National American University

BUSINESS L 3100

Chapter 38-THIRD PERSONS IN AGENCY

TRUE/FALSE

1)The liability of an agent to a third person depends on the existence of authority and the manner of executing the contract.

 

                                           

 

2. If an agent makes a properly authorized contract with a third person on behalf of a disclosed principal, the agent has no personal liability on the contract.

 

                                           

 

3. Even after there is an effective ratification, the original action of an agent still is treated as unauthorized.

 

                                           

 

4. When a person purports to act as an agent for a principal, an implied warranty arises that such person has authority to do so.

 

                                           

 

5. If an agent's act causes loss to the third person, that third person may generally hold the agent liable for the loss.

 

                                           

 

6. An agent's liability as a party to a contract with a third person is not affected by the degree of disclosure.

 

                                           

 

7. A third person dealing with the agent of a disclosed principal ordinarily intends to make a contract with the principal, not the agent.

 

                                           

 

8. In the partially disclosed principal situation, the agent is considered a party to the contract.

 

                                           

 

9. Agent's may intentionally make themselves liable on contracts with third persons.

 

                                           

 

10. If the principal is not disclosed, the agent is necessarily the other contracting party and is bound by the contract.

 

                                           

11. An agent should never sign a contract using "by" or "per" and then his or her name.

 

                                           

 

12. Parol evidence is allowed to show whether an agent has signed in a representative or an individual capacity.

 

                                           

 

13. If an agent commits a crime, the agent's liability will depend on the agency relationship.

 

                                           

 

14. Agents are liable for harm caused third persons by the agents' fraudulent, intentional, or negligent acts.

 

                                           

 

15. A principal may be liable to a third person for an agent's unauthorized contracts.

 

                                           

 

16. In a simple contract made by an authorized agent on behalf of a disclosed principal, the third person may sue either the agent or the principal in the event of a breach.

 

                                           

 

17. Subject to certain limitations, a third person, on learning of the existence of an undisclosed principal, may sue the principal.

 

                                           

 

18. The liability of a buyer for the purchase price of goods is terminated by the fact that the buyer gave the buyer’s agent the purchase price to remit to the seller.

 

                                           

 

19. When a third person makes payment to an authorized agent, such payment is deemed made to the principal at the time the agent remits the payment to the principal.

 

                                           

 

20. A principal is not bound by statements made by an agent during the transaction of business that is within the scope of the agent's authority.

 

                                           

 

21. The principal is bound by knowledge but not by notice of any fact that is acquired by an agent while acting within the scope of actual or apparent authority.

 

                                           

22. When a fact is known to the agent of a seller, the sale is deemed made by the seller with knowledge of that fact.

 

                                           

 

23. The rule of law imposing vicarious liability on an innocent employer for the wrong of an employee is known as the doctrine of respondeat superior.

 

                                           

 

24. Different rules of law govern the vicarious liability of principals and employers.

 

                                           

 

25. Modern law holds that an employer is liable for an intentional tort committed by an employee for the purpose of furthering the employer’s business.

 

                                           

 

26. The fact that a tort or crime is committed by an employee imposes vicarious liability on an employer.

 

                                           

 

27. Hiring an individual with a criminal record is conclusive proof that the employer is liable for the tort of negligent hiring.

 

                                           

 

28. In general, a principal is liable for crimes of the agent committed while acting within the scope of the agency, even if the principal did not authorize commission of the crimes.

 

                                           

 

29. An owner ordinarily is not liable for harm caused a third person by the negligence of an employee of an independent contractor.

 

                                           

 

30. A customer who has given a purchase order to a salesperson is not bound by any contract until the employer of the salesperson accepts the order.

 

                                           

 

MULTIPLE CHOICE

 

1. An agent making a proper contract with a third person on behalf of a disclosed principal:
   1. has no personal liability on the contract.
   2. is liable only to the principal on the contract.
   3. is liable only to the third party on the contract.
   4. is personally liable to both the principal and the third person on the contract.

                                           

2. Which of the following is a defense to an action against an agent for breach of the implied warranty of authority?
   1. The agent acted in good faith.
   2. The agent misunderstood the scope of authority.
   3. The third person knew that the agent was acting beyond the authority given by the principal.
   4. All of the above are defenses.

                                           

 

3. When a person makes a contract as an agent for another but lacks authority to do so, the contract:
   1. binds the principal but not the agent.
   2. binds the principal and the agent.
   3. does not bind the principal.
   4. none of the above.

                                           

 

4. In which of the following scenarios is the agent exposed to the greatest risk of liability?
   1. disclosed principal and authorized contract
   2. undisclosed principal and authorized contract
   3. partially disclosed principal and authorized contract
   4. authorized receipt of money from third person remitted to disclosed principal

                                           

 

5.                           liable on contracts with third persons.
   1. Agents may intentionally make themselves
   2. Agents are never able to make themselves
   3. Agents are always
   4. None of the above statements are true.

