Study Unit 19

Question 1

What are the requirements to form an agency?

Answer 1

• Intent of both the principal and agent to form an agency
  
  • Conduct is sufficient to form an agency even if the intent is not expressed.
  • Agency may be implied inn law without intent to form the relationship.
• Legal purpose of the agency
• Legal capacity of the principal to perform the act assigned

Question 2

What are the three forms of a power of attorney?

Answer 2

Form Description
General Power of Attorney The agent is authorized to do anything necessary

Special Power of Attorney The agent is authorized for only specific transactions

Durable Power of Attorney The agent is authorized during a period of principal’s incapacity

Question 3

What are the four types of agents?

Answer 3

Type Description
General Agent The agent is authorized to perform all acts relevant to the agency

Universal Agent The agent is authorized to conduct all of the principal’s business that the principal may legally
delegate

Special Agent The agent is authorized to perform specific activities subject to specific instructions

Del credere agents The agent acts as both a salesperson or broker for the principal and a guarantor of a third party’s
obligation to the principal

Question 4

Describe the term “agency coupled with an interest.”

Answer 4

In an agency coupled with an interest, the agent has a specific, current, and beneficial interest in the subject matter of the agency.

* The principal does not have the right or power of termination.
* The agent’s interest in the subject matter is not exercised for the benefit of the principal.

Question 5

What are the two types of authority that allow an agent to act on the principal’s behalf?

Answer 5

• Actual authority
  * Express actual authority: expressly told by words of the principal
  * Implied actual authority: inferred from world or conduct of the principal
• Apparent authority
  * Induction of a reasonable person to conclude that the agent has actual authority

Question 6

How does the disclosure of the identity of the principal affect the existence of an agent’s apparent authority?

Answer 6

Disclosure of Principal Existence of Apparent Authority

Disclosed									Exists

Undisclosed								Does not exist (the third party is unaware of any agency)

Question 7

List the 5 duties an agent owes to the principal.

Answer 7

Duty Description
Loyalty Acting solely in the principal’s interest with utmost loyalty and in good faith
Care and diligence Using reasonable care and skill in performing agency duties and avoiding injury to the interests of the
principal

Notification Notify the principal of all needed information in possession of agent
(Disclosure)

Obedience Following lawful, explicit instructions of the principal within the bounds of authority conferred

Accounting Accounting for money or property received or expended on behalf of principal and not commingling
the agent’s money with that of the principal

Question 8

What party (principal or agent) is liable for the contractual liability to a third party when an agent signs a contract with the third party and the identity of the principal is (1) disclosed, (2) undisclosed, or (3) partially disclosed?

Answer 8

Disclosure of Principal Bearer of Contractual Liability

Disclosed								Principal

Undisclosed							Principal and/or agent (only when actual authority is granted)

Partially disclosed					Principal and/or agent

Question 9

List the duties a principal owes to an agent.

Answer 9

Duty					Description
Financial				* Compensating the agent for services
						* Keeping records of payments
						* Reimbursing expenses
						* Indemnifying for losses

Occupational * Not impairing the agent’s performance

					* Caring
					* Disclosing known risks to the agent
					* Providing the agent with reasonably safe working conditions

Question 10

Define ratification by a principal under agency law.

Answer 10

Ratification is a voluntary and irrevocable election by the disclosed principal to treat as authorized an unauthorized act or contract purportedly done or entered into on the principal’s behalf.

Question 11

When is an employer liable for the torts of an employee?

Answer 11

The employer may be held liable for a tort when the employee (not independent contractor)

* Commits a tort, whether negligently or intentionally;
* Was not authorized to perform the act; or
* Performs the act within the scope of employment (work is assigned or controlled by the employer).

Question 12

When is a principal liable for the crimes of an agent?

Answer 12

A principal may be criminally liable for the crimes of an agent if

* The principal approves or directs the crime,
* The principal participates or assists in the crime, or
* Violation of a regulatory statute constituted the crime.

Question 13

Compare an employee and in independent contractor inn the context of agency law.

Answer 13

Employee Independent contractor

Controlled by
Employer Yes No

Employer liable for
Torts committed Yes No

Employer liable
For Material
Misrepresentation Yes Yes

Question 14

List the two ways to terminate an agency relationship.

Answer 14

• Termination by the parties
  
  • At will by wither (the party not breaching the contract) or both parties
• Termination by operation of law

Question 15

Give examples of how an agency relationship can be terminated by the operation of law.

Answer 15

• Death or incapacity (principal or agent)
• Illegality of agent’s duties
• Bankruptcy of the principal
• Destruction of the subject matter
• Change in circumstances that infer the termination of actual authority

Question 16

How may an agency coupled with an interest be terminated?

Answer 16

Terminated Not Terminated

• According to the terms
  Of the agreement * Revocation by the principal
• By surrender of the * Death of the principal
  Authority by the agent
  * Loss of legal capacity of the principal
• Destruction of the
  Subject matter

Question 17

When are (1) actual authority and (2) apparent authority terminated?

Answer 17

Authority Terminated When

Actual The agent receives notice

Apparent It is unreasonable for a third party to believe the
agent has actual authority

Note: Termination of actual authority does not end apparent authority.

Question 18

Compare FICA and FUTA taxes in terms of who pays them.

Answer 18

Paid by

FICA tax Employers and employees

FUTA tax Employers only

Question 19

Describe the FUTA tax.

Answer 19

FUTA tax is 6.0% of the first $7,000 of wages paid annually to each employee by employers who

* Employee at least one covered individual for some portion of a day in each of the 20 weeks in the current or preceding
   Calendar year or

* Pay $1,500 or more in wages in any calendar quarter of the current or preceding calendar year.

Question 20

An employer is required to offer health insurance coverage under the Patient Protection and Affordable Care Act of 2010 (ACA) if it employs what minimum number of employees?

Answer 20

Employers with at least 50 full-time or full-time-equivalent employees (FTEs) are required to offer affordable essential health insurance coverage or pay a penalty.