Chapter 5- Agency

18. The "Inside Story" provides a discussion of the Department of Labor's fiduciary rule that concerns advisers' recommendations to customers regarding retirement investments.

True

19. A manager should review the scope of authority granted to the company's workers and consider the company's potential liability for the actions of those workers.

True

1In agreeing to act on behalf of the principal, the agent becomes a fiduciary.

True

22. The most common form of agency relationship is employer-employee.

True

4. In a master-servant agency, the employer has the right to control the conduct of the employee.

True

Mckinley, as an agent, entered into a contract with Kazumi on behalf of Adley, but without having obtained Adley's authority. Which of the following statements is true in this situation? a. Adley, the principal, is not bound nor is the agent Mckinley bound by the contract. b. Adley, the principal, is bound, and the agent Mckinley may be personally liable. c. Adley, the principal, is not bound, but the agent Mckinley may personally liable. d. Neither Adley, the principal, nor the agent Mckinley is bound if the contract is oral; but if the contract is written, both Adley and Mckinley are bound.

c. Adley, the principal, is not bound, but the agent Mckinley may personally liable.

Which of the following is NOT a duty of an agent to a principal? a. Loyalty b. Due care c. Maximizing profits d. Obedience

c. Maximizing profits

Under the Uniform Computer Information Transactions Act (UCITA), what would be the result if an electronic agent agrees to a click-wrap agreement? a. The user of the electronic agent would not be liable for the agreement. b. The user of the electronic agent would be liable for the agreement only if the evidence established that the user had an opportunity to look over the agreement and cancel it within a reasonable length of time. c. The user of the electronic agent would be liable for the agreement. d. The user of the electronic agent would be liable for the agreement only if the user was a merchant in respect to goods or services of the type purchased by the agreement.

c. The user of the electronic agent would be liable for the agreement.

47. Apparent authority may be based on which of the following? a. Only words of the principal or acts of the principal b. Only words of the principal or knowledge that the principal has allowed its agent to engage in certain activities on its behalf over an extended period of time c. Words of the principal, acts of the principal, or knowledge that the principal has allowed its agent to engage in certain activities on its behalf over an extended period of time d. Express contractual authority only

c. Words of the principal, acts of the principal, or knowledge that the principal has allowed its agent to engage in certain activities on its behalf over an extended period of time

Billie owns a used car lot. Scout works for Billie selling used cars. Billie fully directs and controls Scout's work, sets Scout's hours, and pays Scout an hourly salary as well as a commission. Brady comes to the lot to buy a used car. Scout, however, tells Brady that Scout needs to sell a friend's used vehicle and that if Brady will meet Scout after hours, Scout will give Brady an excellent deal. Brady meets Scout after work and ends up buying the car belonging to Scout's friend. The next day, Scout, acting within the scope of employment, is moving a car. Scout, however, is in a hurry and in a grossly negligently manner backs it over the foot of Wylie, another customer. As they wait for the ambulance to come for Wylie, Brady storms onto the lot complaining about the condition of the vehicle purchased from Scout's friend. Billie fires Scout on the spot based on Scout's obviously intoxicated condition and the fact that Scout arranged for the sale of a friend's vehicle. Scout claims to be an excellent employee and that Billie has no reason to be unhappy with Scout as an employee. Refer to Fact Pattern 5-2. Did Scout breach any fiduciary duties owed to Billie? a. Yes, only the duty of loyalty. b. Yes, only the duty of care. c. Yes, both the duty of loyalty and the duty of care. d. No.

c. Yes, both the duty of loyalty and the duty of care.

nless state law is to the contrary, an agent may lawfully conceal ______ of the principal. a. the existence b. the identity c. the existence and identity d. nothing regarding

c. the existence and identity

31. In an agent's negotiations on behalf of an undisclosed principal: a. no agreement is binding until the identity of the principal is provided. b. the agent cannot be held liable for the breach of a principal. c. the principal will be bound by any contract the agent has the authority to make. d. the principal is bound to any agreement, even if the agent acts without authority.

c. the principal will be bound by any contract the agent has the authority to make.

14. An agent who refuses to follow legal instructions of a principal has breached the duty of care.

False

2. In all cases, an agency agreement must be written in order to be enforceable.

False

20. The term customary authority refers to authority that agents must have by law.

False

Which of the following are autonomous computer programs that can be dispatched by the user to execute certain tasks? a. Electronic agents b. Software identifiers c. Click programs d. Fortran identifiers

a. Electronic agents

Which of the following is true regarding respondeat superior? a. Under that theory, a principal may be liable for not only the contracts but also the torts of its agents. b. Under that theory, a principal may be liable for only the contracts of its agents, not the torts. c. Under that theory, a principal may be liable for only the torts of its agents, not the contracts. d. Under that theory, a principal may not be held liable for either the contracts or torts of its agent unless the principal expressly authorizes the agent's actions.

a. Under that theory, a principal may be liable for not only the contracts but also the torts of its agents.

