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McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 20: Agency and Other Methods of Carrying on Business
True/False Questions
1) Wayne is an agent for Sarah, a professional hockey player. For two seasons, he has
helped Sarah negotiate her contract with the Saskatoon Hilltops Hockey Team. He has
never signed her contract. Sarah always signed her contract herself and usually she
participates in the negotiations. This year, after a hard negotiating session that Sarah did not
attend, he signed a contract on her behalf. The contract is binding because as an agent,
Wayne has the absolute unconditional power to act on behalf of Sarah, his principal.
a. True
b. False
2) Jeremy is a singer. For several months, he and his friend George have discussed the fact
that Jeremy needs an agent if he is to move forward with his career. George has proposed
that he be that agent. Jeremy has never agreed to George acting as his agent. A few weeks
later, however, George attended a negotiating session between Jeremy and a record
company. After several hours, George said that Jeremy would agree to the terms of the
recording contract proposed by the record company. Jeremy said nothing. There is a
contract between Jeremy and the record company.
a. True
b. False
3) Jennifer is the president and chief executive officer of Starburst Co, a corporation
incorporated under the Canada Business Corporations Act carrying on a television
production business. She has been discussing a new show with Stein. She enters into an
agreement to buy Stein’s idea for a new show. The by-laws of the corporation state that the
president cannot agree to buy new story ideas without the approval of the board of
directors. Jennifer did not obtain the approval of the board to buy Stein’s idea. The contract
is binding on Starburst nevertheless.
a. True
b. False
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 20: Agency and Other Methods of Carrying on Business
4) Marta agrees to buy two tons of tomatoes from Argus Farm Products Inc hoping that she
can find a principal to take responsibility for the contract. In her discussions with Argus,
she does not indicate that she intends only to contract as an agent for a principal that she
hopes to find. If Fresh Vegetables Ltd ratifies the contract, it can only be enforced by Argus
against Fresh Vegetables Ltd.
a. True
b. False
5) Sherwood entered into a contract to buy some real estate from Idris Real Property Inc. on
behalf of Mento Corp, a major developer. Sherwood told Idris that he was the vice-
president of acquisitions at Mento. In fact Sherwood is not affiliated with Mento in any
way and has no authority to act on behalf of Mento. Sherwood is not liable to Idris under
the contract, but would be liable to Idris for breach of warranty of authority.
a. True
b. False
6) Samantha was the vice-president of purchasing for Amsterdam Books Inc, a chain of
retail bookstores. She hired Anthea as a buyer of children’s books for the chain. Storm
Coast Books Ltd had never dealt with Amsterdam before. Anthea turned up at their offices,
told them she was a buyer for Amsterdam and gave out the business cards that Amsterdam
had printed for her. Anthea entered into a contract with Storm Coast Books Ltd to buy 5000
copies of a new adventure book. Unfortunately, Samantha had no authority to hire Anthea.
A section in the corporation’s by-laws provides that only the president of the corporation
can hire buyers. The contract is nevertheless enforceable by Storm Coast Books.
a. True
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 20: Agency and Other Methods of Carrying on Business
b. False
7) An agent can be liable for a contract that it negotiates on behalf of an unidentified
principal.
a. True
b. False
8) TopCo Inc appointed Ethel as its agent to negotiate a building lease on its behalf with
DeGroot Realty Inc. At one point in the negotiations, DeGroot says to Ethel that it will buy
her a new car if the negotiations are completed by the end of the week. Ethel cannot accept
the car unless she obtains the permission of TopCo.
a. True
b. False
9) Information Highway Inc enters into an agreement with Groulx under which Groulx
agrees to act as Information Highway’s agent in obtaining a permit for Information
Highway to build an office tower in St. John. Groulx pays a bribe of $1000 to an employee
of the city to issue the permit. Information Highway must reimburse Groulx for the bribe
because it is an expense incurred in performing his responsibilities.
a. True
b. False
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 20: Agency and Other Methods of Carrying on Business
10) Alma contracts with Comvey Corp to act as its agent in purchasing fork lift trucks.
