The Agency Relationship Test Bank Chapter.35 17th Edition

Business Law, 17e (Langvardt)

Chapter 35 The Agency Relationship

1) Agency is a two-party relationship in which the agent is authorized to act on behalf of the principal.

2) The agency relationship may be formed even if the parties do not subjectively intend to create it.

3) A principal is always liable for the acts of his agent.

4) Joe is the personnel manager for the BFG Corporation. Joe hires employees for BFG. Joe hires Suzy as a management trainee. Suzy is BFG's subagent.

5) Because they serve for free, gratuitous agents have no authority to bind their principals.

6) The legal relations between agent and subagent closely parallel the legal relations between principal and agent.

7) A subagent is an agent of an agent.

8) Authority is an agent's ability to affect the principal's legal relations and affairs.

9) The term ‘independent contractor' is defined in the Restatement (Third) of Contracts.

10) If Tom Smith works in the in-house counsel department of Supermart Corporation then he will be considered an employee not a nonemployee agent.

11) A gratuitous agent has the same fiduciary duty as a paid agent.

12) The agent's duty not to use or disclose confidential information about the principal's business continues after the agency ends.

13) A principal who instructs an agent to perform an illegal act will have no recourse against an agent who refuses to perform.

14) The law of Agency generally calls for the principal to indemnify the agent against financial loss while carrying out his/her duties.

15) Termination of agency by the principal is known as renunciation and termination by agent is known as revocation.

16) The principal's death automatically terminates an existing agency under the Restatement (Third) of Agency.

17) An agency coupled with an interest cannot be terminated by the principal's revocation of the agency.

18) An agent filing for bankruptcy automatically terminates the agency relationship.

19) The termination of an agency terminates the agent's express authority, but not his implied authority.

20) Under the Restatement (Third) of Agency, the principal's death automatically terminates an agent's apparent authority.

21) Which of the following is generally true of the relationship between businesses and employees?

A) Business are not bound by the actions of employees.

B) Businesses are liable on contracts their employees make but not torts their employees commit.

C) Businesses are liable for torts their employees commit but are not bound on contracts their employees create.

D) Businesses are liable on contracts their employees make and torts their employees commit.

22) Why is agency important to sole proprietors?

A) Without agency, a sole proprietor's ability to engage in trade would be limited by the need to make purchases and contracts in person.

B) Without agency, which vests a sole proprietor with authority, a sole proprietor would not be able to enter into contracts.

C) Without agency, a sole proprietor's business would die with the proprietor.

D) Agency is not important to sole proprietors because sole proprietors cannot create an agency relationship

23) ________ refers to a two-party relationship in which one party is authorized to act on behalf of, and under the control of, the other party.

A) Bailment

B) Agency

C) Estoppel

D) Abatement

24) Which of the following describes the type of relationship that exists between an agent and a principal?

A) Dependent

B) Manifest

C) Objective

D) Fiduciary

25) Peter hires Brian and tells Brian that he has the authority to make purchases for Peter's company. Peter tells Brian he is not to consider himself as Peter's agent. Is Brian Peter's agent?

A) Yes, because if a party's conduct indicates an agreement that one person is to act on behalf of and under the control of another, this creates an agency relationship even when the parties expressly say they do not intend to create it.

B) Yes, because Peter hired Brian and employees are always agents of their employers under all circumstances.

C) No, because Brian's authority is limited to making purchases only.

D) No, because Peter expressly said Brian was not to act as his agent.

26) Which of the following is true of a person's capacity to be a principal or agent?

A) To be an agent, a person must have the ability to make his own contracts, independent of the principal.

B) Any duty that a principal has the capacity to perform can be delegated to an authorized agent.

C) A principal must have the capacity to do the acts for which the agent has been retained.

D) To be an agent, a person must have the capacity to perform non-delegable obligations for the principal.

27) Because she is a minor, Sarah cannot enter into contracts on her own behalf although she is perfectly competent. Her mother wishes to make Sarah an agent of the family business, and Sarah will be responsible for entering into contracts as an agent. Can Sarah act as an agent of the company?

A) No, because she is a minor.

B) No, because she does not have the capacity to enter into contracts.

C) Yes, but only because it is a family business.

D) Yes, because she has capacity to do the acts for which she has been retained.

28) Which of the following tasks can an agent perform on behalf of a principal?

A) Signing a will

B) Making statements under oath

C) Voting in public elections

D) Making a contract

29) An agent can bind his principal on a contract or other matter only when the agent has ________ to do so.

