Deck 29: Relationship With Third Parties

Question 1

Vista Properties, Inc. hires Lance to manage its 144-unit apartment complex. No provision for expenses is made in the contracts. If  Lance arranges for a repairperson to do ordinary maintenance,  he will be personally liable for these expenses, because he has no authority to incur them.

Answer 1

False

Question 2

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

Answer 2

True

Question 3

An agent is not personally liable for the torts he commits while in the scope of his employment.

Answer 3

False

Question 4

Unless otherwise agreed, an agent making a contract with actual or apparent authority on behalf of an unidentified principal is a party to the contract.

Question 5

Arthur is authorized to collect accounts for Peter. Peter dies, and there is no notice given to Theresa, who pays Arthur, as she has done in the past. Under the rules of the Third Restatement and the Uniform Durable Power of Attorney Act, if Arthur absconds with the money, Theresa will not have to pay again.

Question 6

Rena employs Marcel, a real estate broker, to find a buyer for her home at a price of at least $225,000. Marcel has actual authority to contract for the sale of Rena's home if the price is at least $225,000.

Question 7

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.

Question 8

Apparent authority is not actual authority.

Question 9

A subagent owes a fiduciary duty to both the agent and to the principal.

Question 10

Apparent authority may arise by an agent's showing a third party a document from the principal authorizing the agent to enter into such a transaction.

Question 11

Without authority, Donegal makes a contract with Evan, supposedly on behalf of Shawna. Shawna may ratify the contract, even if Evan loses contractual capacity before she ratifies the contract.

Question 12

A principal may be liable where his agent sells liquor to an underage person even though the principal did not authorize the act.

Question 13

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 14

Ridley is setting up a new architectural lighting company and is acting as the promoter of the  as yet unincorporated business.  She needs to order some specialized equipment in order to get started.  She orders the equipment, which is financed in the name of the business.  The corporation will be liable for paying for this equipment because Ridley is its agent.

Question 15

Usually in cases where there is a known principal, the agent has liability for, and rights under, contracts made on behalf of a principal.

Question 16

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

Question 17

An agent who has either actual or apparent authority has the power to bind his principal.

Question 18

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

Question 19

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

Question 20

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 21

An example of successful land purchases made by agents for an undisclosed principal took place in Florida for Walt Disney Productions.

Question 22

Ratification may relate to acts that have exceeded the authority granted to an agent.

Question 23

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

Question 24

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

Question 25

In the presence of Betty, Ann tells Thomas that Ann is Betty's agent. In reality, Ann has 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 26

A person who undertakes to make a contract on behalf of another person gives an implied warranty that he is in fact authorized to make the contract on behalf of the person he purports to represent.

Question 27

A person may ratify a prior unauthorized act and may later revoke the ratification.

Question 28

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

Question 29

Under the rule of the Third Restatement, if a principal becomes incapacitated, the agency relationship terminates and all authority ceases.

Question 30

The power of an agent is her ability to change the legal status of her principal.

Question 31

Under the Second Restatement, the bankruptcy of the principal terminates, without notice, the power of an agent to affect the principal's property that passes to the bankruptcy trustee.

Question 32

Under the Second Restatement, all third parties that were aware of the apparent authority of the agent must have actual and not constructive notice to terminate the agent's apparent authority.

Question 33

Constructive notice may occur by publication in a newspaper of general circulation.

Question 34

The contractual liability of the principal may depend upon whether the principal is disclosed, unidentified (partially disclosed), or undisclosed.

Question 35

A principal's intention to permit the agent to delegate granted authority may only be gathered from the express authorization of the principal.

Question 36

Under the general rule of the Third Restatement, death of a principal terminates all authority of an agent, including apparent authority, even though no notice is given to third parties.

Question 37

Actual notice requires a written, not oral, communication to the third party.

Question 38

Gerald, an agent, who makes a contract with Adele on behalf of Leon, an unidentified principal, may maintain in Gerald's own name a breach of contract action against Adele.

Question 39

No apparent authority exists where the third party knows that the agent has no actual authority.

