Business law text and cases commercial law for accountants 14th edition miller test bank

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Chapter 10: Agency Liability and Termination True / False 1. Implied authority is authority declared in clear, direct, definite terms. a. True b. False ANSWER: False 2. The equal dignity rule requires that if a contract entered into by an agent is or must be in writing, the agent’s authority must also be in writing. a. True b. False ANSWER: True 3. Failure to comply with the equal dignity rule can make a contract voidable at the option of the principal. a. True b. False ANSWER: True 4. A special power of attorney permits an agent to transact all business for a principal. a. True b. False ANSWER: False 5. A power of attorney does not permit an agent to transact business for a principal. a. True b. False ANSWER: False 6. Giving an agent a power of attorney confers express authority. a. True b. False ANSWER: True 7. An agent has the implied authority to do what is reasonably necessary to carry out express authority. a. True b. False ANSWER: True 8. For an agent’s implied authority to be effective, a principal must confirm it in writing. a. True b. False ANSWER: False 9. An agent’s implied authority cannot contradict his or her express authority. a. True Copyright Cengage Learning. Powered by Cognero.

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Chapter 10: Agency Liability and Termination b. False ANSWER: True 10. An agent’s implied authority cannot be implied by custom. a. True b. False ANSWER: False 11. Apparent authority usually comes into existence through a principal’s pattern of conduct over time. a. True b. False ANSWER: True 12. Apparent authority arises from what the principal makes clear to the agent. a. True b. False ANSWER: False 13. Ratification occurs when a principal affirms, or accepts responsibility for, an agent’s unauthorized act. a. True b. False ANSWER: True 14. A principal’s ratification of an agent’s unauthorized act must be express. a. True b. False ANSWER: False 15. A principal cannot be estopped from denying that an agent has authority. a. True b. False ANSWER: False 16. Even if a principal ratifies a contract without knowing all of the facts, the principal cannot later rescind the contract. a. True b. False ANSWER: False 17. A principal is not bound to an unauthorized contract unless the principal ratifies it. a. True b. False ANSWER: True 18. A disclosed principal is a principal whose identity is known by a third party with whom an agent contracts on the principal’s behalf.

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Chapter 10: Agency Liability and Termination a. True b. False ANSWER: True 19. A partially disclosed principal is liable to a third party for a contract made by the agent acting within the scope of his or her authority. a. True b. False ANSWER: True 20. If a principal is disclosed, the agent may be liable to a third party for the principal’s nonperformance of a contract. a. True b. False ANSWER: False 21. If a principal is undisclosed, the agent may be liable to the principal for a third party’s nonperformance of a contract. a. True b. False ANSWER: False 22. A disclosed principal is liable to a third party for a contract made by the agent acting within the scope of his or her authority. a. True b. False ANSWER: True 23. A partially disclosed principal is only partially liable to a third party for a contract made by an agent. a. True b. False ANSWER: False 24. An undisclosed principal is not liable to a third party for a contract made by an agent. a. True b. False ANSWER: False 25. If an agent has no authority but nevertheless contracts with a third party, the principal cannot normally be held liable on the contract. a. True b. False ANSWER: True 26. A principal may be liable if he or she gives improper instructions that result in the agent’s committing a tort. a. True b. False Copyright Cengage Learning. Powered by Cognero.

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Chapter 10: Agency Liability and Termination ANSWER: True 27. Under the doctrine of respondeat superior, an agent is liable for any harm caused to a principal by a third party. a. True b. False ANSWER: False 28. Vicarious liability is indirect liability. a. True b. False ANSWER: True 29. An agency can terminate once its purpose is achieved. a. True b. False ANSWER: True 30. A principal is not normally liable for the tort of an agent committed within the scope of the agency or employment. a. True b. False ANSWER: False 31. A principal is not normally liable for the crime of an agent committed within the scope of the agency or employment. a. True b. False ANSWER: False 32. When an agency relationship is to terminate on the happening of a certain event, notice is all that is required to terminate the relationship. a. True b. False ANSWER: False 33. An employer is charged with the knowledge of any dangerous condition discovered by an employee and pertinent to the employment situation. a. True b. False ANSWER: True 34. If the principal petitions for bankruptcy, the agency is usually terminated. a. True b. False ANSWER: True 35. An agency relationship terminates only when both parties consent to end it.

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Chapter 10: Agency Liability and Termination a. True b. False ANSWER: False Multiple Choice 36. Flo, an agent for Grover, enters into a contract on Grover’s behalf with Hong that must be in writing to be enforceable under the Statute of Frauds. Failure to comply with the equal dignity rule, with respect to this contract, can make the contract voidable at the option of a. Flo. b. Grover. c. Hong. d. none of the choices.

