Agency Set

Question 1

Which of the following parties must have contractual capacity to enter into an agency relationship?

A The principal.

B The agent.

C The principal and the agent.

D No party is required to have contractual capacity to enter into an agency relationship.

Answer 1

A

Only the principal must have contractual capacity to enter into an agency relationship. To create an agency relationship, the respective parties must have capacity, but the degree of capacity required for a principal differs from that required for an agent. Generally, any person (including entities) having capacity to contract may appoint an agent. Any person may be an agent, even if she has no contractual capacity herself.

Question 2

Which of the following is required to create an agency relationship?

A Consideration.

B A writing.

C Consent by both the principal and the agent.

D Representation by independent counsel.

Answer 2

C

Consent must be manifested by both the principal and the agent to create an agency relationship. Consideration is not necessary for the creation of an agency relationship and, absent an express statutory provision to the contrary, neither is a writing. It is not necessary for either party to be represented by counsel before entering into an agency relationship.

Question 3

_____ is created where a principal holds another out as his agent to a third party.

A Apparent authority.

B Actual authority.

C Authority by proxy.

D Ratification.

Answer 3

A

Apparent authority is created where a principal holds another out as his agent to a third party. Apparent authority makes the principal a party to the contract—with contractual rights and liabilities. Actual authority is created when the agent and principal agree that the agency shall exist. Authority by proxy is incorrect terminology. Ratification is when the principal agrees to be bound by the previously unauthorized acts of another.

Question 4

Implied actual authority is the authority:

A An agent has based on the principal holding the agent out to third parties.

B An agent believes she has based on her communications and relationship with the principal.

C A third party believes the agent has based on the principal’s communications with the third party.

D Granted within the four corners of the agency agreement.

Answer 4

B

Implied actual authority is the authority that the agent reasonably believes she has as a result of the actions of the principal.

Question 5

What is the primary overriding factor in determining whether a person is an employee?

A Whether the person was hired to perform a particular job.

B Whether the person is to be compensated on the basis of time.

C Whether the principal has the right to control the manner and method of performance.

D Whether the parties believe they have entered into an employer-employee relationship.

Answer 5

C

The single overriding factor in determining whether a person is an employee is whether the principal (i.e., the employer) has the right to control the manner and method by which the person performs his tasks.

Question 6

What elements are required to establish a principal’s liability under the doctrine of respondent superior?

A An employer-employee relationship only.

B An employer-employee relationship and conduct within the scope of employment.

C Apparent authority.

D A principal-independent contractor relationship and conduct within the scope of the job.

Answer 6

B

To establish a principal’s liability under the doctrine of respondeat superior, two basic elements must be established: (i) an employer-employee relationship, and (ii) conduct within the scope of employment. A principal may be vicariously liable in certain instances where her agent acted with apparent authority where respondeat superior does not apply. A principal is not liable for torts committed by an agent functioning as an independent contractor.

Question 7

A minor deviation from an employer’s directions, also known as a _____, generally falls _____ the scope of employment.

A Detour; within.

B Detour; outside.

C Frolic; within.

D Frolic; outside.

Answer 7

A

A small or minor deviation from an employer’s directions, also known as a detour, generally falls within the scope of employment.

Question 8

A major deviation from an employer’s directions, also known as a _____, falls _____ the scope of employment.

A Detour; within.

B Detour; outside.

C Frolic; within.

D Frolic; outside.

Answer 8

D

A major deviation from an employer’s directions, also known as a frolic, falls outside the scope of employment.

Question 9

All of the following are examples of actual authority granted by a principal to an agent except:

A A principal has failed to object to a series of an agent’s unauthorized acts, reasonably leading the agent to believe that she has authority to do those acts in the future.

B A principal tells a third party that a person is the principal’s agent and has the power to contract on the principal’s behalf, but the person does not know she has this power.

C An agent employs a subagent to execute ministerial acts.

D A principal conveys authority to his agent to purchase a piece of property that the principal did not actually intend to purchase.

Answer 9

B

Actual authority arises out of the reasonable belief of agents whereas apparent authority arises out of the reasonable belief of third parties. If a principal tells a third party that a person is the principal’s agent and has the power to contract on the principal’s behalf, but the person does not know she has this power, then the person does not have actual authority to contract for the principal. In such a case, the person has apparent authority to contract for the principal, because the third party reasonably believes that the person has such authority.

