Ch 27 - Agency Law

Question 1

What is an agency?

Answer 1

A relationship wherein one party (agent) agrees to represent the other (principal)

Question 2

How do people generally form agencies?

Answer 2

By Agreement

Normally, the agreement need not be in writing, and consideration is not required.

Question 3

What are the types of Agent’s Authority?

Answer 3

◾ Express Authority

◾ Implied Authority

◾ Apparent Authority

◾ Emergency Powers

◾ Ratification

Question 4

Who is the agent in an agency relationship?

Answer 4

The party who agrees to represent or act for the principal.

i.e. the employee

Question 5

Who is the principal in an agency relationship?

Answer 5

The party who has the right to control the agent’s conduct in matters entrusted to the agent.

i.e. the employer

Question 6

A fiduciary relationship is a relationship of:

Answer 6

trust and confidence.

Question 7

The actions of an agent can bind a principal.

A.) True

B.) False

Answer 7

A.) True

Question 8

What is a fiduciary in agency law?

Answer 8

A person with a duty to act for the benefit of another.

When used as an adjective, as in “fiduciary relationship,” it means that the relationship involves t̲r̲u̲s̲t̲ a̲n̲d̲ c̲o̲n̲f̲i̲d̲e̲n̲c̲e̲.

Question 9

Agency law and employment law overlap considerably.

A.) True

B.) False

Answer 9

A.) True

Because employees who deal with third parties are generally deemed to be agents of their employers, agency law and employment law overlap considerably. Agency relationships, however, can exist outside an employer-employee relationship, so agency law has a broader reach than employment law.

Question 10

Agency law is based on

A.) Common Law

B.) Statutory Law

Answer 10

A.) Common Law

Question 11

Employment law is based on

A.) Common Law

B.) Statutory Law

Answer 11

B.) Statutory Law

Question 12

What are 3 characteristics of an employer-employee agency relationship?

Answer 12

1. ) Employees who deal with third parties are deemed, agents
2. ) Sales are binding on the principal even if made by the agent
3. ) Overlap of agency law and employment law

Question 13

Independent contractors are not employees.

A.) True

B.) False

Answer 13

A.) True

Those who hire them have no control over the details of their physical performance.

Question 14

What is an independent contractor?

Answer 14

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.

Question 15

Why does it matter to determine whether someone is an employee or an independent contractor?

Answer 15

The issue can have a significant effect on the rights and liabilities of the parties.

For instance, employers are required to pay certain taxes, such as Social Security and unemployment insurance taxes, for employees but not for independent contractors.

Question 16

In an employer-employee relationship, who pays Social Security taxes?

Answer 16

The employer.

Question 17

In an employer-employee relationship, who pays Unemployment taxes (UIC)?

Answer 17

The employer.

Question 18

In an employer-employee relationship, who is responsible for the torts of the employee?

Answer 18

The employer.

Question 19

In an employer-employee relationship, who owns the copyright of the employee’s work?

Answer 19

The employer.

Question 20

In an employer-employee relationship, is the employee protected by employment laws?

Answer 20

Yes

Question 21

In an employer-employee relationship, is the employee protected against discrimination?

Answer 21

Yes

Question 22

What are the characteristics of an employer-employee relationship?

Answer 22

The employer pays Social Security taxes

The employer pays Unemployment taxes (UIC)

The employer is responsible for torts of the employee

Employer owns the copyright of employee’s work

The employee is protected by employment laws

The employee is protected against discrimination

The employee receives insurance, vacation pay, etc.

Question 23

What are the characteristics of an independent contractor situation?

Answer 23

Hiring Entity does not pay SS/UIC

Hiring Entity typically not responsible for torts of Independent Contractor

Independent Contractor Controls own work

Independent Contractor Retains compensation for work

Independent Contractor owns Copyright (unless contract states otherwise)

Question 24

In an independent contractor situation, does the hiring entity pay Social Security and Unemployment taxes?

Answer 24

No.

Question 25

In an independent contractor situation, is the hiring entity responsible for the torts of the independent contractor?

Answer 25

No.

Question 26

Who owns the copyright in an independent contractor situation?

