Deck 20: Relationship With Third Parties

Question 1

Unless otherwise agreed, an agent making a contract for an unidentified principal is not a party to the contract.

Answer 1

False

Question 2

An agent for an unidentified principal is liable on the contract to the third party no matter whether the particular transaction is authorized or not.

Answer 2

True

Question 3

Apparent authority is actual authority.

Answer 3

False

Question 4

The purpose of an agency relationship is to allow principals to extend their business activities.

Question 5

Apparent authority can arise where there is an undisclosed principal as well as where the principal is disclosed.

Question 6

The liability of an employer under the doctrine of respondeat superior is limited to wrongdoing by the employee in the course of his employment.

Question 7

Even though an agent exceeds his express authority, the principal may still be bound.

Question 8

Sunset Properties, Inc.hires William to manage its 48-unit apartment complex.Nothing is said as to expenses.
William purchases fuel to heat the apartments and arranges for a repairman to do ordinary maintenance.William will be personally liable for these expenses, because he has no authority to incur them.

Question 9

Ordinarily, an agent may delegate his duties to an equally qualified subagent.

Question 10

An agent is personally liable for the torts he commits while in the scope of his employment.

Question 11

A subagent owes a fiduciary duty to only the principal.

Question 12

Upon the termination of an agency, the agent's actual authority ceases.However, his apparent authority may continue until actual notice of the termination is given to third parties.

Question 13

An employer may not be held liable if her employee sells liquor to an underage person if this criminal act was unauthorized by the employer.

Question 14

Julie writes a letter to Mitchell authorizing him to sell her boat and sends a copy of the letter to Jared, a prospective buyer.The next day, Julie writes Mitchell a letter revoking his authority to sell the boat, but she does not send a copy of the second letter to Jared.Although Mitchell has no actual authority to sell the boat now, he continues to have apparent authority with respect to Jared.

Question 15

Roy is the promoter of a new corporation that has not yet been organized.On behalf of the as-yet unincorporated business, he enters into a three-year lease agreement for office space and personally signs the lease in his own name.The corporation is liable on the contract, because Roy is its agent.

Question 16

An agent has the power to contractually bind her principal whenever she has actual or apparent authority and acts within her authority.

Question 17

Martinez makes a contract with Bowers on behalf of a disclosed principal.If Bowers breaches the contract, ordinarily Martinez has no right of action against Bowers.

Question 18

A principal who authorizes his agent to commit a tortious act with respect to the property or person of another is not liable for the injury or loss sustained by that person.

Question 19

If an agent exceeds his actual and apparent authority, the principal is not bound, which makes the agent a party to the contract.

Question 20

In general, an undisclosed principal and the third party to a contract are contractually bound if the agent acts within the scope of his actual authority in making the contract.

Question 21

Which of the following is true regarding an agent who is acting for an undisclosed principal?

A)The agent with actual authority will bind both himself and the principal on most contracts.
B)The third party will never be bound in a contract with the principal.
C)An undisclosed principal will bind only himself and not the agent.
D)Failure to disclose the name of the principal is a form of fraud.

Question 22

Constructive notice of termination of an agency may not occur by mere publication in a newspaper.

Question 23

Ann, in the presence of Betty, tells Thomas that Ann is Betty's agent.In reality, Ann had no authority.Betty hears the statement, but she says nothing.In reliance, Thomas ships goods to Betty on Ann's order.Betty is liable even though no actual authority existed.

Question 24

If an agent at his principal's direction fixes prices with the principal's competitors:

A)only the agent is criminally liable.
B)only the principal is criminally liable.
C)both the principal and agent are criminally liable.
D)any liability would be civil only.

Question 25

The Second and Third Restatements are the same regarding when an agent's apparent authority ceases.

