978-0538496902 Chapter 21

Unlock access to all the studying documents.

View Full Document

STUDENT ______________________________________ CLASS _______________________ DATE __________

ȱLESSONȱ21—1ȱQUIZȱ

LegalȱConceptsȱ

Directions:ȱFillȱinȱtheȱblank(s)ȱwithȱtheȱmostȱappropriateȱtermȱorȱphraseȱtoȱcompleteȱ

theȱsentence.ȱȱȱȱȱ

ȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱAnswersȱ

1.ȱ ȱȱȱȱȱȱȱȱ?ȱȱȱȱȱȱȱauthorityȱisȱdirectlyȱcommunicatedȱbyȱ

theȱprincipalȱtoȱtheȱagent.ȱ

1.ȱ_____________________ȱ

2.ȱ ȱȱȱȱȱȱȱȱ?ȱȱȱȱȱȱȱauthorityȱisȱtheȱpowerȱtoȱdoȱanythingȱ

thatȱisȱreasonablyȱnecessaryȱtoȱcarryȱoutȱtheȱduȬ

tiesȱexpresslyȱauthorized.ȱ

2.ȱ_____________________ȱ

3.ȱTheȱprincipal,ȱwithȱknowledgeȱorȱthroughȱnegliȬ

gence,ȱpermitsȱtheȱagentȱtoȱassumeȱȱȱȱȱȱȱȱȱ?ȱȱȱȱȱȱȱȱȱ

authority.ȱȱ

3.ȱ_____________________ȱ

4.ȱ ȱȱȱȱȱȱȱȱ?ȱȱȱȱȱȱȱauthorityȱisȱcreatedȱwhenȱaȱprincipalȱ

authorizesȱanȱagentȱtoȱrepresentȱtheȱprincipal.ȱ

4.ȱ_____________________ȱ

5.ȱApparentȱauthorityȱmustȱalwaysȱcomeȱfromȱtheȱ

ȱȱȱȱȱȱȱȱ?ȱȱȱȱȱȱ‘sȱwordsȱorȱconduct.ȱ

5.ȱ_____________________ȱ

6.ȱToȱprotectȱtheȱpublic,ȱallȱstatesȱrequireȱthatȱ

agentsȱinȱoccupationsȱsuchȱasȱlaw,ȱrealȱestate,ȱ

andȱinsuranceȱbeȱȱȱȱȱȱȱȱȱ?ȱȱȱȱȱȱȱ.ȱȱ

6.ȱ_____________________ȱ

7.ȱAnyȱwritingȱthatȱappointsȱsomeoneȱasȱanȱagentȱ

isȱcalledȱa(n)ȱȱȱȱȱȱȱȱȱ?ȱȱȱȱȱȱ.ȱ

7.ȱ_____________________ȱ

8.ȱAnȱagentȱmustȱactȱwithinȱtheȱgrantedȱȱȱȱȱȱȱȱȱ?ȱȱȱȱȱȱȱȱ

8.ȱ_____________________ȱ

9.ȱTheȱapprovalȱofȱanȱactȱoutsideȱtheȱagent’sȱscopeȱ

ofȱauthorityȱisȱcalledȱȱȱȱȱȱȱȱȱ?ȱȱȱȱȱȱ.ȱ

9.ȱ_____________________ȱ

LegalȱApplicationsȱ

10.ȱTheȱBradysȱplanȱtoȱgoȱonȱanȱextendedȱvacation.ȱTheyȱhaveȱaskedȱtheirȱtrustworȬ

thyȱneighbor,ȱFrankȱBillings,ȱtoȱcareȱforȱtheirȱdogs,ȱcollectȱtheirȱmail,ȱandȱmowȱ

theirȱlawn.ȱTheȱBradysȱhaveȱgivenȱFrankȱoneȱofȱtheirȱcreditȱcardsȱtoȱmakeȱanyȱ

necessaryȱpurchasesȱwhileȱtheyȱareȱgone.ȱTwoȱweeksȱafterȱtheyȱleaveȱhome,ȱaȱ

severeȱthunderstormȱcausesȱaȱlengthyȱpowerȱoutage.ȱFrankȱusesȱtheȱcreditȱcardȱ

toȱbuyȱaȱsmallȱgeneratorȱinȱorderȱtoȱsaveȱtheȱcontentsȱofȱtheȱBrady’sȱwellȬstockedȱ