Answer 26

The independent contractor (unless the contract states otherwise)

Question 27

List the 7 criteria used by the courts to determine whether a worker has the statutes of an employee or an independent contractor.

Answer 27

1. ) How much control can the employer exercise over the details of the work?
2. ) Is the worker engaged in an occupation or business distinct from that of the employer?
3. ) Is the work usually done under the employer’s direction or by a specialist without supervision?
4. ) Does the employer supply the tools at the place of work?

5.) For how long is the person employed?
(If the person is employed for a long, continuous period, this indicates employee status.)

6.) What is the method of payment—by time period or at the completion of the job?
(Regular payment by time period, such as once a month, indicates employee status.)

7.) What degree of skill is required of the worker?
Independent contractors are more likely to be highly skilled or to have unique skills than to be unskilled, so these types of skills may indicate independent-contractor status.)

Question 28

What are the criteria used by the IRS to determine whether a worker has the statutes of an employee or an independent contractor?

Answer 28

1. ) Look to the degree of control the business has over the worker.
2. ) IRS closely monitors this, as it wants proper collection of SS, withholding, and UIC
3. )Penalties for misclassification

NOTE: Just because a business calls a worker an “Independent Contractor” doesn’t mean the IRS will accept that classification.

The IRS tends to closely scrutinize a firm’s classification of its workers because employers can avoid certain tax liabilities by hiring independent contractors instead of employees. Even when a firm classifies a worker as an independent contractor, the IRS may decide that the worker is actually an employee. If the IRS decides that an employee is misclassified, the employer will be responsible for paying any applicable Social Security, withholding, and unemployment taxes due for that employee.

Question 29

Employee status and “works for hire”:

Answer 29

Ordinarily, a person who creates a copyrighted work is the owner of it—unless it is a “work for hire.” Under the Copyright Act, any copyrighted work created by an employee within the scope of her or his employment at the request of the employer is a “work for hire.” The employer owns the copyright to the work.

In contrast, when an employer hires an independent contractor—a freelance artist, writer, or computer programmer, for instance—the independent contractor normally owns the copyright. An exception is made if the parties agree in writing that the work is a “work for hire” and the work falls into specified categories, including audiovisual and other works.

Question 30

A person must have _________ to be a principal.

Answer 30

Contractual capacity

Those who cannot legally enter into contracts directly generally are not allowed to do so indirectly through an agent.

Question 31

Who can be an agent?

Answer 31

Any person regardless of whether he or she has the capacity to enter a contract (including minors).

Question 32

What are the 4 ways an agency relationship can arise?

Answer 32

1. ) By agreement
2. ) By ratification
3. ) By estoppel
4. ) By operation of law

Question 33

Agency by agreement:

Answer 33

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, such as when a person hires a neighbor to mow his lawn on a regular basis.

An agency agreement can also be implied by conduct.

Question 34

Describe an agency formed by ratification.

Answer 34

A person who is not an agent (or who is an agent acting outside the scope of his or her authority) makes a contract on behalf of another (a principal).

The principal then affirms that contract by word or action. The principal has essentially, ratified, the contract. In other words, he or she has given formal consent and made the contract officially valid after the fact.

Example from class:

• Nephew is not an actual employee of his uncle
• Uncle gets sick while out on lunch with a prospective client
• The uncle leaves
• The client believes that the nephew is an agent of his uncle
• The nephew stays and closes the deal
• This was not okay.
• Instead of trying to get out of it, the uncle ratifies the nephew’s deal with the client and follows through with the contract

Question 35

Describe an agency formed by estoppel.

Answer 35

A principal causes a third person to believe that another person is actually his or her agent when they are not.

The 𝗽𝗿𝗶𝗻𝗰𝗶𝗽𝗮𝗹’𝘀 𝗮𝗰𝘁𝗶𝗼𝗻𝘀 create the 𝘢𝘱𝘱𝘦𝘢𝘳𝘢𝘯𝘤𝘦 of an agency that does not in fact exist.

It is the deeds or statements of the principal that create an agency by estoppel rather than that of the agent in and of themselves.

