Deck 15: Law of Agency

Question 1

Adrienne hired an agent to sell a quantity of furniture that she owned. She instructed the agent to sell the furniture without disclosing her identity as owner. The agent eventually sold the furniture to Simple. Adrienne then decided not to deliver the furniture. If the agent indicated that he was acting as the agent for an undisclosed principal, when Adrienne refused to deliver the furniture, Simple would be obliged to elect to sue either the agent or Adrienne, if he discovered her identity.

Answer 1

False

Question 2

A principal may incur liability

A) if a third party is induced to enter into a contract by the fraudulent misrepresentation of an agent.
B) by revealing his or her identity in a situation where an agent negotiated a contract without disclosing his agency.
C) where an agent reveals his agency in concluding a contract and acts within his authority.
D) where an agent reveals his agency in concluding a contract and exceeds his authority.
E) all of the responses are correct.

Answer 2

E

Question 3

While an agent is travelling in the United States on sales calls, his principals-a husband and wife in partnership-die in an auto accident. He is informed of the deaths, and knowing that the children of the deceased, who are also active in the business will take it over, the agent signs a contract within his authority with a third party. Which of the following statements is true?

A) The principals' estate must honour the contract.
B) The children, on assuming ownership of the business, must honour the contract.
C) The agent becomes liable on the contract.
D) The third party can sue the agent for breach of warranty of authority.
E) The principal is in breach of the agency agreement.

Answer 3

D

Question 4

How may an agency arise?

A) Contract.
B) Necessity.
C) Conduct.
D) Contract or conduct.
E) Contract, necessity or conduct.

Question 5

An agent may be liable on contracts of its principal

A) where it has entered those contracts in breach of its authority.
B) where it has breached a warranty of authority.
C) where the agent signs in his own name without disclosing the agency to the other contracting party.
D) where it breaches authority and fails to disclose the principal.
E) all of the responses are correct.

Question 6

Who can be an agent?

A) Employee.
B) Independent contractor.
C) Partner in a partnership.
D) Manager.
E) Any of these individuals can be an agent.

Question 7

Who are the parties to an agency?

A) Trustee, Agent, Third Party.
B) Beneficiary, Agent, Third Party.
C) Trustee, Beneficiary, Third Party.
D) Beneficiary, Agent, Principal.
E) Agent, Principal, Third Party.

Question 8

Which of the following statements is false? Agency agreements

A) are agreements of utmost good faith on the part of the agent.
B) which are by express agreement need to be in writing to be valid.
C) include, by definition, Powers of Attorney.
D) entitle a third party to expect that notice to the agent constitutes notice to the principal.

Question 9

Which of the following statements is true? Agency agreements

A) may only be terminated by notice given, or by the death, insanity, bankruptcy of either principal or agent.
B) are agreements of utmost good faith on the part of the agent.
C) if arising other than through operation of law or by necessity, must be in writing to be valid.
D) would not include, by definition, Powers of Attorney.

Question 10

Ted Johnson is employed by a large securities brokerage firm as a junior account executive. The nature of Ted's responsibilities is to manage the portfolio accounts for approximately 25 clients. Ted's relationship with his clients is characterized by which of the following?

A) Ted may be liable to a client for failure to trade securities for the account in certain circumstances if the client experiences a loss as a result.
B) When Ted receives information about a pending stock split for a client's stock, Ted's client is attributed with this knowledge whether he actually receives it or not.
C) Ted must deposit any proceeds from the sale of a client's securities in a separate account identified as the client's.
D) All of the responses are correct.

Question 11

Jane acted as agent for the ACME Construction Co. as a buyer of materials. On Monday, while Jane was travelling on a buying trip, one of ACME's creditors petitioned it into bankruptcy. The following day, Jane purchased three boxcar loads of lumber on behalf of ACME.

A) ACME is liable to pay for the lumber.
B) Jane is in breach of her warranty of authority.
C) Jane's agency relationship with ACME will terminate as soon as Jane is notified.
D) ACME may ratify the lumber contract when it becomes aware of it.
E) All of the responses are correct.

Question 12

Which parties are bound by the contract arising from a properly fulfilled agency?

A) Trustee and Agent.
B) Trustee and Beneficiary.
C) Principal and Agent.
D) Agent and Third Party.
E) Principal and Third Party.

Question 13

Agents may expose themselves to personal liability on a contract by entering into an agreement with a third party

A) without disclosing the fact that they are an agent.
B) by expressly describing themselves as an agent, but without disclosing the identity of the principal.
C) on behalf of a fictitious principal.
D) on behalf of a principal for whom the agent did not have authority to act.
E) all of the responses are correct.

Question 14

While an agent is travelling in Northern Ontario, his principal dies. Before he is informed of this, but after the death, the agent signs a contract within his authority with a third party. Which of the following statements is true?

