R8-2 Flashcards
Lee repairs high-speed looms for Sew Corp., a clothing manufacturer. Which of the following circumstances best indicates that Lee is an employee of Sew and not an independent contractor?
a.
Lee’s work is not supervised by Sew personnel.
b.
Lee’s work requires a high degree of technical skill.
c.
Lee’s tools are owned by Lee.
d.
Lee is paid weekly by Sew.
Choice “d” is correct. A clear example of an employee is one who works full time for the employer, uses the employer’s tools, is compensated on a time basis, and is subject to supervision of the employer in the details of the work. A clear example of an independent contractor is one who has a calling of his own, who uses his own tools, is hired for a particular job, is paid a given amount for the job, and follows his own discretion. Thus, payment on a weekly basis is an indication that a person is an employee rather than an independent contractor.
Choice “a” is incorrect. If Lee’s work is not supervised by Sew’s personnel, per the above, that would be an indication of independent contractor status.
Choice “c” is incorrect. Per the above, Lee’s ownership of his own tools would indicate that he is an independent contractor.
Choice “b” is incorrect. Work that requires a high degree of skill might be considered a calling or might be difficult to supervise. In any case, it would be indicative of independent contractor status.
Blue, a used car dealer, appointed Gage as an agent to sell Blue’s cars. Gage was authorized by Blue to appoint subagents to assist in the sale of the cars. Vond was appointed as a sub-agent. To whom does Vond owe a fiduciary duty?
a.
Neither Blue nor Gage.
b.
Blue only.
c.
Both Blue and Gage.
d.
Gage only.
Choice “c” is correct. A subagent is one who assists the agent in the performance of his or her duties. When a subagent is appointed by an agent with authority to appoint a subagent, the subagent owes a duty to both the agent and the principal. Thus, choices “d”, “b”, and “a” are incorrect.
Which of the following is(are) available to a principal when an agent fraudulently breaches a fiduciary duty?
~~Termination of the agency
~~Constructive`Trust
a.
Yes
No
b.
No
No
c.
Yes
Yes
d.
No
Yes
Choice “c” is correct. If an agent breaches her fiduciary duty, the principal can terminate the agency and receive the remedy of a constructive trust to ensure that the principal can recover secret profits obtained by the agent because of the wrongful conduct.
Which of the following statements is(are) correct regarding the relationship between an agent and a nondisclosed principal?
I.
The principal is required to indemnify the agent for any contract entered into by the agent within the scope of the agency agreement.
II.
The agent has the same actual authority as if the principal had been disclosed.
a.
II only.
b.
I only.
c.
Neither I nor II.
d.
Both I and II.
Choice “d” is correct. A principal owes her agent the duty of indemnification, which is a type of reimbursement for costs and liabilities incurred by the agent as a result of authorized acts on behalf of the principal.
Actual authority is the authority that the agent reasonably believes she possesses because of the principal’s communications to the agent. The agent has the same actual authority whether the principal is disclosed or undisclosed.
Which of the following statements represent(s) a principal’s duty to an agent who works on a commission basis?
I.
The principal is required to maintain pertinent records, account to the agent, and pay the agent according to the terms of their agreement.
II.
The principal is required to reimburse the agent for all authorized expenses incurred unless the agreement calls for the agent to pay expenses out of the commission.
a.
Both I and II.
b.
Neither I nor II.
c.
I only.
d.
II only.
Choice “a” is correct. A principal is required to pay its commissioned agent as agreed and thus must maintain sufficient records in order to do so. Therefore, statement I is true. Statement II is also true. Generally, a principal must indemnify an agent for all expenses the agent reasonably incurs on the principal’s behalf unless the parties have agreed otherwise.
Trent was retained, in writing, to act as Post’s agent for the sale of Post’s memorabilia collection. Which of the following statements is correct?
I.
To be an agent, Trent must be at least 21 years of age.
II.
Post would be liable to Trent if the collection was destroyed before Trent found a purchaser.
a.
Neither I nor II.
b.
II only.
c.
I only.
d.
Both I and II.Choice “a” is correct. I is incorrect because while a principal must have capacity, an agent need not have capacity; a minor may serve as an agent. II is incorrect because destruction of the subject matter of the agency constitutes a change in circumstances that will terminate the agency by operation of law and release the parties from their relationship.
