Module 2 Quiz

Which of the following is NOT a feature of a principal-agent relationship? A. A principal must provide the tools necessary for the agent to accomplish her work on behalf of the principal. B. Both the principal and the agent must agree to enter into the principal-agent relationship. C. The agent owes a fiduciary duty to the principal. D. The principal-agent relationship can be formed even when the principal only dictates the final outcome of the relationship and leaves the details of how the final outcome will be achieved to the agent.

A. A principal must provide the tools necessary for the agent to accomplish her work on behalf of the principal.

Which of the following is NOT true regarding apparent authority? A. Apparent authority is created when an agent tells a third party that the agent is authorized to take certain actions. B. Apparent authority is created when a principal tells a third party that the agent is authorized to take certain actions. C. When apparent authority exists, the principal can be held liable to third parties for actions taken by the agent, even if the agent did not have actual authority to take those actions. D. Apparent authority can be created by an agent's title or position.

A. Apparent authority is created when an agent tells a third party that the agent is authorized to take certain actions.

Which of the following best describes the control of sole proprietorships? A. Ownership and control resides with the same person, so potential conflicts between those making important decisions for the company and the owners of the company are not an issue. B. If a sole proprietor allows an employee to make day-to-day business decisions, then the employee becomes an owner of the company, too. C. Litigation between owners of sole proprietorships is the main reason why these types of businesses fail. D. A sole proprietorship offers limited liability to the owner, which is primarily why there are so many sole proprietorships.

A. Ownership and control resides with the same person, so potential conflicts between those making important decisions for the company and the owners of the company are not an issue.

Samantha hires Gary to be her agent. They sign a binding contract that says that the principal-agent relationship will terminate in six months. Four months later, Samantha does not think that Gary returns her calls quickly enough, so she mails him a notice that says that the principal-agent relationship is terminated immediately. Which of the following is TRUE? A. Samantha has the power to terminate Gary's actual authority immediately; however, she may still be liable for breach of contract. B. Samantha cannot terminate Gary's actual authority until the contract term is expired. C. Gary can respond via mail that he rejects Samantha's termination of his apparent authority. D. Because the contract simply memorializes the principal-agent relationship, Samantha has the power to terminate Gary's actual authority and her contractual obligations at any time.

A. Samantha has the power to terminate Gary's actual authority immediately; however, she may still be liable for breach of contract.

According to the reading, which of the following describes a situation that does not involve two parties that are considered to be "persons" by the Restatement (Second) of Agency AND the Restatement (Third) of Agency? A. Software completes a company's tax returns. B. An accountant is hired as an independent contractor to complete a company's tax returns. C. An accountant is hired as an employee to complete a company's tax returns. D. A company that provides tax-related services is hired to complete another company's tax returns.

A. Software completes a company's tax returns.

Which of the following is NOT associated with sole proprietorship property ownership? A. The Board of Directors must approve any transfer of a significant portion of a sole proprietorship's property. B. The sole proprietor owns the business's property the same way that she owns a couch, kitchen table, and chairs. C. A sole proprietorship can own and lease property. D. The Government views property owned by a sole proprietorship the same as it views the personal assets of the sole proprietor.

A. The Board of Directors must approve any transfer of a significant portion of a sole proprietorship's property.

Which of the following is NOT a duty of an agent to a principal in a principal-agent relationship? A. The agent must reimburse the principal for costs incurred as part of the principal-agent relationship. B. The agent may not use the principal's property for the agent's own purposes. C. The agent must avoid conflicts of interest with the principal. D. The agent must pass along any profits generated from the activities performed on the principal's behalf to the principal.

A. The agent must reimburse the principal for costs incurred as part of the principal-agent relationship.

An agent is a fiduciary with respect to matters within the scope of the principal-agent relationship. A. True B. False

A. True

Distinguishing between an employer-employee relationship and an employer-independent contractor relationship is very important when analyzing the employer's liability for the agent's tortious acts. A. True B. False

A. True

Taxation for sole proprietorships closely resembles pass through taxation, not double taxation. A. True B. False

A. True

Bob hires Martha as his real estate agent for purposes of buying a home. Martha finds a perfect house for Bob, and Bob agrees that Martha should make an offer on his behalf. Martha meets with the agent for the seller of the home and says, "I really like this home, and I would like to submit a verbal offer to purchase the home for $450,000. Let me know what your client says. I am really excited about moving in!" Later, the deal falls apart, and the parties end up in litigation. Martha is found to be liable for some of the damages awarded to the seller. Which of the following principles is most likely to have caused the court to include Martha, the agent for Bob (the principal), as a liable party? A. Undisclosed Principal B. Joint and Several Liability C. Pass Through Taxation D. Lack of Actual Authority

A. Undisclosed Principal

A sole proprietor must notify the Government when the sole proprietorship is terminated. A. True B. False

B. False

Actions of third parties can create actual authority for an agent to act on behalf of a principal. A. True B. False

B. False

Actual authority is necessary for a principal to be held liable for an agent's actions on behalf of the principal. A. True B. False

B. False Apparent authority is an example of how a principal can be held liable, even when the agent did not have actual authority to act on behalf of the principal.