A) The principal's estate must honour the contract.
B) The agent becomes liable on the contract.
C) The principal is in breach of the agency agreement.
D) The agent is in breach of the agency agreement.
E) The third party can sue the agent for breach of warranty of authority.

Question 15

Newsome Enterprises Ltd. hired Joe as its purchasing agent. Joe was given the authority to purchase up to $20,000 of inventory. He discovered inventory at 50% off the normal cost so purchased $15,000. Is Newsome Enterprises Ltd. bound by Joe's agreement?

A) No, it is not bound, and Joe is liable as it exceeded his authority.
B) It can be bound if it ratifies the contract.
C) Yes, it is bound.
D) None of the responses are correct

Question 16

Where the actions of a person convey the impression to third parties that he or she has given authority to a particular person to act as an agent,

A) the authority is real and of binding legal effect.
B) a contract negotiated by such an agent may not be adopted by the principal at a later time.
C) third parties may assume that the agent has authority to bind the principal until notice to the contrary has been given to the third parties.
D) the agent may be liable to the principal for acting under implied but not actual authority.
E) all of the responses are correct.

Question 17

Adrienne hired an agent to sell a quantity of furniture that she owned. She instructed the agent to sell the furniture without disclosing her identity as owner. The agent eventually sold the furniture to Simple. Adrienne then decided not to deliver the furniture. Adrienne's instructions required the agent to sell the goods as agent for an undisclosed principal.

Question 18

Binding agency relationships may arise in a number of ways, which include:

A) conveying the impression that one person has the authority to act on behalf of another.
B) an agreement in compliance with the Statute of Frauds.
C) circumstances in which a person may act on behalf of and bind another to avoid or mitigate an emergency.
D) agency by estoppel.
E) all of the responses are correct.

Question 19

Adrienne hired an agent to sell a quantity of furniture that she owned. She instructed the agent to sell the furniture without disclosing her identity as owner. The agent eventually sold the furniture to Simple. Adrienne then decided not to deliver the furniture. If the agent sold the goods to Simple, and in the course of the negotiations indicated that the furniture was his, the agent alone would be liable.

Question 20

Where an agent enters a contract, not under seal, without disclosing he or she is an agent, the other contracting party

A) may bring an action for misrepresentation.
B) must first consent to ratification of the contract by the principal, for the principal to displace the agent.
C) may sue either the agent or the principal, but not both, if the principal is later revealed, and there is breach.
D) may sue either the agent or the principal, or both, if the principal is later revealed, and there is breach.
E) all of the responses are correct.

Question 21

Jim was engaged by Nick as his agent to purchase a parcel of land for him. Jim approached the owner of the land and offered to sell the land for him as his agent if he would pay a commission on the sale. The owner agreed, and the sale was arranged with Nick. Without disclosing details of the transaction, Jim collected a commission on the sale from both Nick and the landowner. The owner of the property, who also thought that Jim was his agent, would be entitled to recover the commission he paid to Jim.

Question 22

The apparent authority of an agent is not sufficient to bind a principal in a contract with a third party which is negotiated after the agency relationship has been terminated.

Question 23

Without Ted's knowledge, Phil, who frequently purchased lumber on Ted's behalf, purchased a large quantity of plywood from Chris as agent for Ted. Phil later advised Ted of the purchase. Ted is bound by the contract made by Phil, because Phil had apparent authority to purchase the lumber on Ted's behalf.

Question 24

A principal who ratifies a contract may begin accepting benefits under the contract before it has been ratified in writing.

Question 25

Jim was engaged by Nick as his agent to purchase a parcel of land for him. Jim approached the owner of the land and offered to sell the land for him as his agent if he would pay a commission on the sale. The owner agreed, and the sale was arranged with Nick. Without disclosing details of the transaction, Jim collected a commission on the sale from both Nick and the landowner. If the secret commission was discovered, Nick would be entitled to collect the secret commission paid to Jim by the landowner.

Question 26

Jim was engaged by Nick as his agent to purchase a parcel of land for him. Jim approached the owner of the land and offered to sell the land for him as his agent if he would pay a commission on the sale. The owner agreed, and the sale was arranged with Nick. Without disclosing details of the transaction, Jim collected a commission on the sale from both Nick and the landowner. Jim acted in breach of his duty to act in good faith when he obtained commissions from both parties.

Question 27

In an agency relationship all of the general rules of contract apply to all of the parties except the rules of capacity.

Question 28

Adrienne hired an agent to sell a quantity of furniture that she owned. She instructed the agent to sell the furniture without disclosing her identity as owner. The agent eventually sold the furniture to Simple. Adrienne then decided not to deliver the furniture. Simple could sue both the agent and Adrienne, if he discovered her identity, since he knew the agent was acting as an agent only.

