Chapter 33
Agency Liability and Termination
N.B.: TYPE indicates that a question is new, modified, or unchanged, as follows.
N A question new to this edition of the Test Bank.
+ A question modified from the previous edition of the Test Bank.
= A question included in the previous edition of the Test Bank.
TRUE/FALSE QUESTIONS
B1. If a contract being executed by an agent is or must be in writing, then the agent’s
authority must also be in writing.
B2. The equal dignity rule requires the parties to a transaction to treat each other with
equal dignity.
B3. If an agent contracts outside the scope of his or her authority, the principal cannot
become liable.
B4. A power of attorney can be given only to a notary public.
B5. A general power of attorney permits an agent to transact all business for a principal.
B6. An agent’s implied authority can be inferred by the position the agent occupies.
B7. An agent’s authority to act on behalf of a principal must be apparent to be real.
B8. Apparent authority usually comes into existence through a principal’s pattern of
conduct over time.
B9. An agent does not have the power to act without communicating with the principal
even if an unforeseen emergency demands action.
B10. A principal can ratify an agent’s unauthorized act in its entirety or merely in part.
B11. A principal whose identity is not known by a third party with whom an agent contracts
on the principal’s behalf is an apparent principal.
B12. A disclosed principal is liable to a third party for a contract made by the agent acting
within the scope of his or her authority.
B13. A partially disclosed principal is only partially liable to a third party for a contract
made by an agent.
B14. An undisclosed principal is not liable to a third party for a contract made by an agent.
B15. A principal is exposed to tort liability whenever a third person sustains a loss due to an
agent’s misrepresentation.
B16. Under the doctrine of respondeat superior, a principal is liable for any harm caused to
an agent by a third party.
B17. Vicarious liability is liability without regard to personal fault.
B18. An employer is charged with the knowledge of any dangerous condition discovered by
an employee and pertinent to the employment situation.
B19. A party to an agency may have the right to terminate the relationship but not the
power.
B20. When an agency relationship is terminated, the principal has a duty to personally
notify third parties who knew of its existence.
MULTIPLE CHOICE QUESTIONS
B1. Myrna serves in a representative capacity for Locke. With respect to binding Locke to
contracts, Myrna’s authority
a. may be implied or apparent.
b. must be implied and apparent.
c. must be implied and not apparent.
d. cannot be implied or apparent.
B2. Kady, an agent for Lebron, enters into a contract on Lebron’s behalf with Madge that
must be in writing to be enforceable under the Statute of Frauds. Kady’s authority to
enter into this contract is not in writing. Under the equal dignity rule, this contract is
a. enforceable.
b. void.
c. voidable at Lebron’s option.
d. voidable at Madge’s option.
B3. Neighborly Insurance Company and Ollie put their agency agreement into a written
document that describes the rights and duties of both parties. Ollie, as the agent, has
a. apparent authority.
b. equal authority.
c. express authority.
d. implied authority.
B4. Marky holds a power of attorney for Nuncio. Marky is
a. an attorney–in-fact.
b. an attorney-in-law.
c. a durable attorney.
d. a notary public.
B5. Geoff serves in a representative capacity for Huck. To accomplish the objectives of this
relationship, Geoff’s authority can be implied
a. by contradiction.
b. by custom.
c. by lack of reason.
d. under no circumstances.
B6. Based on Bluto’s conduct, Cass reasonably believes that Dee has the authority to act
on Bluto’s behalf even though Dee does not have the actual authority to do so. Cass
makes a payment to Dee for Bluto. Dee keeps the money and disappears. Bluto
a. can demand that Cass make a repayment directly to Bluto.
b. can obtain damages from Cass for Dee’s misconduct.
c. may be estopped from denying that Dee had authority.
d. must repudiate Dee’s misconduct to avoid liability.
B7. Without authorization, Rolf contracts on behalf of Sari to have Tige paint the interior
and exterior of Sari’s house. Sari ratifies the contract. Later, Sari tries to rescind the
part of the contract relating to the exterior. This attempt will be
a. partly successful.
b. partly unsuccessful.
c. totally successful.
d. totally unsuccessful.
B8. Bud approves on behalf of Cody—but without authorization—a contract with Devon
to build a new silo. Cody does not ratify the contract. Later, Devon tries to enforce the
deal. This attempt will be
a. partly successful.
b. partly unsuccessful.
c. totally successful.
d. totally unsuccessful.
B9. Iggy hires Joy to act as his agent to purchase Kup-a-Koffee Kompany. Iggy tells Joy to
reveal only that she is buying the firm on behalf of a third party, without telling Kup-a-
Koffee’s seller who that third party is. Iggy is
a. a disclosed principal.
b. an implied principal.
c. an undisclosed principal.
d. a partially disclosed principal.
