Chapter 4 Flashcards
(26 cards)
What are the 3 main types of agency creation?
Consent, Estoppel, and Necessity
Define “Agency by Estoppel.”
Agency arises when a principal’s conduct leads a third party to believe someone is their agent
What are the four types of agent authority?
Express, Implied, Ostensible, and Ratified Authority
When does an agent have ostensible authority?
When does an agent have ostensible authority?
How does an agent gain actual implied authority?
Through the nature of their position or usual business practices
What three conditions must be met for ratification?
(1) Principal existed at contract time, (2) Principal had capacity, (3) Agent identified the principal
What is an “Agent of Necessity”?
An agent appointed due to an emergency, acting in the principal’s best interest
What are the six fiduciary duties of an agent?
What are the six fiduciary duties of an agent?
Can an agent delegate their duties?
Generally no, unless delegation is expressly authorized or usual in the trade
What are the three rights of an agent?
Indemnity, Remuneration, Lien
What are the three main duties of a principal?
(1) Indemnify the agent, (2) Remunerate, (3) Act in good faith
What happens when an agent acts beyond authority?
The principal is not bound, unless ratification occurs
When is an agent personally liable on a contract?
When the agent acts without authority or contracts in their own name
How can an agency relationship terminate?
Agreement, Performance, Revocation, Death, or Bankruptcy
A real estate agent signs a sale contract exceeding their authority. The principal later learns about it but does nothing. What is the legal effect?
A) The contract is void.
B) The agent is personally liable.
C) The contract is ratified by the principal’s inaction.
D) The third party must confirm the sale with the principal.
C– Ratification can occur through inaction if the principal does not object in a reasonable time
Lucas, an agent, enters a contract on behalf of an undisclosed principal. The third party later discovers the principal’s identity. Who can they sue?
A) Only Lucas.
B) Only the principal.
C) Either Lucas or the principal.
D) Neither, as the principal was undisclosed.
C – A third party can sue either the agent or the principal when an undisclosed principal is revealed
A ship captain, unable to contact the owner, sells perishable cargo to avoid total loss. What principle applies?
A) Ostensible authority.
B) Agency of necessity.
C) Express authority.
D) Rescission of contract.
B – Agency of necessity applies when an agent acts in an emergency without prior approval
Emily, a sales manager, enters a contract beyond her actual authority, but her employer knowingly allows her to act as if she had such authority. Who is liable?
A) Emily only.
B) The employer, under estoppel.
C) The third party, for not verifying authority.
D) The contract is automatically void.
B – Ostensible authority binds a principal when they knowingly allow an agent to appear authorized
James, an agent, makes a deal but is later fired. He finalizes the deal after termination. Is the principal bound?
A) Yes, if the third party was unaware of the termination.
B) No, because James had no authority at that time.
C) Only if the principal benefits from the deal.
D) Yes, if James believed he still had authority.
A– The principal is bound if the third party was unaware of termination
A company director signs a contract without approval. The company later benefits from it. Can the company deny liability?
A) Yes, lack of approval voids the contract.
B) No, because the director had ostensible authority.
C) Only if the third party knew about the approval requirement.
D) No, as the company ratified the contract by accepting benefits.
D – Ratification occurs when a principal benefits from an unauthorized act
An unauthorized agent falsely claims authority, causing loss to a third party. What can the third party do?
A) Sue for fraud.
B) Claim breach of warranty of authority.
C) Sue the principal for negligent supervision.
D) Only seek damages if intent to deceive is proven.
B – A third party can claim breach of warranty of authority when an agent falsely claims authority
Mark, an agent, secretly takes a commission from a supplier without informing his principal. What legal principle is breached?
A) Good faith.
B) Fiduciary duty.
C) Implied authority.
D) Undue influence.
B – Secret commissions breach fiduciary duty, as the agent must act in the principal’s best interest
A travel agent books flights in their own name rather than the customer’s. The airline cancels the flight. Who can the customer sue?
A) The airline only.
B) The travel agent only.
C) Either the airline or the agent.
D) No one, as the booking was on the agent’s behalf.
B – If an agent contracts personally, they assume liability
Sarah’s employer tells clients she has decision-making power over contracts, but in reality, she does not. Can the employer be bound by Sarah’s agreements?
A) No, because Sarah lacked actual authority.
B) Yes, under ostensible authority.
C) Only if the employer later ratifies the deals.
D) No, as authority must be in writing.
B – Ostensible authority arises if the employer allows the third party to believe Sarah had power
