R5 Module 4

Question 1

what are the requirements to create an agency?

Answer 1

-assent (consent) of both parties AND
-capacity of the principal
-does not have to be signed by both parties because writing not required

Note: consideration is not required and a writing is necessary only if the agent is to purchase land on behalf of the principal or if the agency cannot be performed within one year. Note also that the agent need not have contractual capacity (a minor can serve as an agent)

Question 2

what are the duties of the agent to the principal?

Answer 2

1) loyalty
2) obedience
3) reasonable care
4) duty to account

Question 3

what are the duties of principal to the agent?

Answer 3

1) compensation
2) reimbursement (indemnification)

Question 4

what types of agency relations cannot be unilaterally terminated by the principal?

Answer 4

a principal may not unilaterally terminate an agency coupled with an interest

Question 5

define actual (real) authority

Answer 5

actual authority is that which an agent reasonably thinks he or she possesses based on communications from the principal

Question 6

what are two types of actual authority?

Answer 6

the two types of actual authority are:
1) implied authority (from position, past acts, circumstances)
2) express authority (authority specifically granted by the principal)

Question 7

define apparent authority

Answer 7

apparent authority is that which a third party believes an agent possesses as a result of the principal’s communications with the third party

Question 8

if a principal tells a purchasing agent not to spend more than $500 on each purchase, but tells the agent not to disclose this ceiling amount to third parties, has the principal effectively limited the agent’s apparent authority?

Answer 8

No. Secret limiting instructions are sufficient to limit actual authority, but do not limit apparent authority because apparent authority is based on the third party’s reasonable belief in the agent’s authority. An instruction of which the third party is unaware can have no effect on the third party’s beliefs.

Question 9

would the manager of a retail business generally have implied authority to:
1) hire employees?
2) purchase merchandise?
3) sell the store’s trade fixtures?

Answer 9

1) a manager generally has implied authority to hire and fire employees
2) whether the manager would have implied authority to buy merchandise depends on the nature of the business and the customs of the industry
3) a manager generally has no implied authority to sell his or her store’s trade fixtures because the manager’s apparent authority is limited to running the business, not dissolving it.

Question 10

what is the difference between a general agent and a special agent?

Answer 10

A general agent is one who is authorized to engage in a series of transactions involving a continuity of service

A special agent is one who is authorized only to engage in a single transaction or a single type of transaction

Question 11

what is agency by estoppel?

Answer 11

where no actual agency relationship exists, if a person intentionally or carelessly causes a third party to believe another person is his or her agent and the third party detrimentally and justifiably relies on this belief, the person will be estopped (legally barred) from denying the other person acted as his or her authorized agent and so will be bound

Question 12

under what conditions may a principal ratify an unauthorized transaction?

Answer 12

the agent must have indicated that he or she was acting on behalf of the principal

the principal also must:
1) know all the material facts surrounding the transaction AND
2) accept the entire transaction

In addition, the third party must not have already revoked.

Question 13

describe the differences between a disclosed, unidentified (also called partially disclosed) and undisclosed principal

Answer 13

1) disclosed principal is one whose existence and identity are disclosed to third party with whom an agent deals
2) an unidentified (or partially disclosed) principal is one whose existence is disclosed, but whose identity is not disclosed
3) an undisclosed principal is one whose existence and identity are not disclosed to the third party with whom the agent deals

Note: duties of principal to agent do not change based on disclosure/nondisclosure of identity

Question 14

who is liable to third parties in the case of an undisclosed or unidentified (partially disclosed) principal?

Answer 14

Both the agent and the principal are liable. Only the principal is liable if the principal is fully disclosed

Question 15

what elements are necessary to establish a principal’s liability under respondeat superior?

Answer 15

1) an employer-employee relationship
2) act committed within the scope of employment

Question 16

what is an employer’s liability for independent contractors?

Answer 16

The general rule is that an employer is not liable for torts committed by independent contractors, but there are certain situations in which employer can be held liable for torts of independent contractors:

1) ultrahazards (or inherently dangerous) activities
2) authorized misrepresentation

Question 17

rights of third parties to be entitled to after a validly contracting with an agent representing an undisclosed principal?

