Exam 19: Agency and Other Methods of Carrying on Business

Rachel recently started CanScot Curling Ltd, a new business that manufactures curling brooms.She is very comfortable running the workshop and the warehouse in Calgary, but she wanted to find at least one person to sell her goods in each province.With that in mind, she arranged for CanScot to enter into a distributorship agreement with Jack in Nova Scotia.Which of the following statements is most likely to be TRUE?

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(Multiple Choice)

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Question 1

Correct Answer:

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Jackson is the shipping clerk for Coldpoint Inc, an appliance manufacturer.For five years, Jackson has regularly taken orders from Knight's TV and Appliances Inc for refrigerators.Jackson does not approve the orders himself.He submits them to the sales manager.Once the sales manager has approved the order, an invoice specifying the price and terms of payment is issued and signed by the sales manager.Each invoice is then sent to Knight's.A contract is formed on the terms of the invoice.Jackson then arranges for Coldpoint to ship the refrigerators.In October, Knight's gets an invoice in response to its order for two refrigerators that is signed by Jackson.Knight's calls Jackson and asks about this change in procedure.Jackson says that he has been promoted and he can now approve and sign invoices.Knight's accepts this explanation.In fact, Jackson has not been promoted and invoices still require approval by the sales manager.Can Knight's rely on the invoices a forming a contract for the two refrigerators enforceable by Knight's against Coldpoint?

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(Essay)

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Question 2

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Jackson has no actual authority to commit Coldpoint to a contract to sell refrigerators because he has not been promoted.Coldpoint has not represented to Knight's that he has such authority.The only person who has made such a representation is Jackson himself.A representation by the agent cannot create apparent authority.The only way to establish Jackson's apparent authority would be to argue that Coldpoint, in effect, represented to Knight's that Jackson had authority to contract by acquiescing to Jackson acting in this way.There is no specific evidence to support such an argument in the facts as given.

Bruner and Santos have entered into a joint venture for the purpose of building a housing development.They call the joint venture Brantwood Housing.Santos will provide the financing, and Bruner will build and sell the houses.Under the terms of the joint venture agreement, the profits from selling the houses will be split evenly between Santos and Bruner, and Santos agrees that expenses incurred by Bruner for the purpose of building the housing development "will be the responsibility of Bruner and Santos, to be shared equally." Bruner enters into a contract on behalf of Brantwood Housing with an Internet service provider, ISP Inc, to host a website for advertising the houses built by Brantwood Housing for $100 per month.Bruner defaults on the payments required under the contract.ISP Inc was not aware of Santos involvement in Brantwood Housing until it began investigating the joint venture after Bruner defaulted on the contract.Is Santos liable to ISP Inc?

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(Essay)

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Question 3

Correct Answer:

Verified

There are several alternative bases upon which Santos could be found liable to ISP Inc.
Actual Authority: On the basis of the provisions of the joint venture agreement, it could be argued that Santos had given Bruner actual authority to contract for services such as those of ISP, so long as the services are for the purpose of building the housing development.The difficulty with this argument is that the website hosting services are not directly related to building the development as opposed to selling the houses built.The contractual commitment regarding expenses only extends to expenses for the purpose of "building." If it possible to establish that actual authority existed on the basis of the joint venture agreement provisions, it does not matter that ISP was not aware of the existence of Santos until after the contract was concluded.

Authority as a Partner: If ISP can successfully argue that the joint venture was a partnership between Bruner and Santos, then Bruner would be an agent of the partnership and any obligation he incurred in carrying out the business of the partnership in the usual way would be binding on Santos.The test for partnership will be discussed in Chapter 21: two or more persons carrying on business in common with a view to a profit.Here, an argument can be made that building the houses and selling them is a business.The fact that Santos and Bruner are jointly responsible for expenses and sharing profits is strong evidence of partnership.Assuming that Brantwood Housing is a partnership, the contract with the ISP would be an obligation incurred for the purpose of carrying on the business of the partnership in the usual way and Santos would be liable.

