Practice Questions
A wealthy family employed a family butler. The sixteen-year-old son instructed the butler to put a deposit on a car and sign a purchase agreement on the son's behalf. The butler did so. A week later, the car dealership sent a text for the son to pick up the car, but the son had changed his mind and refused to perform on the contract. Can the car dealership enforce the purchase agreement signed by the butler on the son's behalf? A. No, because the son is a minor. B. No, because the butler acted outside his scope of agency by providing agency services for the son beyond the household. C. Yes, because the butler properly acted as an authorized agent of the son. D. Yes, because the butler properly acted as an authorized agent of the couple, who are authorized agents of the son like any other parents.
A. No, because the son is a minor. The general rule is that a minor may disaffirm an agency agreement and any contract that an agent enters into with a third party on behalf of the minor. Here, the son may disclaim the purchase agreement and may also disclaim his agency relationship with the butler. Answer option B is incorrect because the issue here is not the scope of the agency relationship. In any event, the butler acted within the general scope of his agency in performing actions requested by the family members. Answer options C and D are incorrect because they both ignore the key fact about the son being a minor. Option C would otherwise be a correct statement of the law. Option D, however, is an incorrect statement of the law because the behavior of parents toward their children is not one of agency. In addition, there is no indication in the facts that the butler was acting on behalf of the couple when signing the purchase agreement.
A pawn broker entered into an agency agreement with a man to purchase underpriced items at garage sales for the pawn broker to sell at its pawn shop. The pawn broker supplied the man with a company jacket, a cash card, and business cards, and agreed to pay the man a small salary plus a 20 percent finder's fee if the item the man purchased later sold at the pawn shop. At a garage sale the next day, the man found an original painting that was worth millions on sale for $100. Although the man recognized that he had a fiduciary duty to give this opportunity to the pawn broker, the man paid the $100 out of his own pocket and then sold the painting himself, keeping all the profit. The next day, the man reported to the pawn broker that he had found nothing at the garage sales, and that he was quitting. The pawn broker asked the man to continue working, but the man was not interested. The pawn broker finally accepted the man's resignation and agreed to end their relationship. When, if ever, did the agency relationship terminate? A. When the man bought the painting for himself. B. When the man told the pawn broker he was quitting. C. When the pawn broker accepted the man's resignation. D. The agency agreement never terminated.
A. When the man bought the painting for himself. An agency relationship terminates upon the agent's breach of fiduciary duties - including the duty to put the interests of the principal first. Here, the man breached that duty once he acted for himself instead of offering the opportunity to buy the painting to the pawn broker. Once the man breached his fiduciary duty to the pawn broker, then terminated the agency relationship. Answer options B, C, and D are necessarily incorrect for the same reason.
A principal gave her agent the authority to negotiate for and purchase a parcel of land for the principal's development provided the purchase price did not exceed $450,000. The principal agreed to pay the agent a bonus of $5,000 if the agent were able to purchase a suitable parcel for less than $425,000. The agent found a suitable parcel and negotiated a purchase price of $400,000, despite the fact that annual property taxes were $60,000 (15 percent of the purchase price). The agent also located a nearly identical parcel and negotiated a purchase price of $440,000. The annual property taxes on the second parcel were $22,000 (5 percent of the purchase price). The agent purchased the $400,000 parcel, claimed his $5,000 bonus, and quit before the principal realized that the property taxes on the purchased parcel were three times as much as the property taxes on the unpurchased parcel. Does the principal have a claim against the agent for breach of a duty? A. Yes, because the agent's actions harmed the principal. B. Yes, because the agent claimed his bonus. C. No, because the principal offered the agent a bonus if the agent could purchase a property for less than $425,000. D. No, because the agent did not exceed his purchasing authority.
A. Yes, because the agent's actions harmed the principal. An agent owes a fiduciary duty of loyalty to his or her principal in all things related to the agency. See Restatement (Third) of Agency § 8.01. Quite simply, this duty means that the agent must always be on the principal's side and act for the principal's benefit. Here, the agent breached his duty of loyalty because he purchased a lower-priced property with an excessive tax rate that he did not disclose to the principal.
A company hired an analyst using a job description that clearly stated the position was for an independent contractor, not an employee. The company selected and provided all materials used in the analyst's work, as well as a handbook and rigorous training on the specific methods and procedures the analyst should use. The analyst worked full-time in the company's corporate office. The company closely supervised the analyst and did not allow the analyst to deviate from the company's policies and procedures. The analyst understood that the position was as an independent contractor and invoiced the company monthly based on an hourly rate, instead of receiving a salary. Is the analyst an employee of the company for purposes of respondeat superior? A. Yes, because the company controls the manner of the analyst's performance. B. Yes, because the analyst works at the corporate office. C. No, because the job description clearly stated that the position was for an independent contractor, not an employee. D. No, because the parties both understood the analyst was hired as an independent contractor.