Question 26

Richard writes a letter to Sarah authorizing her to sell his car and sends a copy of the letter to Timothy, a prospective purchaser.If the next day Richard sends a letter to Sarah revoking her authority, but he fails to notify Timothy, Sarah:

A)has actual authority to sell the car to Timothy.
B)has implied authority to sell the car to Timothy.
C)has apparent authority with respect to Timothy to sell the car.
D)is empowered under the doctrine of respondeat superior to negotiate the contract.

Question 27

An employer can be liable for an agent's negligence, but he will never be liable for his intentional torts.

Question 28

There can be apparent authority where a third party knows the agent has no actual authority.

Question 29

Apparent authority arises out of words or conduct of a disclosed or unidentified principal manifested to third persons.

Question 30

Ratification and adoption of contracts have the same effect; they are both retroactive and both release the purported agent.

Question 31

A person who purports to act as agent for a principal whom both the agent and the third party know to be wholly incompetent is personally liable on a contract entered into with a third person on behalf of such a principal.

Question 32

The Second Restatement provides that the death of a principal terminates all authority of an agent, including apparent authority, even though no notice is given to third parties.

Question 33

An employer may have criminal liability for the acts of his employee.

Question 34

The contract liability of the principal may depend upon whether the principal is disclosed, partially disclosed, or undisclosed.

Question 35

An agent who makes a contract with a third person on behalf of a disclosed principal usually is not a party to the contract.

Question 36

Samuel writes to Emma authorizing her to sell his automobile for $3,000.Emma, although she has no authority to delegate this task, asks Renaldo to try to sell the car.If Renaldo makes a contract with Michelle for the sale of the car, Samuel is not obligated to sell to Michelle, and Samuel acquires no rights against Michelle.

Question 37

Under the Uniform Durable Power of Attorney Act, if a principal who has executed a written durable power of attorney becomes incapacitated, the actual authority of an agent survives.

Question 38

If Sierra orally requests her agent Scott to sell her desk for at least $450, Scott's authority to sell the desk for this
amount is actual and express.

Question 39

The principal may ratify either the entire contract or certain parts of it.

Question 40

A principal is contractually bound to a third party if the agent acts without any authority but the principal ratifies the contract.

Question 41

A principal may be held liable for the torts of an independent contractor:

A)whenever the contractor is performing work or rendering services for the principal.
B)if the principal fails to supervise the contractor.
C)if the contractor negligently performs an inherently dangerous activity.
D)All of these.

Question 42

Authority that is not found in the express or explicit words of the principal, but that is inferred from the words is known as:

A)apparent authority.
B)indirect authority.
C)delegated authority.
D)None of these.

Question 43

Ratification:

A)can only occur after the third person withdraws from the transaction and gives notice of such withdrawal.
B)can be effected by a disclosed or an undisclosed principal according to the Second Restatement.
C)relieves the agent of any liability she may have to the third party by reason of her having induced the third party to enter the contract without the principal's authority.
D)may be made by a principal that was not in existence at the time the contract was made.

Question 44

John agreed to build a new house for Ted.Unknown to John, Ted was an agent for Russell Realty.John built the house as agreed.When Ted refused to pay, John became aware that Ted was an agent for Russell.John wants to sue on the contract.Under the Second Restatement, John:

A)must sue Ted, because Ted is the person with whom he dealt.
B)can collect judgments against Ted and Russell.
C)must sue Russell, because Russell is the principal.
D)can sue either Ted or Russell.

Question 45

The purpose of an agency relationship is to:

A)allow the principal to extend his business activities by authorizing agents to enter into contracts with third persons on the principal's behalf.
B)encourage business growth by protecting employers from liability for torts or criminal activity.
C)allow a principal to contract through agents in ways he would not be able to contract on his own, such as creating valid contracts in situations where the principal could only create voidable contracts on his own.
D)eliminate the distinction between employees and independent contractors.

Question 46

Under the Third Restatement, an agent who represents an undisclosed principal is discharged from liability if:

A)the third party's judgment against the principal is satisfied.
B)the third party becomes aware of the principal.
C)after learning the identity of the principal, the third party gets a judgment against the principal.
D)The agent is never discharged from liability.

