The Legal Environment of Business, 8e (Kubasek)
Chapter 15 Agency Law
1) Expressed authority arises out of ________.
A) prior agreements between the principal and the agent
B) specific statements made by the principal to the agent
C) a principal’s ratification of an unauthorized agreement
D) a principal’s conduct toward a third party
2) Which of the following types of agency relationships serves as the foundation for the other
types of agency relationships?
A) principal-agent relationship
B) employer-employee relationship
C) employer-independent contractor relationship
D) dual agency
3) Under the doctrine of ________, the master is responsible for the servants’ acts that are within
the scope of their employment.
A) caveat emptor
B) respondeat superior
C) res ipsa loquitur
D) post hoc ergo propter hoc
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4) Which of the following statements is true about an independent contractor?
A) An independent contractor is typically paid on a monthly basis.
B) An independent contractor typically works only for one employer.
C) An independent contractor’s physical conduct or details of work performance are not
controlled by the employer.
D) An independent contractor uses only the tools supplied by the contracting party.
5) Ralph is a skilled carpenter who supplies his own tools. He works only until a job is
completed, then gets paid, and moves on to the next job. In an agency relationship, Ralph is a(n)
________.
A) principal
B) independent contractor
C) employee
D) employer
6) Which of the following is a difference between an employer-employee and an employer-
independent contractor relationship?
A) An employer pays unemployment insurance taxes and medical benefits for employees but not
for independent contractors.
B) An employer controls an independent contractor’s physical conduct and details of work
performance but not an employee’s physical conduct and work performance.
C) An employer can be held liable for torts committed by an independent contractor but not for
the torts committed by an employee.
D) An employer supplies the tools and equipment required by independent contractors, whereas
employees are expected to bring their own tools and equipment.
7) Which of the following is not a factor courts consider when deciding whether a worker is an
employee or an independent contractor?
A) whether the hired person has a distinct occupation
B) whether the hired person has a distinct profession
C) whether the hired person supplies his or her own tools
D) whether the hired person is a resident of the state in which the employer is incorporated
8) Which of the following is not a factor courts consider when deciding whether a worker is an
employee or an independent contractor?
A) whether the hired person supplies his or her own equipment
B) whether the hired person is employed only for a specific time period
C) whether the hired person is paid hourly or on completion of the job
D) whether the hired person is labeled by the employer as an employee or an independent
contractor.
9) Which of the following is an incorrect statement regarding the employer-independent
contractor relationship?
A) Independent contractors are hired by the principal-employer to do a specific job.
B) Independent contractors are controlled with respect to their physical conduct in performing a
specific job.
C) Independent contractors are not controlled with respect to the details of their work
performance.
D) For independent contractors, employers are normally not required to make payments into
workers’ compensation pools.
10) Which of the following is an incorrect statement regarding the employer-independent
contractor relationship?
A) For independent contractors, employers are normally required to withhold Social Security
amounts.
B) Employers are not usually liable for the torts committed by their independent contractors.
C) When called on to distinguish between an employee and an independent contractor, courts
scrutinize the degree of control the employer has over the agent.
D) To escape paying unemployment insurance taxes as well as medical benefits, many
employers in recent years have classified their workers as independent contractors or part-time
workers.
11) Charlie is a plumber who uses his own tools to work. He is generally hired for specific jobs
for short durations. He receives lump sums after completing these jobs. Which of the following
statements is true of this scenario?
A) Charlie’s physical conduct is controlled by his employer.
B) Charlie is the principal in an agency relationship.
C) Charlie is an independent contractor.
D) Charlie can work for only one employer at a time.
12) An independent contractor ________.
A) receives medical benefits from the employer
B) is paid a salary regularly
C) uses only the tools supplied by the employer
D) is free to work for more than one employer
13) Actual authority includes both expressed authority and implied authority.
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14) The employer-employee agency relationship is the only one that is subject to worker’s
compensation, Social Security, and unemployment compensation laws.
15) Discuss the various types of agency relationships.
16) How did companies use the differences between employer-employee relationships and
employer-independent contractor relationships to reduce costs in the competitive business
environment of the 1990s?
17) Which of the following is an incorrect statement regarding the creation of an agency
relationship?
