Deck 17: Agency and Franchising

Question 1

In Montreal,Mike represents six different Canadian business firms in the sale and servicing of their products.Mike is

A)an independent agent.
B)a plural employee.
C)a company representative.
D)a contingency agent.
E)a sales and servicing broker.

Answer 1

A

Question 2

Zelda is a Hollywood movie star wanting to buy recreational property.She describes her specifications to Craig and asks him to make an offer to purchase if he finds a suitable property.She asks him not to divulge her identity.Craig finds an ideal property and makes a written offer in his own name to purchase the property for $500 000.00.The vendor signs an acceptance.Zelda suffers a financial setback and refuses to go through with the contract.Whom can the vendor sue?

A)Craig only
B)Zelda or Craig
C)Zelda only
D)Zelda and Craig
E)neither Zelda nor Craig

Answer 2

A

Question 3

John,while acting as Henry's sales agent,negligently drives his car into the wall of Alice's house.In this situation

A)Alice can only sue Henry,because he is John's principal.
B)Alice can sue both John,who is primarily negligent,and Henry,who is vicariously liable for John's acts or omissions.
C)Alice is estopped from suing Henry,who had no control over John.
D)Alice can only sue John,because he was negligent.
E)all of the above

Answer 3

B

Question 4

For "selling-off-price-list," Vera was terminated from her position as sales rep for the Crouger Co.Two months after the termination,Vera is still sending in orders from her former customers.This raises the issue of

A)whether Vera was really terminated or not.
B)whether notification was given to customers.
C)whether the company is estopped from accepting liability.
D)whether there is "holding out" by Crouger Co.
E)who gets the commissions.

Question 5

Joe is appointed to sell a yacht on explicit instructions from the owner.Joe is acting with

A)apparent authority.
B)unilateral authority.
C)promissory reliance.
D)actual authority.
E)mutual dependence.

Question 6

Where a person who is really acting as agent for another does not tell this to a third party and enters into a contract with the third party,the third party

A)can only sue the agent,whether or not the principal is disclosed.
B)must decide whether to sue the agent or the principal.
C)can argue a mistake rendering the contract voidable at the third party's option.
D)can only sue the undisclosed principal,but not the agent.
E)must attempt to limit its losses by rescinding the contract.

Question 7

A Co.develops land.From time to time,it has used B,an independent contractor,as its agent to help it buy land.In fact,A Co.even lets B keep an office in its head offices,and on occasion C,a third party,has seen B's office when he has had meetings at A Co.If B enters into an agreement of purchase and sale on behalf of A Co.to purchase C's land,

A)there will be no agreement because B does not have the necessary authority.
B)there will be no agreement because A Co.did not ratify the contract.
C)there will be an agreement because B had express authority to enter into it.
D)there will be an agreement between A Co.and C because A Co.is estopped from arguing that B did not have the authority to enter into it.
E)none of the above

Question 8

An agent will be liable for breach of warranty of authority if

A)the agent misrepresents the scope of the agent's authority,and the principal is not bound to the contract with the third party.
B)the agent accepts commissions from both principal and third party without full disclosure.
C)there is a clause in the contract between principal and third party that makes it clear that the principal is not bound until the principal approves the contract.
D)the agent does not make it clear to the third party that the agent is acting in a representative capacity.
E)the agent breaches the terms and conditions of the agent's contract with the principal.

Question 9

Albert is friends with Robert,the president of A.Co.When Albert hears about a lucrative deal with Y Co.that would benefit A Co.,he immediately enters into a contract with Y Co.,telling Y Co.that he is A Co.'s agent.When Albert tells Robert what he has done,Robert telephones Y.Co.and confirms the contract.In this case,as between A Co.and Y Co.,

A)there is no contract because Albert is an independent contractor.
B)there is a contract because Robert ratified it on behalf of A Co.
C)there is no contract because Albert had no authority to enter into it for A Co.
D)there is a contract because Y Co.ratified it.
E)Y Co.is estopped from arguing that there is no contract.