freezer.ȱWhatȱformȱofȱauthorityȱisȱFrankȱusing?ȱ

11.ȱSupposeȱaȱpavingȱcompanyȱcomesȱalongȱandȱoffersȱaȱbargainȱpriceȱforȱpavingȱ

drivewaysȱinȱFrank’sȱneighborhood.ȱFrankȱhasȱheardȱMr.ȱBradyȱsayȱheȱwouldȱ

likeȱhisȱdrivewayȱpaved.ȱIfȱFrankȱusesȱtheȱcreditȱcardȱtoȱpayȱforȱtheȱpaving,ȱ

wouldȱheȱbeȱactingȱwithinȱtheȱscopeȱofȱhisȱauthority?ȱExplainȱyourȱanswer.ȱ

12.ȱLindaȱJamesȱworksȱatȱHungryȱJose’sȱMexicanȱrestaurant.ȱSheȱworksȱasȱaȱcashierȱȱ

duringȱbusinessȱhoursȱandȱcleansȱtheȱdiningȱareaȱafterȱbusinessȱhours.ȱIsȱLindaȱ

anȱemployeeȱorȱanȱagentȱwhenȱsheȱisȱcleaningȱtheȱrestaurant?ȱExplainȱyourȱanȬ

5-2 Chapter 21 Agency Law

STUDENT ______________________________________ CLASS _______________________ DATE __________

ȱLESSONȱ21—1ȱPRACTICEȱACTIVITYȱ

Readȱtheȱfollowingȱcasesȱandȱanswerȱtheȱquestionsȱaboutȱthem.ȱAttachȱaȱpageȱifȱadditionalȱ

spaceȱisȱneededȱforȱanswers.ȱ

1.ȱTheȱMarklandsȱrequestedȱaȱtravelȱagent,ȱTravelȱTravel,ȱtoȱarrangeȱaȱfamilyȱvacaȬ

tionȱforȱthemȱtoȱtheȱVirginȱIslands.ȱTravelȱTravelȱmadeȱarrangementsȱforȱthemȱ

onȱEasternȱAirlinesȱandȱFlyfaireȱVacations,ȱaȱsubsidiaryȱofȱEastern.ȱTheȱMarkȬ

surance.ȱTravelȱTravelȱarguedȱthatȱitȱwasȱnotȱresponsibleȱforȱtheȱMarklands’ȱlossȱ

andȱthatȱtheyȱfoundȱoutȱaboutȱEastern’sȱbankruptcyȱtheȱsameȱtimeȱasȱtheȱMarkȬ

landsȱdid.ȱTravelȱTravelȱalsoȱpointedȱtoȱaȱclauseȱinȱitsȱcontractȱthatȱsaidȱitȱwasȱ

notȱresponsibleȱforȱanyȱbreachȱbyȱtheȱairlines.ȱAsȱanȱagentȱofȱtheȱMarklands,ȱwasȱ

TravelȱTravelȱliableȱforȱtheȱloss?ȱExplain.ȱ[Marklandȱv.ȱTravelȱTravelȱSouthfield,ȱ

2.ȱOliverȱWendellȱHolmes,ȱtheȱfamousȱlawyer,ȱdiedȱwhileȱpilotingȱaȱplane.ȱ

Holmes’ȱwife,ȱGladys,ȱsuedȱContinentalȱCasualtyȱCompanyȱwhenȱContinentalȱ

refusedȱtoȱpayȱtheȱproceedsȱofȱanȱallegedȱaccidentȱandȱhealthȱinsuranceȱpolicyȱ

insuringȱherȱhusbandȱwhileȱflyingȱasȱaȱpilot.ȱSheȱclaimedȱthatȱcoverageȱwasȱinȱ

forceȱasȱtheȱresultȱofȱanȱoralȱbinderȱenteredȱintoȱwithȱherȱhusbandȱbyȱtheȱcomȬ

issued,ȱtoȱwhichȱtheȱanswerȱwasȱyes.ȱSecond,ȱtwoȱotherȱpoliciesȱthatȱHolmesȱhadȱ

signedȱaskedȱtheȱsameȱquestionȱandȱreceivedȱtheȱsameȱanswer.ȱWasȱthereȱapȬ

parentȱauthorityȱhereȱforȱtheȱagentȱtoȱbindȱContinental?ȱExplain.ȱ[Continentalȱ

CasualtyȱCompanyȱv.ȱHolmes,ȱ266ȱF.ȱ2dȱ269ȱ(Ala.ȱ1959)]ȱ

Chapter 21 Agency Law 5-3

STUDENT ______________________________________ CLASS _______________________ DATE __________

ȱLESSONȱ21—1ȱRETEACHȱ

Directions:ȱWriteȱtheȱanswersȱtoȱQuestionsȱ1–8ȱonȱtheȱblanksȱprovided.ȱTheȱanswerȱ

toȱQuestionȱ9ȱshouldȱappearȱinȱtheȱverticalȱboxes.ȱ

ȱȱ ȱȱ9.ȱ

1.ȱȱ ȱ__ȱ__ȱ__ȱ__ȱ__ȱ

3.ȱȱ __ȱ__ȱȱ__ȱ__ȱ__ȱ__ȱ

5.ȱȱ __ȱ__ȱ__ȱȱ__ȱ__ȱ__ȱ

7.ȱ ȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱ__ȱ__ȱȱ__ȱ__ȱ__ȱ__ȱȱ__ȱ__ȱ

