Deck 28: Relationship of Principal and Agent

Question 1

In some states, the authority of an agent to sell land must be in writing and signed by the principal.

Answer 1

True

Question 2

As a general rule, a person may do through an agent whatever business activity he may accomplish personally.

Answer 2

True

Question 3

The capacity to act through an agent, depends on the capacity of the agent to do the act.

Answer 3

False

Question 4

After an agency terminates, the agent is free to disclose to third persons any information acquired during the agency relationship.

Question 5

Diane appoints Edward as her agent to sell goods in markets where the highest price can be obtained. Edward sells the goods in a market that is glutted and obtains a low price, even though he could have obtained a higher price in a nearby market by using more care in obtaining the available market information. Edward is liable to Diane for breach of the duty of diligence.

Question 6

A fiduciary duty, arising out of a relationship of trust and confidence, is one of utmost loyalty and good faith.

Question 7

Anna employs Mark to purchase for her a suitable site for a roller rink. Mark owns a huge site himself and sells it to Anna at fair market value without disclosing to her that he is the owner of the land. Mark has not breached his fiduciary duty to his principal.

Question 8

An agent must act solely in the interest of his principal in all acts that would affect the principal's business.

Question 9

The Third Restatement specifies that an agency is automatically terminated when the principal goes bankrupt.

Question 10

If an agency is gratuitous, the principal ordinarily may revoke it without liability to the agent.

Question 11

An agent will not be authorized to act for a principal unless he receives some consideration for the task.

Question 12

An agency contract appointing the agent for a period of more than one year must be in writing.

Question 13

Jones, an agent of Rossi, is authorized to sell Rossi's ownership of wheat on the commodities market on Monday. On Monday, however, the market opens with the lowest prices for wheat in two decades. Jones must go ahead and sell Rossi's wheat on Monday.

Question 14

A gratuitous agent has a duty of loyalty but is not liable for any harm caused by his careless performance.

Question 15

A principal may generally revoke the authority of an agent at any time.

Question 16

A minor cannot act as an agent.

Question 17

Linton, as a sales agent for Nancy, may keep the money for the sales in his personal bank account until due to her as long as he keeps accurate records of the amounts he must separate out to pay to her.

Question 18

A principal owes to any agent the same duties under tort law that the principal owes to all parties.

Question 19

Because the authority given to an agent by a principal is strictly personal, an individual agent's death terminates the agent's actual authority.

Question 20

Authority conferred upon an agent for a specified time does not continue after the specified time.

Question 21

Whether an agency relationship has been created is determined by using a subjective test.

Question 22

Harold, a painter, contracts to paint a portrait of Irene. However, he has one of his students do the actual work. This is a proper delegation of authority to an agent.

Question 23

If Elizabeth, agent for Wade, finds out one of Wade's customers has become insolvent, she has the duty to communicate this information to Wade.

Question 24

Agency relationships are governed primarily by federal statute.

Question 25

A gratuitous agency is not a true agency because it is not formed by contract.

Question 26

All employees are agents, but not all agents are employees.

Question 27

A power given as security creates a relationship of agency and actual authority.

Question 28

An agent may not make a secret profit from any transaction subject to the agency.

Question 29

All independent contractors are agents, but not all agents are independent contractors.

Question 30

The fiduciary duty of an agent has no bearing upon his ability to act on behalf of a competitor of his principal.

Question 31

The principal has a duty to indemnify the agent for losses incurred or suffered while acting as directed by the principal in a transaction which is not illegal or wrongful.

Question 32

A person who engages an independent contractor to do a specific job has the right to control the details of the conduct and activities of the independent contractor as it applies to the specific job.

Question 33

The principal has the duty to provide the employee with reasonably safe conditions of employment and to warn the employee of any unreasonable risks involved in the employment.

Question 34

The duty of obedience owed by an agent to a principal is not breached and will not result in liability to the principal by an agent's refusal to do an illegal or tortious act for the principal.

Question 35

The appointment of an agent by a minor or an incompetent not under guardianship and any resulting contracts are voidable.

Question 36

An agency agreement must always be in writing.

Question 37

Agents and principals have mutual fiduciary duties to one another.

Question 38

A plumber hired to redo the plumbing in a building is an independent contractor and an agent of the owner of the building.

Question 39

The power of a gratuitous agent to affect the principal's relationship with third parties is the same as that of a paid agent.

Question 40

If an agent receives a gift from a third person with whom he is dealing on behalf of the principal, he can keep it without notifying the principal.

Question 41

Which of the following will terminate an agency coupled with an interest?

A) The death of the principal.
B) The bankruptcy of the principal.
C) The incapacity of the principal.
D) None of these will terminate such an agency.

Question 42

An "electronic agent" is not a true agent since it is not a person.

Question 43

A gratuitous agent is not subject to the same duty of loyalty that is imposed upon a paid agent.

Question 44

A __________ is a written, formal appointment of an agent.

