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Legal & Regulatory Aspects of FP > Chapter 17 - Agency > Flashcards

Chapter 17 - Agency Flashcards

1
Q

What is a Principal?

A

In an agency relationship, the person for whom an agent is acting

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2
Q

What is an Agent

A

In an agency relationship, the person who is acting on behalf of the principal

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3
Q

According to the Restatement of Agency, what is Agency?

A

Agency is the fiduciary relationship that arises when one person (a principal) manifests assent to another person (an agent) that the agent shall act on the principal’s behalf and subject to the principal’s control, and the agent manifests assent or otherwise consents so to act.

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4
Q

What five things must there be to create an agency relationship?

A
  • A PRINCIPAL and
  • An AGENT
  • Who mutually CONSENT that the agent will act on behalf of the principal and
  • Be subject to the principal’s CONTROL
  • Thereby creating a FIDUCIARY RELATIONSHIP
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5
Q

How is consent established?

A

The principal must ask the agent to do something, and the agent must agree

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6
Q

Why are principals liable for the acts of their agents? Why?

A

Because they exercise control over the agents.If principals direct their agents to commit an act, it seems fair to hold the principal liable when that act causes harm.

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7
Q

______ have fiduciary duty to their _________?

A

Agents, Principals

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8
Q

What is fiduciary responsibility?

A

The fiduciary is obligated to act in good faith and candor, putting his own needs second.

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9
Q

What is Duty of Loyalty?

A

An agent has a fiduciary duty to act loyally for the principal’s benefit in all matters connected with the agency relationship. All employees must put their employer’s interests first.

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10
Q

Do all employees owe a duty of loyalty to their employer?

A

Yes.

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11
Q

What is the agency relationship policy about outside benefits?

A

An agent may not receive profits unless the principal knows and approves.

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12
Q

What is the agency relationship policy about confidential information?

A

Agents can neither disclose nor use for their own benefit any confidential information they acquire during their agency.

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13
Q

When does an agent’s duty to keep information confidential end?

A

Never.

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14
Q

What is the agency relationship policy about competition with the principal?

A

Agents are not allowed to compete with their principal in any matter within the scope of their agency business.

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15
Q

When does the rule against competition end?

A

When the agency relationship ends.

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16
Q

What is the agency relationship policy about conflict of interest between two principals?

A

Unless otherwise agreed, an agent may not act for principals whose interests conflict.

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17
Q

What is the agency relationship policy about secretly dealing with the principal?

A

If a principal hires an agent to arrange a transaction, the agent may not become a party to the transaction without the principal’s permission.

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18
Q

What is the agency relationship policy about appropriate behavior?

A

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

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19
Q

What is the agency relationship policy about duty to obey instructions?

A

An agent must obey her principal’s instructions unless the principal directs her to behave illegally or unethically.

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20
Q

What is the agency relationship policy about duty of care?

A

An agent has a duty to act with reasonable care.

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21
Q

What is the agency relationship policy about duty to provide information?

A

An agent has the duty to provide the principal with all information in her possession that she has reason to believe the principal wants to know.

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22
Q

What are a principal’s three potential remedies when an agent breaches her duty?

A
  • The principal can recover from the agent any DAMAGES the breach has caused.
  • If an agent breaches the duty of loyalty, he must turn over to the principal any PROFITS he has earned as a result of his wrongdoing.
  • If the agent violated her duty of loyalty, the principal may RESCIND the transaction.
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23
Q

What are the principal’s three duties to an agent?

A

The principal must

  • Duty to compensate as provided by the agreement
  • Duty to reimburse (for reasonable expenses)
  • Duty to cooperate (with agent in performing agency tasks)
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24
Q

What are the five options available to terminate an agency relationship?

A
  • Term agreement
  • Achieving a purpose
  • Mutual Agreement
  • Agency at Will
  • Wrongful Termination
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25
Q

What is Term Agreement in an agency relationship?

A

-When the principal and agent agree in advance how long their relationship will last.

