Business Law and the Legal Environment Study Set 1

Business

Quiz 37 :

Agency

Quiz 37 :

Agency

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How does an agent differ from an independent contractor?
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Definitions
Agent - is someone who is hired by a principle to act for the principle. The agent is seen to be controlled by the principle and any liability caused by the agent will make the principle liable.
Independent Contractor - is someone who is hired to produce a certain product or service. However, they are not controlled by the hirer and are independent in making choices required to complete the job according to the hiring agreement.
Discussion
The most important difference between an agent and independent contractor is the liability on the principle/hirer. An agent's action will cause liability for the principle and will also bind the principle on contracts as they are seen to represent the principle. Contrarily, independent contractors are not controlled by the hirer and make not represent the hirer in contracts; they only do what is necessary to fulfill their duty.

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Ogden Corp. hired Thorp as a sales representative for nine months at a salary of $3,000 per month plus 4 percent of sales.Which of the following statements is correct? a. Thorp is obligated to act solely in Ogden's interest in matters concerning Ogden's business. b. The agreement between Ogden and Thorp formed an agency coupled with an interest. c. Ogden does not have the power to dismiss Thorp during the nine-month period without cause. d. The agreement between Ogden and Thorp is not enforceable unless it is in writing and signed by Thorp.
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a) The agent has a fiduciary duty, meaning they must act in the best interest of the principle at all times. Correct.
b) This is not an agency coupled with interest. The agent is merely being paid to do his work, but has no immediate legal rights to the owner's business. Incorrect.
c) This is untrue as the principle may dismiss agent at anytime. Incorrect.
d) This is untrue as not all agencies require written agreements. Incorrect.

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Gilbert Church owned Church Farms, Inc., in Manteno, Illinois. Church advertised its wellbred stallion Imperial Guard for breeding rights at $50,000, directing all inquiries to "Herb Bagley, Manager." Herb Bagley lived at Church Farms and was the only person available to visitors. Vern Lundberg answered the ad, and after discussions in which Bagley stated that Imperial Guard would remain in Illinois for at least a two-year period, Lundberg and Bagley executed a two-year breeding rights contract. The contract was signed by Lundberg and by Bagley as "Church Farms, Inc., H. Bagley, Mgr." When Gil Church moved Imperial Guard to Oklahoma prior to the second year of the contract, Lundberg brought suit for breach of contract. Church testified that Bagley had no authority to sign contracts for Church Farms. Decide. [Lundberg v Church Farms, Inc.,502 NE2d 806 (Ill)]
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Refer to the case Lundberg v Church Farms
Case Issue
The facts to this case are:
• C (defendant) advertised a horse for breeding rights and directed customers to talk with B.
• L (plaintiff) met with B many times and discussed about the horse.
• B and L signed a contract for exclusive breeding rights, with B signing as representing L.
• C later moved the horse and claimed B had no authority to sign contracts for them.
The issue is whether B is an agent of C which will bind C to the contract with L.
Relevant Terms, Laws, and Cases
Agent - is someone who is hired by a principle to act for the principle. The agent is seen to be controlled by the principle and any liability caused by the agent will make the principle liable.
Apparent Authority - an agent has apparent authority when:
• Agent doesn't have authority to act in a certain manner.
• However, principle does not disclose that agent doesn't have authority to third persons.
• The third person is given an impression that agent has authority to act. Apparent authority holds the principle liable.
Opinion
The court held for L.
They argued that:
• The ad stated to direct questions to B.
• B was the only person on the farm and also answered calls regarding the horse.
• L saw no one else at the farm for the 4 months period visiting B at the farm.
• There was a pre-printed line for B 's name on contract given by C.
• Thus, L reasonably believed B had signing authority for the horse.
• Furthermore, L did not have a duty to inquire from C whether B had authority to act.
Thus, the C is liable on the contract with L , due to apparent authority of B.

