The Law of Corporations and Other Business Organizations

Chapter Review

1. What is the difference between a general
agent and a special agent?
A general agent has the authority to
transact all business of the principal, all
business of a particular kind, all business
at a particular place, or all acts connected
with a particular employment or
business. This authority is much broader
than that of the special agent, who is authorized
to do one or more specific acts
in accordance with instructions from the
principal.
2. Suppose you give your friend some cash
and ask her to pick up a video for you at
the video rental store. Has an agency relationship
been created?
Yes
Discuss each of the elements of an agency
relationship as they relate to this situation.
Consent: If you ask and your friend
agrees, you have consent.
Capacity: Assuming you and your friend
are both competent adults, you both
have capacity to act.
Written Agreement: No written agreement
is required.
Consideration: No consideration has
been exchanged for this favor, nor is any
required.
Proper purpose: There is nothing illegal
or improper in the proposed transaction.
3. Can an agency relationship be created
without a written agreement?
Yes
What if the agent is asked to sell a parcel of
land for the principal?
Almost certainly, a written power of attorney
would be required to sell a parcel
of land pursuant to state statutes.
4. Can an agency relationship be created if
the principal does not pay the agent to act
on her behalf?
Yes, the agent can act gratuitously on
behalf of the principal.
5. Suppose that before a horse race, the owner
of one of the horses, the trainer, and a racehorse
investor are all having a conversation.
The trainer offers to sell the racehorse
to the investor for $10,000 (in the owner’s
presence, and without her objection). The
investor agrees and gives the owner a $500
check to show his good faith. He also
makes a deal to sell one of his other investments
to raise the additional $9,500.
When the horse in question wins the next
race, the owner refuses to sell, stating that
the trainer was not acting on her behalf and
had no authority to sell the horse. Is the
owner correct?
No
What type of authority, if any, does the
trainer have?
The trainer had apparent authority to
act on behalf of the owner when the
trainer offered to sell the racehorse to
the investor in the owner’s presence and
the owner did not object.
Does the investor have any right to purchase
the horse?
Yes, especially since the investor took action
that may have been to his detriment
in relying on the trainer’s apparent authority.
The investor sold one of his investments
and provided a $500 check
based on his belief.
6. What duties does an agent owe the principal?
An agent owes the principal the duty to
perform and perform with reasonable
care. The agent also owes a fiduciary duty
to act with the utmost good faith and
loyalty in the principal’s interests, including
the duty to notify and the duty of
loyalty.
7. Under what circumstances may a principal
be liable for torts committed by her agent?
The principal may be liable under the
doctrine of respondeat superior if the
agent committed the tort while acting in
the scope of her employment. The principal
may also be responsible if the
agent’s act was intended by the principal,
or if the principal acted negligently
or recklessly.
8. What is respondeat superior?
Respondeat superior is the doctrine that
provides that an employer who retains
control over the manner in which the
agent performs her duties has vicarious
liability and is responsible for the torts
committed by that employee if the agent
is an actual employee and the employee
acted within the scope of the employer’s
business.
9. Who are the agents for a general partnership?
The partners all act as agents of the
partnership and agents for each other.
10. Who are the agents for a corporation?
The corporation’s board of directors,
officers, and the employees they hire
may all act as agents of a corporation.