Agent's and Principal's Liability Quiz

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Questions and Answers

What was the primary finding regarding McDonald's control in the case of Vandemark v. McDonalds?

McDonald's was found liable for the lack of security in its franchises.

McDonald's exercised direct control over security measures at individual restaurants.

McDonald's mandated specific security protocols for each franchise.

There was no evidence that McDonald's controlled security measures at the franchise level. (correct)

In Miller v. McDonalds Corp., what aspect did the franchise agreement cover?

Marketing strategies for enhancing brand reputation.

Operational procedures, including food preparation and handling. (correct)

Customer service standards across all franchises.

Employee hiring practices for franchise restaurants.

What concept does 'apparent agency' refer to in the context of McDonald's and its franchisees?

Franchisees are considered independent entities with no affiliation to McDonald's.

McDonald's specifically trains franchisee employees to act independently.

McDonald's has no liability for the actions of its franchisees.

Customers perceive franchisees as agents of McDonald's based on the brand's reputation. (correct)

What factor influenced the plaintiff's choice to visit the McDonald's franchise in Miller's case?

The expectation of receiving the same quality of service as in other McDonald's restaurants. Signup and view all the answers

What happens when an agent acts on behalf of an unidentified principal?

The agent is a party to the contract unless agreed otherwise. Signup and view all the answers

Which conclusion can be drawn regarding Dunkin' Donuts in relation to security measures?

There was a lack of evidence that Dunkin' Donuts controlled the security steps taken by franchisees. Signup and view all the answers

In regards to an agent's warranty of authority, which statement is accurate?

The agent gives an implied warranty of authority to the third party. Signup and view all the answers

What must occur for a principal to be directly liable to a third party for an agent's torts?

The agent's conduct must be within the scope of actual authority or ratified by the principal. Signup and view all the answers

If an agent acts on behalf of a non-existent principal, what is the agent's potential liability?

The agent may be liable if they knew the principal did not exist. Signup and view all the answers

Under what condition can an agent be liable to a third party for their actions?

If the agent's actions are ratified by the principal. Signup and view all the answers

What is required for a contract made by an agent on behalf of a supposedly existing principal to be valid?

The agent must know that the principal exists. Signup and view all the answers

What is the effect of an agent's conduct if it is tortious but within the scope of actual authority?

The principal can be held liable to a third party harmed. Signup and view all the answers

What happens when an agent lacks the authority to bind the principal in a contract?

The agent provides a warranty that they have authority. Signup and view all the answers

What defines an undisclosed principal?

A principal whose existence is unknown to third parties. Signup and view all the answers

What is necessary for a principal to be liable on contracts made by their agent?

The agent must have actual authority. Signup and view all the answers

In the case of Watteau v. Fenwick, what did the manager purchase that exceeded his authority?

Bovril and cigars. Signup and view all the answers

What did the court conclude regarding the liability of the undisclosed principal?

The principal is liable for acts usually confided to an agent of that character. Signup and view all the answers

Which of the following statements is true regarding the authority of the agent?

An agent can bind the principal for acts that are generally authorized, even without actual authority. Signup and view all the answers

In the context of agency law, what is actual authority?

Authority derived from the principal's express direction. Signup and view all the answers

How does the existence of agency relationship affect third parties?

Third parties can enforce contracts against either the agent or the principal. Signup and view all the answers

What was the primary issue in Watteau v. Fenwick?

Whether the agent exceeded the authority granted by the principal. Signup and view all the answers

What defines the relationship between the lease contract and the dealer's agreement in the context of Sun and Barone?

Landlord-tenant Signup and view all the answers

According to case law, what is the primary test applied to determine control in service station operations?

Control of daily operations Signup and view all the answers

In the context of franchisor-franchisee relationships, what is a common requirement for franchisees?

Following the franchisor's operational system Signup and view all the answers

What is the primary purpose of operational controls in franchise agreements?

To preserve brand goodwill and value Signup and view all the answers

What type of agreement is typically associated with a franchisee's operations, according to the content?

License agreement Signup and view all the answers

What might a franchisor require from franchisees regarding equipment?

Compliance with specific equipment specifications Signup and view all the answers

How can franchisors exert control over their franchisees?

By conducting regular inspections Signup and view all the answers

What is typically included in operational training for franchisees?

Training on brand compliance and operational standards Signup and view all the answers

What is the primary responsibility of an agent in relation to the principal?