A) A fiduciary duty

B) Capacity

C) Authority

D) Capability

30) ________ is actual authority that the principal has manifested to the agent using very specific or detailed language.

A) Implied authority

B) Primary authority

C) Express authority

D) Apparent authority

31) Which of the following is true of apparent authority?

A) It arises when an agent falsely claims to be acting under the authority of a principal.

B) It requires express authorization, in words or writing, from the principal.

C) It arises when the principal leads a third party to believe that an agent is authorized.

D) It requires that the agent receive consideration from the principal, i.e., the agent is not a gratuitous agent.

32) In which of the following cases does apparent authority arise?

A) When a principal causes a third party to believe that the agent is authorized to act in a certain way.

B) When a principal's manifest consent is communicated directly to the agent.

C) When a person falsely represents himself as an agent of a principal to a third party.

D) When an agent reasonably believes that the principal wants him to act in a certain way.

33) Which of the following must exist in order for a person to possess apparent authority?

A) The principal's payment of consideration to the agent

B) The agent's consent to the agency relationship

C) A third party's belief that agency exists

D) The principal's written authorization to the agent

34) Ahmed hired Shlomo to act as his sales agent in his jewelry store. Ahmed authorized Shlomo actual express authority to sell items of jewelry up to $1,000 without checking with him; however, if the price was over $1,000, Shlomo was to check with Ahmed before making a sale. One day, a customer wanted to buy a necklace for $1,500 and Shlomo sold it to her without first checking with Ahmed. When Ahmed learned of this, he was upset because the price was a mistake; it should have been marked at $3,000. Ahmed wants the customer to return the necklace. Is the customer required to return the necklace in this case?

A) Yes, because Shlomo did not have express authority to sell that item.

B) Yes, because Shlomo did not have implied authority to sell that item.

C) No, because Shlomo did have apparent authority to sell that item.

D) No, because Shlomo did have implied authority to sell that item.

35) When do a principal's communications to an agent have an impact on whether the agent has apparent authority?

A) Never.

B) Only if the principal's communications to the agent become known to the third party or affect the agent's behavior.

C) Only if the agent abuses his power and acts outside of his apparent and implied authority.

D) Always.

36) Which of the following is true of general agents and special agents?

A) General agents have the power to bind the principal by their actions, while special agents do not.

B) A general agent is employed to conduct a series of transactions, while a special agent is employed to conduct a small, simple group of transactions.

C) Special agents are gratuitous agents, i.e., they are not paid by the principal, while general agents receive consideration for their services.

D) General agents can appoint subagents to carry out the principal's tasks, while special agents cannot.

37) Juan is going to be out of town when the purchase of his car is completed. He empowers his sister, Tanya, to sign the contract for the purchase of the car. Tanya is a ________.

A) general agent

B) special agent

C) subagent

D) principal

38) An agent who receives no compensation for his services is known as:

A) an independent contractor.

B) a special agent.

C) a gratuitous agent.

D) a servant.

39) Which of the following is true of subagents?

A) They must be appointed by the principal, though they report to the agent.

B) They are considered to be agents of the agent, but not of the principal himself.

C) Subagents do not have the authority to bind a principal, but can bind the agent.

D) For a subagency to exist, an agent must have the authority to make the subagent his agent.

40) Which of the following is true of an agent who has the authority to appoint a subagent?

A) An agent becomes a principal with respect to the subagent.

B) An agent is able to appoint a subagent without the principal's knowledge.

C) An agent has the authority to appoint a subagent when the situation involves a nondelegable duty.

D) An agent has the authority to appoint a subagent when the co-agent demands such an appointment.

41) In the United States agency law is primarily governed by what type of law?

A) Federal law

B) State law

C) International law

D) Religious law

42) Which of the following factors is most likely to distinguish employees from independent contractors?

A) Whether or not consideration is given by the principal for the agent's performance

B) The principal's right to control the manner and means of the agent's performance

C) Whether the agent has authority to bind the principal by his actions

D) The agent's personal liability for illegal actions taken on behalf of the principal

43) Which of the following is most likely to be classed as an independent contractor rather than an employee?

A) An assembly line worker

B) A lawyer who works as in-house counsel for a corporation

C) A franchisee of a fast-food chain

D) The president of a corporation

44) In agency law, the term "independent contractor" is referred to as what?

