Law: #16

Question 1

Employers worry about employee mistakes because an old rule of law known as “respondent superior”. What is this rule in English, and why does it worry them?

Answer 1

It translates to “let the superior speak”. The rule provides that a master is responsible/liable for the conduct of his servants.

Question 2

How do you know when an agency relationship exists

Answer 2

When one person (principle) directs another person (agent) to perform various tasks for her, and the agent agrees. Agent acts in principles behalf, and is subject to their control.

Question 3

What key difference is there between the relationship between a principle and an agent to a principle and an independent contractor?

Answer 3

The key difference is control. With an agent the principle has control of the agents conduct, whereas a principle does not have control of the conduct of an independent contract, only the results agreed upon.

Question 4

What may a principle control in a relationship with an independent contractor?

Answer 4

The principle may control the result, but not the method.

Question 5

What difference is there in the amount of liability owed in the relationship of principle to agent vs to independent contractor.

Answer 5

The principle is liable for actions of an agent, but not of an independent contractor.

Question 6

What are some of the factors that a court uses to test for a principle-agent relationship?

Answer 6

Skills required, source of instrumentality and tools, the location of the work, duration of the relationship, if hiring party has the right to assign additional projects to the hired party, method of payment, employee benefits, tax treatments, etc.

Question 7

What is an express agency?

Answer 7

This is when an agency relationship is formed by an explicit agreement (as opposed to implicit/implied) agreement.

Question 8

If there is an agency relationship that is not an “express agency” then what is it?

Answer 8

implied.

Question 9

Is a written contract required for an agency relationship to exist?

Answer 9

No. However, consent is.

Question 10

What are some limitations by court mentioned in relation to agent-principle relationships?

Answer 10

They will not enforce a contract if one party is incompetent, or if the agent is being told to perform an illegal act.

Question 11

Assume that Andrea intends to operate a summer fruit stand in addition to her flower store and that the message to Robert includes the following: “As we discussed on the telephone, I will also operate a summer fruit stand, and it will be your obligation to visit local farmers and buy apples and peaches which I will sell at my fruit stand. I will not sell tropical fruit like bananas because they deteriorate too quickly.” Robert agrees.

However, in the weeks that follow, Andrea tells her business friends—contrary to the understanding above—that Robert will be working for her and buying and selling “all kinds of fruit.” If Robert thereafter buys some
bananas from one of Andrea’s business friends (contrary to his agree-
ment with Andrea) is she bound by the banana contract?

Answer 11

The answer is yes because she has created the appearance of authorization and it is thus reasonable that she should be responsible for an understanding she created. (Thus the phrase “apparent authority” is sometimes used with respect to agency relationships.)

Question 12

Whose conduct is “apparent authority” based on?

Answer 12

It is based on the conduct of the principle only. So if an agent acts under apparent authority, contradicting the direction of the principle then the principle is not liable.

pg 417
a principal is liable for understandings that he, the principal,has created. An innocent principal is not responsible for the misrepresentations of a would-be agent.

Question 13

What does “agency by ratification” mean?

Answer 13

This is a uncommon principle-agent relationship in which a principal later expresses her intent to be bound to a contract that she did not authorize when it was formed.

For example:
Michael is a friend of Milly and he becomes aware of a very good deal on potted petunias at a wholesale house in Idaho. He buys three hundred petunias in the name of Milly, even though he does not work for Milly, and he is not authorized to buy the flowers. Obviously, Milly is not responsible to pay for the flowers because (1) Michael is not her agent, and (2) she has not created the appearance that Michael is her agent. Nevertheless, further suppose that Michael contacts Milly and tells her what he has done. Milly agrees to the deal even though it was not authorized. Consistent with that, Milly contacts the wholesale house and tells them to send her the bill. This act of expressing her intent to be bound to the agreement is called ratification and this arrangement is thus called agency by ratification.

Question 14

What are the three general duties of a principal?

