1
Chapter 26
Agency Liability to
Third Parties and Termination
TRUE/FALSE QUESTIONS
B1. An executive officer of a corporation normally can conduct ordinary business
transactions without obtaining written authority from the corporation.
B2. The equal dignity rule requires that if a contract entered into by an agent is in
writing, the principal must honor it.
B3. A special power of attorney permits an agent to transact all business for a
principal.
B4. An agent has the implied authority to do what is reasonably necessary to
accomplish the objectives of the agency.
2 TEST BANK B—UNIT FIVE: AGENCY AND EMPLOYMENT
B5. An agent’s implied authority can be implied by custom.
B6. An agent’s authority to act on behalf of a principal must be apparent to be real.
B7. Apparent authority usually comes into existence through a principal’s pattern of
conduct over time.
B8. A principal’s ratification of an agent’s unauthorized act must be express.
B9. A principal cannot be estopped from denying that an agent has authority.
B10. If a principal ratifies a contract without knowing all of the facts, the principal can
rescind the contract.
B11. A principal whose identity is totally known by a third party with whom an agent
contracts on the principal’s behalf is an undisclosed principal.
CHAPTER 26: AGENCY LIABILITY TO THIRD PARTIES AND TERMINATION 3
B12. A disclosed principal is liable to a third party for a contract made by the agent
acting within the scope of his or her authority.
B13. A partially disclosed principal is only partially liable to a third party for a contract
made by an agent.
B14. An undisclosed principal is not liable to a third party for a contract made by an
agent.
B15. A principal is always directly responsible for an agent’s misrepresentation
made within the scope of the agent’s authority.
B16. Under the doctrine of respondeat superior, a principal may be liable for any
harm that his or her agent causes to a third party.
B17. A principal or employer normally is not liable for an agent’s crime even if the
crime was committed within the scope of authority or employment.
B18. An employer is charged with the knowledge of any dangerous condition
discovered by an employee and pertinent to the employment situation.
4 TEST BANK B—UNIT FIVE: AGENCY AND EMPLOYMENT
B19. If either the principal or the agent petitions for bankruptcy, the agency is not
usually terminated.
B20. When the parties terminate an agency, it is the principal’s duty to notify any
third parties who know of the existence of the agency that it has been
terminated.
MULTIPLE CHOICE QUESTIONS
B1. Nuncio serves in a representative capacity for Obadiah. With respect to binding
Obadiah to contracts, Nuncio’s authority
a. may be actual or apparent.
b. must be actual and apparent.
c. must be actual and not apparent.
d. cannot be actual or apparent.
B2. Mikayla, an agent for Nahir, enters into a contract on Nahir’s behalf with Onora
that must be in writing to be enforceable under the Statute of Frauds. Mikayla’s
authority to enter into this contract is not in writing. Under the equal dignity rule,
this contract is
a. enforceable.
b. void.
c. voidable at Nahir’s option.
d. voidable at Onora’s option.
CHAPTER 26: AGENCY LIABILITY TO THIRD PARTIES AND TERMINATION 5
B3. Trucking Dispatch Company and Ucello put their agency agreement into a
written document that describes the rights and duties of both parties. Ucello, as
the agent, has
a. apparent authority.
b. none of the choices.
c. express authority.
d. implied authority.
B4. Darwin serves in a representative capacity for Ewan. To accomplish the
objectives of this relationship, Darwin’s authority can be implied
a. by contradiction.
b. by custom.
c. by whim.
d. under no circumstances.
B5. Based on Esteban’s conduct, Floyd reasonably believes that Glynis has the
authority to act on Esteban’s behalf even though Glynis does not have the
actual authority to do so. Floyd makes a payment to Glynis for Esteban. Glynis
keeps the money and disappears. Esteban
a. can demand that Floyd make a repayment directly to Esteban.
b. can obtain damages from Floyd for Glynis’s misconduct.
c. may be estopped from denying that Glynis had authority.
d. must repudiate Glynis’s misconduct to avoid liability.
6 TEST BANK B—UNIT FIVE: AGENCY AND EMPLOYMENT
B6. Without authorization, Lars contracts on behalf of Mina to have Nemo paint the
interior and exterior of Mina’s house. If Mina decides to ratify the contract, she
must affirm
a. all of the contract.
b. any part of the contract, with Lars liable to Nemo for the difference.
c. any part of the contract before performance begins.
d. any part of the contract at any time.
B7. Donald approves on behalf of Evelyn—but without authorization—a contract
with Farouk to build a new silo. Evelyn does not ratify the contract. The deal
with Farouk is
a. an enforceable contract with Donald.
b. a voidable contract.
c. an enforceable contract with Evelyn.
d. an unaccepted offer.
B8. Linus hires Mieko to act as his agent to purchase Ngoc’s Southeast Asian
Buffet. Linus tells Mieko to reveal only that she is buying the restaurant on
behalf of a third party, without telling Ngoc’s seller who that third party is. Linus
is
a. a disclosed principal.
b. not a principal.
c. an undisclosed principal.
d. a partially disclosed principal.
CHAPTER 26: AGENCY LIABILITY TO THIRD PARTIES AND TERMINATION 7
B9. Clark hires Dimitri to act as his agent to purchase Expo Sports Arena, Inc.
Clark tells Dimitri to reveal that he is buying the firm and its assets on behalf of
a third party and to tell the seller who that third party is. Clark is
a. a disclosed principal.
b. an apparent principal.
c. an undisclosed principal.
d. a partially disclosed principal.
