Understanding Agency Relationship in Canadian Business Law

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Canadian Business Law

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In order to advice Kerry regarding whether she has to sell her property to Paul and
Risk as per the offer made by Patrick, it is important to learn the relationship between an
agent and principal. An agency is referred to a relationship between two persons in which one
person, the agent, is permitted by another, the principal, to create a legal relationship on
his/her behalf. This relationship is binding in nature which means that it creates a legal
relationship between the principal and the third party as if the principal has directly entered
into such legal agreement. There are different examples of agency relationships which
include a sports agent, insurance agent, travel agent, stockbroker, real estate agent and others.
An agency is created through different mediums between parties. Most commonly, the
agency is created by agreement between parties in which the principal authorised the agent to
act on his/her behalf. In other cases, the agency relationship is created based on the conduct
of parties. The authority which is given to an agent to act on behalf of the principal is
classified into two types which include actual and apparent authority. In Doiron v Devon
Capital Corp, 2003 ABCA 336, 20 Alta LR (4th) 11 case, it was held that an actual authority
is established when the principal expressly confers it on the agent (DuPlessis, 2005). On the
other hand, when third parties would reasonably believe that the agent has appropriate
authority to act on behalf of the agent, then the actions taken by the agent are considered as
conducted without his apparent authority.
The doctrine of agency by estoppel applies when the agent exceeds his/her actual
authority, however, act within the apparent authority. In this scenario, the principal is bound
by the actions of the agent. In case the agent is dealing with the third party who is unaware
about the limitation of the agent’s authority, then the actions of the agent bind the principal
into legal relationship under the principle of agency by estoppel (Fridman, 2017). Moreover,
if the principal indicates to others that the agent has the authority to form legal relationships
on his/her behalf, when in fact, the agent did not have the authority, then the principal will be
liable for the actions of the agent. In the case of Kerry, a real estate agency is formed between
her and Patrick which is a common form of agency. Unlike other agency relationships, the
real estate agent did not have the authority to make a binding relationship between the
principal and third parties for the sale of the property on behalf of the principal. Normally, the
contract formed between the real estate agent and the property owner which is called a
standard listing agreement did not provide any authority to the real estate agent to form
legally binding contracts on behalf of the property owner. In such contracts, the role of the
real estate agent is limited to listing and advertising of the property, introducing and bring the