Business Law, 8e (Cheeseman)
Chapter 29 Agency Formation and Termination
1) Agency law is a mixture of tort and contract laws.
2) The principal is obliged to perform the contract made with a third-party.
3) The principal works on behalf of an agent.
4) Agencies created against public policy are void and unenforceable.
5) Minors can appoint an agent without court approval.
6) A principal-agent relationship exists when an employer hires an employee to perform some
form of physical service.
7) An employer-employee relationship when an employer gives an employee authority to act and
enter into contracts on his or her behalf.
8) A principal can authorize an independent contractor to enter into contracts.
9) If a principal and an agent enter into an express agency contract, the principal cannot employ
any agent other than the exclusive agent.
10) An express agency contract cannot be orally agreed upon.
11) A power of attorney gives an agent the power to sign legal documents on behalf of the
principal.
12) A general power of attorney limits the agent to those acts enumerated by the agreement.
13) A special power of attorney empowers the agent to act in any matters on the principal’s
behalf without limitation.
14) An agent given a power of attorney is known as an attorney-in-fact.
15) Only a lawyer can become an attorney-in-fact.
16) An orally agreed upon power of attorney is acceptable in court.
17) A durable power of attorney remains effective even if the principal is incapacitated.
18) For an implied agency to function, implied authority cannot conflict with express authority.
19) In an agency by ratification, the agent is relieved of any liability for misrepresentation.
20) An agent by ratification happens when a principal ratifies an authorized act.
21) A principal is not bound to contracts made by an apparent agency.
22) The principal is bound legally to pay a gratuitous agent.
23) In a contingency-fee contract, the principal must pay the agent prior to completion of agency.
24) The principal’s duty to reimburse says that the principal should pay the agent all expenses
prior to start of the agency.
25) A principal also owes a duty to indemnify the agent for any losses the agent suffers because
of the principal’s conduct.
26) An agent who has negligently or intentionally failed to perform his express duties is also
liable to torn laws.
27) An agent does not owe a duty to notify the principal of important information he learns
concerning the agency.
28) An agent is not liable to the principal for any injuries resulting from a breach of duty to
notify.
29) The legal rule of imputed knowledge means that the principal is assumed to know what the
agent knows.
30) Any property, money, or other benefit received by the agent in the course of an agency
belongs to the principal.
31) A constructive trust helps the agent retain profits made during the completion of the agency.
32) Parties with whom the agent has dealt with directly must be given direct notices of
termination of agency.
33) Constructive notices are not valid against strangers who assert claims of apparent agency.
34) An agency coupled with an interest is a special type of agency relationship that is created
specifically to benefit the principal.
35) Unless mutually agreed by the parties, the termination of an agency coupled with interest
requires completion of the agency.
36) The outbreak of a war between the principal’s country and the agent’s country is grounds for
terminating an agency.
37) The bankruptcy of the principal is not a valid reason to terminate an agency.
38) If an agency terminates by operation of law, there is no duty to notify third parties about the
termination.
39) Who is an agent?
A) a party who agrees to act on behalf of another
B) a party who employs another person to act on his or her behalf
C) a party that directs a worker under an express or implied contract of employment
D) a party who receives the services of another for remuneration
40) A party who employs another person to act on his or her behalf is known as a ________.
A) agent
B) principal
C) independent contractor
D) employee
41) Which of the following constitutes an agency?
A) principal-agent relationship
B) agent-agent relationship
C) principal-principal relationship
D) agent-independent contractor relationship
42) A(n) ________ is a fiduciary relationship which results from the manifestation of consent by
one person to another that the other shall act in his behalf and subject to his control, and consent
by the other so to act.
A) assignment
B) garnishment
C) accommodation
D) agency
43) Who performs the role of the agent in this land sale transaction?
A) Wilhelm
B) Martin
C) Chris
D) George
44) Who is the principal during the land sale transaction?
A) ReNowait Goodhouses
B) George
C) Martin
D) William
45) What sort of commercial relationship exists between Martin and William have?
A) employer-employee relationship
B) agent-agent relationship
C) agent-independent contractor relationship
D) principal-agent relationship
46) What role does ReNowait Goodhouses perform?
A) agent
B) independent contractor
C) principal
D) trustee
47) What role does Chris perform?
A) independent contractor
B) agent
C) principal
D) trustee
48) A(n) ________ is a relationship formed when an employer hires an employee and gives that
employee authority to act and enter into contracts on his or her behalf.
A) agent-independent contractor relationship
B) principal-agent relationship
C) agent-agent relationship
D) employer-employee relationship
49) Which of the following types of relationship exists when a person hires another person to
perform some form of physical service but does not authorize that person to enter into contracts
on behalf his or her behalf?
A) employer-employee relationship
B) employer-agent relationship
C) principal-third party relationship
D) principal-agent relationship
50) Which of the following is true of an employer-employee relationship?
A) An employee has implied power of attorney towards the principal.