Question 29

Without Ted's knowledge, Phil, who frequently purchased lumber on Ted's behalf, purchased a large quantity of plywood from Chris as agent for Ted. Phil later advised Ted of the purchase. If Ted wished to ratify the agreement, the act of ratification would make the agreement effective as of the date that it was negotiated by Phil.

Question 30

Adrienne hired an agent to sell a quantity of furniture that she owned. She instructed the agent to sell the furniture without disclosing her identity as owner. The agent eventually sold the furniture to Simple. Adrienne then decided not to deliver the furniture. If the agent merely does not disclose that he is acting as the agent for a principal, Simple may elect to sue either the agent or Adrienne, if he discovers her identity.

Question 31

Without Ted's knowledge, Phil, who frequently purchased lumber on Ted's behalf, purchased a large quantity of plywood from Chris as agent for Ted. Phil later advised Ted of the purchase. If Ted had died, Phil would be liable to Chris on the basis of Phil's implied warranty that he had authority to negotiate the contract on behalf of a principal that existed.

Question 32

Certain high-technology components may not be exported to nations on the Export Controls List. The export broker for a manufacturer of such components could be held liable for any loss to the manufacturer as a result of recording incorrect part numbers on government export approval applications which the manufacturer reviews and signs.

Question 33

An agent was engaged by a developer to arrange financing and obtained a favourable arrangement from a local lending institution. The lender gave the agent a fee for bringing in such a large account. The agent must disclose this fee to his principal.

Question 34

Without Ted's knowledge, Phil, who frequently purchased lumber on Ted's behalf, purchased a large quantity of plywood from Chris as agent for Ted. Phil later advised Ted of the purchase. As an agent, Phil must make certain that his principal is in existence at the time the contract is negotiated, otherwise, he would be liable for breach of warranty of authority.

Question 35

Without Ted's knowledge, Phil, who frequently purchased lumber on Ted's behalf, purchased a large quantity of plywood from Chris as agent for Ted. Phil later advised Ted of the purchase. If Ted had died the day before the contract negotiated by Phil was made, Chris would be entitled to sue Ted's estate to enforce the agreement.

Question 36

The role of an agent is to carry out a specific task for its principal with a third party such that there are no direct dealings between the principal and third party. The third party need never be told of the existence of the principal.

Question 37

Without Ted's knowledge, Phil, who frequently purchased lumber on Ted's behalf, purchased a large quantity of plywood from Chris as agent for Ted. Phil later advised Ted of the purchase. If Ted was bound by the contract which he had not authorised Phil to make, he (Ted) would be entitled to take legal action against Phil for any loss which he suffered.

Question 38

Without Ted's knowledge, Phil, who frequently purchased lumber on Ted's behalf, purchased a large quantity of plywood from Chris as agent for Ted. Phil intended to advise Ted of the purchase later . If Ted had died before the contract was negotiated by Phil, the purchase agreement would be unenforceable, because the principal did not exist at the time when the agreement was made.

Question 39

Certain high-technology components may not be exported to nations on the Export Controls List. The export broker for a manufacturer of such components could be held liable for any loss to the manufacturer as a result of incorrectly classifying prohibited components on the export approval applications.

Question 40

Without Ted's knowledge, Phil, who frequently purchased lumber on Ted's behalf, purchased a large quantity of plywood from Chris as agent for Ted. Phil later advised Ted of the purchase. Ted may ratify the contract made by Phil, if he wishes to do so, provided that he could have made the agreement himself at the time that the agreement was made by Phil.

Question 41

Describe the various duties owed by agents to their principals and illustrate the consequences of breaching these duties by giving examples.

Question 42

Where one is an agent by conduct, it may equally be said that one is an agent by estoppel.

Question 43

The Regal Flour Milling Co. Ltd. was engaged in the processing of flour, which it packaged and sold to a wide variety of customers ranging from commercial producers of food products to retail grocery stores. Regal processed primarily wheat flour, although a small part of its business was devoted to specialty flours such as rice and corn. For some time, Regal had employed Barber as its wheat buying agent, but handled the purchasing of other grains itself. Barber was an independent buying agent who pooled orders from several large processors, and then negotiated and purchased on their behalf large quantities of wheat that were then shipped directly to the respective processors. In the course of his dealings with grain sellers, Barber learned that the Midwest United States had experienced a bumper crop of soybeans, and that growers were attempting to export as much of the surplus as possible. Knowing that Regal also processed certain quantities of other grains, and wanting to take advantage of the opportunity, Barber entered into a contract on behalf of Regal for the purchase of 500 tonnes of soybeans at an unprecedented low price. He then directed shipment of the soybeans to Regal's processing facilities. Barber then notified Regal of his purchase and the expected date of delivery.
a. Regal has no equipment capable of processing soybeans into flour, and upon learning of its commitment through Barber to purchase, refused to accept delivery of the beans. What are the rights and liabilities of the parties involved?
b. What may Regal do if, upon learning of the soybean contract, it believes it may be able to resell the beans even though it cannot process them itself?

