence as a result of his failure to renew the registration of the required declaration.

Naming the Limited PartnershipThe Partnerships Act s. 58(2) – Use of the Word “Limited” in the Partnership NameUse of "Limited" in partnership name58(2) Notwithstanding anything to the contrary in any other Act of the Legislature, a limited partnership heretofore or hereafter registered under The Business Names Registration Act may carry on business under a firm name containing the words "Limited Partnership", and shall be deemed always to have had the right to include those words in its name.

- In some provinces, Limited Partnerships must use the word LP in their name- Ontario and Manitoba just allow for it as evidenced by the word “may”

The Partnerships Act s. 58(1) – Limited Partnership NameLimited partnership name58(1) The business of a limited partnership shall not be conducted under a name or firm in which the names of a limited partner, or some or one of them is used; and, if the name of any limited partner is used in such a name or firm with his privity, he shall be conclusively deemed to be a general partner.

- What does the phrase “with his privity” mean in this section?


X, Y, and Z, form a limited partnership meeting all the requirements, agreeing to carry on the businesss as XYZ and intended Z to be a limited partner. M sues X, Y, and Z successfully. Is Z liable to have the judgment enforced against him as a limited or general partner.

Answer:

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Regardless of what this phrase means, Z is liable as a general partner because he agreed to have his name put in the name of the business.

Question:

What if X, Y, and Z carry on a business as X & Co. The stationary of X & Co. i.e. letterhead and invoices, lists the partners’ names X, Y, and Z.

Answer:

There are two issues here, is the business in the firm being conducted in a way that the names are used? Is the inclusion of the names in the stationary within that definition? There is also the issue of privity here. Prof Harvey says it’s likely using the firm name, but he doesn’t know for sure, there is no answer.

Question:

Z joins a general partnership, ABC, as a limited partner, and, without consulting him, A adds Z’s name to the firm name, of which Z eventually becomes aware, after TP deals wit h the partnership and is now suing A, B, and Z. Advise Z.

Answer:

This question brings into play the definition of “with his privity”. According to Prof Harvey, privity is consent and knot knowledge. If there is a situation where, after he becomes aware, he did nothing about it, there could be implied consent.

Rights and Obligations of Limited PartnersThe Partnerships Act s. 53 – Limited Liability of Limited Partners General and limited partners, liability of53 Subject to section 63, general partners are jointly and severally responsible as general partners are by law; but limited partners are not liable for the debts of a limited partnership beyond the amounts by them respectively contributed to the capital of the limited partnership; except that where a limited partner has already paid into the capital of the limited partnership the amount of his contribution, he shall not be further liable for any of the debts of the partnership.

Limited Partner’s Partnership InterestInterest upon contribution of limited partner60(1) A limited partner may annually receive lawful interest on the sum contributed by him to the capital of the partnership, if the payment of that interest does not reduce the original amount of the capital; and if after the payment of that interest, any profits remain to be divided, he may also receive his portion of those profits.

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The Partnerships Act ss. 62-63 – Rights of Limited Partners to Participate in the BusinessPrivileges of limited partners62 A limited partner may, by himself or his agent inspect the books of the firm and examine into the state and progress of the partnership business, and may advise as to its management.

- The last six words here beg the question about what and how much, or how often- Some writers speculate that there is a difference between advising on policy and the

implementation of policy, in other words, operation versus management

Loss of limited liability by a limited partner63(1) Where a limited partner takes an active part in the business of the partnership, he is liable as if he were a general partner, to any person with whom he deals on behalf of the partnership and who does not know that he is a limited partner for all debts of the partnership.

Limitation63(2) The liability of a limited partner to a person under subsection (1) extends only to liabilities incurred by the partnership to that person between the time that the limited partner first so dealt with the person and the time when the person first acquires actual knowledge that he was dealing with a limited partner.

When limited partnership not dissolved63(3) A limited partnership is not dissolved by the death or bankruptcy of a limited partner, and the mental incompetence of a limited partner is not a ground for dissolution of the partnership by a court unless the mentally incompetent partner's share cannot be otherwise ascertained and realized.

Winding-up63(4) In the event of the dissolution of a limited partnership, its affairs shall be wound up by the general partners unless a court otherwise orders.