Alma told Comvey that she did not know anything about fork lift trucks or Comvey’s
business but was willing to learn and happy to have the opportunity. Comvey said that it
would train her but the training never occurred. Comvey needed five forklift trucks to
operate a freight terminal. Alma bought five forklift trucks for Comvey. It turned out that
the trucks were too large for use in the terminal. Comvey cannot get its money back. It has
an action for breach of duty of care against Alma for damages to compensate for its losses.
a. True
b. False
11) Mori is an employee of Garvie Corp, a film production business. Mori’s job is to
negotiate with screenplay writers for the rights to use the screenplay writers’ work. He was
given authority to sign a contract on behalf of Garvie with Joseph, a screenplay writer, for a
specific screenplay. In October, a contract is concluded by Mori on behalf of Garvie with
Joseph for the rights to that screenplay. In November, Mori enters into another contract
with Joseph for a different screenplay. Neither Mori nor Garvie have ever said anything to
Joseph about Mori’s authority to act for Garvie. The contract is binding on Garvie.
a. True
b. False
12) Selma Corp and Kor Industries Inc are steel producers that have entered into a joint
venture to recycle their waste. They have set up a corporation, Re-Steel Co, to carry on the
joint venture business. Selma and Kor are shareholders and each has a nominee on the
board of directors. The employees of Selma and Kor must be agents of the joint venture.
a. True
b. False
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 20: Agency and Other Methods of Carrying on Business
13) Tony is a sophisticated business person. Tony’s stock broker advises him to buy 1000
shares of Q-Tel at the current market price of $10 per share. The broker’s advice is based on
a careful assessment of the market and Tony’s advice to the broker about his risk tolerance.
Tony takes the advice and directs his broker to buy the shares. The shares turn out to be a
very bad investment and, after six months, are worthless. Tony has no claim against his
broker.
a. True
b. False
14) Grosjean is employed as a truck driver by Newcastle Co. One day while he is making
deliveries for Newcastle in its delivery van, he notices that the van is low on gas. He uses
his own money to buy gas so that he can complete his deliveries that day. In the absence of
a provision in Grosjean’s contract with Newcastle to the contrary, Newcastle is obliged to
reimburse Grosjean for the cost of the gas because it was an expense reasonably incurred
by him in carrying out his duties for Newcastle.
a. True
b. False
15) Berta has entered into an agreement with Boys R’Us Inc to operate a men’s clothing
store as a franchisee in Scarborough, Ontario. Boys R’Us operates franchise stores in all
provinces and has a great reputation as a place where men can get good quality clothes for a
good price. One of the advantages to Berta of operating a men’s clothing store as a Boys
R’Us franchise is that she will likely obtain a licence of the Boys R’Us trademark and the
assistance of Boys R’Us in the operation of the business.
a. True
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 20: Agency and Other Methods of Carrying on Business
b. False
Multiple Choice Questions
1) Silken is a producer of snowboards. She wants to enter into a commercial representation
agreement with Jason. Under the agreement, he will sell her snowboards on her behalf to
retail ski shops. Which of the following is TRUE?
a. Jason will only have the authority to contract with the retail ski shops that Silken actually
gives him.
b. Jason will have no authority to contract with the retail ski ships. Instead, he will buy the
snowboards from Silken and resell them to the ski shops.
c. Jason will only have the authority to contract with the retail ski shops that Silken
represents to the ski shops that he has.
d. Jason will have the authority to contract with the retail ski shops that Silken represents to
the ski shops that he has and the authority she actually gives him.
e. Jason will have to obtain Silken’s approval before any transaction he makes is valid.
2) Agency relationships arise in which of the following circumstances?
a. Each partner is an agent of the partnership.
b. Directors, officers, and employees of a corporation can be agents of the corporation for
particular purposes.
c. Agency can only be created by express contract.
d. Agency can be created only by the principal telling someone that another person is their
agent.
e. Agency can be created by actual authority or apparent authority.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 20: Agency and Other Methods of Carrying on Business
3) Puporting to act on behalf of Otton Mining Inc, Gaetan signed a contract to purchase
some mining claims from Boucher. Boucher believes it is contracting with Otton. In fact,
Gaetan had no authority from Otton to contract on its behalf. He had never discussed
buying the claims with Otton, but he thought that Otton would be interested in the claims
and would pay him a commission for arranging for Otton to buy them. Which of the
following is TRUE?
a. The contract can never be binding on Otton since it was negotiated without any authority
from Otton.
b. The contract will be binding on Otton if Otton ratifies the contract either expressly or
impliedly.
c. The contract is only binding on Gaetan personally and there is no way for Otton to be
bound by this contract even if Otton wants this contract.
d. The contract is binding on Gaetan personally and he can only avoid liability if Otton
ratifies the contract.
e. The contract is binding on Otton and Gaetan.
