REG 18 - Agency

Question 1

Orr gives North power of attorney. In general, the power of attorney
A. Will be valid only if North is a licensed attorney at law.
B. May continue in existence after Orr’s death.
C. May limit North’s authority to specific transactions.
D. Must be signed by both Orr and North.

Answer 1

C. In general, power of attorney is the power to handle some or all of a person’s affairs, depending on what a person wishes to grant. One may grant to another the power to do a few things, or the power to do everything.

Question 2

How is apparent authority created?
A. By perceptions of third parties that have been created or allowed by the principal.
B. By agreement.
C. By implication.
D. By either agreement or implication.

Answer 2

A. Apparent authority comes from how the agent is viewed by third parties when the principal does nothing to correct the appearance of authority.

Question 3

Which of the following would not have capacity to create an agency relationship?
	A.  	An unincorporated association.
	B.  	A corporation.
	C.  	An individual.
	D.  	A government agency.

Answer 3

A. An unincorporated association does not have capacity, because it is not an individual or an entity and therefore has no contractual capacity.

Question 4

Bill owned a house and wished to hire Sam, a real estate agent, to sell it for him.

The written contract between Bill and Sam must be signed by:
A. Bill
B. Sam
C. Both Bill and Sam

Answer 4

A. Only Bill is required to sign the contract.

Question 5

T/F: Cindy agreed to negotiate an employment contract for the executive director of a nonprofit corporation for which Cindy volunteers. Cindy negotiated the contract but was not paid for doing so. The employment contract is invalid because an agent must be compensated to create a valid agency relationship.

Answer 5

False.

Consideration is not required.

Question 6

Ogden Corp. hires Thorp as a sales representative for nine months at a salary of $3,000 per month, plus 4% of sales.

Which of the following statements is correct?
A. Thorp is obligated to act solely in Ogden’s interest in matters concerning Ogden’s business.
B. The agreement between Ogden and Thorp formed an agency coupled with an interest.
C. Ogden does not have the power to dismiss Thorp during the nine-month period without cause.
D. The agreement between Ogden and Thorp is not enforceable, unless it is in writing and signed by Thorp.

Answer 6

A. Thorp is an agent, as he has been hired to act on Ogden’s behalf by representing it. A primary duty of an agent is one of loyalty - an agent must act in his principal’s interests and not his own when participating in matters affecting the principal’s business.

Question 7

Thorp is a purchasing agent for Ogden, a sole proprietor, and has the express authority to place purchase orders with Ogden’s suppliers.
Thorp places 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 Datz was not informed of Ogden’s incapacity.
B. Ogden will be liable because Thorp acted with express authority.
C. Ogden will not be liable, because Thorp’s agency ended when Ogden was declared incompetent.
D. Ogden will not be liable because Ogden was a non-disclosed principal.

Answer 7

C. An agency relationship terminates as a matter of law as soon as one is adjudicated incompetent. Note that a person simply acting irrationally or “crazy” does not automatically end the relationship; it is the court proceeding that is important.

Question 8

Generally, an agency relationship is terminated by operation of law in all of the following situations, except the
A. Principal’s death.
B. Principal’s incapacity.
C. Agent’s renunciation of the agency.
D. Agent’s failure to acquire a necessary business license.

Answer 8

C. Except for an agency for a specific term and an agency coupled with an interest, either side may terminate the agency arrangement at will. Therefore, no operation of law is needed when an agent desires to renounce his authority.

Question 9

Under the agent’s duty to account, which of the following acts must a gratuitous agent perform?
I. Commingle funds
II. Account for the principal’s property

Answer 9

I. No, II. Yes
agents have a duty not to commingle their funds with the principal’s funds, and should account for the principal’s property.

Question 10

T/F: Karen was hired as an agent to sell Burt’s farm property. Karen’s LLC purchased the property but Burt was not aware that Karen was the owner of the LLC. Karen has breached her fiduciary duty to Burt.

Answer 10

True

Question 11

T/F: Robert needed financing for XYZ Corp., a small company in which he held a controlling interest. Caroline was willing to lend Robert $100,000, contingent upon his granting her an irrevocable proxy to vote his shares until the loan was repaid. Robert and Caroline had disagreements regarding the operation of the company and Robert purported to revoke the proxy. Caroline argued that because this was an agency coupled with an interest, Robert could not revoke it.

Caroline is right.

Answer 11

True

Question 12

Maco Corp. develops shopping centers 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 Maco’s identity or Maco’s relationship to the transaction.

If a broker enters into a contract with a seller on Maco’s behalf,
A. Maco will be bound by the contract because of the broker’s apparent authority.
B. The broker will not be personally bound by the contract, because the broker has express authority to act.
C. Maco will not be liable for any negligent acts of the broker committed while acting on Maco’s behalf.
D. The broker will have the same authority as he would have had if Maco’s identity had been disclosed.

