1. Larry decided to relocate to Germany. Larry hired Happy Homes, Inc. to find a buyer and contract for the sale of his
house in the U.S. The agency relationship between Larry and Happy Homes must be evidenced with a written agreement.
a.
True
b.
False
2. If Denise is hired to work as a cashier, she has the implied authority to do acts reasonably necessary to carry out her
job.
a.
True
b.
False
True
Moderate
3. Erica’s supervisor told her to arrange for a conference room at the Kelly Inn. Erica has express authority to contract for
the room.
a.
True
b.
False
True
Moderate
4. An agent must obey all instructions of the principal.
a.
True
b.
False
False
Easy
5. Jolene hired Lacy to find a buyer for her house. Adam was interested in buying the house. If both Jolene and Adam
agree, Lacy, a real estate agent, may represent both parties.
a.
True
b.
False
True
Moderate
6. As a general rule, an agent is liable on contracts entered into on behalf of a fully disclosed principal.
a.
True
b.
False
True
Moderate
7. You cannot be held liable for the actions of your agents if the agents are violating your instructions.
a.
True
b.
False
False
Moderate
8. If apparent authority is present, the principal is liable for even the unauthorized acts of the agent.
a.
True
b.
False
True
Moderate
9. The bankruptcy of an agent automatically terminates an agency relationship.
a.
True
b.
False
False
Easy
10. Generally, either party to an agency relationship has the power to terminate it at any time.
a.
True
b.
False
True
Easy
11. Rob agrees to act as an agent for Diane in selling her car. Diane has a duty of loyalty to Rob.
a.
True
b.
False
False
Moderate
12. Kaiya is a sales representative of TriColor. Kaiya owes a fiduciary duty to TriColor.
False
Easy
a.
True
b.
False
13. A principal must indemnify an agent for any reasonable expenses incurred in carrying out his or her responsibilities.
a.
True
b.
False
True
Moderate
Bloom’s: Comprehension
14. If a person accepts the benefits of an unauthorized transaction, or fails to repudiate it, then he is bound by the act as if
he had originally authorized it.
a.
True
b.
False
True
Moderate
Bloom’s: Comprehension
15. An agent is always liable for his or her own torts committed within the scope of the agency relationship.
a.
True
b.
False
True
Easy
Bloom’s: Knowledge
16. Which of the following persons is NOT an agent?
a.
Diane, a shoe salesperson for a retail store.
b.
Tim, a real estate broker for a large real estate company.
c.
Craig, a telephone marketing employee.
d.
Harold, a trustee to the beneficiaries of an estate.
Moderate
Bloom’s: Application
17. Which of the following is NOT required of an agency relationship?
a.
Consideration between parties
b.
A Fiduciary relationship
c.
Consent of the parties to act as agent or principal
True
Moderate
Bloom’s: Comprehension
d.
Control of principal over agent’s conduct
18. Which of the following states that if an agent is empowered to enter into a contract that must be in writing, then the
appointment of the agent must also be written?
a.
Duty to obey instructions
b.
Balanced contract rule
c.
Fiduciary duty
d.
Equal dignities rule
Easy
Bloom’s: Knowledge
19. Mohammad was an employee in the new product development department of Estay Inc. Mohammad was directly
involved in the development of a new product that Estay intended to launch in 6 months. Estay took great care to keep
information concerning the new product a secret. Ceries, Inc., a competitor of Estay, persuaded Mohammad to leave Estay
to direct Ceries’ marketing department. Which statement is correct?
a.
Mohammad can share with Ceries the confidential information he knows about Estay’s new product because
he was directly involved in its development.
b.
Mohammad can share with Ceries the confidential information he knows about Estay’s new product because
his agency relationship with Estay is terminated.
c.
Mohammad cannot share with Ceries the confidential information he knows about Estay’s new product
because of the equal dignities rule.
d.
Mohammad cannot share with Ceries the confidential information he knows about Estay’s new product
because he has a duty not to disclose confidential information he acquired during the agency.
Moderate
Bloom’s: Application
20. An agency relationship can be created
a.
by the conduct of the parties.
b.
only by the meeting of all the standards of contract law.
c.
only by a written agreement.
d.
only if the agent is paid.
Moderate
Bloom’s: Comprehension
21. In its most basic terms, a fiduciary relationship is one of
a.
trust.
b.
control.
Moderate
Bloom’s: Comprehension
c.
competition.
d.
disclosure.
22. John hired Tim to sell his house. Which statement is correct?
a.
John is Tim’s principal.
b.
Tim, but not John, can terminate the agency relationship.
c.
John, but not Tim, can terminate the agency relationship.
d.
Tim is John’s principal.
