Agency: The Inside Relationship

Question 1

True/False: Rob agrees to act as an agent for Diane in selling her car. Diane has a duty of loyalty to Rob.

Answer 1

False

Question 2

True/False: Dwayne agrees to serve as Walker’s agent in booking spots for Walker’s portable basketball game. Dwayne asks Walker for pictures and size specifications of the game so he can provide potential customers information they need. If Walker does not provide the pictures and size information, he is breaching a duty to Dwayne.

Answer 2

True

Question 3

True/False: Larry decided to relocate to Germany. Larry hired Happy Homes, Inc. to find a buyer and contract for the sale of his house in the U.S. The agency relationship between Larry and Happy Homes must be evidenced with a written agreement.

Answer 3

True

Question 4

True/False: An agent must obey any and all instructions of the principal.

Answer 4

False

Question 5

True/False: Jolene hired Lacy to find a buyer for her house. Adam was interested in buying the house. If both Jolene and Adam agree, Lacy, a real estate agent, may represent both parties.

Answer 5

True

Question 6

True/False: You cannot be held liable for the actions of your agents if the agents are violating your instructions.

Answer 6

False

Question 7

True/False: The bankruptcy of an agent automatically terminates an agency relationship.

Answer 7

False

Question 8

True/False: Generally, either party to an agency relationship has the power to terminate it at any time.

Answer 8

True

Question 9

True/False: Victoria is the director of marketing for Big Corporation. Victoria needed to negotiate an out-of-town contract on behalf of Big. Big has a legal duty to reimburse Victoria for the hotel expenses she incurs negotiating the contract.

Answer 9

True

Question 10

True/False: John is the trustee of a large testamentary trust. Lori is the sole beneficiary of the trust. Because John is the trustee, he is Lori’s agent.

Answer 10

False

Question 11

True/False: Kaiya is a sales representative of TriColor. Kaiya owes a fiduciary duty to TriColor.

Answer 11

True

Question 12

True/False: It does not create an agency relationship between Minott Mills and Douthett Co. for Minott Mills to contract to sell 500 yards of fabric to Douthett Co.

Answer 12

True

Question 13

True/False: A principal must indemnify an agent for any expenses incurred in carrying out agency responsibilities, but the principal will not be responsible for indemnifying an agent for any unauthorized purchases.

Answer 13

False

Question 14

True/False: Esday, Inc. hired Mark to be a financial analyst. Because of the equal dignities rule, the employment contract between Esday and Mark must be in writing.

Answer 14

False

Question 15

True/False: As a good neighbor, Lou gratuitously agreed to try to sell Haley’s aquarium while she was on vacation. Since there is no consideration for this agreement, there can be no agency relationship between Lou and Haley.

Answer 15

False

Question 16

An agency relationship can be created:

Answer 16

by the conduct of the parties.

Question 17

Which of the following persons is an agent?

Answer 17

a. ) Diane, a shoe salesperson for a retail store.
b. ) Tim, a real estate broker for a large real estate company.
c. ) Craig, a telephone marketing employee.
d. ) All the above.

Question 18

Can a person work as an agent for two different people with conflicting interests?

Answer 18

Yes, provided the agent discloses to both principals that she is representing both persons and the principals agree to the dual relationship.

Question 19

Which of the following is not required of an agency relationship?

Answer 19

Consideration.

Question 20

Nathan agrees to act as an agent for Cheyenne. Which of the following is true?

Answer 20

Cheyenne may compete with Nathan in matters within the scope of the agency business.

Question 21

Wanting to save the money she would have to pay for a commission, Marsha asks her friend Howard to check on the Internet and see if he can find a five-day cruise to the Bahamas for under $400 and if he does, to book it for her. He agrees, but later tells her he doesn’t have time to check for her. Howard:

Answer 21

is not liable to Marsha because he was a gratuitous agent and had both the power and the right to quit any time he wanted.

Question 22

The equal dignities rule relative to agency law applies to an agent:

Answer 22

a. ) hired to contract for a booth at a trade show scheduled to occur in two years.
b. ) selling real estate for the principal.
c. ) authorized to enter into a two-year lease for her principal.
d. ) All the above.

Question 23

Janet was employed as a sales representative for Esday, Inc. An appreciative customer gave her a diamond bracelet for all her hard work on a complicated contract. Can Janet keep the bracelet?

Answer 23

Yes, but only if she discloses the gift to Esday and Esday consents to her keeping the bracelet.

Question 24

Mohammad was an employee in the new product development department of Estay Inc. Mohammad was directly involved in the development of a new product that Estay intended to launch in 6 months. Estay took great care to keep information concerning the new product a secret. Ceries, Inc., a competitor of Estay, persuaded Mohammad to leave Estay to direct Ceries’ marketing department. Which statement is correct?

