47. Authority that is not found in the express or explicit words of the principal, but that is inferred from the words is
known as:
a. apparent authority.
b. indirect authority.
c. delegated authority.
d. None of these.
48. Which of the following is true with regard to contractual relations between the principal and a third party?
a. There is no liability on the part of the principal if the agent acts with implied authority.
b. An undisclosed principal and the third party are contractually bound if the agent acts within her actual
authority, unless the contract specifies otherwise.
c. Under the Second Restatement, no principal is bound if the agent acts without any authority.
d. A partially disclosed principal is bound only if the agent acts within the scope of actual authority.
49. An agent is not normally liable on a contract he makes with a third party on behalf of a(n) principal.
a. undisclosed
b. disclosed
c. partially disclosed
d. All of these are correct.
50. Seth grants express authority to Reba to enter contracts on his behalf. If Reba discloses to third parties that she is an
agent for Seth, she has liability on a contract in all but which of the following situations?
a. Reba makes a contract in her own name.
b. Reba makes a contract within the scope of her authority and discloses that she is acting for Seth.
c. Reba co–makes a contract with Seth.
d. Reba guarantees that Seth will perform the contract.
e. Reba cannot be held liable on a contract when she discloses she is Seth’s agent as long as the contract is
within her scope of authority.
51. Under the Third Restatement, an agent who represents an undisclosed principal is discharged from liability if:
a. the third party’s judgment against the principal is satisfied.
b. the third party becomes aware of the principal.
c. after learning the identity of the principal, the third party gets a judgment against the principal.
d. The agent is never discharged from liability.
52. Spoken or written words the principal communicates to the agent create:
a. actual, express authority.
b. actual, implied authority.
c. apparent authority.
d. incidental authority.
53. Under the Second Restatement, except in cases of death or incapacity or where performance of an authorized
transaction becomes impossible, actual notice of termination of agency is required to the third party if she is one:
a. with whom the agent has dealt on credit.
b. to whom the agent has been specially accredited.
c. with whom the agent has begun to deal.
d. All of these.
54. For a ratification to be effective, the principal must:
a. have knowledge of all material facts concerning the transaction.
b. communicate her intent to ratify to the third party.
c. renegotiate the contract with the third party.
d. All of these are correct.
55. Ratification:
a. can only occur after the third person withdraws from the transaction and gives notice of such withdrawal.
b. can be effected by a disclosed or an undisclosed principal according to the Second Restatement.
c. relieves the agent of any liability she may have to the third party by reason of her having induced the third
party to enter the contract without the principal’s authority.
d. may be made by a principal that was not in existence at the time the contract was made.
56. Respondeat superior:
a. imposes vicarious liability on the agent.
b. makes a principal liable for the acts of independent contractors.
c. imposes vicarious liability on the principal for employees’ acts committed within the scope of employment.
d. makes the agent responsible for his own acts
57. When there was a contract with a previously undisclosed principal, the Third Restatement:
a. holds that a third party’s rights against the principal are alternative to the third party’s rights against the agent
b. rejects the election rule.
c. follows the same rules as the Second Restatement regarding a third person’s rights against a principal and
agent.
d. All of these.
58. Under the Second Restatement, which of the following is correct with regard to a contract entered into with a third
person by an agent of an undisclosed principal?
a. The agent has no liability to the third person if the agent has acted within the scope of her authority.
b. The agent is personally liable upon the contract unless the third person discovers the existence and identity of
the principal and elects to hold the principal to the contract.
c. Once the third person learns of the existence and identity of the principal, that third person may hold both the
principal and the agent to the performance of the contract.
d. If the third party obtains a judgment against the principal, the agent may still have liability to that third party.
59. Regarding the termination of an agency, the Third Restatement:
a. distinguishes between terminations based on death of a principal and terminations based on incapacity of the
principal.
b. applies the same rule to all causes of termination; it applies a reasonableness standard.
c. applies the same rule to all causes of termination; it applies the actual notice standard.
d. applies the same rule as under the Second Restatement; a principal’s death automatically ends the agent’s
apparent authority.
60. Jack was fired by Larry but decided to try to win back his job as agent by getting a big new contract. He
approached Sharon, a new client, and made a pitch to sell Larry‘s product. Sharon agreed to buy 100. Jack tells
Larry. What are the legal consequences?
a. Larry has to hire Jack again and then make the deal.
b. Larry would have to ratify the deal to get the benefit of the contract.
c. Larry would have to negotiate the deal with Sharon himself.
d. Jack would forfeit his commission if Larry ratified the contract.
