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Quiz 32 :

Agency Formation and Duties

Quiz 32 :

Agency Formation and Duties

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Agent's Duties to Principal Su Ru Chen owned the Lucky Duck Fortune Cookie Factory in Everett, Massachusetts, which made Chinese-style fortune cookies for restaurants. In November 2001, Chen listed the business for sale with Bob Sun, a real estate broker, for $35,000. Sun's daughter Frances and her fiancé, Chiu Chung Chan, decided that Chan would buy the business. Acting as a broker on Chen's (the seller's) behalf, Frances asked about the Lucky Duck's finances. Chen said that each month the business sold at least 1,000 boxes of cookies at a $2,000 profit. Frances negotiated a price of $23,000, which Chan (her fiancé) paid. When Chan began to operate the Lucky Duck, it became clear that the demand for the cookies was actually about 500 boxes per month-a rate at which the business would suffer losses. Less than two months later, the factory closed. Chan filed a suit in a Massachusetts state court against Chen, alleging fraud, among other things. Chan's proof included Frances's testimony as to what Chen had said to her. Chen objected to the admission of this testimony. What is the basis for this objection? Should the court admit the testimony? Why or why not? [Chan v. Chen , 70 Mass.App.Ct. 79, 872 N.E.2d 1153 (2007)]
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The court may not admit the testimony. First of all, this statement is hearsay because it is an out of court statement that the original seller told the buyer's fiancée before the purchase took place. Second of all, the source of the testimony is also biased. She is on both sides of the deal, as the daughter of the broker and the fiancée of the buyer.
Since there is a clear conflict of interest, the court can use its discretion to find the evidence admissible or not.

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Agent's Duties to Principal Sam and Theresa Daigle decided to build a home in Cameron Parish, Louisiana. To obtain financing, they contacted Trinity United Mortgage Co. At a meeting with Joe Diez on Trinity's behalf, on July 18, 2001, the Daigles signed a temporary loan agreement with Union Planters Bank. Diez assured them that they did not need to make payments on this loan until their house was built and permanent financing had been secured. Because the Daigles did not make payments on the Union loan, Trinity declined to make the permanent loan. Meanwhile, Diez left Trinity's employ. On November 1, the Daigles moved into their new house. They tried to contact Diez at Trinity but were told that he was unavailable and would get back to them. Three weeks later, Diez came to the Daigles' home and had them sign documents that they believed were to secure a permanent loan but that were actually an application with Diez's new employer. Union filed a suit in a Louisiana state court against the Daigles for failing to pay on its loan. The Daigles paid Union, obtained permanent financing through another source, and filed a suit against Trinity to recover the cost. Who should have told the Daigles that Diez was no longer Trinity's agent? Could Trinity be liable to the Daigles on this basis? Explain. [ Daigle v. Trinity United Mortgage, L.L.C., 890 So.2d 583 (La.App. 3 Cir. 2004)]
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Agent's Duties to Principal:
In the case of Daigle v. Trinity United Mortgage, L.L.C., 890 So.2d 583 (La.App. 3 Cir. 2004), the trial ruled in favor of the Daigles and awarded damages of more than $26,000. The appellate court affirmed.
The Court stated that many of the representations made by Diez and relied upon by the Daigles, were made by him prior to the termination of his relationship with Trinity. The Court further stated that the responsibility for third party notifications regarding agency relationships with terminated agents were the responsibility of the principal.
Since Trinity failed to notify the Daigles regarding Diez's termination, it was bound to perform the obligations that Diez had undertaken. Trinity was, therefore, responsible for Diez's actions under the facts of this case.