A) Nonemployee agent

B) Employee

C) Incorporator

D) Organizer

45) ________ generally contract with the principal to produce a result and determine for themselves how that result will be accomplished.

A) Employees

B) Nonemployee agents

C) Corporate officers

D) Special agents

46) Which of the following is true of a subagent's duties to a principal?

A) A subagent does not owe the agent any of the duties that agents owe their principals.

B) A subagent who knows of the original principal's existence also owes that principal all the duties agents owe their principals.

C) The agent who appoints the subagent is not liable to the original principal when he/she is harmed by the subagent's conduct.

D) A subagent owes the original principal for duties arising solely from the original principal's contract with the agent.

47) In a situation in which there is a conflict of interest between an agent who is authorized to make a certain transaction for a principal and the principal, the agent is allowed to:

A) engage in self-dealing transactions if the principal and the third party are unaware of the transactions.

B) compete with the principal regarding the agency business.

C) act as agent for both parties to a transaction without disclosing the double role to both principals.

D) act as a middleman and serve both parties to a transaction without notifying either principal.

48) An agent who accepts a bribe to purchase goods for a principal from a seller who is a personal friend breaches his ________ duty by taking the money, since it is the agent's duty to work only for the best interests of the principal.

A) fiduciary

B) statutory

C) indemnity

D) gratuitous

49) A principal need not compensate his agent if:

A) there was no agreement on the amount of compensation the agent was to receive.

B) the agent has committed a breach of a fiduciary duty.

C) there is no market price for the agent's services.

D) the agent is a special agent.

50) Which of the following is true of the duty of agents to the principal?

A) The duty not to use or disclose confidential information terminates after the agency ends.

B) When conducting the principal's business, an agent can deal with himself.

C) Except for compensation, an agent should not profit from acting on behalf of the principal.

D) A gratuitous agent does not have the same fiduciary duty as a paid agent.

51) When is a gratuitous agent liable for failing to perform as promised?

A) Never

B) If her promise relates to her duty of loyalty to the principal and despite her duty of loyalty, she chooses not to perform as promised.

C) If her promise causes the principal to rely upon her to perform certain acts and the principal suffers losses because he refrained from performing those acts.

D) Always

52) Which of the following best represents an agent's duty of segregation?

A) The agent should not deal with the principal's property so that it appears to be the agent's.

B) The agent should not profit or receive any other benefit from acting on behalf of the principal.

C) The agent has a duty to act within her actual authority and to obey the principal's reasonable instructions.

D) The agent may not use or communicate confidential information of the principal for the agent's own purpose.

53) Which of the following requires an agent to subordinate his personal concerns?

A) The duty of loyalty

B) The duty of segregation

C) The duty of confidentiality

D) The duty of indemnity

54) Lucia is paying Martha to sell properties that Lucia owns. Can Martha sell one of Lucia's properties to herself?

A) Yes, as long as she sells it for fair market value.

B) Yes, as long as Lucia did not prohibit this type of transaction.

C) No, because an agent may not deal with himself.

D) No, because that would make Martha a subagent of Lucia

55) Which fiduciary duty continues after the agency ends?

A) The duty of loyalty

B) The duty of segregation

C) The duty of confidentiality

D) The duty not to compete with the principal

56) Kim hires Kyle to sell bike locks for her. She orders Kyle to tell potential customers that the bike locks are the world's strongest, even though this is not true. Does Kyle have a duty to obey Kim's instructions?

A) Yes, as long as he continues to act as her agent.

B) Yes, but he must make a disclaimer to potential customers that he is speaking for Kim.

C) No, because he is not a gratuitous agent and only gratuitous agents are obligated to follow a principal's instructions.

D) No, because a sales agent need not follow directions to misrepresent the quality of a principal's goods.

57) What should an agent do when a principal's instructions are unclear?

A) Interpret the instructions to the best of his ability.

B) It depends upon the authority granted to the agent.

C) Act in accordance with what he believes is best for the principal.

D) Communicate with the principal to clarify the instructions.

58) When an agent suffers losses in conducting the principal's business, the principal's obligation is to ________ the agent.

A) indemnify

B) renounce

C) reimburse

D) compensate

59) What is the principal's duty when his agent makes express or implied authorized expenditure while acting on his behalf?

A) Duty to compensate

B) Duty to take care

C) Duty of accounts

D) Duty to reimburse

60) Which of the following is true of a principal's duty of indemnity?

A) The principal does not have to indemnify the agent for authorized payments made on the principal's behalf as the payments were undertaken in the course of the agent's work.

