Deck 23: The Agency Relationship-Creation, Duties, and Termination

Question 1

An agency relationship arises when the agent acts for his own benefit under the direction of the principal.

Answer 1

False

Question 2

Usually one cannot serve as the principal for both parties to a transaction; however,agents may consent to such a dual role if the parties are both fully informed.

Answer 2

False

Question 3

Most agency rules spring from:

A)customary law.
B)common law.
C)statutory law.
D)regulatory law.

Answer 3

B
Explanation: Agency law focuses on the relations between principals and agents and the third persons with whom agents deal in making contracts on behalf of principals.Because it has developed primarily from the decisions of courts,most agency rules spring from the common law.

Question 4

An agency relationship results from any indication of consent by the principal that the agent may act on the principal's behalf and under her control.

Question 5

An agency can never be oral.

Question 6

Independent contractors:

A)are under the control of their employer/principal as to both the objective of their work and the means used to achieve it.
B)are under the control of their principals as to the result that is to be achieved,but not as to the means used to accomplish that result.
C)do not maintain their own inventory of goods; instead,they take orders on behalf of their principal.
D)just bring the parties together rather than actually negotiating a contract of sale.

Question 7

Agents who are under the control of their employer/principal as to both the objective of their work and the means used to achieve it are:

A)distributors.
B)independent contractors.
C)employees.
D)commercial agents.

Question 8

Unless the circumstances of the relationship suggest that the agent intended to act for free,a duty to pay the agent is implied.

Question 9

A substantial change in market values or business conditions that affects the subject of the agency ends it if a reasonable agent would believe that termination is desired by the principal.

Question 10

A person has the capacity to act as an agent only if he/she has the legal capacity to contract.

Question 11

An agency relationship:

A)exists only when it is in the form of a written document signed by both the parties.
B)can be either compensated or uncompensated.
C)will not exist if the parties have expressly agreed that they do not intend to create one.
D)can be formed only by contract.

Question 12

Agents may use the formulas,processes,and mechanisms they have acquired while employed by their principal to benefit themselves.

Question 13

A feature which distinguishes commercial agents from distributors and nonagents is that:

A)commercial agents generally maintain their own inventory of goods unlike distributors.
B)commercial agents are usually compensated through a straight salary when a sale is completed.
C)commercial agents always bear the financial risk of nonpayment by the purchaser.
D)commercial agents often possess the authority to contract on behalf of their principals.

Question 14

An agent may be able to bind the principal on contracts with third persons after termination of the agency if the third person is unaware that the agency has ended.

Question 15

An agent may deposit funds of the principal in her personal account.

Question 16

The legal effect of the agent's action on behalf of the principal is usually the same as if the principal had done the act.

Question 17

The duty of the principal to keep records from which the compensation due to the agent can be determined is reinforced by tax laws that require such recordkeeping.

Question 18

Termination of an agency based on race,religion,national origin,and age is generally prohibited by state and federal legislation.

Question 19

The agent does not have to inform the principal of knowledge the agent gains in the course of her responsibilities.

Question 20

Distributors are usually compensated through the payment of a commission when a sale is completed and have to bear the financial risk of nonpayment by the purchaser.

Question 21

When agents make advances from their own funds in conducting the principal's business,the principal:

A)has no duty to reimburse the agent because the agent has assumed the burden.
B)has a duty to reimburse the agent for expenses incurred for the principal.
C)has a duty to reimburse the agent even if the agent is not acting within the scope of his/her authority.
D)has no duty to reimburse the agent because the agent commingled fungible goods.

Question 22

When one party exercises the power to terminate in violation of the right to terminate,the other party:

A)is left without a remedy.
B)may recover monetary damages in a breach of contract suit.
C)may recover specific performance.
D)may recover punitive damages in a breach of fiduciary duty.

Question 23

When an agent buys for the principal from himself,even if he charges a fair market price,the agent is violating which of the following common law duties?

A)Duty to communicate information
B)Duty to account for funds and property
C)Duty of loyalty
D)Duty to obey instructions

Question 24

A gratuitous agent is one who:

A)freely substitutes his/her judgment for that of the principal.
B)acts without pay.
C)requires a generous tip.
D)is employed to find a buyer for one party and a seller for another.

