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.

Accepted Answer

A court will look at the actual conduct of the parties and the control exercised by the alleged principal over the alleged agent to determine if an agency relationship exists, regardless of whether the parties intended to create one or not.

Question 2

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

Accepted Answer

This duty is commonly referred to as the duty of disclosure or duty of loyalty, and it is an essential component of the agency relationship. The agent must provide the principal with all relevant information that might affect the principal's decision-making or interests. Failure to disclose such information may result in legal liability for the agent.

Question 3

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

Accepted Answer

This is a basic principle of agency law. An agent acts on behalf of the principal and can perform any lawful act that the principal could perform personally. However, it is important to note that the agent must act within the scope of their authority and follow any instructions given by the principal.

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.

Accepted Answer

Legal capacity to contract refers to the ability to enter into binding agreements. However, a person can still act as an agent on behalf of someone else even if they do not have the legal capacity to contract themselves. This is because the agent is not entering into the agreement personally, but rather is acting as a representative of the principal.

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.

Accepted Answer

This is a correct statement about the implication of a duty to pay the agent, which can be overcome by evidence of an intended gratuitous agency.

Question 6

Agency relationships are usually formed by contract.

Accepted Answer

Agency relationships are typically formed by a contract between the principal (person or organization delegating authority) and the agent (person or organization acting on behalf of the principal). The contract outlines the scope of the agent's authority, duties, and compensation.

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.

Accepted Answer

Agency relationships are usually formed by contract, although they may be found in the absence of a contractual agreement. An agency may be either written or oral and either compensated or uncompensated. In fact, 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.

Question 8

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

Accepted Answer

An agency coupled with an interest is not 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.

Accepted Answer

The statement accurately explains the rationale behind the agency at will doctrine.

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.

Accepted Answer

There are several characteristics that commonly distinguish commercial agents from distributors and other nonagents. First, agents generally do not maintain their own inventory of goods. Second, agents usually are compensated through the payment of a commission when a sale is completed. Third, agents seldom bear the financial risk of nonpayment by the purchaser. Fourth, agents 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.

Accepted Answer

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 12

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

Accepted Answer

The duty of loyalty requires agents to act in the best interests of their clients and to avoid any actions that could be perceived as a conflict of interest or a breach of trust. This includes avoiding the appearance of impropriety, not just actual 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.

Accepted Answer

Independent contractors (they are called independent agents throughout much of the world) are permitted to work according to their own methods. They 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.

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.

Accepted Answer

This is known as misappropriation and the principal has the option to either sue for the return of 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

Accepted Answer

Employees (they are called dependent agents throughout much of the world) are under the control of their employer or principal as to both the objective of their work and the means used to achieve it. Thus, employers generally give detailed directions over their employees' day-to-day activities.

Question 16

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

Accepted Answer

An agency relationship can arise through the actions and behavior of the parties involved, even in the absence of a formal contract, as long as the principal authorizes or ratifies the agent's actions.

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.

Accepted Answer

The answer of The proximate cause rule is designed to...

Question 18

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

Accepted Answer

The fiduciary duty of loyalty is a fundamental duty that cannot be eliminated or waived by an agreement between the parties. It is a duty that exists by law and cannot be altered or removed by a contract.

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.

Accepted Answer

Banks typically have the authority to act as a depositor's agent for a limited period of time after the depositor's death, usually until the estate is settled or until a legal representative is appointed. During this time, the bank may cash checks made payable to the deceased depositor.

Question 20

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

Accepted Answer

A commercial agent, in addition to soliciting business, may also negotiate and conclude contracts on behalf of its principal, thereby binding them to the contract with third persons.

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