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Which of the following actions requires an agent for a corporation to have a written agency agreement? a. Purchasing office supplies for the principal's business B) Purchasing an interest in undeveloped land for the principal C) Hiring an independent general contractor to renovate the principal's office building D) Retaining an attorney to collect a business debt owed the principal
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Barbara Fox was the agent of Burt Hollander, a well-known athlete. She discovered that Tom Lanceford owned a 1957 Chevrolet convertible, which had been stored in a garage for the past 15 years. After demonstrating to Lanceford that she was the authorized agent of Hollander, she made a contract with Lanceford on behalf of Hollander to purchase the Chevrolet. Lanceford later discovered that the car was much more valuable than he originally believed, and he refused to deliver the car to Fox. Fox sued Lanceford for breach of contract. Can she recover?
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The Holzmans signed an exclusive listing agreement with the Blum real estate brokerage firm. The contract provided that the Holzmans had an obligation to pay a commission "if they enter into a written agreement to sell the property to any person during the term of this exclusive listing agreement." The Holzmans entered into a written agreement to sell their house for $715,000 to the Noravians. On the advice of their attorney, the Holzmans included a default provision in this contract stating that in the event of default by the Holzmans, the Noravians' only remedy would be a refund of their deposit. Subsequently, the Sterns offered $850,000 for the property and the Holzmans canceled their contract with the Noravians and returned their deposit. After the exclusive listing period expired, the Holzmans executed a contract to sell their property to the Sterns at the offered price of $850,000-with the contract calling for the Holzmans to pay half the real estate fee to Blum and half to a cooperating broker. Blum was paid this fee of $21,500. Blum brought suit against the Holzmans seeking the full commission for the Noravian contract under the exclusive listing agreement. Did Blum have a legal obligation or ethical duty to advise the Holzmans when considering the Sterns' offer that he believed they were obligated to him for the full commission under the Novarian contract? Decide. [Holzman v Blum, 726 A2d 818 (Md App)]
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Paul Strich did business as an optician in Duluth, Minnesota. Paul used only the products of the Plymouth Optical Co., a national manufacturer of optical products and supplies with numerous retail outlets and some franchise arrangements in areas other than Duluth. To increase business, Paul renovated his office and changed the sign on it to read "Plymouth Optical Co." Paul did business this way for more than three years- advertised under that name, paid bills with checks bearing the name of Plymouth Optical Co., and listed himself in the telephone and city directories by that name. Plymouth immediately became aware of what Paul was doing. However, because Paul used only Plymouth products and Plymouth did not have a franchise in Duluth, it saw no advantage at that time in prohibiting Paul from using the name and losing him as a customer. Paul contracted with the Duluth Tribune for advertising, making the contract in the name of Plymouth Optical Co. When the advertising bill was not paid, the Duluth Tribune sued Plymouth Optical Co. for payment. Plymouth's defense was that it never authorized Paul to do business under the name, nor authorized him to make a contract with the newspaper. Decide.
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Francis Gagnon, an elderly gentleman, signed a power of attorney authorizing his daughter, Joan, "to sell any of my real estate and to execute any document needed to carry out the sale... and to add property to a trust of which I am grantor or beneficiary." This power was given in case Gagnon was not available to take care of matters personally because he was traveling. When Joan learned that Gagnon intended to sell his Shelburne property to Cosby for $750,000, she created an irrevocable trust naming Gagnon as beneficiary and herself as trustee. Acting then on the basis of the authority set forth in the power of attorney, she conveyed the Shelburne property to herself as trustee of the irrevocable trust, thus blocking the sale to Cosby. When Gagnon learned of this, he demanded that Joan return the Shelburne property to him, but she refused, saying she had acted within the authority set forth in the power of attorney. Did Joan violate any duty owed to Gagnon? Must she reconvey the property to Gagnon? [Gagnon v Coombs, 654 NE2d 54 (Mass App)]
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Able, on behalf of Pix Corp., entered into a contract with Sky Corp., by which Sky agreed to sell computer equipment to Pix. Able disclosed to Sky that she was acting on behalf of Pix. However, Able had exceeded her actual authority by entering into the contract with Sky. If Pix wishes to ratify the contract with Sky, which of the following statements is correct? a. Pix must notify Sky that Pix intends to ratify the contract. b. Able must have acted reasonably and in Pix's best interest. c. Able must be a general agent of Pix. d. Pix must have knowledge of all material facts relating to the contract at the time it is ratified.
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Martha Christiansen owns women's apparel stores bearing her name in New Seabury, Massachusetts; Lake Placid, New York; Palm Beach, Florida; and Palm Springs, California. At a meeting with her four store managers, she discussed styles she thought appropriate for the forthcoming season, advised them as always to use their best judgment in the goods they purchased for each of their respective stores, and cautioned "but no blue jeans." Later, Jane Farley, the manager of the Lake Placid store, purchased a line of high-quality blue denim outfits (designer jeans with jacket and vest options) from Women's Wear, Inc., for the summer season. The outfits did not sell. Martha refused to pay for them, contending that she had told all of her managers "no blue jeans" and that if it came to a lawsuit, she would fly in three managers to testify that Jane Farley had absolutely no authority to purchase denim outfits and was, in fact, expressly forbidden to do so. Women's Wear sued Martha, and the three managers testified for her. Is the fact that Martha had explicitly forbidden Farley to purchase the outfits in question sufficient to protect her from liability for the purchases made by Farley?
