Deck 19: Agency and Franchising

Question 1

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

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

Answer 1

D

Question 2

When an agent approaches a third party and forms a contract but fails to disclose his status,

A) the agency relationship is terminated since the agent did not represent himself properly.
B) the third party's recourse is against the principal as he is liable for all actions of the agent.
C) the principal is the victim of misrepresentation by the agent and the third party.
D) the third party's recourse is only against the principal as he is liable for performance of the contract.
E) the third party can exercise the option of either holding the principal or the agent responsible for performance on the contract.

Answer 2

E

Question 3

Which of the following is not part of the duties of an agent to his principal?

A) to obey the principal's instructions except where they conflict with the law
B) to see that "apparent" is the same as "actual" authority
C) to delegate agent duties when he is unable to perform himself
D) to place the interest of the principal above all else except the law
E) to use care, skill, competence, and diligence, at all times

Answer 3

C

Question 4

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. 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 and Craig
D) Zelda only
E) none of the above

Question 5

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

Question 6

The person appointing a representative in an agency relationship is known as the

A) power of attorney.
B) principal.
C) administrator.
D) agent.
E) supervising director.

Question 7

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

Question 8

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, because an agent always lacks the authority to bind an undisclosed principal.
B) No, since this agreement is for interest in land, it must have all the essential terms of a written contract.
C) No, since the names of both parties are needed on a written contract.
D) Yes, since only the charged party needs to sign the agreement.
E) Yes, because the agent clearly identified himself.

Question 9

Clark is an employee of the Brown Seedling Company. He is authorised to buy various seeds from the farmers that produce such seeds. He works out of his house and is on the road most of the time. Clark is a

A) independent agent.
B) dependent agent.
C) selling agent.
D) manufacturer's representative.
E) seed broker.

Question 10

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

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

Question 11

An agency contract will most likely contain

A) private instructions restricting the agent's authority.
B) provisions for keeping the principal informed.
C) only custom and trade usage provisions.
D) termination procedures.
E) both express and implied terms.

Question 12

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 brother to be able to sign all the real estate documents, Charlie needs to authorise

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

Question 13

Alwin signed up Twig as a talented bareback stunt rider. He was thinking his Uncle would hire her for his circus yet he had no direct authorisation to be an agent for his Uncle. Is this contract enforceable by Alwin's Uncle?

A) Yes, if Alvin takes all responsibility for Twig's performance on the contract.
B) Yes, if Twig confirms the contract directly with Alwin's Uncle.
C) No, since this involves an undisclosed principal.
D) Yes, but only if there is ratification within a reasonable time.
E) No, since agent- principal relationships must be established before the contract is formed.

Question 14

Travel Tours Inc. sells special holiday packages that are arranged by other small companies and individuals. Each time a holiday package is sold, Travel Tours adds a service charge to the quoted price. Travel Tours justifies these charges based on the fact that

A) competition sets the rates used to calculate the service charges.
B) they are agents for the various principals, and are simply getting their agreed upon expenses plus industry established commissions.
C) the charges are quantum meruit payments based on benefits to the purchaser.
D) reasonable payments to agents are a duty of the principal.
E) the government regulates the level of commissions in the tourism industry.

Question 15

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

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

Question 16

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

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

Question 17

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

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

Question 18

An agency agreement can be established

A) by written memorandum.
B) by being written under seal.
C) orally.
D) by ratification.
E) all of the above.

Question 19

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 nor reduce the price on this transaction. Can this impasse be legally resolved?

A) No, since the agent has placed his own interest in conflict with that of the principal, therefore such a contract is illegal and void.
B) Yes, all we need is an "arms length" transaction with third- party involvement.
C) Yes, since the real estate arbitration board would issue a ruling.
D) No, because David would lose his Realtor's license if he completes this transaction.
E) Yes, they both simply need to negotiate between them a satisfactory deal.

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

Question 21

Define agency.

Question 22

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 23

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

Question 24

An agency contract may be terminated upon the bankruptcy of the principal.

Question 25

Holding out is the phrase used to describe the representation, by a business, 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.

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

Question 27

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

Question 28

A franchise agreement most likely gives the franchisee the right to

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

Question 29

Courts consider an agent to be an employee of the principal.

Question 30

The 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 "authorised" 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) No, since this practice will set a healthy precedent among the other franchisees.
B) No, since Tom is an independent businessman, he can manage his business as he sees fit- within the law.
C) Yes, since this practice will decrease the profits for all franchisees.
D) Yes, because there is an implied term that the franchisee is to protect the goodwill and trademarks and trade secrets of the franchisor.
E) Yes, since the franchisor has the money and legal clout to force compliance.

Question 31

A franchisor has a fiduciary duty towards the franchisee?

Question 32

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. How can the company's agency contracts with the independent agents be legally terminated?

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

Question 33

Gene Stone told the Harders that he was an agent for the Trouplow Corp. and was raising money for a local expansion programme. He then proceeded to sell them fifteen $1,000 12% bonds. In truth, the Trouplow Corp. had never heard of Gene Stone, but they did have 12% bonds available for local residents to buy. To recover the $15.000 paid, the Harders should sue

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

Question 34

What are the two levels of relationship between a principal and an agent?

Question 35

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

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

Question 36

In the absence of evidence of an employment relationship, an agent's authority is terminated on any of the following occasions EXCEPT

A) at the completion of the particular project for which the agency was formed.
B) upon the bankruptcy of the agent.
C) upon the death or insanity of either the principal or the agent.
D) upon notice by either the principal or the agent that she wishes to end the agency.
E) at the end of the time specified in the agency agreement.

Question 37

The franchise agreement is usually a standard form contract written by the franchisor. This agreement usually includes provisions regarding

A) services and assistance from other franchisees.
B) renting of equipment and sometimes premises of the franchisee.
C) ongoing payments to be used by franchisee for promotion and advertising.
D) exclusive supply contracts through certain vendors.
E) paying the franchisee a "basic franchise fee".

Question 38

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 39

To date, the only province that has enacted legislation regarding franchises is Ontario.

Question 40

An agency is a relationship in which one person, called the agent, authorizes another person to enter into contracts with a third party on its behalf.

Question 41

Identify which duty of agent to principal, if any, is being breached.
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 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 authorised 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 42

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 authorising 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 43

What four duties are generally owed by an agent to its principal?

Question 44

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

Question 45

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

Question 46

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

Question 47

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?

Question 48

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 the agent categorically described himself as a principal throughout the negotiations.
c. The agent enters into a contract with the third party but neither represents himself as a principal or 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 who did not wish to disclose its name at the present time.

Question 49

If a business has represented someone to be its agent, either by words suggestive of that relationship or by acquiescing in similar contracts made for it by that person in the past, it will not be permitted to deny the existence of an agency. What phrase is used to describe this representation or conduct on behalf of the business?

Question 50

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 51

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