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CASE PROBLEM WITH SAMPLE ANSWER: Agent's Duties to Principal. In July 2001, John Warren viewed a condominium in Woodland Hills, California, as a potential buyer. Hildegard Merrill was the agent for the seller. Because Warren's credit rating was poor, Merrill told him he needed a co-borrower to obtain a mortgage at a reasonable rate. Merrill said that her daughter Charmaine would "go on title" until the loan and sale were complete if Warren would pay her $10,000. Merrill also offered to defer her commission on the sale as a loan to Warren so that he could make a 20 percent down payment on the property. He agreed to both plans. Merrill applied for and secured the mortgage in Charmaine's name alone by misrepresenting her daughter's address, business, and income. To close the sale, Merrill had Warren remove his name from the title to the property. In October, Warren moved into the condominium, repaid Merrill the amount, of her deferred commission, and began paying the mortgage. Within a few months, Merrill had Warren evicted. Warren filed a suit in a California state court against Merrill and Charmaine. Who among these parties was in an agency relationship? What is the basic duty that an agent owes a principal? Was the duty breached here? Explain. [ Warren v. Merrill, 143 Cal.App.4th 96, 49 Cat. Rptr.3d 122 (2 Dist. 2006)]
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Here, HM was an agent for both the seller and the buyer, JW. As per their agreement, HM was to represent JW in his purchase of the property. As an agent, HM owes a fiduciary duty to JW, including a duty of care and a duty of loyalty. JW consented to HM's plan to put the title in her daughter's name and followed the payment plan.
However, HM did not act in JW's best interest. She defrauded him by misrepresenting the purpose for her daughter's name on the title. She also attempted to evict him.
HM was clearly not acting in the best interest of JW and JW did not have the ultimate control as a principal should. Thus, she violated her fiduciary duty as an agent.