Question 44

An agency for the purpose of carrying out a specific task automatically terminates once the task has been accomplished without giving notice to third parties.

Question 45

The law of agency has its roots in all of tort, contract, quasi-contract, and the law of equity.

Question 46

The most common form of agency by necessity is the relationship between a real estate agent and his or her principal.

Question 47

Where "Jane Doe per John Doe" appears executed on a signature line, Jane Doe is the agent.

Question 48

In November, Moira and Alex, wishing to get away to a sunny climate, visited the office of Relax Travel Co., and discussed a number of possible destinations with one of the travel agents. The agent described five different locations and the hotels at each. One location in particular, the Five Star Hotel on the island of Trinidad, was highly recommended by the agent, who described the property as a "luxurious, club-like atmosphere, directly on the beach in a tropical paradise." She gave Moira and Alex a detailed explanation of the hotel facilities and the rooms, and then gave them colourful brochures about the hotel and island. The brochure had been prepared and provided to the agents by the travel wholesale company, Sunwest Skies, which was offering the trips. Moira and Alex asked the agent if she had ever visited the hotel. She replied that she had not, however she had attended an extensive briefing given by Sunwest Skies for agents, covering this and other properties. Several days later, Moira and Alex decided to go to that particular hotel and revisited the agent where they booked and paid for the trip. When they arrived in Trinidad, the couple discovered that their hotel was under construction, and no guest rooms were ready for occupancy. They were taken instead to a dilapidated hotel offering few services, located in the middle of a town twenty minutes from the beach. Discuss the rights and liabilities of the parties.

Question 49

Occasionally circumstances arise that force an agency relationship to exist although no authority is given to the agent. Explain the circumstances that would create such a situation and indicate the legal obligations and tenets which exist. Give two examples (other than those in the textbook) of situations in which this type of agency relationship may be involved.

Question 50

An agent who makes a contract but does not disclose the identity of his principal may be held personally liable on the contract.

Question 51

Linda, a real estate broker, listed a house and property for sale at $145,000 having told the vendor, Ann, that this would leave some "bargaining room" above its true value of $140,000. She set about finding a purchaser and eventually met Steven. When Steven was shown a copy of the listing and appeared interested, Linda closed the sale by advising Steven that Ann was asking too much, and to offer only $140,000 for the property. The transaction went forward to a natural conclusion at $140,000. Discuss where Linda's responsibilities lay, and any outcome should Ann and Steven ever "compare notes."

Question 52

Explain the nature of the agency relationship in light of the principles of contract law.

Question 53

Katrina entered into a contract to purchase a computer system from Stacey Systems after a call from Stacey System's sales representative who mistakenly informed Katrina that she would receive a 40 percent discount. When Katrina is billed for the full amount, her only recourse is to pay the bill and bring an action against Stacey Systems and the sales representative for the difference.

Question 54

It will only be on rare occasions that individuals who are principals will find themselves in a position of having to ratify contracts made by their agents.

Question 55

The ACME Sheet Metal Co. was planning to add a new product to its line and required some new, customized equipment. ACME contacted Evans who advertised as an independent dealer in industrial machinery. Evans told ACME representatives that he was a sales agent for XYZ Machinery Inc. and that he would be able to order the equipment from XYZ custom made. ACME signed an agreement with Evans subject to confirmation by XYZ for the manufacture, sale and installation of the equipment. ACME gave Evans a deposit for part of the price and a promissory note for the remainder. Evans then delivered the agreement and note to XYZ. The note was accepted as payment and the contract approved. Delivery of the machinery was delayed and ACME faxed XYZ on several occasions requesting a progress report. XYZ responded to only one of ACME's faxes, but never indicated that it did not consider itself bound by the agreement with ACME. Eventually, XYZ delivered and installed the machinery. The equipment was completely unsatisfactory and did not perform in any way to specifications. When ACME contacted XYZ to demand the machinery be corrected, XYZ said that it had no contract with ACME. As far as XYZ was concerned, it had sold Evans the machinery and that ACME's contract was with Evans, not XYZ. XYZ explained that it never deals directly with customers and that it deals only with Evans. It accepts responsibility for its business dealings and machinery only from Evans and, therefore, denied any liability to ACME. ACME sued XYZ for breach of contract. Discuss the rights and liabilities of the parties and render a decision.

Question 56

Ramona is departing on vacation and the home she has put up for sale has sold unexpectedly quickly. She asks her friend Veronica to execute documents related to the sale of her house on her behalf while she is away. Veronica will be appointed as principal under a power of attorney executed by Ramona.