Chapter 7

Question 1

What are the three ways an agency can be created?

Answer 1

1) Appointment/agreement
2) Estoppel - doesn’t technically create agency but protects
3) Ratification

Question 2

What are the five requirements of ratification (creating an agency)?

Answer 2

a. The agent must indicate he was acting for his principal.
b. The principal must know all the material facts of the transaction.
c. The principal must ratify the entire agreement,
d. before the third party withdraws.
e. The contract must be legal.

Question 3

What are the three types of actual authority?

Answer 3

1. express authority
2. implied authority
3. emergency authority

Question 4

When does a principal create apparent authority?

Answer 4

Only when the principal creates an appearance which would cause a ‘reasonable’ third party to assume the agent’s actual authority.

Question 5

When can an agent delegate his authority to perform a task?

Answer 5

1) ministerial duties
2) customarily delegated in trade
3) emergency

Question 6

What are the five duties an agent owes to his principal?

Answer 6

1) loyalty
2) obedience
3) reasonable care
4) accounting
5) disclosure of all material facts

Question 7

What are a principal’s remedies for an agent’s wrongdoing?

Answer 7

1) suit for breach of agency contract
2) tort claim
3) suit for value of benefits the agent received
4) suit for recovery of the property

Question 8

What are the four duties a principal owes to his agent?

Answer 8

1) Honoring the agency contract
2) compensation at the agreed rate
3) reimbursement for necessarily incurred expenses
4) indemnification for judgments and defense costs arising from agency performance

Question 9

What are an agent’s remedies for breach?

Answer 9

Suits for 
1) compensation
2) indemnity
3) reimbursement 
May also exercise a lien against the principal's property.

Question 10

A lien usually used by attorneys, bankers, and stockbrokers where the principal’s goods and papers are held until ALL ACCOUNTS ARE SETTLED.

Answer 10

general lien

Question 11

A lien that is used by most agents where the pricipal’s property is held pending settlement of the IMMEDIATE TRANSACTION.

Answer 11

specific lien

Question 12

What are the eight ways an agency can be terminated?

Answer 12

1) just cause
2) lapse of time
3) accomplishment of purpose
4) revocation by the principal
5) renunciation of authority by the agent
6) dealth or legal incapacity of the principal or agent
7) changed circumstances
8) bankruptcy

Question 13

In the case of a undisclosed or partially disclosed principal, when may a third party elect to enforce the agreement against the principal, instead of the agent?

Answer 13

When the third party learns of the principal’s existence or identity

Question 14

When does a principal share liability for an agent’s tortious or criminal activity?

Answer 14

If the acts were committed within the scope of the agency or the principal should have foreseen such action.

Question 15

What are the four exceptions of the third party being obligated to the principal? (because the principal is obligated to the third party)

Answer 15

1) The agency fraudulently concealed the principal’s identity (if he knew the 3’rd party wouldn’t contract with the principal … ex. Writing a policy with Safety even though the insured said he hates Safety and then changing the dec page to look like it was issued with another carrier.
2) If the principal’s identity materially increases the 3’rd party’s contractual burden
3) if the contract rested on the agent’s personal skill or credit (only the agent and third party may enforce the contract)
4) if the third party obtains a legal judgment in lawsuit against the agent

Question 16

An agent is not liable to third parties for contracts executed on behalf of a disclosed principal unless the agent… (6 exceptions)

Answer 16

1) breached the implied warranty that he acted within the scope of authority (unless he made full disclosure to 3rd party OR the principal ratified the agreement)
2) acted for a contractually incompetent principal
3) acted for an undisclosed or partially disclosed principal
4) voluntarily guaranteed the contract
5) collected payments without authority
6) committed a tort or crime against the third party

Question 17

If an agent is not obligated to a 3’rd party, that 3’rd party is not obligated to the agent. What are the 2 exceptions to this?

Answer 17

If the agent:

1) personally guaranteed the contract. (not just guaranteeing the principal’s performance)
2) is liable because his principal was not disclosed

Question 18

What can an agent sue a 3’rd party for?

Answer 18

Acts that injure the agency DIRECTLY.

Question 19

What are the three requirements for a principal or employer to be vicariously liable?

Answer 19

1) agent/employee commits a tortious or criminal action
2) within scope of authority (whatever advances principal/employe interest … even if forbidden.
3) while under principal’s/employer’s control.

Question 20

Phil decides that he is going to investigate a garaging issue on a policy his boss asked him to investigate and attempt to cancel. He stops by the insured’s home on his commute home from work in his own personal vehicle. In his “investigation,” he trespasses onto the insured’s property and steps on the insured’s poodle who was napping in the yard. The dog dies. The insured wants to sue Safety Insurance directly for Phil’s actions. Would they have a legitimate suit?

Answer 20

Yes. The employee’s intentions were to further his employer’s best interests.

Question 21

If a principal negligently selects an employee could the employer be directly liable for an insurer’s torts?

Answer 21

Yes. selecting the right agents, giving them clear instructions, providing appropriate tools and materials, monitoring their performances, and firing those who do not work appropriately.

Question 22

When is an employer liable for the torts of an independent contractor?

Answer 22

1) negligently chosen or inadequate work directions
2) tried to delegate a nondelegable duty to the contractor and/or
3) contract required inherently dangerous activities, such as blasting.

Question 23

When does a principal have direct liability for his employees’ misrepresentations?

Answer 23

If he intended the employees to make misrepresentations or negligently allowed them to do so.
The principal has vicarious liability for any misrepresentations if his agents had actual or apparent authority to make true statements.

Question 24

An agent is liable for his own torts even if acting on principal’s orders. What are three exceptions to this statement?

Answer 24

1) exercising a privilege of the principal, if acting in scope of privilege (defending principal’s property)
2) misrep while conducting the principal’s business IF he neither knew nor had reason to know about their falsity. Ex. Insurer told agent to sell Safety Shield Plus by falsely claiming it included “unlimited accident forgiveness.”
3) Injuries caused by defective tools or materials furnished by the principal.