4) In the absence of some specific contractual requirement, an agency arrangement may be
terminated by
a. the agent giving notice to the third parties it has contracted with for the principal
b. the principal giving notice by newspaper advertisement that the agency relationship is
over
c. the principal and agent disagreeing about any issue whatsoever
d. the performance of the agency becoming more difficult than first imagined
e. the principal giving notice to the agent that the agency agreement is terminated
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 20: Agency and Other Methods of Carrying on Business
5) On January 1, 2001, Daniel negotiated a contract on behalf of Compu/sys Inc for the
supply of a computer system to Leader Co. The contract called for the supply by
Compu/sys Inc of hardware and maintenance services for two years in return for $1 million.
Daniel had no authority to negotiate this contract on behalf of Compu/sys. After 18 months
of negotiations, Compu/sys agreed to perform the contract in part. The corporation agreed
to provide the hardware but not the maintenance services. At the time it made this
commitment it had gone bankrupt. Which of the following is TRUE?
a. Compu/sys ratified the contract even though it did not agree to the obligations under the
contract within a reasonable time.
b. Compu/sys has ratified the contract because it has agreed to some of the obligations
under the contract.
c. Compu/sys has ratified the contract because a bankrupt corporation can ratify a contract.
d. If Compu/sys has not ratified the contract, Daniel will not be personally liable in any
circumstances.
e. Cumpu/sys did not ratify the contract because a bankrupt principal does not have the
capacity to ratify a contract.
6) Carleton Computer Sales Inc carries on a business of buying and selling computers. Tara
is negotiating to sell her computer to Carleton but no agreement has been reached between
Tara and Carleton. In anticipation of selling it to Carleton, Tara agreed to leave her
computer on a display rack at Carleton’s store. Carleton sells Tara’s computer to Eli for
$1000, telling Eli that Carleton owned the computer. Which of the following best describes
Tara’s legal position based on the law of agency?
a. Tara is entitled to get her computer back because she never gave Carleton authority to
sell it to Eli.
b. Tara may not be able to get her computer back because by leaving her computer with a
computer dealer on its display rack, she represented to anyone who came into the store,
including Eli, that Carleton had authority to sell the computer for her.
c. Tara will not be able to get her computer back because Eli reasonably relied on the
statement by Carleton that it owned the computer.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 20: Agency and Other Methods of Carrying on Business
d. Tara is entitled to get her computer back because Eli cannot rely on the statement by
Carleton that it owned the computer.
e. Tara has no remedy of any kind.
7) Orton Corp is incorporated under the Canada Business Corporations Act. It carries on a
business running tour boats on the Bow River in Calgary. The articles of the corporation
provide that Orton Corp may not enter into a lease unless the board of directors approves it.
Joe, the president of the corporation, goes to West End Real Estate Inc, tells West End that
he has authority to enter into a lease on behalf of the corporation, and signs a lease for some
office space for the business. The board of directors never approves the lease. Which of the
following is TRUE?
a. The lease is not enforceable because the president did not have authority to enter into a
lease on behalf of the corporation.
b. The lease is enforceable because leases of offices are transactions within the usual
authority of the president of a corporation, and even though the articles provided that the
president does not in fact have authority to enter into a lease, the president would have that
usual and apparent authority.
c. The lease is not enforceable because leases of offices are not transactions within the
usual authority of the president of a corporation.
d. The lease is not enforceable because West End should have obtained proof that the
president had sufficient authority to enter the lease on behalf of the corporation.
e. The lease is enforceable because all businesses must lease premises from time to time.
8) Jasmine enters into a contract to provide limousine services to Erin. Later, Jasmine tells
Erin that she was acting as an agent on behalf of Big White Limousine Services Ltd. Which
of the following is TRUE?
a. Erin can enforce the contract against Jasmine alone.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 20: Agency and Other Methods of Carrying on Business
b. Erin can enforce the contract against Big White alone.
c. Erin can enforce the contract against Jasmine or Big White, whichever she chooses.
d. Erin cannot enforce the contract.
e. Jasmine has the option not to perform the contract.