Question 47

Sam is a sales representative for the INC Corporation.Sam has a terrible driving record and has had his driver's license revoked, but nevertheless he continues to drive the company car for his job.One day he drives too fast for conditions, goes through a red light, and strikes a pedestrian.The accident happened despite the fact Sam's supervisor at INC had repeatedly reprimanded him and advised him to drive more cautiously.INC has:

A)no liability, because they did not authorize Sam to drive carelessly.
B)no liability, because Sam's actions were not a tort.
C)liability even though it did not authorize Sam to drive carelessly, because it employed an improper person as its agent.
D)no liability, because it has adequately supervised Sam as its agent.

Question 48

Which of the following is true with regard to contractual relations between the principal and a third party?

A)There is no liability on the part of the principal if the agent acts with implied authority.
B)An undisclosed principal and the third party are contractually bound if the agent acts within her actual authority, unless the contract specifies otherwise.
C)Under the Second Restatement, no principal is bound if the agent acts without any authority.
D)A partially disclosed principal is bound only if the agent acts within the scope of actual authority.

Question 49

If Carol, acting as agent for Steve, signs a contract, she alone will be personally bound by it:

A)if Steve's name or the fact that Carol is an agent is never mentioned and Steve does not carry out the contract.
B)never; as an agent she is only a representative.
C)if she decides to sue.
D)if Steve is discovered by the third party to be the principal and the third party elects to hold him liable for performance.

Question 50

Regarding the termination of an agency, the Third Restatement:

A)distinguishes between terminations based on death of a principal and terminations based on incapacity of the principal.
B)applies the same rule to all causes of termination; it applies a reasonableness standard.
C)applies the same rule to all causes of termination; it applies the actual notice standard.
D)applies the same rule as under the Second Restatement; a principal's death automatically ends the agent's apparent authority.

Question 51

Respondeat superior:

A)imposes vicarious liability on the agent.
B)makes a principal liable for the acts of independent contractors.
C)imposes vicarious liability on the principal for employees' acts committed within the scope of employment.
D)makes the agent responsible for his own acts

Question 52

An agent is not normally liable on a contract he makes with a third party on behalf of a(n) principal.

A)undisclosed
B)disclosed
C)partially disclosed
D)All of these are correct.

Question 53

When there was a contract with a previously undisclosed principal, the Third Restatement:

A)holds that a third party's rights against the principal are alternative to the third party's rights against the agent
B)rejects the election rule.
C)follows the same rules as the Second Restatement regarding a third person's rights against a principal and agent.
D)All of these.

Question 54

Susan is planning to incorporate a new landscaping company, "Evergreen and Growin'." She has held herself out as an agent for Evergreen and has contracted to buy a truck, tools, fertilizer, and seed and also has entered into a lease on behalf of Evergreen for an office.When she fails to get the loan from the bank, she cannot start the business, so she cancels all the contracts.What are the consequences?

A)Susan can cancel all the contracts with no personal liability if she told them she was acting as an agent and expressly warranted that she would not be responsible.
B)Susan may be held personally liable on the contracts because she misrepresented to third parties that she had authority to make contracts on behalf of a non-existent corporation.
C)Since the company never existed, she gave no implied warranty.
D)Susan will be held liable for the contracts only if she ever gets the loan.

Question 55

Pat bought a cotton sweater at Ivey's Fashion Store.Sue, the salesperson, told her the sweater was guaranteed not to shrink if washed in cold water by hand.Pat washes the sweater as directed and it shrinks.Which of the following is correct?

A)Pat has no recourse against the store, because it was only the salesclerk who misrepresented the sweater.
B)Sue has apparent authority to make warranties such as the one that she made.Therefore, the store is bound.
C)If Sue is only a part-time employee, Ivey has no responsibility for misrepresentations she makes.
D)Salesclerks are usually independent contractors.Thus, there is no liability on the part of Ivey.

