Gibson, Business Law 11^th Edition

Chapter 11: Agency

LO11.1 Explain an agency relationship, distinguish it from other relationships and classify the extent of an agent’s authority

Multiple choice: Choose the one alternative that best completes the statement or answers the question.

1. In what circumstances will Peta be an employer and Paul an employee?
   • • • 1. Paul is claiming to be Peta’s legal representative.
         2. Peta is paying Paul to perform a task and Paul is subject to the control and direction of Peta.
         3. Peta is paying Paul to perform a task but has no control over how Paul will complete the task.
         4. Paul has authority to bind Peta to a contract with a third party.

Difficulty: Moderate

Topic: How does an agency relationship differ from other relationships

Standard/Graduate Attribute AACSB: Analytical thinking

Learning Outcome: LO 11.1 Explain the relationship, distinguish it from other relationships and classify the extent of an agent’s authority.

1. In what circumstances will Samson be an employer and Kirra an independent contractor?
   • • • 1. Samson is paying Kirra to perform a task and Kirra is subject to the control and direction of Samson.
         2. Kirra has authority to bind Samson to a contract with a third party.
         3. Samson is paying Kirra to perform a task but has no control over how Kirra will complete the task.
         4. Kirra is claiming to be Samson’s legal representative.

Difficulty: Moderate

Topic: How does an agency relationship differ from other relationships

Standard/Graduate Attribute AACSB: Analytical thinking

Learning Outcome: LO 11.1 Explain the relationship, distinguish it from other relationships and classify the extent of an agent’s authority.

1. An agent who can only make a particular type of contract or carry out a particular transaction on behalf of the principal is known as:
   • • • 1. a ‘special’ or ‘limited’ agent.
         2. a ‘universal’ agent.
         3. an ‘independent’ agent.
         4. a ‘general’ agent.

Difficulty: Basic

Topic: How does an agency relationship differ from other relationships

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 11.1 Explain the relationship, distinguish it from other relationships and classify the extent of an agent’s authority.

1. An agent who can make contracts of a class that are normal for this type of agency, or do some act for the principal ,which is part of the agent’s ordinary course of business, is known as:
   • • • 1. a ‘special’ or ‘limited’ agent.
         2. a ‘universal’ agent.
         3. an ‘independent’ agent.
         4. a ‘general’ agent.

Difficulty: Basic

Topic: How does an agency relationship differ from other relationships

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 11.1 Explain the relationship, distinguish it from other relationships and classify the extent of an agent’s authority.

1. Louisa is going overseas with no commitment on when she may return to Australia. As such, she has empowered her mother, Malaya, to act in her absence for any necessary matters. Which of the following classes of agents would this make Malaya?
   1. General
   2. Universal
   3. Special or Limited
   4. None of the above

Difficulty: Moderate

Topic: How does an agency relationship differ from other relationships

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 11.1 Explain the relationship, distinguish it from other relationships and classify the extent of an agent’s authority.

1. An agent who can do almost anything on behalf of the principal which the principal can do for themselves is known as:
   • • • 1. a ‘special’ or ‘limited’ agent.
         2. a ‘universal’ agent.
         3. an ‘independent’ agent.
         4. a ‘general’ agent.

Difficulty: Basic

Topic: How does an agency relationship differ from other relationships

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 11.1 Explain the relationship, distinguish it from other relationships and classify the extent of an agent’s authority.

True/False: Identify whether the statement is True or False

1. The reason for the classification of agents is to determine the actual extent of an agent’s authority.
   • • • 1. True
         2. False

Difficulty: Basic

Topic: How does an agency relationship differ from other relationships

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 11.1 Explain the relationship, distinguish it from other relationships and classify the extent of an agent’s authority.

1. An independent contractor can never create an agency relationship with the person who engages them.
   • • • 1. True
         2. False

Difficulty: Basic

Topic: How does an agency relationship differ from other relationships

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 11.1 Explain the relationship, distinguish it from other relationships and classify the extent of an agent’s authority.

1. In an agency contract, the agent exercises authority which leads to privity between the principal and a third party.
2. True
3. False

Difficulty: Basic

Topic: What is an agency relationship

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 11.1 Explain the relationship, distinguish it from other relationships and classify the extent of an agent’s authority.

1. A contract must exist between the agent and the third party as well as the agent and the principal for agency law to apply.
   • • • 1. True
         2. False

Difficulty: Basic

Topic: How does an agency relationship differ from other relationships

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 11.1 Explain the relationship, distinguish it from other relationships and classify the extent of an agent’s authority.