8.ȱȱ __ȱ__ȱ__ȱȱ__ȱ__ȱ__ȱ__ȱ__ȱ__ȱ

1.ȱAuthorityȱthatȱisȱcreatedȱwhenȱaȱprincipalȱauthorizesȱanȱagentȱtoȱrepresentȱtheȱ

principalȱ

2.ȱWritingȱthatȱappointsȱsomeoneȱasȱanȱagentȱȱ

3.ȱAuthorityȱthatȱisȱtheȱpowerȱtoȱdoȱanythingȱthatȱisȱreasonablyȱnecessaryȱtoȱcarryȱ

outȱtheȱdutiesȱexpresslyȱauthorizedȱ

4.ȱApprovalȱofȱaȱpreviouslyȱunauthorizedȱactȱȱ

5.ȱTypeȱofȱauthorityȱthatȱisȱdirectlyȱcommunicatedȱbyȱtheȱprincipalȱtoȱtheȱagentȱ

6.ȱSituationȱinȱwhichȱimpliedȱauthorityȱmayȱbeȱexpandedȱ

7.ȱApparentȱauthorityȱmustȱalwaysȱcomeȱfromȱaȱprincipal’sȱwordsȱorȱ__________.ȱ

8.ȱTheȱrangeȱofȱactsȱauthorizedȱbyȱtheȱprincipalȱisȱtheȱscopeȱofȱ__________.ȱ

9.ȱAuthorityȱthatȱisȱcreatedȱwhenȱaȱprincipalȱleadsȱtheȱthirdȱpartyȱtoȱreasonablyȱ

believeȱthatȱaȱparticularȱpersonȱhasȱagencyȱauthorityȱ

5-4 Chapter 21 Agency Law

STUDENT ______________________________________ CLASS _______________________ DATE __________

ȱLESSONȱ21—1ȱENRICHMENTȱ

Thisȱlessonȱdiscussedȱtheȱoverviewȱofȱagencyȱandȱtheȱscopeȱofȱagencyȱauthority.ȱAnȱ

agentȱmustȱbeȱableȱtoȱunderstandȱtheȱtransactionȱenteredȱintoȱonȱbehalfȱofȱtheȱprinȬ

cipal.ȱThus,ȱtoȱprotectȱtheȱpublic,ȱallȱstatesȱrequireȱthatȱagentsȱinȱcertainȱoccupationsȱ

beȱlicensed.ȱLicensingȱisȱoftenȱrequiredȱofȱauctioneers,ȱinsuranceȱagents,ȱlawyers,ȱ

stockbrokers,ȱcertifiedȱpublicȱaccountants,ȱandȱrealȱestateȱbrokers.ȱReviewȱtheȱlicensȬ

ingȱrequirementsȱforȱoneȱofȱtheseȱprofessions—orȱanotherȱthatȱrequiresȱlicensing—

andȱanswerȱtheȱquestionsȱbelow.ȱ

1.ȱBeforeȱobtainingȱaȱlicense,ȱwhatȱtypeȱofȱeducationȱisȱrequired?ȱ

2.ȱDoesȱtheȱlicensingȱinvolveȱpassingȱaȱprofessionalȱexaminationȱand/orȱhavingȱaȱ

specificȱamountȱofȱworkȱexperience?ȱ

3.ȱHowȱmuchȱdoesȱtheȱlicenseȱcostȱandȱhowȱoftenȱmustȱitȱbeȱrenewed?ȱ

4.ȱIsȱtheȱlicenseȱtransferableȱbetweenȱstates?ȱ

STUDENT ______________________________________ CLASS _______________________ DATE __________

ȱLESSONȱ21—2ȱQUIZȱ

LegalȱConceptsȱ

Directions:ȱFillȱinȱtheȱblank(s)ȱwithȱtheȱmostȱappropriateȱtermȱorȱphraseȱtoȱcompleteȱ

theȱsentence.ȱ

ȱȱ Answersȱ

1.ȱ ȱȱȱȱȱȱȱȱ?ȱȱȱȱȱȱȱȱareȱtheȱlegalȱrequirementsȱforȱcertainȱ

categoriesȱofȱpersons,ȱsuchȱasȱagents,ȱtoȱsubȬ

ordinateȱtheirȱpersonalȱinterestȱinȱorderȱtoȱactȱ

forȱtheȱbenefitȱofȱanotherȱperson.ȱ

1._______________________ȱ

2.ȱAnȱagent’sȱcoreȱdutiesȱareȱthoseȱofȱȱȱȱȱȱȱȱȱ?ȱȱȱȱȱȱ.ȱ2._______________________ȱ