                                           

 

6. John Smyth is an agent for L. T. Adams. To avoid becoming a party to any contract that Smyth signs for Adams, Smyth should sign in which of the following ways?
   1. John Smyth, agent
   2. John Smyth, for the principal
   3. John Smith, as agent for the principal
   4. L. T. Adams, per John Smyth

                                           

 

7. If a contract is ambiguous regarding whether the agent has signed in a representative or an individual capacity:
   1. there is a presumption that the agent signed in a representative capacity.
   2. there is a presumption that the agent signed in an individual capacity.
   3. the agent and the principal will both be liable on the contract.
   4. parol evidence is admissible to establish the character in which the agent was acting.                

8. An agent who commits a crime is:
   1. always liable.
   2. only liable if acting in self-interest.
   3. only liable if the act is done to advance the interest of the principal.
   4. never liable when acting in the role of an agent .

                                           

 

9. The agent of a disclosed principal is liable for harm caused to third persons by:
   1. the fraudulent acts of the agent.
   2. the malicious acts of the agent.
   3. both a. and b.
   4. none of the above.

                                           

 

10. A(n)                                     principal is liable for a simple contract made by an authorized agent.
    1. partially disclosed
    2. undisclosed
    3. both a. and b.
    4. neither a. nor b.

                                           

 

11. Payment to an authorized agent is:
    1. payment to the principal only if the agent remits the payment.
    2. payment to the principal if the third person informs the principal.
    3. payment to the principal, provided the agent does not misappropriate the payment.
    4. payment to the principal.

                                           

 

12. Apparent authority has the same effect as:
    1. undisclosed authority.
    2. actual authority.
    3. partially disclosed authority.
    4. none of the above.

                                           

 

13. Statements or declarations of an agent:
    1. will not bind the principal.
    2. will bind the principal if the statements were made by an agent while transacting business within the scope of agency authority.
    3. will not bind the principal if made after performance of the transaction concerned.
    4. none of the above.

                                           

 

14. The concept of imposing liability for the fault of another is known as                         liability.
    1. imperious
    2. gregarious
    3. vicarious
    4. virtual

                                           

15. Modern decisions hold the principal liable for which actions of the agent?
    1. Fraudulent acts
    2. Misrepresentations
    3. Both a. and b.
    4. Neither a. nor b.

                                           

 

16. An employer may be liable on the theory of negligent hiring:
    1. when it is shown the employer knew the employee would create an undue risk of harm in carrying out job responsibilities.
    2. by hiring an individual with a criminal record.
    3. whether or not prospective employees fill out applications forms and are subject to pre- employment background checks and character qualifications.
    4. all of the above.

                                           

 

17. A principal is liable for crimes of an agent:
    1. if committed at the principal’s direction.
    2. if the agent is an employee and sells liquor to a minor without permission.
    3. if the agent in the course of employment violates environmental protection laws.
    4. all of the above.

                                           

 

18. When a business owner uses an independent contractor to perform nonhazardous work, the owner ordinarily is:
    1. not liable for harm to third persons or their property.
    2. not bound to contracts made by the independent contractor.
    3. not liable for the negligence of employees of the independent contractor.
    4. all of the above.

                                           

 

19. Which of the following parties has the power to bind an organization to a contract?
    1. A soliciting agent for the organization.
    2. A contracting agent for the organization.
    3. A sales agent for the organization.
    4. None of the above.

                                           

 

20. The employer of a salesperson:
    1. is only bound by a contract if the employee is acting as a soliciting agent.
    2. is not bound by a contract if the employee is acting as a contracting agent.
    3. is not bound by a contract until the contract is accepted.
    4. is always bound by contracts made by all employee salespersons.

                                           

CASE

 

1. Sid worked as the agent of Rosemary. Rosemary was in the business of buying antique clocks and selling them to the public. She became so successful at this that people began to become reluctant to sell to her, feeling that if she was buying the clock, it probably could be sold for more. Rosemary instructed Sid to purchase several clocks but not to reveal that the purchases were being made on her behalf. Sid contracted to buy several clocks and gave his own check as down payment to keep Rosemary's identity concealed. Although Rosemary had authorized the contracts, she reneged on the contracts. Sid thereupon told the seller what had happened and stopped payment on the down payment check. The seller of the clocks sued Rosemary on the bounced check and for breach of contract. Sid was sued on the same causes of action. Decide all cases.

 

 

 

 

2. Pamela was the agent in charge of distribution and collections for the Coble Dairy Products Cooperative. Thrower operated a grocery store and purchased dairy products from Coble. Pamela made false invoice sheets, showing delivery to Thrower of greater quantities than Thrower actually had ordered or received. Pamela collected from Thrower on the basis of these increased amounts, and then kept for herself the difference between the increased amounts and the amounts that should have been charged. When Thrower learned of this, he sued Coble for the excess payments he had made. Coble denied that Pamela was its agent in making excess collections. Will Thrower win?

 

 

 

3. Tom Creighton hired Destroy, Inc., a demolition company, to level an old building on a busy downtown lot. Destroy, Inc. was given full rein to decide on the amount of explosives needed and the placement of the charges. Security for the site on the day of the explosion was contracted out to a private security firm. When the appointed day arrived, the building was brought down. However, the building fell in a slightly different direction than that anticipated by Destroy, Inc. Numerous pieces of adjoining property, both real and personal, were severely damaged. Creighton claims that the use of an independent contractor such as Destroy, Inc. has insulated him from liability. How do you respond to Creighton's claim?