1
Chapter 20
Agency
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
1. Agency relationships do not permeate the business world.
2. The term fiduciary is at the heart of agency law.
3. Ratification involves a question of intent, and intent can be expressed only by
words.
4. An agency agreement can be implied by conduct.
5. An agency relationship created for a purpose that is contrary to public policy
may still be enforceable.
2 TEST BANK—UNIT FIVE: THE EMPLOYMENT ENVIRONMENT
6. An agency by estoppel arises when the principal’s actions have created the
appearance of an agency that does not in fact exist.
7. Generally, the law assumes that the principal is aware of any information
acquired by the agent that is relevant to the agency.
8. An agent can represent two principals in the same transaction as long as
neither of them knows about it.
9. A principal has a duty to cooperate with the agent and to assist the agent in
performing his or he duties.
10. The agent has the right to be compensated, to be reimbursed and indemnified,
and to have a safe working environment.
11. An executive officer of a corporation normally can conduct ordinary business
transactions without obtaining written authority from the corporation.
12. The equal dignity rule requires that if a contract entered into by an agent is in
writing, the principal, must honor it.
13. An agent has the implied authority to do what is reasonably necessary to
accomplish the objectives of the agency.
14. An agent’s implied authority can be implied by custom.
15. A principal’s ratification of an agent’s unauthorized act must be express.
16. If a principal ratifies a contract without knowing all of the facts, the principal can
rescind the contract.
17. A principal is always directly responsible for an agent’s misrepresentation
made within the scope of the agent’s authority.
18. Under the doctrine of respondeat superior, a principal may be liable for any
harm that his or her agent causes to a third party.
19. A principal or employer normally is not liable for an agent’s crime even if the
crime was committed within the scope of authority or employment.
20. If either the principal or the agent petitions for bankruptcy, the agency is not
usually terminated.
MULTIPLE CHOICE QUESTIONS
1. Jewelry & Coin Company hires Kelly Ann to buy gems and precious metals
from various sources on its behalf. In this relationship, Jewelry & Coin is
a. an employee.
b. an independent contractor.
c. a principal.
d. an agent.
2. California Produce Company hires Drew to work on California Produce’s
shipping dock, checking outgoing loads and dispatching the company’s drivers.
With respect to California Produce, Drew is most likely
a. an agent.
b. an independent contractor.
c. a principal.
d. a work for hire.
3. Elaine owns the Fabric & Yarn store. Goldie is a salesperson in the store.
When Goldie makes a sale to Heather, the sale is binding on
a. Elaine.
b. Goldie.
c. Fabric & Yarn only—and only if Elaine is present at the sale.
d. no one.
4. Sybil agrees with Tyrone and other professional athletes to sign contracts with
promoters and others on the athletes’ behalf. Sybil is
a. an agent.
b. an employee.
c. an employer.
d. a principal.
5. Ingmar asks Jessie to contract with Jessie’s high school classmates to babysit
Ingmar’s new baby. Jessie orally agrees to do so. This is
a. an agency by agreement.
b. an agency by estoppel.
c. an agency by ratification.
d. not an agency relationship.
6. Lucille is married to Marcus. Lucille buys food for their children’s lunches and
charges the cost to Marcus’s account. This is
a. an agency by operation of law.
b. an agency by estoppel.
c. an agency by ratification.
d. not an agency relationship.
7. Bernard is an expert on exotic flowers. Custom Floral Arrangements, Inc., hires
Bernard to order exotic flowers for its arrangements. Bernard does not examine
the quality of the flowers he orders on behalf of Custom Floral. Bernard has
breached
a. the duty of performance.
b. the duty of loyalty.
c. no duty.
d. the duty of notification.
8. Home Enterprises employs Itzak to buy property for a possible residential
development. Itzak secretly buys some of the property and sells it to Home
Enterprises at a profit. Itzak has breached
a. no duty.
b. the duty of accounting.
c. the duty of loyalty.
d. the duty of notification.
9. Largo is an agent for MaryElise. MaryElise gives Largo clear instructions to
enter into contracts on her behalf only on Mondays, Wednesdays, or Fridays.
Largo enters into a contract on her behalf on Tuesday. Largo has breached
a. the duty of performance.
b. the duty of loyalty.
c. no duty.
d. the duty of obedience.
