SU 18- Accy 411
Which of the following is a prerequisite for the creation of an agency relationship? A. Consideration must be given. B. The principal must have capacity. C. The agent must have capacity. D. The consideration must be in writing.
Answer (B) is correct. The principal must have the legal capacity to perform the act authorized. A contract entered into by an agent with a third party on behalf of an incompetent principal, e.g., a minor, is generally voidable by the principal.
Edgar Winter is a sales agent for Magnum Enterprises. Winter has assumed an obligation to indemnify Magnum if any of Winter's customers fail to pay. Under these circumstances, which of the following is true? A. The above facts describe a del credere agency relationship, and Winter will be liable in the event his customers fail to pay Magnum. B. There is no fiduciary relationship on either Winter's or Magnum's part. C. Upon default, Magnum must first proceed against the delinquent purchaser-debtor. D. Winter's engagement must be in writing regardless of its duration.
Answer (A) is correct. A del credere agent is a sales agent who guarantees his or her customers' obligations. If the customers fail to pay, the sales agent is a surety liable to the principal for their obligations.
Sylvia Sims became an agent for Paul with the power to sell goods furnished by Paul but with the requirement that Sims would guarantee payment to Paul for all credit sales made by Sims. Under the circumstances, A. Sims is a surety with regard to credit sales she makes on Paul's behalf. B. Sims is an agent coupled with an interest. C. The statute of frauds applies to the above arrangement regardless of the amount of sales Sims makes. D. The relationship between Sims and Paul is subject to the federal Fair Labor Standards Act.
Answer (A) is correct. A del credere agent is a sales agent who guarantees his or her customers' obligations. If the customers fail to pay, the sales agent is a surety liable to the principal for their obligations.
Anker wishes to give Mix power of attorney. In general, the power of attorney A. May limit Mix's authority to specific transactions. B. Will be valid only if Mix is a licensed attorney at law. C. Must be signed by both Anker and Mix. D. May continue in existence after Anker's death.
Answer (A) is correct. A power of attorney is a written authorization for the agent to act on behalf of the principal. A power of attorney can be general, or it can grant the agent specific and restricted authority.
Forming an agency relationship requires that A. Both the principal and agent consent to the agency. B. The agent's authority be limited to the express grant of authority in the agency agreement. C. The principal and agent not be minors. D. The agreement between the principal and agent be supported by consideration.
Answer (A) is correct. Agency is an express or implied consensual relationship. Both the principal and agent must manifest consent to the grant of authority. The purpose and subject matter of the agency must be legal. The principal must have legal capacity to perform the act authorized.
An agency relationship A. Can be created by estoppel, i.e., implied as a matter of law. B. Must be in writing if it is to be legally enforceable. C. Creates a fiduciary duty on the principal's part. D. Is normally delegable as a matter of law.
Answer (A) is correct. An agency relationship may arise by estoppel when a person represents himself or herself as an agent, the alleged principal knows of the representation and does not deny it, and a third person reasonably but detrimentally relies on the existence of an agency. The "principal" is then prevented (estopped) from asserting the nonexistence of the agency relationship.
Which of the following statements is false regarding the formation of a principal-agent relationship? A. Each element of a contract must be present for the relationship to exist. B. The test for agency is objective. C. An agency must have a legal purpose. D. An agency may be implied in law, even if the principal did not intend to grant authority.
Answer (A) is correct. An agency relationship need not be contractual. But if the agency arises by contract, each element of a contract must be present.
A principal and agent relationship requires a *A. Meeting of the minds and consent to act.* B. Written agreement. C. Power of attorney. D. Specified consideration.
Answer (A) is correct. The requirements to form an agency relationship are (1) an agreement between principal and agent on the relationship and subject matter, (2) legality of the subject matter, and (3) capacity of the principal. But a contract is not required.
Wok Corp. has decided to expand the scope of its business. In this connection, it contemplates engaging several agents. Which of the following agency relationships is within the statute of frauds and thus should be contained in a signed writing? A. An agency for the forthcoming calendar year entered into in mid-December of the prior year. B. An agency of indefinite duration but terminable upon 1 month's notice. C. An irrevocable agency. D. A sales agency.
Answer (A) is correct. The statute of frauds requires a contract that cannot be completed within 1 year from its making to be in writing. An agency relationship for the forthcoming calendar year entered into in mid-December cannot be completed for approximately 1 year and 1/2 month from the time the contract was formed. An applicable state statute most likely applies the equal dignity rule. Thus, the agency must be in writing if the agent is to enter into a contract required to be in writing, such as a contract that cannot be completed within 1 year.