3.ȱTheȱseparateȱaccountsȱforȱtheȱfundsȱofȱprinciȬ

palsȱareȱcalledȱȱȱȱȱȱȱȱȱ?ȱȱȱȱȱȱ.ȱ

3._______________________ȱ

4.ȱTheȱdutyȱofȱȱȱȱȱȱȱȱȱ?ȱȱȱȱȱȱȱrequiresȱtheȱagentȱtoȱexȬ

erciseȱtheȱdegreeȱofȱskillȱandȱcareȱthatȱaȱreaȬ

sonablyȱprudentȱpersonȱwouldȱuseȱinȱaȱsimilarȱ

situation.ȱ

4._______________________ȱ

5.ȱ ȱȱȱȱȱȱȱȱ?ȱȱȱȱȱȱȱisȱmixingȱtheȱfundsȱorȱpropertyȱofȱtheȱ

5._______________________ȱ

6.ȱTheȱdutyȱofȱȱȱȱȱȱȱȱȱ?ȱȱȱȱȱȱȱmeansȱthatȱtheȱagentȱ

mayȱnotȱsecretlyȱbenefitȱfromȱtheȱagencyȱ

transaction.ȱ

6._______________________ȱ

7.ȱTheȱdutyȱofȱȱȱȱȱȱȱȱȱ?ȱȱȱȱȱȱȱrequiresȱtheȱagentȱtoȱ

treatȱinformationȱaboutȱtheȱprincipalȱwithȱ

greatȱcaution.ȱ

7._______________________ȱ

8.ȱAgentsȱmayȱneitherȱbuyȱfromȱnorȱsellȱtoȱtheirȱ

ȱȱȱȱȱȱȱȱ?ȱȱȱȱȱȱȱorȱtheirȱȱȱȱȱȱȱȱȱ?ȱȱȱȱȱȱȱwithoutȱapprovalȱ

fromȱtheirȱprincipals.ȱ

8._______________________ȱ

9.ȱAnȱagentȱisȱrequiredȱtoȱȱȱȱȱȱȱȱȱ?ȱȱȱȱȱȱȱtoȱtheȱprinciȬ

palȱanyȱinformationȱthatȱwouldȱaffectȱtheȱprinȬ

cipal’sȱdecisions.ȱ

9._______________________ȱ

10.ȱTheȱȱȱȱȱȱȱȱȱ?ȱȱȱȱȱȱȱrequiresȱanȱagentȱtoȱaccountȱtoȱ

theȱprincipalȱforȱallȱmoneyȱandȱpropertyȱofȱtheȱ

principalȱthatȱcomesȱintoȱtheȱagent’sȱpossesȬ

sion.ȱ

10._______________________ȱ

LegalȱApplicationȱ

11.ȱLashondaȱSandersȱagreedȱtoȱrepresentȱAllenȱGrimmȱinȱsellingȱhisȱhome.ȱAllenȱ

toldȱLashondaȱthatȱtheȱroofȱofȱhisȱhouseȱleakedȱduringȱhardȱrainstorms.ȱHeȱ

askedȱherȱnotȱtoȱdiscloseȱthisȱinformationȱtoȱpotentialȱbuyers.ȱWhatȱshouldȱȱ

ȱLashondaȱdoȱinȱthisȱcase?ȱExplainȱyourȱanswer.ȱ

12.ȱȱ PedroȱhiredȱJeffreyȱasȱhisȱagentȱforȱtheȱpurposeȱofȱbuyingȱaȱpieceȱofȱpropertyȱ

thatȱwasȱtoȱbeȱPedro’sȱhomeȱafterȱheȱreturnedȱfromȱhisȱmilitaryȱduty.ȱForȱthisȱ

Pedroȱbackȱtheȱ$25,000ȱbeforeȱPedroȱevenȱknowsȱthatȱJeffreyȱborrowedȱtheȱ

money,ȱhasȱJeffreyȱviolatedȱanyȱdutyȱheȱowedȱtoȱPedro?ȱWhichȱone(s)?ȱExplainȱ

yourȱanswer.ȱ

Chapter 21 Agency Law 5-7

STUDENT ______________________________________ CLASS _______________________ DATE __________

ȱLESSONȱ21—2ȱPRACTICEȱACTIVITYȱ

Readȱtheȱfollowingȱcasesȱandȱanswerȱtheȱquestionsȱaboutȱthem.ȱAttachȱanȱadditionalȱpageȱforȱ