Choice “a” is correct. I is incorrect because while a principal must have capacity, an agent need not have capacity; a minor may serve as an agent. II is incorrect because destruction of the subject matter of the agency constitutes a change in circumstances that will terminate the agency by operation of law and release the parties from their relationship.
Thorp was a purchasing agent for Ogden, a sole proprietor, and had the express authority to place purchase orders with Ogden’s suppliers. Thorp placed an order with Datz, Inc. on Ogden’s behalf after Ogden was declared incompetent in a judicial proceeding. Thorp was aware of Ogden’s incapacity. Which of the following statements is correct concerning Ogden’s liability to Datz?
a.
Ogden will be liable because Thorp acted with express authority.
b.
Ogden will not be liable because Ogden was a nondisclosed principal.
c.
Ogden will not be liable because Thorp’s agency ended when Ogden was declared incompetent.
d.
Ogden will be liable because Datz was not informed of Ogden’s incapacity.
Choice “c” is correct. An agency is terminated by operation of law upon the incapacity of the principal; no notice is needed.
Choice “d” is incorrect. An agency is terminated by operation of law upon the incapacity of the principal; notice to the third party with whom the agent deals is not necessary.
Choice “a” is incorrect. An agent’s authority is terminated by operation of law upon the incapacity of the principal regardless of whether the authority was express, implied, or apparent.
Choice “b” is incorrect. Ogden will not be liable because of the incapacity; Ogden’s status as a disclosed vs. undisclosed principal is irrelevant.
When a valid contract is entered into by an agent on the principal’s behalf, in a nondisclosed principal situation, which of the following statements concerning the principal’s liability is correct?
~~The principal may be held liable once disclosed
~~The principal must ratify the contract to be held liable
a.
No
No
b.
No
Yes
c.
Yes
Yes
d.
Yes
No
Choice “d” is correct. Once disclosed, an undisclosed principal can be held liable on a contract made on the principal’s behalf by an agent if the agent had authority. There is no need to ratify. In fact, an undisclosed principal can never ratify because a principal can ratify only when a person represents that the person is an agent acting with authority on the principal’s behalf when, in fact, the person lacks authority. When a principal is undisclosed, there is no representation of agency, and so, a prerequisite for ratification is missing.
Young Corp. hired Wilson as a sales representative for six months at a salary of $5,000 per month plus 6% of sales. Which of the following statements is correct?
a.
Wilson is obligated to act solely in Young’s interest in matters concerning Young’s business.
b.
Young does not have the power to dismiss Wilson during the six-month period without cause.
c.
The agreement between Young and Wilson is not enforceable unless it is in writing and signed by Wilson.
d.
The agreement between Young and Wilson formed an agency coupled with an interest.
Choice “a” is correct. An agent owes the principal a duty of loyalty, which includes the duty to act solely in the principal’s interest in matters relating to the agency.
Choice “b” is incorrect. A principal has the power to terminate an agency relationship at any time, although the principal might be liable for damages if the termination is in breach of contract.
Choice “c” is incorrect. A contract for services need not be in writing unless it cannot be performed within one year. The service contract here is for six months.
Choice “d” is incorrect. An agency coupled with an interest arises only when the agent is given an interest in the subject matter of the agency. A sales commission is not a sufficient interest.
Which of the following actions requires an agent for a corporation to have a written agency agreement?
a.
Retaining an attorney to collect a business debt owed the principal.
b.
Purchasing office supplies for the principal’s business.
c.
Hiring an independent general contractor to renovate the principal’s office building.
d.
Purchasing an interest in undeveloped land for the principal.
Choice “d” is correct. Generally, agency power may be granted orally, even if the agent enters into contracts that must be in writing to be enforceable. However, most states require an agency agreement to be in writing if the agent is to purchase or convey interests in land.
Choice “b” is incorrect. Generally, agency power may be granted orally. The power to buy office supplies need not be granted in writing.
Choice “c” is incorrect. Generally, agency power may be granted orally. The power to hire persons to perform services need not be granted in writing. (Note that repairing a building involves a service and not an interest in land.)
Choice “a” is incorrect. Generally, agency power may be granted orally, even if the agent is to enter into contracts that must be in writing to be enforceable. The power to hire persons to perform services need not be granted in writing.