Question 10

_____ authority results in a situation where a principal limits the actual authority of his agent to act, the agent acts beyond the scope of the limitation and a third party with whom the agent dealt was unaware of the limitation

A Specific.

B Implied.

C Apparent.

D Inherent

Answer 10

C

Apparent authority results from a situation where a principal gives a secret limiting instruction, and the agent, when dealing with a third party, acts beyond the scope of the limitation. In such situations, the principal is bound by the agreement made.

Question 11

The fact that the agent has possession of the principal’s goods does not entitle the agent to sell them or transfer good title. For the possessor of goods to be able to transfer good title without authority, she must have either ____________________ or ____________________.

A Some indicia of ownership; be a dealer in the goods.

B Some indicia of ownership; be a merchant.

C A preexisting duty; be a dealer in the goods.

D A preexisting duty; be a merchant.

Answer 11

A

For the possessor of goods to be able to transfer good title without authority, she must either have: (i) some indicia of ownership (e.g., title), or (ii) be a dealer in the goods. Although a dealer in goods will be a merchant, one may be a “merchant” without being a dealer in the goods at issue.

Question 12

In a few jurisdictions, where a general agent exceeds her actual authority (i.e., violates orders) but the act performed is similar to the act authorized, the principal will be held liable. This is an example of:

A Apparent authority.

B Authority by proxy.

C Ratification.

D Inherent authority.

Answer 12

D

This is an example of inherent authority. A few courts recognize the concept of inherent authority, which is derived solely from the agency relationship. It results in a principal being bound by his agent’s acts in certain situations even though the agent has no actual or apparent authority.

Question 13

The type of actual authority contained within the four corners of an agency agreement is:

A General authority.

B Specific authority.

C Express authority.

D Implied authority.

Answer 13

C

The type of actual authority contained within the four corners of an agency agreement is express authority.

Question 14

There are situations where a person will purport to act on behalf of another without any type of authority. In such a situation, the principal may still be bound by the agent’s act if the principal subsequently ratifies the agent’s act. All of the following are required on the part of the principal for him to ratify an agent’s act EXCEPT:

A Capacity.

B Consideration.

C Knowledge of material facts.

D Acceptance of the entire transaction.

Answer 14

B

Ratification is a unilateral act of the principal and requires no consideration.

Question 15

Who can be bound to a contract when the principal’s identity is disclosed to the third party and the agent had authority to enter the contract?

A Both the principal and the agent, regardless of whether the parties intended the agent to be a party to the contract.

B Only the principal.

C Only the agent.

D The principal and, if the parties intended the agent to be a party to the contract, the agent.

Answer 15

D

A disclosed principal is one whose existence and identity are known to the third party. A disclosed principal is always liable on a contract entered into by an authorized agent. The agent generally is not bound unless the parties intended that the agent would be a party.

Question 16

A principal gives his agent authority to enter a contract with a third party. The agent discloses to the third party that a principal exists, but does not disclose the principal’s identity. Who can be bound to the contract?

A Both the principal and the agent.

B Only the principal.

C Only the agent.

D Neither the principal nor the agent, because the identity of the principal has not been disclosed.

Answer 16

A

Where the third party knows of the principal’s existence but does not know his identity, both the authorized agent and the principal are liable on the contract.

Question 17

Who can be bound on a contract when the principal is undisclosed to the third party and the agent had authority to enter the contract?

A Both the principal and the agent.

B Only the principal.

C Only the agent.

D Neither the principal nor the agent, because the identity of the principal has not been disclosed.

Answer 17

A

In an undisclosed principal situation, the third party does not know of the principal’s existence or his identity. Both the agent and the principal are liable on a contract entered into by an authorized agent on behalf of an undisclosed principal.

Question 18

If a principal negligently selects an incompetent independent contractor, the principal will be liable to the injured third party for:

A Her own negligence in selection.

B The independent contractor’s negligence.

C Both her own negligence in selection and the independent contractor’s negligence.

D The independent contractor’s negligence and intentional torts.

Answer 18

A

If a principal negligently selects an incompetent independent contractor, she will be liable to the injured third party for her own negligence in selection. A principal will be liable for the independent contractor’s negligence if the principal hired the incompetent contractor with knowledge of the contractor’s incompetence.

Question 19

A person is disqualified from being an agent in which of the following situations?

A The person is a minor.

B The person has minimal mental competency.

C The person does not have contractual capacity.

