Ch. 32 (Exam 1)

Rondi holds herself out as possessing special accounting skills. As an agent, she must exercise the degree of skill or care expected of a. a person having those skills. b. an average, unskilled person. c. a reasonable person. d. the principal.

a

Sybil agrees with Tyrone and other professional athletes to sign contracts with promoters and others on the athletes' behalf. Sybil is a. an agent. b. an employee. c. an employer. d. a principal.

a

agency relationship

one of the parties, called the agent, agrees to represent or act for the other, called the principal. The principal has the right to control the agent's conduct in matters entrusted to the agent. Most representations of fact made by the agent are binding on the principal

Neon hires Professional Janitorial Company to clean the store. Neon gives Professional Janitorial instructions as to what needs to be cleaned and when. Professional Janitorial is a. an independent contractor. b. Neon's employee only. c. Neon's employee and agent. d. Neon's principal

a

agency

A relationship between two parties in which one party (the agent) agrees to represent or act for the other (the principal).

exclusive agency

An agency in which a principal grants an agent an exclusive territory and does not allow another agent to compete in that territory.

Taser International, Inc. v. Ward

An agent is under the duty to act with entire good faith and loyalty for the furtherance of the interests of his principal in all matters concerning or affecting the subject of his agency. One aspect of this broad principle is that an employee is precluded from actively competing with his or her employer during the period of employment. Although an employee may not compete prior to termination, the employee may take action during employment, not otherwise wrongful, to prepare for competition following termination of the agency relationship. Preparation cannot take the form of acts in direct competition with the employer's business.

Constructive Trust

Anything that an agent obtains by virtue of the employment or agency relationship belongs to the principal. An agent commits a breach of fiduciary duty if he or she secretly retains benefits or profits that, by right, belong to the principal. Therefore, the agent holds such property in a constructive trust (an equitable trust imposed for reasons of fairness) for the principal.

fiduciary

As a noun, a person having a duty created by his or her undertaking to act primarily for another's benefit in matters connected with the undertaking; as an adjective, a relationship founded on trust and confidence.

Coker v. Pershad, (2013)

Coker filed a suit in a New Jersey state court against Pershad, Five Star, and AAA. The court determined that Pershad was Five Star's employee and that Five Star was an independent contractor, not AAA's employee. Thus, AAA was "not responsible for the alleged negligence of its independent contractor, defendant Five Star, in hiring Mr. Pershad." Five Star entered into a settlement with Coker. Coker appealed the ruling in AAA's favor. AAA had used Five Star to provide towing services for approximately eight years and there is nothing in the record to demonstrate it lacked the skill needed to provide these services.

Determination of Employee Status Criteria

How much control does the employer exercise over the details of the work? If the employer exercises considerable control over the details of the work and the day-to-day activities of the worker, this indicates employee status. This is perhaps the most important factor weighed by the courts in determining employee status. Is the worker engaged in an occupation or business distinct from that of the employer? If so, this points to independent-contractor, not employee, status. Is the work usually done under the employer's direction or by a specialist without supervision? If the work is usually done under the employer's direction, this indicates employee status. Does the employer supply the tools at the place of work? If so, this indicates employee status. For how long is the person employed? If the person is employed for a long period of time, this indicates employee status. What is the method of payment—by time period or at the completion of the job? Payment by time period, such as once every two weeks or once a month, indicates employee status. What degree of skill is required of the worker? If a great degree of skill is required, this may indicate that the person is an independent contractor hired for a specialized job and not an employee.

Indemnification

In certain situations, when a principal is sued by a third party for an agent's negligent conduct, the principal can sue the agent for indemnification—that is, for an equal amount of damages. The same holds true if the agent violates the principal's instructions.

Agency by Agreement

Most agency relationships are based on an express or implied agreement that the agent will act for the principal and that the principal agrees to have the agent so act. An agency agreement can take the form of an express written contract or be created by an oral agreement. An agency agreement can also be implied by conduct.

Gratuitous Agents

Not all agency relationships are based on contract. In some situations, an agent acts gratuitously—that is, without payment. A gratuitous agent cannot be liable for breach of contract because there is no contract. He or she is subject only to tort liability.

