The Legal Environment of Business and Online Commerce, 7e (Cheeseman)
Chapter 18 Agency Law
1) Agency law is a mixture of tort and contract laws.
2) The principal works on behalf of an agent.
3) A principal—agent relationship exists when an employer hires an employee to perform some
form of physical service.
4) An employer—employee relationship occurs when an employer gives an employee authority
to act and enter into contracts on his or her behalf.
5) A principal can authorize an independent contractor to enter into contracts.
6) If a principal and an agent enter into an express agency contract, the principal cannot employ
any agent other than the exclusive agent.
7) An express agency contract cannot be orally agreed upon.
8) A power of attorney gives an agent the power to sign legal documents on behalf of the
principal.
9) A general power of attorney limits the agent to those acts enumerated by the agreement.
10) A special power of attorney empowers the agent to act in any matters on the principal’s
behalf without limitation.
11) An agent given a power of attorney is known as an attorney-in-fact.
12) Only a lawyer can become an attorney-in-fact.
13) An orally agreed upon power of attorney is acceptable in court.
14) A durable power of attorney remains effective even if the principal is incapacitated.
15) For an implied agency to function, implied authority cannot conflict with express authority.
16) In an agency by ratification, the agent is relieved of any liability for misrepresentation.
17) An agent by ratification happens when a principal ratifies an authorized act.
18) A principal is not bound to contracts made by an apparent agency.
19) The principal is bound legally to pay a gratuitous agent.
20) The principal’s duty to reimburse says that the principal should pay the agent all expenses
prior to start of the agency.
21) A principal owes a duty to indemnify the agent for any losses the agent suffers because of the
principal’s conduct.
22) An agent who has negligently or intentionally failed to perform his express duties is also
liable to tort laws.
23) An agent does not owe a duty to notify the principal of important information he learns
concerning the agency.
24) An agent is not liable to the principal for any injuries resulting from a breach of duty to
notify.
25) The legal rule of imputed knowledge means that the principal is assumed to know what the
agent knows.
26) Any property, money, or other benefit received by the agent in the course of an agency
belongs to the principal.
27) A constructive trust helps the agent retain profits made during the completion of the agency.
28) The duty of loyalty is a fiduciary duty owned by an agent not to act adversely to the interests
of the principal.
29) Undisclosed self-dealing by an agent is not regarded as violation of the duty of loyalty.
30) If an agent competes with the principal without the principal’s permission, the principal may
recover profits made by the agent.
31) 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.
32) An agent does not violate his or her duty of loyalty by serving two parties with the same
interest.
33) Middlemen and finders are not considered dual agents.
34) Dual agency occurs when an agent acts for two or more different principals in the same
transaction.
35) Dual agency is permitted if all parties to a transaction agree to it.
36) The principal is liable for the tortious conduct of an agent who is acting within the scope of
his or her authority.
37) Battery committed by an agent in the principal’s premises and during the scope of
employment is considered an unintentional tort.
38) An agent is liable for the tortious conduct of the principal if he or she has knowledge of the
principal’s conduct.
39) Based on the doctrine of respondeat superior, principals are liable for the negligent conduct
of agents acting within the scope of their employment.
40) Vicarious liability is liability with fault.
41) Principals are liable for negligence caused by an agent during substantial frolic and detour.
42) 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.
43) The principal is not liable for an agent’s negligence while the agent is on a dual-purpose
mission.
44) The agent is compulsorily liable for any intentional or innocent misrepresentation made by
the principal in a transaction.
45) The principal is liable for the innocent misrepresentation made by an agent acting within the
scope of employment.
46) The work-related test puts liability on the employee if the intentional tort is committed
within work-related time and space.
47) A fully disclosed agency results if a third party entering into a contract knows the actual
identity of the principal.
48) The agent is not liable on the contract in a fully disclosed agency.
49) 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.
50) In a partially disclosed agency, the contracting third party transacts directly with the
principal and does not know the identity of the agent.
51) A partially disclosed agency can be created by mistake.
52) Undisclosed agencies are not lawful in the United States.
53) In an undisclosed agency, the principal is solely liable on the contract with the third party.
54) 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.
55) Ratification of a contract is a situation in which a principal accepts an agent’s unauthorized
contract.
56) The principal is obliged to perform the contract made with a third-party.
57) The party that employs an independent contractor is called an agent.
58) The principal is liable for all torts of independent contractors.
59) Principals do not control the means by which independent contractors achieve results.
60) An independent contractor cannot represent more than one principal at a time.
61) Parties with whom the agent has dealt with directly must be given direct notices of
termination of agency.
62) Constructive notices are not valid against strangers who assert claims of apparent agency.
63) The outbreak of a war between the principal’s country and the agent’s country is grounds for
terminating an agency.
64) The bankruptcy of the principal is not a valid reason to terminate an agency.
65) If an agency terminates by operation of law, there is no duty to notify third parties about the
termination.
66) 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
67) The ________ is the party who employs another person to act on his or her behalf.
A) agent
B) principal
C) independent contractor
D) employee
68) Which of the following constitutes an agency?
A) principal-agent relationship
B) agent-agent relationship
C) principal-principal relationship
D) agent-independent contractor relationship
69) 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
Martin, who wants to sell a house he owns, authorizes his concierge, Wilhelm, to find a potential
buyer, and finalize a deal above a stipulated price. Wilhelm contracts Chris, a real estate broker,
and intends him to only find a potential buyer and send them over to Wilhelm for the sale.
Martin then contracts ReNowait Goodhouses, a home improvement company to renovate the
house. ReNowait completes their work and Martin pays them. Chris then searches for a suitable
buyer and finds one in George. George buys the house and Chris is paid for his services.
70) Who performs the role of the agent in this land sale transaction?
A) Wilhelm
B) Martin
C) Chris
D) George
71) Who is the principal during the land sale transaction?
A) ReNowait Goodhouses
B) George
C) Martin
D) William
72) 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
73) What role does ReNowait Goodhouses perform?
A) agent
B) independent contractor
C) principal
D) trustee
74) What role does Chris perform?
A) independent contractor
B) agent
C) principal
D) trustee
75) 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
76) 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
77) 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.
Marlon intends to sell a piece of real estate he owns and contracts Nita, a real estate broker, to
make the sale. In the contract, Marlon authorizes Nita to make the sale at or above a minimum
price he wants and the date by which he wants the sale to be completed. The contract also
stipulates that Marlon should not hire another broker to sell that piece of land till the expiry of
the contract period. Nita finds a suitable buyer, makes the sale in time, and is paid by Marlon for
her services.
78) 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
79) 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
80) 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
81) 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.
82) 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
83) 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.
84) 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
85) 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.
86) 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.
87) 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
88) 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
89) 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