Essentially, if the agent makes a deal that the principal ultimately does not like, the principal is “estopped to deny,” in other words, they are prevented from getting out of the deal.

Example from class:

• Uncle acts as if nephew is an agent even though the nephew is not
• The nephew closes the deal
• The uncle wants to get out of it
• The uncle is estopped ➡ “prevented” from raising the defense for lack of agency because he communicated that his nephew was in fact an employee

Question 36

Describe an agency formed by the operation of law.

Answer 36

The courts may find an agency relationship in the absence of a formal agreement in other situations as well. This can occur in family relationships, such as when one spouse purchases certain necessaries and charges them to the other spouse’s account. The courts will often rule that a spouse is liable for necessaries purchased by the other spouse 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 the agent is unable to 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. For instance, a railroad engineer may contract on behalf of her or his employer for medical care for an injured motorist hit by the train.

Question 37

Duties of agents and principals:

Answer 37

Once the principal-agent relationship has been created, both parties have duties that govern their conduct. Because an agency relationship is fiduciary (one of trust), each party owes the other the duty to act with the utmost good faith. In general, for every duty of the principal, the agent has a corresponding right, and vice versa.

Question 38

What are the 5 duties the agent owes to the principal?

Answer 38

1. ) Performance
2. ) Notification
3. ) Loyalty
4. ) Obedience
5. ) Accounting

Question 39

What is the performance duty the agent owes to the principal?

Answer 39

An implied condition in every agency contract is the agent’s agreement to use 𝗿𝗲𝗮𝘀𝗼𝗻𝗮𝗯𝗹𝗲 𝗱𝗶𝗹𝗶𝗴𝗲𝗻𝗰𝗲 𝗮𝗻𝗱 𝘀𝗸𝗶𝗹𝗹 in performing the work.

When an agent fails to perform her or his duties, liability for breach of contract may result. The degree of skill or care required of an agent is usually that expected of a reasonable person under similar circumstances.

If an agent has claimed to possess a special skill, however, failure to exercise that degree of skill constitutes a breach of the agent’s duty.

Question 40

What is the notification duty the agent owes to the principal?

Answer 40

An agent is required to notify the principal of all matters that come to her or his attention concerning the subject matter of the agency.

The duty to “inform.”

NOTE: Generally, the law assumes that the principal knows of any information acquired by the agent that is relevant to the agency—regardless of whether the agent actually passes on this information to the principal. It is a basic tenet of agency law that notice to the agent is a notice to the principal.

Question 41

What is the loyalty duty the agent owes to the principal?

Answer 41

𝗡𝗼 𝘀𝗲𝗹𝗳-𝗶𝗻𝘁𝗲𝗿𝗲𝘀𝘁
𝗠𝗮𝗶𝗻𝘁𝗮𝗶𝗻 𝗰𝗼𝗻𝗳𝗶𝗱𝗲𝗻𝘁𝗶𝗮𝗹𝗶𝘁𝘆

The agent has the duty to act 𝘴𝘰𝘭𝘦𝘭𝘺 𝘧𝘰𝘳 𝘵𝘩𝘦 𝘣𝘦𝘯𝘦𝘧𝘪𝘵 𝘰𝘧 𝘵𝘩𝘦 𝘱𝘳𝘪𝘯𝘤𝘪𝘱𝘢𝘭 and not in the interest of the agent or a third party.

For instance, an agent cannot represent two principals in the same transaction unless both know of the dual capacity and consent to it.

The duty of loyalty also means that any information or knowledge acquired through the agency relationship is considered confidential. It would be a breach of loyalty to disclose such information either during the agency relationship or after its termination. Typical examples of confidential information are trade secrets and customer lists compiled by the principal.

In short, the agent’s loyalty must be undivided. The agent’s actions must be strictly for the benefit of the principal and must not result in any secret profit for the agent.

Question 42

Can an agent’s disclosure of confidential information constitute the business tort of misappropriation of trade secrets?

Answer 42

Yes

Question 43

What is the obedience duty the agent owes to the principal?

Answer 43

The duty to follow all lawful and clearly stated instructions of the principal.

