CHAPTER 23: LAW OF AGENCY
I. REVIEWING WHAT YOU LEARNED
After studying the chapter, write the answers to each of the following questions
(1) Name the three relationships that need to be distinguished when discussing agency law.
When discussing agency law, three types of relationships need to be distinguished: (1) principal-agent, (2) employer-employee, and (3) employer-independent contractor.
(2) When a principal authorizes an agent to enter into a contract, between what parties is the contract?
When a principal authorizes an agent to enter into a contract, the resulting contract is between the principal and the third party
(3) When can an agent be held liable on a contract by a third party?
Only when an agent acts without authority or fails to disclose the existence of the agency relationship can the agent be held liable on the contract by the third party.
(4) When an undisclosed principal is involved, who may a third party hold liable in the event of suit for breach of contract?
When an undisclosed principal is involved, the third party may elect to hold either the principal or the agent liable for breach of contract.
(5) Under what circumstances may employees also be agents?
Employees may also be agents if they have been authorized to enter into contracts with third parties on behalf of their employers.
(6) Describe two advantages of hiring independent contractors.
People who have independent contractors perform work for them do not withhold taxes from their pay and are not responsible for their wrong doings.
(7) Give an example of a general agent and a special agent.
A person hired to manage a business would be an example of a general agent. A person authorized to sell a house for someone who is away on a trip would be a special agent.
(8) Describe the method of selling goods on consignment.
When goods are sold on consignment, they are left by a bailor with a bailee who tries to sell them. Title to the goods does not pass between the parties, and the goods may be returned if not sold.
(9) Why is apparent authority also called agency by estoppel?
Apparent authority is also called agency by estoppel because the principal will be stopped from denying that an agency relationship existed.
(10) From whom may injured parties recover damages when employees commit torts within the scope of their employment?
Injured parties may recover damages from either the employer or the employee when employees commit torts within the scope of employment.
(11) What is a dummy corporation and when might it be used?
A dummy corporation is a lawful corporation created to take title to assets while safeguarding the owner corporation’s identity and liability.
II. UNDERSTANDING LEGAL CONCEPTS
Indicate whether each statement is true or false. Then, change the italicized word or phrase of each false statement to make it true.
ANSWERS
1. When a principal authorizes an agent to enter into a contract on the principal's behalf, the resulting contract is between the agent and the third party. FALSE (principal)
2. An agent who contracts on behalf of an undisclosed principal can be held liable on the contract. TRUE
3. Employees may also be agents if they have been authorized to enter into contracts with third parties on behalf of their employers. TRUE
4. People who have independent contractors perform work for them must withhold taxes from their pay. FALSE (need not)
5. A person hired to manage a business is an example of a special agent. FALSE (general)
6. When goods are sold on consignment, title to the goods does not pass between the consignor and the consignee. TRUE
7. Agents may be appointed expressly, either orally or in writing. TRUE
8. When agents are given express authority to perform certain acts, they have no implied authority. FALSE (a certain amount)
9. Apparent authority comes about when an agent makes it appear that the agent has authority when none exists. FALSE (principal)
10. Someone who is injured by an employee's wrongful act may recover damages from either the employer or the employee. TRUE
III. CHECKING TERMINOLOGY
From the list of legal terms that follows, select the one that matches each definition
1. A rule of law that makes principals and employers responsible for the torts of their agents and servants committed within the scope of their authority or employment. RESPONDEAT SUPERIOR
2. To charge; to lay the responsibility or blame. IMPUTE
3. Liability that is imputed to principals and employers because of the wrongdoings of their agents and employees. VICARIOUS LIABILITY
4. A relationship that exists when one person is authorized to act under the control of another person. AGENCY
5. A factor who sells consigned goods on credit and who guarantees to the consignor that the buyer will pay for the goods. DEL CREDERE AGENT
6. A bailee to whom goods are consigned for sale. FACTOR
7. One who is authorized to act for another. AGENT
8. One who authorizes another to act on his or her behalf. PRINCIPAL
9. One who performs services under the direction and control of another. (Select two answers.) EMPLOYEE
10. One who performs services for another, but who is not under the other's control. INDEPENDENT CONTRACTOR
11. An agent who is authorized to conduct all of a principal's activity in connection with a particular business. GENERAL AGENT
12. An agent who is authorized to carry out a single transaction or to perform a specified act. SPECIAL AGENT
13. Authority that is given explicitly. EXPRESS AUTHORITY
14. A formal writing that authorizes an agent to act for a principal. POWER OF ATTORNEY
15. Authority of an agent to perform incidental functions that are reasonably and customarily necessary to enable the agent to accomplish the overall purpose of the agency. IMPLIED AUTHORITY
16. Authority that comes about when a principal, through some act, makes it appear that an agent has authority when none actually exists. (Select two answers.)
