Business Law, 8e (Cheeseman)
Chapter 30 Liability of Principals, Agents, and Independent Contractors
1) The duty of loyalty is a fiduciary duty owned by an agent not to act adversely to the interests
of the principal.
2) Undisclosed self-dealing by an agent is not regarded as violation of the duty of loyalty.
3) A third-party offer to an agent must be conveyed to the principal.
4) If an agent competes with the principal without the principal’s permission, the principal may
recover profits made by the agent.
5) Agents can compete with the principal during the course of the agency if the principal agrees.
6) A principal has no course of action if an agent discloses his or her confidential information to
a third party.
7) If an agent reveals confidential information of a principal to a third party, the principal’s
course of action is to obtain an injunction against the third party.
8) An agent does not violate his or her duty of loyalty by serving two parties with the same
interest.
9) Middlemen and finders are not considered dual agents.
10) Dual agency occurs when an agent acts for two or more different principals in the same
transaction.
11) Dual agency is permitted if all parties to a transaction agree to it.
12) The principal is liable for the tortious conduct of an agent who is acting within the scope of
his or her authority.
13) Battery committed by an agent in the principal’s premises and during the scope of
employment is considered an unintentional tort.
14) An agent is liable for the tortious conduct of the principal if he or she has knowledge of the
principal’s conduct.
15) Based on the doctrine of respondeat superior, principals are liable for the negligent conduct
of agents acting within the scope of their employment.
16) Vicarious liability is liability with fault.
17) Principals are liable for negligence caused by an agent during substantial frolic and detour.
18) The coming and going rule says that a principal is generally not liable for injuries caused by
its agents and employees while they are on their way to or from work.
19) The principal is not liable for an agent’s negligence if the agent is on a dual-purpose mission.
20) The agent is compulsorily liable for any intentional or innocent misrepresentation made by
the principal in a transaction.
21) The principal is liable for the innocent misrepresentation made by an agent acting within the
scope of employment.
22) The work-related test puts liability on the employee if the intentional torn is committed
within work-related time and space.
23) A fully disclosed agency results if a third party entering into a contract knows the actual
identity of the principal.
24) The agent is not liable on the contract in a fully disclosed agency.
25) In a fully disclosed agency, an agent is not liable on the contract if he or she guarantees that
the principal will perform the contract.
26) In a partially disclosed agency, the contracting third party transacts directly with the
principal and does not know the identity of the agent.
27) A partially disclosed agency can be created by mistake.
28) Undisclosed agencies are not lawful in the United States.
29) In an undisclosed agency, the principal is solely liable on the contract with the third party.
30) If an agent exceeds his or her scope of authority, a principal is bound on the contract only if
he or she ratifies the contract.
31) Ratification of a contract is a situation in which a principal accepts an agent’s unauthorized
contract.
32) The party that employs an independent contractor is called an agent.
33) The principal is liable for all torts of independent contractors.
34) Principals do not control the means by which independent contractors achieve results.
35) An independent contractor cannot represent more than one principal at a time.
36) Which of the following is a fiduciary duty owed by an agent not to act adversely to the
interests of the principal?
A) duty of loyalty
B) duty of undertaking
C) duty of discharge
D) duty of resolution
37) Which of the following is true of an agent’s undisclosed self-dealing?
A) It does not violate the duty of loyalty.
B) The principal cannot rescind purchases made.
C) The principal can ratify the purchase.
D) The principal must accept liability.
38) Which of the following statements is true of an agent taking an opportunity?
A) An agent can legally take an opportunity that is entitled to the principal.
B) A third-party offer to an agent need not be conveyed to the principal.
C) An agent cannot appropriate an offer for himself or herself once the principal rejects it.
D) A principal is permitted to recover a usurped opportunity from an agent.
39) Harrison hires an agent to look for a three-bedroom house in Atlanta. Elaine, the agent, finds
a three-bedroom house in Harrison’s budget but buys it herself without informing Harrison. This
is an instance of the agent’s ________.
A) self-dealing
B) conflict of interest with the principal
C) competing with the principal
D) usurping an opportunity
40) Which of the following is a course of action for a principal if an agent is found competing
with him or her?
A) The principal can recover damages from the agent if the competition continues after the
agency has ended.
B) The principal can recover profits made by the agent.
C) The principal is given an option of buying the agent’s competing venture.
D) The principal is not allowed to recover for lost sales due to the agent’s competing venture.
41) Which of the following is an instance of misuse of confidential information?
A) An agent gives the seller the principal’s name and phone number in a fully disclosed
transaction.
B) A principal gives the contact details of an agent to a third-party without the agent’s
knowledge.
C) An agent withholds critical information from the principal about the agency.
D) An agent divulges details of his past employer to his principal.
42) If a casting agent works for two Hollywood actors, the agent is liable for ________.
A) dual agency
B) competing with the principal
C) usurping an opportunity
D) self-dealing
43) Which of the following is true of dual agency?