Moderate
Bloom’s: Comprehension
23. Nikki was an tax accountant with HBR Accounting. Nikki decided to do some tax consulting in the evenings and on
weekends. HBR is unaware of Nikki’s consulting work. Which statement is correct?
a.
Nikki has not breached a fiduciary duty to HBR since her consulting is done after her work for HBR.
b.
Nikki has not breached a fiduciary duty to HBR since her behavior does not reflect badly on the accounting
firm.
c.
Nikki has not breached a fiduciary duty to HBR since Nikki has a contractual relationship with her clients, not
her employer.
d.
Nikki has breached a fiduciary duty to HBR since she is competing with HBR.
Moderate
Bloom’s: Application
24. The principle of liability stating that an employer is liable for a physical tort committed by an employee acting within
the scope of employment and a nonphysical tort of an employee acting with authority is called
a.
the equal dignities rule.
b.
respondeat superior.
c.
fiduciary control.
d.
apparent authority.
Easy
Bloom’s: Knowledge
25. Cameron, editor of the local newspaper, assigned to Jim the writing of a story about pollution of a nearby stream.
Although Jim used reasonable care in gathering and checking his information, unknown to Jim, the story contained a
defamatory statement about Maureen. Maureen reads the story and sues Jim for libel. Cameron, who read and published
the story
a.
must indemnify Jim for Maureen’s claim.
b.
need not indemnify Jim for Maureen’s claim because Jim should have checked his facts more carefully.
Easy
Bloom’s: Knowledge
c.
need not indemnify Jim for Maureen’s claim because Jim breached his duty to obey instructions.
d.
can recover damages from Jim for any injury to the newspaper resulting from Jim’s story.
26. An agent may not engage in inappropriate behavior that reflects badly on the principal. This rule applies to conduct
a.
during working hours.
b.
during off-duty time.
c.
during both working hours and off-duty time.
d.
only by public officials.
Bloom’s: Comprehension
27. Pamela hired Lena to sell her business. Lena
a.
can buy the business as long as the price is fair.
b.
can buy the business as long as she qualifies for financing.
c.
can buy the business only with Pamela’s permission.
d.
cannot buy the business under any circumstances.
Bloom’s: Comprehension
28. An agency will be terminated in all but which one of the following situations?
a.
The principal and agent agree on an agency relationship to sell a boat, and the boat is sold.
b.
A travel agent files for individual bankruptcy under Chapter 13.
c.
The agent violates his duty of loyalty.
d.
An electrician, an agent of a contractor, has her license revoked.
Bloom’s: Comprehension
AACSB Reflective Thinking
29. Janet was employed as a sales representative for Esday, Inc. An appreciative customer gave her a diamond bracelet for
all her hard work on a complicated contract. Can Janet keep the bracelet?
a.
Yes. The bracelet was given to Janet personally and intended for her.
b.
Yes, but only if she discloses the gift to Esday and Esday consents to her keeping the bracelet.
c.
No. An agent is not allowed under any circumstances to personally profit as a result of the agency relationship.
d.
No. The bracelet is regarded as an unfair trade practice and violates antitrust law.
Bloom’s: Application
30. Chance is a traveling marketing representative for a publishing company. He is an independent contractor and was
hired without negligence. One afternoon while driving to a meeting, Chance negligently runs a stop sign and causes an
accident. Judy is injured. Judy can
a.
hold both Chance and his company liable for her injury.
b.
hold the company but not Chance liable.
c.
hold Chance but not the company liable.
d.
not hold Chance or his company liable for her injury.
Moderate
Bloom’s: Application
31. Mrs. O’Leary hired Jenna to sell her house in Michigan. She executed a power of attorney in favor of Jenna
authorizing her to do “anything and everything associated with the sale of real estate, acting as a prudent person.” On May
30, Jenna finalized a deal with Brandon for the purchase of the house. Brandon and Jenna signed the real estate contract
that day. Jenna learned the next day that Mrs. O’Leary had died May 29.
a.
The contract is void since the agency terminated May 29.
b.
The contract is valid since the agency’s purpose was achieved before Jenna was notified of Mrs. O’Leary’s
death.
c.
The contract is voidable at the option of Mrs. O’Leary’s estate.
d.
The contract is voidable at the option of Brandon.
Moderate
Bloom’s: Application
32. Jim agreed to show Donna’s car to a potential buyer. Donna was not able to be home since she had to attend a meeting.
After showing the car, Jim left the keys in it and the car was stolen. Which statement is correct?
a.
Since Jim is a gratuitous agent, he will only be liable for the loss of the car if his conduct constitutes gross
negligence.
b.
Since Jim is a gratuitous agent, he will be liable for the loss of the car if his conduct constitutes ordinary
negligence.
c.