Essay: Write your answer in the space provided or on a separate sheet of paper.

1. Do you think it is fair that employers are not liable for the acts of independent contractors even when they may be working on behalf of an employer?

Difficulty: Complex

Topic: What is an agency relationship

Standard/Graduate Attribute AACSB: Reflective thinking

Learning Outcome: LO 11.1 Explain the relationship, distinguish it from other relationships and classify the extent of an agent’s authority.

1. What is the purpose of agent classification to the principal?

Difficulty: Basic

Topic: What is an agency relationship

Standard/Graduate Attribute AACSB: Application of knowledge

LO11.2 Discuss the methods of appointment and sources of authority of an agent

Multiple choice: Choose the one alternative that best completes the statement or answers the question.

1. Which of the following is an example of an agency that is created by express appointment?
   • • • 1. Nullah is entrusted with Kylie’s property and finds it necessary to do something with it in order to preserve it.
         2. Kylie retrospectively affirms the authority of Nullah.
         3. Nullah and Kylie become partners in a partnership.
         4. Kylie appoints Nullah under a general power of attorney to carry out a particular transaction on her behalf.

Difficulty: Moderate

Topic: Appointment of agents

Standard/Graduate Attribute AACSB: Analytical thinking

Learning Outcome: LO 11.2 Discuss the methods of appointment and sources of authority of an agent.

1. Which of the following is an example of an agency created by implication?
   • • • 1. Yohan is entrusted with Peter’s property and finds it necessary to do something with it in order to preserve it.
         2. Peter retrospectively affirms the authority of Yohan.
         3. Yohan and Peter become partners in a partnership.
         4. Peter appoints Yohan under a general power of attorney to carry out a particular transaction on his behalf.

Difficulty: Moderate

Topic: Appointment of agents

Standard/Graduate Attribute AACSB: Analytical thinking

Learning Outcome: LO 11.2 Discuss the methods of appointment and sources of authority of an agent.

1. Which of the following is an example of an agency created by necessity?
   • • • 1. Ling Mei is entrusted with Xingdong’s property and finds it necessary to do something with it in order to preserve it.
         2. Xingdong retrospectively affirms the authority of Ling Mei.
         3. Ling Mei and Xingdong become partners in a partnership.
         4. Xingdong appoints Ling Mei under a general power of attorney to carry out a particular transaction on his behalf.

Difficulty: Moderate

Topic: Appointment of agents

Standard/Graduate Attribute AACSB: Analytical thinking

Learning Outcome: LO 11.2 Discuss the methods of appointment and sources of authority of an agent.

1. Which of the following is an example of an agency created by ratification?
   • • • 1. Abdul is entrusted with Edward’s property and finds it necessary to do something with it in order to preserve it.
         2. Edward retrospectively affirms the authority of Abdul.
         3. Abdul and Edward become partners in a partnership.
         4. Edward appoints Abdul under a general power of attorney to carry out a particular transaction on his behalf.

Difficulty: Moderate

Topic: Appointment of agents

Standard/Graduate Attribute AACSB: Analytical thinking

Learning Outcome: LO 11.2 Discuss the methods of appointment and sources of authority of an agent.

1. Authority that is conferred by the principal either verbally or in writing is an example of:
   • • • 1. implied actual authority.
         2. express actual authority.
         3. retrospective actual authority.
         4. apparent or ostensible authority.

Difficulty: Basic

Topic: Appointment of agents

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 11.2 Discuss the methods of appointment and sources of authority of an agent.

1. In Bolton Partners v Lambert [(1889]) 41 Ch D 295, the ratification of the unauthorised acceptance by an agent on behalf of Bolton Partners meant that:
   • • • 1. a contract was formed on the date of the ratification.
         2. no contract was formed.
         3. a contract was formed on the date of the agent’s acceptance.
         4. Lambert was able to revoke his offer.

Difficulty: Complex

Topic: Appointment of agents

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 11.2 Discuss the methods of appointment and sources of authority of an agent.

1. Authority that is inferred from the conduct of the parties is an example of:
   • • • 1. implied actual authority.
         2. express actual authority.
         3. retrospective actual authority.
         4. apparent or ostensible authority.

Difficulty: Basic

Topic: Appointment of agents

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 11.2 Discuss the methods of appointment and sources of authority of an agent.