9) Four people, who are not partners, buy and sell a large number of apartment buildings.
One of them, Marius, enters into a listing agreement with a real estate agent to sell one
building. Marius says that he has authority to bind all four owners to the listing agreement.
In fact, none of the others have authorized Marius to enter into the listing agreement, and
they have no intention of selling their interests in the building. Which of the following is
TRUE?
a. The listing agreement can be enforced against the other owners because Marius did have
actual authority to act on their behalf.
b. The listing agreement is enforceable on the basis that it was entered into in the normal
course of business.
c. Even if the agreement may not be enforced, the real estate agent may have a claim
against Marius for defamation.
d. The listing agreement can be enforced against the other owners because the real estate
agent can rely on the statements of Marius to give him apparent authority to enter the
contract on behalf of the others.
e. The listing agreement is not enforceable as Marius did not have actual or apparent
authority. The realtor would have inquired as to who owned the real estate and in what
capacity and would be alerted by reasonably expected inquiry to the lack of authority.
10) Nathan and Oliver are fishermen. They agreed that Oliver would take Nathan’s fish to
the market in Vancouver and sell them on Nathan’s behalf along with Oliver’s own fish.
Oliver took Nathan’s fish and his own fish to the market and set up a stall. As it happened,
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 20: Agency and Other Methods of Carrying on Business
Oliver sold all of his fish and only half of Nathan’s fish. Oliver did nothing to try to
promote the sale of his fish over Nathan’s. He simply put all the fish on a table in two piles
and let the customers choose. Which of the following is TRUE?
a. Nathan can claim damages from Oliver for breaching his fiduciary duty as an agent to act
in the best interests of Nathan.
b. As a fiduciary, Oliver should never have put himself in a position where his personal
interest in selling his fish conflicted with his duty as Nathan’s agent to do his best to sell
Nathan’s fish.
c. Oliver is not in breach of his fiduciary duty because Nathan knew and impliedly
authorized Oliver to sell his own fish along with Nathan’s.
d. Oliver is not in breach of his fiduciary duty because he did not violate any express
instructions from Nathan regarding how he was to sell the fish.
e. Oliver can be sued by Nathan for damages selling his own fish without Nathan’s
authority.
11) Sureeya sells jewellery at her store premises. Sureeya agreed to sell Janet’s ring as her
agent. Janet agreed to pay Sureeya a commission of $100 regardless of the sale price.
Under their agreement, Sureeya did not have authority to sell the ring without Janet’s
approval. After Sureeya put the ring up for sale, Talia offered Sureeya $7500 for it. This
was far above the regular fair market price of $5000 because the ring would complete a set
that Talia had. Sureeya sold the ring to Talia. Which of the following best describes
Sureeya’s legal position?
a. Sureeya breached her duties to Janet because she failed to follow Janet’s instructions.
b. Sureeya did not breach her duties to Janet because she acted in the best interests of Janet.
c. Sureeya did not breach her duties to Janet because she did not benefit in any way from
the sale to Talia at the higher price.
d. Sureeya did not breach her duties to Janet because she exercised adequate care to ensure
that she received the best price for the ring.
e. Sureeya breached her duties to Janet because she could not be sure that the price Talia
offered was the best possible price.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 20: Agency and Other Methods of Carrying on Business
12) Stone entered into an agreement with Star Alarms Inc, a corporation that sells alarm
systems for personal residences, under which he would act as an agent for Star to find
customers for Star’s alarm systems. In the course of his work for Star, Stone learns quite a
bit about alarm systems. A friend offers to sell him an alarm system business for
commercial buildings, a segment of the market that Star has never pursued. Stone decides
that he would like to buy the business. Which of the following is TRUE? Stone’s fiduciary
duty requires that he
a. compete fairly with Star.
b. refrain from using information from Star except if it will help his business.
c. balance the interests of Star against his own self–interest.
d. advise Star about this business opportunity only after he has bought the new alarm
system.
e. tell Star about this opportunity, only pursue this opportunity if Star rejects it with the
knowledge that he will pursue it, and keep the information of Star confidential including
not using it for his business unless Star consents.