Further characteristics of a limited partnership63(5) Subject to any agreement express or implied between the partners,

(a) any difference arising as to ordinary matters connected with the partnership business may be decided by a majority of the general partners;

(b) a limited partner may, with the consent of the general partners, assign his share in the partnership, and upon such an assignment, the assignee becomes a limited partner with all the rights of the assignor;

(c) the other partners are not entitled to dissolve the partnership by reason of any limited partner suffering his share to be charged for his separate debt;

(d) a person may be introduced as a partner without the consent of the existing limited partners;

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(e) a limited partner is not entitled to dissolve the partnership by notice.

- It’s ss. 62 & 63 that give the limited partners limited liability and the limited ability to participate in the business of the partnership

- When a limited partner takes an active role in the business, it’s as though he were a general partner

The Ontario Partnerships Act s. 13(1) – Loss of Liability of a Limited Partner

This section is comparable to our s. 63(1), except ours refers to taking an active part of the business of the partnership, not takes part in the control of the business like in Ontario. Prof Harvey doesn’t think this makes a difference, but it could.

Moreover, s. 63(1) is fundamentally different from the comparable sections elsewhere in that it only operates with respect to a third party who thinks she has dealt with a limited partner, and by s. 63(2), only until the third party becomes aware of the partner’s limited status. A limited partner does not become a general partner with regard to other third parties who did not deal with him as such. By comparison, the section elsewhere in Canada operates regardless of what the third party knew and the limited partnership status is lost forever.

The Partnerships Act s. 54(1) – General Partners only to Transact BusinessGeneral partners only to transact business, etc.54(1) The general partners only are authorized to bind the partnership; but where a limited partner, to the knowledge of the general partners, takes part in the management of the partnership business, he has power to bind the partnership.

- Presumably, this section applies both ways, a third party suing the partnership, and the partnership suing the third party

Limited Liability PartnershipsIntroduction to LLP’s

- An LLP is nothing more than a general partnership where the tort liability of the partners is not spelled out in s. 13, but s. 75

- In order for it to be an LLP, it must comply with s. 69(1)- It is the self governing professions that can practice as LLP’s, accounting, and law- Also pertinent is s. 69(3) which says you cannot be both a general and a limited

partnership, and s. 69(4) says it takes effect on registration- The status here is like limited partnership status, as it only comes into effect upon

registration, and only remains so long as registration continues- S. 74(1) states that the name must end in “Limited Liability Partnership” or “LLP”- This is different from a limited partnership remember

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The Partnerships Act s. 69(1) – Additional Requirements for LLPManitoba limited liability partnerships69(1) A partnership or two or more persons who have agreed to carry on business in a limited liability partnership may register as a Manitoba limited liability partnership under The Business Names Registration Act if

(a) they carry on business in Manitoba only for the purpose of practising a profession governed by an Act of the legislature;

(b) the governing Act or a regulation under this Act permits the profession to be practised in a limited liability partnership; and

(c) the governing body of the profession or a regulation under this Act requires members who are partners in limited liability partnerships to maintain a minimum amount of liability insurance.

The Partnerships Act s. 69(3) – Limited Partnerships Not EligibleLimited partnerships not eligible69(3) No limited partnership may be registered as a Manitoba limited liability partnership.

The Partnerships Act s. 69(4) – Effective Date and Period of StatusEffective date and period of status69(4) The status of a partnership or group of persons as a Manitoba limited liability partnership takes effect on the day on which the Director registers the partnership under The Business Names Registration Act and continues so long as the registration is in force or deemed to be in force under that Act.

The Partnerships Act s. 71 – Notice to Clients Upon Becoming LLPNotice to clients71 Without delay after being registered as a Manitoba limited liability partnership, a partnership must send to all of its existing clients a notice advising of the registration and explaining in general terms the potential changes in liability of the partners that result from the registration.

The Partnerships Act s. 74(1) – Use of LLP in Firm NameName74(1) The name of a Manitoba limited liability partnership must end with the phrase "Limited Liability Partnership" or its abbreviation "LLP", or with the phrase "société à responsabilité limitée" or its abbreviation "s.r.l.".

The Legal Profession Act s. 25 – Lawyers Practicing as LLP

This enables lawyers to practice law in limited liability partnerships

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King and George practice law sharing office space and administrative personnel, but otherwise practice as sole practitioners. Their signage says King & George LLP. What is the consequence of advertising themselves as such?

Answer:

The answer to this is that it is of no consequence, sole practitioners cannot avail themselves of the limited liability status, that does not make sense.

