Deck 10: Agency and Partnership

Question 1

Which of the following is not acting as an agent in the eyes of the law?

A) The cashier at London Drugs
B) An editor for the Gazette who writes some of the articles and proofreads the final draft of the paper
C) The paperboy who sells subscriptions for the Globe and Mail
D) A real estate salesman working for A.E. LePage
E) A computer programmer hired by a real estate agency to help computerize the office by buying appropriate software and hardware for the company and adapting the programs to fit the agency's needs

Answer 1

B

Question 2

If a third party relies on the principal's representation that the agent has the authority to act, which of the following is true?

A) The principal can claim the agent had no authority.
B) The agent is solely liable for the conduct if it results in injury to the third party.
C) The principal can claim estoppel.
D) The principal cannot claim the agent had no authority.
E) The agent can sue the principal for breach of contract.

Answer 2

D

Question 3

Reese Publishing Inc. hosts a golf tournament. In attendance are Jennifer Reese, the owner, director, and manager of Reese Publishing Inc.; her husband, Aaryn, a professional race-car driver and voracious reader who reads everything Reese Publishing Inc. publishes; her sales force, Laura, Catherine, and Keighla (each of whom signed deals that day); and Gena, the office manager, who is responsible for all of the company's office supply purchases. Which of these people act as agents?

A) Only Laura, Catherine, Keighla, and Gena
B) Only Laura, Catherine and Keighla
C) All of them except Aaryn
D) All of them
E) None of them

Answer 3

C

Question 4

Although Jason had participated in the flower auction for the last nine years as an agent for Thos. Holt's Ltd. (Holt) with the authority to buy whatever he felt the store needed, this day he was given express instructions to buy only cut flowers. When flats of young camellia bushes with a rare gold flower were being sold, Jason bought them on behalf of the company. Which of the following is true?

A) Holt is not bound by the contract because Jason's authority was expressly restricted.
B) Holt is not bound since Holt didn't ratify the contract.
C) Holt is not bound by the contract because Jason is in breach of his agency agreement.
D) Holt is estopped from denying Jason's authority.
E) The key to determining whether or not Holt is bound by the contract is this: in the circumstances, should the auctioneer have confirmed with Holt the extent of Jason's authority?

Question 5

An agent contracted with a third party on behalf of a principal, but went beyond both his actual and apparent authority. The third party was never paid. Which of the following indicates the legal position of the third party?

A) He can successfully sue the principal because the principal is always liable for the actions of his agent.
B) He can successfully sue the agent for breach of warranty of authority if the principal fails to ratify the contract.
C) Since the agent had no authority, the third party has no remedy against anyone.
D) The third party can ratify the deal and force the principal to go through with it.
E) He can sue the agent for the tort of nuisance.

Question 6

If an agent breaches his duty to his principal, his principal can sue the agent successfully for

A) breach of warranty of authority.
B) breach of the agency agreement.
C) breach of agency act.
D) wrongful representation.
E) the tort of deceit.

Question 7

John Agent entered into a contract with Joe Third Party to buy 50 stoves, payment to be made two weeks after John Agent picked up the stoves from Joe Third Party's warehouse. The stoves were picked up, but eight weeks later Joe still had not been paid. Joe found out that John Agent had been authorized to buy 50 stoves for Gord Principal. For some reason, John had not made it clear to Joe that he was acting as an agent, nor had he indicated that he was buying the goods for himself. Under the circumstances, which of the following is true?

A) Third Party can successfully sue only Gord Principal.
B) Third Party can successfully sue only John Agent.
C) Third Party can successfully sue both Principal and Agent.
D) Third Party can elect to recover from either Principal or Agent but not both.
E) Third Party can ratify the contract with Gord.

Question 8

Which of the following is an example of just being an agent as opposed to an employee?

A) Joe worked in the mailroom of Smith Textiles, sorting mail.
B) Joe worked as a mechanic for Smith Used Cars Ltd.
C) Joe worked as a janitor for Smith Textiles.
D) Joe worked as the purchasing agent for Smith Textiles Ltd.
E) Joe worked as a delivery driver for Smith Textiles Ltd.

Question 9

An agent with no express, implied, or apparent authority to do so identified himself as an agent for his principal, and on behalf of his principal bought a computer. The principal refused to ratify the contract. On these facts, which of the following is true?

A) The principal would have to pay for the computer because the agent was an agent for that principal.
B) The agent could be sued by the seller of the computer for breach of his warranty of authority.
C) By exceeding his authority, the agent has become the buyer of the computer himself.
D) The seller of the computer could sue the agent for breach of contract for saying he was an agent.
E) The seller could sue the principal for breach of warranty of authority.

Question 10

In which one of the following situations will the transaction not be binding on the principal?

A) A salesman at a men's clothing store has heard a rumor that the store will be going out of business. The boss is out of the store when a customer who has heard the same thing comes in and offers to purchase all of the stock, display cases, and fixtures. The salesman accepts on behalf of the employer.
B) A real estate salesperson, after disclosing the fact to his client, purchases the house the client is selling for himself.
C) An employee of a flower shop is sent to the flower market every week to make purchases. This week he is told to buy only roses, but he can't pass up a tremendous deal on daisies and purchases a large quantity of them for the store.
D) A chauffeur, going against specific instructions, purchases a new car for his employer. The employer has done nothing to lead the seller to believe the chauffeur has such authority, but is persuaded by the chauffeur to go for a drive before returning the car.
E) A truck driver who is not an agent (no actual, implied, or apparent authority) enters into a contract on behalf of his employer to sell the cargo of ripe tomatoes after the truck breaks down and he can't get hold of the boss.

Question 11

A principal is not bound in contract with the third party with whom the agent dealt if the agent is

A) within his express authority.
B) within his implied authority.
C) within his apparent authority.
D) outside his authority but the principal ratified it.
E) outside his actual and apparent authority.