A) fiduciary
B) revocation
C) power of attorney
D) rescission

Question 45

Agency law is basic to almost every other branch of business law.

Question 46

Since the agency relationship is created by agreement, the agency relationship may be terminated at any time by mutual agreement of the principal and the agent.

Question 47

Victor negligently led Gus to believe that Brenda had the authority to act on Victor's behalf. If Brenda had no authority but Gus reasonably and in good faith relied on Brenda's apparent authority:

A) Victor can be liable to Gus for Gus's loss suffered because of his reliance.
B) Victor cannot be held liable to Gus because Brenda had no actual authority.
C) only Brenda can be held liable for any loss Gus suffered because of his reliance.
D) Gus must bear any loss because he did not determine the extent or existence of Brenda'a authority.

Question 48

Prentice and Mercedes are partners in a catering business. The law of agency:

A) has no significance for their business.
B) is important to their business because both Prentice and Mercedes are agents of the partnership and as such have the authority to represent and bind the business in all usual transactions of that partnership.
C) will only affect their business if they hire employees.
D) will only affect their business if they hire independent contractors.

Question 49

An agent's duty to inform:

A) applies to material and nonmaterial facts relating to the agency.
B) does not apply if providing facts to the principal would violate a superior duty owed by the agent to another person.
C) arises because notice to an agent does not constitute notice to the principal.
D) All of these.

Question 50

The agent may be subject to liability to her principal for breach of the duty of obedience if she:

A) entered into an authorized contract and the principal has changed her mind.
B) delegates her authority in any way and under any circumstances.
C) committed a tort for which the principal is now liable.
D) All of these.

Question 51

A(n) __________ is a person in a position of trust and confidence who has a duty of utmost loyalty and good faith.

A) fiduciary
B) servant
C) independent contractor
D) principal

Question 52

The result of an agent's functioning is exactly the same as if the principal had dealt directly with the third person.

Question 53

When the agency terminates, the agent's duty of confidentiality continues.

Question 54

The Restatement's definition of a power given as security includes, but is more extensive than, the rule regarding an agency coupled with an interest.

Question 55

Which of the following is correct with regard to the capacity of an agent?

A) The incapacity of the agent disqualifies him from making a contract that is binding on his principal.
B) No mental capacity is necessary for an agent.
C) If an incompetent person who is not under guardianship appoints an agent, contracts made by that agent are voidable.
D) A young child or a person under guardianship has the capacity to act as an agent.

Question 56

Which of the following is NOT a major duty, which the agent owes to the principal?

A) Duty to obey instructions.
B) Duty to act in good faith and with loyalty.
C) Duty to indemnify.
D) Duty to exercise care.

Question 57

The negligence of an agent who is an employee in conducting the business of the principal exposes the principal to tort liability for injury and loss suffered by third persons.

Question 58

An agent has breached his fiduciary duty in which of the following situations?

A) All of the following choices are correct answers.
B) Where the agent makes a secret profit.
C) Where the agent uses information obtained in the course of the agency for his own benefit.
D) Where the agent competes with the principal.

Question 59

E-Sign specifically excludes:

A) all transactions covered by the UCC.
B) wills and matters of family law.
C) transactions relating to foreign commerce.
D) All of these.

Question 60

By the operation of law, the occurrence of certain events will automatically terminate an agency relationship.

Question 61

All of the following except which one is a duty of an agent?

A) Account for money received on behalf of his principal.
B) Inform his principal of any information relevant to his agency.
C) Refrain from competing with his principal.
D) After the agency is terminated, refrain from using any information gained while an agent.

Question 62

An agent is not required to keep which of the following information confidential?

A) Unique business methods.
B) Customer lists.
C) Information that his or her principal is engaged in criminal activity.
D) Business plans.

Question 63

Steven is a manufacturer's representative for Incell Corporation. One day he receives a big-screen television as a gift from one of the clients he contacts on behalf of Incell.

A) Steven must account to Incell for the gift he has received.
B) The big-screen television belongs to Incell rather than to Steven.
C) If he keeps the TV without telling Incell, he will have breached his fiduciary duty.
D) All of these are correct.

Question 64

Bob owns a business delivering coffee and donuts within the downtown area of the city. Smith Co. calls him to deliver a large quantity of his products to their local office. While taking a coffee urn through the Smith Co.'s office, Bob drops it on Lester, scalding him. Who is liable?

A) Smith Co. and Bob are liable.
B) Bob alone is liable.
C) Lester has to absorb the cost himself since he assumed the risk by working at Smith Co.
D) Only Smith Co. is liable.

Question 65

Mark (age 16) appoints Joe (age 21) as his agent to purchase a digital camcorder from Electronic World. The transaction is:

A) void because Mark is a minor.
B) voidable by Electronic World because Mark is a minor.
C) voidable by Mark because he is a minor.
D) not voidable because Joe is not a minor.

Question 66

When is an agency relationship irrevocable?

