Chapter 20: Agency and Liability to Third Parties
Smith contracts someone to act as her agent to sell a painting she found in her great-aunt's attic. Smith authorizes the agent to sell the painting for $1,000. In the course of showing the painting to several buyers, the agent learns the painting is a Van Gogh original that is worth much more than $1,000. Which of the following is an accurate statement regarding the agency?
The agent should infer that the principal does not want the original agency to continue.
The principal's duties to the agent include all but which of the following?
To obey the agent
Notice of the termination of an agency relationship includes ______ notice.
actual
______ agency exists when a third party reasonably believes, on the basis of a principal's actions, that an agency relationship exists between the principal and another individual.
Apparent
The avenues for creating agency include a form of authority that attaches to that type of agency. Which of the following is not one of these avenues?
Quasi-agency
Which of the following is not a way to terminate an agency relationship?
Strict equity liability
When a principal is classified as a ______ principal, a third party is aware that an agent is making an agreement on behalf of the principal.
disclosed
Whenever an employer hires an employee to perform some sort of physical service, the parties have created an ______ relationship.
employer-employee
Under the duty of ______, an agent must follow the lawful instruction and direction of the principal.
obedience
The duty of ______ is an agent's obligation to perform the duties specified in the agency agreement with the principal and to do so with reasonable skill and care.
performance
Agency by implied authority is based on ______.
the conduct of the parties involved
In the context of contractual liability to third parties for authorized acts of an agent, if a principal is disclosed, __
the principal is liable but the agent is not
Courts suggest that the duty of ______ is perhaps the most important duty an agent owes to a principal.
loyalty
In the context of an agent's apparent authority, to be estopped means to be ______.
prevented from acting
A ______ is the party that an agent's authority can bind or act on behalf of.
principal
An agent is authorized to act for and on behalf of a(n) ______.
principal
The doctrine of respondeat superior is used in the context of the ______ relationship.
principal-agent
If it is impossible for the agent to perform duties for the principal, the agency agreement ______.
terminates
Identify an incorrect statement about liability for an agent's or an employee's intentional or negligent acts.
An agent is personally immune from liability for any tortious acts he or she commits in the course and scope of the agency.
Which of the following is not considered an agent's right or remedy against a principal?
A right to demand ratification
Notice of the termination of an agency relationship that is given by directly informing third parties, either orally or in writing, is known as ______ notice.
actual
Which of the following elements is not considered by courts in determining whether an act has occurred within the course and scope of employment?
For how long has the employee been employed by the employer?
A principal's main rights and remedies against an agent include all but which of the following?
Gifts causa mortis
Which of the following is an accurate statement about the effect of lapse of time on agency relationships?
If an agency agreement specifies that the agency exists for a certain time, the relationship ends when the amount of time expires.
In the context of tort liability and agency relationships, which of the following is an incorrect statement?
If an agent commits a tort that injures a third party, his or her principal cannot be held liable for the agent's actions.
In the context of tort liability and agency relationships, which of the following is an accurate statement?
If an employee tortiously injures a third party and the employer controls the employee's behavior, the employer can be held liable for the tort.
______ authority is the authority of an agent that arises by inference from the words and actions of the principal.
Implied
In the context of agency, identify a true statement about the relationship between express authority and implied authority.
Implied authority cannot conflict with any express authority.
Which of the following is not an event that will result in the termination of an agency relationship by operation of law?
Insolvency of an independent contractor
Which of the following is not identified by courts as a factor when making decisions about an agency relationship's liability to third parties?
Whether the agent was compensated based on industry standards
An agent's _______ authority is derived from an agent's express authority and consists of what is reasonably necessary for carrying out the agent's grant of express authority.
implied
In the same way that a principal terminates an agency relationship by ______ an agent's authority, the agent can terminate the agency relationship by ______ the authority given to the agent.
revoking; renouncing
Given that an agent is the one who benefits, an agency coupled with an interest is also known as "power given as ______."
security
When a contract exists and a principal agrees to certain conditions but fails to perform, under contract remedies the agent may seek court assistance in forcing the principal to perform the contract as stipulated. This is known as the agent's right to demand ______.
specific performance
Once an agency relationship's purpose has been fulfilled, ______.
the agency relationship terminates
A principal whose existence is not known by a third party is called a(n) ______ principal.
undisclosed
Which of the following is required for agency by ratification?
The principal must accept the agent's unauthorized act.
Which of the following is not recognized by courts as a factor when making decisions about an agency relationship's liability to third parties?
The relative bargaining power of the principal and the agent
Which of the following is an accurate statement about the effect of war on the existence of agency relationships?
War can terminate agency relationships.
