Deck 9: Agency Formation and Duties

Question 1

A familiar example of an agent is the shareholder of a corporation.

Answer 1

False

Question 2

If work is usually done under the employer's direction, this indicates independent-contractor status.

Answer 2

False

Question 3

The term fiduciary is at the heart of agency law.

Answer 3

True

Question 4

An agency relationship created for an illegal purpose is enforceable.

Question 5

Agency relationships normally are consensual.

Question 6

Independent contractors control the details of their work performance.

Question 7

Normally, employees who deal with third parties are deemed to be agents.

Question 8

If a great degree of skill is required, this may indicate that a person is an employee hired for a specialized job and not an independent contractor.

Question 9

The relationship between an employer and an employee cannot involve an agency relationship.

Question 10

A principal has the right to control an agent's conduct in matters entrusted to the agent.

Question 11

Agency relationships are not crucial in the business world.

Question 12

Employers cannot avoid any tax liabilities by hiring independent contractors instead of employees.

Question 13

Agency relationships can exist between employers and independent contractors.

Question 14

Through agents, a principal can conduct more than one business operation at a time.

Question 15

Any copyrighted work created by an employee within the scope of his or her employment at the request of the employer is a "work for hire."

Question 16

Employment laws apply to the employer-independent contractor relationship.

Question 17

An agent is not authorized to act instead of a principal in doing business with third parties.

Question 18

Whether a worker is an employee or an independent contractor has no effect on the employer's liability for the worker's actions.

Question 19

An agency relationship cannot be created by an oral agreement.

Question 20

A person does not need contractual capacity to be an agent.

Question 21

Fact Pattern 9-1
Nadine and Orin work at Pumps & Pipes Inc. Nadine is a sales representative who works with Pumps's customers, including contractors, government agencies, farmers, and others, as well as individual consumers. Pumps closely supervises all of its sales reps, and dictates their schedules. Orin is an engineer who works in Pumps's design department.
Refer to Fact Pattern 9-1.With respect to third parties, Orin is Pumps's​

A) ​employee, agent, and independent contractor.
B) ​employee and agent.
C) ​employee but not agent.
D) ​independent contractor.

Question 22

An agent's deviation from the lawful clearly stated instructions of the principal is a violation of the duty of obedience.

Question 23

High Plains Distribution Inc. hires Inez to work on its shipping dock, accepting deliveries, dispatching trucks, and dealing with customers and other companies' drivers. With respect to High Plains, Inez is most likely​

A) ​an agent.
B) ​an independent contractor.
C) ​a principal.
D) ​a work for hire.

Question 24

Generally, the law assumes that the principal is aware of any information acquired by the agent that is relevant to the agency.

Question 25

Unless an agent does not act in exchange for payment, the principal must pay the agreed-on value for the agent's services.

Question 26

Dewey is a corporate officer of Energy Corporation. Dewey serves in a representative capacity for the corporation's owners. With respect to binding the corporation to contracts, Dewey is​

A) ​an agent and has the authority.
B) ​an employee and does not have the authority.
C) ​an independent contractor and does not have the authority.
D) ​not an agent, an employee, or an independent contractor but does have the authority.

Question 27

An agent's duties to the principal are implied from the agency relationship only if the identity of the principal is disclosed to a third party.

Question 28

Under the law of agency, notice to the agent is notice to the principal.

Question 29

An agency by estoppel arises when the principal's actions have created the appearance of an agency that does not in fact exist.

Question 30

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

A) ​an employee.
B) ​a work for hire.
C) ​an independent contractor.
D) ​a principal.

Question 31

An agent has a duty to keep and make available to the principal an account of all property and funds received and paid out on the principal's behalf.

Question 32

Anything that an agent obtains by virtue of the agency relationship is his or hers to keep.

Question 33

Remedies of the agent for breach of duty by the principal follow normal contract and tort remedies.

Question 34

The agent has the right to be reimbursed and indemnified.

Question 35

The agent has the right to a safe working environment.

Question 36

When the principal-agent relationship is not contractual, the agent has no right to specific performance.

Question 37

An agent can represent two principals in the same transaction as long as neither of them knows about it.

Question 38

A principal owes an agent a duty of estoppel.