D The person is an insurance agent and her license has been suspended.

Answer 19

D

If the law requires an agent to have a license (e.g., brokers, insurance agents), she cannot act without one. Any person may be an agent, even a minor or a person with minimal mental competency. A person is not required to have contractual capacity to act as an agent.

Question 20

Which of the following is true of the agent-subagent relationship?

A The subagent owes duties to the principal even if appointed by the agent without authority.

B An agent will be held liable to the principal for breaches of the subagent.

C A subagent is appointed by the principal.

D A subagent is another agent of the principal.

Answer 20

B

A subagent is a person appointed by the agent to perform functions assigned to the agent by the principal. The agent will be held liable to the principal for breaches of the subagent. This is so even though the agent exercised diligence and good faith in appointing the subagent. Where the subagent has been appointed without authority, the subagent owes no duties to the principal. The agent alone will be responsible to the principal for performance of the agency duties and for any loss sustained because of the subagent’s conduct, with the agent’s only recourse being against the subagent. A subagent is not to be confused with a co-agent, who is another agent of the principal.

Question 21

Unless otherwise agreed, a principal owes an agent a duty of:

A Compensation.

B Obedience.

C Reasonable care.

D Loyalty.

Answer 21

A

The principal owes the agent a duty to compensate her reasonably for her services. The principal also owes the agent a duty to indemnify her for all expenses or losses reasonably incurred in discharging any authorized duties, a duty to cooperate, and whatever duties may be imposed by a contract with an agent. Obedience, reasonable care, and loyalty are all duties owed by the agent to the principal.

Question 22

An agency relationship may NOT be unilaterally terminated by the principal where:

A Ending the agency relationship would cause a breach of contract.

B A third party would be adversely affected by the termination.

C The agent has an interest in the subject matter of the agency.

D The purpose of the agency has not been completed.

Answer 22

C

There are two types of agency relationships that may not be unilaterally terminated by the principal (and that generally are not terminated by operation of law): where (i) the agent has an interest in the subject matter of the agency, or (ii) a power is given for security.

Question 23

The existence of apparent authority usually requires:

A The reasonable belief by an agent of her authority to act.

B The reasonable belief by a third party that the agent had authority to act.

C The assertion by an agent of her powers.

D The declaration by the principal to the agent that the agent has apparent authority to act.

Answer 23

B

Apparent authority arises out of the reasonable beliefs of third parties, whereas actual authority arises out of the reasonable beliefs of agents. Where the principal “holds out” another as possessing certain authority, thereby inducing third parties to reasonably believe that authority exists, the agent has apparent authority to act, even though as between herself and the principal such authority has not been granted. The mere assertion by an agent of her powers is not sufficient to bind the principal; the principal must have done or failed to do something that causes the third party’s belief.

Question 24

A principal will NOT be bound by the agent’s acts where the principal:

A Places the agent in a position that carries with it certain customary responsibilities, and the agent acts in accordance with such customary responsibilities without the actual authority to perform the acts.

B Limits the actual authority of the agent to act, and a third party with whom the agent deals knows of the limitation but the agent acts beyond the scope of the limitation anyway.

C Has previously allowed the agent to act beyond her authority and the principal knows that a third party is aware of this.

D Negligently permits an imposter to be in a position where the imposter appears to have authority to act for the principal.

Answer 24

B

A principal will not be bound by the agent’s acts where the principal sets limits on an agent’s authority, and a third party knows of the limits, but the agent exceeds the limits when dealing with the third party. A principal who has previously allowed an agent to act beyond her authority will be bound if the principal knows that a third party is aware of this fact. A principal will also be bound where an agent performs customary responsibilities in complying with the principal’s wishes without the actual authority to perform those tasks. Negligently allowing an imposter to act as an agent will bind a principal.

Question 25

Which of the following is a situation where an employer will be held liable for his employee’s torts?

A The employee, without authorization, invites a third party to ride in the employer’s vehicle and that party is injured as a result of the employee’s negligence.

B The employee causes harm while using an instrumentality substantially different from that authorized.

C The employee, hired as a bouncer, assaults one of his coworkers during a non-work related dispute.

D The employee, driving the employer’s vehicle within the scope of employment, negligently causes an automobile accident.

