Deck 35: The Agency Relationship

Question 1

The term 'independent contractor' is defined in the Restatements on Contracts (Third).

Answer 1

False
Explanation: The Restatements on Agency (Third)does not use the term independent contractor,because that term can designate either an agent or a nonagent creating ambiguity.

Question 2

An agent filing for bankruptcy automatically terminates the agency relationship.

Answer 2

False
Explanation: A reason for termination not listed in the Restatement of Agency (Third)is the agent's bankruptcy,where the agent's financial condition affects his ability to serve the principal.

Question 3

An agency coupled with an interest cannot be terminated by the principal's revocation of the agency.

Answer 3

True
Explanation: An agency coupled with an interest is not terminated by (1)the principal's revocation, (2)the principal's or the agent's loss of capacity, (3)the agent's death,and (4)the principal's death.

Question 4

Joe is the personnel manager for the BFG Corporation.Joe hires employees for BFG.Joe hires Suzy as a management trainee.Suzy is BFG's subagent.

Question 5

Authority is an agent's ability to handle the legal issue of a principal.

Question 6

A principal who instructs an agent to perform an unethical act will have no recourse against an agent who refuses to perform.

Question 7

If Tom Smith works in the in counsel depart of Supermart Corporation then he will be considered an employee not a nonemployee agent.

Question 8

The legal relations between agent and subagent closely parallel the legal relations between principal and agent.

Question 9

Because they serve for free,gratuitous agents have no authority to bind their principals.

Question 10

A principal is always liable for the acts of his agent.

Question 11

The law of Agency generally calls for the principal to indemnify the agent against financial loss while carrying out his/her duties.

Question 12

The agent's duty not to use or disclose confidential information about the principal's business continues after the agency ends.

Question 13

Agency is a two-party relationship in which the agent is authorized to act on behalf of the principal.

Question 14

A subagent is an agent of an agent.

Question 15

The termination of an agency terminates the agent's express authority,but not his implied authority.

Question 16

The agency relationship may be formed even if the parties do not subjectively intend to create it.

Question 17

Termination of agency by the principal it is known as renunciation and termination by agent it is known as revocation.

Question 18

The principal's death automatically terminates an agent's apparent authority.

Question 19

The principal's death automatically terminates an existing agency.

Question 20

A gratuitous agent has the same fiduciary duty as a paid agent.

Question 21

Which of the following tasks can an agent perform on behalf of a principal?

A) Signing a will
B) Making statements under oath
C) Voting in public elections
D) Making a contract

Question 22

An agent who accepts a bribe to purchase goods for a principal from a seller who is a personal friend breaches his _____ duty by taking the money,since it is the agent's duty to work only for the best interests of the principal.

A) fiduciary
B) statutory
C) indemnity
D) gratuitous

Question 23

Ahmed hired Shlomo to act as his sales agent in his jewelry store.Ahmed authorized Shlomo actual express authority to sell items of jewelry up to $1,000 without checking with him;however,if the price was over $1,000,Shlomo was to check with Ahmed before making a sale.One day,a customer wanted to buy a necklace for $1,500 and Shlomo sold it to her without first checking with Ahmed.When Ahmed learned of this,he was upset because the price was a mistake;it should have been marked at $3,000.Ahmed wants the customer to return the necklace.Is the customer required to return the necklace in this case?

A) Yes,because Shlomo did not have express authority to sell that item.
B) Yes,because Shlomo did not have implied authority to sell that item.
C) No,because Shlomo did have apparent authority to sell that item.
D) No,because Shlomo did have implied authority to sell that item.

Question 24

Which of the following factors is most likely to distinguish employees from independent contractors?

A) Whether or not consideration is given by the principal for the agent's performance
B) The principal's right to control the manner and means of the agent's performance
C) Whether the agent has authority to bind the principal by his actions
D) The agent's personal liability for illegal actions taken on behalf of the principal

Question 25

Which of the following must exist in order for a person to possess apparent authority?

A) The principal's payment of consideration to the agent
B) The agent's consent to the agency relationship
C) A third party's belief that agency exists
D) The principal's written authorization to the agent

Question 26

In agency law the term 'independent contractor' is referred to as what?

A) Nonemployee agent
B) Employee
C) Incorporator
D) Organizer

Question 27

Which of the following is most likely to be classed as an independent contractor rather than an employee?