A. Yes, because the company controls the manner of the analyst's performance. Under the doctrine of respondeat superior, an employer may be held liable for the tortious acts of only employees, not independent contractors. Restatement (Third) of Agency § 2.04; see generally Bussard v. Minimed, Inc., 105 Cal. App. 4th 798 (2003). Courts consider multiple factors to determine whether a worker is an employee or an independent contractor, including who controls the details of the work, who selects the materials, how the work is compensated, and the type of business involved. Bostic v. Connor, 524 N.E.2d 881 (Ohio 1988). However, the single most important factor is whether the employer or the worker has the right to control the manner in which the work is performed. Murrell v. Goertz, 597 P.2d 1223 (Okla. Civ. App. 1979). If the employer controls the manner of work, then the worker is most likely an employee; if the worker controls the manner of the work, then the worker is most likely an independent contractor. Here, the company (1) selected and provided all materials used in the analyst's work, (2) gave the analyst a handbook and rigorous training on specific methods and procedures to use, (3) closely supervised the analyst, and (4) did not allow the analyst to deviate from the company's policies and procedures. These factors demonstrate that the company has complete control over the manner in which the analyst performs the job functions. Therefore, the analyst is an employee for purposes of respondeat superior.
A sole proprietor flipped houses but did not buy or sell any land. The sole proprietor appointed an agent to act on his behalf while the sole proprietor went on vacation. The agency agreement authorized the agent to "carry on the sole proprietor's real estate business of buying and selling houses while the sole proprietor is on vacation." While the sole proprietor was on vacation, the agent went looking for houses. However, the agent discovered a good deal on a plot of land instead. The agent then purchased the vacant plot of land on the sole proprietor's behalf, after showing the agency agreement to the seller. Is the sole proprietor bound by the land purchase? A. No, because the purchase exceeded the agent's express authority and, therefore, is void. B. No, because the purchase exceeded the agent's express authority, but the sole proprietor may ratify the purchase. C. Yes, because the agreement created a general agency, permitting the agent to engage in any real estate transaction on behalf of the principal, even raw land purchases. D. Yes, because the agent had apparent authority to buy the land.
B. No, because the purchase exceeded the agent's express authority, but the sole proprietor may ratify the purchase. If an agent exceeds his actual authority, the principal is not bound by the transaction. However, the principal may ratify the unauthorized transaction after the fact. Here, although the agent had actual written authority to buy real estate, the agency agreement expressly limited his authority to a particular type of transaction: buying and selling houses. The agent did not have the authority to buy raw land. Accordingly, the purchase of vacant land exceeded the agent's actual authority. However, the sole proprietor has the option of choosing to ratify the deal and keep the land. Answer option D is incorrect because apparent authority can bind the principal only if the third party reasonably believes the agent has actual authority to conduct the transaction on the principal's behalf. Here, the agent showed the agency agreement to the third-party seller, meaning the seller knew that the agent had authority only to buy houses and not land. Thus, the agent did not have apparent authority to buy the land on the sole proprietor's behalf.
An insurance broker sold insurance policies from various insurers. Most of the insurance companies paid the broker a standard 10 percent of the present value of any policy that he sold. The broker disclosed to buyers that he was a sales agent for the insurance companies. The broker sold an auto insurance policy to a buyer. The buyer later filed a claim with the insurance company for injuries incurred in a car accident, but the company refused full coverage because of conflicting evidence on whether her contributory negligence caused her injuries. The buyer threatened to sue the broker and the insurance company for nonpayment. Who, if anyone, is contractually liable to the buyer? A. Only the broker. B. Only the insurance company. C. Both the broker and the insurance company. D. Neither the broker nor the insurance company.
B. Only the insurance company. If the principal's identity is disclosed, the agent generally will not be held liable on the contract unless the parties agreed otherwise. See Restatement (Third) of Agency § 6.01. The insurance broker is therefore not contractually liable on the insurance policy he sold to the buyer. Because the broker was acting within the scope of his agency in selling the policy, only the insurance company is liable. Id. Answer options A, C, and D are necessarily incorrect for those reasons.
An art collector owned a rare painting that he wanted to sell. He mentioned this to his friend, an art dealer, who in turn mentioned the painting to an ex-girlfriend who owned an art gallery. The ex-girlfriend was interested in purchasing the painting. The dealer asked the collector and the ex-girlfriend whether they would let him serve as a dual agent for both parties, to determine a fair price for the painting. The collector and the ex-girlfriend agreed and signed a dual-agency agreement that waived any conflict of interest. The dealer determined a fair price for the painting, the sale closed at that price, and the dealer took a commission in accordance with the dual-agency agreement. Assuming that the jurisdiction does not prohibit dual-agency relationships, was it proper for the dealer to act as a dual agent for both parties? A. Yes, because the principals agreed on the price, so there was never any conflict of interest. B. Yes, because although there was a conflict of interest, the principals waived it after being fully informed. C. No, because an agent has a fiduciary duty never to place himself in a situation where a gain for one principal is a loss for the other. D. No, because an agent is not permitted to conduct business on behalf of people with whom he is personally connected.
