Test-bank-27 - Test-bank-27 PDF

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Chapter 27

Indicate whether the statement is true or false. 1. Employment laws apply only to the employer-employee relationship. a. True b. False 2. Agency relationships only exist between employers and employees. a. True b. False 3. Independent contractors have no control over the details of their work performance. a. True b. False 4. The relationship between a principal and an independent contractor cannot involve an agency relationship. a. True b. False 5. A principal does not have the right to control an agent’s conduct in matters entrusted to the agent. a. True b. False 6. An agent is authorized to act on behalf and instead of a principal in doing business with third parties. a. True b. False 7. Normally, employees who deal with third parties are not deemed to be agents. a. True b. False 8. Through agents, a principal can conduct only one business operation at a time. a. True b. False 9. A familiar example of an agent is the owner of a corporation. a. True b. False 10. Agency relationships normally are consensual. a. True b. False 11. An agency agreement can be created by an oral agreement. a. True b. False Copyright Cengage Learning. Powered by Cognero.

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Chapter 27 12. A person must have contractual capacity to be an agent. a. True b. False 13. An agency relationship created for an illegal purpose is enforceable. a. True b. False 14. An agency agreement can be implied by conduct. a. True b. False 15. An agent’s deviation from the lawful, clearly stated instructions of the principal is a violation of the duty of obedience. a. True b. False 16. An agent has a duty to keep and make available to the principal an account of all property and funds received and paid out on the principal’s behalf. a. True b. False 17. An agency by estoppel arises when the principal’s actions have created the appearance of an agency that does not in fact exist. a. True b. False 18. An agent’s duties to the principal are implied from the agency relationship only if the identity of the principal is disclosed to a third party. a. True b. False 19. Under the law of agency, notice to the agent is notice to the principal. a. True b. False 20. The agent has the right to be compensated, and to be reimbursed and indemnified. a. True b. False 21. A principal has a duty to cooperate with the agent and to assist the agent in performing his or he duties. a. True b. False 22. Implied authority is authority declared in clear, direct, definite terms. a. True b. False Copyright Cengage Learning. Powered by Cognero.

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Chapter 27 23. A power of attorney can permit an agent to transact all business for a principal. a. True b. False 24. An agent has the implied authority to do what is reasonably necessary to carry out express au-thor-ity. a. True b. False 25. For an agent’s implied authority to be effective, aprincipal must confirm it in writing. a. True b. False 26. A principal’s ratification of an agent’s unauthorized act must be express. a. True b. False 27. If a principal ratifies a contract without knowing all of the facts, the principal can rescind the contract. a. True b. False 28. If a principal does not ratify an unauthorized contract, the principal is not bound. a. True b. False 29. 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 30. 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 31. If an agent has no authority but nevertheless contracts with a third party, the principal can be held liable on the contract. a. True b. False 32. 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 33. Vicarious liability is direct liability. a. True b. False Copyright Cengage Learning. Powered by Cognero.

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Chapter 27 34. An agency can terminate once its purpose is achieved. a. True b. False 35. An agency coupled with interest is a relationship created for the benefit of the principal. a. True b. False

Indicate the answer choice that best completes the statement or answers the question. 36. Reynaldo is a delivery driver for Southeast Asian Noodle Company. Reynaldo does exactly what the company tells him. Reynaldo is a. an employee. b. an employer. c. an independent contractor. d. a principal. 37. HomeBaked Bread Company hires Ike to sell the company’s products in a certain area. HomeBaked Bread agrees to pay Ike a salary, plus commission, for a trial period. They also agree that Ike can sell using any methods and during any hours that seem appropriate. The key factor in whether Ike is HomeBaked Bread’s employee is a. the amount of Ike’s salary. b. thecontrol HomeBaked Bread has over the details of the work. c. thelength of the trial period. d. the size of Ike’s sales area. Nadya and Owen work at Purified Water Company. Nadya is a sales representative who works with Purified’s customers, including restaurants, grocery stores, and other businesses, as well as individual consumers. Purified closely supervises all of its sales reps, and dictates their schedules. Owen is an engineer who works in Purified’s water treatment plant. 38. Refer to Fact Pattern 27-1. With respect to third parties, Nadya is Purified’s a. employee, agent, and independent contractor. b. employee and agent. c. employee but not agent. d. independent contractor. 39. Refer to Fact Pattern 27-1. With respect to third parties, Owen is Purified’s a. employee, agent, and independent contractor. b. employee and agent. c. employee but not agent. d. independent contractor. 40. Jewelry & Coin Company hires Kelly Ann to buy gems and precious metals from various sources on its behalf. In this relationship, Jewelry & Coin is a. an employee. b. an independent contractor. c. aprincipal. Copyright Cengage Learning. Powered by Cognero.