A) An assembly line worker
B) A lawyer who works as in-house counsel for a corporation
C) A franchisee of a fast-food chain
D) The president of a corporation

Question 28

Which of the following is true of an agent who has the authority to appoint a subagent?

A) An agent becomes a principal with respect to the subagent.
B) An agent is able to appoint a subagent without the principal's knowledge.
C) An agent has the authority to appoint a subagent when the situation involves a nondelegable duty.
D) An agent has the authority to appoint a subagent when the co-agent demands such an appointment.

Question 29

Which of the following is true of a subagent's duties to a principal?

A) A subagent does not owe the agent any of the duties that agents owe their principals.
B) A subagent who knows of the original principal's existence also owes that principal all the duties agents owe their principals.
C) The agent who appoints the subagent is not liable to the original principal when he/she is harmed by the subagent's conduct.
D) A subagent owes the original principal for duties arising solely from the original principal's contract with the agent.

Question 30

_____ is actual authority that the principal has manifested to the agent using very specific or detailed language.

A) Implied authority
B) Primary authority
C) Express authority
D) Apparent authority

Question 31

In a situation in which there is a conflict of interest between an agent who is authorized to make a certain transaction for a principal and the principal,the agent is allowed to:

A) engage in self-dealing transactions if the principal and the third party are unaware of the transactions.
B) compete with the principal regarding the agency business.
C) act as agent for both parties to a transaction without disclosing the double role to both principals.
D) act as a middleman and serve both parties to a transaction without notifying either principal.

Question 32

A principal need not compensate his agent if:

A) there was no agreement on the amount of compensation the agent was to receive.
B) the agent has committed a breach of a fiduciary duty.
C) there is no market price for the agent's services.
D) the agent is a special agent.

Question 33

Which of the following is true of apparent authority?

A) It arises when an agent falsely claims to be acting under the authority of a principal.
B) It requires express authorization,in words or writing,from the principal.
C) It arises when the principal leads a third party to believe that an agent is authorized.
D) It requires that the agent receive consideration from the principal,i.e. ,the agent is not a gratuitous agent.

Question 34

In which of the following cases does apparent authority arise?

A) When a principal causes a third party to believe that the agent is authorized to act in a certain way.
B) When a principal's manifest consent is communicated directly to the agent.
C) When a person falsely represents himself as an agent of a principal to a third party.
D) When an agent reasonably believes that the principal wants him to act in a certain way.

Question 35

Which of the following is true of a person's capacity to be a principal or agent?

A) To be an agent,a person must have the ability to make his won contracts,independent of the principal.
B) Any duty that a principal has the capacity to perform can be delegated to an authorized agent.
C) A principal must have the capacity to do the acts for which the agent has been retained.
D) To be an agent,a person must have the capacity to perform non-delegable obligations for the principal.

Question 36

_____ refers to a two-party relationship in which one party is authorized to act on behalf of,and under the control of,the other party.

A) Bailment
B) Agency
C) Estoppel
D) Abatement

Question 37

Which of the following is true of general agents and special agents?

A) General agents have the power to bind the principal by their actions,while special agents do not.
B) A general agent is employed to conduct a series of transactions,while a special agent is employed to conduct a small,simple group of transactions.
C) Special agents are gratuitous agents,i.e. ,they are not paid by the principal,while general agents receive consideration for their services.
D) General agents can appoint subagents to carry out the principal's tasks,while special agents cannot.

Question 38

An agent who receives no compensation for his services is known as:

A) an independent contractor.
B) a special agent.
C) a gratuitous agent.
D) a servant.

Question 39

Which of the following is true of subagents?

A) They must be appointed by the principal,though they report to the agent.
B) They are considered to be agents of the agent,but not of the principal himself.
C) Subagents do not have the authority to bind a principal,but can bind the agent.
D) For a subagency to exist,an agent must have the authority to make the subagent his agent.

Question 40

In the United States agency law is primarily governed by what type of law?

A) Federal law
B) State law
C) International law
D) Religious law

Question 41

Which of the following represents an agency coupled with an interest?

A) A contingent fee arrangement in which a plaintiff's attorney will receive 20% of any recovery she achieves.
B) A professional sports contract in which a team owner agrees to pay a player insurance premiums on a policy that compensates the player should he suffer a career-ending injury.
C) A loan agreement in which the borrower pledges collateral to the lender and gives the lender the power to take the collateral should the borrower default on the loan.
D) A contract in which a sales agent is hired for three years at a salary of $80,000 plus 5% of sales.