G&L, Inc., owns and operates a fast food restaurant under a franchise agreement with Foodco, Inc., a large national franchisor. Eighty percent of all Foodco Restaurants are owned by franchisees. The Foodco restaurants uniformly use the same name, building design, colors, signs, advertising, promotions, employee work apparel, menus, and prices. The strategy stated in the franchise materials is that the public must believe that Foodco is "a chain that sells a product across the nation." Foodco requires G&L to follow standardized methods of operation, deal exclusively with the franchisor for supplies, and pay a stated percentage of sales for the franchise license. A customer injured on the premises through G&L's negligence discovered that G&L is behind in its debts and carries inadequate liability insurance. Which of the following is a true statement about Foodco's possible liability to the injured customer? A. The theory of agency by estoppel rather than express agency is a plausible basis for finding an agency relationship resulting in liability of the franchisor for the actions of the franchisee. B. Foodco, as the franchisor, is not liable in the absence of an actual agency relationship between it and G&L, the franchisee. C. If an express, implied, or apparent agency relationship exists between the franchisee and the franchisor, the principal franchisor has a duty to indemnify the agent franchisee for tort liability incurred within the course and scope of the relationship. D. A franchise agreement usually creates a principal-agent relationship, making the franchisor liable for torts of the franchisee that occur in the course of business.
Answer (A) is correct. Two relationships must be established for the customer to recover from Foodco. First, a principal-agency relationship between Foodco and G&L must have existed at the time the customer was injured. Second, the negligent act that injured the customer must have occurred within the scope and during the course of G&L's franchise agreement with and employment by Foodco. The most likely agency relationship that may be established is an agency by estoppel rather than an actual or express agency. Foodco caused the public (including the injured customer) to have a reasonable belief that each restaurant was part of a chain operated by Foodco, which is a basis for finding an agency by estoppel. Foodco's actions created an appearance of agency that in fact did not exist. Thus, because of its actions, Foodco is estopped (prevented) from denying the existence of an agency relationship. If an agency relationship is established, Foodco, as principal, is liable for any harm caused to a third party by its agent, G&L, within the course and scope of employment.
Simpson, Ogden Corp.'s agent, most likely needs a written agency agreement to A. Retain an independent general contractor to renovate Ogden's office building. B. Purchase an interest in undeveloped land for Ogden. C. Enter into a series of sales contracts on Ogden's behalf. D. Hire an attorney to collect a business debt owed to Ogden.
Answer (B) is correct. Formalities, such as a writing, are not required to form an agency relationship. But some states require an agency to be in writing if the contract involves a sale of land. Also, many states apply the equal dignity rule. In these states, an agency must be in writing if the agent is to enter into a contract required to be in writing. Accordingly, the agency agreement most likely needs to be in writing because an agreement to transfer an interest in land is required to be in writing.
Which of the following actions requires an agent for a corporation to have a written agency agreement? A. Hiring an independent general contractor to renovate the principal's office building. B. Purchasing an interest in undeveloped land for the principal. C. Purchasing office supplies for the principal's business. D. Retaining an attorney to collect a business debt owed to the principal.
Answer (B) is correct. Oral agreement usually suffices to form an agency, but a contract involving a sale of land is required to be in writing in some states. Furthermore, the equal dignity rule applies in many states. In these states, the agency must be in writing if the authority granted to the agent is to enter into a contract required to be in writing. For example, an agreement to transfer an interest in land is subject to the statute of frauds and therefore must be in writing.
Green entered into an oral agency agreement to purchase real estate on behalf of Smith. Subsequently, Green entered into a written contract to buy land from Davis without disclosing the relationship with Smith. Which of the following is Smith's best legal defense if Smith does not want the land? A. Green's act was a misrepresentation of Green's express authority. B. Green failed to get the agency agreement in writing. C. Green failed to disclose Smith's relationship as principal. D. Green failed to get Smith's consent before entering into the contract with Davis.
Answer (B) is correct. Formalities, such as a writing, are not required to form an agency relationship. But some states require an agency to be in writing if the contract involves a sale of land. Also, many states apply the equal dignity rule. In these states, an agency must be in writing if the agent is to enter into a contract required to be in writing. Accordingly, the agency agreement most likely needs to be in writing because an agreement to transfer an interest in land is required to be in writing.
Smith entered an oral agreement hiring and authorizing Jones to sell fraudulent identification cards produced by Smith. Smith and Jones orally agreed to share the proceeds from their enterprise. Later, Jones claimed that no enforceable agency relationship was created. Jones is correct because A. Jones did not have authority. B. Jones did not have contractual capacity. C. The purpose of the agency was contrary to public policy. D. The agreement was a partnership.