Since Jim is a gratuitous agent, he has no liability for the car.
d.
Since Jim is a gratuitous agent, he is strictly liable for the loss of the car.
Moderate
Bloom’s: Comprehension
33. Someone who is not paid for performing duties is a(n)
a.
fiduciary agent.
b.
charitable agent.
c.
implied agent.
d.
gratuitous agent.
Moderate
Bloom’s: Application
34. Tom, the production manager at Esday, was told by his supervisor to hire Elton, a 15-year-old boy, to operate an
industrial machine. Hiring the 15 year old violates the child labor laws. What should Tom do in this situation?
a.
Tom should hire Elton; he has a duty to obey Esday’s instructions.
b.
Tom should hire Elton; he has a duty of care to ensure that the government does not discover that Elton is 15
years old.
c.
Tom should not hire Elton; he has a duty of care and he would not be caring for Elton.
d.
Tom should not hire Elton; he has a duty to obey Esday’s instructions only if they are legal and ethical.
Bloom’s: Comprehension
35. If the principal and agent agree in advance how long their relationship will last, their agreement is called
a.
an agency at will.
b.
an agency of purpose.
c.
an express agreement.
d.
a term agreement.
Bloom’s: Knowledge
36. HBR Accounting hired Denise, a CPA, to prepare tax returns. Which statement is correct?
a.
Denise is a gratuitous agent and has a duty not to commit gross negligence.
b.
Denise is a gratuitous agent and has a duty not to commit ordinary negligence.
c.
Denise, as a CPA, is an agent with special skills. She is held to a higher standard than ordinary negligence.
d.
Denise, as a CPA, is an agent with special skills. She is held to a lower standard than ordinary negligence.
Bloom’s: Comprehension
37. Janelle has an art collection that she wants to sell. She calls Amber and tells her to sell the art collection for her at an
upcoming auction. Amber agrees. This is an example of
a.
apparent authority.
b.
respondeat superior.
c.
intermediary agency.
d.
express authority.
Bloom’s: Application
Bloom’s: Knowledge
38. Circus Pizza contracted with Art to run its birthday parties. Art’s responsibilities included supervising the children and
organizing the games. Circus did not investigate Art’s background, which included a history of assaulting children. Art
assaulted a 7-year-old girl in the restaurant’s kitchen during a birthday party. Circus Pizza
a.
cannot be liable for the damages because Art committed an unforeseeable intentional tort.
b.
cannot be held liable for the damages because Art’s conduct was not in the scope of employment.
c.
may be held liable on the basis of negligent hiring.
d.
may be held liable only if Circus actually knew of Art’s background.
39. When a principal is partially disclosed
a.
the agent and principal will be jointly and severally liable on the contract.
b.
the agent and principal will be only jointly liable on the contract.
c.
only the principal can be liable.
d.
only the agent is liable.
Bloom’s: Comprehension
40. In the case of an undisclosed principal, a third party
a.
can only recover from the principal.
b.
can only recover from the agent.
c.
cannot recover at all.
d.
can recover from either the agent or the principal.
Bloom’s: Comprehension
41. Alex worked for years for MegaCorp. During his employment with MegaCorp, he learned a great deal of confidential
information and knew that if this information got into the hands of competitors or the general public, MegaCorp could
suffer great business losses. Alex claims that he was wrongfully fired by MegaCorp and accordingly he believes he has no
obligation to MegaCorp to keep any information he acquired with them as confidential. MegaCorp claims that Alex is
under a continuing duty to keep confidential information secret, even though he is no longer with the company. Who is
right? Why?
Bloom’s: Application
42. A principal is bound by contracts that an agent enters into with authority. Discuss the various types of contractual
Bloom’s: Application
authority an agent may have.
43. Andrew has been hired to do some work for Rossi Enterprises. What factors would a court consider in determining if
Andrew is an employee or an independent contractor? Why does the designation matter?
44. Grant is a delivery person for Watkins Furniture. One day, after delivering a chair to Nadine’s house, he stopped at a
fast food restaurant to get a sandwich at the drive-through window. As he was leaving the parking lot, he accidentally hit
the rear of Blanche’s car. Discuss the possible liability of Watkins for Grant’s accident. Would there be any difference in
the potential liability of Watkins if Grant had the accident after driving 30 miles away to visit a friend?
45. Betsy’s elderly father gave her written authority her to sell the family house. Her father lived in Arizona and she lived
in Minnesota. After about two months she found a buyer for the house and signed an acceptance of the offer on March 21.
Later that same day she learned her father had died the day before (March 20). Other members of the family did not want
the family house sold and claimed that the acceptance Betsy signed was void. The buyer of the house claims Betsy had the
legal authority to sell the house and that the contract is binding. Who is right?