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26
Q

What is Achieving a Purpose in an agency relationship?

A

When the principal and agent agree that the agency relationship will terminate when the principal’s goals have been achieved.

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27
Q

What is Mutual Agreement in an agency relationship?

A

No matter what the principal and agent agree at the start, they can always change their minds later on, so long as the change is mutual.

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28
Q

What is Agency At Will in an agency relationship?

A

When they make no agreement in advance about the terms of the agreement, and either the principal or agent ca terminate at any time.

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29
Q

What is Wrongful Termination in an agency relationship?

A

Means either party has the power to exit agency relationship, although they may not have the right. In the end the wrongful party must pay damages, but can’t be forced to stay in that relationship.

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30
Q

What is another way for an agency relationship to terminate?

A

When either the agent or the principal becomes unable to perform his required duties the agency relationship terminates.

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31
Q

What is Express Authority?

A

Either by words or conduct, the principal grants an agent permission to act.

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32
Q

What is Implied Authority?

A

The agent has the authority to perform acts that are reasonably necessary to accomplish an authorized transactions, even if the principal does not specify the term.

33
Q

When is a principal liable for contracts entered into on her behalf by the agent?

A

Anytime so long as the agent is authorized to create contracts.

34
Q

What is Apparent Authority?

A

A principal does something to make an innocent third party believe that an agent is acting with the principal’s authority, even though the agent is not authorized.

35
Q

What does an agent’s liability on a contract depend on?

A

How much the third party knows about the principal.

36
Q

What is an agent’s liability for contracts concerning fully disclosed principal?

A

An agent is not liable for any contracts she makes on behalf of a fully disclosed principal.

37
Q

When has a principal been fully disclosed?

A

When the third party knows of his EXISTENCE and his IDENTITY.

38
Q

Where does liability fall for the case of an unidentified principal?

A

In the case of an unidentified principal, the third party can recover from either the agent of the principal.

39
Q

When has the principal been unidentified?

A

When the third party knew of his EXISTENCE but not his identity.

40
Q

How are the agent and principal liable in the case of an unidentified principal?

A

Jointly and Severally Liable - Damages can be recovered from either or both parties, but not for more than the total amount owed.

41
Q

Where does the liability fall for the case of an undisclosed principal?

A

In the case of an undisclosed principal, the third party can recover from either the agent or the principal.

42
Q

When has the principal been undisclosed?

A

When the third party did not know of his existence.

43
Q

When is an agent liable for a contract?

A

When a principal’s identity was not disclosed to the third party.

44
Q

When is the principal liable for the contract?

A

Always

45
Q

What is Respondeat Superior?

A

(Let the master answer) - The principal that an employer is liable for a tort committed by an employee acting within the scope of employment or acting with authority.

46
Q

Under the theory of Respondent Superior, what is the employer liable for?

A

The misbehavior of the employee whether or not the employer was at fault. The employer is even liable if he forbade or tried to prevent the employee from misbehaving.

47
Q

What is the logic behind Respondent Superior?

A

Because the principal controls the agent, he should be able to prevent misbehavior. If he cannot prevent it, at least he can insure against the risks. Furthermore, the principal may have deeper pockets than the agent or the injured third party and thus be better able to afford the cost of the agent’s misbehavior.

48
Q

What are the two kinds of agents?

A
  • Employee

- Independent Contractor

49
Q

Which kind of agent is an principal liable for?

A

A principal may be liable for the torts of an employee but generally is not liable for the torts of an independent contractor.

50
Q

What does the court consider when determining if agents are employees or independent contractors? 7

A

Whether

  • The principal supervises the details of the work
  • The principal supplies the tools and place of work
  • The agents work full time for the principal
  • The agent receive a salary or hourly wages, not a fixed price for the job
  • The work is party of the regular business of the principal
  • The principal and agents believe they have an employer-employee relationship
  • The principal is in business

The idea being that the more control the principal has over an agent, the more likely that the agent will be considered an employee.

