Deck 24: Liability of Principals and Agents to Third Parties

Question 1

Ratification may occur with respect to either an act of an agent who has exceeded the authority given or an act by someone who has not been appointed an agent at all.

Answer 1

True

Question 2

There can be ratification of an act done in the name of a corporation that was not in existence when the act was done.

Answer 2

False

Question 3

The test of an agent's implied authority is the:

A) justifiable belief of the agent.
B) specific language the principal used in granting the authority.
C) explicit agency agreement between the principal and the agency.
D) deduction of the third party dealing with the agent.

Answer 3

A
Explanation: An agent possesses the implied authority to do whatever else is reasonably necessary to accomplish the objectives of the agency. The test used by a court in determining the extent of the agent's implied authority is the justifiable belief of the agent.

Question 4

Ratification does not release the agent from liability to the principal and the third person for having exceeded his or her authority.

Question 5

An attorney-in-fact is the label given to an agent whose authority is:

A) in writing.
B) implied.
C) apparent.
D) assumed after the death of the principal.

Question 6

Authority is implied when the principal specifically describes the extent of the agent's powers.

Question 7

Ratification gives the agent the same right to compensation that he or she would have had if there had been prior authorization.

Question 8

Ratification may be inferred from the principal's failure to repudiate an unauthorized contract after becoming aware of it.

Question 9

When an agent commits a tort or crime while working for the principal, the agent is not liable for the consequences of his actions if he is acting at the direction of the principal.

Question 10

Any act that the principal could have authorized at the time the act was done may be ratified.

Question 11

The test of an agent's express authority is the:

A) justifiable belief of the agent.
B) specific language used by the principal in granting the authority.
C) appearance of authority in the agent created by the principal.
D) deduction of the third party dealing with the agent.

Question 12

Only the entire act of the agent can be ratified; the principal may not ratify what is beneficial and deny what is burdensome.

Question 13

Principals often are liable for the torts of their agents under the doctrine of res ipsa loquitur, which means "let the master answer."

Question 14

If an agent acts for a corporation that is not yet formed or for an entity that has no legal existence, such as an unincorporated association, the agent is not personally liable on a resulting contract.

Question 15

Express authority:

A) is created when the principal specifically describes the extent of the agent's powers.
B) arises from the principal's failure to inform third persons that the relationship between the principal and the agent is not what it appears to be.
C) arises from the justifiable belief of a third party dealing with the agent.
D) is created by the conduct of the principal that causes a third person to incorrectly believe that another has the authority to act for the principal.

Question 16

An attorney-in-fact is the technical label given to an agent whose authority is in writing.

Question 17

Apparent authority is the true authority granted to the agent by the principal.

Question 18

One may become liable through ratification for an unauthorized act that was done by an agent.

Question 19

An agent can exercise his implied authority when:

A) third persons believe that authority exists because past actions of the agent were ratified by the principal.
B) the agent is a special agent and not a general agent.
C) the principal's property interests need to be protected by the agent during an emergency.
D) the principal does not grant the agent any powers.

Question 20

Liability is imposed on an agent who has exceeded his authority on the basis of an implied warranty of merchantability.

Question 21

Ratification releases the:

A) principal from liability.
B) agent from liability.
C) third party from liability for acts of the principal.
D) principal and the third party from liability.

Question 22

Ratification may be inferred by a court from the:

A) principal's acceptance of benefits of an unauthorized contract.
B) agent's failure to repudiate an unauthorized contract after becoming aware of it.
C) third party's extent of knowledge about the contract.
D) principal's failure to give express authority to the agent.

Question 23

Marissa, the CEO of Carmine Laboratories, appointed Raphael as a marketing manager and gave him express authority to hire other people to help him carry out his duties. Raphael hired Dana as his secretary. Based on these facts, which of the following statements is true?

A) Only Marissa is bound to a third party by Dana's actions.
B) Neither Marissa nor Raphael is bound to a third party by Dana's actions as an employee.
C) Between Marissa and Raphael, it is Raphael who is ultimately liable for Dana's actions as an employee.
D) Dana is solely bound to third parties for her actions as an employee.