B10. Lena is a salesperson for Musical Instruments, Inc. She tells Nayda, a
customer, that an instrument has a certain quality when, as Lena knows, it
does not. In reliance, Nayda buys the instrument. Liable for this misrepresenta–
tion is
a. no one.
b. Lena.
c. Musical Instruments.
d. Nayda.
B11. Mirena serves in a representative capacity for Netanya. Orla is injured through
Mirena’s negligence. Netanya may be liable to Orla if Mirena’s conduct
occurred
a. due to a propensity Netanya was not and could not have been aware of.
b. during normal working hours.
c. in the course and scope of Mirena’s employment.
d. outside the parties’ employment relationship.
8 TEST BANK B—UNIT FIVE: AGENCY AND EMPLOYMENT
B12. Rodney is an employee of Security Services, Inc. In deciding whether Rodney
acted within the scope of his employment when he committed a tort against
Tracy, a court will not consider whether
a. Rodney indicated that he was acting on behalf of Security Services.
b. Security Services authorized the act.
c. Security Services furnished the means by which the injury was inflicted.
d. the act is one commonly performed by employees for their employers.
B13. Garry drives a truck as an employee for Heavy Hauling, Inc. Garry would most
likely be considered acting outside the scope of her employment if he
a. crashed into a car at the airport while off duty.
b. hit a pedestrian in a parking lot during a “working” lunch.
c. ran over an attendant at a gas station while refueling the truck.
d. smashed into a store-front while intoxicated on-duty.
Fact Pattern 26-1B (Questions B14–B15 apply)
Barney hires Clean Air, Inc., to install a new air conditioning system in his Dental
Clinic, LLP. Barney does not have the right to control the details of Clean Air’s
performance.
B14. Refer to Fact Pattern 26-1B. The relationship between Barney and Clean Air is
a. client and independent contractor.
b. employer and employee.
c. master and servant.
d. principal and agent.
CHAPTER 26: AGENCY LIABILITY TO THIRD PARTIES AND TERMINATION 9
B15. Refer to Fact Pattern 26-1B. While working, Elton, a Clean Air worker, drops a
tool on Francine, Barney’s patient, causing an injury. Barney is
a. liable to Francine because she was injured on Barney’s property.
b. liable to Francine unless Elton’s act is intentional.
c. not liable because Clean Air is an independent contractor.
d. not liable because Clean Air, and thus Elton, are Barney’s employees.
B16. Bayou Development Corporation hires Coastal Brokerage Associates to sell
the condominiums in a building at Bayou Development’s resort. The agency will
terminate
a. after the condos have been sold.
b. if the prices of the condos must be reduced to sell them.
c. once Bayou Development obtains insurance to cover the property.
d. when Bayou Development pays Coastal Brokerage its first commission.
B17. Reliable Insurance Company employs Stuart as an agent. To terminate Stuart’s
authority, Reliable Insurance must notify
a. only third parties who are aware of the agency relationship.
b. the public generally.
c. Stuart and any third parties who are aware of the agency relationship.
d. Stuart only.
10 TEST BANK B—UNIT FIVE: AGENCY AND EMPLOYMENT
B18. On March 1, Eugene retains Farley to act as his authorized agent. On April 1,
Eugene dies. On April 2, before Farley knows of Eugene’s death, he enters into
a contract on Eugene’s behalf. The contract is
a. binding on Eugene’s heirs.
b. binding on Farley.
c. void.
d. voidable.
B19. Orina hires Padget, a real estate broker, to sell her oceanfront house. The
house is destroyed in a hurricane before being sold. Padget is
a. Orina’s agent until Orina’s insurer pays Padget’s commission.
b. Orina’s agent until the destroyed house is sold.
c. Orina’s agent until the destroyed house is rebuilt and sold.
d. no longer Orina’s agent.
B20. Miklos employs Nathalie to handle a list of financial transactions on Miklos’s
behalf. This power will terminate on
a. any transaction causing a loss to Miklos.
b. Miklos’s death or incapacity.
c. Miklos’s sixty-fifth birthday.
d. Nathalie’s handling of one of each stipulated transaction.
ESSAY QUESTIONS
B1. Lakeside Resort hires Micheline to act as its agent to buy a 1,000-acre
waterfront tract of land from Nabil for $1,000 per acre. Lakeside does not want
Nabil to know that it is the principal or that Micheline is its agent. Lakeside
wants the land for a new marina, and believes that Nabil may not sell the land
CHAPTER 26: AGENCY LIABILITY TO THIRD PARTIES AND TERMINATION 11
for that purpose or may demand a premium price. Micheline makes the
purchase, signing only her name on the contract as the buyer and not
disclosing to Nabil the agency relationship. Lakeside gives Micheline the
amount to pay for the land, but she absconds with the funds. Nabil soon learns
of Lakeside’s identity. Can Nabil enforce the contract against Lakeside?
Against Micheline?
B2. Rush’s Pasta & Pizza employs Sigfried as a delivery driver. Rush’s guarantees
that an order will be delivered within thirty minutes or there is no charge, and
insists that its drivers meet the limit. One night, while making a delivery,
Sigfried is caught in a traffic jam. To deliver the order within the thirty-minute
time limit, Sigfried drives onto a sidewalk and hits Tanya, a pedestrian. Is
Rush’s liable to Tanya for her injuries? Is Sigfried liable to Tanya? Why or why
not?
12 TEST BANK B—UNIT FIVE: AGENCY AND EMPLOYMENT