1. Where a principal, by words or conduct, creates the appearance of an agency that is reality does not exist, this is an example of:
   • • • 1. implied actual authority.
         2. express actual authority.
         3. retrospective actual authority.
         4. apparent or ostensible authority.

Difficulty: Basic

Topic: Appointment of agents

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 11.2 Discuss the methods of appointment and sources of authority of an agent.

1. The decision in the case of: Tooth & Co v Laws [1888] 9 LR (NSW) 154 was based on the fact that:
   • • • 1. the previous licensee is always held liable for payment.
         2. failure to remove his name from the hotel meant he was liable for all bills.
         3. failure to notify the suppliers of the sale of the hotel prohibited him from denying that the purchasers were his agents.
         4. this was normal business practice in the hotel industry.

Difficulty: Moderate

Topic: Authority of the agent

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 11.2 Discuss the methods of appointment and sources of authority of an agent.

True/False: Identify whether the statement is True or False

1. In Australia and New Zealand Bank Ltd v Ateliers De Constructions Electriques De Charleroi [1967] 1 AC 86, the court ruled that the bank had authority to interact with the agent who was acting under an express and implied authority.
2. True
3. False

Difficulty: Complex

Topic: Appointment of agents

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 11.2 Discuss the methods of appointment and sources of authority of an agent.

1. A formal written agreement must exist in order to establish that a person has acted as an agent of necessity.
2. True
3. False

Difficulty: Basic

Topic: Appointment of agents

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 11.2 Discuss the methods of appointment and sources of authority of an agent.

1. Ratification by a principal of an unauthorised act by an agent can bind the third party retrospectively.
   • • • 1. True
         2. False

Difficulty: Basic

Topic: Appointment of agents

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 11.2 Discuss the methods of appointment and sources of authority of an agent.

1. The law presumes that a spouse has authority to obtain credit for necessaries suitable to their lifestyle.
   • • • 1. True
         2. False

Difficulty: Basic

Topic: Appointment of agents

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 11.2 Discuss the methods of appointment and sources of authority of an agent.

Essay: Write your answer in the space provided or on a separate sheet of paper.

The notion of ‘apparent authority’ means that a principal may be liable for the acts of an agent who behaves contrary to the explicit instructions of the principal. Is this fair? Explain your answer.

Difficulty: Complex

Topic: Authority of the agent

Standard/Graduate Attribute AACSB: Reflective thinking

Learning Outcome: LO 11.2 Discuss the methods of appointment and sources of authority of an agent.

Explain the meaning of ‘agent of necessity’ and give two examples.

Difficulty: Basic

Topic: Authority of the agent

Standard/Graduate Attribute AACSB: Analytical thinking

Learning Outcome: LO 11.2 Discuss the methods of appointment and sources of authority of an agent.

Four conditions must be satisfied for an agency of necessity to arise:

• There is a genuine emergency;

• It is impossible or extremely difficult to get the principal’s instructions;

• The person must be entrusted with another’s property; and

• The agent must act bona fide in the principal’s interests.

One example is a truck driver carrying perishable goods who finds that the freezer unit has broken down and has it repaired in order to save the cargo. The contract of repair would bind the principal.

A second example is the case of Great Northern Railway v Swaffield [1874] LR 9 Exch 132.

1. What do you understand by the term ‘estoppel’?

Difficulty: Basic

Topic: Authority of the agent

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 11.2 Discuss the methods of appointment and sources of authority of an agent.

LO11.3 Describe the rights, duties and liabilities of both agents and principals

Multiple choice: Choose the one alternative that best completes the statement or answers the question.

1. In which of the following cases did the court decide that the agent had breached their duty to act in person?
   • • • 1. Lunghi v Sinclair [1966] WAR 172.
         2. Hewson v Sydney Stock Exchange [1967] 87 WN (NSW) 422.
         3. Panorama Developments (Guildford) Ltd v Fidelis Furnishings Fabrics [1971] 3 WLR 440.
         4. John McCann & Co. v Pow [1975] 1 All ER 129.

Difficulty: Basic

Topic: Duties of agent to principal

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 11.3 Describe the rights, duties and liabilities of both agents and principals.

1. In which of the following cases did the court decide that the agent had breached their duty to act in the principal’s interests?
   • • • 1. Lunghi v Sinclair [1966] WAR 172.
         2. Hewson v Sydney Stock Exchange [1967] 87 WN (NSW) 422.
         3. Panorama Developments (Guildford) Ltd v Fidelis Furnishings Fabrics [1971] 3 WLR 440.
         4. John McCann & Co. v Pow [1975] 1 All ER 129.