B) An employee has authority to act on behalf of the principal.
C) An employee can enter into contracts on behalf of the employer.
D) An employee is hired to perform a task or service.
51) Which of the following is true of a principal-independent contractor relationship?
A) Principals are bound by the authorized contracts of their independent contractors.
B) Independent contractors cannot be authorized by principals.
C) Independent contractors are employees of the principals.
D) Principals cannot directly employ independent contractors.
52) If a person employs an architect to design the layout of his or her own home, it would
constitute a(n) ________ relationship.
A) employer-employee
B) principal-independent contractor
C) principal-agent
D) agent-independent contractor
53) Which of the following types of agency had Marlon and Nita entered into?
A) apparent agency
B) agency by ratification
C) implied agency
D) express agency
54) What kind of contract existed between Marlon and Nita?
A) an apparent agency contract
B) a ratified contract
C) an exclusive agency contract
D) an exclusive principal contract
55) An agency that occurs when a principal and an agent categorically agree to enter into an
agency agreement with each other is known as a(n) ________.
A) agency by ratification
B) implied agency
C) apparent agency
D) express agency
56) A(n) ________ is a contract a principal and agent enter into that says the principal cannot
employ another agent other than the one stated.
A) exclusive principal contract
B) exclusive agency contract
C) ratified contract
D) apparent agency contract
57) Which of the following is true of an express agency?
A) The agency involved is allowed to have multiple agents if necessary.
B) The agency is implied from the conduct of the parties.
C) The agency comes to effect when the principal ratifies an unauthorized act.
D) The agency arises when a principal creates the appearance of an agency that does not exist.
58) The agency of power of attorney is an example of a(n) ________ agreement.
A) agency by ratification
B) apparent agency
C) express agency
D) implied agency
59) Which of the following is true of a general power of attorney?
A) A power of attorney can be oral.
B) Only lawyers can be agents of a power of attorney.
C) A power of attorney cannot be claimed once the principal in incapacitated.
D) It allows the agent to sign legal documents on the principal’s behalf.
60) Taylor gives a power of attorney to his twin brother Corey, permitting Corey to make all
decisions on his behalf while he is abroad. As per the terms of the power of attorney, Corey is
allowed make decisions to purchase or sell stocks on Taylor’s behalf, sell Taylor’s real estate if
he deems it to be in Taylor’s best interest, pursue or defend lawsuits on Taylor’s behalf, and make
all other relevant decisions for Taylor. What kind of power of attorney would confer such powers
to Corey?
A) a special power of attorney
B) a limited power of attorney
C) an implied power of attorney
D) a general power of attorney
61) Which of the following is true about a special power of attorney?
A) It is an implied form of power of attorney.
B) It limits the agents powers to those enumerated in the agreement.
C) It allows the agent to act in any matters on the principal’s behalf.
D) It only allows certified lawyers to be agents.
62) Which of the following is true about a durable power of attorney?
A) It is only effective as long as the principal is able.
B) It remains effective even though the principal is incapacitated.
C) It is effective even when the agency is an oral agreement.
D) It is only effective if the agent is a certified lawyer.
63) Canton has listed his house for sale, but cannot be present to take care of the sale as he needs
to go out of town. He intends to give his brother Stratham the power of attorney to just make
decisions regarding selling of his house while he is gone. What kind of power of attorney should
Canton execute?
A) a general power of attorney
B) a special power of attorney
C) a limited power of attorney
D) an implied power of attorney
64) An express agency agreement that is often used to give an agent the control to sign legal
documents on behalf of the principal is known as a(n) ________.
A) assignment
B) accommodation
C) power of attorney
D) letter of credit
65) A power of attorney where a principal confers powers on an agent to act in specified matters
on the principal’s behalf is referred to as ________.
A) implied power of attorney
B) general power of attorney
C) limited power of attorney
D) special power of attorney
66) An agency that occurs when a principal and an agent do not expressly create an agency, but
it is inferred from the conduct of the parties is known as ________.
A) apparent agency
B) agency by ratification
C) implied agency
D) agency coupled with an interest
67) Marcus employs a real estate broker, Dean, to sell his house. Dean’s express powers are to
advertise and market the house for sale, show the house to prospective buyers, and accept offers
from persons who want to purchase the house. He is not allowed to seal a deal without Marcus’
consent. Marcus goes away on a month-long trip where he cannot be contacted. During this time,
a short circuit in the house causes a power outage. Dean uses his authority to hire an electrician
to repair the circuits and restore electricity in the house. Marcus then comes back and pays Dean
for the electricity repair. What is the nature of the agency that Dean used to fix the electricity
problem in the house?
A) implied agency
B) agency by ratification
C) power of attorney
D) express agency
68) Frank Hannigan sees a grand piano that his musician friend Scott Kristoff had been looking
for in an antique store. Frank enters into a contract to purchase the grand piano from the antique
seller and signs the contract, “Frank Hannigan, agent for Scott Kristoff.” But because Frank is
not Scott’s agent, Scott is not bound by the contract. If Scott decides to accept the contract, what
kind of agency would be created?
