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
A1. Apparent authority is authority declared in clear, direct, definite terms.
A2. An agent’s authority must be express for the agent’s act to bind a principal.
A3. A power of attorney confers express authority.
A4. A power of attorney can be special or general.
A5. An agent has the implied authority to do what is reasonably necessary to carry out
express authority.
A6. An agent’s authority to act on behalf of a principal must be actual and apparent.
A7. An agent’s implied authority can contradict his or her express authority.
A8. Apparent authority arises from what the principal makes clear to the agent.
A9. Before a principal can ratify a contract, the third party must withdraw from the deal.
A10. Ratification occurs when a principal accepts responsibility for an agent’s unauthorized
act.
A11. A principal whose identity is known by a third party with whom an agent contracts on
the principal’s behalf is a disclosed principal.
A12. A partially disclosed principal is liable to a third party for a contract made by the agent
acting within the scope of his or her authority.
A13. If a principal is undisclosed, the agent may be liable to the principal for a third party’s
nonperformance of a contract.
A14. If a principal is disclosed, the agent may be liable to a third party for the principal’s
nonperformance of a contract.
A15. A principal who authorizes an agent to commit a tort is not liable to persons or
property injured thereby.
A16. Under the doctrine of respondeat superior, an agent is liable for any harm caused to a
principal by a third party.
A17. Vicarious liability is direct liability.
A18. A principal may be liable for the tort of an agent committed within the scope of the
agency or employment.
A19. An agency relationship may be terminated by an act of the parties or by operation of
law.
A20. An agency coupled with an interest is an agency created for the agent’s benefit.
MULTIPLE CHOICE QUESTIONS
A1. Homer is an officer of Integrity Corporation. With respect to binding Integrity to
contracts, Homer’s authority
a. may be actual or apparent.
b. must be actual and apparent.
c. must be actual and not apparent.
d. cannot be actual or apparent.
A2. Jaclyn, an agent for Kilpatrick, enters into a contract on Kilpatrick’s behalf with Leif
that must be in writing to be enforceable under the Statute of Frauds. Under the
equal dignity rule, Jaclyn’s authority to enter into this contract
a. may be oral or written.
b. must be oral and written.
c. must be written.
d. cannot be oral or written.
A3. Cory employs Daily Delivery Agency as an agent under a written agreement that
describes the rights and duties of both parties. This is
a. apparent authority.
b. equal authority.
c. express authority.
d. implied authority.
A4. Miklos grants an ordinary power of attorney to Nathalie to handle a list of financial
transactions on Miklos’s behalf. This power will terminate on
a. any transaction causing a loss to Miklos.
b. Miklos’s death or incapacity.
c. Miklos’s sixty-fifth birthday.
d. Nathalie’s handling of one of each stipulated transaction.
A5. Sonia manages a Tasty Pastry store for United Food Company. To manage the
business, Sonia’s authority can be implied by
a. an inference from the position Sonia occupies.
b. any inference a reasonable customer or supplier would make.
c. any inference Sonia chooses to make.
d. no inference.
A6. Based on Nan’s conduct, Odel reasonably believes that Poppy has the authority to act
on Nan’s behalf even though Poppy does not have the actual authority to do so. In
this circumstance, Poppy has
a. apparent authority.
b. express authority.
c. implied authority.
d. no authority.
A7. Meals n’ More, Inc., a catering company, requires its customers to pay by check. Lyra,
a Meals n’ More driver, tells customers that they can pay her with cash. When Meals
n’ More learns of Lyra’s collections, it takes no action to stop it. Lyra steals some of
the cash. Meals n’ More may suffer the loss under the doctrine of
a. apparent authority.
b. express authority.
c. implied authority.
d. no authority.
A8. Trey, an agent for Uno Music Corporation, executes an unauthorized contract with
Variety Recording, Inc., that is highly advantageous to Uno. Variety withdraws from
the deal before Uno ratifies the contract. The contract is
a. valid.
b. variable.
c. void.
d. voidable.
A9. Elin, an agent for First Credit Corporation (FC), enters into an unauthorized contract
with Great Expectations, Inc. (GE), purportedly on FC’s behalf. This contract will be
enforceable if it is ratified by
a. any third party.
b. Elin.
c. FC.
d. GE.
Fact Pattern 33–1A (Questions A10–A11 apply)
Ulani indicates that she is acting as an agent on behalf of an unidentified client—
Thoroughbred Stallions, LLC—when she enters into a contract with Shana.
A10. Refer to Fact Pattern 33-1A. Thoroughbred Stallions is
a. a disclosed principal.
b. a non-existent principal.
c. an undisclosed principal.
d. a partially disclosed principal.
