Chapter 27

Jolene hired Lacy to find a buyer for her house. Adam was interested in buying the house. If both Jolene and Adam agree, Lacy, a real estate agent, may represent both parties.

True

Morgan is so grateful to Patrick for his work preparing insurance quotes for him that Morgan gives Patrick two tickets to an upcoming NFL game. Patrick may not keep the tickets unless he lets his agency know, and the agency may take the tickets or let Patrick keep them.

True

One potential remedy for an agent's breach of duty is that a principal can recover from the agent any damages the breach has caused.

True

Victoria is the director of marketing for B & G Corporation. Victoria needed to negotiate an out-of-town contract on behalf of B & G. B & G has a legal duty to reimburse Victoria for the hotel expenses she incurs on the trip to negotiate the contract.

True

Chance is a traveling marketing representative for a publishing company. He is an independent contractor. One afternoon while driving to a meeting, he negligently runs a stop sign and causes an accident. Judy is injured. Judy can: a. hold both Chance and his company liable for her injury. b. hold the company but not Chance liable. c. hold Chance but not the company liable. d. not hold Chance or his company liable for her injury.

c. hold Chance but not the company liable.

If the agent and principal are jointly and severally liable, the injured party: a. may choose to sue only the agent. b. may choose to sue only the principal. c. can sue both the agent and the principal. d. All of the above.

d. All of the above.

In order to determine whether the agent is an employee or an independent contractor, a court will consider which of the following? a. Whether the principal supplies the tools and place of work. b. Whether the agent works full time for the principal. c. Whether the principal controls details of the work. d. All of the above.

d. All of the above.

Which of the following obligations is part of the principal's duty to cooperate? a. He must furnish the agent with the opportunity to work. b. He cannot unreasonably interfere with the agent's ability to accomplish his task. c. He must perform his part of the contract. d. All of the above.

d. All of the above.

Discuss the principal's remedies when the agent breaches a duty.

A principal has three potential remedies when an agent breaches his duty: • The principal can recover from the agent any damages the breach has caused. • If an agent breaches the duty of loyalty, he must turn over to the principal any profits he has wrongfully earned. • If the agent has violated his duty of loyalty, the principal may rescind the transaction.

According to the Otsuka v. Polo Ralph Lauren Corporation case, not all employees owe a duty of loyalty to their employer.

False

An agent is entitled to use confidential information gained from the agency relationship provided, but only after the agency relationship terminates

False

An agent must obey any and all instructions of the principal.

False

Generally, an employer is liable for the torts of an employee as well as for those of an independent contractor

False

Larry decided to relocate to Germany. Larry hired Happy Homes, Inc. to find a buyer and contract for the sale of his house in the United States. The agency relationship between Larry and Happy Homes may be created by an oral agreement.

False

Maylin has the authority to delegate her tasks as agent for Brian unless he has expressly restricted her from doing so.

False

Rob agrees to act as an agent for Diane in selling her car. Diane has a duty of loyalty to Rob.

False

The bankruptcy of an agent automatically terminates an agency relationship

False

An agent may not engage in inappropriate behavior that reflects badly on the principal, even if the agent is off duty.

True

Dwayne agrees to serve as Walker's agent in booking spots for Walker's portable basketball game. Dwayne asks Walker for pictures and size specifications of the game so he can provide potential customers information they need. If Walker does not provide the pictures and size information, he is breaching a duty to Dwayne.

True

If Denise is hired to work as a cashier, she has the implied authority to do acts reasonably necessary to carry out her job.

True

The duties that the principal owes to his agent include which of the following? a. Duty to reimburse b. Duty to provide information. c. Duty of care. d. All of the above

a. Duty to reimburse

An agency relationship can be created: a. only by mutual consent that the agent will act on behalf of the principal. b. by an oral agreement in all circumstances. c. only by a written agreement. d. only by the meeting of all the standards of contract law.

a. only by mutual consent that the agent will act on behalf of the principal.

An agency will be terminated in all but which one of the following situations? a. The principal and agent agree on an agency relationship to sell a boat, and the boat is sold. b. A travel agent files for individual bankruptcy under Chapter 13. c. The agent violates his duty of loyalty. d. An electrician, an agent of a contractor, has her license revoked.

b. A travel agent files for individual bankruptcy under Chapter 13.

In the Abkco Music, Inc. v. Harrisbongs Music, Ltd., the court held that Klein violated his fiduciary duty to Harrisbongs because: a. He received profits that the principal neither knew about nor approved. b. He used confidential information after the agency relationship terminated. c. He competed with Harrisbongs. d. He was acting for a second principal whose interests conflicted with those of Harrisbongs.

b. He used confidential information after the agency relationship terminated.

The doctrine of respondeat superior generally: a. applies to both employees and independent contractors. b. applies to employees but not independent contractors. c. applies to independent contractors but not employees. d. does not apply to either employees or independent contractors.

b. applies to employees but not independent contractors.