13) Oxford Management Inc is a management consulting firm. It has hired Jerome as its
agent to buy new computers for its offices across the country. Jerome owns 10 computers,
which are ideal for Oxford’s needs. Oxford is a valued client, and he decides to sell the
computers to Oxford for a price which is $10 000 less than their market value. As agent for
Oxford, he decides to buy the computers for this price from himself. Which of the
following is TRUE?
a. Jerome can never buy the computers for Oxford from himself because his personal
interest as the seller would conflict with his duty to obtain the best price for Oxford.
b. Jerome can buy the computers for Oxford from himself if Oxford consents to the sale.
c. Jerome can buy the computers for Oxford from himself so long as he is satisfied that the
price is fair.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 20: Agency and Other Methods of Carrying on Business
d. Jerome cannot buy the computers for Oxford from himself if there is an alternative
supplier willing to sell the computers at their market value.
e. Jerome cannot sell his own computers to Oxford even if Oxford consents to the sale.
14) Digital Technologies Inc entered into an agreement with Gray under which Gray agreed
to act as Digital’s agent for the purpose of finding new offices for Digital. Gray had never
done this kind of work before and Digital knew this. He found offices that he believed
would be satisfactory to Digital, and Digital entered into a five-year lease. Unfortunately, it
turned out that the offices did not have air-conditioning and so could not be used in the
summer, making them completely unsuitable for Digital. Gray had forgotten to ask about
air-conditioning. Anyone with experience as a real estate agent would have found out about
this problem. Which of the following best describes Gray’s legal position?
a. Gray breached his fiduciary duty because he failed to act in good faith.
b. Gray probably breached his duty of care by failing to take reasonable care in performing
his responsibilities, but Digital may be denied recovery because Digital knew that Gray had
no experience in finding office space.
c. Gray did not breach his duty of care, so long as the price was fair for non-air-conditioned
offices.
d. Gray did not breach his duty of care because Digital did not specify that it wanted air-
conditioned offices.
e. Gray breached his duty of care because he did not obtain the best possible offices for
Digital.
15) Silvio began work as an agent for Midnight Skateboards Inc. He is responsible for
selling Midnight’s skateboards to retail sporting goods stores. In his first month, he worked
very hard, visiting dozens of stores, but did not sell any skateboards. Which of the
following is TRUE?
a. Silvio is not entitled to any remuneration for his work because it has been unsuccessful.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 20: Agency and Other Methods of Carrying on Business
b. Silvio is not entitled to any remuneration for his work unless his agency contract says he
is.
c. Silvio is entitled to reasonable remuneration for his work unless his agency contract says
he is working only to be paid remuneration based on sales commission.
d. Silvio is only entitled to reasonable remuneration for his work if ultimately he sells some
skateboards for Midnight.
e. Midnight can pay Silvio whatever remuneration it chooses, unless his remuneration is
fixed in his agreement.
16) Stein has agreed to act as an agent for Tayman Resources Inc for two years. Under the
agreement, Stein is responsible for finding mining claims for Tayman to invest in. During
the two-year term, Stein has agreed not to work for anyone else. No other terms have been
agreed to in the agency agreement. Which of the following is TRUE?
a. Neither Stein nor Tayman can terminate the agency on notice to the other.
b. The agency is terminated if Tayman goes abroad to look for mining claims.
c. The agency is terminated at the end of the two-year term if it is not expressly or
impliedly extended beyond that term.
d. The agency continues even if Stein becomes physically unable to look for mining claims
for Tayman.
e. This form of agency is not terminated by the bankruptcy of either party because the
mining work may take the agent all over the world including places where there is no
bankruptcy law
17) Satinder is an employee of Bog Systems Inc. She acts as an agent on behalf of the
corporation in that she buys office furniture on behalf of the corporation. Which of the
following is TRUE?
a. Satinder can be terminated as an employee at any time by Bog.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 20: Agency and Other Methods of Carrying on Business
b. Satinder can be terminated as an employee by Bog only for just cause or with reasonable
notice or compensation in lieu of notice.
c. Satinder cannot be terminated as an employee by Bog except for just cause.
d. Satinder is automatically terminated as an employee by Bog if Bog goes bankrupt.
e. Satinder can be terminated as an employee by Bog only with reasonable notice from
Bog.