During emergency situations, however, when the principal cannot be consulted, the agent may deviate from the instructions without violating this duty.

Whenever instructions are not clearly stated, the agent can fulfill the duty of obedience by acting in good faith and in a manner reasonable under the circumstances.

Question 44

What is the accounting duty the agent owes to the principal?

Answer 44

The duty to keep and make available to the principal an account of all property and funds received and paid out on behalf of the principal. This includes gifts from third parties in connection with the agency.

Any dollar that is to be earned belongs to the principal.

Question 45

What are the 4 duties the principal owes to the agent?

Answer 45

1. ) Compensation
2. ) Reimbursement and Indemnification
3. ) Cooperation
4. ) Safe Working Conditions

Question 46

What is the compensation duty the principal owes to the agent?

Answer 46

The principal must pay the agreed-on (or reasonable) value for the agent’s services in a timely manner.

Question 47

What is the reimbursement and indemnification duty the principal owes to the agent?

Answer 47

The principal must reimburse the agent for any funds paid out at the principal’s request, as well as for necessary expenses.

Agents cannot recover for expenses incurred through their own misconduct or negligence, however.

Subject to the terms of the agency agreement, the principal has the duty to compensate, or indemnify, an agent for liabilities incurred because of authorized acts and transactions. For instance, if the principal fails to perform a contract formed by the agent with a third party and the third party then sues the agent, the principal must compensate the agent for any costs incurred in defending against the lawsuit.

Subject to the terms of the agency agreement, the principal has the duty to compensate, or indemnify, an agent for liabilities incurred because of authorized acts and transactions. For instance, if the principal fails to perform a contract formed by the agent with a third party and the third party then sues the agent, the principal must compensate the agent for any costs incurred in defending against the lawsuit.

Question 48

What is the cooperation duty the principal owes to the agent?

Answer 48

A principal has a duty to cooperate with the agent and to assist the agent in performing her or his duties. The principal must do nothing to prevent that performance.

When a principal grants an agent an exclusive territory, for instance, the principal creates an exclusive agency and cannot compete with the agent or assign or allow another agent to compete. If the principal does so, he or she violates the exclusive agency and can be held liable for the agent’s lost profits.

Example:
Penny (the principal) creates an exclusive agency by granting Andrew (the agent) an exclusive territory within which Andrew may sell Penny’s organic skin care products. If Penny starts to sell the products herself within Andrew’s territory—or permits another agent to do so—Penny has failed to cooperate with the agent. Because she has violated the exclusive agency, Penny can be held liable for Andrew’s lost sales or profits.

Question 49

What is the safe working conditions duty the principal owes to the agent?

Answer 49

The duty to provide safe working premises, equipment, and conditions.

Also to inspect the working conditions and to warn agents and employees about any hazards.

Question 50

What is an agent’s authority?

Answer 50

An agent’s authority to act can be either actual (express or implied) or apparent. If an agent contracts outside the scope of his or her authority, the principal may still become liable by ratifying the contract.

Question 51

What is express authority?

Answer 51

Actual authority declared in clear, direct, and definite terms.

It can be given orally or in writing.

Question 52

Express Authority ➡ Equal Dignity Rule

Answer 52

A rule requiring that an agent’s authority be in writing if the contract to be made on behalf of the principal must be in writing.

Failure to comply with the equal dignity rule can make a contract voidable at the option of the principal. The law regards the contract at that point as a mere offer. If the principal decides to accept the offer, the agent’s authority must be ratified, or affirmed, in writing.

Example: Parker (the principal) orally asks Austin (the agent) to sell a ranch that Parker owns. Austin finds a buyer and signs a sales contract on behalf of Parker to sell the ranch. Because a contract for an interest in realty must be in writing, the equal dignity rule applies here. Thus, the buyer cannot enforce the contract unless Parker subsequently ratifies Austin’s agency status in writing. Once Austin’s agency status is ratified, either party can enforce rights under the contract.

Question 53

Express Authority ➡ Power of Attorney

Answer 53

Authorization for another to act as one’s agent or attorney either in specified circumstances (special) or in all situations (general).

The power of attorney is a written document that is usually notarized.