Question 42

An agency coupled with an interest is terminated if:

A) the principal revokes agency.
B) the principal tenders his obligation.
C) the principal loses capacity.
D) the agent dies.

Question 43

Which of the following agreements will result in the formation of an agency coupled with an interest?

A) Borrower shall pledge securities to a lender,authorizing the lender to sell the securities and apply the proceeds to the loan in the event of default.
B) Employee is hired for a period of two years at $40,000 per annum plus 2% of net sales.
C) Broker is to receive a 5% sales commission out of the proceeds of the sale of a parcel of land.
D) Attorney is to receive 25% of the plaintiff's recovery for personal injuries.

Question 44

Which of the following terminates an agency relationship through operation of law?

A) A specified result has been accomplished.
B) There is mutual agreement between principal and agent to terminate the relationship.
C) The principal dies.
D) The principal revokes the agency.

Question 45

Andrea hired Jack to be the sales agent for her paintings.However,in a month's time,she terminated the agency with Jack.Harold,a customer who had dealt with Jack earlier,was not aware of the termination.Harold approached Jack to buy a painting and wrote him a check of $5,000,the advance payment for the painting which Jack promised would be delivered in two weeks.When Jack did not contact Harold later,Harold demanded that Andrea honor the contract,since Jack sold the picture as her agent.Which of the following is true of this situation?

A) Since Jack had apparent authority,Andrea is liable to honor his contract with Harold.
B) Harold's duty was to contact Andrea.His failure to do this removes her liability to honor the contract.
C) Jack had express authority as Andrea's agent,which is not terminated with the termination of their agency.
D) As Andrea terminated the agency with Jack in violation of his rights,Jack has the direct authority to sell her paintings.

Question 46

Which of the following is true of termination of agency by operation of law?

A) The principal's permanent loss of capacity ends the agency only if the agent is given notice.
B) The bankruptcy of the agent automatically terminates the agency relationship.
C) Termination by the death of the principal is effective only when the agent has notice of the principal's death.
D) The death of an individual agent does not terminate the agency relationship if the principal is not an individual.

Question 47

What is the principal's duty when his agent makes express or implied authorized expenditure while acting on his behalf?

A) Duty to compensate
B) Duty to take care
C) Duty of accounts
D) Duty to reimburse

Question 48

Which of the following is a principal's duty to his agent?

A) Duty of confidentiality
B) Duty not to receive a material benefit
C) Duty of segregation
D) Duty to reimburse

Question 49

When an agent suffers losses in conducting the principal's business,the principal's obligation is to _____ the agent.

A) indemnify
B) renounce
C) reimburse
D) compensate

Question 50

Under the theory of agency law,the agent is required to follow whose instructions?

A) The principal
B) The subagent
C) The incorporator
D) The organizer

Question 51

An agent's apparent authority ends when:

A) the principal revokes authority.
B) the third party receives notice of the termination of agency.
C) the principal loses capacity or dies.
D) the agent's actual authority,both express and implied,ends.

Question 52

Termination of the agency relationship at the option of the principal is known as _____.

A) revocation
B) renunciation
C) falsification
D) liquidation

Question 53

Which of the following would result in the termination of agency by act of the parties?

A) The principal suffers a permanent loss of capacity.
B) A specified result has been accomplished.
C) The agent declares personal bankruptcy.
D) The agent loses capacity or dies.

Question 54

The apparent authority of a general agent for a disclosed principal will terminate without notice to third parties when:

A) the principal dismisses the agent.
B) the third party has notice of the principal's death.
C) the purpose of the agency relationship has been fulfilled.
D) the time period set forth in the agency agreement has expired.

Question 55

Termination of the agency relationship at the option of the agent is known as _____.

A) revocation
B) renunciation
C) falsification
D) liquidation

Question 56

Which of the following best represents an agent's duty of segregation?

A) The agent not dealing with the principal's property so that it appears to be the agent's.
B) The agent should not profit or receive any other benefit from acting on behalf of the principal.
C) The agent has a duty to act within her actual authority and to obey the principal's reasonable instructions.
D) The agent may not use or communicate confidential information of the principal for the agent's own purpose.