Question 40

Actual authority consists of both express and implied authority.

Question 41

Edward is hired to manage Fred's business. Which of the following is untrue regarding Edward's authority?

A) Edward has authority to sell a used cash register when he buys a new computerized checkout system for the store.
B) Edward has authority to send bills to customers and to accept payments on behalf of Fred.
C) Edward can hire employees, but he cannot fire them without Fred's consent.
D) Edward can enter into contract with wholesalers for merchandise in the store.

Question 42

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) A principal cannot be bound if the agent acts without any authority.
D) An unidentified principal is bound only if the agent acts within the scope of actual authority.

Question 43

The principal may ratify either the entire contract or the part that is advantageous to the principal.

Question 44

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

A) undisclosed principal.
B) disclosed principal.
C) unidentified principal.
D) any principal.

Question 45

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

A) The agent 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 46

Sam is George's agent. George decides to fire Sam. Mel is an old customer of George's and he has dealt with Sam for over 20 years. Ellie is a prospective customer that Sam has spoken with on numerous occasions in his capacity as George's agent, and George was aware of the preliminary negotiations. Mel orders goods from Sam after Sam has been fired but Mel has no knowledge of the firing. Later, Sam takes an order from Ellie, who does not know of the firing. Using the rules of the Second Restatement, which of the following statements would apply to this scenario?

A) George will be liable for the contract with Mel.
B) George will not be liable on the contract with Mel.
C) George will not be liable on the contract with Ellie.
D) George will be liable for the contract with Mel but not liable on the contract with Ellie

Question 47

For a ratification to be effective, the principal:

A) must have knowledge of all material facts concerning the transaction.
B) must communicate her intent to ratify to the third party.
C) must have been in existence when the act was done.
D) M ust have knowledge of all material facts concerning the transaction and  must have been in existence when the act was done.

Question 48

Regarding the effect of termination of agency on authority, the general rule of the Third Restatement is that:

A) it is reasonable for third parties to assume that an agent's actual authority continues unless and until the third party has notice of circumstances that make it unreasonable to continue that assumption.
B) the termination of actual authority automatically terminates any apparent authority held by the agent.
C) apparent authority ends only upon actual notice, either oral or written, to the third party.
D) apparent authority continues until the third party with whom the agent has previously dealt on credit receives constructive notice of termination.

Question 49

A subagent is an agent of both the principal and the agent.

Question 50

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 51

The doctrine of __________ is the basis for an employer's liability for an unauthorized tort committed by an employee within the scope of employment.

A) indemnification
B) respondeat superior
C) apparent authority
D) direct liability

Question 52

Which of the following is correct with regard to the doctrine of respondeat superior ?

A) It is a form of liability without fault.
B) It ordinarily holds an employer liable for the acts of both employees and independent contractors.
C) The liability of the principal under the doctrine is vicarious and depends upon proof of wrongdoing by the employee within the scope of employment.
D) It is a form of liability without fault and t he liability of the principal under the doctrine is vicarious and depends upon proof of wrongdoing by the employee within the scope of employment.

Question 53

To effect a ratification, the principal must manifest an intent to do so with knowledge of all material facts concerning the transaction.

Question 54

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

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

Question 55

An agent, at his principal's direction, fixes prices with the principal's competitors. The result is:

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 56

Respondeat superior :

A) imposes vicarious liability on the principal.
B) makes a principal liable for the acts of independent contractors.
C) makes a principal liable for the unauthorized acts of employees committed within the scope of employment.
D) I mposes vicarious liability on the principal and also  makes a principal liable for the unauthorized acts of employees committed within the scope of employment.

Question 57

An agent acts for a(n) __________ principal when the agent appears to be acting on her own behalf and the third person with whom she is dealing has no knowledge that she is an agent.

A) unidentified
B) undisclosed
C) unauthorized
D) disclosed

Question 58

The doctrine of respondeat superior is most often applied in situations involving:

A) torts of the agent.
B) negligence of the principal.
C) contracts negotiated by the agent.
D) crimes committed by the agent.