yourȱanswers.ȱ

1.ȱCherylȱSwitzerȱandȱGeorgeȱVincentȱenteredȱintoȱanȱagreementȱtoȱletȱEdgarȱ

WimmerȱactȱasȱtheirȱagentȱinȱpurchasingȱcommercialȱlandȱinȱVirginia.ȱAȱsuitableȱ

parcelȱofȱlandȱwasȱfoundȱbyȱWimmer,ȱandȱheȱagreedȱtoȱlookȱupȱtheȱowner’sȱ

nameȱandȱtryȱtoȱsecureȱtheȱpurchase.ȱWimmerȱadvisedȱSwitzerȱandȱVincentȱthatȱ

centȱthenȱsuedȱWimmerȱtoȱobtainȱtheȱpropertyȱfromȱhim,ȱallegingȱthatȱheȱheldȱitȱ

inȱconstructiveȱtrustȱforȱthemȱbecauseȱofȱhisȱfraud.ȱHeȱdefendedȱonȱtheȱgroundȱ

thatȱnoȱagencyȱwasȱformedȱbecauseȱthereȱwasȱnoȱwrittenȱagreement.ȱWillȱthisȱ

defenseȱbeȱeffective?ȱExplain.ȱ[HȬBȱLtd.ȱPartnershipȱv.ȱWimmer,ȱ257ȱS.E.ȱ2dȱ770ȱ

2.ȱSevierȱpurchasedȱaȱcarȱandȱwentȱtoȱseeȱHenderson,ȱaȱStateȱFarmȱagentȱinȱArkanȬ

sas,ȱtoȱapplyȱforȱinsurance.ȱTheȱapplicationȱwasȱapproved.ȱSevierȱthenȱmovedȱtoȱ

Oregon,ȱappliedȱforȱinsuranceȱandȱaȱnewȱpolicyȱwasȱissuedȱinȱOregon.ȱAȱfewȱ

monthsȱlater,ȱSevierȱwasȱinvolvedȱinȱanȱaccidentȱinȱwhichȱtwoȱpersonsȱwereȱ

killed.ȱStateȱFarmȱattemptedȱtoȱrescindȱtheȱpolicyȱandȱmailedȱbackȱtheȱpremiumsȱ

drunkȱdrivingȱinȱOregon,ȱwhichȱresultedȱinȱhisȱlicenseȱbeingȱsuspended.ȱHenȬ

dersonȱcontendedȱthatȱheȱdidȱnotȱknowȱofȱtheȱconvictionȱorȱsuspension.ȱWillȱ

StateȱFarmȱbeȱboundȱbyȱwhatȱitsȱagentȱHendersonȱknew?ȱExplain.ȱ[StateȱFarmȱ

5-8 Chapter 21 Agency Law

STUDENT ______________________________________ CLASS _______________________ DATE __________

ȱLESSONȱ21—2ȱRETEACHȱ

Directions:ȱWriteȱtheȱanswersȱtoȱQuestionsȱ1–9ȱonȱtheȱblanksȱprovided.ȱTheȱanswerȱ

toȱQuestionȱ10ȱshouldȱappearȱinȱtheȱverticalȱboxes.ȱ

ȱȱȱ 10.ȱ

1.ȱȱ ȱ__ȱ__ȱ__ȱ__ȱ__ȱ__ȱ

3.ȱȱ __ȱ__ȱ__ȱȱ__ȱ__ȱ__ȱ__ȱ__ȱ

5.ȱȱ ȱ__ȱ__ȱ__ȱ__ȱ__ȱ__ȱ__ȱ__ȱ__ȱ__ȱ

6.ȱȱ __ȱ__ȱ__ȱ__ȱȱ__ȱ__ȱ__ȱ__ȱ__ȱ__ȱ__ȱ__ȱ__ȱ__ȱ

7.ȱȱ __ȱ__ȱ__ȱ__ȱ__ȱȱ__ȱ__ȱ__ȱ__ȱ__ȱ__ȱ__ȱ

8.ȱȱ __ȱ__ȱȱ__ȱ__ȱ__ȱ__ȱ__ȱ__ȱ__ȱ__ȱ__ȱ

9.ȱȱ__ȱ__ȱ__ȱ__ȱ__ȱ__ȱȱ

1.ȱIncludedȱinȱtheȱgroupȱofȱpeopleȱtoȱwhomȱagentsȱmustȱnotȱbuyȱfromȱnorȱsellȱ

propertyȱorȱservicesȱwithoutȱdisclosureȱtoȱtheirȱprincipalsȱȱ

2.ȱMixingȱtheȱfundsȱorȱpropertyȱofȱtheȱprincipalȱandȱtheȱagentȱ

3.ȱOneȱofȱanȱagent’sȱcoreȱdutiesȱ

4.ȱDutyȱthatȱrequiresȱanȱagentȱtoȱaccountȱtoȱtheȱprincipalȱforȱallȱmoneyȱandȱpropȬ

ertyȱofȱtheȱprincipalȱthatȱcomesȱintoȱtheȱagent’sȱpossessionȱ

5.ȱAgentsȱmustȱ_____________anyȱinformationȱthatȱwouldȱaffectȱtheȱprincipal’sȱ

decisions.ȱ

6.ȱDutyȱthatȱrequiresȱanȱagentȱtoȱtreatȱinformationȱaboutȱtheȱprincipalȱwithȱgreatȱ

cautionȱ

8.ȱDutyȱthatȱrequiresȱanȱagentȱtoȱexerciseȱtheȱdegreeȱofȱskillȱandȱcareȱthatȱaȱreaȬ

sonablyȱprudentȱpersonȱwouldȱuseȱinȱaȱsimilarȱsituationȱ

9.ȱDutyȱthatȱmeansȱanȱagentȱmayȱnotȱsecretlyȱbenefitȱfromȱtheȱagencyȱtransactionȱ