10. Global Games Corporation employs Hyacinth as an agent. Global Games gives
her an exclusive territory in which to sell its products. Global Games cannot
compete with her in that territory under the duty of
a. compensation.
b. cooperation.
c. indemnification.
d. reimbursement.
11. Nuncio serves in a representative capacity for Obadiah. With respect to binding
Obadiah to contracts, Nuncio’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.
12. Trucking Dispatch Company and Ucello put their agency agreement into a
written document that describes the rights and duties of both parties. Ucello, as
the agent, has
a. apparent authority.
b. none of the choices.
c. express authority.
d. implied authority.
13. Without authorization, Lars contracts on behalf of Mina to have Nemo paint the
interior and exterior of Mina’s house. If Mina decides to ratify the contract, she
must affirm
a. all of the contract.
b. any part of the contract, with Lars liable to Nemo for the difference.
c. any part of the contract before performance begins.
d. any part of the contract at any time.
14. Donald approves on behalf of Evelyn—but without authorization—a contract
with Farouk to build a new silo. Evelyn does not ratify the contract. The deal
with Farouk is
a. an enforceable contract with Donald.
b. a voidable contract.
c. an enforceable contract with Evelyn.
d. an unaccepted offer.
15. Linus hires Mieko to act as his agent to purchase Ngoc’s Southeast Asian
Buffet. Linus tells Mieko to reveal only that she is buying the restaurant on
behalf of a third party, without telling Ngoc’s seller who that third party is. Linus
is
a. a disclosed principal.
b. not a principal.
c. an undisclosed principal.
d. a partially disclosed principal.
16. Clark hires Dimitri to act as his agent to purchase Expo Sports Arena, Inc.
Clark tells Dimitri to reveal that he is buying the firm and its assets on behalf of
a third party and to tell the seller who that third party is. Clark is
a. a disclosed principal.
b. an apparent principal.
c. an undisclosed principal.
d. a partially disclosed principal.
17. Lena is a salesperson for Musical Instruments, Inc. She tells Nayda, a
customer, that an instrument has a certain quality when, as Lena knows, it
does not. In reliance, Nayda buys the instrument. Liable for this misrepresenta–
tion is
a. no one.
b. Lena.
c. Musical Instruments.
d. Nayda.
18. Garry drives a truck as an employee for Heavy Hauling, Inc. Garry would most
likely be considered acting outside the scope of her employment if he
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.
19. Bayou Development Corporation hires Coastal Brokerage Associates to sell
the condominiums in a building at Bayou Development’s resort. The agency will
terminate
a. after the condos have been sold.
b. if the prices of the condos must be reduced to sell them.
c. once Bayou Development obtains insurance to cover the property.
d. when Bayou Development pays Coastal Brokerage its first commission.
20. Miklos employs 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.
ESSAY QUESTIONS
1. Build-It Construction Company contracts with Classic Beverage Corporation to
build Classic Beverage’s corporate headquarters. Build-It Construction
contracts with Dependable Tools & Materials Inc. for construction supplies but
refuses to pick up the order. Meanwhile, Classic Beverage hires Elmo, a
certified public accountant, to work in its cost-accounting division as an
employee, with no authority to hire or supervise others. Elmo asks Fayette, an
CHAPTER 20: AGENCY 11
outside experienced accountant, to advise him on certain accounting
procedures but fails to pay Fayette for the service. Classic Beverage also
contracts with Gloria, a salesperson, to solicit orders for its products in a
designated territory. Gloria obtains an order from Highpoint Concessions, Inc.,
which is assured the order will be filled soon. But Gloria does not follow through
with the paperwork and fails to submit the order to Classic Beverage. Highpoint
Concessions suffers a loss. Dependable Tools, Fayette, and Highpoint
Concessions claim Classic Beverage is liable under agency law. Discuss fully
whether an agency relationship was created by Classic Beverage with Build-It
Construction, Elmo, or Gloria.
2. Yoshi contracts with Zach to buy a certain pub, Aficionado’s, for Yoshi, who
asks Zach not to reveal her identity. Zach makes a deal with Burcet, the owner
of the pub, and makes a down payment. Yoshi fails to pay the rest of the price,
12 TEST BANK—UNIT FIVE: THE EMPLOYMENT ENVIRONMENT
and does not pay Zach for his services. Does Zach have any recourse against
Yoshi? If so, on what basis and to what extent?