Which of the following terms refers to a slight deviation from the employer's business that is still within the scope of employment? a. Frolic b. Detour c. Errand d. Chore

b. Detour

The most basic legal characteristic of the employer-employee relationship is that the employer has the right to a. deduct taxes. b. control the conduct of the employee. c. provide health care. d. deduct taxes, control the conduct of the employee, and provide health care.

b. control the conduct of the employee.

21. The person hiring an independent contractor bargains both for the results and the means of achieving the results.

False

6. Under the doctrine of respondeat superior, employers and those contracting with independent contractors are liable for torts committed by employees and independent contractors.

False

29. Which of the following is an example of a hallmark of the fiduciary relationship? a. Loyalty b. Subservience c. Politeness d. Generosity

a. Loyalty

Which of the following is true regarding an agency relationship? a. The least common form of agency relationship is the employer-employee relationship. b. An agent may not be an independent contractor. c. An enforceable agency agreement may not be implied. d. Agency may be established by estoppel.

d. Agency may be established by estoppel.

n the past, Gale, acting as a purchasing agent for Four Seasons Furniture, has been permitted to enter into contracts up to $10,000. _____ authority allows Gale to continue entering into such transactions. a. Electronic agents' b. Vicarious liability c. Agency by estoppel d. Usual

d. Usual

A principal may be held liable for the torts of a(n) ______ only in extraordinary circumstances, usually involving highly dangerous acts or nondelegable duties. a. agent b. servant c. employee d. independent contractor

d. independent contractor

5. An independent contractor is considered an employee of the person for whom work is being done.

False

7. The Electronic Signatures in Global and National Commerce Act (E-SIGN) provides that contracts executed by electronic agents are invalid.

False

9. As a realtor, Finley never acts on behalf of a potential client until both parties have signed an agreement. This is called implied authority rule.

False

8. Jesse allows Terry to redecorate the interior of a retail space. Although Jesse has not specifically contracted with Terry to do the work, Jesse does not contradict Terry's order for new carpet and display fixtures. This situation is one of implied ratification.

True

Which of the following is NOT usually considered an independent contractor? a. A delivery driver working for a delivery service b. A lawyer working for a client c. A plumber working for a homeowner d. An architect working for a developer

a. A delivery driver working for a delivery service

Which of the following statements regarding a principal's duty to pay unemployment taxes is true? a. A principal must pay unemployment taxes for both an employee and an independent contractor. b. A principal must pay unemployment taxes for an independent contractor but not for an employee. c. A principal must pay unemployment taxes for an employee but not for an independent contractor. d. A principal is not required to pay unemployment taxes for either an employee or an independent contractor.

c. A principal must pay unemployment taxes for an employee but not for an independent contractor.

The relationship of an independent contractor who is an agent of a principal and the principal is best described by which of the following statements? a. An independent contractor is always an agent of the principal. b. An independent contractor, by definition, is not an agent of the principal. c. An independent contractor may or may not be an agent generally depending on whether the independent contractor has authority to enter into contracts on behalf of the hiring party. d. An independent contractor is an agent only if the hiring party is a merchant.

c. An independent contractor may or may not be an agent generally depending on whether the independent contractor has authority to enter into contracts on behalf of the hiring party.

Carlin owns a nail and hair salon. Carlin reaches an agreement with Teddy, an independent contractor, which allows Teddy to do nails in Carlin's salon three days per week. On Teddy's desk is a sign informing customers that Teddy is an independent contractor of the shop. After working for a month, Teddy asks whether Carlin has been paying appropriate social security taxes for Teddy and informs Carlin that Piper, a customer, is preparing to sue both Teddy and Carlin based upon a nasty nail fungus that developed after Teddy did Piper's nails. a. Both Carlin and Teddy are responsible to Piper with Carlin being primarily responsible, meaning that if Teddy pays then those payments can be recovered from Carlin. b. Both Carlin and Teddy are responsible to Piper with Teddy being primarily responsible, meaning that if Carlin pays then those payments can be recovered from Teddy. c. Carlin owes 50 percent of any payments due Piper, and Teddy owes 50 percent; but neither Carlin nor Teddy can recover against the other. d. Carlin does not owe Piper any amount.

d. Carlin does not owe Piper any amount.

hanning leads Dane to believe that Emerson is Channing's agent. Thereafter, Channing is prevented from denying it according to agency by: a. ratification. b. conduct. c. agreement. d. estoppel.

d. estoppel.

