Business Law Chapter 32 Homework Agency Formation Pages 628629 The Court

277

CHAPTER 32

AGENCY FORMATION AND DUTIES

ANSWERS TO QUESTIONS

AT THE ENDS OF THE CASES

CASE 32.1—QUESTION (PAGE 627)

WHAT IF THE FACTS WERE DIFFERENT?

Suppose that El Palmar had limited its driver to a set schedule in a specific area of the city and allowed

him to pick up only certain passengers. Would these facts have established Julaju as an employee? Why

or why not? These facts could be sufficient to establish Julaju as an employee in this case. They would

CASE 32.2—QUESTIONS (PAGE 629)

THE ECONOMIC DIMENSION

Which party benefited from the court’s ruling? Why? At the heart of this case was Laurel Creek’s desire

to arbitrate the negligence claim instead of having to defend against negligence in a lawsuit.

Economically, this makes sense from Laurel Creek’s perspective. After all, defending against a lawsuit is

a costly undertaking for a party, even if the party wins the suit. In contrast, arbitration is (usually) a less

expensive and less time-consuming process. Therefore, if the dispute could be settled through

arbitration, it would be to Laurel Creek’s advantage. From the Bishops’ perspective, however, if they

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THE LEGAL DIMENSION

Laurel Creek argued that even if there was no actual agency relationship, an implied agency relationship

existed. Is this argument valid? Why or why not? One could argue that the statements made by Gilbert

CASE 32.3—QUESTIONS (PAGE 633)

1A. Why was it unclear whether Ward’s pretermination actions constituted direct competition with

his employer or were mere planning activities? The court found it difficult to draw the line between

“mere preparation” and “active competition” in this case because of the nature of Taser’s business.

Taser was not just in the business of selling electronic devices, including audio/video devices, but also in

researching and developing such products. Coming up with ideas for new products was thus part of

Ward’s job at Taser. As Taser argued, Ward had been “developing a rival design during employment,

knowing full well Taser has sold such a device and continues to develop a second generation product.”

Thus, the question was not clear cut. In the eyes of the court, there were several questions of fact that

2A. Suppose that Ward’s planning and development efforts were focused on a product that in no

way would compete with Taser’s products. Would such efforts have breached his duty of loyalty to

Taser in any way? Explain fully. In these circumstances, assuming that Ward’s activities did not involve

CHAPTER 32: AGENCY FORMATION AND DUTIES 279

ANSWERS TO QUESTIONS IN THE REVIEWING FEATURE

AT THE END OF THE CHAPTER

1A. Agency relationship

Since Blatt hired Scott to assist in sales, Blatt is the principal and Scott is his agent. Both represent

Massachusetts Mutual Life, but that part of the relationship matters little here. Since Blatt hired Scott to

assist in sales, Blatt is the principal and Scott is his agent. Both represent Massachusetts Mutual Life, but

that part of the relationship matters little here.

2A. Key factor

4A. Principal’s duty

A principal has a duty to cooperate with an agent and to assist the agent in performing duties. The

principal must not take actions that prevent performance. Blatt made it more difficult for Scott to sell

Massachusetts Mutual Life policies.

ANSWER TO DEBATE THIS QUESTION IN THE REVIEWING FEATURE AT

THE END OF THE CHAPTER

All works created by independent contractors should be considered works for hire under

280 UNIT SEVEN: AGENCY AND EMPLOYMENT

ANSWERS TO QUESTIONS AND CASE PROBLEMS

AT THE END OF THE CHAPTER

32-1A. Agency formation

(Chapter 32—Pages 628–630)

Agency is usually a consensual relationship in that the principal and agent agree that the agent will have

the authority to act for the principal, binding the principal to any contract with a third party. If no

32-2A. QUESTION WITH SAMPLE ANSWER: Duty of loyalty

Upon creation of an agency, the agent owes certain fiduciary duties to the principal. Two such duties

are the duty of loyalty and the duty to inform or notify. The duty of loyalty is a fundamental concept of

the fiduciary relationship. The agent must act solely for the benefit of the principal, not in the agent’s

32-3A. Principal’s remedies against agent

(Chapter 32—Pages 633 & 635)

An agent owes fiduciary duties to the principal. Two such duties are the duty of obedience and the duty

to account. Because the agent is acting on behalf of the principal, it is only fitting that a duty be

32-4A. Agency formation

(Chapter 32—Pages 628–629)

The court held that Ford Motor could be sued in the jurisdiction in which the suit was filed, on the basis

that Ford Credit operated as the defendant’s agent there. Ford Motor appealed to the Missouri Supreme

32-5A. Agent’s duties to principal

(Chapter 32—Pages 631–633)

The court ruled in favor of the Daigles and awarded damages of more than $26,000. Trinity appealed to

a state intermediate appellate court, arguing in part that the acts by Diez that caused the harm to the

32-6A. Principal’s duties to agent

(Chapter 32—Page 634)

The court held in part that Boehm, as the principal, was bound to the stock purchase agreement (SPA)

under the principles of agency law and that Boehm had violated the principal’s duty of cooperation. The

32-7A. CASE PROBLEM WITH SAMPLE ANSWER: Agent’s duties to principal

Merrill and Warren were in an agency relationship in this case, with Merrill acting as Warren’s agent.

That relationship began when Merrill undertook to represent Warren in the purchase of the

32-8A. Agent’s duties to principal

(Chapter 32—Pages 631–633)

A basis for the objection to the admission of the testimony is that at the time of the statements about

which Frances would testify she was acting as Chen’s agent. As Chen’s agent, and without Chen’s

knowledge of Frances’s relationship to Chan or Chen’s consent to Frances’s acting in a dual capacity,

32-9A. Agency by ratification

(Chapter 32—Page 629)

To impose liability for the acts of one’s employees or agents under respondeat superior, some

relationship must exist between the principal and agent or between the employer and employee. Barrs’

32-10A. A QUESTION OF ETHICS: Agency formation and duties

(a) A jury ruled in favor of Western on all its claims, and the court awarded damages of

$280,000 against EO and $70,000 against Costello, plus costs and interest. EO and Western appealed to

a state intermediate appellate court, which affirmed the lower court’s ruling, The appellate court stated,

“Agency is the fiduciary relation which results from the manifestation of consent by one person to

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control. . . . [E]ven if Costello failed to follow the rules set forth by [Western’s] president,” including the

rule to submit regular sales reports, “he was required to do so.” The right to control, not the fact of

control, was the relevant consideration.

(b) EO contended in part that it had not aided or abetted Costello’s breach of his fiduciary

duty “because there is no evidence . . . that Costello owed Western a fiduciary duty.” The trial court

told the jury that “[a] fiduciary relationship exists whenever one person is entrusted to act for the

benefit of or in the interest of another and has the legal authority to do so. If . . . Jim Costello was

acting as an agent of Western with respect to his employment as a salesman of fire trucks, then . . . Jim

Costello was acting as a fiduciary of Western with respect to his employment by Western.”

harm to another and is purposefully performed with an awareness of the risk in disregard of the

consequences.”

In this case, the court concluded that EO’s conduct was wanton and reckless. The court reviewed

the e-mails between EO and Costello and determined that EO knew its “purposeful” interactions with

Costello could have harmed, and did harm, Western. EO’s “covert interactions with Costello clearly