B. Yes, because although there was a conflict of interest, the principals waived it after being fully informed. Dual agency is permissible if both of the principals waive the conflict of interest. Here, both principals were made aware of the conflict and waived it in writing. Therefore, there is an express agency relationship between the dealer and each of the principals. The arrangement is binding. Answer option A is incorrect because there is indeed a conflict of interest. The key question is whether it can be waived, and the answer is yes, if both principals are fully informed. Answer option C is incorrect because the issue is not whether one principal or the other might be worse off with dual agency than with single agency; the law leaves the choice up to the principals and does not force them to get separate agents if they choose a single dual agent. Answer option D is incorrect because the fact that the dealer knew both the collector and the ex-girlfriend personally in advance of the agency relationship is immaterial. An agency relationship may be created between two parties who already have an existing personal or business relationship.
A school district hired an employee to oversee curriculum materials for the district. The position included maintaining the district's textbook inventory and purchasing additional textbooks as required. In her spare time, the employee was a partner in one of the independent textbook wholesalers that sold textbooks to the employee's school district. The employee always purchased textbooks from the lowest-priced wholesaler; however, if her wholesaler matched another wholesaler's lowest price, she would purchase from her wholesaler. Did the employee's conduct breach any of her agency duties? A. Yes, the employee breached her duty of care. B. Yes, the employee breached her duty of loyalty. C. No, because the employee always purchased the lowest-priced textbooks. D. No, because the employee was not in competition with the school district.
B. Yes, the employee breached her duty of loyalty. An agent owes a fiduciary duty of loyalty to her principal in all things related to the agency. The essence of that duty is that if the agent's and principal's interests ever conflict, and the conflict implicates the agency, then the agent must subordinate her own interests to the principal's. See Restatement (Third) of Agency § 8.01, with comments. Therefore, the agent must not engage in self-dealing or seek to enrich herself by virtue of her position as the agent. See Restatement (Third) of Agency § 8.02. The duty of loyalty also prohibits the agent from dealing with the principal as an adverse party, or on behalf of an adverse party, in any transaction related to the agency relationship. This prohibition means the agent typically may not deal with the principal on the agent's own account in a matter touching the agency, nor may she serve multiple principals with adverse interests in the same transaction. The agent must not hold a substantial stake in a party adverse to the principal. See Restatement (Third) of Agency § 8.03, with comments. Therefore, both because the employee was enriched by virtue of her agency position and dealt with the principal on the agent's own account in a matter touching the agency relationship, the employee's conduct breached her duty of loyalty.
A hotel guest suffered injuries after inhaling fumes from chemicals used by an exterminator in the guest's hotel room. The guest sued both the hotel and the exterminator. During discovery, the hotel produced a log showing that the exterminator had a history of using the wrong chemicals in hotel rooms when hotel guests might be present. The court found both that spraying chemicals in occupied rooms was inherently dangerous, and that the exterminator was acting as an independent contractor. May the court hold the hotel directly or vicariously liable for the guest's injuries? A. Only directly liable. B. Only vicariously liable. C. Both directly and vicariously liable. D. Neither directly nor vicariously liable.
C. Both directly and vicariously liable. An employer may be directly liable for the employer's own torts. For example, if the employer negligently selects or continues to use an independent contractor, then the employer may be held directly liable for that negligence. An employer may also be held vicariously liable for the acts of independent contractors if the work performed is inherently dangerous or involves nondelegable duties.
A theme park developer sought to acquire a large area of land to build a park. The land he needed would require numerous purchases from different sellers, and the developer did not want real estate prices to rise once potential sellers realized his plans. The developer employed an agent to act on his behalf in acquiring the land. The agent entered a contract to purchase land from a seller but disclosed neither the principal's identity nor existence in the transaction. The seller signed an agreement to sell but then wanted to back out of the transaction. Who, if anyone, may enforce the sales contract against the reluctant seller? A. Only the agent. B. Only the developer. C. Both the agent and the developer. D. Neither the agent nor the developer.
C. Both the agent and the developer. Here, the agent withheld both the developer's identity and existence from the reluctant seller. The developer is therefore an undisclosed principal. Restatement (Third) of Agency § 1.04(b). If an agent acting within the scope of his agency relationship enters into a contract with a third party on behalf of an undisclosed principal, both the agent and the undisclosed principal are parties to the contract and may enforce the contract. See id. at § 6.03. Therefore, both the developer and the undisclosed principal here are parties to the sales contract with the reluctant seller, and both are entitled to enforce the contract. Id. Answer options A, B, and D are necessarily incorrect for that reason.