10.ȱTheȱdutiesȱofȱloyalty,ȱcareȱandȱskill,ȱconfidentiality,ȱandȱaccountingȱareȱcalledȱȱ

ȱȱ

ȱduties.ȱ

Chapter 21 Agency Law 5-9

STUDENT ______________________________________ CLASS _______________________ DATE __________

ȱLESSONȱ21—2ȱENRICHMENTȱ

Thisȱlessonȱexpandedȱonȱtheȱfiduciaryȱdutiesȱofȱagentsȱtoȱtheirȱprincipals.ȱFiduciaryȱ

dutiesȱrequireȱthatȱtheȱagentȱserveȱtheȱbestȱinterestsȱofȱtheȱprincipal—theȱagentȱmustȱ

beȱhonestȱandȱshowȱgoodȱfaith.ȱTheȱlawȱrequiresȱfourȱfiduciaryȱdutiesȱowedȱbyȱ

agentsȱtoȱprincipals:ȱloyaltyȱandȱobedience,ȱreasonableȱcareȱandȱskill,ȱconfidentiality,ȱ

andȱaccounting.ȱInterviewȱsomeoneȱwhoseȱcareerȱinvolvesȱactingȱasȱanȱagentȱforȱanȬ

other—perhapsȱaȱrealȱestateȱagent,ȱaȱpurchasingȱagent,ȱanȱaccountant,ȱorȱaȱstockȬ

broker.ȱAskȱthisȱindividualȱtoȱshareȱwithȱyouȱexamplesȱofȱhowȱheȱorȱsheȱcarriesȱoutȱ

hisȱorȱherȱfiduciaryȱdutiesȱtoȱclients.ȱIndicateȱtheȱexamplesȱinȱeachȱofȱtheȱappropriateȱ