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Chapter 27 d. anagent. 41. Emery is a corporate officer of Frakking Mining Corporation. Emery serves in a representative capacity for Frakking’s owners. With respect to binding Frakking Mining to contracts, Emery is a. an agent and has the authority. b. an employee and does not have the authority. c. an independent contractor and does not have the authority. d. not an agent, an employee, or an independent contractor but does have the authority. 42. Jim agrees to act on Kit’s behalf, subject to Kit’s control, and Kit trusts Jim to so act. This describes a relationship between a. a business and its competitors. b. a government and its governed. c. a parent and a child. d. a principal and an agent. 43. Mountain States Distribution Inc. hires Norris to work on Mountain States’s shipping dock, accepting deliveries, dispatching trucks, and dealing with customers and other companies’ drivers. With respect to Mountain States, Norris is most likely a. an agent. b. an independent contractor. c. a principal. d. an employer. 44. Dimitri, a certified public accountant and an investor, and Elinor, an in-surance salesperson and a realtor, may create an agency relationship for a. a legal business purpose only. b. any legal purpose. c. any legal or illegal purpose. d. no purpose. 45. Jim agrees to act on Joyce’s behalf, subject to her control, and Joyce trusts Jim to so act. They set out the terms in a written document, which they both sign. This is a. an agency by agreement. b. an agency by estoppel. c. anagency by operation of law. d. not an agency relationship. 46. Roberta introduces Steve to her friends as “my associate.” Steve purports to act as Roberta’s agent in several business transactions with those friends. If Roberta is liable for Steve’s actions, it will be because their relationship is a. an agency by agreement. b. an agency by estoppel. c. anagency by operation of law. d. not an agency relationship.

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Chapter 27 47. Rondiholds herself out as possessing special accounting skills. As an agent, she must exercise the degree of skill or care expected of a. a person having those skills. b. an average, unskilled person. c. a reasonable person. d. the principal. 48. Dakota Energy Company employs Evan to negotiate the purchase of mineral rights for future mining projects. Evan secretly buys some of the property and sells it to Dakota at a profit. Evan has breached a. no duty. b. the agent’s duty of accounting. c. the agent’s duty of loyalty. d. the principal’s duty of compensation. 49. Brenda, a salesperson at a Cabinets & Countertops store, tells D’Antoni, a customer, “Buy your cabinets here, and I’ll install them for half of what the store would charge.” D’Antoni buys the cabinets, which Brenda in-stalls for half the store’s price. Brenda keeps the money. Brenda has breached a. no duty. b. the agent’s duty of loyalty. c. the principal’s duty of indemnification. d. the agent’s duty of obedience. 50. Emmett, an agent for Fridley, signs an agreement with Glover on Fridley’s behalf but ne-glects to tell him that the agreement requires the payment of a certain tax. The government prosecutes Fridley for failing to pay the tax. He is a. liable, because notice to Emmett is notice to Fridley. b. liable, because notice to Glover is notice to Fridley. c. not liable, because Emmett did not notify Fridleyof the tax. d. not liable, because Glover did not tell Fridley about the tax. 51. Spicy Wonder Hot Dog Vendors, Inc., grants its agent Teona an exclusive terri-tory in which to sell Spicy Wonder Hot Dog products. Spicy Wonder Hot Dog cannot compete with Teona in that territory under the principal’s duty of a. compensation. b. cooperation. c. indemnification. d. reimbursement. 52. John contracts with Kelly to buy a certain number of cattle for Kelly’s Circle K ranch. John makes a deal with Lawson, the owner of a local herd, and makes a down payment. Kelly fails to pay the rest of the price. Lawson sues John for breach of contract. John’s right to hold Kelly liable for any damages that he has to pay is the right of a. compensation. b. cooperation. c. indemnification. d. reimbursement. 53. Kelvin is an agent for Lookout Mountain Accountants, Inc. On Lookout’s behalf and at its request, Kelvin pays Copyright Cengage Learning. Powered by Cognero.