Elizabeth chooses Ben as her agent to buy furniture for her new apartment. Once the furniture has been bought, the agency relationship ______.
most likely terminates
Agency is generally defined as a relationship between a(n) ______ and a(n) ______.
principal; agent
The duty of ______ is an agent's obligation to act in the interest of a principal.
loyalty
Tyler hires Ryan to apply stucco to the walls of her house. After Ryan was hired, the city council passes a law making it illegal to use stucco as an exterior surface of a house. The new law ______.
automatically terminates the agency agreement
Melanie hires an agent to sell her car. As a principal, she must be willing to let the agent show her car to interested buyers. This scenario demonstrates a principal's duty of ______ to an agent.
cooperation
In the context of contractual liability to third parties for authorized acts of an agent, if a principal is undisclosed, ______.
negligent hiring
The duty of ______ is an agent's obligation to inform the principal of the agent's actions on the principal's behalf and of all relevant information.
notification
If an agent makes an agreement that is not authorized by the principal, the agent has failed to meet the duty of ______.
obedience
A gratuitous agent acts without consideration; that is, the agent is not ______ for his or her services.
paid
Mary is an attorney representing Lola in litigation against a pharmaceutical company. If the pharmaceutical company offers Mary a job and she accepts, the agency agreement between Lola and Mary ______.
terminates
In the context of contractual liability to third parties for unauthorized acts of an agent on behalf of a principal, if a third party believed that the agent has authority, ______.
the agent is liable but the principal is not
If a third party does not know an agent is acting on behalf of a principal, the principal is classified as a(n) ______ principal.
undisclosed
______ is generally defined as a relationship between a principal and an agent.
Agency
A power of attorney is a specific form of ______ authority that grants an agent specific powers.
express
If the principal or the agent becomes insane, the agency relationship ______.
terminates
Agency law is primarily ________ law
state
Which of the following is not a type of business relationship to which agency laws are relevant?
The principal-steward relationship
True or false: The Department of Labor, National Labor Relations Board, and Equal Employment Opportunity Commission have each created joint employer doctrines for firms that depend on third-party contractors that no longer safeguard these businesses from employment-related liability issues arising from third-party contractors.
True
The duty of ______ refers to a principal's obligation to assist an agent in the performance of the agent's duties and not to interfere with reasonable conduct of the agent.
cooperation
A principal has a duty to compensate an agent for services provided unless the parties have agreed that the agent will act ______.
gratuitously
If an agent makes a substantial departure from the course of his or her employer's business, the employer is ______ liable.
not
A ______ hires an agent to represent him or her.
principal
Typically an agent cannot represent a principal and a third party at the ______ time.
same
Which of the following is an accurate statement regarding whether a principal can be held liable for the torts of an independent contractor?
An individual who hires an independent contractor cannot be liable for the contractor's tortious actions under the doctrine of respondeat superior.
The ______ relationship is the most basic type of agency relationship.
principal-agent
When an employer hires an employee to enter into contracts on behalf of the employer, a ______ relationship typically exists.
principal-agent
Apparent agency is an agency relationship created by operation of ______ when one party, by his or her actions, causes a third party to believe someone is his or her agent when that person actually has no authority.
law
Various ways to end an agency relationship include all but which of the following?
Creation of a subrogation interest
Courts consider all but which of the following elements in determining whether an act has occurred within the course and scope of employment?
Did the employer receive employee benefits regularly?
Proposed changes to the _____ intend to increase the minimum salary required for overtime exemption for administrative and professional employees in the United States from $23,660 a year to $47,476.
Fair Labor Standards Act
______ establishes specific standards for a safe working environment, and if an employer violates these standards, the employer may be subject to fines.
The Occupational Safety and Health Act (OSHA)
Which of the following is true about an agent's duty of accounting to the principal?
The agent cannot allow the principal's funds and the agent's funds to mix.
Which of the following is an event that will result in the termination of an agency relationship by operation of law?
Death of the principal
Which of the following is not a way in which an agency relationship can be terminated by the acts of the parties involved?
Judgment notwithstanding the verdict
If a worker is paid when the job is completed, the worker is considered a(n) ______.
independent contractor
If either the principal or the agent dies, the agency relationship ______.
is automatically terminated
Which of the following is an incorrect statement about a principal's revocation of an agent's authority?
The principal cannot revoke the agent's authority even if the principal does not want the agent to act on his or her behalf.
Which of the following is not required for agency by ratification to be effective?
The principal should act as an employer, and the agent should act as an employee.
When a principal enacts a(n) ______ trust, the court rules that the agent is merely holding the property or goods in trust for the principal, granting the principal legal right or possession
constructive
Notice of the termination of an agency relationship includes ______.
constructive notice
Which of the following is one of a third party's options when an agent misrepresents himself or herself to the third party?
The third party can affirm the contract and sue the principal to recover damages.
An agent has the authority to buy antiques on behalf of his or her principal. The principal dies without the knowledge of the agent, and the agent continues to purchase items on behalf of the principal. Which of the following is an accurate statement regarding whether the transactions after the principal's death are binding on the principal's estate?