Difficulty: Basic

Topic: Duties of agent to principal

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 11.3 Describe the rights, duties and liabilities of both agents and principals.

1. In which of the following cases did the court decide that the agent had breached their duty not to make secret profits?
   • • • 1. Lunghi v Sinclair [1966] WAR 172.
         2. Hewson v Sydney Stock Exchange [1967] 87 WN (NSW) 422.
         3. Panorama Developments (Guildford) Ltd v Fidelis Furnishings Fabrics [1971] 3 WLR 440.
         4. John McCann & Co. v Pow [1975] 1 AllER 129.

Difficulty: Basic

Topic: Duties of agent to principal

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 11.3 Describe the rights, duties and liabilities of both agents and principals.

1. In which of the following circumstances will delegation of an agent’s authority not be permitted?
   • • • 1. Where the agent’s duties are purely administrative.
         2. Where the agent determines that the delegation is in the best interests of the principal.
         3. Where the delegation arises out of necessity.
         4. Where the delegation is permitted by the principal either expressly or impliedly.

Difficulty: Moderate

Topic: Duties of agent to principal

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 11.3 Describe the rights, duties and liabilities of both agents and principals.

1. Which of the following is a right that an agent does not have without express or implied agreement to the contrary?
   • • • 1. The right to be reimbursed for authorised expenses.
         2. The right to be remunerated.
         3. The right to retain possession of the principal’s goods until the agent has been paid.
         4. The right to be indemnified against liabilities incurred while carrying out the principal’s instructions.

Difficulty: Moderate

Topic: Duties of agent to principal

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 11.3 Describe the rights, duties and liabilities of both agents and principals.

1. Which of the following best describes an agent’s right to payment?
   • • • 1. An agent may be entitled to payment as well as indemnity and reimbursement.
         2. An agent is never entitled to payment but will be entitled to either indemnity or reimbursement.
         3. An agent may be entitled to payment and either indemnity or reimbursement.
         4. An agent is never entitled to payment but will be entitled to indemnity and reimbursement.

Difficulty: Complex

Topic: Duties of agent to principal

Standard/Graduate Attribute AACSB: Analytical thinking

Learning Outcome: LO 11.3 Describe the rights, duties and liabilities of both agents and principals.

1. Which of the following is an exception to the rule that an agent will not be personally liable under a contract entered into with a third party?
   • • • 1. Where the agent has executed a deed in their own name.
         2. Where the agent is in breach of warranty of authority.
         3. Where the agent has not disclosed to the third party that they are an agent.
         4. All of the above.

Difficulty: Complex

Topic: Duties of agent to principal

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 11.3 Describe the rights, duties and liabilities of both agents and principals.

1. Why was the firm held liable in the case of: Lloyd v Grace, Smith & Co [1912] AC 716?
   1. The agent’s acts were inside the scope of the agent’s authority.
   2. The agent’s acts were outside the scope of the agent’s authority.
   3. The agent’s acts were approved by the principal.
   4. The agent’s acts were for the benefit of the principal.

Difficulty: Basic

Topic: Duties of agent to principal

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 11.3 Describe the rights, duties and liabilities of both agents and principals.

True/False: Identify whether the statement is True or False

1. An agent must always act in person and never delegate.
   • • • 1. True
         2. False

Difficulty: Basic

Topic: Duties of agent to principal

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 11.3 Describe the rights, duties and liabilities of both agents and principals.

1. Agency is a fiduciary relationship.
   • • • 1. True
         2. False

Difficulty: Basic

Topic: Duties of agent to principal

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 11.3 Describe the rights, duties and liabilities of both agents and principals.

1. Agency is a contractual relationship.
2. True
3. False

Difficulty: Basic

Topic: Duties of agent to principal

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 11.3 Describe the rights, duties and liabilities of both agents and principals.

1. When an agent negotiates a contract between a principal and a third party, the agent acquires no rights or duties under the contract.
   • • • 1. True
         2. False

Difficulty: Basic

Topic: Duties of agent to principal

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 11.3 Describe the rights, duties and liabilities of both agents and principals.

Essay: Write your answer in the space provided or on a separate sheet of paper.

1. What constitutes a ‘secret commission’ received by an agent? Outline any remedies available to the principal as a consequence of receiving a secret commission.