Question 39

An agency relationship is enforceable even if it is created for a purpose that is contrary to public policy.

Question 40

Fact Pattern 9-1
Nadine and Orin work at Pumps & Pipes Inc. Nadine is a sales representative who works with Pumps's customers, including contractors, government agencies, farmers, and others, as well as individual consumers. Pumps closely supervises all of its sales reps, and dictates their schedules. Orin is an engineer who works in Pumps's design department.
Refer to Fact Pattern 9-1.With respect to third parties, Nadine is Pumps's​

A) ​employee, agent, and independent contractor.
B) ​employee and agent.
C) ​employee but not agent.
D) ​independent contractor.

Question 41

Dakota Energy Company employs Evan to negotiate the purchase of mineral rights for future mining projects. Evan secretly buys some of the property and sells it to Dakota at a profit. Evan has breached​

A) ​no duty.
B) ​the agent's duty of accounting.
C) ​the agent's duty of loyalty.
D) ​the principal's duty of compensation.

Question 42

Jill agrees to act on Kit's behalf, subject to Kit's control, and Kit trusts Jill to so act. This describes a relationship between​

A) ​an employee and an agent.
B) ​a work for hire and a worker.
C) ​an employer and an independent contractor.
D) ​a principal and an agent.

Question 43

Rosario is a chef and caterer who hires out on a per-project basis to companies with on-location work sites, as well as to hosts of banquets, corporate meetings, concerts, weddings, and other events. In this capacity, Rosario is​

A) ​an agent.
B) ​an employee.
C) ​an independent contractor.
D) ​a principal.

Question 44

Bernard is an expert on exotic flowers. Custom Floral Arrangements, Inc., hires Bernard to order exotic flowers for its arrangements. Bernard does not examine the quality of the flowers he orders on behalf of Custom Floral. Bernard has breached​

A) ​the duty of performance.
B) ​the duty of loyalty.
C) ​no duty.
D) ​the duty of notification.

Question 45

Lorena is appointed as an agent for Milled Grains, Inc. The agency agreement is silent as to the level of sales that Lorena is expected to achieve. She must​

A) ​achieve nothing because the agreement says nothing on the issue.
B) ​attain the level that Lorena achieved with her previous employer.
C) ​maintain the level Milled Grains attained before Lorena became an agent.
D) ​use reasonable diligence and skill in selling.

Question 46

Roberta introduces Steve to her friends as "my associate." Steve purports to act as Roberta's agent in several business transactions with those friends. If Roberta is liable for Steve's actions, it will be because their relationship is​

A) ​an agency by agreement.
B) ​an agency by estoppel.
C) ​an agency by operation of law.
D) ​not an agency relationship.

Question 47

Sybil agrees with Tyrone and other professional athletes to sign contracts with promoters and others on the athletes' behalf. Sybil is

A) ​an agent.
B) ​an employee.
C) ​an employer.
D) ​a principal.

Question 48

Don is Equipment Repair Company's chief executive officer. On Equipment Repair's behalf, Don solicits business, hires and fires workers, and handles finances. With respect to Equipment Repair, Don is most likely​

A) ​a principal.
B) ​an employee.
C) ​an employer.
D) ​an independent contractor.

Question 49

Rondi holds herself out as possessing special accounting skills. As an agent, she must exercise the degree of skill or care expected of​

A) ​a person having those skills.
B) ​an average, unskilled person.
C) ​a reasonable person.
D) ​the principal.

Question 50

Fact Pattern 9-2
Faye works as an administrator and receptionist for Garage Door Store. The store withholds federal taxes from Faye's pay, and controls the methods and details of the performance of her work. Faye is not authorized to modify the prices or other terms of a sale at the store. Homer installs Garage Door products at the buyers' locations.
Refer to Fact Pattern 9-2.At the shop, Faye is​

A) ​an independent contractor.
B) ​an employee only.
C) ​an employee and agent.
D) ​a principal.

Question 51

Ingmar asks Jessie to contract with Jessie's high school classmates to babysit Ingmar's new baby. Jessie orally agrees to do so. This is​

A) ​an agency by agreement.
B) ​an agency by estoppel.
C) ​an agency by ratification.
D) ​not an agency relationship.