Question 24

Which of the following statements is true of the liability of an agent who is acting for a nonexistent or incompetent principal?

A) If the third person is unaware of the lack of capacity of a nonexistent or incompetent principal, the agent is not personally liable on the contract.
B) A minor is considered an incompetent principal, and an agent acting on behalf of such principals is personally liable on the contract.
C) If the principal is judged insane, the law imposes an apparent warranty by the agent that the principal has the capacity to be bound.
D) A person judged insane is considered to be nonexistent or incompetent and is personally liable for acts undertaken by an agent.

Question 25

When an agent takes an unauthorized action, the:

A) action cannot be ratified by the principal.
B) principal can transfer liability to the agent while enjoying the benefits of the action.
C) principal may not ratify only a portion of the action.
D) action may be ratified provided that the principal is a corporation.

Question 26

An agent will be relieved from liability for representations in excess of the agent's authority if the:

A) agent hired subagents to do some of his work.
B) third party knows that the agent is acting in excess of his authority.
C) principal does not ratify the act.
D) act was undertaken with a good intent.

Question 27

Which of the following is true about ratification?

A) It releases the principal from liability to the third person.
B) It gives the agent the same right to compensation that he or she would have had if there had been prior authorization.
C) It requires the principal to have full understanding of the legal significance of all material facts.
D) It is inferred by a court from the fact that the agent accepted the benefits of an unauthorized contract.

Question 28

A principal's intent to ratify a contract:

A) can only be inferred by the agent's actions.
B) may not be implied by his acts or failure to act.
C) may be inferred by a court from the fact that the agent accepted the benefits of an unauthorized contract.
D) may be inferred from the principal's failure to repudiate an unauthorized contract after becoming aware of it.

Question 29

For ratification to be effective, the:

A) agent cannot disclose the name of the principal.
B) principal must have been in existence at the time of the agent's action.
C) agent must have the capacity to complete the unauthorized act and ratify it.
D) necessity of the principal should not be served by subagents.

Question 30

An agent can limit the liability for the acts of a subagent to the principal by _____.

A) issuing express authority
B) using a ministerial clause
C) issuing implied authority
D) using an exculpatory clause

Question 31

Misrepresentations by an agent made with the intent to deceive a third person will:

A) make the agent liable to the third person.
B) absolve the principal of any liabilities toward the third person.
C) make the third person liable to the principal.
D) make the principal liable to the agent and the third person.

Question 32

Liability is imposed on an agent who has exceeded his authority on the basis of a(n):

A) implied warranty of authority.
B) actual warranty of authority.
C) direct warranty of authority.
D) definitive warranty of authority.

Question 33

A general agent:

A) has a limited range of implied authority than a special agent.
B) is authorized by the principal to do a specific act.
C) is an agent who does not possess the authority to contract on behalf of the principal.
D) acts for the principal in a number of transactions over a period of time.

Question 34

A large and well-known corporation wants to acquire a plot of ground for a new plant. To avoid the extra cost, the corporation purchases the land through several agents, each purporting to be buying personally. In such cases, the corporation is a(n) _____.

A) undisclosed principal
B) disclosed principal
C) partially disclosed principal
D) subagent

Question 35

Which of the following statements is true of a principal's liability for notice and payments to the agent?

A) The agent is not legally bound to inform the principal of knowledge gained in the course of his or her responsibilities.
B) Payment to the agent of a debt owed to the principal discharges the debt if the agent has authority to receive such payments.
C) An agent who makes over-the-counter sales is viewed as having express authority to collect for the goods.
D) The principal is not bound by the information that is passed on by the agent if it does not relate to the scope of the agent's responsibilities and authority.

Question 36

Pascal is a buyer for Kelly Benjamin department store in Kentucky. While Pascal was buying visiting California, he found a solar car on sale for $3,000. Pascal contracts to buy the car for Kelly Benjamin, who wants to buy a solar car. Kelly instructs the seller to ship the car. Under these circumstances:

A) Kelly is considered to have ratified the contract.
B) Kelly is not liable since Pascal made the purchase.
C) Pascal and Kelly are both liable on the contract.
D) Pascal is considered to have ratified the contract.