Which of the following most accurately describes an agent who has been authorized to engage in a series of transactions for a continuous, ongoing period? A. Universal agent. B. Global agent. C. General agent. D. Special agent.
C. General agent. A general agent is an agent who has been authorized to engage in a series of transactions or all transactions of a particular type, sometimes for a continuous, ongoing period.
Under what circumstances, if any, is an agent acting within the scope of his agency relationship liable on a contract he entered into with a third party on a principal's behalf? A. Only if the principal's identity is disclosed. B. Only if the principal is unidentified or the principal's identity is partially disclosed. C. If the principal is unidentified, the principal's identity is partially disclosed, or the principal's identity is undisclosed. D. An agent is never liable on a contract entered with a third party on a principal's behalf.
C. If the principal is unidentified, the principal's identity is partially disclosed, or the principal's identity is undisclosed. Whether an agent is a party to, and thus liable on, a contract the agent entered with a third party on the principal's behalf depends on what information the agent disclosed about the principal's identity. If an agent disclosed the existence but not the identity of the principal, then the agent is also a party to the contract, absent an agreement with the third party that the agent will not be liable. See Restatement (Third) of Agency § 6.02. This is known as an unidentified or partially disclosed principal. If an agent disclosed neither the identity nor the existence of the principal, such that the existence of the principal is completely undisclosed, the agent is himself a party to and liable on the contract with a third party.
An elderly woman had used the same insurance agent for five decades to purchase life insurance, health insurance, and medical insurance. The woman's relatives believed that she had bought a lot of unnecessary new insurance policies through the agent in recent years, which policies carried high premium payments. They confronted the agent and discovered that he was suffering from dementia and had been making unusual policy recommendations to the woman over the course of the last year. The relatives called all the insurance companies and asked them to void all the insurance policies bought by the agent on the woman's behalf in the past year, claiming that the agent was not competent when the policies were purchased. Are the newly bought insurance policies voidable? A. Yes, because both the principal and the agent need to be competent in order for an agency relationship to be effective, and in this case the agent was not competent. B. Yes, because only the agent needs to be competent in order for an agency relationship to be effective, and in this case the agent was not competent. C. No, because only the principal needs to be competent in order for an agency relationship to be effective, and in this case the woman was competent.
C. No, because only the principal needs to be competent in order for an agency relationship to be effective, and in this case the woman was competent. The law has an asymmetry: the focus is on the competence of the principal, not the agent. An agent can be incompetent or even a minor, whereas a principal must be a competent adult. Here, the woman remained competent, so the agent could still bind her as an agent even though he himself had become incompetent. Answer options A and B are necessarily incorrect for the same reasons.
Which duty prevents an agent from representing an adverse party against a principal in a transaction? A. The duty of care. B. The duty of compensation. C. The duty of loyalty. D. The duty of obedience.
C. The duty of loyalty. An agent owes a fiduciary duty of loyalty to his or her principal in all things related to the agency. See Restatement (Third) of Agency § 8.01. Quite simply, this means that the agent must always be on the principal's side and act for the principal's benefit. As part of this duty, an agent may not represent an adverse party against the principal in a transaction. See Restatement (Third) of Agency § 8.03.
Which of the following statements about the termination of an agency relationship is the LEAST accurate? A. The agent's incapacity will terminate the agency relationship. B. A principal may enter into an agency agreement in which the agent's authority becomes effective only upon the incapacity of the principal. C. The principal's imminent death will terminate the agency relationship. D. The termination of an agent's actual authority does not necessarily terminate the agent's apparent authority.
C. The principal's imminent death will terminate the agency relationship. (But A is contrary to the last quiz?)
A mining company hired a worker to perform blasting operations. The mining company specified that the worker was an independent contractor, not an employee, and did not control the manner in which the worker performed the blasting. The worker used the wrong type of explosives and caused damage to neighboring property. Is the mining company vicariously liable for the damage caused by the blasting? A. No, because the mining company specified that the worker was an independent contractor. B. No, because the mining company did not control the manner in which the worker performed the blasting. C. Yes, because blasting is inherently dangerous. D. Yes, because the worker was acting within the scope of employment.
C. Yes, because blasting is inherently dangerous. Generally speaking, an employer is not vicariously liable for the torts of an independent contractor. Restatement (Third) of Agency § 2.04; see generally Bussard v. Minimed, Inc., 105 Cal. App. 4th 798 (2003). In general, an employer will not be vicariously liable even if the independent contractor commits a tort within the scope of the independent contractor's work-related activities. However, an important exception applies to inherently dangerous activities or non-delegable duties. An employer may be held liable for torts of independent contractors involving inherently dangerous activities, like those involving explosives. See Maloney v. Rath, 69 Cal. 2d 442 (1968). Here, the use of blasting explosives is an inherently dangerous activity. Accordingly, even though the worker was an independent contractor, the mining company may still be held vicariously liable for any tort damages caused by the inherently dangerous blasting.