18) Which of the following statements regarding a principal’s liability for the torts of its
agents is TRUE?
a. A principal is never responsible for the torts of its agents.
b. A principal is always responsible for the torts of its agents.
c. A principal is only responsible for the torts of it agents if it specifically authorized the
activity by the agent that constituted the tort.
d. A principal is only responsible for torts committed by agents who are also employees of
the principal.
e. A principal is responsible for the torts of the agent who is acting in the actual or apparent
scope of the agent’s duties or authority.
19) Alannis is an agent but not an employee of Tesky’s Inc, a large department store
business. She acts as an agent for the corporation in entering contracts with suppliers to buy
clothes. While she is on a trip to Toronto to visit a long-time supplier, Tesky’s goes
bankrupt. The next day, Alannis, while still unaware of the bankruptcy, enters into a
contract with the supplier on behalf of Tesky’s to buy $20 000 worth of clothes. Which of
the following is TRUE?
a. The contract is enforceable by the supplier because the supplier could rely on Alannis
having apparent authority to contract on behalf of Tesky’s based on its past experience in
dealing with her.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 20: Agency and Other Methods of Carrying on Business
b. The contract is not enforceable against Tesky’s because Tesky’s bankruptcy terminates
the agency relationship.
c. The contract is enforceable against Tesky’s because Alannis was not aware of the
bankruptcy.
d. The contract is enforceable against Alannis since she could not have contracted as the
agent of Tesky’s after the bankruptcy.
e. The contract is enforceable against Tesky’s because the supplier had no notice of the
bankruptcy at the time of contracting.
20) Serena was selling her house and she entered into a contract with Jatinder under which
he would act as her agent. Armin was interested in buying the house which had a vacant lot
next door. Jatinder told Armin that the lot was too small to build on. Armin relied on this
representation and bought the house for $200 000. Later the owner of the lot did build a
house on it. Jatinder knew that the lot was big enough for a house but had lied to Armin to
get him to buy Serena’s house. Serena knew nothing about what Jatinder had told Armin.
The true value of the house was $175 000. Which of the following are TRUE?
a. Serena is not responsible for Jatinder’s fraud because she knew nothing about it.
b. Serena is responsible to Armin for the difference between what Armin paid and the true
value of the house because she benefited from Jatinder’s fraud.
c. Serena is not responsible for Jatinder’s fraud because she did not authorize Jatinder to lie
to Armin.
d. Serena is responsible to Armin for the difference between what Armin paid and the true
value of the house because Jatinder was acting within the scope of his apparent authority.
e. A principal is never liable for the fraud of an agent.
21) For several years, Jelena worked as an agent for Vladimir, a hockey player for the St
Catharines Blackhawks. Jelena regularly negotiated Vladimir’s contracts and agreed to
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 20: Agency and Other Methods of Carrying on Business
them on his behalf. In August 2009, Vladimir terminated the agency. He had decided that
he could negotiate his own contracts. He neglected to tell Jelena or the Blackhawks. In
September 2009, Jelena signed a contract on his behalf with the Blackhawks for the 2009-
2010 season. Which of the following is TRUE?
a. The contract is not enforceable by the Blackhawks because Jelena’s authority had been
terminated.
b. The contract is enforceable because, in the absence of notice to the Blackhawks that
Jelena’s authority had been terminated, she continued to have apparent authority to act for
Vladimir.
c. The contract is enforceable so long as Jelena negotiated a fair deal for Vladimir.
d. The contract is not enforceable because Jelena was no longer acting in the best interests
of Vladimir by negotiating the contract after she was terminated as an agent.
e. The contract is not enforceable as Jelena was committing fraud by acting without
authority, even if her termination had not been communicated to her.
22) I-Jack Inc and Sys/Com Ltd are two large corporations carrying on telecommunications
businesses. They want to work together to set up a new business that would develop and
sell telephones specifically designed to take advantage of the new Internet services each is
offering. Their idea is that the new telephones could be sold with their telecommunications
services as a package. Sys/Com will be responsible for the management of the business.
