Chapter 19. Relationship of Principal and Agent
1. An agent, acting within the scope of authority granted by the principal, may bind the principal to contracts, but may
not negotiate terms of the contracts.
a. True
b. False
2. The operation of agency involves at least three persons.
a. True
b. False
3. In a partnership, each partner is an agent of the partnership.
a. True
b. False
4. Diane appoints Edward as her agent to sell goods in markets where the highest price can be obtained. Edward sells
the goods in a market that is glutted and obtains a low price, even though he could have obtained a higher price in a
nearby market by using more care in obtaining the available market information. Edward is liable to Diane for breach
of the duty of diligence.
a. True
b. False
5. An agency contract appointing the agent for a period of more than one year does not have to be in writing.
a. True
b. False
6. As a general rule, a person may do through an agent whatever business activity he may accomplish personally.
a. True
b. False
7. Mary employs Tony to purchase for her a suitable site for an office complex. Tony owns a suitable site himself and
sells it to Mary for the fair market value without disclosing to her that he is the owner of the land. Tony has fulfilled
his duties to Mary, because he sold the property for the fair market value, even if he failed to disclose his ownership
of the property.
a. True
b. False
8. A minor can act as an agent for an adult.
a. True
b. False
9. Edward writes to Judy, who is in the business of purchasing goods for others, telling her to purchase certain goods
and ship them to him. Before answering Edward’s letter, Judy does as directed and charges the goods to Edward.
Judy was not authorized to do this because an agency relationship did not yet exist between Edward and Judy.
a. True
b. False
10. An agent can never act for two principals.
a. True
b. False
11. An agent whose compensation depends on his accomplishing a specific result is entitled to the agreed compensation
only if the result is achieved within a reasonable time if no time is stated.
a. True
b. False
12. An agent hired to buy gems for his principal can buy a diamond to give to his wife only if he asks his principal first;
otherwise, he has breached his fiduciary duty.
a. True
b. False
13. A principal owes to any agent the same duties under tort law that the principal owes to all parties.
a. True
b. False
14. The maxim “Qui facit per alium, facit per se” accurately describes the relationship between an independent
contractor and the one who hired him or her.
a. True
b. False
15. A principal may generally revoke the authority of an agent at any time by notifying the agent.
a. True
b. False
16. Unless otherwise agreed, a power given as security may not be revoked.
a. True
b. False
17. Jones, an agent of Rossi, is authorized to sell Rossi‘s ownership of wheat on the commodities market on Monday. On
Monday, however, the market opens with the lowest prices for wheat in two decades. Jones must go ahead and sell
Rossi‘s wheat on Monday.
a. True
b. False
18. In some states, the authority of an agent to sell land must be in writing and signed by the principal.
a. True
b. False
19. The distinction between employee and independent contractor is irrelevant.
a. True
b. False
20. Because the authority given to an agent by a principal is strictly personal, the agent’s death terminates the agency.
a. True
b. False
21. An attorney retained to handle a particular transaction is an independent contractor and also an agent regarding that
transaction.
a. True
b. False
22. If an agent receives a gift from a third person with whom he is dealing on behalf of the principal, he can keep it
without notifying the principal.
a. True
b. False
23. An agent may be liable to his principal if he improperly delegates his authority.
a. True
b. False
24. The fiduciary duty of an agent has a bearing upon his ability to act on behalf of a competitor of his principal.
a. True
b. False
25. Agency relationships are governed primarily by federal statute.
a. True
b. False
26. The principal has a duty to indemnify the agent for losses incurred or suffered while acting as directed by the
principal in a transaction which is not illegal or wrongful.
a. True
b. False
27. A person who engages an independent contractor may control the method and manner used by the contractor to
perform the job.
a. True
b. False
28. “Electronic agents” are not considered agents despite their name.
a. True
b. False
29. An agency agreement does not have to always be in writing.
a. True
b. False
30. All employees are agents, but not all agents are employees.
a. True
b. False
31. All independent contractors are agents, but not all agents are independent contractors.
a. True
b. False
32. A plumber hired to redo the plumbing in a building is an independent contractor and agent of the owner of the
building.
a. True
b. False
33. Agents and principals have mutual fiduciary duties to one another.
a. True
b. False
34. The duty of obedience owed by an agent to a principal is not breached and will not result in liability to the principal if
the agent refused to do an illegal or unethical act for the principal.
a. True
b. False
35. An agent who violates his fiduciary duty loses the right to compensation.
a. True
b. False
36. The appointment of an agent by a minor or an incompetent not under a guardianship and any resulting contracts are
not voidable regardless of the agent‘s contractual capacity.
a. True
b. False
37. Whether a person is an employee or an independent contractor makes a difference in whether the principal has
obligations under certain federal and state statutes.
a. True
b. False
38. Factors in determining whether a person acting for another is an employee or an independent contractor include the
kind of occupation, the skill required, which party supplies the tools, and whether payment is by the job or by time
worked.
a. True
b. False
39. According to the Restatement, whether an agency relationship has been created is determined by using a subjective
test.
a. True
b. False
40. Since the capacity to be a principal depends upon the capacity of the principal to do the act himself, a person cannot
appoint an agent to act for him in the case that he subsequently loses mental capacity.
a. True
b. False
41. A(n)
authority.
a. fiduciary
is an instrument that evidences an agent’s appointment and states the nature or extent of the agent’s
b. indemnification
c. power of attorney
d. qui facit per alium
42. Trudy would breach the duty to inform if she failed to tell her principal:
a. a debtor of her principal has become insolvent.
b. property her principal authorized her to sell at $50,000 could be sold for $53,000.
c. a customer of her principal has become insolvent.
d. All of these.