Question 10

Happy Burgers is a successful fast food restaurant.Having decided to expand its operation,Happy Burgers decides to approach independent business people with the intention of licensing its operation to them,finding them a location for a Happy Burgers restaurant,setting up the restaurant,and training them in its operation.In return,they will pay Happy Burgers a royalty fee based on a percentage of their gross sales.This arrangement is an example of

A)an agreement of purchase and sale.
B)a license agreement.
C)a franchise agreement.
D)an agency agreement.
E)a royalties agreement.

Question 11

X Co.owns land all over downtown Toronto.From time to time,X Co.has used John Jones as its agent to sell land that it owns.X Co.hires John and tells him it wants to sell a downtown property located on Front Street.It instructs John to list the property for $1 million,but that it will take $900 000.00.John has a friend,Mary,who is interested in buying the Front Street property,but rather than listing it at $1 million,he simply tells Mary "For $900 000.00 it's yours," and she agrees.John,having effected the sale,now wants to be paid his commission by X Co.In this situation,

A)John has apparent or ostensible authority to sell the land.
B)John has breached his fiduciary duty owed to X Co.
C)X Co.can refuse to pay John his commission.
D)there is an agreement of purchase and sale between X Co.and Mary for the Front Street property.
E)all of the above

Question 12

Ingrid was the purchasing agent for Fashion Boutique Inc.She was authorized to place orders up to $10 000 but would have to get the owner's approval for anything larger.On January 17,she placed an order for $13 672 without getting approval.Will the vendor be able to enforce this contract?

A)No,he won't,since this size of order would be expected in the trade.
B)Yes,he will,because the customer was clearly informed of the limitation.
C)Yes,he will,since it is within actual authority.
D)No,he won't,because they did not check to see if Ingrid had approval.
E)Yes,he will,since they had no reason to believe that Ingrid did not have the authority.

Question 13

A entered into an agency agreement with agent B.B entered into a contract under seal with third party C.A was not named in the contract,but B described herself as "agent." Which one of the following statements is best applied to these facts?

A)C can sue A and B on the contract.
B)B can sue C or be sued by C on the contract.
C)A can sue C and B on the contract.
D)A and C can sue B on the contract.
E)A may sue C or be sued by C on the contract.

Question 14

The president of A Co.introduces B to a third party as his vice-president of marketing and sales.In reality,however,A Co.'s president makes it clear to B that he is only the vice-president of marketing and has no authority to make sales.If B now enters into a contract for the sale of A Co.'s goods to the third party,as between A Co.and the third party,

A)there is no contract because B does not have express authority over sales.
B)there is a contract because B had apparent or ostensible authority to enter into it.
C)there is no contract because B can only deal with matters of marketing.
D)there is no contract because it was not ratified by A Co.
E)none of the above

Question 15

Edward is the president of Jones and Sons Ltd.,Wholesalers (J&S).He recently hired George Cummings as his national marketing and advertising manager.Yesterday,Edward took George to a convention where,after a few drinks,he introduced George to the president of Sears as his national sales manager.The next day,after his hangover had subsided,Edward called the president of Sears and told him the truth about George.A couple of days later,George entered into a contract with Sears under which J&S sold 2 million dollars worth of furniture to Sears.J&S now refuses to honour the contract.If Sears sues J&S on the contract,

A)Sears will lose because the contract is unconscionable.
B)Sears will lose,but will have a quantum meruit claim.
C)Sears will win because Edward held out George as the national sales manager of J&S.
D)Sears will lose because final acceptance of the contract had to come from J&S.
E)Sears will lose because its president knew that George was only the national marketing and advertising manager of J&S.