Question 12

Novada worked as a salesperson for White Water Yachts Inc. Yates, who was looking at a 30-foot sailboat called the "Mostly Toad," approached him. Yates asked Novada if the boat has been surveyed (inspected) recently, and he was told that it had been just last year and it was in great shape. In fact, it had never been surveyed and had serious fiberglass delaminating problems below in the bilge. Yates bought the boat and in the first month of sailing the boat delaminated and sank. Yates and his family survived, but both he and his wife suffered some serious long-term injuries. Which of the following is correct with respect to the legal position of the parties?

A) If Novada knew what he was saying was False, Yates could sue Novada and White Water for fraud even if Novada was an independent agent rather than an employee.
B) If Novada didn't know what he was saying was False, having mixed this boat up with another, Yates can cannot sue either Novada or White Water for negligence, even if Novada was an independent agent rather than an employee. Salespeople are expected to be enthusiastic.
C) Since this is a used boat, this is a "buyer beware" situation, and Yates should have had the boat inspected himself. He has no action against Novada or White Water in these circumstances.
D) Yates can only sue White Water if the contract itself specifically referred to a recent survey and this information was inaccurate.
E) Yates can sue only the agent in this situation, not the principal.

Question 13

In which one of the following situations is the principal not responsible for the conduct of his agent?

A) When selling vacuum cleaners for Ace Vacuums Ltd., Joe lied to the customer about the qualities of the vacuum being sold. He was an independent agent.
B) When selling vacuum cleaners for Ace Vacuums Ltd., Joe lied to the customer about the qualities of the vacuum being sold. He was an employee of Ace.
C) In his job selling vacuum cleaners for Ace Vacuums Ltd., Joe drove his car carelessly and hit a pedestrian on his way to deliver a vacuum cleaner to a customer. He was an employee of Ace.
D) In his job selling vacuum cleaners for Ace Vacuums Ltd., Joe drove his car carelessly and hit a pedestrian on his way to deliver a vacuum cleaner to a customer. He was an independent agent.
E) When driving the employer's car to sell vacuums to a customer, Joe hit a pedestrian. Joe was an employee.

Question 14

Chris was a systems analyst hired to determine the best system for a retail china shop. After a careful analysis of the shop's needs and the available software, Chris presented a written report, which was approved by the owner of the business. Chris was paid his fee and was asked by the owner if he would act as his agent in purchasing the hardware and software recommended in the report. The purchase was not to exceed $40,000 and the commission was to be $1000. Chris agreed. Read each of the following separately and indicate which is true.

A) The agreement to act as agent fails to be a valid agency contract because it is not in writing.
B) If Chris buys the hardware and software himself for $36,000 and sells it to the owner for $39,000, he is entitled to his commission because the price to the owner is still within the price allowed.
C) Chris will not be in breach of his fiduciary duty if he buys the recommended system from a firm in which he has an interest, even if he does not mention that fact to the owner.
D) Chris could be in breach of his duties if he delegates the task to someone else.
E) Chris is entitled to accept a commission from both the seller and the purchaser, as long as the total price paid by the purchaser is less than $40,000 and the hardware and software is comparable to that recommended in the report.

Question 15

Which of the following is an example of an agent's breach of fiduciary duty to his principal?

A) An agent for the vendor collects a commission from the purchaser but told his principal and obtained his consent.
B) An agent for the vendor makes a profit on the transaction he negotiates for his vendor above his commission and doesn't tell his principal/vendor.
C) An agent discloses to his principal/vendor that he is giving some of his commission to the purchaser to induce the purchaser to sign the contract that the principal/vendor wants.
D) An agent negotiates a higher price than the highest sale price reasonably possible at that time.
E) The agent takes presents from the third party and passes them on to the principal.

Question 16

To what does the term "estoppel" refer?

Question 17

An agency relationship can be created by

A) actual authority.
B) estoppel.
C) ratification.
D) apparent authority.
E) all of the above.

Question 18

When an agent's authority is terminated by mutual agreement, what is the impact on the agent's actual and apparent authority?

A) The actual authority continues until the third party is notified of termination, but the apparent authority ceases.
B) Both the actual authority and the apparent authority continue until the third party is notified of termination.
C) Both the actual authority and the apparent authority immediately cease.
D) The actual authority ceases, but the apparent authority continues until the third party is notified of termination.
E) Both the actual authority and the apparent authority continue, because an agent's authority cannot be terminated by mutual agreement.

Question 19

Because of an alarming drop in the earnings of Microminds Ltd., Roger, the principal contract negotiator and president of the software development company, called a meeting to discuss productivity and customer satisfaction. At the meeting were Michael, a troubleshooter who helped customers over the phone who needed guidance in using the company's software; Ralph, the receptionist and purchaser of the office supplies for the company; Keith and Jason, salesmen hired on a commission basis (i.e., not as employees but as independent contractors); Mr. Toman, purchasing agent for the Vancouver School Board, an important customer; and Mr. Rice, purchasing agent for Matol Toys Ltd., also a customer. Which of these is acting as an agent?

A) All of them
B) All of them except Keith and Jason
C) All of them except Michael
D) Roger, Toman, and Rice only
E) Only Roger

Question 20

Which of the following is correct with respect to the agency relationship?

A) Agents are those who act on behalf of others but are not employees.
B) The agency relationship must be created by contract.
C) No agency can be created without the consent of the principal.
D) For an agency contract to be valid, it must be in writing.
E) An agency agreement in writing and under seal is called a power of attorney.

Question 21

Which one of the following statements is correct with respect to sole proprietorships?

A) The sole proprietor has limited liability.
B) The sole proprietor need not adhere to any licensing and government regulations.
C) The sole proprietor must consult with the other owners before making any major decisions regarding the business.
D) The sole proprietor has the same extent of liability as a shareholder.
E) The sole proprietor is responsible for the torts committed by an employee that take place during the course of business.