An agent may bind the principal due to the agent's ______ authority. a. express b. implied c. apparent d. express, implied, or apparent

d. express, implied, or apparent

10. The principal has the right to demand reimbursement from the agent for any damages paid to a third party because of an agent's negligence.

True

11. CASE 5.1, Jane Doe 1 v. Uber Technologies, Inc. (2016), involved the question of respondeat superior.

True

12. The fact that leased workers are on the payroll of an employment agency does not preclude them from being considered employees of the company at which they are actually working on a joint employer theory.

True

13. The term usual authority refers to the authority that an agent has been allowed to exercise in the past.

True

15. Principals may be held liable for the torts of independent contractors involving highly dangerous acts.

True

16. CASE 5.3 Candow v. Dust (2014), involved the question of whether an employee was on a frolic or a detour at the time of the accident.

True

17. An undisclosed principal will be bound by any contract the agent enters into with actual authority.

True

When ruling on a case involving contracts, the law looks at a number of factors to distinguish between employees and independent contractors. Which of the following factors would NOT be included among those examined? a. How much experience does the worker have? b. Is the work usually performed by a specialist without supervision? c. Is the worker paid hourly or by the job? d. What degree of skill is required for the work?

a. How much experience does the worker have?

28. What is the meaning of the term respondeat superior? a. Let the master answer. b. Let the servant respond. c. Let both the master and servant respond. d. The agreement must be in writing.

a. Let the master answer.

The "Inside Story" discussed the fiduciary rule announced by the Department of Labor in 2016. What is the requirement of this rule, and who is it meant to benefit? a. That advisers act in clients' best interests in making recommendations when advising them concerning retirement accounts. b. That advisers stop charging a set fee for making recommendations to clients concerning estate planning. c. That advisers retain fees and commissions regardless of clients' interests in order to keep the industry robust. d. That fiduciary investment advice can be provided by either registered or nonregistered investor advisers in order to create greater competition in keeping with capitalist principles.

a. That advisers act in clients' best interests in making recommendations when advising them concerning retirement accounts.

Mo owns a business that makes kites. Mo's agent Baez entered into an agreement with Val to purchase some land for a new kite factory. Mo's agency relationship with Baez was not memorialized by any writing. The day after Baez signs the papers finalizing the sale, Mo learned of the purchase, was furious with Baez, and wanted out of the deal. Assuming that Baez was legally considered the agent of Mo in making the purchase, which of the following is Mo's best argument? a. That the agency agreement with Baez was not in writing and that under the equal dignities rule Mo should not be bound. b. That agency agreements may not extend to the purchase of land. c. That under the exclusion principle, Baez was not authorized to purchase land unless expressly authorized by Mo. d. That Mo did not need land and therefore should not be bound because Baez was mistaken.

a. That the agency agreement with Baez was not in writing and that under the equal dignities rule Mo should not be bound.

33. Express authority may be given by: a. the principal's actual words but not by action. b. written contract only. c. the principal's actual words and also by an action that indicates the principal's consent. d. action but only after a contract of agency has been signed.

c. the principal's actual words and also by an action that indicates the principal's consent.

Which of the following is true regarding an independent contractor's entitlement to fringe benefits offered by a principal? a. An independent contractor is generally eligible for the same fringe benefits provided to employees. b. An independent contractor is generally eligible for the same medical insurance provided to employees but not for retirement benefits. c. An independent contractor is generally eligible for the same retirement benefits provided to employees but not for medical benefits. d. An independent contractor is not generally eligible for the fringe benefits provided to employees.

d. An independent contractor is not generally eligible for the fringe benefits provided to employees.

Carlin owns a nail and hair salon. Carlin reaches an agreement with Teddy, an independent contractor, which allows Teddy to do nails in Carlin's salon three days per week. On Teddy's desk is a sign informing customers that Teddy is an independent contractor of the shop. After working for a month, Teddy asks whether Carlin has been paying appropriate social security taxes for Teddy and informs Carlin that Piper, a customer, is preparing to sue both Teddy and Carlin based upon a nasty nail fungus that developed after Teddy did Piper's nails. Refer to Fact Pattern 5-1. Which of the following is true regarding the duty of Carlin, if any, to pay social security taxes for Teddy? a. Carlin must pay all of Teddy's social security taxes. b. Carlin is responsible for 50 percent of Teddy's social security taxes, and Teddy is responsible for 50 percent. c. Carlin is responsible for all of Teddy's social security taxes only if Teddy works at least 30 hours per week; otherwise, Teddy is responsible for all of the taxes. d. Carlin is not responsible for any of Teddy's social security taxes.

d. Carlin is not responsible for any of Teddy's social security taxes.