Such transactions are not binding on the principal's estate.
A partially disclosed principal is also known as a(n) ______ principal. Which of the following elements is not considered by courts in determining whether an act has occurred within the course and scope of employment?
For how long has the employee been employed by the employer?
A principal is liable for an agent's tortious act if the principal, although not condoning the agent's conduct, ______ the agent's act knowing the agent acted improperly.
ratifies
The duty of ______ and ______ refers to a principal's obligation to reimburse an agent for any expenses or losses incurred by the agent on the principal's behalf.
reimbursement; indemnification
Which of the following is an incorrect statement about an employer-employee relationship?
An employee is also known as an independent contractor.
Which of the following forms of authorities does not form the basis for the creation of an agency relationship?
Renunciation
The avenues for creating agency include a form of authority that attaches to that type of agency. Which of the following is not part of these avenues?
Symbolic agency
Which of the following is not required for agency by ratification to be effective?
The agent must act on behalf of the principal pursuant to a fully executed power of attorney.
Which of the following is not one of the three types of business relationships to which agency laws are relevant?
The principal-third-party beneficiary relationship
Which of the following statements is true about the tort and contract remedies available to an agent when a principal violates an agency agreement?
These remedies are the same as standard tort and contract remedies.
Which of the following is not an agent's duty to a principal?
To ratify the principal
Which of the following is available to an agent in situations in which a principal violates an agency agreement?
Tort and contract remedies
Under the duty of ______, an agent must keep an accurate account of the transactions of money and property made on behalf of the principal.
accounting
Expressed agency is also known as agency by ______.
agreement
A power of ______ is a document that gives an agent authority to sign legal documents on behalf of the principal.
attorney
When an agency relationship exists through a contract and the agent breaches the agreement or his fiduciary duties, the principal may use his or her right of ______.
avoidance
A principal has a duty to ______ an agent for services provided unless the parties have agreed that the agent will act gratuitously.
compensate
A(n) ______ trust is an equitable trust imposed on a person who wrongfully obtains or holds legal right to property he or she should not possess.
constructive
When express authority is granted for an agent to enter into a contract legally required to be in writing, most states require the grant of authority also to be in writing. This requirement is known as the ______ rule.
equal dignity
A(n) ______ is a person who has a duty to act primarily for another person's benefit.
fiduciary
An attorney is a ______ for his or her client.
fiduciary
The Restatement of Agency defines agency as "the ______ relation that results from the manifestation of consent by one person to another that the other shall act in his behalf and subject to his control."
fiduciary
When an agent agrees to act on behalf of a principal, the agent is a(n) ______, a person in a position of trust and confidence and, as such, owes certain duties to the principal.
fiduciary
Agents enter into contracts with third parties on behalf of a principal. If a third party believes that the agent is acting with actual or apparent authority, he or she may sue the principal for any breach of contract. However, when the breach was caused by the agent's negligence, the principal has a right to ______.
indemnification
When sued by a third party for any breach of contract, a principal may sue his or her agent to recover the amount assessed to the third party if the breach is the agent's fault. This is known as the principal's right of ______.
indemnification
A worker is a specialist who completes work without supervision. This indicates that the worker is an ______.
independent contractor
An agency relation can only be created for a Blank______ purpose.
lawful
Agents have to communicate offers from third parties and any information the agents think could be important to principals. This refers to the duty of ______.
notification
Agency by ______ is an agency relationship that arises when an individual misrepresents himself or herself as an agent for another party and that party accepts the unauthorized act.
ratification
The duty of performance is an agent's obligation to perform the duties specified in the agency agreement with the principal and to do so with ______ skill and care.
reasonable
If an agent makes authorized expenditures in the course of working on behalf of a principal, the principal has a duty to ______ the agent for the amount of money spent.
reimburse
When an agency relationship is not contractual or the contract is for personal services, an agent does not have the right to seek ______.
specific performance
Generally employees are agents of _________.
their employers
The duty ______ is a principal's obligation to provide an agent with proper equipment, suitable premises, and a secure working environment in accordance with federal and state statutes.
to provide safe working conditions
______ allows a principal to nullify any contract an agent negotiated.
Avoidance
______ notice of the termination of an agency relationship is given when third parties are directly informed.
Actual
Which of the following forms of authorities does not form the basis for the creation of an agency relationship?
Illusory agency
Express authority of an agent is often referred to as the agent's ______ authority.
actual
Which of the following is true of an independent contractor?
An independent contractor is not an employee.
A ______ agent is one who acts without consideration.
gratuitous
Which of the following is not included in a principal's main rights and remedies against an agent?
