Chapter 29- Relationship of Principle and Agent

a. What is a fiduciary? b. What are the implications of an agent's fiduciary obligation? What is an agent prohibited from doing as a result of this obligation? Explain.

A fiduciary is someone who acts for someone else's benefit while placing one's own interests secondary to that person's interests. A fiduciary relationship is one arising out of trust and confidence and involves the utmost loyalty and good faith. b. An agent must always act in a way that benefits the principal and not in a way where the agent benefits to the detriment of the principal. An agent is prohibited from doing anything that provides the agent a secret profit. An agent may not represent both a buyer and a seller, without the buyer and seller having knowledge of and agreeing to the agent's dual role. An agent must disclose to the principal business opportunities the agent learns of that are within the scope of the principal's business. An agent may not use or disclose confidential information obtained in the course of the agency for his own benefit or contrary to the interest of the principal. An agent may not compete with the principal or assist the principal's competitors. The agent may not use the principal's property for the agent's or a third person's benefit.

Discuss the nature of agency, including the scope of agency purposes.

Agency is a consensual relationship between two persons, a principal and an agent, through which the agent is authorized to act for and on behalf of the principal.The agent represents the principal in business dealings with a third person. The agent acts for and in the name and place of the principal, with the result the same as if the principal had dealt directly with the third person. Within the scope of the authority granted by the principal, the agent may negotiate the terms of contracts with others and bind the principal to such contracts. The negligence of an agent who is an employee in conducting the business of the principal exposes the principal to possible tort liability. As a general rule, a person may do through an agent whatever business activity he may accomplish personally. However, a person may not appoint an agent to perform acts so personal that their performance may not be delegated.

What is an independent contractor? Can an independent contractor also be an agent? Explain.

An independent contractor is someone who contracts to do something for another but is not controlled in the details of physical conduct used in performing the job. An independent contractor may or may not be an agent. Agents who are not employees are independent contractors. Real estate and collection agencies generally occupy agency status and as such would have the normal duties of an agent.

A __________ is a written, formal appointment of an agent. a.fiduciary b.revocation c.power of attorney d.rescission

C. Power of Attorney

A gratuitous agency is not a true agency because it is not formed by contract.

False

A gratuitous agent has a duty of loyalty but is not liable for any harm caused by his careless performance.

False

A minor cannot act as an agent.

False

A person who engages an independent contractor to do a specific job has the right to control the details of the conduct and activities of the independent contractor as it applies to the specific job.

False

A plumber hired to redo the plumbing in a building is an independent contractor and an agent of the owner of the building.

False

A power given as security creates a relationship of agency and actual authority.

False

After an agency terminates, the agent is free to disclose to third persons any information acquired during the agency relationship.

False

Agency relationships are governed primarily by federal statute.

False

Agents and principals have mutual fiduciary duties to one another.

False

All independent contractors are agents, but not all agents are independent contractors.

False

An agency agreement must always be in writing.

False

An agent will not be authorized to act for a principal unless he receives some consideration for the task.

False

Anna employs Mark to purchase for her a suitable site for a roller rink. Mark owns a huge site himself and sells it to Anna at fair market value without disclosing to her that he is the owner of the land. Mark has not breached his fiduciary duty to his principal.

False

Harold, a painter, contracts to paint a portrait of Irene. However, he has one of his students do the actual work. This is a proper delegation of authority to an agent.

False

If an agent receives a gift from a third person with whom he is dealing on behalf of the principal, he can keep it without notifying the principal.

False

Jones, an agent of Rossi, is authorized to sell Rossi's ownership of wheat on the commodities market on Monday. On Monday, however, the market opens with the lowest prices for wheat in two decades. Jones must go ahead and sell Rossi's wheat on Monday.

False

Linton, as a sales agent for Nancy, may keep the money for the sales in his personal bank account until due to her as long as he keeps accurate records of the amounts he must separate out to pay to her.

False

The capacity to act through an agent, depends on the capacity of the agent to do the act.

False

The fiduciary duty of an agent has no bearing upon his ability to act on behalf of a competitor of his principal.

False

Under the Third Restatement, an agency is automatically terminated when the principal goes bankrupt.

False

Whether an agency relationship has been created is determined by using a subjective test.

False

A fiduciary duty, arising out of a relationship of trust and confidence, is one of utmost loyalty and good faith.

True

A principal may generally revoke the authority of an agent at any time.

True

A principal owes to any agent the same duties under tort law that the principal owes to all parties.

True

All employees are agents, but not all agents are employees.

True

An agency contract appointing the agent for a period of more than one year must be in writing.

True

An agent must act solely in the interest of his principal in all acts that would affect the principal's business.

