Unit 7 Test Flashcards
(19 cards)
A principal-agent relationship is fiduciary.
What does fiduciary mean in this context?
The agent consents to the principal acting and representing on its behalf. Each party owes the other the duty to act with the utmost faith. Each party acts in its own interests. The principal acts on behalf of the agent.
Each party owes the other the duty to act with the utmost faith
In a principal-agent relationship, the parties have agreed that the agent will act on behalf and instead of the principal in negotiating and transacting business with third parties. Fiduciary is at the heart of agency law.
What is the doctrine of agency by estoppel?
The conduct of an agent whose actions are outside the scope of authority leading a third party to believe that the agent had the authority to act, thereby the agent is prevented from denying the existence of authority. The conduct of an agent leading a third party to believe that the agent had the authority to act, thereby the agent is prevented from denying the existence of authority. The conduct of a principal leading a third party to believe to its detriment that an agent has authority to act, thereby the principal is prevented from denying that the agent had authority. The conduct of a principal who lacks the legal capacity to be a principal leading a third party to believe that the agent had the authority to act, thereby the principal is prevented from denying the existence of the authority.
The conduct of a principal leading a third party to believe to its detriment that an agent has authority to act, thereby the principal is prevented from denying that the agent had authority
A court can apply the doctrine of agency by estoppel when a principal has given a third party reason to believe that an agent has authority to act. If the third party honestly relies on the principal’s representations to one’s detriment, the principal may be estopped (prevented) from denying that the agent had authority.
When certain actions by the parties to a contract in an agency relationship are outside the scope of authority, such actions should be ratified for the contract to be enforceable.
Who has the authority to ratify the contract in these situations?
Notary public Agent Third parties Principal
Principal
Ratification occurs when the principal affirms or accepts responsibility for an agent’s unauthorized act.
A salesperson in a shoe store offers a customer a 50% discount on an open item returned pair of shoes. Promotions and discounts are generally set by the store owner. The store is not having any promotional events offering discounts, but the store policy permits sales personnel to offer discounts on a per-transaction basis.
What is the agency status between the salesperson and the store owner?
The salesperson did not act as an agent of the store owner in this particular sale transaction because offering discounts is not part of a salesperson’s duties. The salesperson is an agent of the store owner, and the sale is binding on the store owner. The salesperson is an agent of the store owner, but the sale is not binding on the store owner because the discount was not authorized by the store owner. The salesperson’s discount offering is beyond the scope of the normal duties, so the sale is not binding on the store owner.
The salesperson is an agent of the store owner, and the sale is binding on the store owner
The salesperson is an employee (agent) and acting on behalf of the store owner who is the principal. The store owner is responsible for all the legal actions of the employee, including sales to the customers.
An apartment complex owner contracted with a management company for the maintenance of the building. A maintenance worker that was attending to a repair call in one of the apartment units in the building gets into a physical fight with the tenant and causes severe injuries to the tenant. The tenant sues the owner of the apartment complex for damages.
Which agency relationship should exist between the owner and the management company for the courts to rule in the tenant’s favor?
Principal – independent contractor, agency relationship Employer – employee, agency relationship Employer - employee, non-agency relationship Principal – independent contractor, non-agency relationship
Principal – independent contractor, agency relationship
For the courts to rule in the tenant’s favor, an enforceable agency relationship should exist between the owner of the apartment complex and the management company since the establishment of the agency will bind the principal for the actions of the agent.
Generally, the agent owes the principal the five following duties: performance, notification, loyalty, obedience, and accounting.
Which statement describes obedience?
The duty to keep and make available to the principal an account of all property and funds received and paid out on the principal’s behalf The duty to inform the principal of all matters that come to their attention concerning the subject matter of the agency The duty to act solely for the benefit of their principal and not in the interest of the agent or a third party The duty to follow all lawful and clearly stated instructions of the principal
The duty to follow all lawful and clearly stated instructions of the principal
An agent’s duty to follow all lawful and clearly stated instructions of the principal is obedience.
A certified public accountant (CPA) works as an independent contractor for different companies. During tax season, the CPA was so busy it was almost impossible to keep track of the different accounts. The CPA decided it would be easier to use a personal account and once tax season was over, they would separate and organize each account appropriately. After tax season, the CPA organized each separate account.
Were the CPA’s actions acceptable?
Yes, because after the tax season was over each account was organized No, because it is inappropriate to have more than one contract at the same time Yes, because it was impossible to keep track of the different accounts No, because an agent must not intermingle principal’s and personal funds
No, because an agent must not intermingle principal’s and personal funds
The agent has a duty to maintain a separate account for the principal’s funds and must not intermingle these funds with the agent’s personal funds.
An accountant works as an agent for different companies. However, the accountant has found that it is more efficient to manage one account and keep detailed documentation about each separate account. The account consists of the principal’s funds and the accountant’s personal funds. The accountant has not had any problems with this system, but the state board of accountancy took disciplinary actions against the accountant for this practice.
Do the state board’s actions have merits?