A) Agency relationships can be created by informal oral agreements.
B) Agency relationships can be created by formal written contracts.
C) Under the statute of frauds, some states require that all agency contracts be in writing.
D) An agency agreement must be filed with the secretary of state in the state where the
agreement is executed.
18) An agency agreement may be formed in all but which of the following ways?
A) expressed agency
B) implied authority
C) apparent agency
D) the principal’s revocation of the agent’s previous acts
19) Which of the following forms of agency relationships does a power of attorney document
establish?
A) agency by agreement
B) agency by implied authority
C) agency through ratification
D) agency by estoppel
20) Agency by ________ is an agency relationship in which the customs and circumstances,
rather than a detailed formal agreement, determine the agent’s authority.
A) implied authority
B) expressed authority
C) estoppel
D) ratification
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21) Courts generally allow agents to do all but which of the following?
A) receive payments of money due the principal
B) enter into contracts for incidentals
C) employ or discharge employees
D) enter into a contract for an illegal purpose, so long as the subject matter of the contract is
legal
22) Amy writes a letter to Bill requesting him to deal with all employment matters at her
business until she returns from a visit to a foreign country. Bill replies and accepts her request.
Which of the following types of agency relationships have Amy and Bill established?
A) agency by implied authority
B) agency by agreement
C) agency through ratification
D) agency by estoppel
23) Carol learns that Dave has hired a new employee to work at her company. Although Dave
did not have permission to hire the new employee, Carol likes the new employee and decides to
honor all the terms of the employment contract that Dave negotiated. Which of the following
types of agency relationship have Carol and Dave formed?
A) agency by implied authority
B) agency by agreement
C) agency through ratification
D) agency by estoppel
24) Which of the following statements is true of an exclusive agency contract?
A) It does not permit an agent to work for a different principal for the duration of the agreement.
B) It occurs when an unauthorized agent commits a principal to an agreement which the
principal later accepts.
C) An agent can recover monetary damages, court costs, and attorney’s fees if a principal fails to
live up to this agreement.
D) An agent has the authority to make decisions concerning a principal’s medical care in the
event of a serious illness that renders the principal mentally incompetent.
25) Which of the following statements is true about the power of attorney?
A) For business purposes, an agent’s authority is determined by customs, circumstances, and the
facts of a situation rather than a written or oral agreement.
B) It permits a principal to deny that someone is the principal’s agent after leading a third party
to believe that the person is an agent.
C) It is formed when an unauthorized act of an agent is accepted by a principal.
D) It gives an agent the authority to sign legal documents on behalf of a principal.
26) Agency by ________ occurs when a person misrepresents himself or herself as an agent and
the principal accepts the unauthorized act.
A) ratification
B) rescission
C) revocation
D) rejection
27) Edward leaves Sarah, the cashier, in charge of his gasoline service station while he goes
home to have lunch. He tells her not to accept any auto repair jobs. During the lunch break, a
customer leaves his car with Sarah to be serviced for a minor engine problem. When Edward
returns, he accepts the repair job. Which of the following types of agency relationship is most
likely to have been formed here?
A) agency by implied authority
B) expressed agency
C) agency by estoppel
D) agency by ratification
28) Which of the following is a condition for an agency by ratification to be effective?
A) A principal must give prior authorization to an agent.
B) A principal should lead a third party to believe that an individual is his or her agent.
C) The existence of a principal must be clear to a third party at the time of an agent’s
unauthorized act.
D) An agent must carry an authorization letter that establishes that he or she is the principal’s
agent.
29) Which of the following agency relationships is formed when a principal leads a third party to
believe that a certain person is acting as an agent for the principal?
A) expressed agency
B) agency by implied authority
C) agency through ratification
D) agency by estoppel
30) Which of the following is an agency that is formed when an unauthorized act of an agent is
accepted by the principal?
A) expressed agency
B) agency by implied authority
C) agency through ratification
D) agency by estoppel
31) Which of the following statements is true about an agency by ratification?
A) A principal must have full knowledge of an agent’s actions for the agency to be effective.
B) It occurs when a third person is led to believe by a principal that a certain individual is the
principal’s agent.
C) It occurs when a principal draws up a legal document to establish an agency relationship
before an agent undertakes any action.