True

As a general rule, a person may do through an agent whatever business activity he may accomplish personally.

True

Authority conferred upon an agent for a specified time does not continue after the specified time.

True

Because the authority given to an agent by a principal is strictly personal, an individual agent's death terminates the agent's actual authority.

True

Diane appoints Edward as her agent to sell goods in markets where the highest price can be obtained. Edward sells the goods in a market that is glutted and obtains a low price, even though he could have obtained a higher price in a nearby market by using more care in obtaining the available market information. Edward is liable to Diane for breach of the duty of diligence.

True

If Elizabeth, agent for Wade, finds out one of Wade's customers has become insolvent, she has the duty to communicate this information to Wade.

True

If an agency is gratuitous, the principal ordinarily may revoke it without liability to the agent.

True

In some states, the authority of an agent to sell land must be in writing and signed by the principal.

True

The power of a gratuitous agent to affect the principal's relationship with third parties is the same as that of a paid agent.

True

The principal has a duty to indemnify the agent for losses incurred or suffered while acting as directed by the principal in a transaction which is not illegal or wrongful.

True

The result of an agent's functioning is exactly the same as if the principal had dealt directly with the third person.

True

a. Explain how an agency relationship comes to an end. b. Is an agency relationship ever irrevocable? Explain.

a. Agency is terminated by: (1) acts of the parties (time lapse, purpose achieved, an agent's renunciation of authority, mutual agreement to terminate, a principal's revocation of authority); or (2) operation of law (death of the agent or death of the principal upon notice to the agent, incapacity of the principal upon notice to the agent, changed circumstances). Termination of agency means the agent no longer has the authority to bind the principal. b. Yes, an agency coupled with an interest is irrevocable, even when death of the principal or incapacity of the creator or holder of the power occurs. The reason is that interest is not created for the benefit of the principal. It occurs when the agent has a security interest in the subject matter of the agency.

An agent has breached his fiduciary duty in which of the following situations? a. All of the following choices are correct answers. b. Where the agent makes a secret profit. c. Where the agent uses information obtained in the course of the agency for his own benefit. d. Where the agent competes with the principal.

a. All of the following choices are correct answers.

Identify the following parties and relationships. a. Patricia hires Andrew, an attorney, to negotiate a contract to purchase some property. She agrees to pay him $75 an hour for his services, and he agrees to use his own office and secretarial staff to negotiate and draft the agreement. b. Mel owns a retail store. He hires Sarah to work for him as a clerk in the home furnishings department. c. Carl is the general contractor for the construction of a large office complex. Carl hires Ed's Electric Company to do all of the wiring for the building. d. Incellmed Corporation hires Bob as an outside salesman and instructs him to call on customers in a specified territory and to solicit orders for their products. e. Marlin, who is the owner of Marlin's Department Store, hires Melissa as the general manager of his new branch in the Hillridge Mall.

a. Patricia is a principal, and Andrew is an independent contractor. Patricia is not an employer and Andrew is not an employee, because Andrew has his own office and controls the method and manner of the job performance. b. Mel is an employer, and Sarah is an employee. She is probably an agent only for the limited scope of her sales duties. c. Carl is the principal, and Ed is an independent contractor, but he is probably not an agent. d. Incellmed is the principal, and Bob is the agent. Incellmed is probably also an employer, and Bob an employee. e. Marlin (or Marlin's Department Store) is the principal and also the employer, and Melissa is an agent and also an employee.

Victor negligently led Gus to believe that Brenda had the authority to act on Victor's behalf. If Brenda had no authority but Gus reasonably and in good faith relied on Brenda's apparent authority: a. Victor can be liable to Gus for Gus's loss suffered because of his reliance. b.Victor cannot be held liable to Gus because Brenda had no actual authority. c. only Brenda can be held liable for any loss Gus suffered because of his reliance. d. Gus must bear any loss because he did not determine the extent or existence of Brenda'a authority.

a. Victor can be liable to Gus for Gus's loss suffered because of his reliance.

Mark hires Joe's real estate agency to sell his property, telling Joe he has lost too much money playing the stock market to afford to keep it up. Then Mark wins the three million-dollar lottery! Joe reads this in the newspaper and that afternoon makes a contract with Sharon to sell the property. Is the contract valid? a.No, the agency terminated because of the change in conditions. b.No, the agent has no right to sell without consent. c.Yes, Mark would have to notify Joe if he wanted to stop the sale. d.Yes, Joe had apparent authority to sell.

a.No, the agency terminated because of the change in conditions.