ANSWER: b 37. Avis is an officer of Budget Building Corporation. With respect to binding Budget to contracts, Avis’s authority a. may be actual or apparent. b. must be actual and apparent. c. must be actual and not apparent. d. cannot be actual or apparent.

ANSWER: a 38. Norton grants an ordinary power of attorney to Olena to locate potential real estate investment opportunities on Norton’s behalf. This power will terminate on Norton’s a. taking advantage of one of the investment opportunities. b. death or incapacity. c. sixty-fifth birthday. d. hiring an actual attorney to exercise the power granted to Olena.

ANSWER: b 39. Mikayla, an agent for Nahir, enters into a contract on Nahir’s behalf with Onora that must be in writing to be enforceable under the Statute of Frauds. Mikayla’s authority to enter into this contract is not in writing. Under the equal dignity rule, this contract is a. enforceable. b. void. c. voidable at Nahir’s option. d. voidable at Onora’s option.

ANSWER: c 40. Romero employs Supplies Procurement Service as an agent under a written agreement that describes the rights and duties of both parties. This is a. apparent authority. b. equal authority. c. express authority. d. implied authority.

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Chapter 10: Agency Liability and Termination ANSWER: c 41. Darla serves in a representative capacity for Ellen. To accomplish the objectives of this relationship, Darla’s authority can be implied a. by contradiction. b. by custom. c. by any subjective measure. d. under no circumstances.

ANSWER: b 42. Ben manages a warehouse and its inventory for Coffee Shops, Inc. To operate this part of the business, Ben’s authority can be inferred a. from the position Ben occupies. b. by a reasonable party with whom Coffee Shops does business. c. to contradict Ben’s express authority. d. under no circumstances.

ANSWER: a 43. Based on Oona’s conduct, Porcio reasonably believes that Qasim has the authority to act on Oona’s behalf even though Qasim does not have the actual authority to do so. In this circumstance, Qasim has a. apparent authority. b. express authority. c. implied authority. d. no authority.

ANSWER: a 44. Seed Packets, Inc., a garden seed company, requires its customers to pay by check. Taylor, a Seed Packets driver, tells customers that they can pay her with cash. When Seed Packets learns of Taylor’s collections, it does not act to stop them.

Taylor steals some of the cash. Under the doctrine of apparent authority, Seed Packets will most likely a. suffer the loss. b. recover the amount of the cash payments from its customers. c. increase its prices to cover the amount of the stolen cash. d. hold its accountant liable for apparently authorizing the cash collections.

ANSWER: a 45. Lima, an agent for Mindwonder Games LLC, executes an unauthorized contract with NOW Marketing Inc. The deal is highly advantageous to Mindwonder, and the company ratifies the contract. The contract is a. valid. b. vicarious. c. void. d. voidable.

ANSWER: a 46. Olive, an agent for Precision Paving Corporation, enters into an unauthorized contract with Quality Asphalt, Inc., purportedly on Precision’s behalf. Precision does not ratify the contract. Liability may be imposed on Copyright Cengage Learning. Powered by Cognero.

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Chapter 10: Agency Liability and Termination a. Olive to Quality for misrepresenting her authority. b. Precision to Quality for not ratifying the contract. c. Quality to Precision for entering into an unauthorized contract. d. Precision to Olive for not ratifying the contract.

ANSWER: a 47. Based on Esteban’s conduct, Floyd reasonably believes that Glynis has the authority to act on Esteban’s behalf even though Glynis does not have the actual authority to do so. Floyd makes a payment to Glynis for Esteban. Glynis keeps the money and disappears. Esteban a. can demand that Floyd make a repayment directly to Esteban. b. can obtain damages from Floyd for Glynis’s misconduct. c. may be estopped from denying that Glynis had authority. d. must repudiate Glynis’s misconduct to avoid liability.

ANSWER: c 48. Without authorization, Lars contracts on behalf of Mina to have Nemo paint the interior and exterior of Mina’s house.

If Mina decides to ratify the contract, she must affirm a. all of the contract. b. any part of the contract, with Lars liable to Nemo for the difference. c. any part of the contract before performance begins. d. any part of the contract at any time.

ANSWER: a 49. Donald approves on behalf of Evelyn—but without authorization—a contract with Farouk to build a new silo. Evelyn does not ratify the contract. The deal with Farouk is a. an enforceable contract with Donald. b. a voidable contract. c. an enforceable contract with Evelyn. d. an unaccepted offer.

ANSWER: d 50. Bud approves on behalf of Cody—but without authorization—a contract with Dik to build a new silo. Cody does not ratify the contract. Later, Dik tries to enforce the deal. This attempt will be a. partly successful. b. partly unsuccessful. c. totally successful. d. totally unsuccessful.

ANSWER: d Fact Pattern 10-1 Berry indicates that she is acting as an agent on behalf of an unidentified client—Cuisine Catering, LLC—when she enters into a contract with Désean.