Question 16

If my son takes a luxury cruise without my permission and has the company send me the bill and I pay,I create the impression that I will always pay for this type of conduct.If I fail to inform the company that I will not pay again,this refers to the idea of

A)false authorization.
B)agent inducement.
C)estoppel.
D)mutual reliance.
E)all of the above

Question 17

Until yesterday,when X Co.fired Henry,Henry was employed as a purchasing representative,and over the time,he worked for X Co.,Henry compiled an extensive list of X Co.'s customers.Henry,who is extremely angry over being fired,decides to get back at X Co.,so he contacts X Co.'s largest supplier and on behalf of X Co.enters into a contract for the purchase by X Co.of 1 million dollars worth of goods that X Co.really has no need for.In this situation,

A)there is a contract between the supplier and X Co.
B)not having notified its customers,X Co.is estopped from arguing that there is no contract.
C)X Co.had a duty to notify its suppliers that Henry had been fired.
D)not having notified its customers,X Co.held out Henry as having the authority to make the contract.
E)all of the above

Question 18

X Co.in Montreal retains Y as its purchasing agent to purchase goods from all over the world.If Y,having purchased goods in England,enters into an agreement with a shipping company to ship the goods to Montreal,

A)Y will be in breach of the agency agreement because entering his agency agreement with X Co.is specific.
B)Y will not be in breach of his agency agreement with X Co.because X Co.has ratified the shipping contract.
C)Y will not be in breach of his agency agreement with X Co.because he has implied authority to enter into shipping agreements.
D)Y will be in breach of the agency agreement with X Co.because he has no authority to enter into shipping agreements.
E)none of the above

Question 19

Charlie owns a small parcel of land in Toronto.He wants his sister,who lives within a short distance of the land,to sell the parcel for him.In order for his sister to be able to sign all the real estate documents,Charlie needs to authorize

A)a lawyer to act as principal during the closing.
B)a broker to bring the parties together.
C)a sales agent to carry out his instructions.
D)power of attorney for his sister.
E)a local real estate agent to make out the papers.

Question 20

James was an ordinary salesman for Bulldog Electric Ltd.,but his business card read "Territory Manager." He had no authority to sell his company's products for a reduced price,yet he told a potential customer,"I'll give you a 10 percent reduction if you place an order today." Legally speaking,will the customer be able to get the reduced price should he sign the contract?

A)Yes,he will,because the contract is already in existence.
B)No,he won't,since there had been no past dealings.
C)Yes,he will,because James had apparent authority.
D)Yes,he will,since trade practice would establish the terms of sale.
E)No,he won't,because James did not have actual authority.

Question 21

None of the contracts between the six independent manufacturer's agents and the ABC Company speak as to how the contracts can be terminated.All six agents have been doing a splendid job for several years in selling ABC's products.However,last week,ABC's board of directors decided to turn the selling function over to the company's own employees.This is to be completed within the next 30 days.Can the company's agency contracts with the independent agents be legally terminated,and if so,how?

A)Yes,they can be terminated by failing to renew the contracts upon expiration.
B)Yes,they can be terminated by declaring the company's sales project to be at an end.
C)No,they cannot be terminated without a breach and the resulting severance damages.
D)Yes,they can be terminated,since a reasonable time has passed for each agency contract.
E)Yes,they can be terminated by simply having the principal give notice that it wishes the relationship to come to an end; no other explanation is required.

Question 22

Why is the purchase of a franchise not a guarantee of success for the franchisee?

Question 23

Pursuant to some franchise agreements,a potential source of profit to the franchisor is derived from exclusive supply arrangements.

Question 24

Gene Stone told the Harders that he was an agent for the Trouplow Corp.and was raising money for a local expansion program.He then proceeded to sell them fifteen $1000 12 percent bonds.In truth,the Trouplow Corp.had never heard of Gene Stone,but they did have 12 percent bonds available for local residents to buy.To recover the $15 000 paid,the Harders should sue

A)both agent and principal on the breach of contract.
B)the Trouplow Corp.on the tort of deceit.
C)Gene Stone for rescission of contract.
D)for criminal prosecution of Gene Stone.
E)Gene Stone for breach of warranty of authority.