The Limited Liability ProvisionsThe Partnerships Act s. 75 – Limited Liability of Limited PartnersLimited liability of partners in a Manitoba limited liability partnership75(1) Subject to subsections (2), (4) and (5), a partner in a Manitoba limited liability partnership is not individually liable, directly or indirectly by means of indemnification, contribution, assessment or otherwise, for debts, obligations or liabilities of the partnership or another partner that arise from the negligence, wrongful act or omission, malpractice or misconduct of

(a) another partner; or(b) an employee, agent or representative of the partnership;

occurring in the ordinary course of carrying on practice in a profession referred to in subsection 69(1) while the partnership is a Manitoba limited liability partnership.

Exceptions to protection under subsection (1)75(2) Subsection (1) does not operate to protect a partner from liability

(a) if the partner knew of the negligence, wrongful act or omission, malpractice or misconduct at the time it was committed and failed to take reasonable steps to prevent its commission; or

(b) if the negligence, wrongful act or omission, malpractice or misconduct was committed by an employee, agent or representative of the partnership for whom the partner was directly responsible in a supervisory role.

Limitation of action75(3) A partner in a Manitoba limited liability partnership is not a proper party to a proceeding by or against the partnership that claims relief in respect of negligence, wrongful acts or omissions, malpractice or misconduct described in subsection (1).

Interest in partnership property not protected75(4) The protection from liability given to a partner by subsection (1) shall not be construed as offering any protection from claims against his or her interest in the partnership property.

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Previous obligations75(5) The protection from liability given to a partner by subsection (1) shall not be construed as offering any protection from liability for partnership obligations that arose before the partnership became a Manitoba limited liability partnership.

Alberta Partnership Act s. 12 – Limited LiabilityLLP Limited Liability12(1) Subject to subsections (2) and (4), a partner in an Alberta LLP is not individually liable, directly or indirectly by means of indemnification, contribution, assessment or otherwise, for debts, obligations or liabilities of the partnership or another partner that arise from the negligence, wrongful acts or omissions, malpractice or misconduct of

(a) another partner, or (b) an employee, agent or representative of the partnership

that occur in the ordinary course of carrying on practice in an eligible profession within the meaning of section 81 while the partnership is an Alberta LLP.

(2) Subsection (1) does not operate to protect a partner from liability

(a) where the partner knew of the negligence, wrongful act or omission, malpractice or misconduct at the time it was committed and failed to take reasonable steps to prevent its commission, or

(b) where

(i) the negligence, wrongful act or omission, malpractice or misconduct was committed by an employee, agent or representative of the partnership for whom the partner was directly responsible in a supervisory role, and

(ii) the partner failed to provide such adequate and competent supervision as would normally be expected of a partner in those circumstances.

- Ontario was the first province to enact LLP legislation, followed by Alberta and Saskatchewan chronologically

- As a result of this order, there were two different models created, one in Ontario, one in Saskatchewan, with Ontario being on its own

- When you look at our s. 75, it is almost identical to Alberta’s s. 12, but there is one significant difference

- Nova Scotia’s legislation is a copy of ours- Saskatchewan’s legislation was copied by New Brunswick, Newfoundland, and BC- The difference between the Alberta model and the BC model is that in Saskatchewan,

the liability of partners is equated to directors, not how ours work

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- We won’t deal with the Saskatchewan model in this course- When we look at s. 75(2), it is almost exactly the same as Alberta’s s. 12, but we don’t

have their s. 12(b)(ii)- This makes for a fundamental difference between our limited liability shield and Alberta

and Ontario’s- What this means is that a limited liability partner under our legislation is liable not only

for her own negligence, but vicariously for other members of the firm that they supervise, no matter how carefully

- They don’t have the defence that exists in s. 12(2)(b)(ii) of the Alberta Partnership Act, the defence of careful supervision

- Incidentally, our wording applies to paralegals, administrative assistants, junior lawyers, everyone

The Ontario Limited Liability Partnerships Act s. 10 – Limited LiabilityLimited Liability Partnerships 10(2) subject to subsections (3) and (3.1), a partner in an LLP is not liable by means of indemnification, contribution, or otherwise, for

(a) The debts, liabilities or obligations of the partnership or any partner arising from the negligent or wrongful acts or omissions that another partner or employee, agent or representative of the partnership commits in the course of the partnership business while the partnership is an LLP; or

(b) Any other debts or obligations of the partnership that are incurred while the partnership is an LLP