Agency by Ratification

On occasion, a person who is in fact not an agent (or who is an agent acting outside the scope of her or his authority) makes a contract on behalf of another (a principal). If the principal approves or affirms that contract by word or by action, an agency relationship is created by ratification. Ratification involves a question of intent, and intent can be expressed by either words or conduct.

independent contractor

One who works for, and receives payment from, an employer but whose working conditions and methods are not controlled by the employer. An independent contractor is not an employee but may be an agent.

Cooley v. Penguin Group (USA) Inc., (2014)

Penguin Group ripped off Cooley's Dinosaur eggs

Agency by Estoppel

Sometimes, a principal causes a third person to believe that another person is the principal's agent, and the third person acts to his or her detriment in reasonable reliance on that belief. When this occurs, the principal is "estopped to deny" (prevented from denying) the agency relationship. The principal's actions have created the appearance of an agency that does not in fact exist, creating an agency by estoppel. The third person must prove that he or she reasonably believed that an agency relationship existed.

Employment status Criteria Used by the IRS

The Internal Revenue Service (IRS) has established its own criteria for determining whether a worker is an independent contractor or an employee. The most important factor is the degree of control the business exercises over the worker. The IRS tends to closely scrutinize a firm's classification of its workers because, as mentioned, employers can avoid certain tax liabilities by hiring independent contractors instead of employees.

Agency by Operation of Law

The courts may find an agency relationship in the absence of a formal agreement in other situations as well. This may occur in family relationships, such as when one spouse purchases certain basic necessaries and charges them to the other spouse's account. The courts often rule that a spouse is liable for payment for the necessaries because of either a social policy or a legal duty to supply necessaries to family members. Agency by operation of law may also occur in emergency situations. If an agent cannot contact the principal and failure to act would cause the principal substantial loss, the agent may take steps beyond the scope of her or his authority.

Avoidance

When an agent breaches the agency agreement or agency duties under a contract, the principal has a right to avoid any contract entered into with the agent. This right of avoidance is at the election of the principal.

Bernard is an expert on exotic flowers. Custom Floral Arrangements, Inc., hires Bernard to order exotic flowers for its arrangements. Bernard does not examine the quality of the flowers he orders on behalf of Custom Floral. Bernard has breached a. the duty of performance. b. the duty of loyalty. c. no duty. d. the duty of notification.

a

California Produce Company hires Drew to work on California Produce's shipping dock, checking outgoing loads and dispatching the company's drivers. With respect to California Produce, Drew is most likely a. an agent. b. an independent contractor. c. a principal. d. a work for hire.

a

Elaine owns the Fabric & Yarn store. Goldie is a salesperson in the store. When Goldie makes a sale to Heather, the sale is binding on a. Elaine. b. Goldie. c. Fabric & Yarn only—and only if Elaine is present at the sale. d. no one

a

Ingmar asks Jessie to contract with Jessie's high school classmates to babysit Ingmar's new baby. Jessie orally agrees to do so. This is a. an agency by agreement. b. an agency by estoppel. c. an agency by ratification. d. not an agency relationship.

a

Insurance Sales Corporation hires Jeremy to act as its agent. Insurance Sales's right not to perform a contract entered into by Jeremy, if he breaches their agency agreement, is the right of a. avoidance. b. indemnification. c. nullification. d. termination

a

Investment Holdings Corporation hires Jerilyn, a business appraiser, to locate investment possibilities for Investment Holdings. Jerilyn learns of a salsa and hot sauce manufacturing company available for a reasonable price, but neglects to tell Investment Holdings. Most likely, Jerilyn a. breached the agent's fiduciary duties to the principal. b. did nothing wrong. c. failed to take advantage of a business opportunity. d. assumed that the information was confidential.

a

Lucille is married to Marcus. Lucille buys food for their children's lunches and charges the cost to Marcus's account. This is a. an agency by operation of law. b. an agency by estoppel. c. an agency by ratification. d. not an agency relationship.

a

Donato is Equipment Repair Service Company's chief executive officer. On Equipment Repair's behalf, Donato solicits business, hires and fires workers, and handles finances. Equipment Repair pays Donato varying amounts, depending on his "needs." Donato is most likely a. a principal. b. an employee. c. an employer. d. an independent contractor.

b

Global Games Corporation employs Hyacinth as an agent. Global Games gives her an exclusive territory in which to sell its products. Global Games cannot compete with her in that territory under the duty of a. compensation. b. cooperation. c. indemnification. d. reimbursement.

