Chap 14

Question 1

Agency Law

Answer 1

In a principal-agent relationship, an agent acts on behalf of and instead of the principal in dealing with third parties.

Question 2

Employer-employee relationships

Answer 2

An employee who deals with third parties is normally an agent of the employer.

Question 3

Employer–independent contractor relationships

Answer 3

An independent contractor is not an employee because the employer has no control over the details of the independent contractor’s physical performance. An independent contractor may or may not be an agent.

Question 4

Determining employee status

Answer 4

The criteria used by courts includes the following:
a. How much control can the employer exercise over the details of the work?
b. Is the worker engaged in an occupation or business distinct from that of the employer?
c. Is the work usually done under the employer’s direction or by a specialist without supervision?
d. Does the employer supply the tools at the place of work?
e. For how long is the person employed?
f. What is the method of payment—by time period or at the completion of the job?
g. What degree of skill is required of the worker?

Question 5

Formation of an Agency

Answer 5

Agreement, Ratification, Estoppel, Operation of the Law

Question 6

Agreement

Answer 6

The agency relationship is formed through express consent (oral or written) or implied by conduct.

Question 7

Ratification

Answer 7

The principal either by act or by agreement ratifies the conduct of a person who is not in fact an agent.

Question 8

Estoppel

Answer 8

The principal causes a third person to believe that another person is the principal’s agent, and the third person deals with the supposed agent in the reasonable belief that an agency exists.

Question 9

Operation of law

Answer 9

The agency relationship is based on social policy (as in family relationships) or formed in an emergency situation when the agent is unable to contact the principal and failure to act outside the scope of the agent’s authority would cause the principal substantial loss.

Question 10

Duties of the agent Performance

Answer 10

In performing agency duties, the agent must use reasonable diligence and skill or use the special skills that the agent has claimed to possess.

Question 11

Duties of the agent Notification

Answer 11

The agent is required to notify the principal of all matters that come to the agent’s attention concerning the subject matter of the agency.

Question 12

Duties of the agent Loyalty

Answer 12

The agent has a duty to act solely for the benefit of the principal and not in the interest of the agent or a third party.

Question 13

Duties of the agent Obedience

Answer 13

The agent must follow all lawful and clearly stated instructions of the principal.

Question 14

Duties of the agent Accounting

Answer 14

The agent has a duty to make available to the principal records of all property and funds received and paid out on behalf of the principal.

Question 15

Duties of the principal Compensation

Answer 15

Except in a gratuitous agency relationship, the principal must pay the agreed-on value (or reasonable value) for the agent’s services.

Question 16

Duties of the principal Reimbursement and indemnification

Answer 16

The principal must reimburse the agent for all funds disbursed at the request of the principal, as well as for funds disbursed for necessary expenses in the reasonable performance of agency duties.

Question 17

Duties of the principal Cooperation

Answer 17

A principal must cooperate with and assist an agent in performing agency duties.

Question 18

Duties of the principal Safe working conditions

Answer 18

A principal must provide safe working conditions for agents and employees.

Question 19

Express authority

Answer 19

Can be given orally or in writing. Authorization must be in writing if the agent is to execute a contract that must be in writing.

Question 20

Implied authority

Answer 20

Authority deemed necessary for the agent to carry out expressly authorized tasks or tasks customarily associated with the agent’s position.

Question 21

Apparent authority

Answer 21

Exists when the principal, by word or action, causes a third party to reasonably believe that an agent has authority to act, even though the agent has no express or implied authority.

Question 22

Ratification

Answer 22

The affirmation by the principal of an agent’s unauthorized action or promise. For the ratification to be effective, the principal must be aware of all material facts.

Question 23

Liability for contracts

Answer 23

If the principal’s identity is disclosed or partially disclosed at the time the agent forms a contract with a third party, the principal is liable to the third party under the contract if the agent acted with proper authority. If the principal’s identity is undisclosed at the time of contract formation, the agent is personally liable to the third party, but if the agent acted with proper authority, the principal is also bound by the contract.