ALL POWERS OF ATTORNEY ARE NOT CREATED EQALLY

Question 54

Express Authority ➡ Power of Attorney ➡ Special

Answer 54

Permitting the agent to do specified acts only.

Question 55

Express Authority ➡ Power of Attorney ➡ Durable

Answer 55

To last beyond incapacity.
Must be dubbed this.

Because a general power of attorney grants extensive authority to an agent to act on behalf of the principal in many ways, it should be used with great caution. Ordinarily, a power of attorney terminates on the incapacity or death of the person giving the power. A 𝙙𝙪𝙧𝙖𝙗𝙡𝙚 𝙥𝙤𝙬𝙚𝙧 𝙤𝙛 𝙖𝙩𝙩𝙤𝙧𝙣𝙚𝙮, however, continues to be effective despite the principal’s incapacity.

An elderly person, for example, might grant a durable power of attorney to provide for the handling of property and investments or specific healthcare needs should she or he become incompetent.

Question 56

What is a notary public?

Answer 56

The person authorized by the state to attest to the authenticity of signatures—signs and dates the document and imprints it with his or her seal of authority.

Doing so does not give the okay on a particular contract.

Question 57

What is implied authority?

Answer 57

Inferred from circumstances, an agent as the ability to do what is reasonably necessary to carry out his or her express authority and accomplish the objectives of the agency.

Example: It is reasonable to infer that a manager hired has the authority to form contracts to hire employees.

Question 58

What is apparent authority?

Answer 58

Authority that is only apparent, not real. An agent’s apparent authority arises when the principal causes a third party to believe that the agent has authority, even though she or he does not.

Question 59

What are emergency powers?

Answer 59

Sometimes, an unforeseen emergency demands action by the agent to protect or preserve the principal’s property or rights, but the agent is unable to communicate with the principal. In that situation, the agent has emergency power.

Question 60

What is ratification?

Answer 60

The principal affirms an agent’s 𝘶𝘯𝘢𝘶𝘵𝘩𝘰𝘳𝘪𝘻𝘦𝘥 𝘢𝘤𝘵.

The principal is bound to the agent’s act, and the act is treated as if it had been authorized by the principal from the outset. Ratification can be either express or implied.

Question 61

Liability in Agency Relationships:

Answer 61

Frequently, a question arises as to which party, the principal or the agent, should be held liable for contracts formed by the agent or for torts or crimes committed by the agent.

Question 62

What does the liability for contracts depend on?

Answer 62

Liability for contracts formed by an agent depends on how the principal is classified and on whether the actions of the agent were authorized or unauthorized. Principals are classified as disclosed, partially disclosed, or undisclosed.

Question 63

What is meant by a disclosed principal?

Answer 63

A principal whose identity is known by the third party at the time the contract is made by the agent.

Question 64

What is meant by a partially undisclosed principal?

Answer 64

A principal whose identity is not known by the third party, but the third party knows that the agent is or may be acting for a principal at the time the contract is made.

Example: Sarah has contracted with a real estate agent to sell a certain property. She wishes to keep her identity a secret, but the agent makes it clear to potential buyers of the property that the agent is acting in an agency capacity. In this situation, Sarah is a partially disclosed principal.

Question 65

What is meant by an undisclosed principal?

Answer 65

A principal whose identity is totally unknown by the third party, and the third party has no knowledge that the agent is acting in an agency capacity at the time the contract is made.

Question 66

Authorized Acts ➡ Liability of Principal

Answer 66

If an agent acts within the scope of her or his authority, normally the principal is obligated to perform the contract regardless of whether the principal was disclosed, partially disclosed, or undisclosed.

Question 67

Authorized Acts ➡ Liability of Agent

Answer 67

If an agent acts within the scope of her or his authority, normally the principal is obligated to perform the contract regardless of whether the principal was disclosed, partially disclosed, or undisclosed. Whether the agent may also be held liable under the contract, however, depends on the status of the principal.

i.e. the liability of the agent depends on whether the principal was disclosed, partially disclosed, or undisclosed.