b

At the shop, Margo is a. an independent contractor. b. Neon's employee only. c. Neon's employee and agent. d. Neon's principal.

c

Home Enterprises employs Itzak to buy property for a possible residential development. Itzak secretly buys some of the property and sells it to Home Enterprises at a profit. Itzak has breached a. no duty. b. the duty of accounting. c. the duty of loyalty. d. the duty of notification.

c

Jewelry & Coin Company hires Kelly Ann to buy gems and precious metals from various sources on its behalf. In this relationship, Jewelry & Coin is a. an employee. b. an independent contractor. c. a principal. d. an agent.

c

Margo works as an administrator and receptionist in Neon's Garage Door Store. Neon withholds federal taxes from Margo's pay, and controls the methods and details of the performance of her work. Margo is not authorized to modify the prices or other terms of a sale at the store. Omar installs Neon's Garage Door products at the buyers' locations. Neon authorizes Omar to sell garage door upgrades and accessories at the buyers' locations at prices that Omar negotiates with those buyers. With respect to sales at those locations, Omar is a. an independent contractor. b. Neon's employee only. c. Neon's employee and agent. d. Neon's principal.

c

Rosario is a chef and caterer who hires out on a per-project basis to companies with on-location work sites, as well as to hosts of banquets, corporate meetings, concerts, weddings, and other events. In this capacity, Rosario is a. an agent. b. an employee. c. an independent contractor. d. a principal.

c

Bailey is an agent for Culinary Delites Company. In the course of Bailey's performance for Culinary Delites, she pays Drivers' Repair Service for certain vehicle maintenance and repair work. Bailey's right to obtain the amount of the payments from Culinary Delites arises under the principal's duty of a. avoidance. b. cooperation. c. indemnification. d. reimbursement

d

Largo is an agent for MaryElise. MaryElise gives Largo clear instructions to enter into contracts on her behalf only on Mondays, Wednesdays, or Fridays. Largo enters into a contract on her behalf on Tuesday. Largo has breached a. the duty of performance. b. the duty of loyalty. c. no duty. d. the duty of obedience.

d

Lorena is appointed as an agent for Milled Grains, Inc. The agency agreement is silent as to the level of sales that Lorena is expected to achieve. She must a. achieve nothing because the agreement says nothing on the issue. b. attain the level that Lorena achieved with her previous employer. c. maintain the level Milled Grains attained before Lorena became an agent. d. use reasonable diligence and skill in selling

d

A familiar example of an agent is the owner of a corporation.

false

A person must have contractual capacity to be an agent.

false

Agency relationships do not permeate the business world.

false

An agency relationship created for a purpose that is contrary to public policy may still be enforceable.

false

An agent can represent two principals in the same transaction as long as neither of them knows about it.

false

Anything that an agent obtains by virtue of the employment or agency relationship is his or hers to keep.

false

Even during emergency situations, when the principal cannot be consulted, the agent may not deviate from the principal's instructions without violating the duty of obedience.

false

If a great degree of skill is required, this may indicate that a person is an employee hired for a specialized job and not an independent contractor.

false

Ratification involves a question of intent, and intent can be expressed only by words.

false

Through agents, a principal can conduct only one business operation at a time.

false

Whether a worker is an employee or an independent contractor has no effect on the employer's liability for the worker's actions.

false

Generally, the agent owes the principal five duties to the principal

performance, notification, loyalty, obedience, and accounting

Usually employees who deal with _____________ parties are deemed agents

third

A principal has a duty to cooperate with the agent and to assist the agent in performing his or he duties.

true

An agency agreement can be implied by conduct.

true

An agency by estoppel arises when the principal's actins have created the appearance of an agency that does not in fact exist.

true

Any copyrighted work created by an employee within the scope of his or her employment at the request of the employer is a "work for hire."

true

Employers can avoid certain tax liabilities by hiring independent contractors instead of employees.

true

Generally, the law assumes that the principal is aware of any information acquired by the agent that is relevant to the agency.

true

If work is usually done under the employer's direction, this indicates independent-contractor status

true

The agent has the right to be compensated, to be reimbursed and indemnified, and to have a safe working environment.

true

The term fiduciary is at the heart of agency law

true

Duties that principal owes to agent:

▫Compensation ▫Reimbursement and indemnification ▫Cooperation ▫Safe working conditions