A) It is never irrevocable.
B) When the agency is coupled with an interest of the agent in the subject matter.
C) When the principal violates his duties to the agent.
D) When the agent is a fiduciary.

Question 67

Which of the following is not a breach of an agent's duty of obedience?

A) Entering into an unauthorized contract for which his or her principal is then liable.
B) Committing a tort for which the principal is now liable.
C) Improperly delegating her authority.
D) Not following a principal's instruction to misrepresent the quality of a competitor's goods to a potential customer.

Question 68

Which of the following agents would not have authority to contract with third parties on behalf of the principal?

A) A salesman who sells his employer's goods.
B) A manager who hires employees for the store owner.
C) A factory worker hired to operate a machine.
D) A buyer who regularly buys merchandise for a store.
E) All agents have authority to contract with third parties on behalf of their principals.

Question 69

An agent may lose the right to compensation:

A) by breaching the agency contract willfully and deliberately.
B) if the specified result of the contract is not obtained.
C) if the duty of loyalty is breached.
D) All of these
E) None of these.

Question 70

A durable power of attorney differs from a power of attorney in that the durable power of attorney:

A) is a formal written instrument, whereas the power of attorney may be informal and oral.
B) must follow a standardized form set forth in the federal Uniform Durable Power of Attorney Act.
C) becomes effective upon the principal's subsequent incapacity or the agent's authority is not affected by the principal's subsequent incapacity.
D) is governed by Article 3 of the UCC.

Question 71

The contractual duties owed by a principal to an agent are the duties of:

A) compensation.
B) reimbursement.
C) indemnification.
D) All of these.
E) None of these.

Question 72

Carolyn, a cashier at Tops Supermarkets, may cash checks for up to $20 over a purchase amount. A friend needs money for a dress so Carolyn cashes a check for $50 with no purchase. The check bounces. Carolyn is:

A) liable because she violated her duty of obedience.
B) liable because she breached her duty to inform.
C) not liable since she has apparent authority to take the check.
D) not liable unless she knew her friend did not have the money in the bank.

Question 73

Carson, who is an agent for Peter, breaches his fiduciary duty to Peter. Carson:

A) is liable to Peter for breach of contract.
B) is liable to Peter in tort for any losses caused by the breach.
C) must make restitution for any profits or property received in breach of this duty.
D) All of these are correct.

Question 74

Lewis employs Donna under a one-year contract to sell Lewis's line of leather wallets and checkbook covers. If without Donna's knowledge, Lewis dies:

A) under the Second Restatement, Donna's actual authority will not terminate until the end of the one-year contractual term.
B) under the Second Restatement, Donna's actual authority will not terminate until she has notice of Lewis's death.
C) under the Third Restatement, Donna's actual authority will not terminate until she receives notice of Lewis's death.
D) under both the Second and Third Restatements, Donna's actual authority will terminate at either the end of her one-year contractual term or when she receives notice of Lewis's death, whichever occurs first.
E) under both the Second and Third Restatements, Donna's actual authority will terminate upon Lewis's death, whether she has notice or not.

Question 75

The concept of conflict of interest as it relates to the law of agency includes which of the following?

A) An agent may take a position that conflicts with the principal only if the principal, with full knowledge of all the facts, consents.
B) An agent may not represent her principal in a transaction in which the agent has a personal interest.
C) An agent may not act on behalf of adverse parties to a transaction without both principals' approval of the dual agency.
D) All of these.

Question 76

a. What is a fiduciary?
b. What are the implications of an agent's fiduciary obligation? What is an agent prohibited from doing as a result of this obligation? Explain.

Question 77

Carl loans Dan $1,500 for Dan's honeymoon. Dan gives Carl his ruby ring as security for the loan and after a year, tells Carl he may as well sell it to recoup the $1,500. When Dan's wife hears of this, she persuades Dan to call Carl and get back the ring. Can Carl sell it anyway?

A) Yes, because Carl has apparent authority.
B) Yes, because Carl has an express agency.
C) No, Carl's authority has been revoked.
D) Yes, because Dan cannot terminate this agency except by discharging the obligation.

Question 78

Mark hires Joe's real estate agency to sell his property, telling Joe he has lost too much money playing the stock market to afford to keep it up. Then Mark wins the three million-dollar lottery! Joe reads this in the newspaper and that afternoon makes a contract with Sharon to sell the property. Is the contract valid?

A) No, the agency terminated because of the change in conditions.
B) No, the agent has no right to sell without consent.
C) Yes, Mark would have to notify Joe if he wanted to stop the sale.
D) Yes, Joe had apparent authority to sell.

Question 79

A principal has no duty to compensate his or her agent if:

A) the agent breached the duty of obedience.
B) the agent breached the duty of loyalty.
C) it is a gratuitous agency.
D) All these are correct.

Question 80

A gratuitous agent:

A) is a paid agent.
B) is subject to the same duty of loyalty as other agents.
C) has no duty of diligence.
D) need not be reimbursed for her expenses.