Question 25

A franchisor,Garden Delicious Inc,has 73 franchised outlets across Canada using the theme "healthy eating." Its Surrey,B.C.,franchisee,Tom Cain,has been adding bagels to the regular "authorized" menu.Garden Delicious Inc.has asked Tom on several occasions to stop,but he has refused,saying that the contract does not specifically prohibit adding items to the menu.Legally speaking,will the franchisor be able to stop this practice?

A)Yes,he will,since the franchisor has the money and legal clout to force compliance.
B)Yes,he will,because there is an implied term that the franchisee is to protect the goodwill and trademarks and trade secrets of the franchisor.
C)Yes,he will,since this practice will decrease the profits for all franchisees.
D)No,he won't,since Tom is an independent businessperson,he can manage his business as he sees fit-within the law.
E)No,he won't,since this practice will set a healthy precedent among the other franchisees.

Question 26

If an agent is liable for fraudulent misrepresentation in making a contract,the third party may rescind the contract.And if the agent was acting within his apparent authority,the third party may sue the principal as well as the agent for

A)conspiracy to defraud.
B)warranty of authority.
C)breach of contract.
D)agency negligence.
E)tort of deceit.

Question 27

A franchise agreement most likely gives the franchisee the right to

A)locate and design their own business premises.
B)demand direct financial assistance from the franchisor.
C)use their own accounting,inventory control,and purchasing systems.
D)franchisee protection legislation.
E)trademarks,trade names,and logos belonging to the franchisor.

Question 28

Agency by estoppel goes hand in hand with the apparent or ostensible authority of an agent to enter into the contract.

Question 29

The major difference between the franchisee-franchisor relationship and the agent-principal relationship is that only

A)the franchisee relationship permits a business to expand rapidly.
B)principals employ the assistance of others in order to reach out to a wider public.
C)franchisors give authorization for entering into contracts.
D)agents market the principal's products.
E)franchisees contract with members of the public on their own behalf,not as agent for the franchisor.

Question 30

Barney explains to Mrs.Adams that the contract is an option on her land,that he is an agent,and that the principal wants to remain undisclosed at the present time.If Mrs.Adams signs the option agreement,can it be enforced against her even though the principal is not named and the agent fails to sign?

A)No,it cannot,because an agent always lacks the authority to bind an undisclosed principal.
B)No,it cannot; since this agreement is for interest in land,it must have all the essential terms of a written contract.
C)Yes,it can,because the agent clearly identified himself.
D)Yes,it can,since only the charged party needs to sign the agreement.
E)No,it cannot,since the names of both parties are needed on a written contract.

Question 31

Ratification of a contract by a principal serves to terminate the contract with a third party made by the principal's agent.

Question 32

If conflicts arise with the agent's own interests or with the interests of those with whom he or she is connected,disclosure to all persons affected is unnecessary.

Question 33

Only independent contractors,not employees,can be agents.

Question 34

A real estate agent tells a purchaser that she has authority to sign a contract for sale of property on behalf of the vendor.The purchaser relies on that representation and signs an acceptance.The vendor refuses to complete the contract because the agent did not have authority to sign the contract on behalf of the vendor.The vendor will be bound to complete the contract.

Question 35

David,the owner of BayView Reality Inc.,decided to buy one of his own firm's listings for investment purposes.The principal (owner of the property)refused to pay any commissions or reduce the price on this transaction.Can this impasse be legally resolved?

A)Yes,it can; all we need is an "arms-length" transaction with third party involvement.
B)No,it cannot,since the agent has placed his own interest in conflict with that of the principal,therefore such a contract is illegal and void.
C)Yes,it can; they both simply need to negotiate between them a satisfactory deal.
D)No,it cannot,because David would lose his realtor's license if he completed this transaction.
E)Yes,it can,since the real estate arbitration board would issue a ruling.

Question 36

Franchising agreements are typically standard form contracts prepared by the franchisor and presented to the franchisee on a take-it-or-leave-it basis.