A11. Refer to Fact Pattern 33-1A. Liability to Shana for nonperformance of the contract
may be imposed on
a. neither Ulani nor Thoroughbred Stallions.
b. Ulani and Thoroughbred Stallions.
c. Ulani only.
d. Thoroughbred Stallions only.
A12. BizOnline.com uses an electronic agent, or e-agent, to perform certain tasks in e–
commerce. With respect to the e-agent’s actions, BizOnline.com is bound by
a. all of the actions.
b. only those actions of which BizOnline.com is aware.
c. only those actions that BizOnline.com does not refute.
d. only those actions that BizOnine.com ratifies.
A13. Rupert, an agent for Star Productions, Inc., enters into an unauthorized contract with
Theatrical Transport Corporation purportedly on behalf of Star, which refuses to
perform. Rupert is liable
a. for breach of contract to Star and Theatrical Transport.
b. for misrepresentation to Star only.
c. for misrepresentation to Theatrical Transport only.
d. to no one.
A14. Emery is an agent for Downtown Market Corporation. Emery makes an innocent mis–
representation when entering into a contract on behalf of Downtown Market with
Cool Fruits, Inc. Cool Fruits
a. is directly responsible for performing the contract.
b. is estopped from performing the contract.
c. may rescind the contract.
d. must ratify the contract.
A15. Fabulous Auto Sales, Inc., employs GR8 Collection Company as a collection agent.
While repossessing a car from Hadji, one of Fabulous’s customers, GR8 causes an
accident in which Hadji is injured. Hadji can recover from
a. Fabulous only.
b. Fabulous or GR8.
c. GR8 only.
d. Hadji’s insurance company only.
A16. Commercial Development Corporation (CDC) hires Delta Construction Company to
work at a site as an independent contractor. Whether CDC will be liable for torts
committed at the site by Delta depends on
a. what Delta bid for the job.
b. whether unusually hazardous activities are involved.
c. which party obtained insurance to cover tort liability.
d. who is paying Delta.
A17. Security Armored Car Corporation employs Theo as an agent. Without Security’s
knowledge but otherwise acting within the scope of employment, Theo commits a
crime. The state can successfully prosecute
a. neither Security nor Theo.
b. Security only.
c. Security or Theo.
d. Theo only.
A18. Clive is a purchasing agent for Double D Ranch with the authority to buy cattle at a
certain auction. After the cattle are bought, the agency relationship terminates
a. automatically.
b. following notice to all actual cattle sellers.
c. following notice to all potential cattle sellers.
d. following published notice in a local newspaper.
A19. Frida hires Gert, a real estate broker, to act as her agent to sell her house. The house
burns down before being sold. The agency agreement is likely
a. still in force if Frida gives Gert additional consideration.
b. still in force if Gert does not tell prospective customers.
c. terminated by mutual consent of the parties.
d. terminated by operation of law.
A20. Omar hires Petra, a real estate broker, to act as his agent to sell his land for $150,000.
Oil is discovered beneath the land, causing its market value to increase considerably.
The agency agreement is likely
a. still in force if Omar gives Petra additional consideration.
b. still in force if Petra does not tell prospective customers.
c. terminated by mutual consent of the parties.
d. terminated by operation of law.
ESSAY QUESTIONS
A1. Brenda is a purchasing agent for Commodities Exchange Corporation. Dennis, a
Commodities corporate officer, gives Brenda written authority to buy for the firm as
many computers and peripheral devices as necessary. The next day, Dennis calls
Brenda and tells her to buy only fifty notebook computers and nothing else. Brenda
shows the written authority to E-Products, Inc., and enters into a contract with E-
Products to buy sixty notebook computers and a selection of printers, scanners, and
extra storage media. E-Products ships the order to Commodities. Is Commodities li–
able to E-Products under the contract? Is Brenda liable? In each case, if so, why? If
not, why not?
A2. Tropical Vittles, LLC, hires Sophie to act as its agent to buy a ten-acre tract of land
from Rico for $1,000 per acre. Tropical Vittles does not want Rico to know that it is the
principal or that Sophie is its agent. Tropical Vittles wants the land for a new fast-food
restaurant, and believes that Rico may not sell the land for that purpose or may
demand a premium price. Sophie makes the purchase, signing only her name to the
contract as the buyer and not disclosing to Rico the agency relationship. The transfer
of the deed is to occur on May 1. Rico learns of Tropical Vittles’s identity on April 15.
Can Rico legally refuse to deed the property on May 1? Explain.