Question 52

Investment Holdings Corporation hires Jeri, a business appraiser, to locate investment possibilities for Investment Holdings. Jeri learns of a salsa and hot sauce manufacturing company available for a reasonable price, but neglects to tell Investment Holdings. Most likely, Jeri​

A) ​breached the agent's fiduciary duties to the principal.
B) ​did nothing wrong.
C) ​failed to take advantage of a business opportunity.
D) ​assumed that the information was confidential.

Question 53

Lucille is married to Marcus. Lucille buys food for their children's lunches and charges the cost to Marcus's account. This is​

A) ​an agency by operation of law.
B) ​an agency by estoppel.
C) ​an agency by ratification.
D) ​not an agency relationship.

Question 54

Fact Pattern 9-2
Faye works as an administrator and receptionist for Garage Door Store. The store withholds federal taxes from Faye's pay, and controls the methods and details of the performance of her work. Faye is not authorized to modify the prices or other terms of a sale at the store. Homer installs Garage Door products at the buyers' locations.
Refer to Fact Pattern 9-2.Garage Door hires Janitorial Service Company to clean the store. Garage Door gives Janitorial Service instructions as to what needs to be cleaned and when. With respect to Garage Door, Janitorial Service is​

A) ​an independent contractor.
B) ​an employee only.
C) ​an employee and agent.
D) ​an principal.

Question 55

Fact Pattern 9-2
Faye works as an administrator and receptionist for Garage Door Store. The store withholds federal taxes from Faye's pay, and controls the methods and details of the performance of her work. Faye is not authorized to modify the prices or other terms of a sale at the store. Homer installs Garage Door products at the buyers' locations.
Refer to Fact Pattern 9-2.Garage Door authorizes Homer to sell garage door upgrades and accessories at the buyers' locations at prices that Homer negotiates with those buyers. With respect to sales at those locations, Homer is​

A) ​an independent contractor.
B) ​an employee only.
C) ​an employee and agent.
D) ​a principal.

Question 56

Brenda, a salesperson at a Cabinets & Countertops store, tells D'Antoni, a customer, "Buy your cabinets here, and I'll install them for half of what the store would charge." D'Antoni buys the cabinets, which Brenda installs for half the store's price. Brenda keeps the money. Brenda has breached​

A) ​no duty.
B) ​the agent's duty of loyalty.
C) ​the principal's duty of indemnification.
D) ​the agent's duty of obedience.

Question 57

Jewelry & Coin Company hires Kelly Ann to buy gems and precious metals from various sources on its behalf. In this relationship, Jewelry & Coin is​

A) ​an employee.
B) ​an independent contractor.
C) ​a principal.
D) ​an agent.

Question 58

Ralphy is a minor. In most states, Ralphy may not be​

A) ​a principal.
B) ​an agent.
C) ​an employee.
D) ​an independent contractor.

Question 59

Home-Baked Bread Company hires Ike to sell the company's products in a certain area. Home-Baked Bread agrees to pay Ike a salary, plus commission, for a trial period. They also agree that Ike can sell using any methods and during any hours that seem appropriate. The key factor in whether Ike is Home-Baked Bread's employee is​

A) ​the amount of Ike's salary.
B) ​the control Home-Baked Bread has over the details of the work.
C) ​the length of the trial period.
D) ​the size of Ike's sales area.

Question 60

Denny, a certified public accountant and an investor, and Ethel, an insurance salesperson and a realtor, may create an agency relationship for​

A) ​a legal business purpose only.
B) ​any legal purpose.
C) ​any purpose.
D) ​no purpose.

Question 61

Desmond agrees to act as Evie's agent in settlement negotiations with Fawlty Investment Company. Desmond works out a profitable compromise for Evie, but deposits the company's payment in his own account and refuses to give it to Evie. She files a suit against Desmond. What remedies might the court impose?

Question 62

Kevin is an agent for Lookout Mountain Accountants, Inc. On Lookout Mountain's behalf and at its request, Kevin pays Nathan for software designed for the management of Lookout Mountain's services. Kevin's right to obtain the amount of those payments from Lookout Mountain arises under the principal's duty of​

A) ​compensation.
B) ​cooperation.
C) ​indemnification.
D) ​reimbursement.