Question 22

Which of the following is a violation of the fiduciary duty of a partner?

A) Where one partner uses information that he has gained from the partnership for the advantage of the partnership
B) Where a partner uses the partnership property for partnership business
C) Where one partner carries on a business unrelated to the partnership with the permission of the partners
D) When one partner starts another business that is the same as or in competition with the partnership business without the consent of the other partners
E) Where one partner learns of an investment opportunity in the field of the partnership and tells the partners, but the partners decline on the opportunity so he takes advantage of it himself

Question 23

Which of the following is considered to be a separate legal person in law?

A) A sole proprietorship
B) A partnership
C) A corporation
D) An agency
E) A professional practice

Question 24

If you hire Gnowsky to act as your agent, which of the following is true with regard to the duties he owes to you?

A) Gnowsky need not use reasonable care, skill, and diligence in his service to you.
B) Even when Gnowsky is acting as your agent, he need not put your interest above his own.
C) An agent may delegate his authority without the authorization of his principal.
D) His failure to obey you and to act within the authority given him would allow you to sue him for breach of contract.
E) Gnowsky need not tell you everything relevant to his task that a reasonable person would consider might affect your decision making.

Question 25

With respect to the formation of agency by estoppel, which of the following statements is true?

A) The issue of apparent authority arises only if a person acts as an agent when he has express or implied authority.
B) When a third party suspects that the agent he deals with has no authority, there is no obligation on him to question the agent's alleged authority.
C) When a party represents, by words or conduct, that someone is his agent, that party can later deny liability on a contract made for him by that agent on the basis that no express agency agreement existed.
D) When a party terminates an express agency agreement with his agent and notifies third parties with whom that agent normally dealt, that party will be liable on a contract made for him by that "fired" agent.
E) If the principal tells an agent specifically not to sell something and the agent, in disobedience of those instructions, sells it anyway, the principal may be bound by the contract because of estoppel.

Question 26

Identify the true statement concerning the law of principal and agent.

A) Agency is only created by way of a contract.
B) The principal and his agent owe each other the same duties.
C) An agent who puts himself in a position where his interests conflict with those of his principal is in breach of his duties even though no actual harm comes to his principal.
D) An agent with no express authority can never bind his principal into a contract with a third party.
E) An agent can never be liable to the third party himself while the principal will bear no such liability.

Question 27

Which of the following is correct with respect to an agent's performance of his duties?

A) The agent may profit at the expense of the principal if the agent comes into some previously unknown information.
B) The agent must never take advantage of the third party.
C) The agent must never compete with the principal.
D) When an agent fails to act in the best interest of the principal and is an independent contractor, this is just cause for constructive dismissal.
E) The principal need not reimburse the agent for any reasonable expenses incurred in the process of performing the agency responsibilities.

Question 28

With respect to ratification, which one of the following statements is true?

A) Ratification is the act of a principal approving a contract when his agent has exceeded his authority or acted without authority, and such approval gives the agent authority retroactively to the time the agent made the contract.
B) When an agent, without the authority of his principal, has entered a contract for three computers and two printers, and the principal wants the computers but not the printers, he can ratify part of the contract.
C) The only limitation on a principal's right to ratify is the power of the third party to set a time limit within which that ratification must take place.
D) Irving has been given authority to contract for the purchase of 1000 jade tiles at up to $18 a piece. Instead, he buys from Cassiar Jade Co. 1200 jade tiles at $18.25 a piece. When Cassiar Jade finds out that Irving has exceeded his authority, it sells the tiles to Interior Designs Co. After Cassiar has sold the tiles, Irving's principal can no longer ratify the contract.
E) The ratification by the principal must be in writing to be effective.

Question 29

Sam hires Joe to negotiate and sign a contract with Ken on Sam's behalf. Which of the following is true?

A) If Joe acts outside his express authority and negotiates and signs the contract with Ken, Sam may not be a party to that contract.
B) If Joe acts outside his implied and express authority, Sam will owe him for his services.
C) If Joe acts within his apparent authority, but outside his express or implied authority, Sam will be bound by the contract, but may sue Joe for breach of his agency contract.
D) If Joe acts outside express, implied, and apparent authority, Sam is not bound by the contract, even if he ratifies the contract.
E) If Joe acts outside his express, implied, and apparent authority, he could be sued by Sam, but not by Ken, because he has no contractual relationship with Ken.

Question 30

In the process of assembling land for Ace Construction Ltd. to build a supermarket, Joe entered into a contract with the seller Sam. In which of the following situations would Sam be able to sue the principal Ace?

A) Where Joe revealed that he was acting as an agent, but did not disclose that he was acting for Ace in particular, and exceeded both his apparent and real authority. Ace did not ratify the contract.
B) Where Joe disclosed that he was acting for Ace but made the contract "subject to ratification."
C) Where Joe was acting outside his authority and did not disclose that he was acting for the Ace. Sam was aware of Joe acting independently at the time he entered into the contract.
D) Where Joe exceeded his actual authority but where Ace had led Sam to believe Joe had the authority.
E) Where Joe exceeded his apparent and actual authority.

Question 31

Claire has been selling her famous cookies on her own to local bakeries. Her cookies are so popular that she needs to hire someone as an employee to help with the packaging and delivery. Claire has taken no formal steps regarding the form of business organization. Which of the following is true about Claire's situation?

A) Claire is unable to legally hire an employee until she takes steps to incorporate.
B) Claire will be vicariously liable for the torts of her employee committed during the course of employment.
C) The employee that Claire hires will be, in law, a partner in Claire's business.
D) The employee that Claire hires will be liable for torts Claire commits during the course of the business.
E) Claire's liability is limited to the value of the cookie business.

Question 32

Ravinder is the sole proprietor of a shoe store. He is also a partner in a restaurant, which has recently been sued for negligence after many people got sick from the salmon Alfredo dinner special. Which of the following statements is true?