A buyer wished to purchase a home in a state where the law does not follow the equal dignities rule. The buyer's friend drove past a house that had just been put on the market in a neighborhood where the buyer wanted to live. The friend called the buyer, who orally instructed the friend to make an offer and sign a contract in the buyer's name to purchase the home. The seller accepted the offer and signed a sales contract naming the buyer as the purchaser. The friend signed the sales contract on behalf of the buyer. The next day, the buyer found a home that she liked better, and she sought to cancel the contract with the seller. Can the seller enforce the contract against the buyer? A. No, because the statute of frauds requires both the real estate sales contract and the underlying agency contract to be in writing. B. No, because the statute of frauds requires the actual person to be charged to sign a real estate sales contract. C. Yes, because the buyer expressly appointed her friend to be her agent, and the friend acted within the scope of her agency in signing the sales contract on the buyer's behalf. D. Yes, because the statute of frauds does not require a signed writing for real estate transactions.
C. Yes, because the buyer expressly appointed her friend to be her agent, and the friend acted within the scope of her agency in signing the sales contract on the buyer's behalf. The equal dignities rule states that an agency relationship must be in writing if the principal is authorizing the agent to conduct a transaction that requires a signed writing, i.e., a contract that falls within the statute of frauds. Real estate transactions fall within the statute of frauds and must be signed by the party to be charged. Answer option D is necessarily incorrect for this reason. If the home was in a state that followed the equal dignities rule, the friend's agency would not have been valid because it was oral. Here, because the state does not follow the equal dignities rule, the oral agency contract was valid, and the friend did precisely as she was instructed, clearly acting within the scope of her agency.Answer option A is incorrect because it is based on the equal dignities rule, which does not apply in the state where the parties live. Answer option B is incorrect because it is an incorrect statement of the law. An agent acting within the scope of a valid agency agreement may sign a real estate contract on behalf of a principal without running afoul of the statute of frauds.
Who is liable for damages if a court finds an employer vicariously liable for a tort committed by its employee? A. The employee only. B. The employer only. C. Both the employee and the employer, in proportion to their share of fault. D. Both the employee and the employer, jointly and severally.
D. Both the employee and the employer, jointly and severally. If an employer is held vicariously liable for the tort of an employee committed within the scope of employment, both the employee and the employer are jointly and severally liable.
A wealthy speculator wanted to accumulate controlling shares in a company. The speculator didn't want to buy the shares on the stock market because his association with the company would drive up the stock price. Instead, the speculator appointed an agent to purchase a block of shares in the company from a hedge fund. The agent told the hedge fund manager that the agent was acting on behalf of a person "who shall remain nameless, but whose name you would recognize." The agent signed a contract to purchase the shares. A few days later, the stock price went down and the speculator refused to pay for the shares. The hedge fund manager threatened to sue to compel payment for the shares. Who, if anyone, is liable on the contract to the hedge fund? A. Only the speculator is liable because the hedge fund manager knew that the agent was acting for another person. B. Only the speculator is liable because he was a disclosed principal. C. Only the agent is liable because the speculator did not ratify the agent's actions. D. Both the speculator and the agent are liable because the speculator was a disclosed but unidentified principal.
D. Both the speculator and the agent are liable because the speculator was a disclosed but unidentified principal. An agent is liable on all contracts with third parties unless the existence and identity of the principal are fully disclosed, or if the third parties agree to hold the agent harmless. Restatement (Third) of Agency § 6.01-6.03. If the principal is undisclosed or partially disclosed, the agent remains liable on the contract unless released by the third party. Id. at § 6.03. Here, the agent disclosed the existence but not the identity of the principal. Because the principal is therefore partially disclosed, the agent remains a party to the contract and is liable unless the parties agree otherwise. Id. The principal is also a party to the contract and thus is also liable. Answer options A and B are necessarily incorrect for the same reasons.
An employer had an explicit rule that employees could use company vehicles only during the workday, not to commute to and from work. A company employee nonetheless drove a company vehicle home at the end of the workday. The next morning, the employee negligently struck a pedestrian while driving the company vehicle back to work. The pedestrian sued both the employee and employer. Is the court likely to hold the employer vicariously liable for the accident? A. Yes, because the employee was driving a company vehicle. B. Yes, because the employee was commuting to work. C. No, because the employer had an explicit rule that employees could not use company vehicles to commute to and from work. D. No, because the employee was outside the scope of employment at the time of the accident.