Limitations10(3) subsection (2) does not relieve a partner in an LLP for liability for:

(a) The partner’s own negligent wrongful act or omission(b) The negligent or wrongful act or omission of a person under the partner’s direct

supervision; or(c) The negligent or wrongful act or omission of another partner or an employee of the

partnership not under the partner’s direct supervision, if,a. The act or omission was criminal or constituted fraud, even if there was no

criminal act or omission, orb. The partner knew or ought to have known of the act or omission, and did not

take the actions that a reasonable person would have taken to prevent it

- The question is whether there’s a significant difference between the wording in s. 10(2)(a) and 3 saying negligent or wrongful acts or omissions, and Alberta’s s. 12(1) and MB’s s. 75(1) saying negligence, wrongful acts or omissions, malpractice, or misconduct

- Prof Harvey doesn’t think there’s any difference, he doesn’t think that the limited liability shield is any more than it is under the Ontario legislation

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- In fact, the term wrongful acts alone, which is in both, seems to cover the spectrum, and the other words are just specific circumstances


If a partner of an LLP, without actual authority according to the partnership agreement, purchases $50,000 worth of replacement office equipment, is the debt one to which s. 75(1) applies?

Answer:

The answer is no, this is a contractual debt, recall that s. 75 only applies to Tort liability. With respect to contractual debt, all of the partners are liable to the full extent of their personal assets. There is practically no case law on LLP legislation, much of this analysis is just speculating on what the wording of the legislation means.

- Ontario’s s. 10(3)(a) is unique, but is it really necessary, given the words “another partner” in s. 10(2)9a) and in comparable legislation elsewhere including Manitoba’s s. 75(1)

- It isn’t really necessary, as it’s already covered- The liability shield doesn’t cover the tortfeasor partner, just the other ones- If we look at s. 75(1), a partner is not individually liable- What this means, and it’s reiterated in s. 75(4), where it’s given meaning, is that the

personal assets are not at risk, but that is all- Every partner is liable for the tort of another partner to the extent of their partnership

assets, the partnership assets are not shielded by virtue of s. 75, all that is are the personal assets

- A plaintiff client can seek compensatory damages from the wrongdoing partner from the legislation that governs, and also from the firm

Sample Question Question:

Suppose an LLP law firm, the partners of which are qualified also to give financial advice, and routinely do so to clients. A partner allegedly negligently gave financial advice to a client regarding damages won in a law suit. Bearing in mind that giving financial advice is not in the ordinary course of carrying on a law practice, how do s. 13 “acting in the ordinary course of the business of the firm”, and s. 75(1) “occurring in the ordinary course of carrying on the practice in a profession” referred to in s. 69(1) apply.

Answer:

Going back to s. 13, the section provides for vicarious liability for all partners for torts committed by any partner. They have to be torts committed in the ordinary course of the

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business of the firm. If you look at s. 75(1), the concluding wording is occurring the ordinary course of carrying on the practice of a profession referred to in s. 69(1). That’s different. S. 75 focuses on the law practice, s. 13 the firm. With regard to this question, the other members of the firm are vicariously liable for the negligent advice because that’s the nature of the business of the firm, and by the wording of s. 75, they cannot take advantage of the LLP status provided by s. 75. It’s limited to torts committed by the law practice in the ordinary course of practicing law. It only refers to work provided as lawyers, not financial advice.

Pursuant to s. 75(3), it seems that the firm as a defendant must be named as the firm, not the partners.

Question:

Suppose an LLP firm of 53 lawyers, of whom 6 of the partners comprise a management committee. The firm divides its practice into 6 departments. Each of the 6 departments has a partner in charge, who reports to a managing partner. Within each department there are partners and associates. The associates are supervised by a partner in the department. An associate screws up. What do the words “directly responsible in a supervisory role” in s. 75(2)(b) mean?

Answer:

This is basically a rhetorical question that Prof Harvey doesn’t know the answer to. The partner supervising the associate is just as liable as the associate for the negligence, but what of the partner in charge of the department. Also, what of the partners in the management committee. This is also unclear.

- Curiously, none of the LLP legislation in Canada prohibits or deems invalid a distribution of partnership assets to the partners after the commencement of an action against one or more of the partners or done at any time with the intent of preventing a plaintiff/judgment creditor from realizing a judgment out of the partnership assets

- In such a case, the creditor can resort to the fraudulent conveyances act

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