A) The shoe store assets will only be available to the successful plaintiffs in the restaurant action if the shoe store is operated by Ravinder in conjunction with the restaurant.
B) Because of the concept of limited liability, Ravinder can lose only what he has invested in the restaurant.
C) The successful plaintiffs in the restaurant action can only go after the assets of the shoe store if Ravinder was the actual person who prepared the salmon Alfredo on the night in question.
D) Although the successful plaintiffs in the restaurant action can go after Ravinder's personal assets, they cannot go after the assets of the shoe store because the shoe store is a separate legal entity from Ravinder.
E) If the plaintiffs win their lawsuit against the restaurant, they can look to the assets of the shoe store to pay off the debt.

Question 33

Sole proprietors can look only to their own resources to finance the business operation. They cannot sell shares and are restricted to their own ________ standing when borrowing money to finance the business.

A) asset
B) debt
C) profit
D) credit
E) retained earnings

Question 34

A recent article in the Lawyers Dia-Blog began: "Step aside, wrongful dismissal: the law of fiduciary duties is where you'll find the hottest legal action these days!" Which of the following is False with regard to the meaning of "fiduciary duty"?

A) Fiduciary law is based on the principle of acting with utmost good faith.
B) Fiduciary law governs situations in which one party places trust and confidence in another who consents to act in accordance with that trust.
C) In some fields, fiduciary duties are imposed both by the common law and by statute.
D) An agent must place the interests of his principal above all except the law.
E) The principal owes the agent a fiduciary duty just as the agent owes it to his principal.

Question 35

Which of the following is correct with respect to sole proprietorships?

A) The sole proprietorship is a separate legal entity.
B) The sole proprietor has unlimited liability.
C) The sole proprietor has limited liability.
D) Sole proprietorship exists where two or more people carry on business together with a view towards profits.
E) A sole proprietorship must be incorporated.

Question 36

Which of the following statements is true with regard to an agent's duties?

A) A real-estate agent may buy property from a third party if it is at a good price and then sell the property to his principal at a higher price.
B) An agent is not entitled to the agreed-upon commission and reasonable expenses undertaken on behalf of his principal in carrying out his duties.
C) An agent cannot act for two principals even with the knowledge and consent of those principals.
D) An agent must always scrupulously account for moneys coming into his hands on behalf of his principal.
E) An agent need not disclose all relevant information to the principal.

Question 37

Which of the following is correct with respect to the ratification of an agent's contracts?

A) A principal can ratify a contract where the agent has gone beyond both his actual and apparent authority.
B) A principal can only ratify an agreement entered into by an agent if his name has not been used.
C) When a contract entered into by an agent is ratified by a principal, it commences at the time the principal ratifies the contract.
D) The agent can set a time limit within which the ratification must take place.
E) A contract can only be ratified if the principal was not able to enter into the contract himself at the time of ratification.

Question 38

Which of the following is true with respect to the agency relationship?

A) An agent acting gratuitously can never bind the principal.
B) An agent's apparent authority may be implied from the position that the agent holds in the employer's organization.
C) When a principal has specifically limited the authority of the agent, that agent can never bind the principal in a contract, even if the agent acts outside his authority.
D) An agent's authority is limited to whatever authority the principal specifically gives the agent.
E) Actual authority is the authority the principal has implied in conversations with a third party.

Question 39

In certain cases, a third party can hold a principal to a contract even though the agent acted outside the authorization given him by his principal and even though his principal elected not to ratify the contract made by the agent. The third party can enforce the contract because of

A) the reasonable agent theory.
B) agency by express agreement.
C) the failure of the principal to register the agency agreement.
D) the agent's apparent authority.
E) fiduciary duty.

Question 40

Grant got a job with Ace Computers Co. (Ace) as a salesman. He was given a course in salesmanship by Ace, business cards, and several of the company's order forms and brochures, and he was assigned an area in which to sell computers door-to-door on behalf of Ace. Grant would be paid on a commission basis. At his first house, he was so excited by the interest shown that he forgot the explicit instructions he had received-only cash sales permitted. As agent for Ace, he sold a computer to a Janet. She was to pay $25 per month for eight years because that was all she could afford. When Brown, sales manager of Ace, heard of the deal, he fired Grant and said he would not go through with the contract. However, Janet liked the computer very much and insisted that Ace provide her with one within the week as required by the contract. Which of the following accurately describes the legal position of the parties?

A) Ace is not bound by the contract because no representations of authority were made by it to Janet.
B) Ace would not be bound because Grant failed to follow the exact instructions he had received.
C) Ace would be bound because the agent Grant acted within his apparent authority.
D) Grant had implied authority to sell computers on credit; selling computers necessitates selling on credit, despite the prohibition.
E) Brown is personally liable to Janet because he is the employee of the company who decided not to honour the contract.

Question 41

Which one of the following statements is correct with respect to the law of partnership?

A) Every partner is responsible for every contract entered into by his partner.
B) Partners are only responsible for contracts entered into by their partnership if the third party knew that the person they were dealing with was a partner in the partnership.
C) Partners are responsible for any contracts entered into by their partners related to the partnership business.
D) A partner is responsible for contracts with third parties entered into by their partners only where it has been clearly stated by the partner to the third party that he is entering the contract on behalf of the partnership.
E) Partners cannot bind their partners in contract without specific written authority.

Question 42

A ________ process for sole proprietorships is used to control or restrict certain types of businesses, such as door-to-door sales, credit information services, moneylenders, hotels, and cabarets.

A) licensing
B) business activity
C) liability
D) finance
E) risk management

Question 43

Which of the following statements is correct with respect to the Partnership Act?

A) The Partnership Act always overrides any provisions contrary to it set out by the partners in the partnership agreement.
B) The Canadian Partnership Act is enacted by the federal government and creates a uniform and cohesive system of partnership law for all of Canada.
C) The Partnership Act states clearly that a partnership is only created by specific agreement between the partners to that effect.
D) The Partnership Act sets out provisions that will govern the relations between the partners unless those partners have agreed otherwise.
E) When in conflict, the terms of the federal Partnership Act override the provincial partnership acts.

