Chapter 14: Agency Relationships

Notary Public:

A public official authorized to attest to the authenticity of signatures.

Agency:

A relationship between two parties in which one party (the agent) agrees to represent or act for the other (the principal)

Power of Attorney:

A written document, which is usually notarized, authorizing another to act as one's agent; can be special (permitting the agent to do specified acts only) or general (permitting the agent to transact all business for the principal).

Which of the following is not a classification of a principal? A. Materially disclosed B. Disclosed C. Undisclosed D. Partially disclosed

A. Materially disclosed

Which of the following is NOT a valid reason for a termination of an agency by operation of law? A. Prior engagement B. Death or insanity C. Bankruptcy D. Impossibility E. War F. Changed circumstances

A. Prior engagement

Express Authority:

Authority expressly given by one party to another.

An agency relationship will not be terminated by which of the following: A. Mutual agreement B. Occurrence of a specified event C. Purpose achieved D. Third-party disapproval E. Operation of law F. Lapse of time G. Termination by one party

D. Third-party disapproval

If the third party knows at the time that the contract is made that the agent does not have authority, the principal nonetheless remains liable.

False

Was the trial court's decision overturned by the state intermediate appellate court?

No

The degree of skill or care required of an agent is usually that expected of a(n) ___ person under similar circumstances.

Reasonable

The agent has the duty to act ___ for the benefit of the principal and not in the interest of the agent or a third party.

Solely

A principal who authorizes an agent to commit a tort may be liable to injured persons or property because the act is considered to be the principal's.

True

Agency law is similar to contract law in that both an agency and a contract can be terminated by an act of the parties or by operation of law.

True

Agency relationships are normally consensual, coming about through voluntary consent and agreement between the parties.

True

Generally, the liability of the principal will depend on whether the agent was authorized to form a contract.

True

In an agency relationship involving two parties, the agent agrees to represent or act for the principal.

True

Any copyrighted work created by an employee within the scope of her or his employment at the request of the employer is called a:

Work for hire

When an agent fails to perform his or her duties, for what may the agent be liable? Choose two: 1. ___ 2. ___

1. Breach of contract 2. Tort liability

Fill in the appropriate words to complete how the courts determine employee or independent contractor status. 1. How much ___ does the employer exercise over the details of the work? 2. Is the worker engaged in ___ or business distinct from that of the employer? 3. Is the work usually done under the employer's direction or by a ___ without supervision? 4. Does the employer ___ the tools at the place of work? 5. For how long is the person ___? 6. What is the method of ___-- by time period or at the completion of the job? 7. What degree of ___ is required of the worker?

1. Control 2. An occupation 3. Specialist 4. Supply 5. Employed 6. Payment 7. Skill

Complete the following requirements for ratification. 1. The agent must have acted on behalf of an ___ principal who subsequently ratifies the action. 2. The principal must know all of the material ___ involved in the transaction. 3. The principal must ___ the agent's act in its entirety. 4. The principal must have the legal capacity to ___ the transaction at the time the agent engages in the act and at the time the principal ratifies. 5. The principal's affirmation (ratification) must occur before the third party ___ the transaction. 6. The principal must ___ the same formalities when ratifying the act as would have been required to authorize it initially.

1. Identified 2. Facts 3. Affirm 4. Authorize 5. Withdraws from 6. Observe

Respondeat Superior:

A doctrine under which a principal or an employer is held liable for the wrongful acts committed by agents or employees while acting within the course and scope of their agency or employment.

When a third party reasonably believes a person has authority to act on another's behalf, even if that person does not have such authority, the situation is known as:

Apparent authority

Fiduciary:

As a noun, a person having a duty created by his or her undertaking to act primarily for another's benefit in matters connected with the undertaking. As an adjective, a relationship founded on trust and confidence.

Why would a hospital or any other business organization want to use individuals who are neither employees nor agents? A. Business organizations, and in particular hospitals, benefit by showing that they are being run efficiently with relatively few employees. B. Hospitals and other business organizations benefit by reducing paperwork, reporting requirements, payment of Social Security contributions, liability insurance, etc. if they have independent contractors rather than employees or agents. C. Hospital and other business organizations benefit because independent contractors have a greater incentive to maintain a good reputation than employees, and in turn, hospitals and other companies enjoy better professional reputations by working with them.

B. Hospitals and other business organizations benefit by reducing paperwork, reporting requirements, payment of Social Security contributions, liability insurance, etc. if they have independent contractors rather than employees or agents.