Answer 24

Mohammad cannot share with Ceries the confidential information he knows about Estay’s new product because he has a duty not to disclose confidential information he acquired during the agency.

Question 25

Ron is the business agent for Kansas Sunshine, a rock band. He is also the agent for another popular Midwestern rock group, City Sand. Ron negotiates a deal with a Kansas City promoter to have City Sand play after a professional football game. The promoter was willing to pay $250,000 for both groups to play after the game; however, Ron talked her into booking just City Sand for $175,000. Given his contract with City Sand, Ron made more money under this arrangement. Has Ron violated his fiduciary duty to Kansas Sunshine?

Answer 25

Yes. It appears that Ron put his own interests ahead of his principal’s interests.

Question 26

Nikki was an tax accountant with HBR Accounting. Nikki decided to do some tax consulting in the evenings and on weekends. HBR is unaware of Nikki’s consulting work. Which statement is correct?

Answer 26

Nikki has breached a fiduciary duty to HBR since she is competing with HBR.

Question 27

Cameron, editor of the local newspaper, assigned to Jim the writing of a story about pollution of a nearby stream. Although Jim used reasonable care in gathering and checking his information, unknown to Jim, the story contained a defamatory statement about Maureen. Maureen reads the story and sues Jim for libel. Cameron, who read and published the story:

Answer 27

must indemnify Jim for Maureen’s claim.

Question 28

An agent may not engage in inappropriate behavior that reflects badly on the principal. This rule applies to conduct:

Answer 28

during both working hours and off-duty time.

Question 29

Pamela hired Lena to sell her business. Lena:

Answer 29

can buy the business only with Pamela’s permission.

Question 30

An agency will be terminated in all but which one of the following situations?

Answer 30

A travel agent files for individual bankruptcy under Chapter 13.

Question 31

Mrs. O’Leary hired Jenna to sell her house in Michigan. She executed a power of attorney in favor of Jenna authorizing her to do “anything and everything associated with the sale of real estate, acting as a prudent person.” On May 30, Jenna finalized a deal with Brandon for the purchase of the house. Brandon and Jenna signed the real estate contract that day. Jenna learned the next day that Mrs. O’Leary had died May 29.

Answer 31

The contract is void since the agency terminated May 29.

Question 32

Jim agreed to show Donna’s car to a potential buyer. Donna was not able to be home since she had to attend a meeting. After showing the car, Jim left the keys in it and the car was stolen. Which statement is correct?

Answer 32

Since Jim is a gratuitous agent, he will only be liable for the loss of the car if his conduct constitutes gross negligence.

Question 33

Tom, the production manager at Esday, was told by his supervisor to hire Elton, a 15- year-old, to operate an industrial machine. Hiring the 15-year-old violates the child labor laws. Tom:

Answer 33

should not hire Elton. Tom has a duty to obey Esday’s instructions only if they are legal and ethical.

Question 34

The death of the agent:

Answer 34

automatically terminates the agency relationship.

Question 35

If the agent is disloyal to the principal:

Answer 35

a. ) the agency agreement automatically terminates and the principal may rescind the transaction.
b. ) the principal has the right to collect any actual damages sustained as a result of the agent’s disloyalty.
c. ) the principal has a right to recover any profits earned as a result of his agent’s disloyal conduct.
d. ) All the above are correct.

Question 36

Linda borrowed $2,500 from Tonya. They agreed that Tonya could take a grouping of Linda’s antiques as collateral. If Linda could not pay, then Tonya could sell the antiques to recover her money. When Linda could not pay off the loan, Tonya sold the antiques and paid Linda the proceeds after deducting the balance of the loan. Which of the following statements is correct?

Answer 36

a. ) This is an irrevocable agency relationship.
b. ) This is a power coupled with an interest.
c. ) Linda has neither the power nor the right to terminate the relationship.
d. ) All the above are correct.

Question 37

Linda borrowed $2,500 from Tonya. They agreed that Tonya could take a grouping of Linda’s antiques as collateral. If Linda could not pay, then Tonya could sell the antiques to recover her money. When Linda could not pay off the loan, Tonya sold the antiques and paid Linda the proceeds after deducting the balance of the loan. Which of the following statements is correct?

Answer 37

Only Tonya can terminate the relationship.

Question 38

John hired Tim to sell his house. Which statement is correct?

Answer 38

John is Tim’s principal.

Question 39

In a power coupled with an interest:

Answer 39

the principal has neither the power nor the right to terminate.

Question 40

HBR Accounting hired Denise, a CPA, to prepare tax returns. Which statement is correct?

Answer 40

Denise, as a CPA, is an agent with special skills. She is held to a higher duty than ordinary negligence.