Apparent Authority: There was no direct communication between Santos and ISP, so the only possible basis for arguing that Bruner had apparent authority to act on behalf of Santos is that Santos acquiesced in Bruner incurring obligations for the joint venture.There is no specific evidence of this in the question.

Silvio began work as an agent for Midnight Skateboards Inc.He is responsible for selling Midnight's skateboards to retail sporting goods stores.In his first month, he worked very hard, visiting dozens of stores, but did not sell any skateboards.Which of the following is TRUE?

(Multiple Choice)

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Question 4

Early last year, Lane was employed by Prairie Dawn Grains (PDG), an Alberta company that produces genetically modified grains.He was sent to Saskatchewan to pursue the possibility of signing up a new customer.It was not easy, but after several weeks of difficult negotiations, he persuaded SaskFarm, a large agricultural company based in Moose Jaw, to purchase millions of dollars' worth of genetically-modified grains over several years.Upon returning to Edmonton, however, Lane discovered that PDG had entered into bankruptcy the day before SaskFarm signed the contract.Which of the following statements is most likely to be TRUE?

(Multiple Choice)

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Question 5

How can a principal manage the risk that an agent will commit the principal to contracts that it does not want to be bound by?

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Question 6

Orton Corp is incorporated under the Canada Business Corporations Act.It carries on a business running tour boats on the Bow River in Calgary.The articles of the corporation provide that Orton Corp may not enter into a lease unless the board of directors approves it.Joe, the president of the corporation, goes to West End Real Estate Inc, tells West End that he has authority to enter into a lease on behalf of the corporation, and signs a lease for some office space for the business.The board of directors never approves the lease.Which of the following is TRUE?

(Multiple Choice)

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Question 7

Daniel negotiated a contract on behalf of Compu/sys Inc for the supply of a computer system to Leader Co.The contract called for the supply by Compu/sys Inc of hardware and maintenance services for two years in return for $1 million.Daniel had no authority to negotiate this contract on behalf of Compu/sys.After 18 months of negotiations, Compu/sys agreed to perform the contract in part.The corporation agreed to provide the hardware but not the maintenance services.By the time it made this commitment it had gone bankrupt and consequently had lost capacity.Which of the following is TRUE?

(Multiple Choice)

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Question 8

Alannis is an agent but not an employee of Tesky's Inc, a large department store business.She acts as an agent for the corporation in entering contracts with suppliers to buy clothes.While she is on a trip to Toronto to visit a long-time supplier, Tesky's goes bankrupt.The next day, Alannis, while still unaware of the bankruptcy, enters into a contract with the supplier on behalf of Tesky's to buy $20 000 worth of clothes.Which of the following is TRUE?

(Multiple Choice)

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Question 9

Stein has agreed to act as an agent for Tayman Resources Inc for two years.Under the agreement, Stein is responsible for finding mining claims for Tayman to invest in.During the two-year term, Stein has agreed not to work for anyone else.No other terms have been agreed to in the agency agreement.Which of the following is TRUE?

(Multiple Choice)

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Question 10

Explain how a third party can determine the scope of an agent's authority to bind the principal it represents? In your answer, specifically identify barriers make it difficult for a third party to discover an agent's authority.

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Question 11

Gordon created DogSearch, an app that allows people to track their dogs' locations on their smartphones via GPS.Gordon initially intended to allow people to use the app for free, but the situation potentially changed when Gordon's brother, Fred, got involved.Fred is a lawyer.He excitedly explained DogSearch prior to a meeting with one of his clients.The client immediately offered a generous price in exchange for Gordon's agreement to license the app and provide technical support for it.Fred purportedly agreed on Gordon's behalf.When Fred eventually told his brother about the offer, however, Gordon said that while he was happy to sell a license, he insisted that another party would have to provide technical support.Which of the following statements is most likely to be TRUE?

(Multiple Choice)

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Question 12

Shari entered into an agreement with Taiga Developments Inc under which she would act as an agent to find real estate for Taiga to buy in a suburb of Regina, Saskatechewan.Taiga had told her that it wanted to buy up all the land and buildings in a three block area to build a mall.No one but Taiga and Shari knew about Taiga's plans.Shari found a piece of property for sale across the street from the area Taiga was interested in for a great price.She knew that once the mall went in the property would be worth much more than it was today.Shari bought the property and then sold it after Taiga had built the mall for twice what she paid.Did Shari breach her fiduciary duty?