Bolt Corp. dismissed Ace as its general sales agent and notified all of Ace’s known customers by letter. Young Corp., a retail outlet located outside of Ace’s previously assigned sales territory, had never dealt with Ace. Young knew of Ace as a result of various business contacts. After his dismissal, Ace sold Young goods, to be delivered by Bolt, and received from Young a cash deposit for 20% of the purchase price. It was not unusual for an agent in Ace’s previous position to receive cash deposits. In an action by Young against Bolt on the sales contract, Young will:
a.
Lose, because Ace lacked any express authority to make the contract.
b.
Win, because Bolt’s notice was inadequate to terminate Ace’s apparent authority.
c.
Lose, because Ace lacked any implied authority to make the contract.
d.
Win, because a principal is an insurer of an agent’s acts.
Choice “b” is correct. Although Bolt gave known customer’s notice of Ace’s dismissal, some courts might also require a notice placed in a newspaper to terminate Ace’s apparent authority as to people, like Young, who had heard of Ace.
Choice “c” is incorrect. Although Ace lacked implied authority, a court might find that he had apparent authority since Bolt had held Ace out as its agent previously.
Choice “a” is incorrect. Although Ace lacked express authority, a court might find that he had apparent authority since Bolt had held Ace out as its agent previously.
Choice “d” is incorrect. A principal is not an insurer of an agent’s acts. A principal is liable only when the agent acts with authority.
Easy Corp. is a real estate developer and regularly engages real estate brokers to act on its behalf in acquiring parcels of land. The brokers are authorized to enter into such contracts, but are instructed to do so in their own names without disclosing Easy’s identity or relationship to the transaction. If a broker enters into a contract with a seller on Easy’s behalf:
a.
The broker will not be personally bound by the contract because the broker has express authority to act.
b.
Easy will be bound by the contract because of the broker’s apparent authority.
c.
Easy will not be liable for any negligent acts committed by the broker while acting on Easy’s behalf.
d.
The broker will have the same actual authority as if Easy’s identity had been disclosed.
Choice “d” is correct. Actual authority arises from the communications between the principal and the agent. Whether the agent discloses the principal to the third party with whom the agent contracts has no effect on the communications between the principal and the agent.
Choice “b” is incorrect. Apparent authority arises from the communications between the principal and the third party with whom the agent deals. If the principal is undisclosed, as under the facts here, the third party has no idea that there is a principal, and so there are no communications between the third party and the principal from which apparent authority can arise.
Choice “c” is incorrect. A principal generally is not liable for an agent’s torts, but can be liable when the torts are authorized. The fact that the principal is undisclosed has no effect on this rule.
Choice “a” is incorrect. When a principal is undisclosed, the third party with whom the agent deals may hold either the agent or the principal liable on contracts that the agent enters into on the principal’s behalf.
An agent will usually be liable under a contract made with a third party when the agent is acting on behalf of a(an):
~~Disclosed principal
~~Undisclosed principal
a.
Yes
No
b.
No
No
c.
Yes
Yes
d.
No
Yes
Choice “d” is correct. An agent generally is not liable on contracts that the agent makes on the principal’s behalf if the principal is disclosed, but the agent is personally liable on contracts the agent makes on behalf of the principal when the principal is undisclosed.
Noll gives Carr a written power of attorney. Which of the following statements is correct regarding this power of attorney?
a.
It may limit Carr’s authority to specific transactions.
b.
It may continue in existence after Noll’s death.
c.
It must be for a definite period of time.
d.
It must be signed by both Noll and Carr.
Choice “a” is correct. A power of attorney is a form of agency, and like all agencies the power of attorney agency relationship may be limited in scope of authority.
Choice “d” is incorrect. As a general rule, no writing is required to form an agency relationship, and even where a writing is required, the writing need only be signed by the principal (the one sought to be bound).
Choice “c” is incorrect. A power of attorney, like other agencies, need not explicitly state a duration.
Choice “b” is incorrect. A power of attorney, like all agencies, is terminated by the death of either the principal or the agent.
Generally, a disclosed principal will be liable to third parties for its agent’s unauthorized misrepresentations if the agent is an:
~~Employee
~~Independent Contractor
a.
No
Yes
b.
Yes
No
c.
No
No
d.
Yes
Yes
Choice “b” is correct. An employer is liable for torts of employees committed within the scope of employment. Employers are generally not liable for the torts of independent contractors.