Ratification
A(n) ______ is a party who has the authority to act on behalf of and bind another party.
agent
Agency relationships are ______ relationships.
consensual
Which of the following is an incorrect statement about a durable power of attorney?
It is a type of implied authority.
______ is a Latin phrase meaning "let the superior speak."
Respondeat superior
The ______ defines agency as "the fiduciary relation that results from the manifestation of consent by one person to another that the other shall act in his behalf and subject to his control."
Restatement of Agency
Which of the following is an incorrect statement regarding liability for an agent's or an employee's intentional or negligent acts?
The principal cannot be liable for negligent hiring even if he or she fails to do a background check to learn about the tendencies of potential employees.
When an agent feels he or she is not being properly compensated by the principal, the agent may demand a(n) ______.
accounting
In the context of an agency relationship, insolvency, which is defined as the inability to pay debts or the condition of liabilities outweighing assets, ______.
does not necessarily result in the termination of the agency relationship
A(n) ______ power of attorney is a written document specifying that an agent's authority is intended to continue beyond the principal's incapacitation.
durable
An agency relationship is formed ______.
either by an informal oral agreement or by a formal written contract
In an ______ agency relationship, the agent has express authority.
expressed
A(n) ______ is a person who is hired to perform a task for another but who is not the other's employee.
independent contractor
Which of the following is not an agent's right or remedy against the principal?
A right to indemnification
The most common type of agency is ______.
expressed agency
Which of the following is not the principal's duty to the agent?
To be loyal to the agent
If a third party reasonably believes on the basis of a principal's actions that an agent has authority to represent the principal, the principal must uphold any agreements made with the agent, who has ______ authority.
apparent
A partially disclosed principal is also known as a(n) ______ principal.
unidentified
An agency coupled with an interest is an agency relationship that is created for the benefit of ______.
agents
If an agent has apparent authority, his or her principal is ______ as if the agent had no such authority.
estopped from acting
If the principal or the agent files a bankruptcy petition, the agency relationship is generally ______.
terminated
Apparent agency is also known as agency by ______.
Estoppel
When a new law is passed subsequent to the formation of an agency agreement that makes the commission of the agency agreement illegal, the agency agreement is ______.
terminated
If an unusual change in circumstances leads the agent to reasonably believe that the principal's instructions do not apply, the agency relationship ______.
terminates
If the agent, unknown to the principal, acquires an interest against the principal's interest, the agency agreement ______.
terminates
Jackson hires an attorney to represent him in a legal proceeding. The attorney engages in a series of illegal actions and is disbarred. The agency relationship between Jackson and the attorney ______.
terminates
If a principal and an agent mutually decide they do not wish to continue in their agency relationship and cancel their agency agreement, ______.
the agency relationship terminates
______ notice of the termination of an agency relationship is most frequently delivered through publication in a generally circulating newspaper for the area where the agency agreement existed.
Constructive
When an agent demands a(n) ______, he or she may withhold further performance of his or her duties until his or her principal supplies appropriate accounting data.
accounting
_____ agency exists when a third party reasonably believes, on the basis of a principal's actions, that an agency relationship exists between the principal and another individual.
Apparent
Which of the following is not a way in which an agency relationship can be terminated by the acts of the parties involved?
Declaratory judgment
Which of the following is an incorrect statement regarding whether a principal can be held liable if an agent misrepresents himself or herself to a third party?
Misrepresentation liability depends on whether the agent was acting in the scope of employment.
An agency relationship terminates if either the principal or agent becomes insane. Some states have modified this law so that unless the person has been ______ insane, the agency contract still exists.
adjudicated
In the context of contractual liability to third parties for authorized acts of an agent, if a principal is undisclosed, ______.
both the principal and the agent are liable
Parties not directly related to an agency agreement may receive ______ notice, which is how notice of the termination of an agency agreement is generally announced.
constructive
The doctrine of ______ has been used when an agent commits a tort against a customer, who often argues that a principal is liable because he or she should have exercised greater care in hiring the agent.
negligent hiring
When a principal is classified as a ______ principal, a third party knows the identity of the principal.
disclosed
In the context of contractual liability to third parties for unauthorized acts of an agent on behalf of a principal, if a third party believes the agent is mistaken about his or her authority, ______.
neither the principal nor the agent is liable
If a third party is aware that an agent is making an agreement on behalf of a principal but the third party is unaware of the identity of the principal, the principal is classified as a ______ principal.
partially disclosed
When an agency agreement fails to adhere to the equal dignity rule, the subsequent contracts are typically considered voidable by the principal. This rule is based on the statute of ______.
frauds
If an agent makes a substantial departure from the course of his or her employer's business, the employer is not liable. Courts often refer to a substantial departure as a(n) "______ of his or her own."
frolic
If an independent contractor engages in extremely hazardous activities, such as blasting operations, for his or her principal, the principal ______.
is responsible for any damages caused by the independent contractor