Answer 14

1) Compensation: pay agent for services
2) Reimbursement and indemnification: must reimburse for authorized expenses or losses due to principles misconduct
3) Cooperation: Provide info, safe working conditions, etc. Cant work to thwart work of agent.

Question 15

What are the four general duties of the agent?

Answer 15

1) Fiduciary: obligation of trust and confidence
2) Performance: perform as a reasonable person would
3) Notification: of important info
4) Accountability: keep records and account for use of money and property

Question 16

Which of the agents duties encompasses the concept that an agent must give first place to the interests of the principal and second place to their own interests?

Answer 16

This falls under the duty of being a fiduciary

Question 17

What type of fiduciary responsibility does a principal have to its agent?

Answer 17

The principal is not the fiduciary of the agent, this means that the principal is not “entrusted to act for the benefit of or in the interest of another”.

Question 18

To avoid liability for various claims, a business enterprise will often claim that a person working for it is an independent contractor and not an agent. Summarize the factors (they are discussed in both of the preceding cases) that are considered by courts to decide whether a particular person is an independent contractor or an agent. (13)

Answer 18

This list is from the Eisenberg decision: (1) the hiring party’s right to control the manner and means by which the product is accomplished; (2) the skill required; (3) the source of the instrumentalities and tools; (4) the location of the work; (5) the duration of the relationship between the parties; (6) whether the hiring party has the right to assign additional projects to the hired party; (7) the extent of the hired party’s discretion over when and how to long to work; (8) the method of payment; (9) the hired party’s role in hiring and paying assistants; (10) whether the work is part of the regular business of the hiring party; (11) whether the hiring party is in business; (12) the provision of employee benefits; and (13) the tax treatment of the hired party.

Question 19

Explain how the facts in Ginn must change for a court to conclude that there was an agency relationship between the unknown patron and the nightclub.

Answer 19

Note the definition of agency earlier in this chapter. It requires “assent” (agreement) on the part of the principal (the manager) and the patron (agent) that the agent will act for the principal. There are no magic words, but the following would suffice: the manager says, “John, help me get this drunk out of here,” and the patron responds, “Okay.”

Question 20

What is the difference between implied authority and apparent authority? (This is a difficult question and if you understand the subtle distinction between the two, you are starting to understand the matters discussed in this chapter.)

Answer 20

Implied authority is real authority, but apparent authority is not. With apparent authority the court is simply enforcing a false representation by the principal to avoid harm to the victim of the false representation.

Question 21

In the Alberty-Velez v. Corporacion de Puerto Rico case, the court obviously found it significant that Ms. Alberty-Velez (1) provided her own tools, (2) received a lump sum for each performance, and (3) did not receive benefits. The important question is why the court considered these items (among other items) important in deciding whether she was an independent contractor.

Answer 21

Normally, an employee (for example, an employee in a bakery) is (1) provided all necessary tools and products, (2) paid by the hour, and (3) Internal Tax, Social Security, and benefits withholding is provided. These items demonstrate dependence, not independence. The fact that these items were not applied to Ms. Alberty-Velez suggests her independence.

Question 22

Explain (1) what is meant by a fiduciary duty, and (2) who owes the duty: principal or agent?

Answer 22

A fiduciary duty is a duty in which a person owes a responsibility of trust and confidence to another and must put that other person’s interests before his own. This duty is owed by an agent to a principal.

Question 23

As we will learn later in more detail, many people resist being described as a principal. Why is this so? As described above, why does a “principal” often resist that description?

Answer 23

A principal often tries to avoid being described as a principal because in an agency relationship the principal is liable for the wrongdoing of his or her agent.

Question 24

Respondeat superior applies to which of the following?

A principal and agent relationship created by express agreement.

A principal and agent relationship based on implied agency.

A principal and agent relationship based on apparent authority.

All of these are correct.

Answer 24

d

Respondeat wsuperior is an old rule of law that provides that a master is responsible for the conduct of his agents. This rule applies no matter how the agency relationship is created.

