Question 1

Nora works at Oil & Gas Inc. She is a sales representative who works with Oil & Gas customers. The company closely supervises its sales reps, and dictates their schedules. With respect to third parties, Nora is

Accepted Answer

Nora is both an employee and an agent of Oil & Gas Inc. As a sales representative, she is acting on behalf of the company to sell its products to customers. However, she is also an employee of the company and is closely supervised and directed by them in regards to her work schedule and other work-related duties. Therefore, she falls under the category of employee and agent.

Question 2

A principal who creates an exclusive agency and then competes with the agent can be held liable for the agent's lost profits or sales.

Accepted Answer

This is true under the principle of agency law known as the duty of loyalty, which requires principals to act in the best interests of their agents and refrain from engaging in conduct that is detrimental to the agency relationship. By creating an exclusive agency and then competing with the agent, the principal is breaching this duty and can be held liable for any damages suffered by the agent as a result.

Question 3

When an agent, acting within the scope of his or her authority, contracts with a third party, in no circumstance is the agent liable to the third party.

Accepted Answer

Depending on the circumstances, an agent may be liable to a third party for a contracted agreement, such as if the agent acted outside of their authority or committed fraud.

Question 4

Actual authority in an agency relationship arises from what a principal makes clear to a third party.

Accepted Answer

Actual authority arises from what a principal directly communicates to the agent, not to a third party.

Question 5

The principal is bound by the agent's unauthorized act, unless the principal negates it.

Accepted Answer

The principal is not automatically bound by the agent's unauthorized act unless the principal ratifies it or the act falls within the agent's apparent authority, making it seem authorized to third parties.

Question 6

The agent must maintain separate accounts for the principal's funds and for the agent's personal funds, but may intermingle these accounts.

Accepted Answer

The agent must maintain separate accounts for the principal's funds and their own personal funds and should not intermingle these accounts to ensure clear financial boundaries and accountability.

Question 7

A principal may be liable for an agent's or an employee's tort, with the exception of negligence, which is an unintentional tort for which the agent or employee is vicariously liable.

Accepted Answer

The statement is incorrect. A principal may still be liable for an employee's negligence under the doctrine of respondeat superior, which means "let the master answer." Under this doctrine, an employer may be held responsible for the negligent acts of an employee that are committed within the scope of employment.

Question 8

The doctrine of respondeat superior imposes liability for an agent's tort on a principal without regard to the personal fault of the agent.

Accepted Answer

The answer of The doctrine of respondeat superior imposes liability...

Question 9

Both parties to an agency relationship have the power and the right to terminate the relationship at any time.

Accepted Answer

The answer of Both parties to an agency relationship have...

Question 10

Ray is a delivery driver for Sicilian Pasta Company. Ray does exactly what the company tells him. Ray is

Accepted Answer

Ray is an employee because he is following the directions and control of the company, indicating an employer-employee relationship.

Question 11

Once the agency relationship between a principal and an agent has ended, the agent loses the right to bind the principal.

Accepted Answer

When an agency relationship ends, the agent's authority to act on behalf of the principal also ends. Therefore, the agent loses the right to bind the principal to any further actions or agreements.

Question 12

Diamonds & Gold LLC hires Elle to buy gems and precious metals from various sources on its behalf. In this relationship, Diamonds is

Accepted Answer

Diamonds & Gold LLC is the principal because it hires Elle to act on its behalf in purchasing gems and precious metals.

Question 13

Apparent authority in an agency relationship arises when the principal causes the agent to reasonably believe that he or she has the authority to act.

Accepted Answer

The answer of Apparent authority in an agency relationship arises...

Question 14

Motor Parts Sales Inc. hires Nolly to work on its shipping dock, accepting deliveries, and dispatching trucks, and dealing with customers and drivers. With respect to Motor Parts, Nolly is most likely

Accepted Answer

Nolly is an employee of Motor Parts Sales Inc., and is carrying out tasks on behalf of the company. However, there is no indication that Nolly has the authority to make legal agreements or contracts on behalf of the company, which is a key characteristic of being a principal. Therefore, Nolly is best described as an agent of Motor Parts Sales Inc.

Question 15

When an agent, acting within the scope of his or her authority, contracts with a third party, a disclosed principal is liable to the third party.

Accepted Answer

This statement is true according to the principles of agency law. When an agent acts within the scope of their authority and discloses the identity of their principal, the principal is liable for the actions of the agent and any contracts entered into with third parties.

Question 16

An undisclosed principal is one whose identity is totally unknown by an agent and a third party at the time a contract is made.

Accepted Answer

An undisclosed principal is one whose identity is not known by a third party at the time a contract is made, but the agent is aware of the principal's identity.

Question 17

The equal dignity rule requires that a principal and an agent act in good faith and with mutual respect in their dealings with each other.

Accepted Answer

The equal dignity rule is a legal principle requiring that if the law requires a contract to be in writing, then the authority of an agent to enter into that contract on behalf of the principal must also be in writing. It does not pertain to the requirement of good faith and mutual respect, although those may be aspects of a healthy principal-agent relationship.

Question 18

An agent must keep confidential any information acquired through an agency during the term of the relationship, but can disclose it after the agency ends.

Accepted Answer

An agent must keep confidential any information acquired through an agency not only during the term of the relationship, but also after the agency ends. This is known as the duty of confidentiality, which is a fundamental obligation of an agent to protect the interests of the principal. There are exceptions to this duty, such as when disclosure is required by law or with the principal's consent, but generally an agent cannot disclose confidential information without risking liability for breach of duty.

Question 19

A principal has a duty to pay an agent in a timely manner the customary compensation for services rendered.

Accepted Answer

This is a basic duty of a principal-agent relationship, as the agent is providing services for the benefit of the principal and is entitled to compensation for those services. Timely payment is also important to maintain a good relationship and mutual trust between the parties.

Question 20

Orin works at Pumps Inc. He works in the company's engineering department, interacting with third parties only to discuss technical issues. With respect to third parties, Orin is

Accepted Answer

Orin is an employee only, as he is not authorized to make any binding agreements on behalf of the company with third parties, making him not an agent of the company.

Quiz 27: Agency Relationships in Business