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

Question 1

A court may find that there is an agency relationship even though the parties have expressly agreed that they do not intend to create one.

Answer 1

True

Question 2

The agent has a duty to inform the principal of knowledge the agent gains in the course of his or her responsibilities.

Answer 2

True

Question 3

Generally, a person can do anything through an agent that he or she could legally do personally.

Answer 3

True

Question 4

A person can have the capacity to act as an agent although he or she does not have the legal capacity to contract.

Question 5

Normally, a duty to pay the agent is implied unless special circumstances or the relationship of the parties suggests that a gratuitous agency was intended.

Question 6

Agency relationships are usually formed by contract.

Question 7

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 8

An agency coupled with an interest is revocable without the consent of the agent.

Question 9

The agency at will doctrine stems from the judicial reluctance to force people to continue personal relationships against their will.

Question 10

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

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

Question 11

Most agency rules spring from:

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

Question 12

The duty of loyalty demands that the agent avoid even the appearance of impropriety.

Question 13

Independent contractors:

A) are under the control of their employer or 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) bring the parties together rather than actually negotiating a contract of sale.

Question 14

If an agent uses the money of the principal for the agent's purposes, the principal may choose either to sue for the money or to obtain whatever was purchased with it.

Question 15

Agents who are under the control of their employer or 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 16

An agency relationship may not arise in the absence of a contractual agreement.

Question 17

The proximate cause rule is designed to permit agents to collect commissions on sales completed after termination of the agency relationship if the sale primarily resulted from the agent's efforts.

Question 18

An agent's fiduciary duty of loyalty to her principal can be eliminated by an agreement between the parties.

Question 19

Banks generally continue to have the authority to act as a depositor's agent for check-cashing purposes for a limited period of time after the depositor/agent's death.

Question 20

Whereas a sales representative can bind its principal to a contract with third persons, a commercial agent may only solicit business.

Question 21

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

A) may deduct the loss from the amount due the agent.
B) can bring an action in court even if compensation is due the agent.
C) is liable to compensate the agent, even if the breach is serious.
D) is liable to show actual damages to avoid having to compensate.

Question 22

In an agency at will, 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 only terminating the contract.
D) can recover only if the relationship was not based on mutual consent.

Question 23

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

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

Question 24

If an agent indulges in commingling, he _____.

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

Question 25

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

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

Question 26

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

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

Question 27

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 the agent 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 28

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

A) An agent may always substitute his or her personal judgment for that of the principal.
B) An agent has no power to exercise his or 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 has a duty to ignore the principal's instructions if they seem unwise.

Question 29

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

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

Question 30

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 31

A person may act as a dual agent:

A) on his own accord and can be bound to multiple principals at freewill.
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 32

A gratuitous agent is one who:

A) freely substitutes his or her judgment for that of the principal.
B) acts without pay.
C) has no prior experience as an agent.
D) is employed to find a buyer for one party and a seller for another.

Question 33

According to the doctrine of agency at will, _____.

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) either party can terminate the agency anytime, if there is a contractual right to do so
D) only the agent can terminate the agency

Question 34

Vlad, as agent, is paid $5,000 owed by a debtor of Lee, Vlad's principal. Instead of giving it immediately to Lee, Vlad 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) Vlad 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) Vlad is not guilty of wrongdoing because he managed to make a profit

Question 35

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

A) may be entitled to a commission regardless of who eventually completes the sale
B) is not entitled to compensation after termination of the agency relationship
C) is not entitled to compensation if the principal completes the purchase
D) may be entitled to compensation only if he completes the sale

Question 36

When an agent's duties conflict with the principal's own interests, _____.

A) the agent has breached the duty of loyalty
B) the agent must disclose these facts to the principal
C) if the agency is gratuitous, there is no duty of disclosure
D) the agent must resign immediately

Question 37

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 a 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 38

Agents breach their duty of loyalty by buying for the principal from themselves even if they charge a fair price. Which of the following common law duties of an agent does this violate?

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

Question 39

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 and not for compensations because agent has to take the blunt of a principal's breach.
B) does not have a lien on anything that belongs to the principal which is in the agent's lawful possession.
C) may claim compensation from the principal only after 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 40

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

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

Question 41

What does the agent's duty of loyalty mean?

Question 42

Adya loaned $300 from Olga to buy a phone. He gave Olga the authority to sell his music system if he failed to pay her back $300. He failed to pay back the loan as promised. Under these circumstances, _____.

A) a dual agency exists
B) Adya can revoke Olga's power if the phone is damaged
C) if Adya dies and the debt remains unpaid, there is termination of the agency
D) Adya cannot revoke Olga's power to sell the music system

Question 43

Explain the concepts "agency at will" and "agency coupled with an interest."

Question 44

A real estate broker was hired as a rental agent for a house. The house burnt down due to accidental causes. In these circumstances, the _____.

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

Question 45

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

Question 46

With regard to the principal's duty to compensate the agent, explain the procuring cause rule.

Question 47

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) need not give notice as he has no liability.
C) should give verbal notice if the termination is due to loss of legal capacity by the principal.
D) should get the agent to give notice.

Question 48

What is the distinction between a commercial agent and a non-agent? How is a commercial agent distinguishable from a sales representative?

Question 49

When the principal is trying to avoid being bound by the acts of the agent after the agency has ended, constructive notice is sufficient for:

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

Question 50

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.