Wanting to save the money she would have to pay for a commission, Marsha asks her friend Howard to check on the Internet and see if he can find a five-day cruise to the Bahamas for under $400 and if he does, to book it for her. He agrees, but later tells her he doesn't have time to check for her. Howard is: a. liable to Marsha for damages if she misses an opportunity to go on such a cruise because Howard terminated the agreement when he did not have the power to do so. b. not liable to Marsha because he was a gratuitous agent and had both the power and the right to quit any time he wanted. c. liable to Marsha for damages because Howard terminated the agreement without the right to do so. d. liable to Marsha for breach of the duty to cooperate. ANS: B

b. not liable to Marsha because he was a gratuitous agent and had both the power and the right to quit any time he wanted.

Jim, the manager of an apartment complex, rented an apartment to Cynthia. A few weeks later, Cynthia complained that the hot water did not work. Jim hired Cooper Plumbing to fix the hot water, but the job was not successful. A few days later, Cynthia moved out since she had no hot water. If she then sues the landlord and Jim for breach of contract: a. Jim is personally liable for this breach of contract. b. the landlord is liable, but Jim is not. c. Jim is liable, but the landlord is not. d. neither Jim nor the landlord is liable to Cynthia.

b. the landlord is liable, but Jim is not.

Ellen is an employee for Good Eats Restaurant. When serving a the chicken a la king he ordered, she accidentally spills some of the sauce on Henry's designer suit. Henry claims that his $1,200 business suit is ruined. The legal liability here can best be described as: a. the restaurant is liable to Henry, but Ellen is not. b. Ellen is liable to Henry, but the restaurant is not. c. Both the restaurant and Ellen are liable to Henry. d. Neither Ellen nor the restaurant is liable to Henry as the incident was just an accident.

c. Both the restaurant and Ellen are liable to Henry.

Brittany asks Tomas if she can buy his 25-acre tract of land. She does not mention that she is acting on behalf of Wheatland Cooperative. Brittany is: a. an agent acting for a disclosed principal. b. an agent acting for a partially disclosed principal. c. an agent acting for an undisclosed principal. d. not an agent.

c. an agent acting for an undisclosed principal.

Pamela hired Lena to sell her business. Lena: a. can buy the business as long as the price is fair. b. can buy the business as long as she qualifies for financing. c. can buy the business only with Pamela's permission. d. cannot buy the business under any circumstances.

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

If a third party reasonably believes, based on the principal's conduct, that the agent is authorized whereas he is not, the principal's conduct creates: a. Express authority. b. Apparent authority. c. Implied authority. d. No authority.

d. No authority.

Janet was employed as a sales representative for Esday, Inc. An appreciative customer gave her a diamond bracelet for all her hard work on a complicated contract. Can Janet keep the bracelet? a. Yes. The bracelet was given to Janet personally and intended for her. b. Yes, but only if she discloses the gift to Esday and Esday consents to her keeping the bracelet. c. No. An agent is not allowed under any circumstances to personally profit as a result of the agency relationship. d. No. The giving of the bracelet is regarded as an unfair trade practice and violates antitrust law.

d. No. The giving of the bracelet is regarded as an unfair trade practice and violates antitrust law.

When the agent breaches his duty, the principal may: a. recover damages. b. recover profits wrongfully earned by the agent. c. rescind the transaction. d. all of the above.

d. all of the above.

Chad, the production manager at Vikings Creations, was told by his supervisor to hire Jay, a 15-year-old, to operate an industrial machine. Hiring the 15-year-old violates the child labor laws. Chad: a. should hire Jay. Chad has a duty to obey Viking's instructions. b. should hire Jay. Chad has a duty of care to ensure that the government does not discover that Jay is 15 years old. c. should not hire Jay. Chad has a duty of care, and he would not be caring for Jay by hiring him. d. should not hire Jay. Chad has a duty to obey Viking's instructions only if they are legal and ethical.

d. should not hire Jay. Chad has a duty to obey Viking's instructions only if they are legal and ethical.

What are the requirements for and the effect of a ratification of an agent's unauthorized act?

For ratification: (1) the agent must indicate to the third party that she is acting for a principal; (2) the principal must know all the material facts of the transaction; (3) the principal must accept the benefit of the entire transaction; and (4) the third party must not withdraw from the transaction prior to ratification. By ratifying an agent's unauthorized act, the principal becomes bound by the act as if it had been originally authorized. Ratification can occur if a person accepts the benefit of an unauthorized transaction or fails to repudiate it.

Andrew has been hired to do some work for Rossi Enterprises. What factors would a court consider in determining if Andrew is an employee or an independent contractor? Why does the designation matter?

In determining if agents are employees or independent contractors, courts consider whether: the principal controls the details of the work; the principal supplies the tools and place of work; the agents work full-time for the principal; the agents are paid by time, not by the job; the work is part of the regular business of the principal; the principal and agents believe they have an employer-employee relationship; and the principal is in business. The distinction affects the potential liability of the principal. A principal may be liable for the torts of an employee but generally is not liable for the torts of an independent contractor.