Question 37

A company that represents,either by words suggestive of that relationship or by acquiescing in similar contracts made for it by that person in the past,that someone is its agent,is permitted to deny any such relationship,upon the provision of notice.

Question 38

A franchisor has a fiduciary duty towards the franchisee.

Question 39

An agency agreement comes to an end when the agent breaches the agreement.

Question 40

A franchisor guarantees that its franchisee will always succeed.

Question 41

Why is it important that a company advise all of its customers and suppliers that it has fired an employee?

Question 42

Does the franchisor have a fiduciary duty towards the franchisee? How about the other way around?

Question 43

What documents can an agent who has been granted a power of attorney sign.

Question 44

Identify which duty of agent to principal,if any,is being breached in the situations below.
a.X,a valued client of the agent,requests the agent to attend a land auction and to bid on a specific piece of land if it is free and clear of encumbrances and restrictions.The agent,although not knowledgeable about auctions or real estate,attends and successfully bids on the property.However,the agent did not understand the legalese contained in a brochure given each of the bidders,which stated that the property the agent obtained would be subject to a restrictive covenant restricting the development and use of the property.
b.The agent is instructed to attempt to purchase a specific piece of land and is authorized to offer up to $100 000 for same.The agent purchases the property for $85 000 and collects $95 000 from his principal,and in so doing advises the principal that the acquisition cost was $95 000.
c.The principal retains agent X due to the agent's public reputation as an outstanding tax expert and requests that the agent attend a tax inquiry to represent him.X agrees to do this but instead delegates it to a sub-agent,who unsatisfactorily represents the principal.
d.The principal instructs the agent not to pay more than $50 000 for a lot.The agent commits its principal to pay $60 000 for the lot.

Question 45

How is the scope of an agent's authority to enter into contracts for a principal extended so as to permit the agent to do the job which the principal hired him or her to do?

Question 46

What does it mean when we say that an agent is the fiduciary of his principal?

Question 47

How is the agency relationship used in a corporation and a partnership?

Question 48

Why should an agent representing a principal always make it clear to a third party that the agent is representing a principal,and not acting on the agent's own behalf?

Question 49

Name five occasions in the absence of an employment relationship when an agent's authority may be terminated.

Question 50

Give reasons why a company would expand through franchising rather then through the setting up of its own branches.

Question 51

In relation to each of the following statements,identify the way in which the agency relationship has been established.
a.X consigned his automobile to Z with instructions to sell same immediately.Z was a mercantile agent.Z used the vehicle as security for a loan from Y,who knew nothing about X or his instructions to Z.
b.Z,a common carrier,transported perishable goods for X.The goods started to spoil,and Z was unable to contact X,who had left the country on an extended vacation.Z sold the goods to Y and received a reasonable price with regard to the condition of the goods.
c.X executes a power of attorney in favour of Z,authorizing Z to sell specific land described in the power of attorney.
d.X,without the authority of Z,sells certain of Z's furniture at a garage sale.Shortly after the sale,Z learns of it and approves of X's actions.

Question 52

How may the transaction known as consignment create an agency by estoppel?

Question 53

Explain for each of the following statements whether the agent has liability to the third party.
a.The agent enters into a contract on behalf of its principal with a third party.Unknown to the agent,its principal had died two months previously.
b.The agent acts on behalf of an undisclosed principal.The agent acting on behalf of the principal enters into a contract with the third party.The contract is made in the agent's name,and the circumstances surrounding the contract show that the agent categorically described himself as a principal throughout the negotiations.
c.The agent enters into a contract with the third party but represents himself neither as a principal nor an agent.
d.The agent enters into a contact with the third party.Prior to entering the contract,the agent advised the third party that he was acting on behalf of a principal that did not wish to disclose its name at the present time.

Question 54

Is it legally permissible for an agent to work for two principals; such as for both the seller and the buyer in a real estate transaction?