B) The principal must indemnify the agent for tort damages resulting from authorized conduct that the agent did not believe was tortious.

C) The principal is required to indemnify an agent even for losses resulting from the agent's negligence.

D) The principal is required to indemnify an agent for losses resulting from unauthorized acts so long as the principal did not benefit from such behavior.

61) Which of the following is a principal generally required to pay for?

A) Undertakings that she did not request

B) Services to which she did not consent

C) A gratuitous agent

D) Services performed by an agent which are generally compensated but for which the amount of compensation is not expressly stated

62) Which of the following is a principal's duty to his agent?

A) Duty of confidentiality

B) Duty not to receive a material benefit

C) Duty of segregation

D) Duty to reimburse

63) Under the theory of agency law, the agent is required to follow whose instructions?

A) The principal

B) The subagent

C) The incorporator

D) The organizer

64) Which of the following would result in the termination of agency by act of the parties?

A) The principal suffers a permanent loss of capacity.

B) A specified result has been accomplished.

C) The agent declares personal bankruptcy.

D) The agent loses capacity or dies.

65) Termination of the agency relationship at the option of the agent is known as ________.

A) revocation

B) renunciation

C) falsification

D) liquidation

66) Termination of the agency relationship at the option of the principal is known as ________.

A) revocation

B) renunciation

C) falsification

D) liquidation

67) Which of the following terminates an agency relationship through operation of law?

A) A specified result has been accomplished.

B) There is mutual agreement between principal and agent to terminate the relationship.

C) The principal dies and the agent is notified of the death.

D) The principal revokes the agency.

68) Earl is Hall's agent for a real estate transaction. Which of the following will terminate the agency relationship by act of the parties?

A) Earl renounces his agency.

B) Hall announces that he is filing for bankruptcy.

C) Hall dies, but Earl is not informed.

D) Notice of the death of Hall placed in a newspaper.

69) Which of the following is true of revocation and renunciation?

A) Revocation is conducted by the agent and renunciation by the principal.

B) Both result in the termination of agency.

C) A party cannot revoke or renounce if doing so violates the agency agreement.

D) No, because there is no contract in writing.

70) A(n) ________ agency is normally terminable by either party without liability.

A) gratuitous

B) fiduciary

C) employee

D) individual

71) Which of the following is true of an agent who terminates in violation of the agency agreement?

A) The agent has the right, but not the power, to terminate.

B) The agent has the power, but not the right, to terminate.

C) The agent has neither the power nor the right to terminate.

D) The agent has both the power and the right to terminate.

72) Yum Yum Corporation hired Ursula to be its agent. Yum Yum Corporation has now dissolved. What happens to the agency?

A) It continues until officially terminated.

B) It is terminated through revocation.

C) It is terminated through renunciation.

D) It is terminated by operation of law.

73) Andrea hired Jack to be the sales agent for her paintings. However, in a month's time, she terminated the agency with Jack. Harold, a customer who had dealt with Jack earlier, was not aware of the termination. Harold approached Jack to buy a painting and wrote him a check of $5,000, the advance payment for the painting which Jack promised would be delivered in two weeks. When Jack did not contact Harold later, Harold demanded that Andrea honor the contract, since Jack sold the picture as her agent. Which of the following is true of this situation?

A) Since Jack had apparent authority, Andrea is liable to honor his contract with Harold.

B) Harold's duty was to contact Andrea. His failure to do this removes her liability to honor the contract.

C) Jack had express authority as Andrea's agent, which is not terminated with the termination of their agency.

D) As Andrea terminated the agency with Jack in violation of his rights, Jack has the direct authority to sell her paintings.

74) Under the Restatement (Third) of Agency, which of the following is true of termination of agency by operation of law?

A) The principal's permanent loss of capacity ends the agency only if the agent is given notice.

B) The bankruptcy of the agent automatically terminates the agency relationship.

C) Termination by the death of the principal is effective only when the agent has notice of the principal's death.

D) The death of an individual agent does not terminate the agency relationship if the principal is not an individual.

75) Which of the following agreements will result in the formation of an agency coupled with an interest?

A) Borrower shall pledge securities to a lender, authorizing the lender to sell the securities and apply the proceeds to the loan in the event of default.

B) Employee is hired for a period of two years at $40,000 per annum plus 2% of net sales.

C) Broker is to receive a 5% sales commission out of the proceeds of the sale of a parcel of land.

