Question 1

a. What is a fiduciary? 
b. What are the implications of an agent's fiduciary obligation? What is an agent prohibited from doing as a result of this obligation? Explain.

Accepted Answer

The answer of a. What is a fiduciary? 
b. What...

Question 2

The contractual duties owed by a principal to an agent are the duties of:
A) compensation.
B) reimbursement.
C) indemnification.
D) All of these.
E) None of these.

Accepted Answer

A principal owes the agent duties of compensation, reimbursement, and indemnification as part of their contractual obligations.

Question 3

A gratuitous agent:
A) is a paid agent.
B) is subject to the same duty of loyalty as other agents.
C) has no duty of diligence.
D) need not be reimbursed for her expenses.

Accepted Answer

A gratuitous agent, although unpaid, is still subject to the same duty of loyalty as other agents.

Question 4

An agent may lose the right to compensation:
A) by breaching the agency contract willfully and deliberately.
B) if the specified result of the contract is not obtained.
C) if the duty of loyalty is breached.
D) All of these
E) None of these.

Accepted Answer

An agent may lose the right to compensation if they willfully breach the agency contract, fail to achieve the specified result, or breach the duty of loyalty. All these actions can lead to forfeiture of compensation.

Question 5

Bob owns a business delivering coffee and donuts within the downtown area of the city. Smith Co. calls him to deliver a large quantity of his products to their local office. While taking a coffee urn through the Smith Co.'s office, Bob drops it on Lester, scalding him. Who is liable?
A) Smith Co. and Bob are liable.
B) Bob alone is liable.
C) Lester has to absorb the cost himself since he assumed the risk by working at Smith Co.
D) Only Smith Co. is liable.

Accepted Answer

Bob is liable because he directly caused the injury by dropping the coffee urn on Lester.

Question 6

The concept of conflict of interest as it relates to the law of agency includes which of the following?
A) An agent may take a position that conflicts with the principal only if the principal, with full knowledge of all the facts, consents.
B) An agent may not represent her principal in a transaction in which the agent has a personal interest.
C) An agent may not act on behalf of adverse parties to a transaction without both principals' approval of the dual agency.
D) All of these.

Accepted Answer

All the options describe scenarios where conflicts of interest may arise in the law of agency, and each requires consent or approval to resolve the conflict.

Question 7

Mark (age 16) appoints Joe (age 21) as his agent to purchase a digital camcorder from Electronic World. The transaction is:
A) void because Mark is a minor.
B) voidable by Electronic World because Mark is a minor.
C) voidable by Mark because he is a minor.
D) not voidable because Joe is not a minor.

Accepted Answer

The transaction is voidable by Mark because he is a minor. Minors have the right to disaffirm contracts, making them voidable at the minor's discretion.

Question 8

Which of the following agents would not have authority to contract with third parties on behalf of the principal?
A) A salesman who sells his employer's goods.
B) A manager who hires employees for the store owner.
C) A factory worker hired to operate a machine.
D) A buyer who regularly buys merchandise for a store.
E) All agents have authority to contract with third parties on behalf of their principals.

Accepted Answer

A factory worker hired to operate a machine typically does not have the authority to contract with third parties on behalf of the principal, as their role is limited to operating machinery rather than engaging in contractual agreements.

Question 9

Carolyn, a cashier at Tops Supermarkets, may cash checks for up to $20 over a purchase amount. A friend needs money for a dress so Carolyn cashes a check for $50 with no purchase. The check bounces. Carolyn is:
A) liable because she violated her duty of obedience.
B) liable because she breached her duty to inform.
C) not liable since she has apparent authority to take the check.
D) not liable unless she knew her friend did not have the money in the bank.

Accepted Answer

Carolyn is liable because she violated her duty of obedience by not following the store's policy of cashing checks only up to $20 over a purchase amount.

Question 10

Mark hires Joe's real estate agency to sell his property, telling Joe he has lost too much money playing the stock market to afford to keep it up. Then Mark wins the three million-dollar lottery! Joe reads this in the newspaper and that afternoon makes a contract with Sharon to sell the property. Is the contract valid?
A) No, the agency terminated because of the change in conditions.
B) No, the agent has no right to sell without consent.
C) Yes, Mark would have to notify Joe if he wanted to stop the sale.
D) Yes, Joe had apparent authority to sell.

Accepted Answer

The answer of Mark hires Joe's real estate agency to...

Question 11

When is an agency relationship irrevocable?
A) It is never irrevocable.
B) When the agency is coupled with an interest of the agent in the subject matter.
C) When the principal violates his duties to the agent.
D) When the agent is a fiduciary.

Accepted Answer

An agency relationship is irrevocable when it is coupled with an interest, meaning the agent has a personal interest in the subject matter of the agency beyond just earning a commission or fee.

Question 12

All of the following except which one is a duty of an agent?
A) Account for money received on behalf of his principal.
B) Inform his principal of any information relevant to his agency.
C) Refrain from competing with his principal.
D) After the agency is terminated, refrain from using any information gained while an agent.

Accepted Answer

After the agency is terminated, the agent is generally not bound by duties such as refraining from using information gained during the agency, unless there is a specific agreement or legal obligation to maintain confidentiality.

Question 13

A durable power of attorney differs from a power of attorney in that the durable power of attorney:
A) is a formal written instrument, whereas the power of attorney may be informal and oral.
B) must follow a standardized form set forth in the federal Uniform Durable Power of Attorney Act.
C) becomes effective upon the principal's subsequent incapacity or the agent's authority is not affected by the principal's subsequent incapacity.
D) is governed by Article 3 of the UCC.

Accepted Answer

A durable power of attorney remains effective even if the principal becomes incapacitated, unlike a regular power of attorney which typically becomes void if the principal loses capacity.