D) A third party must be unaware of the existence of a principal at the time of an agent’s act for
the agency to be effective.
32) Brooke enters into a contract with Max to purchase several electronic goods. Brooke claims
to be Jack’s agent, even though she is not. Which of the following agency relationships is formed
if Jack honors the contract?
A) agency by estoppel
B) agency by ratification
C) agency by implied authority
D) agency by agreement
33) Richard wants to purchase Maria’s farm. Maria leads Richard to believe that Simon is her
agent, even though he is not. Which of the following statements is true of this scenario?
A) Simon cannot represent Maria as she has not authorized him to be her agent.
B) Agency through ratification grants Richard the authority to buy Maria’s farm.
C) Maria is estopped from denying that Simon is her agent.
D) Simon can act on behalf of Maria only if she suffers from an illness that renders her mentally
incompetent to take any decisions.
34) Which of the following statements is true of agency by estoppel?
A) It determines an agent’s authority based on customs, circumstances, and the facts of a
situation.
B) If a third person is led by a principal to believe that a certain individual is the principal’s
agent, it grants an agent the authority to act.
C) It is formed when a third party is unaware of the existence of a principal.
D) It occurs when an unauthorized agent commits a principal to an agreement and the principal
accepts the unauthorized agreement.
35) In an exclusive agency contract, the agent agrees not to work for another principal for the
duration of the agreement.
36) Agency agreements that will last up to six months must be in writing according to the statute
of frauds.
37) An agency relationship formed through oral agreement is also considered as an expressed
agency.
38) Unless the agency contract says otherwise, courts have generally allowed agents to enter into
contracts for incidentals.
39) Apparent authority for an agent to act is created by the words or actions of the agent.
40) Explain the authority granted to an agent in different types of powers of attorney.
41) How is an agent’s authority determined in an agency by implied authority? What do courts
generally permit agents to do?
42) When does agency by ratification occur? What are the conditions necessary for it to be
effective?
43) Which of the following occurs if both a principal and an agent cannot agree on the
compensation?
A) The principal is no longer bound by the duty of compensation.
B) Compensation will be calculated on the basis of what is reasonable or customary.
C) Compensation will be calculated according to government wage rates.
D) Compensation will be determined by the full faith and credit clause of the U. S. Constitution.
44) A principal’s duty to reimburse an agent for losses the agent suffers while acting on behalf of
the principal is known as the duty of ________.
A) accounting
B) cooperation
C) indemnification
D) compensation
45) The duty of cooperation prevents a principal from ________.
A) engaging in behavior that interferes with the reasonable conduct of an agent as agreed upon in
a contract
B) engaging in behavior that violates the standards set for creating a safe working environment
for employees
C) ratifying an agent’s unauthorized actions
D) indemnifying an agent for losses suffered on the principal’s behalf
46) An agent’s duty of loyalty requires the agent to ________.
A) use reasonable care and skill in performing work
B) live up to the standards of performance expected of an independent contractor
C) follow all reasonable and lawful instructions of a principal
D) avoid conflicts of interest while acting on behalf of a principal
47) Tracy works as an agent for Medical Imaging X. Her principal has informed her that she
cannot sell an X-ray machine for less than $20,000. If she directs customers to a competitor who
is selling the same product, which of the following duties of an agent would she be violating?
A) performance
B) cooperation
C) loyalty
D) accounting
48) Which of the following statements is true of the duty of compensation?
A) It does not permit an agent to be paid on a contingency fee basis.
B) If the parties in an agency cannot agree on the amount, courts will usually award the
compensation claimed by one of the parties.
C) It requires a principal to compensate an agent for any losses incurred when the agent is acting
on behalf of the principal.
D) It requires a principal to compensate an agent for services rendered even in the absence of a
written agreement.
49) Which of the following statements is true of the duty of reimbursement and indemnification?
A) It bars agents from claiming expenses arising out of negligence or unlawful activities.
B) It requires a principal to compensate an agent for services rendered even in the absence of a
written agreement.
C) It mandates that a principal should pay a contingency fee to an agent upon conclusion of the
business transaction.
D) It forbids a principal from interfering with the reasonable conduct of an agent as agreed upon
in a contract.