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Chapter 27 Nerdlinger for custom software designed for the management of Lookout’s serv-ices. Kelvin’s right to obtain the amount of those payments from Lookout arises under the principal’s duty of a. compensation. b. cooperation. c. indemnification. d. reimbursement. 54. Quince owns a used-car lot where Ray works as a salesperson. Quince tells Ray not to make any warranties for the cars. To make a sale to Sylvia, however, Ray adds a 50,000-mile warranty. Later, Sylvia sues Quince for breach of warranty. Quince’s right to hold Ray liable for any damages he has to pay is the right of a. avoidance. b. cooperation. c. indemnification. d. reimbursement. 55. Watercraft, Inc., employs Vladimir as a sales agent for a trial period. At the end of the period, Watercraftand Vladimir disagree on the amount of the commissions Vladimir is due for sales that he made. Vladimir may demand a. a constructive trust. b. an accounting. c. nothing. d. specific performance. 56. Cory employs Dash Delivery Agency as an agent under a writ-ten agreement that describes the rights and duties of both parties. This is a. apparent authority. b. equal authority. c. express authority. d. implied authority. 57. Geoff serves in a representative capacity for Huck. To accomplish the objectives of this relationship, Geoff’s authority can be implied a. by contradiction. b. by custom. c. by lack of reason. d. under no circumstances. 58. Alexandra manages a Beans Bistro for Coffee Shops, Inc. To manage the business, Alexandra’s authority can be inferred a. from the position Alexandra occupies. b. by a reasonable customer or supplier. c. to contradict Alexandra’s express authority. d. under no circumstances. 59. Based on Nan’s conduct, Odel reasonably believes that Poppy has the authority to act on Nan’s behalf even though Poppy does not have the actual authority to do so. In this circumstance, Poppy has Copyright Cengage Learning. Powered by Cognero.

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Chapter 27 a. apparent authority. b. express authority. c. implied authority. d. no authority. 60. Limon, an agent for Mindwonder Games LLC, executes an unau-thor-ized contract with NOW Marketing, Inc. The deal is highly ad-vanta-geous to Mindwonder, and the company ratifies the con-tract. The contract is a. valid. b. vicarious. c. void. d. voidable. 61. Without authorization, Rolf contracts on behalf of Sari to have Tige paint the interior and exterior of Sari’s house. Sari ratifies the contract. Later, Sari tries to rescind the part of the contract re-lat-ing to the exterior. This attempt will be a. partly successful. b. partly unsuccessful. c. totally successful. d. totally unsuccessful. 62. 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. 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. 63. Refer to Fact Pattern 27-2. Cuisine Cateringis a. a disclosed principal. b. an apparent agent. c. an undisclosed principal. d. a partially disclosed principal. 64. Refer to Fact Pattern 27-2. Liability to Déseanfor nonper-formance of the con-tract may be imposed on a. none of the choices. b. Berry and Cuisine Catering. c. Berry only. d. Cuisine Cateringonly. 65. Mirena serves in a representative capacity for Netanya. Orla is injured through Mirena’s negligence. Netanyamay be liable to Orla if Mirena’s conduct occurred a. due to a propensity Netanyawas not and could not have been aware of. Copyright Cengage Learning. Powered by Cognero.

