Chapter 28

Question 1

What is an Principal

Answer 1

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

Question 2

What is an agent

Answer 2

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

Question 3

What does it take to create an agency relationship?

Answer 3

Must be:
A principal
An agent
Mutual consent that the agent will act on behalf of the principal and be subject to the principals control.
Thereby creating a fiduciary relationship

Question 4

Fiduciary relationship

Answer 4

A trustee acts for the benefit of the beneficiary, always putting the interests of the beneficiary before his own.

Question 5

What three elements must be necessary to create an agency relationship?

Answer 5

Consent
Control
Fiduciary duty

Question 6

Equal dignities rule

Answer 6

If an agent is empowered to enter into a contract that must be in writing, then the appointment of the agent must also be written.

Question 7

Duty of loyalty

Answer 7

An agent has a fiduciary duty to act loyally for the principals benefit in all matters connected with the agency relationship.

Question 8

Outside benefits

Answer 8

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

Question 9

Competition with the principal

Answer 9

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

Question 10

Conflict of interest between two principals

Answer 10

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

Question 11

Secretly dealing with the principal

Answer 11

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

Question 12

Appropriate behavior

Answer 12

An agent may not engage in inappropriate behavior that reflects badly on the principal

Question 13

Duty to obey instructions

Answer 13

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

Question 14

Duty of care

Answer 14

1. An agent has a duty to act with reasonable care
2. An agent with special skills is held to a higher standard because she is expected to use those skills.
3. Gratuitous agents are liable if they commit gross negligence, but not ordinary negligence.

Question 15

Duty to provide information

Answer 15

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

Question 16

Three principals remedies when the agent breaches a duty?

Answer 16

1. The principal can recover from the agent any damages the breach has caused.
2. 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.
3. If the agent has violated her duty of loyalty, the principal may rescind the transaction

Question 17

Duties of principals to agents

Answer 17

1. Duty to compensate as provided by the agreement
2. Duty to reimburse for reasonable expenses
3. Duty to cooperate

Question 18

Duty of agents to principals

Answer 18

1. Duty of loyalty
2. Duty to obey instructions
3. Duty of care
4. Duty to provide information

Question 19

Duty to cooperate

Answer 19

1. The principal must furnish the agent with the opportunity to work
2. The principal cannot unreasonably interfere with the agents ability to accomplish his task
3. The principal must perform her part of the contract

Question 20

Termination by agent or principal

Answer 20

1. Term agreement-how long the relationship lasts
2. Time
3. Achieving a purpose-Terminate when the goals have been reached
4. Mutual agreement to terminate
5. Agency at will- no agreement in advance.
6. Wrongful termination-either party always has the power to leave.

Question 21

Principal or agent can no longer perform required duties

Answer 21

1. If either the agent or the principal fails to obtain (or keep) a license necessary to perform duties under the agency agreement, the agreement ends.
2. The bankruptcy of the agent or the principal terminates an agency relationship only if it affects their ability ti perform
3. An agency relationship terminates upon the death or incapacity of either the principal or the agent
4. If the agent violates her duty of loyalty, the agency agreement automatically terminates

Question 22

Principals liability for contracts

Answer 22

The principal is liable for the acts of an agent if (1) the agent had authority or (2) the principal ratifies the acts of the agent

Question 23

Authority

Answer 23

A principal is bound by the acts of an agent if the agent has authority. There are three types of authority: express, implied, and apparent

Question 24

Implied Authority

Answer 24

Unless otherwise agreed, authority to conduct a transaction includes authority to do acts that are reasonably necessary to accomplish it.

Question 25

Apparent Authority

Answer 25

A principal can be liable for the acts of an agent who is not, in fact, acting with authority if the principals conduct causes a third party reasonably to believe that the agent is authorized

Question 26

Ratification

Answer 26

If a person accepts the benefit of an unauthorized transaction or fails to repudiate it, then he is as bound by the acts as if he had originally authorized it.

Question 27

Fully disclosed principal

Answer 27

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

Question 28

Unidentified principal

Answer 28

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

Question 29

Undisclosed principal

Answer 29

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

Question 30

Because of concerns about fair play, there are some exceptions to the rule on undisclosed principals

Answer 30

A third party is not bound to the contract with an undisclosed principal if (1) the contract specifically provides that the third party is not bound to anyone other than the agent, or (2) the agent lies about the principal because she knows the third party would refuse to contract with him.

Question 31

Unauthorized agent

Answer 31

If the agent has no authority (express, implied, or apparent), the principal is not liable to the third party, the agent is.

Question 32

Principals liability for torts

Answer 32

An employer is liable for a tort committed by its employee acting within the scope of employment or acting with authority

Question 33

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

Answer 33

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Question 34

Negligent hiring

Answer 34

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

Question 35

Scope of employment

Answer 35

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

Question 36

Authorization

Answer 36

An act 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 authorized.

Question 37

Abandonment

Answer 37

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 principals business.

Question 38

Intentional torts

Answer 38

A principal is not liable for the intentional torts of an employee unless (1) the employee intended to serve some purpose of the employer; or (2) the employer was negligent in hiring or supervising this employee.

Question 39

Physical or non-physical harm

Answer 39

Nonphysical torts are treated more like a contract claim, and the principal is liable if the employee acted with express, implied, or apparent authority.

Question 40

Express authority

Answer 40

The principal grants express authority by words or conduct that, reasonably interpreted, cause the agent to believe that the principal desires her to act on the principals account.