Business Law Chapter 28 - The Agency Relationship Questions

Nick agrees to work for Carmine until Carmine's baseball card business sells $7,000 worth of cards. What type of agency agreement is this?

A term agreement for achieving a purpose

An agency will be terminated in all but except what situation?

A travel agent files for individual bankruptcy under Chapter 13

Tom, the production manager at Esday, was told by his supervisor to hire Elton, a 15-year-old boy, to operate an industrial machine. Hiring the 15-year-old violates the child labor laws. What should Tom do in this situation?

Tom should not hire Elton; he has a duty to obey Esday's instructions only if they are legal and ethical

Chance is a traveling marketing representative for a publishing company. He is an independent contractor and was hired without negligence. One afternoon while driving to a meeting, Chance negligently runs a stop sign and causes an accident. Judy is injured. Who can Judy hold liable?

hold Chance but not the company liable

A(n) _____ is someone who has someone else acting for him.

principal

In Zankel v. United States of America, the defendant should argue that _____.

Dreyer had abandoned the principal's business

Is there a reason why the bankruptcy of an agent would prevent him from continuing to work? What about the bankruptcy of a principal?

In general, there is no reason why the bankruptcy of an agent would prevent him from continuing to work. The bankruptcy of a principal is different because once he loses control of his assets, he may be forced to terminate the agreement.

John hired Tim to sell his house. Who is the principal?

John is Tim's principal

In Abkco Music, Inc. v. Harrisongs Music, Ltd., the court held that _____.

Klein violated his fiduciary duty to Harrison

Pamela hired Lena to sell her business. When can Lena buy the business?

Lena can buy the business only with Pamela's permission.

Luther (principal) and Marcia (agent) have an agency relationship. Under which circumstances will the relationship end "at will"?

Luther and Marcia made no agreement in advance about the term of the agreement. One day, Luther calls Marcia and tells her he no longer wishes her to be his agent

T/F: An agent's obligation not to engage in behavior that reflects badly on the principal applies only to his conduct when he is on-duty.

False

When a principal is partially disclosed _____.

the agent and principal will be jointly and severally liable on the contract.

In an agency relationship, what role is generally less complicated than the other? Why?

The role of the principal is generally less complicated than the role of the agent. The range of tasks undertaken by agents is much greater than the range of tasks undertaken by the principal.

Fiduciary Relationship

The trustee must act in the best interests of the beneficiary

T/F: Agents are always responsible for their own torts.

True

T/F: An agent may compete with her principal once the agency relationship ends.

True

T/F: Generally, a principal is not liable for the physical torts of an independent contractor.

True

T/F: In general, a principal cannot rescind contracts entered into by the agent.

True

T/F: Principals have substantial liability for the actions of their agents.

True

T/F: Some states order disloyal employees to pay punitive damages.

True

T/F: Unless they agree otherwise in advance, the agent or the principal can terminate the agency relationship at any time.

True

If an agent hires subagents, is the principal liable for the acts of the subagent?

Yes, as long as the agent was authorized to hire the subagents.

Once an agency relationship ends, an agent may compete with her principal, but she may not use confidential information she learned during the agency relationship. Can an agent ever work for two principals whose interests conflict?

Yes, as long as the principals know about the conflict and consent to the agency relationship.

A(n) _____ is a person who acts for someone else.

agent

Under the theory of responeat superior _____.

an employer is liable for the misbehavior of his employee even if the employer tried to prevent the employee from misbehaving.

[Multiple Choice] At Business University, semester enrollment begins at midnight on April 1. Jasper asked his roommate, Alonso, to register him for an important required course as a favor. Alonso agreed to do so but then overslept. As a result, Jasper could not enroll in the required course he needed to graduate and had to stay in school for an additional semester. Is Alonso liable to Jasper? a. No because an agency agreement is invalid unless the agent receives payment. b. No because Alonso was not grossly negligent. c. No because the agreement was not in writing. d. Yes because Alonso was negligent.

b. No because Alonso was not grossly negligent.

[Multiple Choice] A principal will not be liable to a third party for a tort committed by an agent: a. unless the principal instructed the agent to commit the tort. b. unless the tort was committed within the scope of the agency relationship. c. if the agency agreement limits the principal's liability for the agent's tort. d. if the tort is also regarded as a criminal act.

b. Unless the tort was committed within the scope of the agency relationship

In the case of an undisclosed principal, a third party _____.

can recover from either the agent or the principal

To create an agency relationship...

the principal and the agent must mutually agree that the agent will act on behalf of the principal, and be subject to the principal's control thereby creating a fiduciary relationship.

