Section 2 Agency

Question 1

A fiduciary is one who holds a position of ___with respect to another party or its property

Answer 1

trust

Question 2

Fiduciary duties of agents (8)

Answer 2

Loyalty - no conflict of interest (cant accept commissions)
Obedience - Follows instructions, unless Illegal. No instructions=no disobedience
Accounting - Keep records for examination for principal
DueCare -Reasosnable care & not negligent
Give notice of info - transmit important info to principal
Indemnification - agent must indemnify prinicpal
Competition - Not compete w/ business activity of principal
Termination - Dont disclose confidential info. after termination

Question 3

Under the agent’s duty to account, which of the following acts must a gratuitous agent perform?

Commingle funds
Account for the principal’s property

Answer 3

Only account for princiapls property (accounting principal)

Commingling funds is big NO NO. Cant comingle funds with the principal’s b/c its mixing agent’s money w/ principals. thats fucked.

Question 4

A ____ acts for the benefit and under the control of another and does not receive any compensation

Answer 4

gratuitous agent

Question 5

er agency law, which of the following statements best describes ratification?

Answer 5

A principal’s affirmation of an agent’s unauthorized act

Question 6

An agency relationship can be established in one of five ways:

Answer 6

Express agreement
Implied agreement
Agency by necessity
Agency by ratification
Agency by estoppel

Question 7

When a valid contract is entered into by an agent on the principal’s behalf, in an undisclosed principal situation, which of the following statements concerning the principal’s liability is correct?

The principal may be held liable once disclosed.
The principal must ratify the contract to be held liable.

Answer 7

First one only.

This liability is not contingent upon “ratification,” since that doctrine applies only to situations in which the contract made by the agent was not initially authorized.

Question 8

POWER OF ATTORNEY
This authority may be general or it may be ____ or ___
It must be signed only by the ____’

it has force and effect for an indefinite time, unless otherwise stated, but will not be effective until

Answer 8

limited or specific
principal (the agent need not sign the power of attorney

the death of the principal.

Question 9

Ogden Corp. hired Thorp as a sales representative for nine months at a salary of $3,000 per month plus 4% of sales. Which of the following statements is correct?

Thorp is obligated to act solely in Ogden’s interest in matters concerning Ogden’s business.
The agreement between Ogden and Thorp formed an agency coupled with an interest.
Ogden does not have the power to dismiss Thorp during the 9-month period without cause.
The agreement between Ogden and Thorp is not enforceable unless it is in writing and signed by Thorp.

Answer 9

Thorp is obligated to act solely in Ogden Corp.’s interest in matters concerning Ogden’s business. An agent has a duty of loyalty toward their employer/principal.

Hiring and paying a sales representative a commission does not create an agency coupled with an interest because the agent (sales representative) does not own the business.

A principal may terminate an agency. Employers still have the power to terminate at will ‘

Under the statute of frauds, an agreement which can be performed within one year does not have to be in writing to be enforced.

Question 10

Pine, an employee of Global Messenger Co., was hired to deliver highly secret corporate documents for Global’s clients throughout the world. Unknown to Global, Pine carried a concealed pistol. While Pine was making a delivery, he suspected an attempt was being made to steal the package, drew his gun and shot Kent, an innocent passerby. Kent will not recover damages from Global if:

Pine’s weapon was unlicensed and illegal…. WHY?

Answer 10

The reason is that doing an illegal act would not be considered acting within the scope of his employment.

The other alternatives would allow Kent to recover damages from Global.

Question 11

Blue, a used car dealer, appointed Gage as an agent to sell Blue’s cars. Gage was authorized by Blue to appoint subagents to assist in the sale of the cars. Vond was appointed as a subagent. To whom does Vond owe a fiduciary duty?

Answer 11

Both Blue & Gage

Question 12

ble, as agent for Baker, an undisclosed principal, contracted with Safe to purchase an antique car. In payment, Able issued his personal check to Safe. Able could not cover the check, but expected Baker to give him cash to deposit before the check was presented for payment. Baker did not do so and the check was dishonored. Baker’s identity became known to Safe. Safe may not recover from:

Answer 12

Baker individually on the check.

When an agent writes a personal check to cover a contractual obligation made on behalf of an undisclosed principal and the check bounces, the third party may hold the principal liable on the contract, but may not recover from the principal on the basis of the personal check written by the agent.

Since the agent wrote a personal check for the contract, the third party may recover from the agent individually on the check.

Question 13

Generally, a disclosed principal will be liable to third parties for its agent’s unauthorized misrepresentations if the agent is:

Employee
Independent Contractor

Answer 13

Employee only

An independent contractor acts under little or no control by the principal and is generally personally responsible for his mistakes or misrepresentations;

Question 14

Kent, without authority, contracted to buy computer equipment from Fox Corp. for Ace Corp. Kent told Fox that Kent was acting on Ace’s behalf. For Ace to ratify the contract with Fox:

Answer 14

Ace must know all material facts relating to the contract at the time it is ratified.

A principal must know all material facts relating to a contract to have a valid ratification of a contract.

It is not necessary that an agency relationship exist, or that the principal give notification of intent to ratify a contract to the third party, or that the agent acted reasonably in the principal’s best interest for a valid ratification.

Question 15

There is no requirement to disclose who the principal is, although generally most persons know of the other party. T/F

Answer 15

True

Question 16

he following statements is (are) correct regarding the relationship between an agent and an undisclosed principal?

The principal is required to indemnify the agent for any contract entered into by the agent within the scope of the agency agreement.
The agent has the same actual authority as if the principal had been disclosed.

Answer 16

Both

Question 17

Simmons, an agent for Jensen, has the express authority to sell Jensen’s goods. Simmons also has the express authority to grant discounts of up to 5% of list price. Simmons sold Hemple goods with a list price of $1,000 and granted Hemple a 10% discount. Hemple had not previously dealt with either Simmons or Jensen. Which of the following courses of action may Jensen properly take?