D. No, because the employee was outside the scope of employment at the time of the accident. Courts hold employers vicariously liable for the torts of employees only if the tort is committed within the scope of employment. Restatement (Third) of Agency § 2.04. Under the going-and-coming rule, an employee is generally deemed to be outside the scope of employment while commuting to work. Bussard v. Minimed, Inc., 105 Cal. App. 4th 798 (2003). Therefore, generally, an employer will not be held liable for torts committed by employees during their commutes.
Which of the following is a duty owed reciprocally by principals and agents? A.The duty of care. B. The duty of loyalty. C. The duty of obedience. D. The duty to uphold contractual obligations.
D. The duty to uphold contractual obligations.
A lawn service company hired a sales representative to solicit new customers for year-round lawn maintenance. The company agreed to pay the sales representative a monthly base salary of $2,500 plus a 10 percent commission on all of the lawn contracts the sales representative sold. In the first two months of the sales representative's employment, she sold 12 contracts, resulting in $720 in commission ($360 per month). Because the commission was relatively small compared to her base salary and it took considerable effort to sell each contract, the sales representative scaled back her efforts and sold only two contracts per month for the next four months. If the sales representative's conduct breached her duty to the lawn service company, what are the lawn service company's remedies? A. The lawn service company may only withhold payment of the sales representative's compensation. B. The lawn service company may only seek damages in contract. C. The lawn service company may only bring an action for an accounting. D. The lawn service company may withhold payment of the sales representative's salary, seek damages in contract, and bring an action for an accounting.
D. The lawn service company may withhold payment of the sales representative's salary, seek damages in contract, and bring an action for an accounting. If a compensated agent breaches his or her obligations, the principal has a right to withhold payment. Next, the principal may seek damages, either for breach of contract or in tort, depending upon the harm suffered. The principal may also bring an action for an accounting, which would force the agent to turn over all money or property owed to the principal. See Restatement (First) of Agency § 399. Therefore, the lawn service company may withhold payment of the sales representative's compensation, seek damages in contract, and bring an action for an accounting.
Which of the following circumstances does NOT support holding a principal liable on a contract that an agent entered with a third party outside the scope of the agent's authority? A. The principal ratified the agent's conduct. B. The principal's own negligence allowed an authorized agent to engage in activity on his behalf with third parties. C. The principal failed to take the proper steps to notify others that he had terminated the agency relationship. D. The principal's identity was disclosed to the third party.
D. The principal's identity was disclosed to the third party. A principal is generally liable on contracts entered by his agent with a third party on the principal's behalf if the principal's identity is disclosed. Restatement (Third) of Agency § 6.01. However, that general rule of law applies only if the agent is acting within the scope of his authority when entering into the contract. See id. at § 6.01-6.03. If an agent acts outside the scope of his authority in entering a contract with a third party, that third party will need additional legal theories to seek a contractual remedy against the principal, even if the principal's identity is disclosed.
A trader verbally appointed an intern to travel to a rural area and negotiate the best price of shares in an oil and gas company. After arriving in the rural area, the intern realized she was dressed out of fashion for the area and stopped at a local store to buy boots and local-style clothes. The intern then met with the company executives and obtained a very favorable price for the shares. The trader was extremely happy with the intern's performance. Did the intern act within her scope of authority in buying the clothes? A. No, because the scope of the intern's authority extended only to negotiate the best price of oil and gas shares. B. No, because the intern bought the clothes for herself, not for the trader. C. Yes, because the intern obtained a good deal for the trader, who was happy with her performance. D. Yes, because the intern had implied authority to take actions necessary or incidental to achieve her actual authority, like acting within local customs and practices.
D. Yes, because the intern had implied authority to take actions necessary or incidental to achieve her actual authority, like acting within local customs and practices. An agent has implied authority to take actions necessary or incidental to achieve the principal's objectives in the agency relationship. See Restatement (Third) of Agency § 2.02. Here, the intern was authorized to negotiate the best price that she could for the oil and gas shares. The intern recognized that purchasing clothes was necessary to fit into the local style, and that fitting into the local style would help the intern achieve the best price for the shares. Accordingly, the intern was impliedly authorized to buy the clothes as necessary or incidental to achieve her expressly authorized agency purpose: negotiating the best price.
A hot-dog vendor wore a colorful outfit and nametag. The vendor hired a man at an hourly wage to assist in serving customers, and gave him an identical outfit and nametag. There was no written agreement between the vendor and the assistant. Each hot dog cost the vendor $1 in materials and labor to produce, and he sold each hot dog for $3. One day the assistant was alone at the hot-dog stand when a businessman, who owned a nearby company and assumed reasonably that the assistant was the owner, asked for a quote to provide 50 hot dogs for his company every day. The assistant gave a discounted price quote of $2 per hot dog. Was the assistant an agent with authority to bind the vendor to the price quote? A. No, because the assistant was hired only as an assistant, not as an agent. B. No, because there was no written agreement between the vendor and the assistant. C. Yes, because the assistant has not done any harm to the vendor, so he is a so-called gratuitous agent. D. Yes, because the vendor gave the assistant apparent authority and his outfit is an indication of agency in the eyes of third parties.