(Essay)

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Question 13

Which of the following business arrangements might not involve an agency relationship?

(Multiple Choice)

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Question 14

In the absence of some specific contractual requirement, an agency arrangement may be terminated by

(Multiple Choice)

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Question 15

Artemis has entered into a contract with Saskatoon Berry Pies Inc for the supply of pies.After the contract was entered into, Artemis disclosed that he was negotiating the contract on behalf of ABC Food Mart, which operates three grocery stores in Regina, Saskatchewan.Which of the following best describes the situation with respect to the contract?

(Multiple Choice)

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Question 16

Mireille recently sold her house in Kitchener, Ontario, through a real estate agent, and she is not very happy about the service she received.The agent, Emily, did not listen to her instructions.For example, Mireille told Emily that she would not allow the house to be shown to people on weekend mornings.Emily showed up with clients on several weekend mornings anyway.Emily was always late for appointments and did not work very hard to sell the house.She never had an open house.Eventually Mireille sold her house to a friend.She feels she got no service of value from Emily and paid a commission of 6 percent of the $300 000 price ($18 000).Is there anything that Mireille can do?

(Essay)

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Question 17

Silken is a producer of snowboards.She wants to enter into a commercial representation agreement with Jason.Under the agreement, he will sell her snowboards on her behalf to retail ski shops.Which of the following is TRUE?

(Multiple Choice)

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Question 18

Jeremy is a singer.For several months, he and his friend George have discussed the fact that Jeremy needs an agent if he is to move forward with his career.George has proposed that he be that agent.Jeremy has never agreed to George acting as his agent.A few weeks later, however, George attended a negotiating session between Jeremy and a record company.After several hours, George said that Jeremy would agree to the terms of the recording contract proposed by the record company.Jeremy said nothing.There is a contract between Jeremy and the record company.

(True/False)

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Question 19

Information Highway Inc enters into an agreement with Groulx under which Groulx agrees to act as Information Highway's agent in obtaining a permit for Information Highway to build an office tower in St John.Groulx pays a bribe of $1000 to an employee of the city to issue the permit.Information Highway must reimburse Groulx for the bribe because it is an expense incurred in performing his responsibilities.

(True/False)

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Question 20

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Silvio began work as an agent for Midnight Skateboards Inc.He is responsible for selling Midnight's skateboards to retail sporting goods stores.In his first month, he worked very hard, visiting dozens of stores, but did not sell any skateboards.Which of the following is TRUE?

How can a principal manage the risk that an agent will commit the principal to contracts that it does not want to be bound by?

Explain how a third party can determine the scope of an agent's authority to bind the principal it represents? In your answer, specifically identify barriers make it difficult for a third party to discover an agent's authority.

Which of the following business arrangements might not involve an agency relationship?

In the absence of some specific contractual requirement, an agency arrangement may be terminated by

Silken is a producer of snowboards.She wants to enter into a commercial representation agreement with Jason.Under the agreement, he will sell her snowboards on her behalf to retail ski shops.Which of the following is TRUE?

Risk Management and Sources of Law

Litigation and Alternative Dispute Resolution

Introduction to Torts

Intentional Torts

Miscellaneous Torts Affecting Business

Negligence

The Nature and Creation of Contracts

Consideration and Privity

Representations and Terms

Contractual Defects

Discharge and Breach

Contractual Remedies

Special Contracts: Sale of Goods

Real Property: Interests and Leases

Real Property: Sales and Mortgages

Personal Property: Bailment and Insurance

Intellectual Property

Electronic Commerce

Basic Forms of Business Organizations

Legal Rules for Corporate Governance

Secured Transactions

Dealing With Bankruptcy and Insolvency

Government Regulation of Business

Individual Employment

Organized Labour

Online: Special Contracts: Negotiable Instruments

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