Question 24

Liability for torts and crimes

Answer 24

a. A principal conducting an activity through an agent may be liable for harm resulting from the principal’s own negligence or recklessness.
b. Under the doctrine of respondeat superior, the principal is liable for any harm caused to another through the agent’s torts if the agent was acting within the scope of employment at the time the harmful act occurred.

Question 25

Liability for agent’s intentional torts

Answer 25

Usually, employers are not liable for the intentional torts that their agents commit, unless the acts are committed within the scope of employment, the employer knows or should know that the employee has a propensity for committing tortious acts, or the employer allowed the employee to engage in reckless acts that caused injury to another.

Question 26

Liability for independent contractor’s torts

Answer 26

A principal is not liable for harm caused by an independent contractor’s negligence, unless unusually hazardous activities are involved.

Question 27

Liability for agent’s crimes

Answer 27

Agents are responsible for their own crimes, even if the crimes were committed while the agents were acting within the scope of authority or employment. A principal will be liable for an agent’s crime only if the principal participated by conspiracy or other action or (in some jurisdictions) if the agent violated certain government regulations in the course of employment.

Question 28

Termination of an Agency By act of the parties

Answer 28

a. Lapse of time. b. Purpose achieved. c. Occurrence of a specific event. d. Mutual agreement. e. At the option of one party. Notice to third parties is required when an agency is terminated by act of the parties.

Question 29

Termination of an Agency By operation of law

Answer 29

a. Death or insanity. b. Impossibility. c. Changed circumstances. d. Bankruptcy. e. War.

Question 30

agency

Answer 30

A relationship between two parties in which one party (the agent) agrees to represent or act for the other (the principal).

Question 31

agency coupled with an interest

Answer 31

An agency, created for the benefit of the agent, in which the agent has some legal right (interest) in the property that is the subject of the agency.

Question 32

apparent authority

Answer 32

Authority that is only apparent, not real. An agent’s apparent authority arises when the principal causes a third party to believe that the agent has authority, even though the agent does not.

Question 33

disclosed principal

Answer 33

A principal whose identity is known to a third party at the time the agent makes a contract with the third party.

Question 34

equal dignity rule

Answer 34

A rule requiring that an agent’s authority be in writing if the contract to be made on behalf of the principal must be in writing.

Question 35

fiduciary

Answer 35

As a noun, a person who, having undertaken a certain enterprise on behalf of another person, has a duty to act for the other person’s benefit in all matters related to that enterprise. As an adjective, a relationship founded on trust and confidence.

Question 36

independent contractor

Answer 36

One who works for, and receives payment from, an employer but whose working conditions and methods are not controlled by the employer. An independent contractor is not an employee but may be an agent.

Question 37

notary public

Answer 37

A public official authorized to attest to the authenticity of signatures.

Question 38

partially disclosed principal

Answer 38

A principal whose identity is unknown by a third party, but the third party knows that the agent is or may be acting for a principal at the time the agent and the third party form a contract.

Question 39

power of attorney

Answer 39

Authorization for another to act as one’s agent or attorney either in specified circumstances (special) or in all situations (general).

Question 40

ratification

Answer 40

A party’s act of accepting or giving legal force to a previously unenforceable contract or other obligation entered into on that party’s behalf by another party.

Question 41

respondeat superior

Answer 41

A relationship between two parties in which one party (the agent) agrees to represent or act for the other (the principal).

Question 42

undisclosed principal

Answer 42

A principal whose identity is unknown by a third party, and the third party has no knowledge that the agent is acting for a principal at the time the agent and the third party form a contract.

Question 43

vicarious liability

Answer 43

Indirect liability imposed on a supervisory party (such as an employer) for the actions of a subordinate (such as an employee) because of the relationship between the two parties.