Question 63

Insurance Sales Corporation hires Jeremy to act as its agent. Insurance Sales's right not to perform a contract entered into by Jeremy, if he breaches their agency agreement, is the right of​

A) ​avoidance.
B) ​indemnification.
C) ​nullification.
D) ​termination.

Question 64

Watercraft, Inc., employs Vladimir as a sales agent for a trial period. At the end of the period, Watercraft and Vladimir disagree on the amount of the commissions Vladimir is due for sales that he made. Vladimir may demand​

A) ​a constructive trust.
B) ​an accounting.
C) ​nothing.
D) ​specific performance.

Question 65

Global Games Corporation employs Heidi as an agent. Global Games gives Heidi an exclusive territory in which to sell its products. Global Games cannot compete with Heidi in that territory under the duty of​

A) ​compensation.
B) ​cooperation.
C) ​indemnification.
D) ​reimbursement.

Question 66

John contracts with Kelly to buy a certain number of cattle for Kelly's Circle K ranch. John makes a deal with Lawson, the owner of a local herd, and makes a down payment. Kelly fails to pay the rest of the price. Lawson sues John for breach of contract. John's right to hold Kelly liable for any damages that he has to pay is the right of​

A) ​compensation.
B) ​cooperation.
C) ​indemnification.
D) ​reimbursement.

Question 67

Emmett, an agent for Fridley, signs an agreement with Glover on Fridley's behalf but neglects to tell him that the agreement requires the payment of a certain tax. The government prosecutes Fridley for failing to pay the tax. He is​

A) ​liable, because notice to Emmett is notice to Fridley.
B) ​liable, because notice to Glover is notice to Fridley.
C) ​not liable, because Emmett did not notify Fridley of the tax.
D) ​not liable, because Glover did not tell Fridley about the tax.

Question 68

Spicy Wonder Hot Dog Vendors, Inc., grants its agent Teona an exclusive territory in which to sell Spicy Wonder Hot Dog products. Spicy Wonder Hot Dog cannot compete with Teona in that territory under the principal's duty of​

A) ​compensation.
B) ​cooperation.
C) ​indemnification.
D) ​reimbursement.

Question 69

Business Travelers Hotel Corporation hires Conrad, a real estate agent, to locate hotel properties for the company. Conrad learns of a hotel available for $3.2 million, informs Business Travelers, and makes an offer of $2.9 million on Business Travelers's instruction. The offer is rejected. Conrad​

A) ​breached the agent's fiduciary duties to the principal.
B) ​complied with all of the agent's duties to the principal.
C) ​failed to exercise the degree of skill required of an agent.
D) ​did not act strictly for the benefit of the principal.

Question 70

Largo is an agent for MaryElise. MaryElise gives Largo clear instructions to enter into contracts on her behalf only on Mondays, Wednesdays, or Fridays. Largo enters into a contract on her behalf on Tuesday. Largo has breached​

A) ​the duty of performance.
B) ​the duty of loyalty.
C) ​no duty.
D) ​the duty of obedience.

Question 71

Quince owns a used-car lot where Ray works as a salesperson. Quince tells Ron not to make any warranties for the cars. To make a sale to Sylvia, however, Ron adds a 50,000-mile warranty. Later, Sylvia sues Quince for breach of warranty. Quince's right to hold Ron liable for any damages Quince has to pay Sylvia is the right of​

A) ​avoidance.
B) ​cooperation.
C) ​indemnification.
D) ​reimbursement.

Question 72

Roman is the chief executive officer of Salty Snax Corporation. Roman's responsibilities include decisions on product development, marketing, and other significant business directions. Roman is subject to the approval and oversight of Salty Snax's board of directors. Teri is a Salty Snax manager whose duties include the firm's day-to-day hiring, firing, purchasing, and selling. Umberto is a Salty Snax salesperson, whose daily activities are controlled by Teri. Velma writes sales manuals and promotional materials for Salty Snax's products according to Roman's instructions and subject to Salty Snax's control, but has no dealings with the company's customers or suppliers. Warren writes copy on a contract-per-project basis and is not otherwise subject to Salty Snax's control. Who is a principal? Who is an agent? Who is an employee? Who is an independent contractor?