Question 44

Joe and Sam were in business school together. After they graduated, they decided to open an ice-cream store in a mall together. They had skipped the classes where they were taught about different methods and forms of carrying on business and so gave no thought as to how they would structure their relationship. Which of the following is true with respect to the legal positions of Joe and Sam?

A) Sam and Joe are not in a partnership since they have not specifically agreed to be.
B) If Sam opens up another ice-cream store in another mall in a nearby city without telling Joe, he must share any profits he makes with Joe.
C) If Sam were to find a great deal on anchovy ice-cream and purchased 2000 litres of it, only Sam would be liable for the debt incurred as a result of the purchase.
D) If Sam opens up another ice-cream store in another mall in a nearby city without telling Joe, Joe would be liable for any losses he suffered along with Sam.
E) If a customer were injured because of poorly kept food and Sam did not have the assets to pay his half, Joe would only have to pay for his half of the damages suffered.

Question 45

Which of the following is the proper definition of a partnership as set out in the Partnership Act?

A) Partnership exists where two or more persons carry on business together with a view towards profits.
B) A partnership exists where any business is carried on with a view towards profits.
C) A partnership is created where a corporation with shareholders is registered with the federal government.
D) A partnership is only created where the partners actually share the profits from a business.
E) A partnership exists only where two or more people enter into a written agreement to be partners.

Question 46

Dave and his sister Chris made unusual kites. They both created the designs; Dave made the patterns. Friends had always wanted to buy their kites. After Chris completed a college marketing program, she began to talk to Dave about going into business selling kites. Ed, a friend of Chris's, wanted to be involved. He said he could buy the supplies and do other odd chores. They decided to try to make a go of it and to share the profits as follows: Dave 35%, Chris 35%, and Ed 30%. Things went well for 7 months. They even hired George to deliver kites to the increased number of stores buying them. Chris and Ed became romantically involved. This was followed by a heated dispute. Ed disappeared with $1300 collected from customers and $600 worth of supplies, which he had bought on behalf of the business from their regular supplier. At about the same time, George negligently broke a customer's $200 lamp when he was delivering a kite. On these facts, which of the following is true?

A) Since Dave, Chris, and Ed did not sign a partnership agreement, they are not considered a general partnership.
B) If the partnership funds are not sufficient to pay the partnership debts, the creditors can look to the individual partners for payment.
C) When Ed buys supplies for the business on credit, he is acting as an agent for the business and he alone is liable for those debts.
D) Although George broke the lamp while delivering kites, the partners are not liable, because it was George's own fault.
E) Only Chris would be responsible Ed's misapplication of the customers' money.

Question 47

Which of the following statements is correct with respect to unlimited liability?

A) This means the partner can lose what he has invested but no more.
B) Only the partner's share of the partnership assets can be used to satisfy the debt incurred by another partner.
C) The partner cannot only lose what he has invested but can also be required to pay an additional amount equal to what he has invested.
D) Each partner can be held responsible for the debts of the partnership no matter how great they are.
E) If there are two partners, each partner can be held responsible for an amount equal to but no more than one half of the debts of the partnership.

Question 48

Which of the following statements is true with respect to the obligations in a partnership relationship?

A) In the absence of agreement to the contrary, when one of the partners is injured, the partnership is dissolved.
B) In the absence of agreement to the contrary, the partnership is dissolved when one of the partners serves the others with notice to the effect that he wishes to continue.
C) When a partnership is dissolved, each partner can only be forced by a creditor to pay a portion of the debt equal to his share of the capital contributed.
D) When one of the partners owes a personal debt not associated with the partnership, that creditor has a claim on his portion of the assets of the partnership.
E) A partnership can be dissolved only by court order.

Question 49

Which of the following is correct with respect to limited partnerships?

A) Limited partnership refers to the fact that no more than five people are allowed to be partners in such partnerships.
B) Limited partnership refers to the fact that limited partnerships can only carry on in certain kinds of businesses.
C) Limited partnership refers to the fact that some partners have limited liability.
D) Limited partnership refers to the fact that some partnerships are only created for a limited period of time.
E) Limited partnership refers to the fact that the partnership can only issue common shares.

Question 50

Fred and Carole were trying to create a list of the pros and cons of sole proprietorship, partnership, and corporation to determine the best structure for carrying on business. Which of the following is true in regards to being a general partner?

A) A partner is liable for only the amount that he or she invested in the partnership firm.
B) Every general partner faces limited liability for the debts of the partnership.
C) Each partner is an agent for every other partner and of the firm itself, so a partner may be liable for the contracts made by an incompetent partner.
D) Retiring from a partnership by giving notice to his partners frees a partner from liabilities he faced while being a partner of the firm.
E) A partner is liable to pay from his personal assets only when the partner has committed a criminal act.

Question 51

Which one of the following statements is correct with respect to the law of partnership?

A) A partner is responsible for all torts committed by their partners.
B) A partner is only responsible for those torts committed by the partner that are committed during the course of the business.
C) Even where the tort is committed outside the scope of the partnership business, the partners will be liable for a tort committed by their partner.
D) If a partner commits a tort in his own personal capacity outside of the scope of the partnership business, the victim has no recourse against any of the partnership assets.
E) Where a person is injured by the careless action of an employee of a partnership in the course of his employment, that injured person has recourse against the assets of the partnership, but if those assets are not enough, he cannot go against the personal assets of the partners themselves.

Question 52

Which of the following statements best describes a partnership?

A) Partnership involves two or more persons carrying on business with a view towards profits.
B) Partnerships involve limited liability.
C) Partnerships are created when two or more persons specifically agree to be in partnership.
D) Partnerships are only created when they have been properly registered with the government.
E) Partnerships are like any other form of contract; they can only be created when there is consensus between the parties in the form of offer and acceptance to that effect.