51. Refer to Fact Pattern 10-1. Cuisine Catering is a. a disclosed principal.

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Chapter 10: Agency Liability and Termination b. an apparent agent. c. an undisclosed principal. d. a partially disclosed principal.

ANSWER: d 52. Refer to Fact Pattern 10-1. Liability to Désean for nonperformance of the contract may be imposed on a. none of the choices. b. Berry and Cuisine Catering. c. Berry only. d. Cuisine Catering only.

ANSWER: b 53. Linus hires Mieko to act as his agent to purchase Ngoc’s Southeast Asian Buffet. Linus tells Mieko to reveal only that she is buying the restaurant on behalf of a third party, without telling Ngoc’s seller who that third party is. Linus is a. a disclosed principal. b. not a principal. c. an undisclosed principal. d. a partially disclosed principal.

ANSWER: d 54. Clark hires Dion to act as his agent to purchase Expo Sports Arena, Inc. Clark tells Dion to reveal that he is buying the firm and its assets on behalf of a third party and to tell the seller who that third party is. Clark is a. a disclosed principal. b. not a principal. c. an undisclosed principal. d. a partially disclosed principal.

ANSWER: a 55. Lena is a salesperson for Musical Instruments, Inc. She tells Nayda, a customer, that an instrument has a certain quality when, as Lena knows, it does not. In reliance, Nayda buys the instrument. Liable for this misrepresentation is a. no one. b. Lena. c. Musical Instruments. d. Nayda.

ANSWER: b 56. Rod is an employee of Savers Bank. In deciding whether Rod acts within the scope of his employment when he commits a tort against Tracy, a court will not consider whether a. Rod indicated that he was acting on behalf of Savers Bank. b. Savers Bank authorized the act. c. Savers Bank furnished the means by which the injury was inflicted. d. the act is one commonly performed by employees for their employers.

ANSWER: a 57. Mirena serves in a representative capacity for Netanya. Orla is injured through Mirena’s negligence. Netanya may be Copyright Cengage Learning. Powered by Cognero.

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Chapter 10: Agency Liability and Termination liable to Orla if Mirena’s conduct occurred a. due to a propensity Netanya was not and could not have been aware of. b. during normal working hours. c. in the course and scope of Mirena’s employment. d. outside the parties’ employment relationship.

ANSWER: c 58. Garry drives a truck as an employee for Heavy Hauling, Inc. Garry would most likely be considered acting outside the scope of her employment if he a. crashed into a car at the airport while off duty. b. hit a pedestrian in a parking lot during a “working” lunch. c. ran over an attendant at Quik’s gas station while refueling the truck. d. smashed into a store-front while intoxicated on-duty.

ANSWER: a 59. Beth, acting within the scope of her authority for the Cake Bake Shop, contracts with Eden Valley Orchards to buy an assortment of fruit. Cake Bake is liable on the contract, and Beth is not, if Cake Bake is a. a disclosed principal. b. a partially disclosed principal. c. an undisclosed principal. d. not a principal.

ANSWER: a 60. OnlineSales.com uses an e-agent to take a purchase order from a consumer over the Internet. The e-agent fails to provide an onscreen confirmation of the order. The effect of any error in the order can be avoided by a. OnlineSales.com. b. the consumer. c. both parties. d. none of the choices.

ANSWER: b 61. Rachel is an agent for Sports Logo Merchandise, Inc. Rachel makes an innocent misrepresentation when entering into a contract on behalf of Sports Logo with Team Marketing & Sales Corporation. Sports Logo a. is directly responsible for Rachel’s misrepresentation. b. is estopped from performing the contract. c. may rescind the contract. d. must ratify the contract.

ANSWER: a 62. Metro Hospital, Inc., employs New Collection Company as an agent for the collection of Metro’s unpaid accounts.

While garnishing O’Shea’s wages, New Collection misstates the amount and collects too much. O’Shea can recover from a. Metro only. b. Metro or New Collection. c. New Collection only. d. none of the choices.

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Chapter 10: Agency Liability and Termination ANSWER: b 63. Chemical Refining Corporation hires Disposal & Recovery Company to work as an independent contractor. Whether Chemical Refining will be liable for torts committed at the site by Disposal & Recovery depends on a. what Disposal & Recovery bid for the job. b. whether unusually hazardous activities are involved. c. which party obtained insurance to cover tort liability. d. who is paying Disposal & Recovery.

ANSWER: b 64. Private Security Service employs Olsen as an agent. Without Private Security’s knowledge but otherwise acting within the scope of employment, Olsen commits a crime. The state can successfully prosecute a. none of the choices. b. Private Security. c. Private Security or Olsen. d. Olsen.