Seek recovery of $50 from Simmons Only

Answer 17

Jensen, the employer (principal), may sue Simmons (his agent) for the $50 representing the amount that Simmons granted a customer in excess of the specific authority granted to him by Jensen

The third party made a valid contract with the principal through the agent’s sales efforts and is not liable for receiving a larger discount than what the principal intended

Question 18

What is agency by estoppel?

Answer 18

prevents denial of the existence of agency by the principal when a third party relies on circumstances which reasonably lead to the conclusion that an agency exists;

Question 19

Frost’s accountant and business manager has the authority to:

mortgage Frost’s business property.
obtain bank loans for Frost.
insure Frost’s property against fire loss.
sell Frost’s business.

Answer 19

The agent is empowered to do whatever is necessary to fulfill the purpose of the agency “in the ordinary course of business.” Clearly, buying insurance to protect an asset is an act within the normal scope of business.

Mortgaging a property, obtaining loans, and selling the business all require special authorization by a principal

Question 20

Which of the following rights will a third party be entitled to after validly contracting with an agent representing an undisclosed principal?

Performance of the contract by the agent… WHY?

Answer 20

The third party deals with the agent believing he is dealing with a principal

The third party, having contracted with a person (the agent) thought to be a principal, may compel the agent to perform the terms of the valid contract.

Question 21

A principal will not be liable to a third party for a tort committed by an agent unless ___

Answer 21

the tort was committed within the scope of the agency relationship.

For example, if you pay an agent to perform a task and he or she injures an innocent bystander while attempting to complete your project, the injured party could hold you, the principal, liable.

Question 22

Part agreed to act as Young’s agent to sell Young’s land. Part was instructed to disclose that Part was acting as an agent but not to disclose Young’s identity. Part contracted with Rice for Rice to purchase the land. After Rice discovered Young’s identity, Young refused to fulfill the contract. Who does Rice have a cause of action against?

Both young & part….WHY?`

Answer 22

When the principal is partially disclosed, the agent is also treated as a party to the contract, and the third party can hold the agent liable for contractual nonperformance. Rice can have a cause of action against Young or Part.

Question 23

Smith entered an oral agreement hiring and authorizing Jones to sell fraudulent identification cards produced by Smith. Smith and Jones orally agreed to share the proceeds from their enterprise. Later, Jones claimed that no enforceable agency relationship was created. Jones is correct because:

the purpose of the agency was contrary to public policy….WHY?

Answer 23

an agreement whose formation or performance is a tort, a crime, or opposed to public policy constitutes an illegal bargain, and courts will not enforce an illegal bargain. Courts will not adjust equities between the parties. You both fucked.

Question 24

Ace Corporation engaged Kosier, CPA, to perform a consulting engagement. While driving to Ace’s office, Kosier was involved in an automobile accident in which Norton was injured. The accident was solely Kosier’s fault. If Norton sues both Ace and Kosier for the injuries Norton sustained, who is liable?

Answer 24

Kosier will be liable, and Ace will not be liable because Kosier is an independent contractor.

Under the workers’ compensation rules, Ace would not be liable as Kosier is not an employee but rather an independent contractor.

Note that, although it is not applicable here, a corporation is liable under the doctrine of respondeat superior for the torts of its employees committed within the course of employment

Question 25

Easy Corp. is a real estate developer and regularly engages real estate brokers to act on its behalf in acquiring parcels of land. The brokers are authorized to enter into such contracts, but are instructed to do so in their own names without disclosing Easy’s identity or relationship to the transaction. If a broker enters into a contract with a seller on Easy’s behalf:

the broker will have the same actual authority as if Easy’s identity had been disclosed.
Easy will be bound by the contract because of the broker’s apparent authority.

Answer 25

Easy will be bound by the contract because of the broker’s actual authority, not because of any apparent authority.

the broker has no apparent authority (i.e., the appearance of authority resulting from the words or actions of the principal) because the agency is undisclosed

Question 26

Which of the following is available to a principal when an agent fraudulently breaches a fiduciary duty?

Termination of Agency
Constructive Trust

Answer 26

the principal may immediately terminate the agent for any breach

Generally, any breach is from a benefit to the agent from the cost of the principal, where the agent receives a “Constructive Trust”.

Question 27

A ___is an equitable device that calls for the agent to benefit from the cost of the principal

Answer 27

constructive trust

Question 28

When does an agency not end by operation of law?

Under the terms of the written or oral agency agreement
Death of the principal or agent
Insanity of the principal or agent
Impossibility of performance

Answer 28

Under the terms of the written or oral agency agreement

Operation of law means automatically without any action needed by the parties.

Terms of the written/oral agency happens from the choice of the principal/agent.

Question 29

What is the doctrine under which a corporation is made liable for the torts of its employees, committed within the scope of their employment?

Answer 29

Respondeat superior

Question 30

What are the three duties owed by a principal to an agent?

Answer 30

Compensation - (this is optional, but if zero compensation given, the zero amount is a reasonable value of services)
Fair Dealing & Contractual duties - Deal w/ agent fairly and honestly
Indemnification - if agent pays from their own funds for legal or normal course of biz, principal reimburses

Question 31

One of the elements necessary to recover damages if there has been a material misstatement in a registration statement filed under the Securities Act of 1933 is that the:

issuer and plaintiff were in privity of contract with each other.
issuer failed to exercise due care in connection with the sale of the securities.
plaintiff gave value for the security.
plaintiff suffered a loss.

Answer 31

Under the act, all the plaintiff/investor must prove is that the registration statement contained a material misstatement and resulted in a loss to the plaintiff.