Question 57

Earl is Hall's agent for a real estate transaction.Which of the following will terminate the agency relationship by act of the parties?

A) Earl revokes his agency.
B) Hall announces that he is filing for bankruptcy.
C) Hall dies,but Earl is not informed.
D) Notice of the death of Hall placed in a newspaper.

Question 58

Which of the following is true of a principal's duty of indemnity?

A) The principal does not have to indemnify the agent for authorized payments made on the principal's behalf as the payments were undertaken in the course of the agent's work.
B) The principal must indemnify the agent for tort damages resulting from authorized conduct that the agent did not believe was tortious.
C) The principal is required to indemnify an agent even for losses resulting from the agent's negligence.
D) The principal is required to indemnify an agent for losses resulting from unauthorized acts so long as the principal did not benefit from such behavior.

Question 59

Which of the following is true of the duty of agents to the principal?

A) The duty not to use or disclose confidential information terminates after the agency ends.
B) When conducting the principal's business,an agent can deal with himself.
C) Except for compensation,an agent should not profit from acting on behalf of the principal.
D) A gratuitous agent does not have the same fiduciary duty as a paid agent.

Question 60

Which of the following is true of revocation and renunciation?

A) Revocation is conducted by the agent and renunciation by the principal.
B) Both result in the termination of agency.
C) A party cannot revoke or renounce if doing so violates the agency agreement.
D) No,because there is no contract in writing.

Question 61

Ginny is an agent of Vroom! Motors,and is designated to sell and deliver antique cars.She spends her own money to call clients,visit them and finalize the deals.There is no express agreement between Ginny and Vroom! Discuss the situation.

Question 62

An attorney acquires confidential information about a certain client.However,he discovers that this information is important for the affairs of a second client.In this situation,two duties are in conflict.What are these two conflicting duties? How does agency law resolve the conflict?

Question 63

Andrew appoints Matthew to be his agent for a period of 2 years.After 6 months,Andrew meets with an accident after which he permanently losses his capacity to understand things going on around him.This terminates the contract automatically.But Matthew is demanding damages for breach of contract.Is Andrew liable to pay damages?

Question 64

Larry works for Shannon as a salesperson.Shannon gave Larry a credit card with Larry's name on it so that Larry could charge necessary business expenses to Shannon's business account.Larry charged $1,000 in personal expenses,wholly unrelated to Larry's employment.Does apparent authority exist? Discuss.

Question 65

What happens if the principal is completely insane at the time of the agency's formation,and in case the principal is sane at the time of agency formation,but loses sanity some time later?

Question 66

Harris is a purchasing agent for Elkin,a sole proprietor.Harris has the express authority to place purchase orders with Elkin's suppliers.Harris typically conducts business through the mail and has very little contact with Elkin.Elkin was incapacitated by a stroke and was declared incompetent in a judicial proceeding.Subsequently,Harris placed an order with Ajax,Inc.on behalf of Elkin.Neither Ajax nor Harris was aware of Elkin's incapacity.With regard to the contract with Ajax,Elkin (or Elkin's legal representative)will:

A) not be liable because Harris was without authority to enter into the contract.
B) not be liable provided that Harris had placed orders with Ajax in the past.
C) be liable because Harris was acting within the scope of Harris' authority.
D) be liable because Ajax was unaware of Elkin's incapacity.

Question 67

A bankruptcy by this party would cause a termination in the agency relationship:

A) Principal
B) Agent
C) Both principal and agent
D) Subagent

Question 68

Which of the following serves as constructive notification of the termination of an agent's apparent authority?

A) A direct personal statement to the third party
B) The death of the principal
C) A writing delivered personally or to the third party's place of business
D) Advertising the agency's termination in a newspaper

Question 69

Which of the following is an example of actual notification of termination of agency to third parties?

A) Posting a notice in a public place
B) Displaying a notice on the company website
C) A writing delivered to the third party's place of business
D) Advertising the agency's termination in a newspaper of general circulation

Question 70

Tom Smith is hired as an agent of Lakes Computer System.As part of the agency responsibilities Tom is to wire offices for clients in the country of Israel.Prior to his leaving war breaks out and the U.S.government post a ban on travel to Israel.What is the status of the agency of Tom Smith?

A) It is probably terminated by operation of law.
B) It is terminated by the act of the parties.
C) It is terminated under international law.
D) It is terminated under religious law.