Yes, because the state board of accountancy may subject to disciplinary action a member that violates the accounting duty Yes, because the state board of accountancy has unlimited discretion to discipline a member No, because the accountant kept all the detailed documentation about each separate account and did not have a problem with this system No, because the accountant found an effective and efficient way to manage all the accounts
Yes, because the state board of accountancy may subject to disciplinary action a member that violates the accounting duty
Intermingling personal funds with the principal’s funds is not an acceptable method.
An accountant was performing a contract for a local fast-food restaurant. While looking for some files, the accountant found the local restaurant’s secret recipe. The accountant took a photo of the secret recipe to cook it at home.
Which duty has the accountant breached?
Obedience duty Accounting duty Loyalty duty Notification duty
Loyalty duty
It is a breach of loyalty to disclose such information either during the agency relationship or after its termination.
What results when an agent fails to perform their duties?
Liability for breach of statutory duty Liability for breach of contract Liability for breach of confidentiality Liability for breach of warranty
Liability for breach of contract
When an agent fails to perform certain duties, liability for breach of contract may result.
What is the equal dignity rule?
The principal’s duties to the agent are required to be in writing if the agency contract to be executed must be in writing. The agent’s authority is required to be in writing if the agency contract to be executed must be in writing. The agent and principal should perform the agency relationship with equal dignity. The agent should provide equal dignity to the third parties on behalf of the principal.
The agent’s authority is required to be in writing if the agency contract to be executed must be in writing
In most states, the equal dignity rule requires that if the contract being executed is or must be in writing, then the agent’s authority must also be in writing. Failure to comply with the equal dignity rule can make a contract voidable at the option of the principal. Agent and principal should perform the agency relationship with equal dignity.
A homeowner hires a real estate broker to sell the homeowner’s vacation house.
What is the agency status between the homeowner and the real estate broker?
Principal – independent contractor, agency relationship Employer – employee, agency relationship Employer – independent contractor, non-agency relationship Principal – independent contractor, non-agency relationship
Principal – independent contractor, agency relationship
The homeowner has established an agency relationship with the broker for the specific purpose of selling the house.
When can an agent exercise emergency powers?
In unforeseen situations that require action by the agent to represent on behalf of the principal who lacks the contractual capacity to be a principal In unforeseen situations that require action by the agent to protect the rights of the agent In unforeseen situations that require action by the agent to protect the property and rights of third parties In unforeseen situations that require action by the agent to protect the property and rights of the principal
In unforeseen situations that require action by the agent to protect the property and rights of the principal
When an unforeseen emergency demands action by the agent to protect or preserve the property and rights of the principal, but the agent is unable to communicate with the principal, the agent has emergency power to act on behalf of the principal.
A property owner hired a building contractor to develop a property. The property owner has no control over the details of the work performed.
What is the agency status between the property owner and the building contractor?
Independent contractor, non-agency relationship Independent contractor, agency relationship Employer – employee, non-agency relationship Employer – employee, agency relationship
Independent contractor, non-agency relationship
An independent contractor is neither controlled by the other nor subject to the other’s right to control with respect to the physical conduct in the performance of the undertaking; the independent contractor is not an agent. The property owner has no control over the details of the work performed by the building contractor.
A third party was grateful to the principal company for all its hard work. An agent has taken care of the third party’s account and has helped it accomplish all its goals. As a token of appreciation, the agent received a material gift on the principal company’s behalf.
Who gets to keep the gift?
Principal company Agent Third party Chief executive officer
Principal company
It is the agent’s duty to make available to the principal all the property and funds received, including gifts.
What results when an agent fails to perform their duties?
Liability for breach of warranty Liability for breach of statutory duty Liability for breach of contract Liability for breach of confidentiality
Liability for breach of contract
When an agent fails to perform their duties, liability for breach of contract may result.
During an emergency situation, an agent had to deviate from the instructions given by the principal.
Did the agent breach the obedience duty?
No, because the agent has discretion to act as it seems necessary No, because the agent may deviate when the principal cannot be consulted Yes, because the agent did not follow the instructions given by the principal Yes, because deviation implies nonperformance
No, because the agent may deviate when the principal cannot be consulted
During emergency situations, when the principal cannot be consulted, the agent may deviate from the instructions without violating this duty.
Which concept characterizes a principal-agent relationship?
Trust Commissions Faith Data
Trust
A principal-agent relationship is fiduciary based on trust.
Generally, the agent owes the principal the following five duties: performance, notification, loyalty, obedience, and accounting.
Which statement describes notification?
The duty to inform the principal of all matters that come to their attention concerning the subject matter of the agency The duty to follow all lawful and clearly stated instructions of the principal The duty to act solely for the benefit of their principal and not in the interest of the agent or a third party The agreement to use reasonable skill and diligence in performing the work
The duty to inform the principal of all matters that come to their attention concerning the subject matter of the agency
The agent’s duty to notify the principal of all matters that come to their attention concerning the subject matter of the agency is notification.