John is an agent for MegaCorp. He signed a contract on behalf of MegaCorp "John Miloni, as agent for MegaCorp" to purchase $250,000 worth of equipment from Big Machine Company (BMC). Is John liable to BMC if MegaCorp refuses to pay the bill?

John would probably not be liable, because an agent for a fully disclosed principal is not liable to a third party if the principal breaches the agreement. Here, John used the proper form when signing the contract by indicating he is an agent and identifying his principal. Of course, this answer is based on the assumption that the agent has not exceeded his authority, he acted in compliance with his instructions, and he otherwise conducted himself properly as MegaCorp's agent. If these conditions have not been met, John could be liable. MegaCorp would be liable unless John had no actual, implied, or apparent authority, which does not appear to be the case.

Alex worked for years for MegaCorp. During his employment with MegaCorp, he learned a great deal of confidential information and knew that if this information got into the hands of competitors or the general public, MegaCorp could suffer great business losses. Alex claims that he was wrongfully fired by MegaCorp and accordingly he believes he has no obligation to MegaCorp to keep any information he acquired with them as confidential. MegaCorp claims that Alex is under a continuing duty to keep confidential information secret, even though he is no longer with the company. Who is right? Why?

MegaCorp. Regardless of why Alex no longer works for MegaCorp, he is under a continuing duty not to use or disclose the company's confidential information after he leaves the company. A company's trade secrets and other confidential information is its property and may not be used by any person without the express authority of the owner of such property rights. Alex had a fiduciary duty of loyalty to his employer when he worked for it and such duty does not terminate relative to trade secrets or confidential information after he is no longer employed by that company.

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. The contract is: a. void since the agency terminated May 29. b. valid since the agency's purpose was achieved before Jenna was notified of Mrs. O'Leary's death. c. voidable at the option of Mrs. O'Leary's estate. d. voidable at the option of Brandon.

a. void since the agency terminated May 29.

Jerry agreed to show Sharon's car to a potential buyer. Sharon was not able to be home since she had to attend a meeting. After showing the car, Jerry left the keys in it and the car was stolen. Since Jerry was a gratuitous agent, he: a. will only be liable for the loss of the car if his conduct constitutes gross negligence. b. will be liable for the loss of the car if his conduct constitutes ordinary negligence. c. has no liability for the car. d. is strictly liable for the loss of the car.

a. will only be liable for the loss of the car if his conduct constitutes gross negligence.

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. Circus Pizza: a. cannot be liable for the damages because Art committed an unforeseeable intentional tort. b. cannot be held liable for the damages because Art's conduct was not in the scope of employment. c. may be held liable on the basis of negligent hiring. d. may be held liable only if Circus actually knew of Art's background.

c. may be held liable on the basis of negligent hiring.

Factors influencing whether an employee is acting "within the scope of employment" include all but which of the following? a. The act is similar to the one the principal authorized. b. The act is not seriously criminal. c. The act took place during hours that the employee is generally employed. d. All of the answer choices are factors in determining if an act is "within the scope of employment."

d. All of the answer choices are factors in determining if an act is "within the scope of employment."

Mike worked for Frank's Pizza as a driver. His duties consisted of making deliveries along a designated route. One day Mike decided to see his girlfriend, Jackie, who lived 50 miles out of his pizza route. While driving to his girlfriend's, Mike injured a pedestrian, Chuck. The accident was caused because of Mike's negligent operation of the delivery truck. Chuck is now suing both Mike and Frank's for personal injuries. Under the circumstances: a. Frank's is probably liable under the doctrine of respondeat superior. b. Frank's is not liable for the negligent torts of its agents. c. Chuck can probably recover damages from both Frank's and Mike. d. Frank's is probably not liable because Mike's excursion was not within the scope of his employment.

d. Frank's is probably not liable because Mike's excursion was not within the scope of his employment.

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 six 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. Which statement is correct? a. Mohammad can share with Ceries the confidential information he knows about Estay's new product because he was directly involved in its development. b. Mohammad can share with Ceries the confidential information he knows about Estay's new product because his agency relationship with Estay is terminated. c. Mohammad cannot share with Ceries the confidential information he knows about Estay's new product because of the equal dignities rule. d. 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.

d. 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.

Nikki was a tax accountant with HBR Accounting. Nikki decided to do some tax consulting in the evenings and on weekends. HBR is unaware of Nikki's consulting work. Which statement is correct? a. Nikki has not breached a fiduciary duty to HBR since her consulting is done after her work for HBR. b. Nikki has not breached a fiduciary duty to HBR since her behavior does not reflect badly on the accounting firm. c. Nikki has not breached a fiduciary duty to HBR since Nikki has a contractual relationship with her clients, not her employer. d. Nikki has breached a fiduciary duty to HBR since she is competing with HBR. ANS: D

d. Nikki has breached a fiduciary duty to HBR since she is competing with HBR.