Question 53

Which one of the following statements is correct with respect to the liability of partners?

A) When a partner enters into a partnership arrangement, he can only lose what he has invested in that partnership.
B) If a third party is injured because of an activity carried on by the partnership, that third party can only go after the personal assets of a partner if the assets of the partnership are not enough to provide compensation and the damage was actually caused by the conduct of that partner.
C) A general partner is responsible, independent of what he has invested, for any losses caused to outsiders through the partnership business if the assets of the partnership are not enough to cover the claim.
D) If there are three equal partners in a partnership, an injured third party can only collect one third of the claim from any one partner.
E) A partner can protect himself from any liability beyond his investment if one of the other partners specifically agrees in the partnership agreement to be responsible for all such liability.

Question 54

Which one of the following statements is correct with respect to the creation of a partnership agreement?

A) Where two people agree to enter into a partnership, there is no partnership created unless all of the elements of a contract are present.
B) A partnership can be created only by contract.
C) For a partnership to exist, the relationship giving rise to it must be of an ongoing business nature, not a one-time promotion.
D) A partnership can be created by an intention to share the revenues between the partners.
E) For a person to be a limited partner, there must be at least two general partners.

Question 55

Joe Smith owns a book store as the sole proprietor. He is also a partner in a hotel, which borrowed $100,000 from the bank. Which of the following statements is true?

A) Because of the concept of limited liability, he can lose only what he has invested in the hotel.
B) The book store assets will only be available to the bank if the book store is operated by Smith in conjunction with the hotel.
C) The bank can look to the assets of the book store to pay off a debt.
D) The bank can only go after the assets of the book store if Smith was the actual person who negotiated the loan with the bank.
E) Although the bank can go after Smith's personal assets, they cannot go after the assets of the book store because the book store is a separate legal entity from Smith.

Question 56

Which one of the following statements is correct with respect to sole proprietorships?

A) A sole proprietorship is a separate legal entity with one shareholder.
B) A sole proprietorship involves limited liability.
C) The sole proprietor is a society under the Societies Act.
D) A sole proprietorship involves unlimited liability for the proprietor.
E) The sole proprietor is restricted to service type businesses.

Question 57

Which one of the following situations will result in the existence of a partnership? Assume no corporation has been created.

A) Joe and Mary own a house together and share the income from it.
B) Joe pays back a debt to Harry by giving Harry a percentage of the profits from his business.
C) Joe and Mary own a shoe store business together and share the profits.
D) Employees are given bonuses because of increased profits.
E) A lawyer and a real estate agent split the commission.

Question 58

Which one of the following is correct with respect to the rights of partners unless they have agreed otherwise?

A) Personal expenses incurred by the partners in the course of business are reimbursed.
B) Only the partners that have contributed the largest capital amount have the right to share in management.
C) No major decision can be taken without a majority vote agreement of all the partners.
D) All profits are shared equally between the partners.
E) Partners can sell their share of the partnership to another person without the agreement of the partners.

Question 59

With regard to liability of partners, which of the following is true?

A) A limited partner has unlimited liability beyond the amount of his initial investment.
B) A general partner could not be liable for losses suffered by a client because of misapplication of funds unless he knew about or took part in the misapplication.
C) A general partner who retires from the partnership by giving notice of his leaving to the other partners could still be found liable for debt pursuant to a contract made when he was a partner.
D) A general partner has limited liability for any loss suffered because of the negligent act (e.g., omission) of one of her partners.
E) The partnership, and thus the partners, are liable for any loss suffered because of a tort committed by its employee outside the course of his employment.

Question 60

In which one of the following situations will a court find that a partnership exists?

A) Joe and Mary promote several dances at school and split the profits.
B) Joe and Mary, while in college, purchase a house and share the profits from the rent after deducting expenses.
C) Joe, a partner in a law firm, dies and Joe's widow takes over Joe's share of the profits.
D) Joe is a partner in a shoe store and sells his share of the business to Harry without the consent of his partner.
E) Joe sells his business to Harry for $10,000 for the assets and a further $20,000 for good will, the good will portion to be paid at a rate of 20% of the profits from the business until paid.

Question 61

Ted Anderson and Arnie Lee began working together to write some computer programs for companies that needed to adapt standard programs to their particular needs. Ted's dad, an employee for Gong Telephone, would often hear about businesses with such needs, and would solicit clients for Ted and Arnie or advise Ted and Arnie on how to approach potential clients. Ted and Arnie now want to set up business formally and they need money. Ted's dad will give them $9000 but doesn't want his liability to ever go beyond that amount. On these facts, which of the following is true?

A) Because Ted's dad does not do the programming, the main business of the firm, he can continue to provide services to the partnership, such as finding clients, and still be a limited partner.
B) Ted's dad cannot be a limited partner because it takes three or more general partners before a firm can have a limited partner.
C) If Ted's dad does not follow the statutory provisions governing limited partnerships, he could be deemed a general partner.
D) Ted's dad can only be a limited partner if Ted and Arnie are also both limited partners.
E) The only way to limit one's liability is to incorporate.

Question 62

Which of the following is true with regard to partnership?

A) No partnership can be formed unless the parties intended to create a partnership.
B) Sharing gross receipts is sufficient evidence of the existence of a partnership.
C) The terms of the Partnership Act will be implied in a partnership agreement that includes provisions on the same point.
D) A general partner is not an agent of the firm and the other partners.
E) A limited partnership is an arrangement in which a partner may limit liability to his capital contribution.

Question 63

Adams was approached by a Mr. McCarthy of XYZ Co., who requested that Adams pay $10,000 to extinguish a debt owed by the partnership of Adams and Jefferson. Adams denied the partnership and the liability. In asserting his claim, McCarthy cited the following facts, all of which he could prove. Which of these facts is the strongest evidence of the existence of a partnership?