A) An undisclosed dual agent is allowed to retain compensations of the transaction provided he
or she discontinues the dual agency.
B) Examples of dual agents are finders and middlemen.
C) Dual agency is permitted if all parties in the transaction agree to it.
D) Dual agency is permitted as long the interests of both principals are similar.
44) Which of the following is true of tort liability for principals and agents?
A) A principal is responsible for the tortious conduct of an agent irrespective of the scope of his
or her authority.
B) An agent is fully liable for his or her tortious conduct while on duty for the principal.
C) An agent is liable for the principal’s tortious conduct if he or she participates in it.
D) An agent and a principal cannot be held responsible for the same tort.
45) ________ is a rule that says an employer is liable for the tortious conduct of its employees or
agents while they are acting within the scope of the employer’s authority.
A) Ad infinitum
B) Respondeat superior
C) Acienter
D) Voir dire
46) What is vicarious liability?
A) non-liability
B) liability for multiple torts
C) liability without knowledge
D) liability without fault
47) Minksine Corporation employs Sandy as its marketing manager. Sandy is driving her
automobile to attend a meeting with a client on behalf of her employer. On her way to the
meeting, Sandy is involved in an automobile accident that is caused by her negligence. Several
people are seriously injured in the accident. Which of the following is true of this case?
A) Sandy is solely liable for damages caused by the accident.
B) The injured people cannot recover damages from Sandy.
C) Minksine Corporation is liable for the injuries caused by Sandy.
D) The injured people can only claim medical reimbursement from Minksine Corporation.
48) ________ occurs where a principal is liable for an agent’s tortious conduct because of the
employment contract between the principal and agent, not because the principal was personally
at fault.
A) Vicarious liability
B) Negligence
C) Liability with fault
D) Misrepresentation
49) Gem’s principal asked her to pick up his dry-cleaning on her way to work. After she had
picked up the dry-cleaning and while driving to work, Gem knocked over an old man crossing
the street as she did not apply the brakes in time. Under the theory of ________, Gem’s principal
is liable to the injured man.
A) intentional tort
B) negligence
C) liability with fault
D) vicarious liability
50) ________ is a situation in which an agent does something during the course of his or her
employment to further his or her own interests rather than the principal’s.
A) Coming and going
B) Frolic and detour
C) Self-dealing
D) Dual-purpose mission
51) Dan asks his agent Jude to drop off some medicines at his mother’s house. On his way back,
Jude decides to have lunch at a diner two blocks away from his workplace. While walking back
to work, he jaywalks at a green signal on the road, causing a motorcyclist to hit the kerb and
injure himself while attempting to avoid hitting Jude. Under the concept of ________, Dan is
liable for the injuries caused to the motorcyclist.
A) coming and going
B) intentional tort
C) frolic and detour
D) dual-purpose mission
52) According to the coming and going rule, what is the liability of the principal for injuries
caused by its agents and employees while they are on their way to or from work?
A) complete liability
B) vicarious liability
C) limited liability
D) no liability
53) Fiona works for Open Heart Hospital and lives 10 miles away from her place of work. The
hospital has provided her with a car to commute and also pays for its upkeep. If she accidentally
injures a person while driving to work in the morning, which of the following would be true?
A) Open Heart Hospital is completely liable for the injury caused.
B) The injured person can sue Open Heart Hospital but can only recover reimbursement for his
or her medical expenses due to the injury.
C) Both Fiona and Open Heart Hospital are liable to the injured person.
D) Only Fiona is liable for her negligence.
54) A dual-purpose mission is a situation that occurs when ________.
A) an agent works for two or more principals with conflicting interests
B) a principal requests an agent to run an errand when the agent is on his or her own personal
business
C) an agent who works for more than two principals but has similar agency relationships with
both
D) an agent competes with the principal in a business with interests similar to the principal’s
business, after their agency has ended
55) An actor asks an agent to place an order for a couch on the agent’s way back to work. This is
an instance of ________.
A) dual-purpose mission
B) frolic and detour
C) coming and going
D) self-dealing
56) Most jurisdictions hold the ________ liable for injuries caused on a dual-purpose mission.
A) principal
B) agent
C) principal and the agent
D) injured party
57) Which of the following is considered an intentional tort?
A) negligence
B) innocent misrepresentation
C) fraud
D) dual-purpose mission
58) In which of the following cases is a motivation test used to establish the employee’s motive?
A) An employee commits a tort to promote the principal’s business, outside work premises.
B) An employee commits an intentional tort against another employee at work premises.
C) An employee commits an unintentional tort that helps promote the principal’s business.
D) An employee assaults another employee due to personal reasons.
59) Under the ________ test, if the agent committed an intentional tort to promote the principal’s
business, the principal is liable for any injury caused by the tort.