In its most basic terms, a fiduciary relationship is one of _____.

trust

[Multiple Choice] Cox engaged Datz as her agent. It was mutually agreed that Datz would not disclose that he was acting as Cox's agent. Instead, he was to deal with prospective customers as if he were a principal acting on his own behalf. This he did and made several contracts for Cox. Assuming Cox, Datz, or the customer seeks to avoid liability on one of the contracts involved, which of the following statements is correct? a. Cox must ratify the Datz contracts to be held liable. b. Datz has no liability once he discloses that Cox was the real principal. c. The third party can avoid liability because he believed he was dealing with Datz as a principal. d. The third party may choose to hold either Datz or Cox liable.

d. The third party may choose to hold either Datz or Cox liable.

The principle of liability stating that an employer is liable for a physical tort committed by an employee acting within the scope of employment and a nonphysical tort of an employee acting with authority is called what?

respondeat superior

What are the circumstances under which a principal is liable for an employee's intentional physical torts?

- the employer was negligent in supervising the employee - the employee intended to serve some purpose of the employer - the employer was negligent in hiring the employee

When is a principal liable for the nonphysical torts of an employee?

- when the employee acted with implied authority - when the employee acted with express authority - when the employee acted with apparent authority

An agent has a duty to provide the principal with all information in her possession that _____. She also has a duty to provide _____.

1. she has a reason to believe the principal wants to know. 2. accurate information.

Gratuitous Agent

An agent who is not being paid. They are held to a lower standard of care than a typical agent. They are liable for gross negligence; they are not liable for ordinary negligence.

When is an employer generally liable for a physical and nonphysical tort committed by an employee?

An employer is generally liable for a physical tort committed by an employee acting within the scope of employment and a nonphysical tort of an employee acting with authority.

A principal can be liable for the acts of an agent who is not acting with authority if the principal's conduct causes a third party to reasonably believe that the agent is authorized

Apparent Authority

Beck asks her friend Maggie to walk her dog for her, and Maggie agrees. While out walking, the dog gets away from Maggie and runs into Mr. Edwards' garden, digging up some expensive plants. Who is liable? Why?

Becky is liable for the damages to Mr. Edwards' garden, because she exercised control over her agent, Maggie.

Circus Pizza contracted with Art to run its birthday parties. Art's responsibilities included supervising the children and organizing the games. Circus did not investigate Art's background, which included a history of assaulting children. Art assaulted a 7-year-old girl in the restaurant's kitchen during a birthday party. Can Circus Pizza be held liable? Why?

Circus Pizza may be held liable on the basis of negligent hiring.

What elements are not required for an agency relationship?

- Compensation - A written agreement - Formal agreement

What are the 4 elements of the duty an agent owes to his principal?

- Duty to obey instructions - Duty of loyalty - Duty to provide information - Duty of care

What are the remedies available to a principal when an agent breaches a duty?

- Principal may recover the agent's profits - Principal may recover damages - If the agent violates a duty of loyalty, the principal may rescind the transaction

What are the circumstances under which the principal is liable for the acts and statements of his agent?

- The agent had authority - The principal ratified the acts of the agent

What are 3 obligations imposed on a principal under his duty to cooperate with his agent?

- The principal must perform her part of the contract. - The principal cannot unreasonably interfere with the agent's ability to accomplish his task. - The principal must furnish the agent with the opportunity to work.

When is an employee acting within the scope of employment? If the act...

- is one that employees are generally responsible for - takes place during hours that the employee is generally employed - is similar to the one the principal authorized

When is an act within the scope of employment?

An act is within the scope of employment, even if it is expressly forbidden, if it is of the same general nature as that authorized or incidental to the conduct authorized.

HBR Accounting hired Denise, a CPA, to prepare tax returns. Is she held to a higher or lower standard than ordinary negligence? Why?

Denise, as a CPA, is an agent with special skills. She is held to a higher standard than ordinary negligence

T/F: Ann become's Bruno's agent if Ann does something for Bruno, even if Ann has not consented to act as an agent.

False

T/F: Apparent authority can be created by the conduct of the agent.

False

T/F: If an employee has not signed a non-compete agreement, she may solicit the employer's clients for her own future benefit.

False

If Dirk consents to being Percival's agent, an agency relationship will not be created _____.

If Percival does not have control over Dirk.

How is consent established in an agency relationship?

The principal must ask the agent to do something and the agent must agree

Mohammad was an employee in the new product development department of Estay Inc. Mohammad was directly involved in the development of a new product that Estay intended to launch in 6 months. Estay took great care to keep information concerning the new product a secret. Ceries, Inc., a competitor of Estay, persuaded Mohammad to leave Estay to direct Ceries' marketing department. Can Mohammed share the information he knows? Why?

Mohammad cannot share with Ceries the confidential information he knows about Estay's new product because he has a duty not to disclose confidential information he acquired during the agency

Harold, a trustee to the beneficiaries of an estate. Is this person an agent?

No

What happens once an agency relationship ends?

Once an agency relationship ends, the agent no longer has the authority to act for the principal. If she continues to act, she is liable to the principal for any damages she incurs as a result.