51
Q

What is the one exception to the rule that principals are not liable for the torts of an independent contractor?

A

The principal is liable for the torts of an independent contractor if the principal has been negligent in hiring or supervising her.

52
Q

What does scope of employment have to do with a principal’s liability for an agent’s acts?

A

Principals are liable only for torts that an employee commits with the scope of employment

53
Q

An employee is acting within the scope of employment if the act__________ ? 6

A
  • Is one that employees are generally responsible for
  • Takes place during hours that the employee is generally employed
  • Is part of the principal’s business
  • Is similar to the one the principal authorized
  • Is one for which the principal supplied the tools, and
  • Is not seriously criminal
54
Q

What is the policy about authorization, under the idea of scope of employment?

A

An act is within the scope of employment, even if expressly forbidden, if it is of the same general nature as that authorized or if it is incidental to the conduct of the authorized.

55
Q

What is the policy about abandonment, under the idea of scope of employment?

A

The principal is liable for the actions of the employee that occur while the employee is at work, but not for actions that occur after the employee has abandoned the principal’s business.

The employer is liable if the employee is simply on a detour from company business, but the employer is not liable if the employee is off on a frolic of his own.

56
Q

What is a principal’s liability regarding an employee’s intentional torts?

A

A principal is not liable for the intentional torts of the employee unless the employee intended to serve some purpose of the employer or the employer was negligent in hiring or supervising the employee.

57
Q

What is the principal’s liability regarding nonphysical torts (those that harm only reputation, feelings or wallet)?

A

They are treated like a contract claim and the principal is liable if the employee acted with actual, implied, or apparent authority.

58
Q

What is an agent’s liability for torts committed related in some way to the principal?

A

Agents are always liable for their own torts. Even if the tort was committed to benefit the principal, the agent is still liable.

59
Q

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

  1. John is Tim’s principal
  2. Tim, but not John, can terminate the agency
  3. This illustrates a power coupled with an interest
  4. All of the above are correct
A

1

60
Q

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.

  1. The contract is voidable at the option of Mrs. O’Leary’s estate.
  2. The contract is valid since the agency’s purpose was achieved before Jenna was notified of Mrs. O’Leary’s death.
  3. The contract is void since the agency terminated May 29.
  4. The contract is voidable at the option of Brandon.
A

3

61
Q

I hire a secretary to run my office. Which of the following does she not have implied authority to do?

  1. call someone to repair the copy machine.
  2. purchase new computers for the entire offices.
  3. hire a maid to come in and clean.
  4. order donuts for breakfast for all the office employees.
A

2

62
Q

The doctrine of estoppel would most often apply in situations of:

  1. implied authority.
  2. actual authority.
  3. apparent authority.
  4. transaction authority.
A

3

63
Q

HBR Accounting hired Denise, to negotiate a real estate deal but wants to keep their name out of the deal until after the closing. Which statement is correct?

  1. Denise is an agent and has no liability on the deal.
  2. Denise shares liability on the deal because HBR is an undisclosed principal.
  3. Only Denise is liable on the deal.
  4. Denise is an agent but has a duty to disclose her principal if asked.
A

2

64
Q

If the agent is disloyal to the principal:

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

4

65
Q

When a principal is partially disclosed:

  1. the agent and principal will be only jointly liable on the contract.
  2. the agent and principal will be jointly and severally liable on the contract.
  3. only the agent is liable.
  4. only the principal can be liable.
A

2

66
Q

Which of the following persons is an agent?

  1. Diane, a shoe salesperson for a retail store.
  2. Tim, a real estate broker for a large real estate company.
  3. Craig, a telephone marketing employee.
  4. All the above.
A

4

67
Q

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?