Question 37

Apparent authority may exist:

A) only if actual authority has been conferred on the agent.
B) if a principal has unintentionally permitted third persons to believe a person is him/her agent.
C) if the principal specifically describes the extent of the agent's powers in writing or orally and makes him/her a special agent.
D) when the conduct of the principal causes a third person reasonably to believe that another has the authority to act for the principal.

Question 38

The principal is bound by representations that:

A) are necessary for the agent to make in order to accomplish the purpose of the agency since they would be apparently authorized.
B) the agent is expressly authorized to make.
C) the agent makes even if the third person is aware that the agent has exceeded his actual authority.
D) may not be customary in the kind of business being transacted by the agent.

Question 39

When Nancy's aunt left for her annual Christmas vacation, she left Nancy in charge of her coffee shop. During this time, there was a riot in the city and the door of the café got damaged. Under such circumstances, Nancy can make necessary repairs if she cannot reach her aunt for further instructions because she has:

A) apparent authority.
B) power of attorney.
C) express authority.
D) inherent agency power.

Question 40

Which of the following statements is true about apparent authority?

A) Only a general agent can have apparent authority.
B) Only a special agent can have apparent authority.
C) If the agent justifiably believed he or she had authority, this authority would be apparent.
D) If a third party justifiably believed the agent had authority, the agent's authority would be apparent.

Question 41

Is a principal liable for the acts committed by the employees of an agent? Discuss.

Question 42

Direct liability occurs when the:

A) agent is not acting at the direction of the principal.
B) principal is negligent in the hiring and/or the supervision of the agent.
C) agent's criminal behavior occurs outside the scope of employment.
D) principal has liability insurance and the agent commits a tort.

Question 43

Ralph and Aisha engaged Emma, a realtor, to sell their variety store. Emma represented to buyer Pavel that "this was a typical general store," selling gas, oil, hardware, beer, and groceries. She reported that the store had an annual gross income of over $1 million. Emma failed to inform Pavel that one-third of the store's profit was attributable to an accompanying lawn and garden equipment distributorship that Ralph and Aisha were not including in the sale. When Pavel visited the business, Emma directed him away from the garage area where the lawn and garden equipment was stored. Throughout all of these negotiations, Ralph and Aisha were unaware of Emma's misrepresentations. After purchasing the store, Pavel learned of the importance of the equipment sales from Ralph and Aisha. Are Ralph and Aisha liable for Emma's misrepresentation?

Question 44

An agent acting at the direction of the principal may render the principal liable if the agent:

A) delegates ministerial activities to other employees of the principal.
B) commits a tort or crime.
C) is acting on behalf of a nonexistent or incompetent principal.
D) does not disclose the principal's name for the duration of the performance under the contract.

Question 45

Which of the following statements is true for the principle of respondeat superior?

A) When an agent commits a tort or crime while working for the principal, the agent is always personally liable for the consequences of his actions.
B) A principal's liability under respondeat superior is called direct liability.
C) If the agent was acting within the scope of the agency when the tort occurred, he is liable for his own actions.
D) This theory of liability makes the principal responsible without regard to whether the principal was actually at fault.

Question 46

Explain the concept of apparent authority.

Question 47

David signs a contract to purchase Orrin's property. David informs Orrin that the property is being purchased for one of his clients but refuses to tell Orrin who the client is. The principal here is _____.

A) disclosed
B) undisclosed
C) partially disclosed
D) illegal

Question 48

After Bart and Veronica were involved in an automobile accident, Bart retained Rhonda as an attorney to negotiate an out-of-court settlement. After a lengthy discussion with Veronica's insurance company, Rhonda settled the case for $5,000. However, Bart personally rejected the $5,000 offer. Veronica filed suit to enforce the settlement, claiming that Rhonda was authorized to accept the settlement on behalf of Bart. Discuss Rhonda's express, implied, and apparent authority.

Question 49

Under the theory of _____ the principal basically is liable because of its own tort.

A) direct liability
B) respondeat superior
C) joint liability
D) vicarious liability