Answer (C) is correct. Agency is an express or implied consensual relationship. Both the principal and agent must manifest consent to the grant of authority. The purpose and subject matter of the agency must be for a legal purpose. Smith and Jones formed an agency for an illegal purpose, the sale of fraudulent identification cards, which automatically voids the agency by operation of law.
Vicki Trent was retained in writing to act as Post's agent for the sale of Post's memorabilia collection. Which of the following statements is true? To be an agent, Trent must be at least 21 years of age. Post would be liable to Trent if the collection was destroyed before Trent found a purchaser. A. I only. B. Both I and II. C. Neither I nor II. D. II only.
Answer (C) is correct. Neither statement is correct because an agent's acts are deemed to be the acts of the principal. Thus, whether Trent lacks capacity to enter into a contract because she is under 21 years old is irrelevant. Furthermore, Post is not liable to Trent if the collection is destroyed because the principal is not required to compensate the agent unless the collection is sold. The agency relationship was terminated by operation of law when the subject matter of the agency relationship was destroyed.
Jim entered into an oral agency agreement with Sally in which he authorized Sally to sell his interest in a parcel of real estate, Blueacre. Within 7 days, Sally sold Blueacre to Dan, signing the real estate contract on behalf of Jim. Dan failed to record the real estate contract within a reasonable time. Which of the following most likely is true? A. Dan may enforce the real estate contract against Jim because Sally signed the contract as Jim's agent. B. The real estate contract is unenforceable against Jim because Dan failed to record the contract within a reasonable time. C. The real estate contract is unenforceable against Jim because Sally's authority to sell Blueacre was oral. D. Dan may enforce the real estate contract against Jim because it satisfied the statute of frauds.
Answer (C) is correct. Oral agreement usually suffices to form an agency, but a contract involving a sale of land is required to be in writing in some states. Furthermore, the equal dignity rule applies in many states. In these states, the agency must be in writing if the authority granted to the agent is to enter into a contract required to be in writing. For example, an agreement to transfer an interest in land is subject to the statute of frauds and therefore must be in writing. The contract is therefore most likely to be voidable at Jim's option. It was required by the statute of frauds to be written, and Sally's agency was oral. In most other situations, the agent's authority may be oral.
Noll gives Carr a written power of attorney. Which of the following statements is true regarding this power of attorney? A. It must be signed by both Noll and Carr. B. It may continue in existence after Noll's death. C. It must be for a definite period of time. D. It may limit Carr's authority to specific transactions.
Answer (D) is correct. A power of attorney is a written authorization for the agent to act on behalf of the principal. It can be general, or it can grant the agent restricted authority, such as for specific transactions.
Which of the following is not an essential element of an agency relationship? A. The agent is a fiduciary in respect to the principal. B. The agent acts on behalf of another and not himself or herself. C. The agent must be subject to the principal's control. D. It must be created by contract.
Answer (D) is correct. The agency relationship may be implied based on duties assigned to the agent. It also may arise from the principal's conduct with third parties (such as remaining silent when another purports to be his or her agent or representing to third parties that another is his or her agent). The agency relationship may also arise in an emergency.
An agency coupled with an interest will be created by a written agreement providing that A. An employee is hired for a period of two years at $40,000 per annum plus 2% of net sales. B. A broker is to receive a 5% sales commission out of the proceeds of the sale of a parcel of land. C. An attorney is to receive 25% of a plaintiff's recovery for personal injuries. D. A borrower will pledge securities to a lender and authorize the lender to sell the securities and apply the proceeds to the loan in the event of default.
Answer (D) is correct. The lender is an agent with an interest in the subject matter of the agency separate from the principal's and not existing for the principal's benefit. The agent's power to sell the securities is to the agent's but not the principal's advantage because it secures a loan.
Which of the following conditions must be met to form an agency? A. An agency agreement must be signed by both parties. B. An agency agreement must be in writing. C. The principal must furnish legally adequate consideration for the agent's services. D. The principal must possess contractual capacity.
Answer (D) is correct. An agency is an express or implied consensual relationship formed when two parties agree that one (the agent) will act on behalf of the other (the principal) in dealing with third parties. To create this relationship, (1) the principal must intend for the agent to act on the principal's behalf, (2) the agent must agree to act as a fiduciary for the principal, (3) the agency must have a legal purpose, and (4) the principal must have the legal capacity to perform the act assigned to the agent. Certain personal acts may never be delegated.