D. Yes, because the vendor gave the assistant apparent authority and his outfit is an indication of agency in the eyes of third parties. An agency relationship can be created by operation of law without a written agreement or even an express oral agreement so long as the principal vests apparent authority in the agent and in the reasonable judgment of third parties. Here, the vendor vested apparent authority in the assistant from the point of view of third parties, so the assistant was an agent and had the power to bind the vendor to the price quote. Answer option A is incorrect because the question of whether the assistant was intentionally employed as an agent is not dispositive of whether he was an agent. Answer option B is incorrect because an agency agreement doesn't have to be in writing. It can arise orally or by operation of law. Here, the vendor created the agency relationship by hiring the assistant and vesting him with the appearance of authority to bind the vendor. Answer option C is incorrect because the existence of an agency relationship does not turn on whether an agent's actions result in a profit or a loss for the principal.
In the absence of a provision to the contrary in the articles of incorporation, the directors of a corporation elected for a specific term I. Can be removed from office at a meeting of the shareholders, with or without cause II. Can be removed from officer at a meeting of the shareholders, but only for cause and after an opportunity to be heard has been given to the directors III. Can be removed from office at a meeting of the shareholders, but only for cause IV. Cannot be removed from office by the shareholders
I. Can be removed from office at a meeting of the shareholders, with or without cause (Sarah's Worksheet #2)
Big Rig Trucking is a NC corporation with only one class of stock. Vince is a former employee of BRT who received one share of stock as a Christmas bonus in 1998. Vince continues to own one share of stock in BRT. Rub bought 5% of the outstanding stock in BRT on November 1, 2009. On November 15, 2009, Vince and Ruby made separate written demands on the corporation, seeking to inspect and copy the corporation's bylaws on November 25, 2009. Which of the following best describes the inspection rights of the two shareholders? I. Vince and Ruby are both qualified shareholders, and they both have an absolute right to inspect the corporation's bylaws II. Vince and Ruby are both qualified shareholders, but they must establish that their demands to inspect the bylaws are made in good faith and for proper purposes III. Only Vince is a qualified shareholder with the rights to inspect IV. Only Ruby is a qualified shareholder with the rights to inspect
I. Vince and Ruby are both qualified shareholders, and they both have an absolute right to inspect the corporation's bylaws (Sarah's Worksheet #2)
Eddie, an auction car buyer for Bleith Lexus, had purchased cars at auctions for Bleith for over 3 years. Eddie was recently terminated for showing up to work intoxicated. To get back at Bleith, Eddie attended a regular auction and purchased a car on Bleith's purchasing account; however, he never delivered the car to Bleith. The auctioneer has known Eddie through his employment with Bleith for years and allowed the purchase to go through as usual. Can Bleith be held liable to the auctioneer? I. Yes unless Bleith gave notice of termination, because Eddie had lingering apparent authority. II. Yes because Eddie had actual implied authority III. No because Bleith terminated Eddie and therefore Eddie had no authority IV. No because the auctioneer should have verified Eddie's authority
I. Yes unless Bleith gave notice of termination, because Eddie had lingering apparent authority. (Sarah's Worksheet #2)
Malibu Coffee, Inc., a NC corporation, holds its annual meeting of the shareholders on July 30th of every year. Malibu Coffee delivered notice of the annual meeting to shareholders on July 10, 2009. The corporation's bylaws do not fix a record date for shareholders. The Board of Directors did not fix a record date for the 2009 annual meeting of shareholders. What was the record date for the 2009 annual meeting of Malibu Coffee, Inc. shareholders? I. July 1, 2009 II. July 9, 2009 III. July 10, 2009 IV. July 29, 2009
II. July 9, 2009 (Sarah's Worksheet #2)
In March 2009, Biggie's Corporation held a shareholder's vote in order to elect a new member of its board of directors. Twila was sick of going to shareholder meetings, so she arranged a proxy agreement with Aaron. The proxy agreement stated that it was irrevocable and that Twila was done taking part in company decisions. Additionally, Twila transferred her shares to Aaron. Aaron went and voted for Twila, and continued to do so for the next 5 annual shareholder meetings. Before the 6th meeting, Twila decided that she wanted to once again be a part of the company. She showed up and voted her shares to elect her friend Mike. Additionally, Aaron showed up and voted the same shares to elect his friend Maria. Assuming the remainder of the share votes were an even split between Mike and Maria, who will be awarded the seat? I. Mike, because proxy votes are never irrevocable II. Maria, because the proxy agreement stated that it was irrevocable and was coupled with an interest in stock III. Mike, because the proxy agreement was not specific IV. Maria, because Twila had not been an active voter for 5 years