This joint venture could be set up as
a. a relationship in which the parties’ respective rights and obligations are set out
completely in a contract between I-Jack and Sys/Com but only if that contract is made in
writing and sealed by the parties.
b. a partnership, in which each of I-Jack and Sys/Com are partners, and the parties’
respective rights and obligations are set out in a partnership agreement.
c. a corporation, in which I-Jack owns all the shares and Sys/Com works as a subcontractor
where the terms of the subcontract are negotiated from time to time and I-Jack has
unilateral rights of termination.
d. a relationship in which the parties’ respective rights and obligations are set out
completely in a contract between I-Jack and Sys/Com, where Sys/Com is an agent with
authority to bind I-Jack for obligations incurred to carry out the joint venture business.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 20: Agency and Other Methods of Carrying on Business
e. an agreement where Sys/Com is the agent for I-Jack, and I-Jack has the right to terminate
the agency at any time, and to distribute the profits made by the agency as I-Jack sees fit in
its sole discretion.
23) A strategic alliance includes
a. an arrangement between two software producers to sell products to each other at market
rates.
b. an arrangement between a telephone long distance carrier and an Internet service
provider to sell services to each other.
c. an agreement between several businesses to enter a foreign market without any restraint
on the competition between them in that foreign market each fending for themselves
without relying in any way on the other.
d. an arrangement between two technology companies to license their patents to each other.
e. a price-fixing agreement among companies which would usually be in competition with
each other.
24) Petropolis Co is a manufacturer of auto parts and is looking for distributors in New
Brunswick. They already have distributors in the other provinces. Jacob is negotiating to
become the distributor for New Brunswick. Unlike the distributors in the other provinces,
Jacob does not want to take responsibility for buying the parts and then reselling them.
Instead, he wants to sell the parts as an agent for Petropolis. Which of the following factors
would be relevant to Petropolis in deciding how to respond to Jacob’s proposal?
a. Distributors can never be agents.
b. Petropolis will be concerned about the potential for Jacob to bind Petropolis to
unauthorized obligations.
c. An agency does not require a written agreement.
d. Distributors must provide warranty service.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 20: Agency and Other Methods of Carrying on Business
e. Distributors have better incentives than agents to work hard.
25) Nora has entered into a joint venture with Scott to sell diet supplements. They have set
up a corporation to carry on the business. They are the sole shareholders and directors.
Nora is the president. Which of the following are TRUE?
a. Nora is not an agent of the joint venture because the participants in a joint venture cannot
be agents.
b. Nora is an agent of the joint venture with the authority which would be usual for a
president to have.
c. Nora is liable as a principal for all obligations of the joint venture business.
d. Nora can only bind the corporation to contracts that are within her actual authority.
e. Nora can only bind the corporation to contracts that Scott has expressly consented to.
26) Maja is negotiating to become a Bread King franchisee with Bread King Inc. Maja is
interested in getting a location near her home in Hamilton, Ontario. If Maja becomes a
Bread King franchisee, which of the following are TRUE?
a. Maja will be an agent of Bread King.
b. The franchise agreement will likely provide that Maja is not an agent of Bread King.
c. Maja could never be an agent of Bread King.
d. Bread King will be liable for the acts of Maja in carrying out the franchise business.
e. Bread King and Maja will have an agency relationship known as a strategic alliance.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 20: Agency and Other Methods of Carrying on Business
27) You contract with Sal, a stock broker, to act as your agent to buy stocks for you. You
specifically instruct Sal that you only want him to buy stocks for you that have a good
dividends payment history. Sal carelessly buys you some shares that have never paid
dividends. Which of the following describes a legal basis upon which you could claim
relief?
a. Sal’s breach of his fiduciary duty of care as an agent
b. Sal’s breach of your implied instructions
c. Sal’s defamation
d. Sal’s breach to the stock vendor’s of his warranty of authority
e. Sal’s breach of duty of care owed to you
28) Anton has entered into a contract with Donut Country Inc to supply Donut Country
with coffee. Anton never intended to be responsible under the contract personally. He
intended to find a commercial coffee supplier to undertake the obligations and pay him a
fee for giving the supplier the contract with Donut Country. He did not disclose any of this
to Donut Country, which thinks that they have contract with Anton. Which of the following
best describes the situation with respect to the contract?
a. Anton is personally responsible under the contract despite his intentions.
b. Anton would not be responsible under the contract if it is ratified by a coffee supplier.
c. Anton is not responsible under the contract but would be liable to Donut Country for
breach of warranty of authority.
d. If a coffee supplier ratifies the contract, Donut Country would have the option of holding
either Anton or the supplier responsible under the contract.
e. If a coffee supplier ratified the contract, it would be considered an undisclosed principal.