Answer 17

-the third party with who the agent dealt can hold the agent liable on the contract

Question 18

rights third parties do not have for an undisclosed principal for which agent is acting on behalf of

Answer 18

1) third parties cannot discover identity of an undisclosed principal
2) cannot force the principal to ratify a contract; only a principal has a right to choose to ratify an unauthorized contract
3) no right to rescind the contract upon subsequent disclosure of the principal (only right exists if nondisclosure was fraudulent)

Question 19

definition of an agent

Answer 19

a person authorized to act on another’s behalf–usually to affect legal relationships

Question 20

agency coupled with interest

Answer 20

arises only when the agent is given an interest in the subject matter of the agency

Question 21

when principal can terminate

Answer 21

has the power to terminate an agency relationship at any time, although principal may be liable for damages if termination is in breach of contract

Question 22

power of attorney

Answer 22

an agency appointing the agent as the principal’s attorney in fact can limit the agent’s authority to specific matters called “special power of attorney”
-principal only signs power of attorney
-does not need to be a licensed attorney
-unless power of attorney provides that it is durable, it ends by operation of law on the incapacity or death of the principal

Question 23

indemnification

Answer 23

the duty of indemnification is duty to hold the agent harmless for liabilities the agent incurs on behalf of the principal

Question 24

notification

Answer 24

agent has a duty to notify the principal of all issues known to the agent

Question 25

duty of loyalty

Answer 25

1) an agent owes a duty of loyalty to his principal
2) duty includes duties not to self-deal, usurp opportunities, or have conflicts of interest with principal
3) duty breached when do not disclose agency relationship to other party

Question 26

duty of obedience

Answer 26

a duty to obey all reasonable directions of the principal

Question 27

subagent duties

Answer 27

one who assists the agent in the performance of his or her duties
when subagent appointed by an agent with authority to appoint a subagent, the subagent owes a duty to both the agent and the principal

Question 28

what a principal can do when an agent fraudulently breaches a fiduciary duty?

Answer 28

terminate the agency and receive remedy of a constructive trust to ensure that the principal can recover secret profits obtained by the agent because of the wrongful conduct

Question 29

constructive trust

Answer 29

a type of trust that holds property for a person or entity with the purpose of remedying a situation when that person or entity may have been wrong

Question 30

duty of account

Answer 30

an agent is required to account timely and properly for money the agent spent while acting on behalf of the principal
-agent must keep principal’s money or property separate from agent’s own money

Question 31

if principal violates a duty owed to the agent whether or not contractual

Answer 31

1) agent may recover damages for past services
2) recover future damages
3) withhold further performance
4) specific performance NOT available because no contractual terms to fulfill

Question 32

ratification

Answer 32

name of the process by which a principal can adopt or accept an authorized act of an agent

Question 33

what contractual duty does a principal owe to a gratuitous agent?

Answer 33

duty to indemnify agent for expenses agent has incurred on behalf of principal even if agent agreed to act gratuitously (without pay)

Note: compensation not a duty

Question 34

duty of diligence

Answer 34

the duty of agent to act with due care

Question 35

actual authority

Answer 35

authority the agent reasonably believes that he or she has based on communications from the principal

Question 36

apparent authority

Answer 36

arises from a principal’s communications with the third party with whom the agent dealt–if the communications made the third party believe that the agent had authority to act
-principal or agent’s death always terminates agent’s apparent authority and actual authority

Question 37

Ways to terminate the principal and agency relationship by actual authority

Answer 37

1) principal’s revocation of relationship
2) agent’s renunciation of relationship
3) principal and agent agreement to terminate relationship

Question 38

how an agency relationship is terminated by operation of law

Answer 38

1) principal’s death
2) principal’s incapacity
3) agent’s failure to acquire a necessary business license
4) discharge of principal in bankruptcy

-agent will not be liable for acting on behalf of agent under operation of law
Note: no notice required for termination under operation of law

Question 39

how should a principal provide notice to these third parties to terminate agent’s authority?

Answer 39

when principal has revoked agent’s authority under law of agency
-if principal does not provide notice, agent continues to have apparent authority to bind principal to contracts with third parties who do not receive notice of termination

Question 40

when is an agreement binding?

Answer 40

when the agent has apparent authority to enter into contracts with third parties and the third parties had reasonable belief or reliance that the agent has authority to act on behalf of the principal and principal made it apparent to third parties that is the case

Question 41

when a third party revokes an agreement upon learning of agent working beyond scope of principal agreement

Answer 41

a third party may withdraw from a transaction or agreement entered into with an agent who exceeded his or her authority at any time prior to the principal’s ratification of agent’s unauthorized acts

Question 42

can an undisclosed principal ratify?

Answer 42

an undisclosed principal can never ratify because a principal can ratify only when a person represents that the person is an agent acting with authority on the principal’s behalf when, in fact, the person lacks authority. When a principal is undisclosed, there is no representation of agency so there is not ratification for a undisclosed principal to be liable

Question 43

tortfeasor

Answer 43

a tortfeasor is liable for the damages caused by his negligence. Additionally, if the tortfeasor is an employee operating within scope of employment, his employer also is liable under doctrine of respondeat superior

Question 44

respondeat superior

Answer 44

-a corporation is made liable for torts of corporation’s employees when torts are committed within the scope of employment
-employer is also liable for negligence of employees committed within scope of employment
-employer only liable for torts committed by employees within scope of employment not outside scope of employment