D) Attorney is to receive 25% of the plaintiff's recovery for personal injuries.

76) Which of the following represents an agency coupled with an interest?

A) A contingent fee arrangement in which a plaintiff's attorney will receive 20% of any recovery she achieves.

B) A professional sports contract in which a team owner agrees to pay a player insurance premiums on a policy that compensates the player should he suffer a career-ending injury.

C) A loan agreement in which the borrower pledges collateral to the lender and gives the lender the power to take the collateral should the borrower default on the loan.

D) A contract in which a sales agent is hired for three years at a salary of $80,000 plus 5% of sales.

77) An agency coupled with an interest is terminated if:

A) the principal revokes agency.

B) the principal tenders his obligation.

C) the principal loses capacity.

D) the agent dies.

78) An agent's apparent authority ends when:

A) the principal revokes authority.

B) the third party receives notice of the termination of agency.

C) the principal loses capacity or dies.

D) the agent's actual authority, both express and implied, ends.

79) The apparent authority of a general agent for a disclosed principal will terminate without notice to third parties when:

A) the principal dismisses the agent.

B) the third party has notice of the principal's death.

C) the purpose of the agency relationship has been fulfilled.

D) the time period set forth in the agency agreement has expired.

80) Harris is a purchasing agent for Elkin, a sole proprietor. Harris has the express authority to place purchase orders with Elkin's suppliers. Harris typically conducts business through the mail and has very little contact with Elkin. Elkin was incapacitated by a stroke and was declared incompetent in a judicial proceeding. Subsequently, Harris placed an order with Ajax, Inc. on behalf of Elkin. Neither Ajax nor Harris was aware of Elkin's incapacity. With regard to the contract with Ajax, Elkin (or Elkin's legal representative) will:

A) not be liable because Harris was without authority to enter into the contract.

B) not be liable provided that Harris had placed orders with Ajax in the past.

C) be liable because Harris was acting within the scope of Harris' authority.

D) be liable because Ajax was unaware of Elkin's incapacity.

81) Which of the following is an example of actual notification of termination of agency to third parties?

A) Posting a notice in a public place

B) Displaying a notice on the company website

C) A writing delivered to the third party's place of business

D) Advertising the agency's termination in a newspaper of general circulation

82) Which of the following serves as constructive notification of the termination of an agent's apparent authority?

A) A direct personal statement to the third party

B) The death of the principal

C) A writing delivered personally or to the third party's place of business

D) Advertising the agency's termination in a newspaper

83) When is constructive notification sufficient for an agent's apparent authority to end?

A) For third parties who have previously dealt with the agent.

B) For third parties who have begun to deal with the agent.

C) For third parties who are aware of the agency but did no business with the agent.

D) Never.

84) Tom Smith is hired as an agent of Lakes Computer System. As part of the agency responsibilities Tom is to wire offices for clients in the country of Israel. Prior to his leaving war breaks out and the U.S. government posts a ban on travel to Israel. What is the status of the agency of Tom Smith?

A) It is probably terminated by operation of law.

B) It is terminated by the act of the parties.

C) It is terminated under international law.

D) It is terminated under religious law.

85) A bankruptcy by this party would cause a termination in the agency relationship:

A) Principal

B) Agent

C) Either principal or agent

D) Subagent

86) Larry works for Shannon as a salesperson. Shannon gave Larry a credit card with Larry's name on it so that Larry could charge necessary business expenses to Shannon's business account. Larry charged $1,000 in personal expenses, wholly unrelated to Larry's employment. Does apparent authority exist? Discuss.

87) An attorney acquires confidential information about a certain client. However, he discovers that this information is important for the affairs of a second client. In this situation, two duties are in conflict. What are these two conflicting duties? How does agency law resolve the conflict?

88) Ginny is an agent of Vroom! Motors, and is designated to sell and deliver antique cars. She spends her own money to call clients, visit them and finalize the deals. There is no express agreement between Ginny and Vroom! Is Vroom meeting its obligations to Ginny, who is acting as Vroom's agent?

89) Andrew appoints Matthew to be his agent for a period of 2 years. After 6 months, Andrew is involved in an accident, after which he permanently losses his capacity to understand things going on around him. This terminates the contract automatically. But Matthew is demanding damages for breach of contract. Is Andrew liable to pay damages?

90) What happens if the principal is completely insane at the time of the agency's formation, and what happens if the principal is sane at the time of agency formation, but loses sanity some time later?