A) Adams and Jefferson co-owned property.
B) Adams and Jefferson shared the profits from a business.
C) Adams and Jefferson shared gross returns from a business.
D) Adams and Jefferson worked together for a non-profit charity.
E) Adams received a commission from Jefferson based on the sale price of the goods sold by Adams for Jefferson.

Question 64

Which of the following will establish the existence of a partnership?

A) A debt is repaid by the creditor taking a share of the profits.
B) An employee receives a profit-sharing bonus.
C) The good-will portion of the sale of a business is repaid by a share of the profits.
D) The parties intend to share the expenses of the business.
E) The beneficiary of a deceased partner takes that partner's share of the income from the partnership.

Question 65

In which one of the following situations would Sam not be liable for the conduct of his partner, Joe?

A) Joe is in a partnership with Sam in a shoe store, and without telling Sam, Joe opens up a franchise of Big Toes Shoes in an adjoining municipality, which suffers a loss.
B) They made it clear in their partnership agreement that they would not be liable for each other's actions.
C) Joe, without the knowledge or consent of his partner Sam, purchases a gross of patent leather shoes in the name of the partnership shoe business.
D) Joe absconds with trust funds he has accepted from a client in his accounting partnership with Sam.
E) Joe is in a partnership with Sam and injures a customer while doing partnership business.

Question 66

Which of the following is correct with respect to the law of partnership?

A) A partnership cannot be created inadvertently.
B) Joint and several liability means that each partner can be sued several times.
C) Each partner is vicariously liable for the wrongful acts of their partners committed in the course of the partnership business.
D) Partners are only liable for the torts of their partners if they in fact knew that the wrongful conduct was taking place.
E) Partners have unlimited liability, meaning that they can lose up to the amount they have invested in the business.

Question 67

Three students in a business faculty created a computer program that compared various retirement plans. They decided to go into business together to offer their services directly to the public. After doing a feasibility study, they felt there were profits to be made. For tax reasons, they decided not to incorporate. Each contributed $15,000 and Wayne, one of the three, contributed a computer. In a short written agreement, they agreed that all three would be actively involved in the management of the business, that all three would work to update the program, that they would share the profits equally, and that they should not be viewed as partners. Based on these facts, which of the following statements is true?

A) They are not partners because they do not share profits in proportion to their capital contributions.
B) They would be considered partners despite their express intention to the contrary in their agreement.
C) They are not partners unless they realize a profit from their enterprise.
D) If one partner dies, the partnership would be dissolved even if they state otherwise in their agreement.
E) If Wayne were to go bankrupt, the partnership would be dissolved even if they state otherwise in their agreement.

Question 68

Which of the following statements is correct with respect to limited partnerships?

A) A limited partnership is created where all of the partners state in the partnership agreement that they will not be responsible for debts arising out of the partnership business and register as such with the government.
B) A limited partner is totally protected and can lose no money.
C) A limited partner can lose his status as a limited partner if he participates in the management of the business.
D) There can be no limited partnerships in Canada. If limited liability is desired, a corporation must be created.
E) There can only be one limited partner in any partnership, no matter how many partners are involved.

Question 69

Frank asked Matt to join him in a business venture. Matt has heard that partnership could result in some harsh consequences. Which of the following statements that Matt has heard about the liability of partners is False?

A) A partner is an agent for the firm and the other partner, and thus Matt would be liable for a contract made by Frank on behalf of the partnership if the partnership funds could not cover it.
B) Matt could be liable for losses suffered by a client whose funds were misappropriated by Frank even if he (Matt) were not aware of the misappropriation and had no part in it.
C) A partner is liable to the full extent of his personal fortune if an employee of the firm was negligent in the course of his duties and there were insufficient partnership funds to cover the resulting loss.
D) A partner is not liable for any partnership debt that was incurred after he left as long as he gave notice in writing to his partner that he was retiring from the partnership.
E) A partner has unlimited liability for any loss suffered by the partnership because of a negligent act by one of the partners if the partnership funds are insufficient to cover the loss.

Question 70

Which one of the following is incorrect with respect to the rights of partners unless they have agreed otherwise?

A) All profits are shared equally between the partners.
B) Reasonable expenses incurred by the partners in the course of business are reimbursed.
C) All partners have the right to share in management.
D) No major decision can be taken without unanimous agreement of all the partners.
E) Partners can sell their share of the partnership to another person without the agreement of the partners.

Question 71

Joe R. notified his partners in writing that he would be retiring from the business partnership at the end of 2015. It was acknowledged and agreed upon and, at year end, the remaining partners paid him for his interest in the partnership. In February of 2016, one of the remaining partners misapplied some trust funds that a long-time client had placed in the care of the partnership for the purchase of a hotel. The partnership was sued, but the assets of the partnership were not sufficient to satisfy the judgment. The successful plaintiff went against the personal assets of the partners, including those of Joe R. What is the likely outcome?

A) Joe R. is not liable because he had retired from the partnership at year end and had properly notified his partners.
B) Joe R. is not liable because he had had nothing whatsoever to do with the misapplication of the trust money.
C) Joe R. is liable if he failed to give proper notice to outsiders, namely, the long-time client whose funds were misapplied.
D) Joe R. is only liable for his share of the losses even if the other partners don't have the assets to pay.
E) Joe R. is not liable since he was not a partner when the misapplication happened.

Question 72

Which of the following is incorrect with respect to the responsibilities of partners to each other?

A) Each partner owes the other partners a fiduciary duty.
B) Partners are free to compete with the partnership providing they do it on their own time.
C) Any information that one partner learns because of his position in the partnership must be used for the benefit of the partnership, not for personal use.
D) Unless the partners have agreed otherwise, profits and losses are shared equally.
E) Unless the partners have agreed otherwise, partners' expenses are to be reimbursed.