Question 59

Under the Third Restatement, an agent representing an undisclosed principal is discharged from liability if the third party:

A) gets a satisfied judgment against the principal.
B) becomes aware of the principal.
C) gets a judgment against the agent.
D) He is never discharged from liability.

Question 60

Which of the following is not correct regarding the relationship between an independent contractor and a principal?

A) The contractor is liable under respondeat superior .
B) The contractor generally contracts to perform services but is not controlled by the principal.
C) The right of control is the essential and often decisive factor in determining whether someone is an independent contractor or an employee.
D) Under some circumstances, a principal will be vicariously liable for torts committed by a carefully selected independent contractor.

Question 61

Frank, acting as a promoter for Garleen Co., a corporation not yet in existence, makes a contract with Towne Supplies. When Garleen Co. is formed, it may:

A) adopt the contract, but Frank would not be released from potential liability on the contract.
B) in all states, ratify the contract, thereby releasing Frank from potential liability.
C) adopt the contract, thereby making it retroactive.
D) ratify all or part of Frank's contract.

Question 62

The court in the Schoenberger v. Chicago Transit Authority case held that:

A) the actual authority of an agent may be founded on the acts or words of the agent.
B) implied authority is such authority as the principal knowingly permits the agent to assume.
C) actual authority is such authority as a reasonable, prudent person, exercising diligence and discretion, in view of the principal's conduct, would naturally suppose the agent to possess.
D) ZuChristian had neither actual nor apparent authority to make an offer of a specific salary or to make a promise of additional compensation.

Question 63

An agent who makes a contract for a disclosed principal whose contracts are voidable for lack of contractual capacity:

A) is never liable to the third party.
B) can be liable to the third party under certain circumstances.
C) is liable to the third party only if the agent warrants the principal has capacity.
D) is ordinarily personally liable to the third party if the principal avoids the contract.

Question 64

An agent may agree to become liable on a contract between a principal and a third party in all but which of the following ways?

A) Making the contract in the agent's own name.
B) Co-making the contract with the principal.
C) Disclosing the principal's name and the agency relationship.
D) Guaranteeing that the principal will perform the contract between the third party and the principal.

Question 65

The court in Connes v. Molalla Transport System, Inc. found:

A) the tort of negligent hiring imposes a duty on employers to ensure its employees will not engage in violent acts.
B) the scope of an employer's duty to exercise reasonable care in hiring bears no relationship to the anticipated degree of contact the employee will have with others.
C) employers have a duty to investigate all potential employees to make sure they will not create an undue risk of harm to others.
D) the employer had no duty to independently investigate this potential employee's criminal background because the employer had no reason to foresee that hiring the person would create an unreasonable risk of harm to others.

Question 66

When is a principal liable for her own conduct in tort involving the use of agents?

Question 67

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.
C) The undisclosed principal has no liability on the contract, even if her existence and identity are discovered by the third person.
D) If the third party obtains a judgment against the principal and the judgment is satisfied, the agent may still have liability to that third party.

Question 68

Discuss whether the principal is liable in each of the following situations.
a. Patricia hires Andrew, an attorney, to negotiate a contract to purchase some property. She agrees to pay him $75 an hour for his services, and he agrees to use his own office and secretarial staff to negotiate and draft the agreement. One day, Andrew is driving his own automobile to a meeting with Edward to discuss the purchase of the land that he owns. Andrew drives too fast for conditions and has a minor traffic accident that results in $600 damage to the other vehicle.
b. Mel owns a retail store. He hires Sarah to work for him as a clerk in the home furnishings department. Mel instructs Sarah to make certain representations to customers regarding a microwave oven. Mel knows these misrepresentations are false, but Sarah does not. Henrietta buys a microwave from Sarah in reliance on the misrepresentations.
c. ABC Inc. hires Keith as an outside salesman and instructs him to call on customers in a specified territory and to solicit orders for its products. One day Keith is driving the company car a little too fast for conditions on his way to call on a client. He accidentally drives the wrong way on a one-way street and has an accident with another vehicle that results in $6,000 in property damage and $30,000 in medical expenses.
d. The A & B Machine Company (ABMC) hires John as an outside salesman for its computers. It sets high sales quotas for him and instructs him to beat up salesmen from competing firms in order to keep them away from ABMC customers. In order to meet his monthly sales quota, John roughs up Ralph, who is a salesman for a competing firm and then tells Ralph to find his own customers and to stay away from John's territory.

