Chapter 16Practice Exam
Matching Questions
Match the following terms with their definitions:
(3)A.Term agreement
(1)C.Agency at will
(5)D.A duty of an agent
1.When two parties make no agreement in advance about the duration of their agreement
3.When two parties agree in advance on the duration of their agreement
5.Duty of loyalty
True/False Questions
Circle true or false:
1.TFA principal is always liable on a contract, whether he is fully disclosed, unidentified, or undisclosed.
3.TFAn agent may receive profits from an agency relationship even if the principal does not know, as long as the principal is not harmed.
5.TFAn agent has a duty to provide the principal with all information in her possession that she has reason to believe the principal wants to know, even if he does not specifically ask for it.
Multiple-Choice Questions
7.Dorris works in Morris’s pet shop. She would not be liable for the following activity:
(a)When a salesperson offers to sell the shop a rare parrot, Dorris buys it for her own account instead.
(b)Dorris got drunk and did obscene parrot imitations in the window of the pet shop.
(c)Morris has been trying to acquire a broad-headed snake for years, but they are an endangered species and therefore cannot be sold. Dorris hates snakes, so she refuses to buy a broad-headed snake when it is offered for sale to the shop.
(d)Dorris tells Morris that there are only 10 gerbils in the shop when really there are 20.
(e)The rhesus monkey needed to take his medication every morning. Dorris forgot one day and the monkey died.
9.Which of the following duties does an agent not owe to her principal?
(a)Duty of loyalty
(b)Duty to obey instructions
(c)Duty to reimburse
(d)Duty of care
(e)Duty to provide information
Short-Answer Questions
11.Roy Watson sold vacuum cleaners door-to-door as an independent contractor for T&F. Before hiring Watson, the president of T&F checked with two of his former employers but could not remember if he called Watson’s two references. Watson had an extensive criminal record. T&F granted Watson sales territory that included Neptune City, New Jersey. This city required that all “peddlers” such as Watson be licensed. Applicants for this license were fingerprinted. T&F never insisted that Watson apply for such a license. Watson attacked Miriam Bennett after selling a vacuum cleaner to her at her home in Neptune City. Is T&F liable to Bennett?
Answer: Bennett alleged that the company was liable for the assault committed by its independent contractor because it had been negligent in hiring him. The appeals court held for Bennett on the grounds that she was entirely innocent, whereas T & F could have prevented the injury by being more careful during the hiring process. Bennett v. T&F Distrib. Co., 117 N.J. Super. 439, 285 A.2d 59 (N.J. 1971).
13.Sara Kearns went to an auction at Christie’s to bid on a tapestry for her employer, Nardin Fine Arts Gallery. The good news is that she purchased a Dufy tapestry for $77,000. The bad news is that it was not the one her employer had told her to buy. In the excitement of the auction, she forgot her instructions. Nardin refused to pay, and Christie’s filed suit. Is Nardin liable for the unauthorized act of its agent?
Answer:Argument for Christie’s: Kearns executed a bidder form as agent for Nardin. This is a common practice for many purchasers. Christie’s cannot possibly ascertain in each case the exact nature of the bidder’s authority. Whether or not Kearns had actual authority, she certainly had apparent authority and Nardin is liable. Argument for Nardin: Kearns was not authorized to purchase the Dufy tapestry, and therefore Christie’s must recover from her, not us.
Christie’s had filed a motion for summary judgment. The motion was denied because, without discovery, the court could not determine whether Christie’s properly relied on Kearns’s apparent authority. Christie, Manson & Woods International, Inc. v. Nardin Fine Arts Gallery, Supreme Court of New York, IA Part 49, New York Law Journal, 3/15/1994, p. 21.
15.This is a tale of marital woe. At the urging of her husband, Phyllis Thropp placed $40,000 in a brokerage account with her husband’s friend Richard Gregory, a broker at Bache Halsey. Mrs. Thropp opened the account in her name alone and did not authorize Gregory to discuss the account with Mr. Thropp, nor did she authorize Mr. Thropp to act for her. Undeterred by this technicality, Mr. Thropp forged his wife’s name to a power of attorney that authorized him to make decisions for her. He gave this document to Gregory. In the course of the next year, Mr. Thropp ordered Gregory to sell his wife’s securities and issue checks to her. After forging her name to the checks, he cashed them and used the money to pay his gambling debts. Gregory did not process the power of attorney form according to standard Bache procedures. When the Thropps saw Gregory socially, Mrs. Thropp frequently asked him how her account was doing. Gregory somehow neglected to mention that it was not doing very well at all. He never told her about the numerous sales. Can this marriage be saved? No, the Thropps were divorced. Did Richard Gregory violate his fiduciary duty to Mrs. Thropp?
Answer: A broker owes his principal a duty to exercise due care and to act in good faith. Gregory violated this duty when he failed even to follow Bache’s own procedures. He was liable to Mrs. Thropp. Thropp v. Bache Halsey Stuart Shields, Inc., 650 F.2d 817 (6th Or. 1981).