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James Blatt hired Marilyn Scott to sell insurance for the Massachusetts Mutual Life Insurance Co. Their contract stated, "Nothing in this contract shall be construed as creating the relationship of employer and employee." The contract was terminable at will by either party. Scott financed her own office and staff, was paid according to performance, had no taxes withheld from her checks, and could legally sell products of Massachusetts Mutual's competitors. But when Blatt learned that Scott was simultaneously selling insurance for Perpetual Life Insurance Corp., one of Massachusetts Mutual's fiercest competitors, Blatt withheld client contact information from Scott that would have assisted her insurance sales for Massachusetts Mutual. Scott complained to Blatt that he was inhibiting her ability to sell insurance for Massachusetts Mutual. Blatt subsequently terminated their contract. Scott fi led a suit in a New York state court against Blatt and Massachusetts Mutual. Scott claimed that she had lost sales for Massachusetts Mutual-and her commissions-as a result of Blatt's withholding contact information from her. Using the information presented in the chapter, answer the following questions. How would the court most likely rule on Scott's employee status? Why? DEBATE THIS: All works created by independent contractors should be considered works for hire under copyright law.
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James Blatt hired Marilyn Scott to sell insurance for the Massachusetts Mutual Life Insurance Co. Their contract stated, "Nothing in this contract shall be construed as creating the relationship of employer and employee." The contract was terminable at will by either party. Scott financed her own office and staff, was paid according to performance, had no taxes withheld from her checks, and could legally sell products of Massachusetts Mutual's competitors. But when Blatt learned that Scott was simultaneously selling insurance for Perpetual Life Insurance Corp., one of Massachusetts Mutual's fiercest competitors, Blatt withheld client contact information from Scott that would have assisted her insurance sales for Massachusetts Mutual. Scott complained to Blatt that he was inhibiting her ability to sell insurance for Massachusetts Mutual. Blatt subsequently terminated their contract. Scott fi led a suit in a New York state court against Blatt and Massachusetts Mutual. Scott claimed that she had lost sales for Massachusetts Mutual-and her commissions-as a result of Blatt's withholding contact information from her. Using the information presented in the chapter, answer the following questions. What facts would the court consider most important in determining whether Scott was an employee or an independent contractor? DEBATE THIS: All works created by independent contractors should be considered works for hire under copyright law.
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Principal's Remedies against Agent Ankir is hired by Jamison as a traveling salesperson. Ankir not only solicits orders but also delivers the goods and collects payments from his customers. Ankir deposits all payments in his private checking account and at the end of each month draws sufficient cash from his bank to cover the payments made. Jamison is totally unaware of this procedure. Because of a slowdown in the economy, Jamison tellsall his salespeople to offer 20 percent discounts on orders. Ankir solicits orders, but he offers only 15 percent discounts, pocketing the extra 5 percent paid by customers. Ankir has not lost any orders by this practice and he is rated as one of Jamison's top salespersons. Jamison learns of Ankir's actions. Discuss fully Jamison's rights in this matter.
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Emergency One, Inc. (EO), makes fi re and rescue vehicles. Western Fire Truck, Inc., contracted with EO to be its exclusive dealer in Colorado and Wyoming through December 2003. James Costello, a Western salesperson, was authorized to order EO vehicles for his customers. Without informing Western, Costello e-mailed EO about Western's difficulties in obtaining cash to fund its operations. He asked about the viability of Western's contract and his possible employment with EO. On EO's request, and in disregard of Western's instructions, Costello sent some payments for EO vehicles directly to EO. In addition, Costello, with EO's help, sent a competing bid to a potential Western customer. EO's representative e-mailed Costello, "You have my permission to kick [Western's] ass." In April 2002, EO terminated its contract with Western, which, after reviewing Costello's e-mail, fi red Costello. Western fi led a suit in a Colorado state court against Costello and EO, alleging, among other things, that Costello breached his duty as an agent and that EO aided and abetted the breach. [ Western Fire Truck, Inc. v. Emergency One, Inc., 134 P.3d 570 (Colo.App. 2006)] (a) Was there an agency relationship between Western and Costello? Western required monthly reports from its sales staff, but Costello did not report regularly. Does this indicate that Costello was not Western's agent? In determining whether an agency relationship exists, is the right to control or the fact of control more important? Explain. (b) Did Costello owe Western a duty? If so, what was the duty? Did Costello breach it? If so, how? (c) A Colorado state statute allows a court to award punitive damages in "circumstances of fraud, malice, or willful and wanton conduct." Did any of these circumstances exist in this case? Should punitive damages be assessed against either defendant? Why or why not?
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Agency Formation Paul Gett is a well-known, wealthy financial expert living in the city of Torris. Adam Wade, Gett's friend, tells Timothy Brown that he is Gett's agent for the purchase of rare coins. Wade even shows Brown a local newspaper clipping mentioning Gett's interest in coin collecting. Brown, knowing of Wade's friendship with Gett, contracts with Wade to sell a rare coin valued at $25,000 to Gett. Wade takes the coin and disappears with it. On the payment due date, Brown seeks to collect from Gett; claiming that Wade's agency made Gett liable. Gett does not deny that Wade was a friend, but he claims that Wade was never his agent. Discuss fully whether an agency was in existence at the time the contract for the rare coin was made.