To act for the principal’s benefit Signup and view all the answers

Which of the following encompasses a duty an agent has toward the principal?

Avoiding conflicts of interest Signup and view all the answers

Which duty requires the agent to act with care and competence?

The duty of diligence Signup and view all the answers

What is considered a violation of the duty not to deal with the principal as an adverse party?

Representing the third party in negotiations Signup and view all the answers

Which of the following actions would violate the duty to refrain from using the principal's property for personal purposes?

Using the principal's office space for a business meeting Signup and view all the answers

What fundamental duty involves complying with lawful instructions given by the principal?

Duty to act within actual authority Signup and view all the answers

What does the duty to provide the principal with information entail?

Informing the principal of material information that could affect them Signup and view all the answers

How should an agent handle confidential information of the principal?

Keep it secure and confidential at all times Signup and view all the answers

Study Notes

Agent's Liability

An agent acts as the face of the transaction with a third party and is the focus of expectations.
If an agent makes a contract for an unidentified principal, then the principal and third party are in a contract with each other, and the agent is also a party to the contract, unless they agree otherwise.
If an agent makes a contract for a non-existent principal, they become a party to the contract unless the third party agrees otherwise.
An agent who makes a contract on behalf of another person without the power to bind that person gives an implied warranty of authority and is liable to the third party for damages.

Principal Liability to Third Parties for Torts of an Agent

A principal is responsible to a third party injured by the agent's tort if the agent acted within their authority, or the principal ratifies the act.
A principal is liable to a third party if the agent's conduct is tortious.

Principal Liability to Third Parties for Torts of an Agent with Apparent Authority

An undisclosed principal is liable for the actions of an agent who has apparent authority.

Liability of Undisclosed Principal

Principals, whether disclosed or undisclosed, are liable on contracts made by their agents acting with actual authority.
The actual authority of the agent is what matters.
In Watteau v. Fenwick, The undisclosed principal was held liable for a contract to buy cigars, even though the manager had no authorization to purchase them. The court applied the doctrine of "usual authority," stating the principal is liable for acts of the agent typically entrusted to someone in that position.

Control over a Business and Agency Relationships

Case law implies that the test for an agency relationship is whether the principal retains the right to control the details of the day-to-day operations of the business.
Influence over results is insufficient.
There is a distinction between the power to control and the right to control details.
In Sun Oil Co. v. Wortman, the oil company was found not to be the principal of a service station owner because there was no day-to-day operational control.

Franchises and Agency Law

Franchisor/Franchisee agreements define control over operation of the business through varying degrees of control.
Control must be meaningful day-to-day operational control and authority to establish an agency relationship.
In Holiday Inns, Inc. v. Murphy, a franchisee was not deemed to be an agent of the franchisor because the franchisor only had oversight of the "system," and did not exercise control over daily operations and maintenance.
Common control provisions in franchise agreements include operating standards and guidelines, training, compliance with laws, franchisor inspections, the right to terminate, and insurance requirements.

Control and McDonalds

Franchisors need to exercise control concerning food handling and preparation because of the risk of foodborne illnesses.
In Miller v. McDonalds Corp., the court determined that the franchisee, who was responsible for food handling, was subject to the control of the franchisor due to the franchise agreement, leading to apparent agency and the application of vicarious liability.
The franchisor's branding and reputation can create the perception that the franchisee is acting as its agent.

Fiduciary Duties of An Agent

The duty of loyalty, requiring the agent to act in the best interest of the principal.
The duty to refrain from acquiring a material benefit from a third party in connection with transactions on behalf of the principal.
The duty not to deal with the principal as or on behalf of an adverse party.
The duty not to use the principal's property for the agent's own purposes or those of a third party.
The duty not to use or communicate confidential information for the agent's own purposes or those of a third party.
The duty to act within the scope of the agent's actual authority.
The duty to comply with all lawful instructions of the principal.
The duty to act with care, competence, and diligence, and to demonstrate good conduct.
The duty to provide the principal with information they would want to know.

Reading v. Regem

An agent who receives secret profits through their position violates the fiduciary duty of loyalty.
The court declared that "the servant being unjustly enriched by virtue of his service without his master’s sanction."

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Description

Test your knowledge on the legal liabilities of agents and principals in contractual agreements. This quiz covers the responsibilities of agents when acting on behalf of principals and the implications of tortious actions. Determine your understanding of agency law and its practical applications.