ANSWER: d 65. Vida is a purchasing agent for Wholesome Foods with the authority to buy grain up to a certain quantity. After the grain is bought, the agency relationship terminates a. automatically. b. following notice to all actual grain sellers. c. following notice to all potential grain sellers. d. following published notice in a local newspaper.

ANSWER: a 66. Chuck hires Danielle, a real estate broker, to act as his agent to sell his land for $150,000. Oil is discovered beneath the land, causing its market value to increase considerably. The agency agreement is likely a. continued with a proportionate increase in Danielle’s sales commission. b. continued until Danielle tells prospective buyers of the discovery. c. terminated by act of the parties. d. terminated by operation of law.

ANSWER: d 67. Bayou Development Corporation hires Coastal Brokerage Associates to sell the condominiums in a building at Bayou Development’s resort. The agency will terminate a. after the condos have been sold. b. if the prices of the condos must be reduced to sell them. c. once Bayou Development obtains insurance to cover the property. d. when Bayou Development pays Coastal Brokerage its first commission.

ANSWER: a 68. On March 1, Eugene retains Farley to act as his authorized agent. On April 1, Eugene dies. On April 2, before Farley knows of Eugene’s death, he enters into a contract on Eugene’s behalf. The contract is a. binding on Eugene’s heirs.

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Chapter 10: Agency Liability and Termination b. binding on Farley. c. void. d. voidable.

ANSWER: c 69. Orin hires Pat, a real estate broker, to sell her oceanfront house. The house is destroyed in a hurricane before being sold. Pat is Orin’s agent a. until Orin’s insurer pays Pat’s commission. b. until the destroyed house is sold. c. until the destroyed house is rebuilt and sold. d. no more.

ANSWER: d 70. Reliable Insurance Company employs Stuart as an agent. To terminate Stuart’s authority, Reliable Insurance must notify a. only third parties who are aware of the agency relationship. b. the public generally. c. Stuart and any third parties who are aware of the agency relationship. d. Stuart only.

ANSWER: c Essay 71. Becca is a purchasing agent for Cable & Wire Corporation. Doyle, a Cable & Wire corporate officer, gives Becca written authority to buy for the firm as much copper as necessary. The next day, Doyle calls Becca and tells her to buy only a certain quantity of copper and no more. Becca shows the written authority to Earthbound Resources, Inc., and enters into a contract to buy more than the quantity specified by Doyle. Earthbound Resources ships the order to Cable & Wire. Is Cable & Wire liable to Earthbound Resources under the contract? Is Becca liable? In each case, if so, why? If not, why not?

ANSWER: Cable & Wire is liable to Earthbound Resources. Becca is not liable to Earthbound Resources.

A principal is liable for the contracts of its agents entered into with actual or apparent authority. Actual authority may be express or implied. Apparent authority arises from what the principal causes a third party reasonably to believe regarding the agent’s authority to act, even if the agent does not have actual authority to act. If the third party changes its position in reliance on the principal’s representations, the principal is estopped from denying that the agent had authority.

In this problem, Becca had the actual authority to order a certain quantity of copper and apparent authority to order the rest, according to the written authorization that Doyle gave to Becca and that Becca showed to Earthbound Resources. Earthbound Resources’s contract rights are not limited by the limits placed on that authority by Doyle’s call to Becca.

Becca is not liable to Earthbound Resources because she acted with apparent authority. Becca is liable to Cable & Wire, however, for exceeding her authority.

72. Cropland Farms, LLC, hires Desiree to act as its agent to buy a certain tract of land from Ethan for $1,000 per acre.

Cropland Farms does not want Ethan to know that it is the principal or that Desiree is its agent. Cropland Farms wants the land to test genetically modified seed products, and believes that Ethan may not sell the land for that purpose, or may demand a premium price if he knows that Cropland Farms is the buyer. Desiree makes the purchase, signing only her name to the contract as the buyer and not disclosing to Ethan the agency relationship. The transfer of the deed is to occur on June 1. Ethan learns of Cropland Farms’s identity on May 15. Can Ethan legally refuse to deed the property on June 1?

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Chapter 10: Agency Liability and Termination Explain.

ANSWER: Generally, no. Although the identity of the principal in this problem was not disclosed, the principal still retains the usual contractual rights of a principal. Therefore, if the agent contracted with the third-party seller within the scope of the agent’s authority, the principal and the third-party seller are bound in contract.

There are three possible exceptions to the general rule. If a third-party seller expressly excludes undisclosed principals from a contract with an agent, if a principal’s identity is undisclosed for the purpose of defrauding the third-party seller, or if the agent’s performance is personal to the contract, the third-party seller can legally refuse to perform. Because none of these exceptions appears to apply here, however, the third-party seller’s refusal to deed the property on the contract date would constitute a breach.

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