Agencies by estoppel rarely occur because of an independent contractor's actions. Rather, agency by estoppel occurs when: A. An independent contractor presents her or his business card to the principal's customer, client, or patient stating that she or he has known the principal for twenty years. B. The principal sets out numerous signs throughout its establishment that indicate that all personnel are independent contractors. All customers, clients, or patients must sign a waiver stating that they understand that all of the principal's personnel are independent contractors. C. The principal makes no effort to inform its customers, clients, or patients that its staff consists of only independent contractors.

C. The principal makes no effort to inform its customers, clients, or patients that its staff consists of only independent contractors.

Which of the following is NOT one of the four ways in which an agency relationship can arise? A. Agency by ratification B. Agency by agreement C. Agency by operation of law D. Agency by federal law E. Agency by estoppel

D. Agency by federal law

Federal statutes governing employment ___ apply only when an employer-employee relationship exists. Protection under employment-discrimination statutes provides a significant ___ for workers to claim that they are employees rather than independent contractors. Whether a worker is an employee or an independent contractor can affect the employer's ___ for workers' actions. If the Internal Revenue Service decides that an employee is misclassified as an independent contractor, the employer will ___ for paying Social Security, withholding, and unemployment taxes.

Discrimination; Incentive; Liability; Be liable

Which of the following is NOT a duty the principal owes the agent? A. Reimbursement and identification B. Cooperation C. Safe working conditions D. Compensation E. Substantial ownership in the business

E. Substantial ownership in the business

Which of the following is NOT a duty the agent owes the principal? A. Performance B. Obedience C. Loyalty D. Notification E. Accounting F. Superior competence

F. Superior competence

Equal Dignity Rule:

In most states, a rule stating that express authority given to an agent must be in writing if the contract to be made on behalf of the principal is required to be in writing. Failure to comply can make a contract voidable at the option of the principal.

Vicarious Liability:

Legal responsibility placed on one person for the acts of another.

Independent Contractor:

One who works for, and receives payment from, an employer but whose working conditions and methods are not controlled by the employer. An independent contractor is not an employee but may be an agent.

The party represented by the agent is known as the:

Principal

An agent's implied authority can be inferred by:

The position the agent occupies

___ is required to inform any third parties who know of the existence of an agency that the agency has been terminated.

The principal

Liability for contracts formed by an agent depends on how the principal is classified and whether the actions of the agent were authorized or unauthorized.

True

The agency relationship is a fiduciary relationship and is based upon trust, and each party owes the other the duty to act with the utmost good faith.

True

The employer is charged with knowledge of any dangerous conditions discovered by an employee and pertinent to the employment situation.

True

Complete the following factors used to determine whether a particular act occurred within the course or scope of employment: 1. Whether the employee's act was ___ by the employer. 2. The time, place, and ___ of the act. 3. Whether the act was one ___ performed by the employees on behalf of their employers. 4. The extent to which the employer's ___ was advanced by the act. 5. The extent to which the ___ interests of the employee were involved. 6. Whether the employer ___ the means by which an injury was inflicted. 7. Whether the employer had reason to know that the employee would ___ the act in question and whether the employee had done it before. 8. Whether the act involved the commission of a ___ crime.

1. Authorized 2. Purpose 3. Commonly 4. Interest 5. Private 6. Furnished 7. Perform 8. Serious

With respect to their employers, employees who deal with third parties are generally deemed to be:

Agents

If the court had ruled against the plaintiff (Reidel), is it true that the plaintiff would have no other way to obtain funds for his care and treatment throughout his life? A. Yes, it is true because if the court had ruled against him, he could not go to any other court to seek payment for damages caused by the attending physician. B. No, because the plaintiff could then sue the attending physician, Chris Kalapodis, individually. Presumably, this physician would have malpractice insurance coverage. C. No, it is not true because patients injured by negligent physicians can sue the American Medical Association (AMA) to cover future medical and care payments.

B. No, because the plaintiff could then sue the attending physician, Chris Kalapodis, individually. Presumably, this physician would have malpractice insurance coverage.

In agency law, ratification occurs when: A. Fiduciary obligations are owed by an agent to a principal. B. The obligation of an agent who acted outside the scope of his or her authority is rejected. C. A principal, by words or by actions, affirms a contract made by a person who in fact is not an agent. D. There is no agency relationship, but the words and actions of the principal lead a third party to assume that an agency exists.

C. A principal, by words or by actions, affirms a contract made by a person who in fact is not an agent.

An agent's authority to act for a principal: A. can be expressed only. B. must always be in writing. C. may be actual or apparent.

C. may be actual or apparent.

If an agent commits a crime, the principal (employer) is not liable unless the principal participated in the crime by:

Conspiracy

A gratuitous agent may be held liable for breach of contract.

False

An agent's actions must be strictly for the benefit of the principal and must not result in any ___ profit for the agent.

Secret