A(n) __________ is a person in a position of trust and confidence who has a duty of utmost loyalty and good faith. a.fiduciary b.servant c.independent contractor d.principal

a.fiduciary

Carolyn, a cashier at Tops Supermarkets, may cash checks for up to $20 over a purchase amount. A friend needs money for a dress so Carolyn cashes a check for $50 with no purchase. The check bounces. Carolyn is: a.liable because she violated her duty of obedience. b.liable because she breached her duty to inform. c.not liable since she has apparent authority to take the check. d.not liable unless she knew her friend did not have the money in the bank.

a.liable because she violated her duty of obedience.

Agency is governed primarily by: a.state common law. b.the UCC. c.federal statutes. d.administrative law.

a.state common law.

Which of the following is not a factor used to determine whether an agent is an employee or an independent contractor? a. Whether the employer has the right to direct and control the conduct and activities. b. The regular business of the principal. c. Method of payment. d. The furnishing of equipment..

b. The regular business of the principal.

In the case of Jaeger v. Western Rivers Fly Fisher, the court determined that: a. Petragallo was Western's employee and, thus, Western was liable under the doctrine of respondeat superior. b. determining the nature of Petragallo's relationship with Western was a factual issue inappropriate for summary judgment. c. Petragallo was an independent contractor for whose conduct Western was not liable. d. the determination of the right to direct and control a person, whether express or implied, is controlling as to whether a person is an employee or an independent contractor.

b. determining the nature of Petragallo's relationship with Western was a factual issue inappropriate for summary judgment.

A gratuitous agent: a. is a paid agent. b. is subject to the same duty of loyalty as other agents. c. has no duty of diligence. d. need not be reimbursed for her expenses.

b. is subject to the same duty of loyalty as other agents.

Bob owns a business delivering coffee and donuts within the downtown area of the city. Smith Co. calls him to deliver a large quantity of his products to their local office. While taking a coffee urn through the Smith Co.'s office, Bob drops it on Lester, scalding him. Who is liable? a.Smith Co. and Bob are liable. b.Bob alone is liable. c.Lester has to absorb the cost himself since he assumed the risk by working at Smith Co. d.Only Smith Co. is liable.

b.Bob alone is liable.

When is an agency relationship irrevocable? a.It is never irrevocable. b.When the agency is coupled with an interest of the agent in the subject matter. c.When the principal violates his duties to the agent. d.When the agent is a fiduciary.

b.When the agency is coupled with an interest of the agent in the subject matter.

An agent's duty to inform: a.applies to material and nonmaterial facts relating to the agency. b.does not apply if providing facts to the principal would violate a superior duty owed by the agent to another person. c.arises because notice to an agent does not constitute notice to the principal. d.All of the above.

b.does not apply if providing facts to the principal would violate a superior duty owed by the agent to another person.

E-Sign specifically excludes: a.all transactions covered by the UCC. b.wills and matters of family law. c.transactions relating to foreign commerce. d.All of the above.

b.wills and matters of family law.

Which of the following is correct with regard to the capacity of an agent? a.The incapacity of the agent disqualifies him from making a contract that is binding on his principal. b.No mental capacity is necessary for an agent. c. If an incompetent person who is not under guardianship appoints an agent, contracts made by that agent are voidable. d. A young child or a person under guardianship has the capacity to act as an agent.

c. If an incompetent person who is not under guardianship appoints an agent, contracts made by that agent are voidable.

An agent is not required to keep which of the following information confidential? a. Unique business methods. b. Customer lists. c. Information that his or her principal is engaged in criminal activity. d. Business plans.

c. Information that his or her principal is engaged in criminal activity.

The agent may be subject to liability to her principal for breach of the duty of obedience if she: a. entered into an authorized contract and the principal has changed her mind. b. delegates her authority in any way and under any circumstances. c. committed a tort for which the principal is now liable. d. All of the above.

c. committed a tort for which the principal is now liable.

Which of the following agents would not have authority to contract with third parties on behalf of the principal? a.A salesman who sells his employer's goods. b.A manager who hires employees for the store owner. c.A factory worker hired to operate a machine. d.A buyer who regularly buys merchandise for a store. e.All agents have authority to contract with third parties on behalf of their principals.

c.A factory worker hired to operate a machine.

Which of the following is NOT a major duty, which the agent owes to the principal? a.Duty to obey instructions. b.Duty to act in good faith and with loyalty. c.Duty to indemnify. d.Duty to exercise care.

c.Duty to indemnify.

Mark, who is 16 years old, appoints Joe, age 21, as his agent to purchase a digital camcorder from Electronic World. a.The transaction is void because Mark is a minor. b.The transaction is voidable by Electronic World because Mark is a minor. c.The transaction is voidable by Mark because he is a minor. d.The transaction is not voidable because Joe is not a minor.

c.The transaction is voidable by Mark because he is a minor.