Question 14

Carson, who is an agent for Peter, breaches his fiduciary duty to Peter. Carson:
A) is liable to Peter for breach of contract.
B) is liable to Peter in tort for any losses caused by the breach.
C) must make restitution for any profits or property received in breach of this duty.
D) All of these are correct.

Accepted Answer

Carson, as an agent, has a fiduciary duty to act in the best interest of Peter, the principal. Breaching this duty can result in liability for breach of contract, tort liability for any losses caused, and the requirement to make restitution for any profits or property received due to the breach.

Question 15

Lewis employs Donna under a one-year contract to sell Lewis's line of leather wallets and checkbook covers. If without Donna's knowledge, Lewis dies:
A) under the Second Restatement, Donna's actual authority will not terminate until the end of the one-year contractual term.
B) under the Second Restatement, Donna's actual authority will not terminate until she has notice of Lewis's death.
C) under the Third Restatement, Donna's actual authority will not terminate until she receives notice of Lewis's death.
D) under both the Second and Third Restatements, Donna's actual authority will terminate at either the end of her one-year contractual term or when she receives notice of Lewis's death, whichever occurs first.
E) under both the Second and Third Restatements, Donna's actual authority will terminate upon Lewis's death, whether she has notice or not.

Accepted Answer

Under the Third Restatement, an agent's actual authority does not terminate until the agent receives notice of the principal's death.

Question 16

Steven is a manufacturer's representative for Incell Corporation. One day he receives a big-screen television as a gift from one of the clients he contacts on behalf of Incell.
A) Steven must account to Incell for the gift he has received.
B) The big-screen television belongs to Incell rather than to Steven.
C) If he keeps the TV without telling Incell, he will have breached his fiduciary duty.
D) All of these are correct.

Accepted Answer

Steven, as a representative, has a fiduciary duty to Incell. Accepting a gift from a client could create a conflict of interest, and he must disclose it to Incell. The TV could be considered Incell's property, and failing to report it breaches his duty.

Question 17

Carl loans Dan $1,500 for Dan's honeymoon. Dan gives Carl his ruby ring as security for the loan and after a year, tells Carl he may as well sell it to recoup the $1,500. When Dan's wife hears of this, she persuades Dan to call Carl and get back the ring. Can Carl sell it anyway?
A) Yes, because Carl has apparent authority.
B) Yes, because Carl has an express agency.
C) No, Carl's authority has been revoked.
D) Yes, because Dan cannot terminate this agency except by discharging the obligation.

Accepted Answer

The answer of Carl loans Dan $1,500 for Dan's honeymoon....

Question 18

An agent is not required to keep which of the following information confidential?
A) Unique business methods.
B) Customer lists.
C) Information that his or her principal is engaged in criminal activity.
D) Business plans.

Accepted Answer

An agent is not required to keep information confidential if it involves the principal engaging in criminal activity, as this may be against legal and ethical obligations.

Question 19

A principal has no duty to compensate his or her agent if:
A) the agent breached the duty of obedience.
B) the agent breached the duty of loyalty.
C) it is a gratuitous agency.
D) All these are correct.

Accepted Answer

A principal has no duty to compensate his or her agent if the agent breached the duty of obedience, breached the duty of loyalty, or if it is a gratuitous agency.

Question 20

Which of the following is not a breach of an agent's duty of obedience?
A) Entering into an unauthorized contract for which his or her principal is then liable.
B) Committing a tort for which the principal is now liable.
C) Improperly delegating her authority.
D) Not following a principal's instruction to misrepresent the quality of a competitor's goods to a potential customer.

Accepted Answer

An agent's duty of obedience requires following lawful instructions. Not following an instruction to misrepresent is not a breach because the instruction itself is unethical and potentially illegal.

Quiz 28: Relationship of Principal and Agent

a. What is a fiduciary? b. What are the implications of an agent's fiduciary obligation? What is an agent prohibited from doing as a result of this obligation? Explain.

The contractual duties owed by a principal to an agent are the duties of:

A gratuitous agent:

An agent may lose the right to compensation:

Bob owns a business delivering coffee and donuts within the downtown area of the city. Smith Co. calls him to deliver a large quantity of his products to their local office. While taking a coffee urn through the Smith Co.'s office, Bob drops it on Lester, scalding him. Who is liable?

The concept of conflict of interest as it relates to the law of agency includes which of the following?

Mark (age 16) appoints Joe (age 21) as his agent to purchase a digital camcorder from Electronic World. The transaction is:

Which of the following agents would not have authority to contract with third parties on behalf of the principal?

Carolyn, a cashier at Tops Supermarkets, may cash checks for up to $20 over a purchase amount. A friend needs money for a dress so Carolyn cashes a check for $50 with no purchase. The check bounces. Carolyn is:

When is an agency relationship irrevocable?

All of the following except which one is a duty of an agent?

A durable power of attorney differs from a power of attorney in that the durable power of attorney:

Carson, who is an agent for Peter, breaches his fiduciary duty to Peter. Carson:

Lewis employs Donna under a one-year contract to sell Lewis's line of leather wallets and checkbook covers. If without Donna's knowledge, Lewis dies:

Steven is a manufacturer's representative for Incell Corporation. One day he receives a big-screen television as a gift from one of the clients he contacts on behalf of Incell.

Carl loans Dan $1,500 for Dan's honeymoon. Dan gives Carl his ruby ring as security for the loan and after a year, tells Carl he may as well sell it to recoup the $1,500. When Dan's wife hears of this, she persuades Dan to call Carl and get back the ring. Can Carl sell it anyway?

An agent is not required to keep which of the following information confidential?

A principal has no duty to compensate his or her agent if:

Which of the following is not a breach of an agent's duty of obedience?