II. Maria, because the proxy agreement stated that it was irrevocable and was coupled with an interest in stock (Sarah's Worksheet #2)
1. Big Time Law Students, Inc.'s Articles of Incorporation "are a contract between the corporation and its shareholders and a corporation and the State, but bylaws are simply a contract between the corporation and its shareholders." In the event that there is a conflict or inconsistency between the Articles of Incorporation and the bylaws, which one prevails? I. The Bylaws II. The Articles of Incorporation III. The MBCA will apply by default through conflict IV. Case law requires a facts and circumstances analysis V. None of the above
II. The Articles of Incorporation (Sarah's Worksheet #2)
The shareholders of SunLosi, Inc., a NC corporation, use cumulative voting when electing directors. The corporation has 500 outstanding shares of stock, all of which will be present and voting at the meeting. Seven directors will be elected. How many votes does shareholder Mindy need to ensure that she can elect 3 directors to the board? I. 1321 II. 187.5 III. 1319.5 IV. 188.5
III. 1319.5 (Sarah's Worksheet #2)
Which of the following is NOT relevant to a court's decision whether to pierce the corporate veil? I. Undercapitalization at the time of inception II. Commingling of personal and corporate assets III. Failure to maintain societal norms IV. The sole purpose for incorporating was to obtain limited liability V. All of the above are relevant
III. Failure to maintain societal norms (Sarah's Worksheet #2)
Incoming chancellor elect contacted Professor Foy to head a project seeking a $12 million grant that could possibly bring national exposure to the University and specifically the NCCU School of Law. However, the grant proposal was due in two weeks. Professor Foy enjoys a challenge, so he gladly accepted. He decided that he needed to hire two dedicated and zealous law students and as a result, he selected Shaggy and Scooby as his personal research assistants. To complete the grant proposal, Professor Foy asked Shaggy and Scooby to travel to Duke University to pick up a research paper that would assist in completing the proposal. Shaggy and Scooby's van was in the shop, so they asked Professor Corbett if they could borrow his car and he agreed. While traveling to Duke, Shaggy accidentally wrecked Professor Corbett's car. When Shaggy and Scooby finally arrived at Duke, the security guard at the front door denied them access to the building. In denying Shaggy and Scooby access to the building, the security guard was extremely rude and called Scooby a derogatory name. In response, Scooby lost it and punched the security guard in the nose. Which statement is the most correct? I. Professor Foy will not be liable for the damage to Professor Corbett's car, but he may be liable for the security guard's broken nose. II. Professor Foy will be liable for the damage to Professor Corbett's car because Shaggy was acting within the scope of his agency relationship with Professor Foy when the accident occurred, but he will not be liable for the security guard's broken nose III. Professor Foy will not be liable for the damage to Professor Corbett's car nor for the security guard's broken nose IV. Professor Foy and Shaggy will both be on the hook for damage to Professor Corbett's car, as well as for the broken nose of the security guard V. None of the above
III. Professor Foy will not be liable for the damage to Professor Corbett's car nor for the security guard's broken nose (Sarah's Worksheet #2)
Zambezi, Inc. is a NC corporation with three shareholders: Anthony (who owns 300 shares), John (who owns 500 shares), and Ruth (who owns 200 shares). Zambezi, Inc. was formed when its articles of incorporation were filed on March 29, 2006. The articles contain no provisions that address the type of voting shareholders are entitled to use when electing directors. Four directors' seats are being filled at the next annual meeting of shareholders. Which of the following statements best describes how Ruth may cast her votes at the meeting? I. Ruth may cast a total of 800 votes for any single candidate or combination of candidates II. Ruth may cast a total of 200 votes for any single candidate or combination of candidates III. Ruth may cast 800 votes for each of the four vacant director seats (maximum of 800 votes per seat)
IV. Ruth may cast 200 votes for each of the four vacant director seats (maximum of of 200 votes per seat) (Sarah's Worksheet #2)
A potential client calls you up and tells you that his business partner was served with a lawsuit for trademark infringement. He quickly describes to you a set of circumstances in which he is clearly infringing on someone's trademark. The lawsuit alleges $200,000 in damages and he's in a panic. What do you tell a client in these circumstances?
SOL
A potential client calls you up and tells you that his sole proprietorship was served with a lawsuit for trademark infringement. He quickly describes to you a set of circumstances in which he is clearly infringing on someone's trademark. The lawsuit alleges $200,000 in damages and he's in a panic. What do you tell a client in these circumstances?
SOL