AGENCY BY ESTOPPEL / APPARENT AUTHORITY
17. The failure to do an act that ought to be done. NONFEASANCE
18. A relationship that occurs when someone performs an act on behalf of another without authority to do so, but the other person later approves of the act. AGENCY BY RATIFICATION
19. The process of delivering goods to a bailee, called a factor, who attempts to sell them and who may return those that are unsold. CONSIGNMENT
20. One who is not known by a third party to be a principal for an agent. UNDISCLOSED PRINCIPAL
21. The doing of an act that ought not to be done at all. MALFEASANCE
22. In agency law, one who deals with an agent in making a contract with the agent's principal. THIRD PARTY
23. An agent who is authorized to act under a power of attorney. ATTORNEY IN FACT
24. One who makes a consignment. CONSIGNOR
25. That zone in which employees operate. SCOPE OF EMPLOYMENT
26. One who employs the services of others in exchange for wages or salaries. (Select two answers.) EMPLOYER / MASTER
27. A lawful corporation created to take title to assets while safeguarding the corporation owner's identity and liability. DUMMY CORPORATION
28. The improper doing of an act. MISFEASANCE
29. One to whom a consignment is made. CONSIGNEE
IV. SHARPENING YOUR LATIN SKILLS
In the space provided, write the definition of the following legal terms, referring to the Glossary when necessary
Caveat: beware (Tự liệu)
Nulla bona: no good (Không tốt)
Respondeat superior: let the superior answer (Nguyên tắc người sử dụng lao động chịu trách nhiệm)
Caveat emptor: let the buyer beware (Nguyên tắc người mua tự liệu)
Caveat venditor: let the seller beware (Nguyên tắc người bán tự liệu)
V. USING LEGAL LANGUAGE
Read the following story and fill in the blank lines with legal terms taken from the list of terms at the beginning of this chapter:
Darlene, who was the general manager and thus a general agent for Johnson Service Co., hired Amos to work as an employee or servant under the company's direction and control. The company was the employer or master of Amos. One year later, Amos took a three-week vacation trip to Europe. Because his house was for sale at the time, he appointed Betsy to be his special agent solely for the purpose of selling the house in the event a buyer came along while he was away. Because he used a formal written instrument called a power of attorney to make the appointment, Betsy became known as an attorney in fact. Claude learned that the house was for sale and went to look at it. Betsy, meanwhile, was at the house and had just removed the well cover to see how much water was in it when Claude arrived. She introduced herself to him and showed him around, not telling him that she was not the owner. Claude decided to buy the house and signed a contract agreeing to do so. Betsy signed as the seller, not telling Claude that this was an agency relationship and that she was an agent acting on behalf of Amos, the principal, and that Claude was a third party. Amos would be described as an undisclosed principal because Claude was not aware of the particular relationship. As he walked from the house, Claude fell into the uncovered well and was injured. Under a doctrine known as respondent superior, Amos would be vicariously liable—that is, Betsy's negligent act of leaving the well uncovered would be imputed to him.
After recuperating from his injuries, Claude converted part of his new house into a small gift shop where he sold other people's goods on consignment, which is an arrangement under which title to the goods did not pass to Claude, and he could return those that did not sell. People who left goods in his store for sale were called consignors. Claude, who was known as a consignee, was also a type of agent called a factor. Whenever he sold goods on credit and guaranteed payment, he was a del credere agent. Claude hired Eva to paint the shop for him. She was an independent contractor because she was not under Claude's control in doing the work. One day, Claude left the gift shop to go fishing and told Eva to look after business while she painted. Eva had implied authority to take care of incidental functions that were reasonably and customarily necessary to accomplish her purpose. Before Claude returned, Eva sold an expensive antique for one-tenth of its value to a knowledgeable customer. Claude attempted to rescind the sale on the ground that Eva had no authority, but he failed in his attempt because Eva had apparent authority; this was an agency by estoppel because Claude made it appear that Eva had authority by leaving the store in her care
VI. PUZZLING OVER WHAT YOU LEARNED
Caveat: Allow squares for spaces between words and punctuation (apostrophes, hyphens, etc.) when filling in crossword.
Across
1. To charge, to lay the responsibility or blame. IMPUTE
3. The doing of an act that ought not to be done at all. MALFEASANCE
7. A factor who sells consigned goods on credit with a guarantee of payment. DEL CREDERE AGENT
11. A bailee to whom goods are consigned for sale. FACTOR
12. One who is authorized to act for another. AGENT
17. Relationship that exists when one person is authorized to act for another. AGENCY
18. One who employs the services of others in exchange for wages. MASTER
19. One who performs services under the direction and control of another. EMPLOYEE
Down
2. One who is not known by a third party to be a principal for an agent. UNDISCLOSED PRINCIPAL
4. Authority caused by a principal making it appears that a non-agent has authority. AGENCY BY ESTOPEL
5. The failure to do an act that ought to be done. NONFEASANCE
6. The improper doing of an act. MISFEASANCE
8. Authority that is given explicitly. EXPRESS AUTHORITY
9. An agent who is authorized to act under a power of attorney. ATTORNY IN FACT
10. A formal writing that to act for a principal. POWER OF ATTORNY
13. One who deals with an agent in making a contract with the agent's principal. THIRD PARTY
14. One who employs the services of others in exchange for wages. EMPLOYER
15. One to whom a consignment is made. CONGINEE
16. One who authorizes another to act on his or her behalf. PRINCIPAL
Source: Brown, G. W., & Kauffman, K. D. (1998). Legal terminology. Prentice Hall.
Chapter 23: Law of Agency, Book 2, Pages 225-229
Edited by Nguyễn Nhật Linh
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