spacesȱbelow.ȱ

1.ȱLoyaltyȱandȱobedienceȱ

2.ȱReasonableȱcareȱandȱskillȱ

3.ȱConfidentialityȱ

4.ȱAccountingȱ

5-10 Chapter 21 Agency Law

STUDENT ______________________________________ CLASS _______________________ DATE __________

TESTȱ

CHAPTERȱ21

SECTION I—IDENTIFY LEGAL TERMS

Directions:ȱPlaceȱaȱTȱforȱTrueȱorȱanȱFȱforȱFalseȱinȱtheȱAnswersȱcolumnȱtoȱshowȱ

whetherȱeachȱofȱtheȱfollowingȱstatementsȱisȱtrueȱorȱfalse.ȱ

ȱȱ Answersȱ

ȱȱ1.ȱAȱpersonȱwhoȱdoesȱworkȱforȱpayȱunderȱtheȱsupervisionȱandȱ

controlȱofȱanotherȱpersonȱisȱanȱemployee.ȱ

1._______ȱ

ȱȱ2.ȱAllȱemployeesȱareȱalsoȱagents.ȱ2._______ȱ

ȱȱ3.ȱWhenȱaȱsalespersonȱmakesȱsalesȱcontractsȱwithȱcustomersȱforȱaȱ

businessȱowner,ȱanȱagencyȱexists.ȱ

3._______ȱ

ȱȱ4.ȱAgencyȱcanȱonlyȱbeȱusedȱinȱcontracting.ȱ4._______ȱ

ȱȱ5.ȱȱ Ifȱanȱagentȱactsȱoutsideȱtheȱscopeȱofȱauthority,ȱtheȱprincipalȱisȱ

stillȱbound.ȱ

5._______ȱ

ȱȱ6.ȱȱ PrincipalsȱareȱboundȱbyȱagreementsȱwithȱtheȱthirdȱpartiesȱexȬ

ceptȱforȱratifiedȱtransactions.ȱ

6._______ȱ

ȱȱ7.ȱTheȱprincipalȱisȱnotȱliableȱforȱanȱagent’sȱcrimeȱunlessȱitȱhadȱ

beenȱauthorizedȱorȱratified.ȱ

7._______ȱ

ȱȱ8.ȱTheȱagentȱisȱliableȱinȱaȱcontractȱwithȱanȱundisclosedȱprincipal.ȱ8._______ȱ

ȱȱ9.ȱȱ Whenȱtheȱprincipalȱvoluntarilyȱterminatesȱtheȱauthorityȱofȱtheȱ

agent,ȱtheȱprincipalȱshouldȱpromptlyȱnotifyȱthirdȱpersonsȱwhoȱ

haveȱpreviouslyȱdealtȱwithȱtheȱagent.ȱ

9._______ȱ

10.ȱMoneyȱofȱtheȱprincipalȱheldȱbyȱtheȱagentȱisȱusuallyȱdepositedȱinȱ

aȱtrustȱaccount.ȱ

10._______ȱ

SECTION II—THINK CRITICALLY ABOUT LEGAL CONCEPTS

Directions:ȱInȱtheȱAnswersȱcolumnȱatȱtheȱrightȱofȱeachȱstatement,ȱwriteȱtheȱletterȱthatȱ