61. Which of the following is correct under the Second Restatement with regard to actual notice to a third party of the
termination of an agent‘s authority to act on behalf of the principal?
a. Publication in a newspaper of general circulation in the area is sufficient if the third party is one with whom
the agent had previously dealt on credit.
b. If notice is given by mail, it is effective as actual notice upon delivery to the third party.
c. A personal telephone call to the third party will not suffice, because actual notice must be in writing.
d. Actual notice is not required when the agent has been specially accredited to deal with the third party.
62. If Carol, acting as agent for Steve, signs a contract, she alone will be personally bound by it:
a. if Steve’s name or the fact that Carol is an agent is never mentioned and Steve does not carry out the
contract.
b. never; as an agent she is only a representative.
c. if she decides to sue.
d. if Steve is discovered by the third party to be the principal and the third party elects to hold him liable for
performance.
63. Bryant, doing business as Fair Realty, employs Chris and Deborah as salespersons. Tammy contracts with Bryant to
sell her house because she is aware of the good reputation of Fair Realty’s salespersons. In this situation:
a. Chris and Deborah are agents of Tammy and Fair Realty but they have no authority to show Tammy’s house
to prospective purchasers and to make representations about the house unless Tammy expressly and explicitly
grants this authority directly to them.
b. Chris and Deborah are employees/agents of Fair Realty and subagents of Tammy, and they have authority to
show Tammy’s house to prospective purchasers and to make representations about the house.
c. Bryant cannot appoint subagents because Tammy’s appointment of him reflected her confidence in and
reliance upon his personal skill, integrity, and other qualifications.
d. Chris and Deborah are subagents of Fair Realty and, as such, have a fiduciary duty only to Fair Realty.
64. Susan is planning to incorporate a new landscaping company, “Evergreen and Growin’.” She has held herself out as
an agent for Evergreen and has contracted to buy a truck, tools, fertilizer, and seed and also has entered into a lease
on behalf of Evergreen for an office. When she fails to get the loan from the bank, she cannot start the business, so
she cancels all the contracts. What are the consequences?
a. Susan can cancel all the contracts with no personal liability if she told them she was acting as an agent and
expressly warranted that she would not be responsible.
b. Susan may be held personally liable on the contracts because she misrepresented to third parties that she had
authority to make contracts on behalf of a non–existent corporation.
c. Since the company never existed, she gave no implied warranty.
d. Susan will be held liable for the contracts only if she ever gets the loan.
65. Sam is a sales representative for the INC Corporation. Sam has a terrible driving record and has had his driver’s
license revoked, but nevertheless he continues to drive the company car for his job. One day he drives too fast for
conditions, goes through a red light, and strikes a pedestrian. The accident happened despite the fact Sam’s
supervisor at INC had repeatedly reprimanded him and advised him to drive more cautiously. INC has:
a. no liability, because they did not authorize Sam to drive carelessly.
b. no liability, because Sam’s actions were not a tort.
c. liability even though it did not authorize Sam to drive carelessly, because it employed an improper person as its
agent.
d. no liability, because it has adequately supervised Sam as its agent.
66. John agreed to build a new house for Ted. Unknown to John, Ted was an agent for Russell Realty. John built the
house as agreed. When Ted refused to pay, John became aware that Ted was an agent for Russell. John wants to
sue on the contract. Under the Second Restatement, John:
a. must sue Ted, because Ted is the person with whom he dealt.
b. can collect judgments against Ted and Russell.
c. must sue Russell, because Russell is the principal.
d. can sue either Ted or Russell.
67. Leonard is a traveling salesman for Bighorn, Inc. He calls on Ralphyl, one of his regular accounts, in order to solicit
another order. While in the store, Leonard collects a past due account for Bighorn, but he doesn‘t get another order.
It has been a bad day in which Leonard hasn’t had any orders. He is so angry about this when he leaves the store
that he drives negligently and hits a pedestrian with his car. In this case:
a. Bighorn has no liability for Leonard’s negligence, because Leonard is responsible for his own negligent
conduct.
b. since he was driving at the time of the negligent conduct, Leonard was no longer within the scope of his
employment.
c. Bighorn will be liable for Leonard’s negligence under the doctrine of respondeat superior.
d. Leonard is an independent contractor and, therefore, Bighorn will have no liability for his negligence.