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Employment Relationships William Moore owned and operated Moore Enterprises, a wholesale tire business, in Idaho. While in high school, William's son, Jonathan, worked as a Moore employee. Later, Jonathan started his own business, called Morecedes Tire. Morecedes regrooved tires and sold them to businesses, including Moore. Moore made payments for the tires not to Jonathan, but to Morecedes Tire, without tax withholding. A decade after Jonathan started Morecedes, William offered him work with Moore for $12 per hour. Jonathan accepted but retained Morecedes Tire. On the first day, William told Jonathan to load some tires on a trailer. While Jonathan was unhooking the trailer, a jack handle struck him. He suffered several broken bones in his face and a detached retina. He was never paid for the work. He filed a workers' compensation claim. Under Idaho's laws, an individual must be an employee-not an independent contractor-to obtain workers' compensation. What criteria do the courts use to determine employee status? How do they apply to Jonathan? Discuss. [Moore v. Moore, __ P.3d __ (Idaho 2011)]
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QUESTION WITH SAMPLE ANSWER: Duty of Loyalty. Peter hires Alice as an agent to sell a piece of property he owns. The price is to be at least $30,000. Alice discovers that the fair market value of Peter's property is actually at least $45,000 and could be higher because a shopping mall is going to be built nearby. Alice forms a real estate partnership with her cousin Carl, and she prepares for Peter's signature a contract for the sale of the property to Carl for $32,000. Peter signs the contract. Just before closing and passage of title, Peter learns about the shopping mall and the increased fair market value of his property. Peter refuses to deed the property to Carl. Carl claims that Alice, as agent, solicited a price above that agreed on when the agency was created and that the contract is therefore binding and enforceable. Discuss fully whether Peter is bound to this contract.
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Agency by Ratification Wesley Hall, an independent contractor managing property for Acree Investments, Ltd., lost control of a fire he had set to clear ten acres of Acree land. The runaway fire burned seventy-eight acres of Earl Barrs's property. Russell Acree, one of the owners of Acree Investments, had previously owned the ten acres, but he had put it into the company and was no longer the principal owner. Hall had worked for Russell Acree in the past and had told the state forestry department that he was burning the land for Acree. Barrs sued Russell Acree for the acts of his agent, Hall. In his suit, Barrs noted that Hall had been an employee of Russell Acree, Hall had talked about burning the land "for Acree," Russell Acree had apologized to Barrs for the fire, and Acree Investments had not been identified as the principal property owner until Barrs had filed his lawsuit. Barrs argued that those facts were sufficient to create an agency by ratification to impose liability on Russell Acree. Was Barrs's agency by ratification claim valid? Why or why not? [ Barrs v. Acree , 691 S.E.2d 575 (Ga.App. 2010)]
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James Blatt hired Marilyn Scott to sell insurance for the Massachusetts Mutual Life Insurance Co. Their contract stated, "Nothing in this contract shall be construed as creating the relationship of employer and employee." The contract was terminable at will by either party. Scott financed her own office and staff, was paid according to performance, had no taxes withheld from her checks, and could legally sell products of Massachusetts Mutual's competitors. But when Blatt learned that Scott was simultaneously selling insurance for Perpetual Life Insurance Corp., one of Massachusetts Mutual's fiercest competitors, Blatt withheld client contact information from Scott that would have assisted her insurance sales for Massachusetts Mutual. Scott complained to Blatt that he was inhibiting her ability to sell insurance for Massachusetts Mutual. Blatt subsequently terminated their contract. Scott fi led a suit in a New York state court against Blatt and Massachusetts Mutual. Scott claimed that she had lost sales for Massachusetts Mutual-and her commissions-as a result of Blatt's withholding contact information from her. Using the information presented in the chapter, answer the following questions. Which of the four duties that Blatt owed Scott in their agency relationship has probably been breached? DEBATE THIS: All works created by independent contractors should be considered works for hire under copyright law.
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James Blatt hired Marilyn Scott to sell insurance for the Massachusetts Mutual Life Insurance Co. Their contract stated, "Nothing in this contract shall be construed as creating the relationship of employer and employee." The contract was terminable at will by either party. Scott financed her own office and staff, was paid according to performance, had no taxes withheld from her checks, and could legally sell products of Massachusetts Mutual's competitors. But when Blatt learned that Scott was simultaneously selling insurance for Perpetual Life Insurance Corp., one of Massachusetts Mutual's fiercest competitors, Blatt withheld client contact information from Scott that would have assisted her insurance sales for Massachusetts Mutual. Scott complained to Blatt that he was inhibiting her ability to sell insurance for Massachusetts Mutual. Blatt subsequently terminated their contract. Scott fi led a suit in a New York state court against Blatt and Massachusetts Mutual. Scott claimed that she had lost sales for Massachusetts Mutual-and her commissions-as a result of Blatt's withholding contact information from her. Using the information presented in the chapter, answer the following questions. Who is the principal and who is the agent in this scenario? By which method was an agency relationship formed between Scott and Blatt? DEBATE THIS: All works created by independent contractors should be considered works for hire under copyright law.
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Principal's Duties to Agent Josef Boehm was an officer and the majority shareholder of Alaska Industrial Hardware, Inc. (AIH), in Anchorage, Alaska. In August 2001, Lincolnshire Management, Inc., in New York, created AIH Acquisition Corp. to buy AIH. The three firms signed a "commitment letter" to negotiate "a definitive stock purchase agreement" (SPA). In September, Harold Snow and Ronald Braley began to work, on Boehm's behalf, with Vincent Coyle, an agent for AIH Acquisition, to produce an SPA. They exchanged many drafts and dozens of e-mails. Finally, in February 2002, Braley told Coyle that Boehm would sign the SPA "early next week." That did not occur, however, and at the end of March, after more negotiations and drafts, Boehm demanded a larger payment. AIH Acquisition agreed, and, following more work by the agents, another SPA was drafted. In April, the parties met in Anchorage. Boehm still refused to sign. AIH Acquisition and others filed a suit in a federal district court against AIH. Did Boehm violate any of the duties that principals owe to their agents? If so, which duty, and how was it violated? Explain. [AIH Acquisition Corp., LLC v. Alaska Industrial Hardware, Inc., ___ F.Supp.2d ___ (S.D.N.Y. 2004)]
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