Question 68

Authorized Acts ➡ Liability of Agent ➡ 𝗗𝗶𝘀𝗰𝗹𝗼𝘀𝗲𝗱 𝗣𝗿𝗶𝗻𝗰𝗶𝗽𝗮𝗹

Answer 68

If the principal is 𝘥𝘪𝘴𝘤𝘭𝘰𝘴𝘦𝘥, an agent has no contractual liability for the nonperformance of the principal or the third party.

Question 69

Authorized Acts ➡ Liability of Agent ➡ 𝗣𝗮𝗿𝘁𝗶𝗮𝗹𝗹𝘆 𝗗𝗶𝘀𝗰𝗹𝗼𝘀𝗲𝗱 𝗣𝗿𝗶𝗻𝗰𝗶𝗽𝗮𝗹

Answer 69

IN GENERAL, ONLY THE PRINCIPAL IS LIABLE.

If the principal is 𝘱𝘢𝘳𝘵𝘪𝘢𝘭𝘭𝘺 𝘥𝘪𝘴𝘤𝘭𝘰𝘴𝘦𝘥, in most states the agent is also treated as a party to the contract, and the third party can hold the agent liable for contractual nonperformance.

Example:
Stonhard, Inc., makes epoxy and urethane flooring and installs it in industrial and commercial buildings. Marvin Sussman contracted with Stonhard to install flooring at a Blue Ridge Farms food-manufacturing facility in Brooklyn, New York. Sussman did not disclose at that time that he was acting as an agent for the facility’s owner, Blue Ridge Foods, LLC.

When Stonhard was not paid for the installed flooring, it filed a suit against the Blue Ridge Farms facility, its owner, and Sussman to recover damages for breach of contract. The lower court dismissed the complaint against Sussman personally, but on appeal a reviewing court reversed that decision. The contract had been signed by Sussman “of Blue Ridge Farms.” That evidence indicated that Sussman was acting as an agent for a partially disclosed principal, in that the agency relationship was known, but not the principal’s identity. As an agent for a partially disclosed principal, Sussman became personally liable under the contract.

Question 70

Authorized Acts ➡ Liability of Agent ➡ 𝗨𝗻𝗱𝗶𝘀𝗰𝗹𝗼𝘀𝗲𝗱 𝗣𝗿𝗶𝗻𝗰𝗶𝗽𝗮𝗹

Answer 70

Sometimes, neither the fact of agency nor the identity of the principal is disclosed, and the agent is acting within the scope of his or her authority. In this situation, the undisclosed principal is bound to perform just as if the principal had been fully disclosed at the time the contract was made.

The agent is also liable as a party to the contract. When a principal’s identity is undisclosed and the agent is forced to pay the third party, however, the agent is entitled to be indemnified (compensated) by the principal. The principal had a duty to perform, even though his or her identity was undisclosed, and failure to do so will make the principal ultimately liable.

Once the undisclosed principal’s identity is revealed, the third party generally can elect to hold either the principal or the agent liable on the contract. At the same time, the undisclosed principal can require the third party to fulfill the contract, except under any of the following circumstances:

1. ) The undisclosed principal was expressly excluded as a party in the contract.
2. ) The contract is a negotiable instrument signed by the agent with no indication of signing in a representative capacity.
3. ) The performance of the agent is personal to the contract, allowing the third party to refuse the principal’s performance.

Question 71

Authorized Acts ➡ Liability of Agent ➡ Unauthorized Acts

Answer 71

If an agent has no authority but nevertheless contracts with a third party, the principal cannot be held liable on the contract. It does not matter whether the principal was disclosed, partially disclosed, or undisclosed.

In general, the agent is liable on the contract.

Example: Scranton signs a contract for the purchase of a truck, purportedly acting as an agent under authority granted by Johnson. In fact, Johnson has not given Scranton any such authority. Johnson refuses to pay for the truck, claiming that Scranton had no authority to purchase it. The seller of the truck is entitled to hold Scranton liable for payment.

Question 72

Liability for Torts and Crimes ➡ Principal’s Tortious Conduct

Answer 72

A principal conducting an activity through an agent may be liable for harm resulting from the principal’s own negligence or recklessness. Thus, a principal may be liable for giving improper instructions, authorizing the use of improper materials or tools, or establishing improper rules that resulted in the agent’s committing a tort.