68. Charles states he has authority to contract for Wyatt and that he will be personally liable if he does not in fact have
the authority to bind Wyatt. Identify the name and effect of Charles’s statement. If Charles enters the contract
without making such a statement, is there a way the same effect could result?
69. Discuss whether the principal is liable in each of the following situations. Explain your answer.
Andrew hires Patricia, an attorney, to negotiate a contract to purchase some property. He
agrees to pay her $75 an hour for her services, and she agrees to use her own office and
a. secretarial staff to negotiate and draft the agreement. One day, Patricia is driving her own
automobile to a meeting with Edward to discuss the purchase of the land that he owns. Patricia
drives too fast for conditions and has a minor traffic accident that results in $600 damage to the
other vehicle.
George owns a retail store. He hires Carolina to work for him as a salesclerk in the small
b. appliance department. George instructs Carolina to make certain representations to customers
regarding a microwave oven, which Carolina sells. George knows these misrepresentations are
false, but Carolina does not. Henrietta buys a microwave in reliance on the misrepresentations.
George owns a retail store. He hires Carolina to work for him as a salesclerk. George doesn’t
c. specifically tell Carolina to make misrepresentations, but he gives ambiguous instructions to her
that led her to believe she should make such misrepresentations. Henrietta buys a microwave
based upon the mistaken information conveyed to her by Carolina.
Megaborne Corporation hires Ed as an outside salesman and instructs him to call on customers
in a specified territory and to solicit orders for their products. One day Ed is driving the
d. company car to call on a client. He accidentally drives the wrong way on a one–way street and
has an accident with another vehicle that results in $6,000 in property damage and $30,000 in
medical expenses.
The Advanced Business Machines Company (ABMC) hires John as an outside salesman for its
computers. It sets high sales quotas for him and instructs him to beat up salesmen from
e. competing firms in order to keep them away from ABMC customers. In order to meet his
monthly sales quota, John roughs up Ralph, who is a salesman for a competing firm and then
tells Ralph to find his own customers and to stay away from John‘s territory.
70. Answer the following:
a. When is the principal liable for the torts committed by an agent?
b. When is the principal liable for the crimes committed by an agent? Explain.
71. Arthur, who works for Peter, sees what he thinks is a good deal for Peter. Without asking whether he has authority
to negotiate the deal, Arthur enters into a contract on Peter’s behalf. Peter says later that he isn’t interested. Is Peter
liable on the contract? Is Arthur liable on the contract? Explain.
72. Answer the following:
a. What is an undisclosed principal?
b. What is a partially disclosed principal?
c. What liability does an agent have to a third party when the principal is either undisclosed or
partially disclosed?
Stan is asked to be an agent for Roscoe, but Roscoe does not wish third parties to know that
d. Stan represents him. In light of your answer to part (c), why would Stan want to be an agent for
Roscoe? Why would Roscoe wish that third parties not know his identity? Explain.
73. Southern Furniture Co. hired Chuck to drive a company truck and deliver furniture. Chuck had a spotless driving
record and did well on his driving test. Belinda ordered a chair from Southern Furniture Co. and arranged for its
delivery on her lunch hour. Belinda was at home when Chuck delivered the chair. After delivering the chair, Chuck
brutally assaulted Belinda, causing physical and psychological injuries. Chuck was convicted in the criminal courts.
During the trial it was revealed that Chuck had been in a mental institution for the criminally insane for two years
because he had assaulted his mother and other women. He also had a lengthy criminal rap sheet involving theft
crimes. Belinda sought compensation for her physical and psychological injuries from both Chuck and Southern
Furniture Co. in civil court. Discuss the probable outcome of this case with regard to the issues of: (a) respondeat
superior and (b) general tort liability of principals for the unauthorized acts of their agents.
74. Paul is a truck driver who owns his own truck and delivers loads to various companies for nine months out of the
year. For the hard winter months Paul goes to Key West to “put his feet in the sand.” One evening while delivering a
load for Emblem Helicopter Parts Co., Paul got into a “little scuffle” with a rowdy trucker who was giving Nell, a
waitress at the DewDrop Inn Cafe, a hard time. Paul knocked out five of “Rowdy’s” teeth. Rowdy is suing Paul and
Emblem for his injuries. Discuss whether Rowdy will win against Emblem on the issue of: (a) respondeat superior
and (b) unauthorized acts of agents.
75. Discuss apparent authority and some common ways in which it might arise.