An agency relationship can be created by a. an express contract. b. an implied contract. c. an express contract, but not an implied contract. d. both by an express contract and an implied contract.

d. both by an express contract and an implied contract.

An __________ occurs if a principal approves or accepts the benefits of the actions of an otherwise unauthorized agent. a. agency by ratification b. agency by estoppel c. agency by independent action d. agency by intervention

a. agency by ratification

Once an agent is given _____ authority, that agent also has _____ authority to do whatever is reasonable to complete the task as instructed. a. express; implied b. express; absolute c. express; limited d. apparent; contractual

a. express; implied

Under the duty of ______ an agent has a duty to act solely for the benefit of his or her principal in all matters directly connected with the agency undertaking. a. loyalty b. subservience c. trust d. obedience

a. loyalty

Under the theory of _____, a company can be held liable for violations of ______ law by its employee, even if a manager told the employee not to violate the law. a. vicarious liability; civil b. aided-in-the-agency; civil c. vicarious liability; criminal d. disclosure of principal; civil

a. vicarious liability; civil

In CASE 5.2, Northeast General Corp. v. Wellington Advertising, Inc. (1993), the plaintiff sued to receive a finder's fee for acting as an agent to Wellington. Wellington claimed Northeast failed to disclose adverse information and thereby failed in its fiduciary duty. How did the court rule and why? a. The appellate court refused to dismiss the plaintiff's claim and found that its failure to disclose a material conflict of interest established a claim for breach of fiduciary duty. b. The appellate court ruled that Wellington must pay the finder's fee because the agreement did not contain cognizable fiduciary terms. c. The court dismissed the case because the defendants' financial losses from their market mishap with Sternau do not provide sufficient reason to advocate a new fiduciary-like doctrine into finders' agreements. d. The trial court judge set aside the jury's verdict based on public policy imperatives, which imposed a fiduciary-like duty on finders to disclose adverse information to clients; the appellate court upheld this ruling.

b. The appellate court ruled that Wellington must pay the finder's fee because the agreement did not contain cognizable fiduciary terms.

23. Courts have generally found click-wrap agreements to be enforceable.

True

3. Whether a person is an independent contractor or an employee depends on what he or she does, not how the relationship is characterized by the parties.

True

32. Agency is perhaps the most pervasive legal relationship in the business world.

True

When would the aided-in-accomplishing theory likely be asserted? a. By a defending employer in an attempt to show that although an employee was acting within the scope of employment, the employer should not be held responsible for the employee's actions because the employee was aided by a nonemployee b. By a plaintiff in an attempt to show that even if an employee was acting outside the scope of employment, the employer may be liable for the employee's action because the employee was aided by the agency relationship c. By a defending employer in an attempt to show that an employee was acting outside the scope of employment and that the employer should not, therefore, be held liable for the employee's actions d. By a plaintiff in an attempt to show that an employee was acting within the scope of employment and that the employer should, therefore, be held liable for the employee's actions

b. By a plaintiff in an attempt to show that even if an employee was acting outside the scope of employment, the employer may be liable for the employee's action because the employee was aided by the agency relationship

Billie owns a used car lot. Scout works for Billie selling used cars. Billie fully directs and controls Scout's work, sets Scout's hours, and pays Scout an hourly salary as well as a commission. Brady comes to the lot to buy a used car. Scout, however, tells Brady that Scout needs to sell a friend's used vehicle and that if Brady will meet Scout after hours, Scout will give Brady an excellent deal. Brady meets Scout after work and ends up buying the car belonging to Scout's friend. The next day, Scout, acting within the scope of employment, is moving a car. Scout, however, is in a hurry and in a grossly negligently manner backs it over the foot of Wylie, another customer. As they wait for the ambulance to come for Wylie, Brady storms onto the lot complaining about the condition of the vehicle purchased from Scout's friend. Billie fires Scout on the spot based on Scout's obviously intoxicated condition and the fact that Scout arranged for the sale of a friend's vehicle. Scout claims to be an excellent employee and that Billie has no reason to be unhappy with Scout as an employee. a. Only Billie b. Only Scout c. Both Billie and Scout with Billie having the right to recover from Scout any amounts paid d. Both Billie and Scout with Scout having the right to recover from Billie any amounts paid

c. Both Billie and Scout with Billie having the right to recover from Scout any amounts paid