Acceptance of the benefit of an unauthorized transaction or failure to repudiate it, thereby making the transaction binding as if it had been authorized.

Raitification

What happens when an agent receives an outside benefit while working in the scope of her agency?

She must inform her principal, who may take the benefit or allow the agent to keep it.

Jim agreed to show Donna's car to a potential buyer. Donna was not able to be home since she had to attend a meeting. After showing the car, Jim left the keys in it and the car was stolen. Who is the gratuitous agent and what are they liable for?

Since Jim is a gratuitous agent, he will only be liable for the loss of the car if his conduct constitutes gross negligence

Gratuitous Agent

Someone who is not paid for performing duties

Mrs. O'Leary hired Jenna to sell her house in Michigan. She executed a power of attorney in favor of Jenna authorizing her to do "anything and everything associated with the sale of real estate, acting as a prudent person." On May 30, Jenna finalized a deal with Brandon for the purchase of the house. Brandon and Jenna signed the real estate contract that day. Jenna learned the next day that Mrs. O'Leary had died May 29. Is the contract voidable, void, or valid? Why?

The contract is void since the agency terminated May 29

Wyatt, a Certified Public Accountant, misinterprets a basic provision of the tea code when filing a client's taxes, and the error ultimately costs his company several thousand dollars to fix. Is Wyatt liable?

Yes, because Wyatt has special skills and will be held to a higher standard of care.

Is it possible for Colleen to owe a fiduciary duty to Bobby without Bobby controlling Colleen?

Yes, but it is not an agency relationship.

A duty to indemnify for reasonable expenses

a Duty of a Principal to an Agent

In Pure Power Boot Camp, Inc. v. Warrior Fitness Boot Camp LLC, the court held that _____.

a duty of loyalty exists even when employment is at-will.

Either party in an agency agreement has the power to terminate the agreement but not the right. This means that _____.

a person can be required to pay damages for terminating an agency relationship but cannot be prevented from leaving it

[Multiple Choice] Kurt asked his car mechanic, Quinn, for help in buying a used car. Quinn recommends a Ford Focus that she has been taking care of its whole life. Quinn was working for the seller. Which of the following statements is true? a. Quinn must pay Kurt the amount of money she received from the Ford's prior owner. b. After buying the car, Kurt finds out that it needs $1,000 in repairs. He can recover that amount from Quinn, but only if Quinn knew about the needed repairs before Kurt bought the car. c. Kurt cannot recover anything because Quinn had no obligation to reveal her relationship with the car's seller. d. Kurt cannot recover anything because he had not paid Quinn for her help.

a. Quinn must pay Kurt the amount of money she received from the Ford's prior owner.

[Multiple Choice} Finn learns that, despite his stellar record, he is being paid less than other salespeople at Barry Co., so he decides to start his own company. During his last month on the Barry payroll, he tells all of his clients about his new business. He also tells them that Barry is a great company, but his fees will be lower. After he opens the doors of his new business, most of his former clients move with him. Is Finn liable to Barry? a. No because he has not been disloyal to Barry—he praised the company. b. No because Barry was underpaying him. c. No because his clients have the right to hire whichever company they choose. d. Yes, Finn has violated his duty of loyalty to Barry.

d. Yes, Finn has violated his duty of loyalty to Barry.

[Multiple Choice] Figgins is the dean of a college. He appointed Sue as acting dean while he was out of the country and posted an announcement on the college website announcing that she was authorized to act in his place. He also told Sue privately that she did not have the right to make admissions decisions. While Figgins was gone, Sue overruled the admissions committee to admit the child of a wealthy alumnus. Does the child have the right to attend this college? a. No because Sue was not authorized to admit him. b. No because Figgins did not ratify Sue's decision. c. Yes because Figgins was a fully disclosed principal. d. Yes because Sue had apparent authority.

d. Yes, because Sue had apparent authority.

An agent may not engage in inappropriate behavior that reflects badly on the principal. When does this rule apply to conduct?

during both working hours and off-duty time

If an agent is empowered to enter into a contract that must be in writing, then the appointment of the agent must also be written.

equal dignities rule

Janelle has an art collection that she wants to sell. She calls Amber and tells her to sell the art collection for her at an upcoming auction. Amber agrees. This is an example of what kind of authority?

express authority.

Cameron, editor of the local newspaper, assigned to Jim the writing of a story about pollution of a nearby stream. Although Jim used reasonable care in gathering and checking his information, unknown to Jim, the story contained a defamatory statement about Maureen. Maureen reads the story and sues Jim for libel. Cameron, who read and published the story _____.

must indemnify Jim for Maureen's claim

If a lawyer asks hospital employees to administer a blood test to his client, the hospital employees are _____.

not acting as agents of the lawyer or his client if they do not consent to being agents.

A principal is liable for the physical torts of an independent contractor _____.

only if the principal has been negligent in hiring or supervising the contractor