Question 25

When a principal breaches a duty owed to the agent,the agent:

A)may only bring a lawsuit against the principal for physical injuries suffered.
B)does not have a lien on anything that belongs to the principal which is in the agent's lawful possession.
C)may not terminate the agency until the contract has expired.
D)may claim the principal's property that is in his lawful possession for compensation due him for his performance of the agency responsibilities.

Question 26

When an agent's breach of duty causes harm to the principal:

A)the principal may deduct the loss from the amount due the agent.
B)the principal can bring an action in court even if compensation is due.
C)the principal is not liable to compensate the agent,even if the breach is serious enough.
D)the principal is liable to show actual damages to avoid having to compensate.

Question 27

A person may act as a dual agent:

A)on his own accord.
B)after partial disclosure of terms to either principal.
C)with the consent of any one principal.
D)with the consent of both principals on being fully informed about it.

Question 28

Whenever the agent's duties to the principal conflict with the agent's own interests:

A)the agent automatically is regarded as having breached the duty of loyalty.
B)the agent must disclose such facts to the principal,or be in violation of the duty of loyalty.
C)there is no duty of disclosure if the agency is gratuitous.
D)the agent must resign immediately.

Question 29

Jeff,as agent,is paid $5,000 owed by a debtor of Lee,Jeff's principal.Instead of giving it immediately to Lee,Jeff invests it in the stock market.Luckily,the market price of that particular stock rises to $10,000 before Lee learns of the wrongdoing.Under these circumstances:

A)Jeff cannot be sued as the money was put to good use.
B)Lee is entitled only to $5000.
C)Lee is entitled to all of the stock.
D)Jeff can be sued for an indefinite amount on account of his misconduct.

Question 30

An "agency at will" means that:

A)each party has the power to terminate the agency even if there is no contractual right to do so.
B)only the principal has the right to terminate the agency at his will.
C)both parties may mutually agree to modify their agency contract at will.
D)only the agent can terminate the agency.

Question 31

Under the "procuring cause" rule,when the agent is the primary factor in a purchase:

A)the agent may be entitled to a commission regardless of who eventually completes the sale.
B)the agent is not entitled to compensation after termination of the agency relationship.
C)the agent is not entitled to compensation because the agent did not actually "seal the deal."
D)the agent is entitled to compensation only if he completes the sale even after termination of the agency relationship.

Question 32

When an agent breaches a duty owed to the principal,the agent:

A)may not be discharged until the contract has expired.
B)may be discharged without liability in spite of an unexpired contract.
C)may be discharged only if the principal can show actual damage.
D)may not be discharged until contractual damages are paid.

Question 33

When an agreed-on result is obtained by the agent and the principal does not benefit:

A)the agent will not be paid.
B)the agent is entitled to be paid.
C)the agent must return any pay to the principal.
D)the agent may only recover the expenses incurred,not the actual compensation.

Question 34

If no time or event is specified explaining when the agency relationship will end,the agency:

A)will continue indefinitely.
B)will continue for the statutory maximum of 10 years.
C)automatically ends when the result for which the agency was created has been accomplished.
D)automatically ends after a period of 70 days even if the result for which the agency was created has not been accomplished.

Question 35

One of the duties generally imposed on the principal by the common law is:

A)the duty to share profits and losses.
B)the duty to reimburse and indemnify.
C)the duty to account for funds and property.
D)the duty to consult.

Question 36

If an agent indulges in commingling:

A)he probably will not be liable for loss to the principal.
B)he bears the risk of any loss to the principal.
C)he will not be liable for any loss to the principal if the property is not wrongfully used.
D)he is breaching the duty to communicate information.

Question 37

A duty imposed on the agent by the common law generally includes the:

A)duty to compensate.
B)duty of loyalty.
C)duty to reimburse.
D)duty of indemnification.

