978-1133019145 Chapter 1 Solution Manual

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CHAPTER 1

Agency Concepts and Definitions

THEME

Because agency law is so fundamental to the

transaction of business by corporations and all

other types of business organizations, this first

chapter provides an overview of agency con-

cepts and an introduction to agency law as it

relates to business organizations.

CHAPTER GOAL

The goal of this chapter is for students to be-

come familiar with the following terms and

topics concerning agency law:

• Agency, agent, and principal, and other

basic terms concerning the agency relation-

ship

• Elements of an agency agreement

• Differences between an employee and an

independent contractor

• Power-of-attorney purposes

• Agency agreement creation

• Liability of the principal for the acts of the

agent

• Agent’s liability to third parties when acting

in his or her capacity as an agent

• Agency relationship termination

• The individuals and/or entities that act as

principal(s) and agent(s) for each of the

various types of business organizations

SUGGESTED APPROACH

Class discussions concerning this chapter may

involve several examples of agency relation-

ships with which students may be familiar or

involved in. They can be asked about different

situations in which they have acted for another

or had another act on their behalf, then examine

the circumstances to determine if an agency re-

lationship existed.

LECTURE NOTES

Agency Concepts and Definitions

1. When one person acts on behalf of another

or on behalf of a business organization, an

agency relationship is formed.

2. The agent is the person acting on behalf of

the principal.

3. A general agent has authority to transact all

business of the principal, all business of a

particular kind, all business at a particular

place, or all acts connected with a particular

employment or business.

4. A special agent has authority to do one or

more specific acts in accordance with in-

structions from the principal.

5. If an employer has the right to control the

manner in which an agent performs his or

her work, that agent is likely an employee

and not an independent contractor.

6. A power of attorney is created by a written

document that authorizes another (the at-

torney in fact) to act as one’s agent. A

power of attorney is usually required to

transfer real estate on behalf of another.

7. A durable power of attorney provides that

the authority granted to the attorney in fact

will continue even after the incapacity of

the person granting the power of attorney.

Agency Creation

8. The elements of an agency relationship in-

clude the following:

• Consent of the parties

• Capacity of the parties to act

• No required written agreement

• No required exchange of

consideration

• Formation of the agency for a proper

purpose

CHAPTER 1 Agency Concepts and Definitions 3

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9. An agency agreement can be created by the

following:

• Express agreement (either verbal or

written)

• Implied agreement (the intent and ac-

tions of the parties)

• The conduct of the principal and agent

• Ratification

• Estoppel

Agency Relationship

10. The agent’s authority is the agent’s power

to act on behalf of the principal in accord-

ance with the principal’s

consent.

11. The agent may have actual authority or

apparent authority.

12. The agent’s actual authority may be:

• Express authority

• Implied authority

• Authority incidental to express authori-

• Authority implied because of emergen-

13. Apparent authority to do a specific act can

be created by the actions of the principal—

either by written or spoken word, or by the

principal’s conduct.

14. The elements of apparent agency include:

(1) acts or conduct of the principal causing

a third party to believe the agent has au-

thority to act on behalf of the principal; (2)

reliance on that belief by a third party.

15. The agent and principal owe certain duties

to each other.

Principal’s Liability to Third Parties

16. The principal is usually liable for acts con-

ducted by an authorized agent.

17. The principal is liable under contracts made

on the principal’s behalf by an authorized

agent.

18. Under the doctrine of respondeat superior,

an employer is responsible for the torts

committed by his or her employee while

the employee is acting in the scope of his or

her employment by the principal.

Agent’s Liability to Third Parties

19. Agents are personally liable for their torts.

Under certain circumstances, the principal

may also be liable for torts committed by

the agent.

Agency Termination

20. The agency may be terminated pursuant to

the terms of the agency contract, the ful-

fillment of the agency purpose, by the

death or bankruptcy of either the principal

or agent, or by the act of the principal and

agent or either one of them.

Agency and Business Organizations

21. A sole proprietor may hire employees to

serve as agents.

22. In a partnership, partners act as agents for

the partnership and for each other.

23. In limited partnerships, the general partners

act as agents for the partnership and the

other partners.

24. Either members or managers are agents of

limited liability companies.

25. Officers and directors act as agents of cor-

porations.

The Paralegal’s Role

A basic understanding of agency law will bene-

fit paralegals who work in nearly every area of

law. An understanding of agency law will help

paralegals who need to understand contracts and

litigation that clients may be involved in. Some

specific tasks related to agency law that may be

assigned to corporate paralegals include review-

ing and drafting powers of attorney, employ-

ment agreements, and other contracts that may

involve an agency relationship.