Question 25

Brigham Young University and the University of Utah combine (as they often do) to solicit donations of food for the poor. Which of them is the principal and which is the agent?

Brigham Young University is the principal and the University of Utah is the agent.

The University of Utah is the principal and Brigham Young is the agent.

Neither of these is correct.

Answer 25

c

By definition, an agency relationship is one wherein one party agrees to act on the behalf of another and subject to that party’s control. In this matter, the agreement is to act in behalf of the poor and not in behalf of the other, and neither has agreed to be subject to the other’s control.

Question 26

In an agency relationship there are the following duties: (1) fiduciary, (2) performance, (3) notification, and (4) accountability. These duties must be performed by

The principal

The agent

Neither of these is correct

Answer 26

b

As noted in the chapter, the duties of fiduciary, performance, notification, and accountability apply to the agent in behalf of the principal.

Question 27

Milly runs a large electronics store. Unknown to Milly, Jed dresses like a professional and wanders around the store selling expensive computers and televisions to customers who pay him in cash. Which best describes the relationship between Milly and Jed?

This is an express agency relationship.

This is an implied agency relationship.

Jed has apparent authority to act in behalf of Milly.

None of these are correct.

Answer 27

d

To have an agency relationship, Milly must agree or imply or suggest by words or conduct that Jed is empowered to act in her behalf. Jed cannot unilaterally create agency liability.

Question 28

Which of the following is not necessary to create an agency relationship?

An agent is subject to the control of a principal.

An agent acts in behalf of another person.

An agent owes a fiduciary duty to his principal.

An agency relationship is created by a contract.

Answer 28

d

A contract between a principal and an agent is common, but not required. An implied agency relationship is not, for example, formed by a contract.

Question 29

Which of the following is correct?

A principal owes a fiduciary duty to his agents.

An agent owes a fiduciary duty to his principal.

Neither of these is correct.

Answer 29

b

An agent owes a fiduciary duty to his principal, but a principal does not owe a fiduciary duty to his agents.

Question 30

Jed is in possession of a horse named Sunshine, which belongs to Milly. Completely without authority, Jed sells Sunshine to Oscar for $10,000. At first, Milly is angry and demands the return of the horse. Later, however, Milly changes her mind and agrees to the sales transaction. Which best applies?

Apparent Authority

Express Agency

Agency by Ratification.

Answer 30

c

There is no evidence that Milly in fact authorized Jed to sell the horse, and there is no evidence that Milly created conditions suggesting that she had authorized Jed to sell the horse. On the other hand, Milly approved the transaction after the fact, which approval is agency by ratification.

Question 31

Milly works for Jed. Jed withholds money for state and federal taxes and pays Milly each two weeks without regard to whether a particular job is finished or not finished. This action by Jed suggests which of the following?

that Milly is the principal in her relationship with Jed

that Milly is an employee

that Milly is an independent contractor

Answer 31

b

An independent contractor is paid by the job, and tax money is not withheld. Since neither circumstance applies to Milly, she is an employee.

Question 32

In Ginn v. Renaldo, Inc. (discussed in this lesson), suppose that the manager called out, “Help me!” and Joe stepped forward and slammed the door, causing the injury to Ginn. If there was an agency relationship between the nightclub and Joe (the person who slammed the door), that agency relationship would be best described as:

an express agency

an implied agency

a relationship based on apparent authority

none of these

Answer 32

b

The opinion of the court is clear that it is considering whether there existed “agency by implication” or “agency by ratification.”

Question 33

Suppose that Milly hires her neighbor, Jed, to mow the lawn around her house once each week, for which she pays him twenty-five dollars. Which of the statements below is true?

Jed is the agent of Milly.

Jed is an employee of Milly.

Jed is an independent contractor.

Two of these options are correct.

Answer 33

c

Jed is hired by the job and is paid a fixed fee on completion. There is no withholding for taxes and there are no benefits. Neither is there any indication that Milly controlled Jed in how he will complete the job. Therefore, it is most likely that Jed is an independent contractor.