Chapter 32

Question 1

Agency

Answer 1

A relationship between two parties in which one party (the agent) agrees to represent for act for the other (the principal)

Question 2

Principal

Answer 2

Has the right to control the agents conduct in matters entrusted to the agent

Question 3

Fiduciary

Answer 3

A person having a duty created by his or her undertaking to act primarily for another’s benefit in matters connected with the undertaking.
- a relationship founded on trust and confidence

Question 4

Laws that prohibit employment discrimination do not apply to

Answer 4

An independent contractor

Question 5

Independent contractor

Answer 5

One who works for and receives payment from an employer but whose working conditions and methods are not controlled by the employer. An independent contractor is not an employee but may be an agent
- may or may not involve an agency relationship

Question 6

Determination of employee status

Answer 6

1. How much control does the employer exercise over details of the work?
2. Is the worker engaged in an occupation distinct from that of the employer?
3. Is the work done under the employers direction?
4. Does the employer supply the tools?
5. How long is the person employed?
6. What is the method of payment- time period or completion of the job
7. What degree of skill is required of the worker?

Question 7

What is the most important factor to the IRS in determining employee status

Answer 7

The degree of control the business exercises over the worker

Question 8

Does an agency agreement have to be in writing?

Answer 8

No and consideration is not required

Question 9

4 ways an agency relationship can arise

Answer 9

1. Agreement of the parties
2. Ratification
3. Estoppel
4. Operation of law

Question 10

Agency by estoppel

Answer 10

When the principal’s actions have created the appearance of an agency that does not in fact exist

• 3rd party’s reliance must be reasonable
• created by the principals conduct

Question 11

By agreement

Answer 11

Formed through express consent (oral or written) or implied by conduct

Question 12

By ratification

Answer 12

The principal either by act or agreement ratifies the conduct of a person who is not in fact an agent

Question 13

By operation of law

Answer 13

The agency relationship is based on social or legal duty or formed in emergency situations when the agent is unable to contact the principal and failure to act outside the scope of the agents authority would cause the principal substantial loss

Question 14

Agents duties to the principal

Answer 14

1. Performance
2. Notification
3. Loyalty
4. Obedience
5. Accounting

Question 15

Performance

Answer 15

• reasonable standard of care

- gratuitous agents (without payment) are not liable for breach of contract bc there is no contract

Question 16

Notification

Answer 16

An agent is required to notify the principal of all matters concerning the agency

Question 17

Loyalty

Answer 17

• maintain confidentiality

- actions must benefit the principal

Question 18

Obedience

Answer 18

When acting on behalf of the principal an agent has to follow all lawful and clearly stated instructions

Question 19

Accounting

Answer 19

The agent must keep and make available to the principal an account of all property and funds received and paid out on the principals behalf (unless agreed otherwise)

Question 20

Principals duties to the agent

Answer 20

1. Compensation
2. Reimbursement and indemnification (compensate)
3. Cooperation
4. Safe working conditions

Question 21

Exclusive agency

Answer 21

An agency in which a principal grants an agent an exclusive territory and does not allow another agent to compete in that territory

Question 22

Agents rights and remedies against the principal

Answer 22

• normal contract and tort remedies
• can withhold further performance and demand the principal give an accounting
• when the relationship is not contractual the agent has no right to specific performance. They can recover for past services and future damages but cannot force the principal to allow them to continue acting as an agent

Question 23

Principals rights and remedies against the agent

Answer 23

1. Constructive trust- if an agent secretly retains benefits or profits that belong to a principal (bad)
2. Avoidance - the right to avoid a contract w/ this agent if they breach
3. Indemnification - if a third party sues the principal for the agents actions, they can collect damages from the agent