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Lew owns a store on Canal Street in New Orleans. He paid a person named Mike and other individuals commissions for customers brought into the store. Lew testified that he had known Mike for less than a week. Boulos and Durso, partners in a wholesale jewelry business, were visiting New Orleans on a business trip when Mike brought them into the store to buy a stereo. While Durso finalized the stereo transaction with the store's manager, Boulos and Mike negotiated to buy 2 cameras, 3 videos, and 20 gold Dupont lighters. Unknown to the store's manager, Mike was given $8,250 in cash and was to deliver the merchandise later that evening to the Marriott Hotel, where Boulos and Durso were staying. Mike gave a receipt for the cash, but it showed no sales tax or indication that the goods were to be delivered. Boulos testified that he believed Mike was the store owner. Mike never delivered the merchandise and disappeared. Boulos and Durso contended that Lew is liable for the acts of his agent, Mike. Lew denied that Mike was his agent, and the testimony showed that Mike had no actual authority to make a sale, to use a cash register, or even to go behind a sales counter. What ethical principle applies to the conduct of Boulos and Durso? Decide. [Boulos v Morrison, 503 So2d 1(La)]
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Record owned a farm that was managed by his agent, Berry, who lived on the farm. Berry hired Wagner to bale the hay and told him to bill Record for this work. Wagner did so and was paid by Record. By the summer of the following year, the agency had been terminated by Record, but Berry remained in possession as tenant of the farm and nothing appeared changed. Late in the summer, Berry asked Wagner to bale the hay as he had done the previous year and bill Record for the work. He did so, but Record refused to pay on the ground that Berry was not then his agent. Wagner sued him. Decide. [Record v Wagner, 100 NH 419]
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Tillie Flinn properly executed a durable power of attorney designating her nephew James C. Flanders and/or Martha E. Flanders, his wife, as her attorney in fact. Seven months later, Martha Flanders went to the Capitol Federal Savings and Loan Association office. She had the durable power of attorney instrument, five certificates of deposit, and a hand-printed letter identifying Martha as an attorney in fact and stating that Tillie wished to cash her five CDs that Martha had with her. At approximately 10:31 A.M., five checks were given to Martha in the aggregate amount of $135,791.34, representing the funds in the five CDs less penalties for early withdrawal. Some of the checks were drawn to the order of Martha individually and some to the order of James and Martha, as individuals. Tillie was found dead of heart disease later that day. The time of death stated on her death certificate was 11:30 A.M. The Flanderses spent the money on themselves. Bank IV, as administrator of Tillie's estate, sued Capitol Federal to recover the amount of the funds paid to the Flanderses. It contended that Capitol Federal breached its duty to investigate before issuing the checks. Capitol Federal contended that it did all that it had a duty to do. Decide. [Bank IV v Capitol Federal Savings and Loan Ass'n, 828 P2d 355 (Kan)]
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Ken Jones, the number-one-ranked prizefighter in his weight class, signed a two-year contract with Howard Stayword. The contract obligated Stayword to represent and promote Jones in all business and professional matters, including the arrangement of fights. For these services, Jones was to pay Stayword 10 percent of gross earnings. After a year, when Stayword proved unsuccessful in arranging a title match with the champion, Jones fired Stayword. During the following year, Jones earned $4 million. Stayword sued Jones for $400,000. Jones defended himself on the basis that a principal has the absolute power at any time to terminate an agency relationship by discharging the agent, so he was not liable to Stayword. Was Jones correct?
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Compare authorization of an agent by (a) appointment and (b) ratification.
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Ernest A. Kotsch executed a durable power of attorney when he was 85 years old, giving his son, Ernie, the power to manage and sell his real estate and personal property "and to do all acts necessary for maintaining and caring for [the father] during his lifetime." Thereafter, Kotsch began "keeping company" with a widow, Margaret Gradl. Ernie believed that the widow was attempting to alienate his father from him, and he observed that she was exerting a great deal of influence over his father. Acting under the durable power of attorney and without informing his father, Ernie created the "Kotsch Family Irrevocable Trust," to which he transferred $700,000, the bulk of his father's liquid assets, with the father as grantor and initial beneficiary and Ernie's three children as additional beneficiaries. Ernie named himself trustee. His father sued to avoid the trust. Ernie defended his action on the ground that he had authority to create the trust under the durable power of attorney. Decide. [Kotsch v Kotsch, 608 So2d 879 (Fla App)]
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Frost's accountant and business manager has the authority to: a. Mortgage Frost's business property B) Obtain bank loans for Frost C) Insure Frost's property against fire loss D) Sell Frost's business
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Fred Schilling, the president and administrator of Florence General Hospital, made a contract, dated August 16, 1989, on behalf of the hospital with CMK Associates to transfer the capacity to utilize 25 beds from the hospital to the Faith Nursing Home. Schilling, on behalf of the hospital, had previously made a contract with CMK Associates on May 4, 1987. Schilling had been specifically authorized by the hospital board to make the 1987 contract. The hospital refused to honor the 1989 contract because the board had not authorized it. CMK contended that Schilling had apparent authority to bind the hospital because he was president and administrator of the hospital and he had been the person who negotiated and signed a contract with CMK in 1987. Thus, according to CMK, the hospital had held out Schilling as having apparent authority to make the contract. The hospital disagreed. Decide. [Pee Dee Nursing Home v Florence General Hospital, 419 SE2d 843 (SC Ct App)]
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Generally, an agency relationship is terminated by operation of law in all of the following situations except the: a. Principal's death b. Principal's incapacity c. Agent's renunciation of the agency d. Agent's failure to acquire a necessary business license
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Simmons, an agent for Jensen, has the express authority to sell Jensen's goods. Simmons also has the express authority to grant discounts of up to 5 percent of list price. Simmons sold Hemple a 10 percent discount. Hemple had not previously dealt with either Simmons or Jensen. Which of the following courses of action may Jensen properly take? a. Seek to void the sale to Hemple B) Seek recovery of $50 from Hemple only C) Seek recovery of $50 from Simmons only D) Seek recovery of $50 from either Hemple or Simmons
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