Answer 25

D

The mere fact that an employee is driving an employer’s vehicle at the time the employee commits a tort does not impose liability on the employer for the tort. However, if the tort occurred while the employee was within the scope of employment, the employer will be held liable. Where the employee, without authority, invites a third party to ride in the employer’s vehicle and that party is injured as a result of the employee’s negligence, the employer is not liable for the third party’s injuries. Moreover, the employer generally is not liable for torts caused by the employee in the use of an instrumentality substantially different from that authorized, or for an intentional tort committed by an employee unless it occurred as a natural incident to the carrying out of the employer’s business.

Question 26

A principal may hold out another as possessing authority, inducing a third party to reasonably believe authority exists, by all the following means EXCEPT:

A Words stated by the principal.

B Conduct on the part of the principal.

C Another’s assertion of authority to act for the principal.

D Inaction on the part of the principal.

Answer 26

C

The mere assertion of authority by one other than the principal is not sufficient to bind the principal. An agent cannot bootstrap her own authority; the principal must have done or failed to do something that causes the third party’s belief. The holding out may be by word or conduct on the part of the principal, and may also be by inaction on the part of the principal where there is some duty to act (i.e., disclose). For example, if a person, in a principal’s presence, tells a third party that she is the principal’s agent when in fact she is not, the principal has a duty to correct the person’s representation. If the principal does not, then the person will have apparent authority to act on the principal’s behalf.

Question 27

Which of the following is true of an employer’s liability for an employee’s intentional torts?

A If the employee intentionally chooses a wrongful means to promote the employer’s business, the employer will not be held liable for any torts that result.

B An employer will be liable for the misrepresentations of her employee only if the employee had actual authority to make statements concerning the subject matter involved.

C An employer usually is liable for the intentional torts of an employee committed during regular work hours.

D An employer will be liable for torts that result from friction naturally engendered by the employer’s business.

Answer 27

D

An employer will be liable for torts that result from friction naturally engendered by the employer’s business, such as the friction inherent in a bill collection business. An employer usually is not liable for the intentional torts of her employee on the simple ground that an intentional tort is clearly outside the scope of employment. However, where the intentional tort occurs as a natural incident to the carrying out of the employer’s business, or if any benefit may be found running to the employer, courts tend to hold the employer liable. If an employee intentionally chooses a wrongful means to promote the employer’s business, the employer will be held liable for any torts that result. An employer will be held liable for the misrepresentations of her employee if the employee had any authority (actual, apparent, or inherent) to make statements concerning the subject matter involved.

Question 28

If an employer lends the services of her employee to another and the employee commits a tort while performing in his loaned role, who is liable?

A The employer who controls the employee’s actions.

B The loaning employer, regardless of who controls the employee’s actions.

C The borrowing employer, regardless of who controls the employee’s actions.

D The loaning employer and the borrowing employer usually are jointly and severally liable for the employee’s tort.

Answer 28

A

In most situations, the employee remains under the right of control of the loaning employer, and thus the loaning employer is the only one liable for the employee’s torts. If the borrowing employer directs the actions of the employee, and so assumes the right of control of the employee, she will be liable for those actions if they are performed tortiously.

Question 29

Which of the following is true of an agent with the authority to sell a principal’s property?

A An agent may have authority to sell real property, but may not grant the customary covenants.

B An agent with authority to sell personal property may give general warranties for quality.

C The agent generally may accept a check or extend credit as payment for property sold.

D An agent who has the authority to deliver possession of sold property may only do so upon receipt of payment by the principal and notification from the principal.

Answer 29

B

An agent with authority to sell personal property may give general warranties for quality. Likewise, an agent with authority to sell real property may grant the customary covenants. Payment for property sold must be in cash; the agent may not accept a check or extend credit (unless implied consent in the form of custom, past practices between the parties, etc., can be found). An agent generally has the authority to deliver possession of the property upon receipt of payment.

Question 30

Which of the following is true of a principal’s duty to compensate an agent or subagent?

A A principal owes an agent a duty to reasonably compensate her for services rendered.

B A principal owes a subagent a duty to reasonably compensate her for services rendered.

C Only if an agent was authorized to hire a subagent must the principal compensate the subagent for her services rendered.

D Even if an agent agrees to act gratuitously, the principal owes the agent a duty to reasonably compensate her for services rendered.

Answer 30

A

The principal owes the agent a duty to compensate her reasonably for her services unless the agent has agreed to act gratuitously. A principal has no duty to compensate a subagent, even if the agent was authorized to hire subagents, unless the principal agrees otherwise.