A) express agency
B) implied agency
C) agency by ratification
D) power of attorney
69) An agency by ratification occurs when the principal ________.
A) accepts an unauthorized act created by an unauthorized agent
B) accepts an authorized act created by an authorized agent
C) creates the appearance of an agency that in actuality does not exist
D) accepts an act carried out under the implied authority of an agent
70) Which of the following describes an agency by estoppel?
A) an agency that arises when a principal ratifies a contract created by an unauthorized agent
B) an agency created when a principal and an agent expressly agree to enter into an agency
agreement
C) an agency that is not expressly stated but is implied and inferred in the conduct of the parties
D) an agency that arises when a principal creates the appearance of an agency that in actuality
does not exist
71) Which of the following is true of an apparent agency?
A) The authority of an apparent agent is implied from the conduct of the parties.
B) The third-party is not bound to a contracted created by an apparent agent.
C) The principal is bound to the contracts entered into by an apparent agent.
D) The actions of an apparent agent create an apparent agency.
72) A duty that a principal owes to pay an agreed-upon amount to the agent either upon the
completion of the agency or at some other mutually agreeable time is known as a principal’s
________.
A) duty to reimburse
B) duty to cooperate
C) duty to indemnify
D) duty to compensate
73) Ronald, the purchasing manager of Tellys Supermarket in Georgia, was asked to buy an
order of the latest videogame console, FunCase, to keep in the supermarket. However, due to a
truckers’ strike, he had to make a trip to the FunCase warehouse, which was in Florida. Ronald
paid for the trip himself, went to the warehouse, procured the shipment, and returned. After he
got back, Tellys Supermarket paid Ronald for the trip he made to Florida. What duty of the
principal did Tellys Supermarket perform here when they paid Ronald for the trip to Florida?
A) duty to cooperate
B) duty to reimburse
C) duty to compensate
D) duty to indemnify
74) The ________ is principal’s duty to cover the agent for any losses the agent suffers because
of the principal’s conduct.
A) duty to cooperate
B) duty to indemnify
C) duty to compensate
D) duty to reimburse
75) What is imputed knowledge?
A) information collected by a principal prior to engaging in an agency
B) information collected by a principal on an agency
C) information learned by an agent that is attributed to the principal
D) information learned by a principal that is attributed to an agent
76) Ashley owns a piece of vacant real estate through which a small river runs. Ashley hires
Warren, a licensed real estate broker, to list the property for sale and help sell the property.
While inquiring in the neighborhood, Ashley’s neighbor Lenny tells Warren that a chemical plant
upstream has polluted his property and that Warren should have environmental engineers test the
soil on Ashley’s property as well. Warren does not tell Ashley about Lenny’s suggestion. Warren
manages to find a buyer for Ashley’s property in Martha. It is later discovered that the property
Martha bought from Ashley is also polluted. What important agent’s duty has Warren failed to
perform?
A) duty to indemnify
B) duty to account
C) duty to reimburse
D) duty to notify
77) ________ is a special type of agency that is created for the agent’s benefit and that the
principal cannot revoke.
A) Agency by ratification
B) Assignment
C) Accommodation
D) Agency coupled with an interest
78) Helga owns a piece of real estate. She goes to Stranton Lace Bank to obtain a loan against
the property. The bank makes the loan but requires Helga to sign a mortgage pledging the
property as collateral for the loan. The mortgage agreement appoints the bank as Helga’s agent. If
Helga defaults on her payments, the agreement permits the bank to sell the property and recover
the amount of the loan from the sale proceeds. What kind of agency exists between Helga and
the bank?
A) agency coupled with an interest
B) apparent agency
C) agency by ratification
D) incidental agency
79) Which of the following is true of an agency coupled with an interest?
A) It is created for the benefit of the principal.
B) It is irrevocable by the principal alone.
C) It can be terminated prior to completion of the agency by the principal.
D) It is terminated by the death of either the agent of principal.
80) Which of the following qualifies as termination of an agency by impossibility of
performance?
A) the loss of a required qualification
B) the bankruptcy of the principal
C) the insanity of either the principal or the agent
D) the conviction of either the principal or the agent
81) Which of the following would lead to the termination of an agency by operation of law?
A) loss or destruction of the subject matter of the agency
B) death of either the principal or agent
C) loss of a required qualification
D) a change in the law
82) The termination of an agency contract in violation of the terms of the agency contract is
referred to as ________.
A) termination by an unusual change in circumstances
B) termination by impossibility of performance
C) terminated by operation of law
D) wrongful termination
83) Who is an independent contractor?
84) What is an implied agency?
85) What’s an agent’s duty to account?
86) What is an agency coupled with an interest?
87) List the circumstances that can lead to termination by impossibility of performance.