  1. Mohammad can share with Ceries the confidential information he knows about Estay’s new product because he was directly involved in its development.
  2. 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.
  3. Mohammad can share with Ceries the confidential information he knows about Estay’s new product because his agency relationship with Estay is terminated.
  4. Mohammad cannot share with Ceries the confidential information he knows about Estay’s new product because of the equal dignities rule.
A

2

68
Q

Circus Pizza contracted with Art to run its birthday parties. Art’s responsibilities included supervising the children and organizing the games. Circus did not investigate Art’s background, which included a history of assaulting children. Art assaulted a 7-year-old girl in the restaurant’s kitchen during a birthday party. Circus Pizza:

  1. may be held liable on the basis of negligent hiring.
  2. cannot be held liable for the damages because Art’s conduct was not in the scope of employment.
  3. cannot be liable for the damages because Art committed an unforeseeable intentional tort.
  4. may be held liable only if Circus actually knew of Art’s background.
A

1

69
Q

Factors influencing whether a servant is acting within the scope of employment include all but which of the following?

  1. The act is similar to the one the principal authorized.
  2. The act is not seriously criminal.
  3. The act took place during hours that the servant is generally employed.
  4. All of the answer choices are factors in determining if an act is “within the scope of employment.”
A

4

70
Q

Chance is a traveling marketing representative for a publishing company. He is an independent contractor. One afternoon while driving to a meeting, he negligently runs a stop sign and causes an accident. Judy is injured. Judy can:

  1. hold both Chance and his company liable for her injury.
  2. hold the company but not Chance liable.
  3. hold Chance but not the company liable.
  4. not hold Chance or his company liable for her injury.
A

3

71
Q

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

  1. A travel agent files for individual bankruptcy under Chapter 13.
  2. The principal and agent agree on an agency relationship to sell a boat, and the boat is sold.
  3. The agent violates his duty of loyalty.
  4. An electrician, an agent of a contractor, has her license revoked.
A

1

72
Q

Pamela hired Lena to sell her business. Lena:

  1. can buy the business only with Pamela’s permission.
  2. can buy the business as long as the price is fair.
  3. can buy the business as long as she qualifies for financing.
  4. cannot buy the business under any circumstances.
A

1

73
Q

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:

  1. need not indemnify Jim for Maureen’s claim because Jim breached his duty to obey instructions.
  2. can recover damages from Jim for any injury to the newspaper resulting from Jim’s story.
  3. must indemnify Jim for Maureen’s claim.
  4. need not indemnify Jim for Maureen’s claim because Jim should have checked his facts more carefully.
A

3

74
Q

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?

  1. Nikki has not breached a fiduciary duty to HBR since Nikki has a contractual relationship with her clients, not her employer.
  2. Nikki has not breached a fiduciary duty to HBR since her consulting is done after her work for HBR.
  3. Nikki has breached a fiduciary duty to HBR since she is competing with HBR.
  4. Nikki has not breached a fiduciary duty to HBR since her behavior does not reflect badly
A

3

75
Q

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:

  1. should not hire Elton. Tom has a duty to obey Esday’s instructions only if they are legal and ethical.
  2. should hire Elton. Tom has a duty of care to ensure that the government does not discover that Elton is 15 years old.
  3. should hire Elton. Tom has a duty to obey Esday’s instructions.
  4. should not hire Elton. Tom has a duty of care and he would not be caring for Elton.
A

1

76
Q

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

  1. during both working hours and off-duty time.
  2. during working hours.
  3. during off-duty time.
  4. only by public officials.
A

1

77
Q

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?

  1. No. An agent is not allowed under any circumstances to personally profit as a result of the agency relationship.
  2. No. The bracelet is regarded as an unfair trade practice and violates antitrust law.
  3. Yes. The bracelet was given to Janet personally and intended for her.
  4. Yes, but only if she discloses the gift to Esday and Esday consents to her keeping the bracelet.
A

4

78
Q

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?

  1. Jim can sell his car to the buyer who came to look at Donna’s.
  2. Jim did not owe a duty of care in showing the car.
  3. Jim is an agent of Donna.
  4. Jim is not an agent of Donna since he was not paid.
A

3

Legal & Regulatory Aspects of FP (26 decks)

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