Question 69

Gary hires Doug to burn off his fields to kill the weeds. If the fire gets out of control because of Doug's negligence and the fire damages Philip's wood fence:

A) Gary has no liability because Doug was an independent contractor.
B) Doug bears sole responsibility for damage to the fence because it was his negligence that caused the fire to escape the intended boundaries.
C) Gary is vicariously liable because he authorized an abnormally dangerous activity.
D) Philip cannot hold Gary liable unless Gary was personally involved in the act of burning the fields.

Question 70

Discuss the fundamental rules of contractual liability between a principal and the third party.

Question 71

Sam is a sales representative for the Incman 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 that Sam's supervisor at Incman had repeatedly reprimanded him and advised him to drive more cautiously. Incman:

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

Question 72

Selene 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) Selene 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) Selene 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) Selene will be held liable for the contracts only if she ever gets the loan.

Question 73

An undisclosed principal may result in which of the following?

A) Liability of the agent for any contract made on behalf of such a principal.
B) The agent's being declared incompetent by a court of law.
C) A declaration order by the court for the principal to show a guarantee.
D) All of these.

Question 74

a. What is an undisclosed principal?
b. What is an unidentified (partially disclosed) principal?
c. What liability does an agent have to a third party when the principal is either undisclosed or unidentified (partially disclosed) ?
d. Dale is asked to be an agent for Phil, but Phil does not wish third parties to know that Dale represents him. In light of your answer to part (c), why would Dale want to be an agent for Phil? Why would Phil wish that third parties not know his identity? Explain.

Question 75

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

Question 76

Paul is a truck driver who owns his own truck and delivers loads to various companies for nine months out of the year. For the hard winter months, Paul goes to Key West to "put his feet in the sand." One evening while delivering a load for Emblem Helicopter Parts Co., Paul got into a "little scuffle" with a rowdy trucker who was giving Nell, a waitress at the DewDrop Inn Cafe, a hard time. Paul knocked out five of "Rowdy's" teeth. Rowdy is suing Paul and Emblem for his injuries. Discuss whether Rowdy will win against Emblem on the issue of:
(a) respondeat superior and
(b) unauthorized acts of agents.

Question 77

Southern Furniture Co. hired Chuck to drive a company truck and deliver furniture. Chuck had a spotless driving record and did well on his driving test. Belinda ordered a chair from Southern Furniture Co. and arranged for its delivery on her lunch hour. Belinda was at home when Chuck delivered the chair. After delivering the chair, Chuck brutally raped Belinda, causing severe physical and psychological injuries. Chuck was convicted in the criminal courts. During the trial it was revealed that Chuck had been in a mental institution for the criminally insane for two years because he had brutally assaulted his mother and other women. He also had a lengthy criminal rap sheet involving theft crimes. Belinda sought compensation for her physical and psychological injuries from both Chuck and Southern Furniture Co. in civil court. Discuss what the probable outcome of this case would be with regard to the issues of:
(a) respondeat superior and
(b) general tort liability of principals for the unauthorized acts of their agents.

Question 78

Compare and contrast ratification and adoption of unauthorized contracts.

Question 79

In the Parlato v. Equitable Life Assurance Society of the United States case, the court held:

A) the duty is on the party with whom an agent deals to discover the principal's identity.
B) the agent's disclosure of a trade name and the plaintiff's awareness of that name are sufficient to protect an agent from personal liability on a contract.
C) a principal is not responsible for torts its former agent commits after termination of the agency relationship against a third party unknown to the principal.
D) apparent authority of an agent is always terminated at the same time as the termination of the agent's actual authority.

Question 80

Jack was fired by Bob 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 Bob's product. Sharon agreed to buy 100. Jack tells Bob. What are the legal consequences?

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