Resources

Important resources for paralegals who are

working in areas related to agency law include

agency treatises, especially the Restatement of

4 PART I Guide for Instructors and Answers to Chapter Review Questions

service or otherwise on a password-protected website for classroom use.

the Law—Agency 3d. There are also several

online resources that can provide valuable in-

formation on agency law.

1. What is the difference between a general

agent and a special agent?

A general agent has the authority to

transact all business of the principal, all

business of a particular kind, all business

at a particular place, or all acts connect-

2. Suppose you give your friend some cash

and ask her to pick up a video for you at

the video rental store. Has an agency rela-

tionship been created?

Yes

Discuss each of the elements of an agency

relationship as they relate to this situation.

Consent: If you ask and your friend

have capacity to act.

3. Can an agency relationship be created

without a written agreement?

Yes

What if the agent is asked to sell a parcel of

land for the principal?

4. Can an agency relationship be created if

the principal does not pay the agent to act

on her behalf?

5. Suppose that before a horse race, the owner

of one of the horses, the trainer, and a race-

horse investor are all having a conversa-

tion. The trainer offers to sell the racehorse

to the investor for $10,000 (in the owner’s

presence, and without her objection). The

race, the owner refuses to sell, stating that

the trainer was not acting on her behalf and

had no authority to sell the horse. Is the

owner correct?

What type of authority, if any, does the

trainer have?

The trainer had apparent authority to

act on behalf of the owner when the

Does the investor have any right to pur-

6. What duties does an agent owe the princi-

pal?

An agent owes the principal the duty to

perform and perform with reasonable

care. The agent also owes a fiduciary du-

CHAPTER 1 Agency Concepts and Definitions 5

service or otherwise on a password-protected website for classroom use.

7. Under what circumstances may a principal

be liable for torts committed by her agent?

The principal may be liable under the

doctrine of respondeat superior if the

agent committed the tort while acting in

8. What is respondeat superior?

Respondeat superior is the doctrine that

provides that an employer who retains

control over the manner in which the

agent performs her duties has vicarious

9. Who are the agents for a general partner-

ship?

10. Who are the agents for a corporation?

SUGGESTED ANSWER TO PRAC-

TICAL PROBLEM

The practical problem in this chapter asks the

students to prepare a power of attorney, granting

a fictitious brother the authority to handle the

student’s affairs while the student is out of the

country for six months. Students should prepare

a general power of attorney based on the forms

provided in the text or found online specifically

for your state. You may want to provide a sam-

ple from your state if the requirements vary sig-

nificantly from those in the text.

EXERCISE IN CRITICAL

THINKING

The Exercise in Critical Thinking in each chap-

ter asks students to think beyond the materials

they have learned and consider the reasons for

certain corporate and business organization laws

and established policies procedures, and to con-

sider their possible flaws. These exercises may

be good fuel for class discussion or themes for

student essays. There will, of course, be no right

ment that is often prepared quite routinely in

corporate law offices.

Exercise:

Attorneys often prepare power-of-

attorney documents as a matter of

convenience for their clients. What

What consideration must be given

concerning the individual named as

attorney in fact?

concerning the scope of powers

granted in the power of attorney?

WORKPLACE SCENARIO

The Workplace Scenarios at the end of each

chapter ask students to put themselves in the

place of a paralegal who works for a small law

firm specializing in corporate law. Students are

asked to put to use what they have learned in the

preceding material of the chapter by completing

assignments of the type often given to corporate

paralegals. Students will complete their assign-

ments based on a set of facts given in the Work-

place

Scenario and client data information given in

Appendix B in the text. At times, students will

need to create some of their own facts in order

to complete their assignments. The purpose of

these Workplace Scenarios is for students to be-

come familiar with the type of assignments re-

6 PART I Guide for Instructors and Answers to Chapter Review Questions

service or otherwise on a password-protected website for classroom use.

ceived by paralegals, the proper documents and

forms to be used in their home states, and the

procedures for filing documents (when

necessary).

The Workplace Scenario for Chapter 1

asks students to prepare a special power-of-

attorney document for a new client by the name

of Bradley Harris to be given to a friend of his,

Cynthia Ann Lund, so that she may take care of

his business while he is in the hospital recover-

ing from surgery. Sample documents for several

of the Workplace Scenarios throughout the text

may be found in the appendices to this Instruc-

tor’s Manual. See Appendix A for a sample spe-

cial power of attorney for this chapter.