Question 38

When the parties do not agree on the duration of the agency and the agent has incurred substantial expenses in completing the agency,a court will likely hold that:

A)the agency relationship must be terminated immediately to avoid unjust enrichment.
B)the principal cannot terminate the agency until after the agent has had a reasonable time to try to earn the expected commission.
C)only the principal can terminate the agency and the courts cannot hold him liable for any expenses incurred by the agent during the agency period.
D)the principal will be required to indemnify the agent if some fault of the agent causes a loss.

Question 39

Which of the following is true of real estate commissions?

A)If the seller has not given the broker a specific closing date,the broker can assume a reasonable closing date and can also claim a commission for an incomplete sale.
B)If the seller has not given the broker specific terms on price,the broker can sell the property on his own terms and claim for the commission.
C)If the seller has not given the broker a specific closing date,the law assumes the contract to end 30 days after the creation of the contract,but the broker will not be entitled for a commission.
D)If the seller has not given the broker specific terms of price or closing date then the commission is not earned until the contract of purchase has been made.

Question 40

Which of the following is true of an agent's duty to obey a principal's instructions?

A)An agent may always substitute his/her personal judgment for that of the principal.
B)An agent has no power to exercise his/her best judgment to further the interests of the principal,if no instruction is given.
C)An agent will be liable for any loss to the principal caused by failure to follow instructions.
D)An agent may ignore the principal's instructions if they seem unwise or not truly in his/her best interests.

Question 41

Seth runs David's Connecticut farm while David works as a stockbroker in New York City.Twice a year,David asks Seth for an accounting.Explain Seth's duty to provide an accounting.

Question 42

Discuss an agent's duty to communicate information to the principal and when is this duty considered to be violated?

Question 43

To avoid being bound by the acts of the agent after the agency has ended,the principal:

A)should give actual notice to those who have dealt with the former agent.
B)should give constructive notice to those who have dealt with the former agent.
C)should give verbal notice if the termination is due to loss of legal capacity by the principal.
D)should give actual notice if the termination is due to impossibility of performance.

Question 44

What does the agent's duty of loyalty mean?

Question 45

Consumers Assurance was Lin's insurance agent on a truck that was insured with Casualty Company.Lin later purchased a car from Ted's Toyota Dealership,but,before he was allowed to remove it from the dealership,the dealer's credit manager called Consumers to verify that the new car would be insured.A Consumers' employee indicted that the car was insured by Casualty.Based on these assurances,Lin took delivery of the new car,started driving it,and paid the insurance premiums when they became due.Several months later,Lin wrecked the car and filed an insurance claim.Casualty denied coverage on the grounds that it had never agreed to insure the car.Lin sued Casualty,alleging that the agency relationship between Casualty and Consumers bound the insurer to the assurances made by its agent.Casualty denied that an agency relationship existed.Discuss.

Question 46

Lydia borrows $500 for textbooks from Gerry.She gives Gerry the authority to sell her DVD player to satisfy his claim if she does not pay the loan back as promised.She does not pay the loan back as promised.Under these circumstances:

A)a dual agency exists.
B)Lydia can revoke Gerry's power if the books are damaged.
C)if Lydia dies,there is termination of the agency even if the debt remains unpaid.
D)Lydia cannot revoke Gerry's power to sell the DVD player.

Question 47

Discuss the purpose of insurance commissions paid to the agents.

Question 48

A real estate broker was hired as a rental agent for a house.The house burnt down due to accidental causes.In this circumstance:

A)the agency automatically ends as the subject matter of the agency is destroyed.
B)the agency is automatically transferred to other properties of the principal.
C)the agent is liable to be compensated even if the aim to the agency has not been accomplished.
D)the agency may be terminated only by mutual consent.

Question 49

An agency coupled with an interest means:

A)either party may terminate the agency at any time.
B)the agency may not be able to recover the debt in the event of the principal's death.
C)the agency is irrevocable without the consent of the agent.
D)each party has the power to terminate without breach of contract if done so within 18 months.

Question 50

To avoid being bound by the acts of the agent after the agency has ended,the principal should give constructive notice:

A)to those who have dealt with the former agent.
B)to those who knew of the agency but had never dealt with it before termination.
C)to those who never knew of existence of the agency.
D)to everyone who the principal was in contract with before the termination.