B10. Jock hires Kym to act as his agent to purchase Lifetime Gym & Fitness, Inc. Jock tells
Kym to reveal that she is buying the firm on behalf of a third party and to tell the
seller who that third party is. Jock is
a. a disclosed principal.
b. an apparent principal.
c. an undisclosed principal.
d. a partially disclosed principal.
B11. Oberon is a salesperson for Precision Instruments, Inc. He tells Quad, a customer, that
a device has a certain capability when, as Oberon knows, it does not. In reliance, Quad
buys the device. Liable for this misrepresentation is
a. neither Oberon nor Precision.
b. Oberon and Precision.
c. Oberon only.
d. Precision only.
B12. Clu serves in a representative capacity for Digger. Elmo is injured through Clu’s
negligence. Digger may be liable to Elmo if Clu’s conduct occurred
a. due to a propensity Digger was not and could not have been aware of.
b. during normal working hours.
c. in the course and scope of Clu’s employment.
d. outside the parties’ employment relationship.
B13. Brad is an employee of Custodial Service, Inc. In deciding whether Brad acts within the
scope of his employment when he commits a tort against Didi, a court will not con-
sider whether
a. Brad indicated that he was acting on behalf of Custodial.
b. Custodial authorized the act.
c. Custodial furnished the means by which the injury was inflicted.
d. the act is one commonly performed by employees for their employers.
B14. Picabo drives a truck as an employee for Quik Delivery, Inc. Picabo would most likely
be considered acting outside the scope of her employment if she
a. crashed into a car at the airport while off duty.
b. hit a pedestrian in a parking lot during a “working” lunch.
c. ran over an attendant at a gas station while refueling the truck.
d. smashed into a store-front while intoxicated on-duty.
Fact Pattern 33-1B (Questions B15–B16 apply)
Eppie hires Franz to do some remodeling work in her office. Eppie does not have the right to
control the details of Franz’s performance.
B15. Refer to Fact Pattern 33-1B. The relationship between Eppie and Franz is
a. client and independent contractor.
b. employer and employee.
c. master and servant.
d. principal and agent.
B16. Refer to Fact Pattern 33-1B. While working, Franz drops a tool on Gibby, Eppie’s
customer, causing an injury. Eppie is
a. liable to Gibby because he was injured on Eppie’s property.
b. liable to Gibby unless Franz’s act is intentional.
c. not liable because Franz is an independent contractor.
d. not liable to Gibby because Franz is Eppie’s employee.
B17. Treadwell Tire Manufacturing Company employs Suri as an agent. To terminate Suri’s
authority, Treadwell must notify
a. only third parties who are aware of the agency relationship.
b. the public generally.
c. Suri and any third parties who are aware of the agency relationship.
d. Suri only.
B18. Chelsea, an agent for Bountiful Seafood, Inc., has often done business with Alvin’s
Dockside Diner on Bountiful’s behalf. When Chelsea and Bountiful terminate their
agency, to avoid liability for later deals, Alvin’s must be notified by
a. Chelsea and Bountiful.
b. Chelsea only.
c. Bountiful only.
d. no one.
B19. On May 1, Craig retains Dora to act as his authorized agent. On June 1, Craig dies. On
June 2, before Dora knows of Craig’s death, she enters into a contract on Craig’s be–
half. The contract is
a. binding on Craig’s estate.
b. binding on Dora.
c. void.
d. voidable.
B20. Maia hires Nero, a real estate broker, to sell her warehouse. The warehouse burns
down before being sold. Nero is
a. Maia’s agent until Maia’s insurer pays Nero’s commission.
b. Maia’s agent until the burnt warehouse is sold.
c. Maia’s agent until the warehouse is rebuilt and sold.
d. no longer Maia’s agent.
ESSAY QUESTIONS
B1. Harbor Bay Development hires Guthrie to act as its agent to buy a 100-acre waterfront
tract of land from Frankie for $1,000 per acre. Harbor Bay does not want Frankie to
know that it is the principal or that Guthrie is its agent. Harbor Bay wants the land for
a new marina, and believes that Frankie may not sell the land for that purpose or may
demand a premium price. Guthrie makes the purchase, signing only his name on the
contract as the buyer and not disclosing to Frankie the agency relationship. Harbor
Bay gives Guthrie the amount to pay for the land, but Guthrie absconds with the
funds. Frankie soon learns of Harbor Bay’s identity. Can Frankie enforce the contract
against Harbor Bay? against Guthrie?
B2. Pete’s Pizza employs Quincy as a delivery driver. Pete’s guarantees that an order will
be delivered within thirty minutes or there is no charge, and insists that its drivers
meet the limit. One night, while making a delivery, Quincy is caught in a traffic jam. To
deliver the pizza within the thirty-minute time limit, Quincy drives onto a sidewalk and
hits Ruth, a pedestrian. Is Pete’s liable to Ruth for her injuries? Is Quincy liable to
Ruth? Why or why not?