Question 73

Norma and Janet decided to form a partnership for selling gourmet picnic baskets. To raise sufficient capital, they convinced their mothers to invest $5000 each as limited partners. Norma's mother was an experienced restaurateur and watched the business with great interest. On several occasions, she advised them on the business and contacted old business associates to buy surplus stock. She even filled in taking orders in the office when needed. A customer who was made ill by contaminated food from a tin can supplied in one basket sued. What would be the liability, if any, of the mothers?

A) Janet's mother would be liable for $10,000, twice the amount invested, because she failed to take part in the management of the business.
B) A limited partner has her liability limited to the amount of her initial investment; therefore, neither mother has any further liability.
C) Both mothers would have unlimited liability because they contributed money but not services as required.
D) Norma's mother would have unlimited liability because she took part in the management of the business and therefore became a general partner.
E) Because one mother lost her limited liability status, they both do.

Question 74

Paul and Laurie both worked at the mall. They often discussed how frequently they made decisions for customers when helping them pick out gifts. They concluded that knowing the merchandise in all the stores as well as they did, they could make a lot of money by doing Christmas shopping for customers. They discussed the idea at length. Laurie's mom, a buyer for a department store in the mall, referred some customers to them. With more and more customers, they wanted to quit their jobs and devote more time to this new business. Laurie's mom agreed to give them $2000, but doesn't want her liability to go beyond that. On these facts, which of the following is true?

A) Laurie's mother cannot be a limited partner because it takes four or more general partners before a firm can have a limited partner.
B) As long as Laurie's mother does not buy on behalf of the customers hiring Paul and Laurie, she can continue to provide services to them, such as sending them customers, and can advise them on marketing and other management problems without losing her limited-partner status.
C) If Laurie's mom does not follow the statutory provisions governing limited partnerships, she could be deemed a general partner and liable for claims beyond her $2000 investment.
D) The only way to limit one's liability is to incorporate.
E) To protect themselves, all of them should be limited partners.

Question 75

The Partnership Act provides that if the partners do not agree otherwise, certain terms of a partnership agreement will be implied. Which of the following is not such an implied term?

A) Each partner shall be responsible for the losses of the firm only to the limit of that partner's initial cash contribution.
B) Every partner may take part in the management of the partnership business.
C) No partner is entitled to a wage for acting in the partnership business.
D) No person may be introduced as a new partner without the consent of all of the existing partners.
E) The partners will share the profits equally.

Question 76

Chuck, Howard, and Ben decide to go into a business venture, developing and distributing educational software. For tax reasons, they do not incorporate. Each contributes $10,000, and Howard also contributes a truck and his programming expertise. They agree that all three will be actively involved in the day-to-day management of the business. To determine their rights and obligations, they enter into a one-page agreement that provides only that each of Chuck, Howard, and Ben is to get 33-1/3% of the profits and also specifically states that they are not to be viewed as partners. Based on these facts, which of the following statements is true?

A) Chuck, Howard, and Ben will not be considered partners because of their express intention in their agreement.
B) Chuck, Howard, and Ben are not partners because they do not share profits in proportion to their capital contributions.
C) Chuck, Howard, and Ben are not partners because to be partners they must be professionals, such as dentists, lawyers, or doctors.
D) Chuck, Howard, and Ben will be considered partners in the eyes of the law because they share profits and are involved in the management of the business.
E) Chuck, Howard, and Ben will be considered partners, but someone claiming against the partnership will only be able to collect 33-1/3% from any one partner because of the agreement.

Question 77

Max has been sued for $20,000 as a partner with Jim Nogoode. Which of the following is False with regard to determining whether or not a person is a partner?

A) The legal relationship of partnership requires that two or more persons carry on business in common with a view to profit.
B) Co-ownership of a property does not in itself raise a presumption of partnership.
C) Sharing gross revenues of a business does not in itself raise a presumption of partnership.
D) If no profit was made in the business, Max would not be a partner.
E) Sharing of profits is evidence of the existence of a partnership.

Question 78

In which one of the following situations has the duty between partners not been breached?

A) X, Y, and Z have a partnership in a restaurant business in Winnipeg. Unknown to his partners, Z opens a shoe store in Regina as well.
B) X, Y, and Z have a partnership in a restaurant business in Winnipeg. Unknown to his partners, Z opens up a restaurant in the same city as a sole proprietorship.
C) X, Y, and Z have a partnership in a restaurant business in Winnipeg. Unknown to his partners, Z is the major shareholder in a corporation that sets up a restaurant in the same city.
D) X, Y, and Z have a partnership in a restaurant business in Winnipeg. Unknown to his partners, Z owns 50% of the shares in the company that supplies the restaurant with its food supplies.
E) X, Y, and Z have a partnership in a restaurant business in Winnipeg. Unknown to his partners, Z runs a catering business during the evening using the restaurant's facilities.

Question 79

Which of the following is incorrect with respect to the law governing limited partnerships?

A) Limited partners' liability only extends to the amount of money they have invested in the partnership.
B) Limited partners, once registered as such, are assured of limited liability.
C) Limited partners can lose their limited status by participating in management.
D) Limited partners can lose their limited status by allowing their names to be associated with the name of the partnership.
E) Limited partners can lose their limited status by failing to register as such.

Question 80

Jones is a partner in a law firm in a small town and he is also doing legal work out of his home in the evening for himself. Which of the following statements is correct with respect to his responsibility for the money he earns?

A) Jones has no responsibility; the money he makes by this extra work is his.
B) If Jones did not have the consent of his partners, Jones must pay over all the money he makes through his business at home to the partnership.
C) If Jones is a 1/3 partner in the law firm, he need only pay over 1/3 of what he makes.
D) Such conduct will automatically dissolve the partnership, but he can keep what he has made.
E) Jones has a duty to tell the other partners, but the money is his and he can keep up the extra work regardless of the other partners' consent.