representsȱtheȱword,ȱorȱgroupȱofȱwords,ȱthatȱcorrectlyȱcompletesȱtheȱstatement.ȱ

ȱȱ Answersȱ

ȱ11.ȱȱ TheȱrelationshipȱofȱagencyȱexistsȱwhenȱoneȱpersonȱhasȱtheȱauȬ

thorityȱtoȱ(a)ȱalterȱlegalȱrelations,ȱ(b)ȱcontrolȱandȱsupervise,ȱȱȱ

(c)ȱbothȱaȱandȱb,ȱ(d)ȱnoneȱofȱtheseȱ

11._______ȱ

ȱ12.ȱȱ Theȱpersonȱwhoȱauthorizesȱanotherȱinȱanȱagencyȱrelationshipȱisȱ

theȱ(a)ȱagent,ȱ(b)ȱemployee,ȱ(c)ȱprincipal,ȱ(d)ȱthirdȱpartyȱ

12._______ȱ

ȱ13.ȱȱ AnyȱagreementȱreachedȱbyȱtheȱrepresentativeȱinȱanȱagencyȱreȬ

lationshipȱbindsȱ(a)ȱtheȱagentȱandȱtheȱprincipal,ȱ(b)ȱtheȱagentȱ

andȱtheȱthirdȱparty,ȱ(c)ȱtheȱprincipalȱandȱtheȱthirdȱparty,ȱ(d)ȱtheȱ

employeeȱandȱtheȱthirdȱpartyȱ

13._______ȱ

14.ȱTheȱrangeȱofȱactsȱauthorizedȱbyȱtheȱprincipalȱisȱ(a)ȱtheȱfiduciaryȱ

duty,ȱ(b)ȱtheȱscopeȱofȱauthority,ȱ(c)ȱtheȱwarrantyȱofȱtheȱprinciȬ

pal’sȱcapacity,ȱ(d)ȱnoneȱofȱtheseȱ

14._______ȱ

15.ȱInjuriesȱfromȱactsȱoutsideȱtheȱscopeȱofȱauthorityȱcanȱbeȱrecovȬ

eredȱbyȱtheȱthirdȱpartyȱfromȱ(a)ȱtheȱagent,ȱ(b)ȱtheȱprincipal,ȱ(c)ȱ

bothȱaȱandȱb,ȱ(d)ȱnoneȱofȱtheseȱ

15._______ȱ

16.ȱTheȱpower,ȱbutȱnotȱtheȱright,ȱtoȱeliminateȱtheȱagencyȱatȱanyȱ

timeȱgoesȱtoȱ(a)ȱtheȱagent,ȱ(b)ȱtheȱprincipal,ȱ(c)ȱbothȱaȱandȱb,ȱ(d)ȱ

noneȱofȱtheseȱ

16._______ȱ

17.ȱAnȱagencyȱmayȱbeȱterminatedȱbyȱ(a)ȱanȱagreement,ȱ(b)ȱbankȬ

ruptcy,ȱ(c)ȱaȱchangeȱofȱlaw,ȱ(d)ȱallȱofȱtheseȱ

17._______ȱ

ȱȱ18.ȱIfȱaȱsalesȱagentȱdefraudsȱaȱcustomerȱinȱorderȱtoȱmakeȱaȱsale,ȱtheȱ

partyȱliableȱforȱtheȱresultingȱdamagesȱwouldȱbeȱ(a)ȱtheȱagent,ȱ

(b)ȱtheȱprincipal,ȱ(c)ȱbothȱaȱandȱb,ȱ(d)ȱnoneȱofȱtheseȱ

18._______ȱ

ȱȱ19.ȱTheȱagentȱbecomesȱpersonallyȱliableȱtoȱtheȱthirdȱpartyȱforȱȱȱ

resultingȱinjuryȱwhenȱ(a)ȱtheȱagentȱactsȱoutsideȱofȱtheirȱscopeȱofȱ

authority,ȱ(b)ȱtheȱprincipalȱratifiesȱtheȱtransaction,ȱ(c)ȱbothȱaȱ

andȱb,ȱ(d)ȱnoneȱofȱtheseȱ

19._______ȱ

20.ȱTheȱprincipalȱhasȱanȱobligationȱtoȱtheȱagentȱtoȱ(a)ȱpayȱwhatȱwasȱ

promised,ȱ(b)ȱreimburseȱexpenses,ȱ(c)ȱrepayȱanyȱlossȱsufferedȱ

dueȱtoȱtheȱprincipal’sȱinstructions,ȱ(d)ȱallȱofȱtheseȱ

20._______ȱ

SECTION III—APPLY LEGAL PRACTICES

21.ȱWhenȱSethȱneededȱanotherȱcar,ȱheȱaskedȱRalphȱtoȱfindȱoneȱforȱhimȱasȱheȱdidn’tȱ

feelȱqualifiedȱtoȱaskȱtheȱrightȱquestions.ȱRalphȱagreedȱtoȱdoȱitȱbutȱthenȱgotȱbusyȱ

andȱsentȱSteve.ȱIsȱSteveȱnowȱtheȱagentȱforȱSethȱorȱisȱSteveȱtheȱagentȱforȱRalph?ȱ

DoesȱSethȱhaveȱtheȱrightȱtoȱrejectȱwhatȱSteveȱchooses?ȱExplainȱyourȱanswer.ȱ

22.ȱMarielleȱcalledȱNaomiȱandȱaskedȱherȱtoȱgoȱtoȱtheȱfloristȱandȱpickȱoutȱaȱdishȱgarȬ

denȱandȱchargeȱitȱtoȱMarielle’sȱaccount.ȱNaomiȱwasȱthenȱtoȱtakeȱtheȱdishȱgardenȱ

toȱJosephȱatȱworkȱsoȱheȱcouldȱdropȱitȱoffȱatȱMarielle’sȱhouseȱonȱhisȱwayȱhomeȱ

fromȱwork.ȱWhatȱformsȱofȱagentȱauthorityȱwereȱcreatedȱforȱNaomiȱandȱJoseph?ȱ

permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

ANSWERS

Lessonȱ21—1ȱ

Quiz

5.ȱprincipalȱ

11.ȱFrankȱwouldȱnotȱbeȱusingȱhisȱimpliedȱauthorityȱproperly.ȱImpliedȱauthorityȱ

Practice Activity

1.ȱNo,ȱasȱanȱagentȱofȱtheȱMarklands,ȱTravelȱTravelȱwasȱnotȱliableȱforȱtheȱdamagesȱ

theȱMarklandsȱsuffered.ȱTheȱcourtȱawardedȱonlyȱtheȱreturnȱofȱtheȱ10%ȱcommisȬ

2.ȱNo,ȱthereȱwasȱnoȱapparentȱauthorityȱhere.ȱTheȱcourtȱsaidȱthatȱtheȱwrittenȱlimitaȬ

tionsȱonȱtheȱagent’sȱabilityȱtoȱbindȱContinental,ȱplusȱtheȱfactȱthatȱContinentalȱ

Reteach

5.ȱexpressȱ

Chapter 21 Agency Law

5-14

Enrichment Activity

Lessonȱ21—2ȱ

Quiz

11. LashondaȱdoesȱhaveȱaȱresponsibilityȱtoȱobeyȱAllen’sȱinstructions.ȱHowever,ȱsheȱ

12. Yes,ȱJeffreyȱviolatedȱhisȱfiduciaryȱdutyȱtoȱPedro.ȱEvenȱthoughȱheȱpaidȱPedroȱbackȱ

Practice Activity

1.ȱNo,ȱtheȱdefenseȱwillȱnotȱbeȱeffective.ȱTheȱcourtȱsaidȱthatȱwherebyȱWimmer,ȱanȱ

agent,ȱfraudulentlyȱandȱinȱbreachȱofȱfaithȱandȱconfidenceȱhadȱpropertyȱconȬ

veyedȱtoȱhimselfȱandȱmisledȱSwitzerȱandȱVincentȱintoȱbelievingȱtheȱsalesȱpriceȱ

2.ȱYes,ȱStateȱFarmȱisȱboundȱbyȱHenderson’sȱknowledge.ȱTheȱcourtȱfoundȱagainstȱ

Chapter 21 Agency Law 5-15

Reteach

3.ȱobedienceȱ

4.ȱaccountingȱ

7.ȱtrustȱaccountsȱ

8.ȱcareȱandȱskillȱ

Enrichment Activity

ANSWERS TO TEST QUESTIONS

SECTION I

SECTION II

SECTION III

21.ȱNoȱagencyȱrelationshipȱexisted,ȱasȱneitherȱRalphȱnorȱSteveȱhadȱcontractualȱauȬ

Chapter 21 Agency Law

5-16