Chapter 21: Agency Law
1. The power of attorney generally ends with the death of the principal.
2. In most circumstances an undisclosed principal means that a third party may only hold the agent liable.
3. When a salesperson makes sales contracts with customers for a business owner, agency exists.
4. Agency can only occur if there is a contact between a principal and an agent.
5. If an agent acts outside the scope of authority, the principal is still bound.
6. All agents owe to their principals obligations called fiduciary duties.
7. While there may be contractual liability for ending the agency, no one can be compelled to continue in an
agency relationship.
8. When there is no contract and the agent receives no consideration, the agency is called an implied agency.
9. A power of attorney is a writing that appoints someone as an agent.
10. Commingling is a violation of the duty of confidentiality.
11. An agent must obey the instructions of the principal even if the act is illegal or immoral.
12. The principal is NOT liable for an agent’s criminal behavior unless it had been authorized or ratified.
13. In most contractual situations, when the third party eventually learns of the existence and identity of an
undisclosed principal, the third party may generally elect to hold either the principal or the agent to the
agreement.
14. Implied authority allows the agent to continue to act in behalf of the principal even after the relationship has
been terminated.
15. Even if a change of law makes the agent’s required actions illegal, the agency still is in force.
16. The person who authorizes another in an agency relationship is the
A. agent.
B. employee.
17. Any agreement reached by the agent in an agency relationship binds
A. the agent and the principal.
18. The range of acts authorized by the principal is known as
C. the warranty of the principal’s capacity.
D. none of these.
19. Damages resulting from acts of the agent outside of the agent’s scope of authority can be recovered by the
third party from
C. both a and b.
D. none of these.
20. A warranty of the principal’s capacity is imposed by law on the
C. principal.
D. third party.
21. The fiduciary duty that binds the agent even years after the agency relationship has ended is
A. accounting.
B. care and skill.
22. The principal has an obligation to the agent to
A. pay what was promised for the agent’s services.
B. reimburse expenses.
23. An agency may be terminated
A. according to the terms of the agency agreement.
B. by unilateral action of a party to the agency.
24. Which of the following statements is not true?
C. Contracts made through agents can be avoided by principals who lack contractual capacity.
D. Generally, agents are not personally liable for the contracts they negotiate on behalf of their principals
25. Grant is an outstanding high school basketball player. Although he is a minor, he wants to enter into
contract negotiations with colleges. In this situation, which of these statements is true?
C. Grant’s agent cannot be held liable because Grant lacks contractual capacity as a principal.
D. Because he is a minor and cannot contract with an agent he must act as his own agent.
26. What arises when the principal accepts and retains the benefits of a transaction negotiated by an agent who
acted out of his scope of authority?
A. power of attorney
B. warranty of principal’s capacity
27. Alfonse, acting as Hope’s agent, enters Hope into a modeling agreement that is outside the scope of his
authority. Which of the following statements is true?
C. No fiduciary responsibility exists.
D. None of these is true.
28. Which of the following is not a fiduciary duty?
C. obedience
D. confidentiality
29. A relationship created by an implied or an express agreement or by law, that empowers one of the parties by
word or action to legally bind the other is a(n)
C. estate.
D. insurable interest.
30. Which statement regarding agency termination is most accurate?
C. After termination, the agent will have apparent authority for one full year.
D. After termination, the agent will have implied authority for an indefinite period of time.
31. The agency duty that compels Woody to keep secret the wholesale price his principal pays for merchandise
is called the duty of ____________________.
32. If the agent has acted outside the agent’s __________________ in entering into a contract, the principal is
not bound.
33. ____________________ authority is directly communicated by the principal to the agent orally or in
writing.
34. Any writing that appoints someone as an agent is called a(n) ____________________.
35. ____________________ authority is created when a principal leads the third party to reasonably believe
that a particular person has agency authority.
36. Fiduciary duties require an agent to put the best interests of the ____________________ ahead of her or his
own.
37. At a minimum, the fiduciary duty of ____________________ requires the agent to communicate to the
principal any information that would affect the principal’s decisions.
38. A(n) ____________________ is a formal statement (usually in writing) that tells the principal what
happened to all of the principal’s money or property.
39. The separate accounts for the funds of principals are called ____________________ accounts.
40. If a client’s funds are placed in an agent’s personal or office account, it would be termed a(n)
____________________ of funds.
41. Cindy called Joy and asked her to go to the store and pick out a set of flatware and charge it to Cindy’s
account. Joy was then to take the set to Amy at work so Amy could drop it off at Cindy’s house on Amy’s way
home.What forms of agency authority did Joy and Amy have?
42. Mary, a secretary at the local college, also boards college students. Roger, who boards with Mary, shows
Mary the $3,000 engagement ring he has bought for his girlfriend. In her office duties, Mary types up the list of
students whose accounts are up for review because of nonpayment and she sees Roger’s name on the list. Is
Mary obligated to tell the financial board about the engagement ring? Explain your answer.