Chapter 32 Notes
32-1 Agency Relationships; 32-2 Formation of Agency Relationship
In an agency relationship involving two parties, the agent agrees to represent or act for the principal.
True
A familiar example of an agent is a: corporate officer who serves in a representative capacity for the
owners of the corporation.
With respect to their employers, employees who deal with third parties are generally deemed to
be agents
Agency relationships can exist outside an employer-employee relationship, and thus agency law has a
broader reach than does employment law TRUE
Courts will determine independent contractor status by asking several questions. These include the
following: How much control does the employer exercise over the details of the work? Is the worker
engaged in a(n) occupation or business distinct from that of the employer? Is the work usually done
under the employer’s direction or by a(n) specialist without supervision? Does the employer
supply the tools at the place of work? For how long is the person employed? What is the method
of payment, by time period or at the completion of the job? What degree of skills is required of the
worker?
Whether a worker is an employee or an independent contractor can affect the employer’s liability for
workers’ actions. If the Internal Revenue Service decides that an employee is misclassified as an
independent contractor, the employer will be responsible for paying Social Security, withholding, and
unemployment taxes.
Any copyrighted work created by an employee within the scope of her or his employment at the request
of the employer is called a work for hire
Agency relationships are normally consensual, coming about through voluntary consent and agreement
between the parties. TRUE
Who can become a principal and who can become an agent? Contractual capacity to be principal,
anyone can be agent.
What are the four ways in which an agency relationship can arise? Agency by Ramification, Agency by
Estoppel, Agency by Agreement.
When a person who is not an agent makes a contract on behalf of a principal, the principal cannot
benefit from the contract? FALSE
In agency law, ratification occurs when: a principal, by words/actions, affirms a contract made by a
person who’s not an agent.
Agency by estoppel is created when the principal causes a third party to reasonably believe that an
agency relationship exists.
In which situations may the courts find an agency relationship in the absence of a formal agreement?
Family relationships, Emergency Situations
32-3 Duties of Agents and Principals
The agency relationship is a fiduciary relationship based upon trust, and each party owes the other the
duty to act with the utmost good faith. True
Which of the following is NOT a duty the agent owes the principal? Superior Competence
What are the 5 duties an agent owes the principal? Performance, Notification, Loyalty, Obedience,
Accounting
The degree of skill or care required of an agent is usually that expected of a(n) reasonable person under
similar circumstances.
Generally, the liability of the principal will depend on whether the agent was authorized to form a
contract. TRUE
A gratuitous agent may be held liable for breach of contract FALSE
The agent has the duty to act solely for the benefit of the principal and not in the interest of the agent
or a third party.
An agent’s actions must be strictly for the benefit of the principal and must not result in any secret profit
for the agent.
Which of the following is NOT a duty the principal owes the agent? Substantial ownership in the
business.
What are the duties the principal owes the agent? Compensation, reimbursement and indemnification,
cooperation, safe working conditions.
When the principal grants an agent an exclusive territory, we say that the principal has created a(n)
exclusive agency.
When an agent fails to perform his or her duties, for what may the agent be liable to the principal?
Breach of Contract, Tort Liability
If the two parties in the agency agreement disagree about how much the principal owes the agent, the
agent may suspend performance and demand an accounting.
When the principal-agent relationship is not contractual, the agent may receive an order for specific
performance from the court to ensure that the agency relationship may continue FALSE
The principal has several remedies available, including contractual for breach of fiduciary duties and
tort remedies if the agent engages in misrepresentation, negligence, deceit, libel, slander or trespass.
Anything that the agent obtains by virtue of the agency relationship belongs to the principal and will be
considered held in constructive trust for the principal.
If the agent breaches the agreement, the principal also has a right of avoidance.
Finally, if the principal is sued for the agent’s negligent conduct, the principal can sue the agent
for indemnification.
APPLY Brief Hypotheticals 32.1
Napoleon owns Napoleon's Construction and agrees to renovate Mrs. Cernan's bathroom. She will
provide him with the plans, and then he will do the work in the manner that he determines is most
cost effective and appropriate. Napoleon is likely to be classified as: Independent Contractor
Whitney works at home making unique children’s clothes. Liam buys Whitney’s clothes to sell in his
store. With respect to Whitney’s legal relationship to Liam, she is probably: Independent
Contractor
Sam goes out shopping and, using his wife Juanita’s credit card, buys $221 worth of groceries. Under
agency law, Juanita will probably be deemed: liable for the purchase, based on the creation
of an agency by operation of law
Charlie tells Jamal that Marisol has agreed to allow him to sell her racing bicycle. Marisol is present
at the time, hears the conversation and says nothing. Jamal agrees with Charlie to buy Marisol’s bike.
Marisol then refuses to sell the bicycle. Marisol claims that she is not bound by the agreement
formed by Charlie and Jamal because Charlie is not her agent. Marisol likely is: bound by the
contract under a theory of agency by estoppel
Robert attempts to avoid paying Andrew a commission on the sale of his house to a buyer procured
by Andrew. He does so by waiting until after the listing agreement has expired. Andrew finds out
about this after Robert sells his house. Andrew can: sue Robert for breach of contract
Eli and Marilyn ask Gracie to be the administrator of their will and the guardian of their children if
they pass away before their children reach the age of majority. Gracie agrees. Fiduciary relationships
such as this one: involve a high degree of trust and confidence.
Sarah has to move from the East Coast to the West Coast for her job. Elmo agrees to act as Sarah's
agent to sell her New York condo. As her agent, Elmo owes Sarah all of the following duties except:
Payment
Dara gives her agent, Marla, money to purchase a new commercial oven. Marla takes the money and
deposits it into her personal checking account. Marla then accidentally spends some of Dara’s
money. Marla has violated her duty of: Accounting
Kris represents Josh in the sale of his house as his real estate agent. Kris is entitled to:
Compensation
Justin, as an agent for Jessica, receives an earnest money check from a buyer related to the sale of
Jessica’s property. Justin’s receipt of the check creates a(n): Constructive Trust
Jamel hires independent contractor Stevenson to create users' manuals for Jamel's small appliances.
Jamel: Can create an agreement in writing that designates Stevenson’s work as work
for hire.
Cheryl knows that Jake is looking to buy a new scooter. She sees one that would be perfect and
negotiates with the seller on Jake’s behalf. She signs a contract for the scooter using her name but
clearly indicating that she is working for Jake. She actually is not. When Jake sees the scooter, he
loves it and agrees to pay the contract price. If agency exists in this situation, it is agency by:
Ratification
Judy's cousin Skip tells Judy that he will sell her car for her when she leaves the country for a church
mission for two years. Skip tells her that he will do it for no charge to her. While Judy is gone, Skip
forgets about the agreement and does not attempt to sell the car. Judy: Cannot recover anything
from Skip because he had no duty to perform since he was a gratuitous agent.
Laura and Juan have an agreement where Laura will sell Juan’s baseball card collection while he is
out of the country. Juan does not give any specific instructions on how this should be done. To fulfill
her duty of obedience, Laura must: act in good faith
Mitchell hires Christina to go from Florida to New York and negotiate a contract for his company. He
gives her specific instructions on what should be in the contract, and a written letter that gives her
authority to sign on his behalf. Christina books a plane ticket, flies to New York, hires a cab, and
successfully negotiates the contract. If Christina is paid for the plane ticket and cab fare, as well as
meals while in New York, it is most likely under the principal's duty of: Reimbursement