Example: Paul knows that Audra is not qualified to drive large trucks. Paul nevertheless tells her to use the company truck to deliver some equipment to a customer. If Audra causes an accident that injures someone, Paul (the principal) will be liable for his own negligence in giving improper instructions to Audra.

Question 73

Liability for Torts and Crimes ➡ Principal’s Authorization of Agent’s Tortious Conduct

Answer 73

A principal who authorizes an agent to commit a tort may be liable to persons or property injured thereby, because the act is considered to be the principal’s.

Example:
Preston directs his agent, Ames, to cut the corn on specific acreage, which neither of them has the right to do. The harvest is therefore a trespass (a tort), and Preston is liable to the owner of the corn.

Class Example: 
2 employees in warehouse
Messing around
Employee on ladder, the other jiggles the ladder
Business owner comes in and starts laughing with 
Employee falls and injured
Who is responsible?
Agent is responsible of course
But Principal authorized 
The principal is also at fault

Question 74

Liability for Torts and Crimes ➡ Liability for Agent’s Misrepresentation

Answer 74

A principal is exposed to tort liability whenever a third person sustains a loss due to the agent’s misrepresentation.

Agent misrepresents, maybe by mistake, info to customer
Tells customer product comes with 5-year warranty when it does not
Employer may be liable for the misrepresentation
Agent misrepresents, maybe by mistake, info to customer
Tells customer product comes with 5-year warranty when it does not
Employer may be liable for the misrepresentation

Question 75

An agent is authorized to act on behalf and instead of a principal in doing business with third parties.​

A.) True

B.) False

Answer 75

A.) True

Question 76

Sarah has contracted with a real estate agent to sell certain property. She wishes to keep her identity a secret, and the agent does not reveal that they are acting in an agency capacity. In this situation, Sarah is a(n) _____.

A.) partially disclosed principal

B.) disclosed principal

C.) undisclosed principal

D.) agent

Answer 76

C.) undisclosed principal

Question 77

Mark works for Roadwerks, Inc. A client of Roadwerks, Concrete Inc., sends Mark an IPad as a gift for timely delivering Concrete’s materials. Who is the rightful owner of the IPad?

A.) Concrete, Inc.

B.) Roadwerks.

C.) Mark

D.) Mark and Roadwerks own the IPad jointly

Answer 77

B.) Roadwerks.

Question 78

If an independent contractor is injured while working on a project, the independent contractor is eligible for worker’s compensation benefits.

A.) True

B.) False

Answer 78

B.) False

Question 79

If a document has been notarized, it means it has been reviewed for proper content and format by a licensed attorney.

A.) True

B.) False

Answer 79

B.) False

Question 80

Dickey’s Distributors, LLC hires Nina to work on its loading dock, primarily unloading deliveries and interacting with customers from 8a-5p. Nina is most likely

A.) an agent.

B.) an independent contractor.

C.) a principal.

D.) an employer.

Answer 80

A.) an agent.

Question 81

Brad works in sales at Decks-R-Us. He tells a Decks customer, “I can personally build your deck for 25% less than what Decks would charge”. The customer agrees and Brad builds the deck on his day off, charging the customer as promised and keeping the money for himself. Brad has breached

A.) no duty as long as the install is on his day off.

B.) the agent’s duty of loyalty.

C.) the principal’s duty of indemnification.

D.) the agent’s duty of cooperation.

Answer 81

B.) the agent’s duty of loyalty.

Question 82

Agency relationships exist only between employees and employers.​

A.) True

B.) False

Answer 82

B.) False

Question 83

An agency relationship based on trust and confidence is

A.) rarely found.

B.) an estopped relationship.

C.) apparent authority.

D.) a fiduciary relationship

Answer 83

D.) a fiduciary relationship

Question 84

The more _________ a business has over a worker, the more likely a court will be inclined to classify that worker as an employee.

A.) contracts

B.) control

C.) unemployment claims

D.) projects

Answer 84

B.) control