Difficulty: Moderate

Topic: Duties of agent to principal

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 11.3 Describe the rights, duties and liabilities of both agents and principals.

Under civil law the principal has a number of remedies available which include:

• Claiming the commission;

• Claiming the commission and cancelling the agency agreement;

• Cancelling the agency agreement;

• Recovering damages for any loss suffered from the agent or the party who has paid the bribe; or

• Recover the secret commission.

In addition to these civil remedies, secret commissions are also subject to both Commonwealth and State and Territory legislation, such as for example the Secret Commissions Act 1905 (Cth).

1. What do you think is the rationale behind the rule that an agent must act in person? Do you agree with this rationale?

Difficulty: Complex

Topic: Duties of agent to principal

Standard/Graduate Attribute AACSB: Reflective thinking

Learning Outcome: LO 11.3 Describe the rights, duties and liabilities of both agents and principals.

LO11.4 Identify various means for termination of an agency agreement and identify remedies of a principal for breach by an agent

Multiple choice: Choose the one alternative that best completes the statement or answers the question.

1. The parties may terminate an agency agreement by:
   • • • 1. resignation by the agent.
         2. mutual agreement.
         3. revocation by the principal.
         4. all of the above.

Difficulty: Basic

Topic: Acts of the parties

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 11.4 Identify various means for termination of an agency agreement and identify remedies of a principal for breach by an agent.

1. Which of the following is an example of termination of an agency by operation of law?
   • • • 1. Performance of the agent’s task.
         2. Completion of a specific purpose or act.
         3. Revocation of the agent’s authority.
         4. Acceptance of a secret commission by the agent.

Difficulty: Complex

Topic: Acts of the parties

Standard/Graduate Attribute AACSB: Analytical thinking

Learning Outcome: LO 11.4 Identify various means for termination of an agency agreement and identify remedies of a principal for breach by an agent.

True/False: Identify whether the statement is True or False

1. An agent can sue for breach of contract if their authority is revoked without their consent.
   • • • 1. True
         2. False

Difficulty: Basic

Topic: Acts of the parties

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 11.4 Identify various means for termination of an agency agreement and identify remedies of a principal for breach by an agent.

1. Death of one of the parties will terminate an agency agreement.
2. True
3. False

Difficulty: Basic

Topic: Acts of the parties

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 11.4 Identify various means for termination of an agency agreement and identify remedies of a principal for breach by an agent.

1. In the event of an agent’s breach, rescission is a possible remedy for the principal.
   • • • 1. True
         2. False

Difficulty: Basic

Topic: Acts of the parties

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 11.4 Identify various means for termination of an agency agreement and identify remedies of a principal for breach by an agent.

Essay: Write your answer in the space provided or on a separate sheet of paper.

Describe how an agency relationship can be terminated. Difficulty: Basic

Topic: Acts of the parties

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 11.4 Identify various means for termination of an agency agreement and identify remedies of a principal for breach by an agent.

• mutual agreement;

• revocation of the agent’s authority;

• withdrawal from the agency agreement by the agent (renunciation);

• acceptance of a secret commission (termination by the principal);

• completion of the agency; or

• expiration of the time the agency was to run.

Operation of law through:

• performance;

• lapse of time;

• death, insanity or bankruptcy of the principal or agent; or

• frustration.

LO11.5 List specific types and classes of agency

Multiple choice: Choose the one alternative that best completes the statement or answers the question.

1. Which of the following is not a correct statement about an auctioneer?
   • • • 1. An auctioneer is an agent of the vendor but after the fall of the hammer becomes an agent of the purchaser.
         2. An auctioneer owes a duty to the vendor to accept the highest bid.
         3. An auctioneer is accountable to the vendor for the collection of the purchase price.
         4. An auctioneer can sue for the purchase price in their own name.

Difficulty: Moderate

Topic: Some specific types of agency

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 11.5 List specific types and classes of agency.

True/False: Identify whether the statement is True or False

1. A broker is a general agent who acts for two principals.
   • • • 1. True
         2. False

Difficulty: Basic

Topic: Some specific types of agency

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 11.5 List specific types and classes of agency.

1. A del credere agent is a general agent who buys and sells without having possession or control of the goods or their documents.
   • • • 1. True
         2. False

Difficulty: Basic

Topic: Some specific types of agency

Standard/Graduate Attribute AACSB: Application of knowledge

Learning Outcome: LO 11.5 List specific types and classes of agency.