Question 56

Jack was fired by Larry but decided to try to win back his job as agent by getting a big new contract.He approached Sharon, a new client, and made a pitch to sell Larry's product.Sharon agreed to buy 100.Jack tells Larry.What are the legal consequences?

A)Larry has to hire Jack again and then make the deal.
B)Larry would have to ratify the deal to get the benefit of the contract.
C)Larry would have to negotiate the deal with Sharon himself.
D)Jack would forfeit his commission if Larry ratified the contract.

Question 57

Apparent authority may arise in all but which of the following ways?

A)The acts are customary of an agent in similar positions in an organization.
B)The principal has acquiesced to prior similar transactions between the agent and the third party.
C)The agent shows the third party a power of attorney from the principal authorizing the agent to enter such a transaction.
D)An agent tells the third person she has the authority to transact such business on behalf of the principal.

Question 58

Under the Second Restatement, which of the following is correct with regard to a contract entered into with a third person by an agent of an undisclosed principal?

A)The agent has no liability to the third person if the agent has acted within the scope of her authority.
B)The agent is personally liable upon the contract unless the third person discovers the existence and identity of the principal and elects to hold the principal to the contract.
C)Once the third person learns of the existence and identity of the principal, that third person may hold both the principal and the agent to the performance of the contract.
D)If the third party obtains a judgment against the principal, the agent may still have liability to that third party.

Question 59

Bryant, doing business as Fair Realty, employs Chris and Deborah as salespersons.Tammy contracts with Bryant to sell her house because she is aware of the good reputation of Fair Realty's salespersons.In this situation:

A)Chris and Deborah are agents of Tammy and Fair Realty but they have no authority to show Tammy's house to prospective purchasers and to make representations about the house unless Tammy expressly and explicitly grants this authority directly to them.
B)Chris and Deborah are employees/agents of Fair Realty and subagents of Tammy, and they have authority to show Tammy's house to prospective purchasers and to make representations about the house.
C)Bryant cannot appoint subagents because Tammy's appointment of him reflected her confidence in and reliance upon his personal skill, integrity, and other qualifications.
D)Chris and Deborah are subagents of Fair Realty and, as such, have a fiduciary duty only to Fair Realty.

Question 60

Which of the following is correct under the Second Restatement with regard to actual notice to a third party of the termination of an agent's authority to act on behalf of the principal?

A)Publication in a newspaper of general circulation in the area is sufficient if the third party is one with whom the agent had previously dealt on credit.
B)If notice is given by mail, it is effective as actual notice upon delivery to the third party.
C)A personal telephone call to the third party will not suffice, because actual notice must be in writing.
D)Actual notice is not required when the agent has been specially accredited to deal with the third party.

Question 61

Arthur, who works for Peter, sees what he thinks is a good deal for Peter.Without asking whether he has authority to negotiate the deal, Arthur enters into a contract on Peter's behalf.Peter says later that he isn't interested.Is Peter liable on the contract? Is Arthur liable on the contract? Explain.

Question 62

Discuss apparent authority and some common ways in which it might arise.

Question 63

Leonard is a traveling salesman for Bighorn, Inc.He calls on Ralphyl, one of his regular accounts, in order to solicit another order.While in the store, Leonard collects a past due account for Bighorn, but he doesn't get another order.It has been a bad day in which Leonard hasn't had any orders.He is so angry about this when he leaves the store that he drives negligently and hits a pedestrian with his car.In this case:

A)Bighorn has no liability for Leonard's negligence, because Leonard is responsible for his own negligent conduct.
B)since he was driving at the time of the negligent conduct, Leonard was no longer within the scope of his employment.
C)Bighorn will be liable for Leonard's negligence under the doctrine of respondeat superior.
D)Leonard is an independent contractor and, therefore, Bighorn will have no liability for his negligence.

Question 64

Charles states he has authority to contract for Wyatt and that he will be personally liable if he does not in fact have the authority to bind Wyatt.Identify the name and effect of Charles's statement.If Charles enters the contract without making such a statement, is there a way the same effect could result?