The concept of conflict of interest as it relates to the law of agency includes which of the following? a. An agent may take a position that conflicts with the principal only if the principal, with full knowledge of all the facts, consents. b. An agent may not represent her principal in a transaction in which the agent has a personal interest. c. An agent may not act on behalf of adverse parties to a transaction without both principals' approval of the dual agency. d. All of the above.

d. All of the above.

A principal has no duty to compensate his or her agent if: a. the agent breached the duty of obedience. b. the agent breached the duty of loyalty. c. it is a gratuitous agency. d. All the above are correct.

d. All the above are correct.

Which of the following will terminate an agency coupled with an interest? a.The death of the principal. b.The bankruptcy of the principal. c.The incapacity of the principal. d. None of the above will terminate such an agency.

d. None of the above will terminate such an agency.

All of the following except which one is a duty of an agent? a.Account for money received on behalf of his principal. b.Inform his principal of any information relevant to his agency. c.Refrain from competing with his principal. d.After the agency is terminated, refrain from using any information gained while an agent.

d.After the agency is terminated, refrain from using any information gained while an agent.

An agent may lose the right to compensation: a.by breaching the agency contract willfully and deliberately. b.if the specified result of the contract is not obtained. c.if the duty of loyalty is breached. d.All of the above e.None of the above.

d.All of the above

14. Steven is a manufacturer's representative for Incell Corporation. One day he receives a big-screen television as a gift from one of the clients he contacts on behalf of Incell. a.Steven must account to Incell for the gift he has received. b.The big-screen television belongs to Incell rather than to Steven. c.If he keeps the TV without telling Incell, he will have breached his fiduciary duty. d.All of the above are correct.

d.All of the above are correct.

Carson, who is an agent for Peter, breaches his fiduciary duty to Peter. Carson: a.is liable to Peter for breach of contract. b.is liable to Peter in tort for any losses caused by the breach. c.must make restitution for any profits or property received in breach of this duty. d.All of the above are correct.

d.All of the above are correct.

The contractual duties owed by a principal to an agent are the duties of: a.compensation. b.reimbursement. c.indemnification. d.All of the above. e.None of the above.

d.All of the above.

Which of the following is not a breach of an agent's duty of obedience? a. Entering into an unauthorized contract for which his or her principal is then liable. b.Committing a tort for which the principal is now liable. c.Improperly delegating her authority. d.Not following a principal's instruction to misrepresent the quality of a competitor's goods to a potential customer.

d.Not following a principal's instruction to misrepresent the quality of a competitor's goods to a potential customer.

Carl loans Dan $1,500 for Dan's honeymoon. Dan gives Carl his ruby ring as security for the loan and after a year, tells Carl he may as well sell it to recoup the $1,500. When Dan's wife hears of this, she persuades Dan to call Carl and get back the ring. Can Carl sell it anyway? a.Yes, because Carl has apparent authority. b.Yes, because Carl has an express agency. c.No, Carl's authority has been revoked. d.Yes, because Dan cannot terminate this agency except by discharging the obligation.

d.Yes, because Dan cannot terminate this agency except by discharging the obligation.

Arthur advances money to John so that John can purchase inventory for his business. In return and for security on the loan, John makes Arthur his agent. a.If John becomes incapacitated, Arthur's agency is terminated by operation of law. b.If John files for bankruptcy, Arthur's agency is terminated by operation of law. c.If John dies, Arthur's agency is terminated by operation of law. d.All of the above are correct. e.Arthur's agency is irrevocable.

e.Arthur's agency is irrevocable.

A gratuitous agent is not subject to the same duty of loyalty that is imposed upon a paid agent.

false

Even when the outbreak of war places the principal and agent in the position of alien enemies, the authority of the agency is not terminated.

false

Agency law is basic to almost every other branch of business law

true

An "electronic agent" is not a true agent since it is not a person.

true

An agent may not make a secret profit from any transaction subject to the agency.

true

By the operation of law, the occurrence of certain events will automatically terminate an agency relationship.

true

Since the agency relationship is created by agreement, the agency relationship may be terminated at any time by mutual agreement of the principal and the agent.

true

The appointment of an agent by a minor or an incompetent not under guardianship and any resulting contracts are voidable.

true

The duty of obedience owed by an agent to a principal is not breached and will not result in liability to the principal by an agent's refusal to do an illegal or tortious act for the principal.

true

The negligence of an agent who is an employee in conducting the business of the principal exposes the principal to tort liability for injury and loss suffered by third persons.

true

The principal has the duty to provide the employee with reasonably safe conditions of employment and to warn the employee of any unreasonable risks involved in the employment.

true

When the agency terminates, the agent's duty of confidentiality continues.

true