Chapter 33: Agency Formation and Duties

Question 1

elements of an agency

Answer 1

a consensual fiduciary relationship in which one party, an agent, agrees to act on behalf of, and subject to the control of, the other party, the principal

Question 2

3 elements present in creating an agency

Answer 2

1. appointment of the agent by the principal
2. acceptance by appointment by agent
3. understanding that agent is subject to principal’s control

Question 3

4 requirements for creation of a contract

Answer 3

1. mutual manifestation of assent
2. valid consideration
3. capacity
4. legality

Question 4

3 ways to create an agency

Answer 4

agreement, ratification, or estoppel

Question 5

agreement

Answer 5

appointment, acceptance, understanding of control (by consent)

Question 6

ratification

Answer 6

the principal’s confirmation of an agent’s unauthorized act after the fact

Question 7

estoppel (apparent authority)

Answer 7

a person who misleads a third party to rely on an agency relationship, cannot later deny that relationship

Question 8

employee-employer relationship (master-servant relationship)

Answer 8

a person hired by another whose physical conduct is subject to control by the hiring party; may or may not be agent for the purpose of contracting

Question 9

independent contractor-employer relationship

Answer 9

hired by another, not subject to detailed physical control; may or may not be agent for the purpose of contracting

Question 10

principal-agent relationship

Answer 10

parties have agreed that agent will have power to bind principal in contract

Question 11

5 duties of an agent

Answer 11

1. performance
2. loyalty
3. accounting
4. notification
5. obedience

(PLANO)

Question 12

duty of performance

Answer 12

duty to use reasonable care

Question 13

duty of loyalty

Answer 13

duty to put principal’s interests first

Question 14

duty of accounting

Answer 14

duty to provide principal with records of the proper use of all money or property of the principal that came into the agent’s possession or control

Question 15

duty of notification

Answer 15

duty to inform the principal of all relevant information the agent receives

Question 16

duty of obedience

Answer 16

duty to fulfill lawful requests of the principal

Question 17

4 remedies of principal for breach of duty

Answer 17

1. constructive trust
2. contract avoidance
3. indemnification
4. accounting

Question 18

constructive trust

Answer 18

all property of the principal or improper profits of the agent, and the income obtained, are held as if in trust for the principal

Question 19

contract avoidance

Answer 19

the principal may cancel all contracts with the agent relevant to the agency

Question 20

indemnification

Answer 20

the agent owes the principal the amount of any damages paid to a third party as a result of the agents breach of duty

Question 21

accounting (remedy)

Answer 21

the right to sue for all money and property entrusted to the agent but not accounted for

Question 22

4 duties of principals to agents

Answer 22

1. compensation - reasonable pay
2. reimbursement - repay agent for money reasonably spent in reasonably carrying out agency
3. cooperation - do whatever required to help agent to reasonably carry out agency
4. safe workplace - if not obvious, must warn or fix danger