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Chapter 27 b. during normal working hours. c. in the course and scope of Mirena’semployment. d. outside the parties’ employment relationship. 66. Picabo drives a truck as an employee for Quik Delivery, Inc.Picabo would most likely be considered acting outside the scope of her employment if she 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. 67. 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 rela-tionship 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. 68. Miklos employs Nathalie to handle a list of financial transactions on Miklos’s behalf. This power will terminate on a. any transaction causing a loss to Miklos. b. Miklos’s death or incapacity. c. Miklos’s sixty-fifth birthday. d. Nathalie’s handling of one of each stipulated transaction. 69. Churchy 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 in-crease 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. 70. Orina hires Padget, a real estate broker, to sell her oceanfront house. The house is destroyed in a hurricane be-fore being sold. Padgetis a. Orina’s agent until Orina’s insurer pays Padget’scommission. b. Orina’s agent until the destroyed house is sold. c. Orina’s agent until the destroyed house is rebuilt and sold. d. no longer Orina’s agent.

71. Roman is the chief executive officer of Salty Snax Corporation. Roman’s re-sponsibilities include decisions on product development, marketing, and other significant business directions. Roman is subject to the approval and oversight of Salty Snax’s board of directors. Teri is a Salty Snax manager whose duties include the firm’s day-to-day hiring, firing, purchasing, and sell-ing. Umberto is a Salty Snax salesperson, whose daily activities are con-trolled by Teri. Velma writes sales manuals and promotional materials for Salty Snax’s products ac-cording to Roman’s instructions and subject to Salty Snax’s control, but has no dealings with the company’s custom-ers or sup-pliers. Warren writes copy on a Copyright Cengage Learning. Powered by Cognero.

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Chapter 27 contract-per-project basis and is not otherwise subject to Salty Snax’s control. Who is a principal? Who is an agent? Who is an employee? Who is an independent contractor? 72. Yoshi contracts with Zach to buy a certain pub, Aficionado’s, for Yoshi, who asks Zach not to reveal her identity. Zach makes a deal with Burcet, the owner of the pub, and makes a down payment. Yoshi fails to pay the rest of the price, and does not pay Zach for his services. Does Zach have any recourse against Yoshi? If so, on what basis and to what extent?

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Chapter 27 Answer Key 1. True 2. False 3. False 4. False 5. False 6. True 7. False 8. False 9. False 10. True 11. True 12. True 13. False 14. True 15. True 16. True 17. True 18. False 19. True 20. True 21. True 22. False 23. True 24. True 25. False Copyright Cengage Learning. Powered by Cognero.

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Chapter 27 26. False 27. True 28. True 29. False 30. False 31. False 32. False 33. False 34. True 35. False 36. a 37. b 38. b 39. c 40. c 41. a 42. d 43. a 44. b 45. a 46. b 47. a 48. c 49. b 50. a 51. b Copyright Cengage Learning. Powered by Cognero.

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Chapter 27 52. c 53. d 54. c 55. b 56. c 57. b 58. a 59. a 60. a 61. d 62. d 63. d 64. b 65. c 66. a 67. a 68. b 69. d 70. d 71. Salty Snax is a principal. Roman, Teri, Umberto, and Velma are the company’s agents and employees. Warren is an independent contractor. In an agency relationship, an agent agrees to act for or on behalf of a principal. An agent is subject to the control of the principal. An employee is sub-ject to the control of employer. An independent contractor is not subject to an employer’s control. A corporation is a “person” who has contrac-tual ca-pacity but who can act only through its agents. Salty Snax, as a corpo-ration, is acting through its agents. Roman, Teri, Umberto, and Velma act on behalf of the company, from which they obtain their authority. This author-ity differs—Roman, Teri, and Umberto can bind Salty Snax in certain ways in their dealings with third parties, but Velma does not have the authority to legally bind the company. Because Roman, Teri, Umberto, and Velma are subject to the control of Salty Snax, through their superiors, they are employees. Because Warren is not subject to Salty Snax’s control with respect to the physical conduct in the per-formance of his contracts, Warren is an independent contractor. Copyright Cengage Learning. Powered by Cognero.

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