Answer 12

D. The agents have express authority either way. Express authority is conferred on an agent by a principal and no third party is involved.

Question 13

Kent, without authority, contracts to buy computer equipment from Fox Corp. for Ace Corp. Kent tells Fox that Kent was acting on Ace’s behalf.

For Ace to ratify the contract with Fox,
A. Kent must be a general agent for Ace.
B. Ace must know all material facts relating to the contract at the time it is ratified.
C. Ace must notify Fox that Ace intends to ratify the contract.
D. Kent must have acted reasonably and in Ace’s best interest.

Answer 13

B. To ratify such a contract, the principal must know all material facts, affirm the entire contract, have capacity to ratify the contract, act within certain time constraints, and follow the same formalities (as far as a writing requirement) that the original contract had to follow.

Question 14

Able, as agent for Baker, an undisclosed principal, contracts with Safe to purchase an antique car. In payment, Able issues a personal check to Safe. Able cannot cover the check, but expects Baker to give him cash to deposit before the check is presented for payment.
Baker did not do so and the check was dishonored.
Baker’s identity became known to Safe.

Safe may not recover from
A. Baker, individually, on the contract.
B. Able, individually, on the contract.
C. Baker, individually, on the check.
D. Able, individually, on the check.

Answer 14

C. The relationship between a drawer of a check and a payee is unrelated to that between an agent and principal. A principal is not responsible for the payment of an agent’s personal checks.

Question 15

When an agent acts for an undisclosed principal, the principal will not be liable to third parties if the
A. Principal ratifies a contract entered into by the agent.
B. Agent acts within an implied grant of authority.
C. Agent acts outside the grant of actual authority.
D. Principal seeks to conceal the agency relationship

Answer 15

C. The only other type of authority an agent may have is apparent authority, and this type CANNOT exist if the principal is undisclosed. Apparent authority exists when a third party reasonably believes, based on a principal’s actions, that an agent has authority to do something. If the third party does not know who the principal is, this cannot happen. Therefore, the only authority an agent may have in this situation is actual authority. If the agent exceeds all authority given to him, then the principal is not bound to the contract.

Question 16

T/F: Sally negotiated with Bill to buy his truck. She told Bill that she was buying the truck for a corporation that wished to remain anonymous. Bill said: “Fine, as long as I get my money, I don’t care who’s buying it.” The deal was completed, but Bill did not get his money. He sued. Bill can recover from Sally only.

Answer 16

False.
IF an agent is acting for a principal under actual authority but doesn’t identify the principal, then both the principal and the agent are liable to the 3rd party.

Sally disclosed she is working for a corporation but did not specify who, therefore both would be liable.

Question 17

T/F: Paul hired Paula to sell his house for him. The contract specified a minimum price of $100,000. Paula found an interested buyer and negotiated a sale at $90,000. This contract is binding on Paul.

Answer 17

False.

Because the sale price was below the contracted minimum price, the contract would not be binding.

Question 18

T/F: Sally negotiated with Bill to buy his house. She told him that she really wanted to live in his neighborhood. However, Sally wasn’t really buying the house for herself. She was a “straw party” acting on behalf of Sam, a wealthy person in the community, who was afraid that Bill would raise his asking price if he knew a wealthy buyer was interested. Bill later breached the contract, and Sally sued. Sally cannot enforce the contract because she was not the real buyer.

Answer 18

False
When there is an undisclosed principal, both the agent and the principal are personally liable on the contract and therefore can enforce the contract.

Question 19

Seifert (P) is driving on a toll road in New York and exits. She throws her usual 50 cents into the basket and proceeds to drive away when she hears yelling. She quickly realizes that, on this day, she has driven beyond her usual exit and, therefore, owes more money. She is backing up to apologize and pay the difference when she is confronted by the toll collector, LaBelle, who has left the toll booth and repeatedly punches P in the face. P sues LaBelle’s employer, the Turnpike Authority (D), for assault and battery. D proves that it has instructed its employees never to hit customers. Which of the following is true?
A. D is not liable, because LaBelle acted against explicit instructions.
B. The Authority is liable, because LaBelle was acting within the scope of his employment to benefit the Authority.
C. Neither A nor B.
D. A and B.

Answer 19

B. This is an agent trying to do her job in order to benefit her boss, but doing so in a wrongful manner. Because she is within the scope of employment, albeit aiding the boss in a wrongful manner and likely in disregard of instructions, the boss is liable, so this is the correct choice.

Question 20

Generally, a disclosed principal will be liable to third parties for its agent’s unauthorized misrepresentations, if the agent is an
Employee
Independent Contractor

Answer 20

Yes, No
A principal is liable for ALL AUTHORIZED misrepresentations, but not for all UNauthorized misrepresentations. In such a case, the principal is liable only if an employee makes the misrepresentation. For the record, an employee is a worker who tends to be paid wages or salary, has a long-term relationship with the principal, and is supervised by the principal.