A) work-related
B) motivation
C) promotional
D) dual agency
60) Under the ________ test, the principal is liable for any intentional torts committed by an
agent during working hours on the principal’s premises.
A) work-related
B) motivation
C) promotional
D) self-dealing
61) An employee motivated by jealousy injures a colleague who dated her boyfriend, on work
premises and during work hours. Based on the ________ test, the principal is liable.
A) motivational
B) premise-based
C) work-related
D) promotional
62) A ________ is a deceit in which an agent makes an untrue statement that he or she knows is
not true.
A) partially disclosed agency
B) misrepresentation
C) respondeat superior
D) dual-purpose mission
63) Which of the following is true of misrepresentation?
A) An intentional misrepresentation by an agent is not considered fraud or deceit.
B) The principal is not liable for an agent’s intentional misrepresentation.
C) A third party cannot recover damages from the principal due to an agent’s intentional
misrepresentation.
D) The principal is liable for an agent’s innocent misrepresentation.
64) Which of the following torts committed by an agent is the liability of the principal?
A) substantial frolic and detour
B) accidents caused by an agent on the way to work
C) accidents caused by an agent on the way from work
D) negligence
65) A car salesperson is employed to sell the principal’s car, and the principal tells the agent that
the car was repaired after it was involved in a major accident. If the agent intentionally tells the
buyer that the car was never involved in an accident, the agent has committed the tort of
________.
A) substantial frolic and detour
B) intentional misrepresentation
C) self-dealing
D) competing with the principal
66) In a fully-disclosed agency, the contract is between ________.
A) a principal and an agent
B) a principal and a third party
C) an agent and a third party
D) a principal, an agent, and a third party
67) Which of the following is true of a fully disclosed agency?
A) The third party does not know the identity of the principal.
B) The third party knows the name of the principal, but all transactions are done with the agent.
C) The contract is between the principal, agent, and the third party.
D) The principal is liable on the contract with a third party.
68) Which of the following best describes a partially disclosed agency?
A) an agent with multiple principals who do not know each other’s identities
B) a transaction in which the third party does not know the identity of the agent
C) a transaction in which the third party knows the agent, not the principal
D) an agent who discloses only the name of his or her principal in a transaction
69) Which of the following is true of an undisclosed agency?
A) The third party has no knowledge of the agency.
B) The third party knows the agent, not the principal.
C) All transactions with the third party are made by the principal without involving the agent.
D) Transactions under such an agency are considered unlawful.
70) Jamie is a lawyer who runs her own law firm specializing in real estate law. Raymond, a real
estate developer, hires Jamie to represent him in the purchase of land. Jamie is the ________.
A) principal
B) agent
C) third-party
D) independent contractor
71) On the advice of her colleague, Stacey hires Harold, a lawyer and an independent contractor,
to represent her in a court case. While driving to the courthouse to represent Stacey at trial,
Harold negligently causes an automobile accident in which a bystander, Mildred, is severely
injured. Who is liable to Mildred?
A) Stacey
B) Harold
C) Stacey’s colleague
D) the firm that represents Harold
72) Which of the following is true of an independent contractor’s liability?
A) The agent is liable for torts committed by an independent contractor.
B) The contractor is personally liable for all his or her torts.
C) The principal is liable for the independent contractor’s torts.
D) Both the principal and the independent contractor are liable for the contractor’s torts.
73) Gerard wants to get some land cleared in Texas. With the help of a consulting agency, he
hires Carlos, an independent contractor. Carlos procures dynamite from a legitimate dealer, to be
used in clearing the land. However, the explosion of dynamite causes cracks to appear in the
outer walls of a nearby house. Who is liable to the owner of the damaged house?
A) Gerard
B) Carlos
C) both Gerard and Carlos
D) the consulting agency
74) A client hires a lawyer as an independent contractor to represent her in a civil lawsuit against
a defendant to recover monetary damages. If the client authorizes the lawyer to settle a case
within a certain dollar amount and the lawyer does so, which of the following would be true?
A) The agreement is invalid after the lawyer’s contract with the principal terminates.
B) The agreement is void because independent contractors cannot enter into contracts.
C) The agreement is binding only when there is no financial settlement involved.
D) The settlement agreement is binding for the client.
75) If an independent contractor enters into a contract with a third party on behalf of the
principal without express or implied authority from the principal to do so, who among the
following is liable on the contract?
A) the principal
B) the independent contractor
C) the third party
D) both the principal and independent contractor
76) Why can an agent not take an opportunity meant for the principal? When is an agent
permitted to take such an opportunity? Give an illustration depicting an agent’s violation of his or
her duty of loyalty.
77) Does an agent competing with the principal breach his or her duty of loyalty? What is the
course of action for the principal in such a case?
78) Describe the operation of a fully disclosed agency.
79) Explain in brief the occurrence of an undisclosed agency. What are the liabilities involved in
such an agency?
80) Explain in brief the liability for an independent contractor’s torts.