Business Law Chapter 37 Test Questions

Which of the following is not a condition necessary for ratification? a. The agent must have purported to act on behalf of or as an agent for the identified principal. b. The third party benefiting from the ratification must give consideration for the ratification. c. The principal must have been capable of authorizing the act both at the time of the act and at the time it was ratified. d. The principal must have full knowledge of all material facts.

B. The third party benefiting from the ratification must give consideration for the ratification

A party working for and under the control of another and authorized to enter into contracts for that other person or entity is called an: a. employee. b. agent. c. independent contractor. d. attorney.

B. agent

An agent is under a duty to obey: a. all instruction given by the third party. b. all lawful instructions given by the principal. c. all instructions given by the principal. d. none of the above, since "obedience" is not an obligation of the agent.

B. all lawful instructions given by the principal

An agent acting under a power of attorney is referred to as an: a. implied attorney. b. attorney in fact. c. implied agent. d. attorney at law.

B. attorney in fact

A third person who deals with a person claiming to be an agent: a. can rely on the statements made by the agent regarding the extent of the authority. b. cannot ignore any knowledge regarding a limitation of the agent's authority. c. is not required to take notice of any acts clearly adverse to the interest of the principal. d. all of the above.

B. cannot ignore any knowledge regarding a limitation of the agent's authority

For a principal to ratify the actions of an agent, all that is necessary is that the principal express the intention to ratify.

False

For an agency to be terminated by operation of law because of the principal's death, the agent must be notified of the death.

False

Placing property in the possession of another gives that person apparent authority to sell the property.

False

The scope of an agent's authority is always known by the third party.

False

The usual method of creating an agency is by: a. express authorization. b. conduct. c. operation of law. d. ratification.

A. express authorization

When a person is authorized by the principal to transact all affairs in connection with a particular type of business or trade or to transact all business at a certain place, that person is a __________ agent. a. general b. perfected c. special d. universal

A. general

Initially, ratification is a question of: a. intention. b. consideration. c. form. d. implication.

A. intention

A __________ agent is authorized by the principal to handle a definite business transaction or to do a specific act. a. special b. general c. secret d. universal

A. special

If the principal revokes the agency: a. the agent's authority to act for the principal is terminated immediately. b. the right of the agent to bind the principal to third persons generally ends immediately upon the termination of the agent's authority. c. the termination is not effective until notice is given to third parties. d. all of the above.

B. the right of the agent to bind the principal to third persons generally ends immediately upon the termination of the agent's authority

An agent has implied __________ authority to do any act that usually accompanies the transaction for which the agent is authorized to act. a. express b. apparent c. customary d. incidental

C. customary

The term apparent authority is used when there is: a. no interaction between the principal and third persons. b. actual authority. c. only the appearance of authority and that appearance of authority was created by the principal. d. only the appearance of authority and that appearance of authority was created by the agent.

C. only the appearance of authority and that appearance of authority was created by the principal.

A durable power of attorney may be terminated by: a. revocation by a competent principal. b. the death of the principal. c. revocation by a competent principal or by the death of the principal. d. none of the above, since a "durable" power of attorney is designed by law to be irrevocable under all circumstances.

C. revocation by a competent principal or by death of the principal

Which of the following is true? a. An agent has the power to contract on behalf of a principal. b. An employee generally does not have the power to contract on behalf of the employer. c. An independent contractor controls the work he or she performs. d. All of the above are true.

D. All of the above are true

It is the duty of an agent to act with the care that: a. the principal would exercise under the circumstances. b. a reasonable principal would exercise under the circumstances. c. a reasonable juror would exercise under the circumstances. d. a reasonable person would exercise under the circumstances.

D. a reasonable person would exercise under the circumstances

The principal must: a. perform the contract according to its terms. b. compensate the agent for services. c. indemnify the agent for loss in some circumstances. d. all of the above.

D. all of the above

The scope of an agent's authority may be determined from the: a. express words of the principal. b. words or deeds of the principal. c. customs of the trade or business. d. all of the above.

D. all of the above

An agent's implied authority to perform any act reasonably necessary to execute express authority is called __________ authority. a. express b. customary c. apparent d. incidental

D. incidental

John's son was not his agent but contracted to purchase a computer in the name of John. When John learned of this, John sternly rebuked his son but continued to use the computer for several weeks. After losing interest in the computer, John offered to return it, saying that the purchase was unauthorized. John: a. is not liable on the purchase. b. expressly ratified the purchase. c. is liable because all children have the apparent authority to contract for their parents. d. ratified the purchase by John's conduct.

D. ratified the purchase by John's conduct

A __________ agent is authorized by the principal to do all acts that can be delegated lawfully to a representative. a. special b. general c. secret d. universal

D. universal

When the principal ratifies the act of the unauthorized person, such ratification does not release the unauthorized person from liability, since he or she acted without authority.

False

A general agent is authorized by the principal to do all acts that can be delegated lawfully to a representative.

False

A principal may ratify an action taken by an agent that the principal would not have been capable of authorizing at the time that the action was taken.

False

A special agent is authorized by the principal to transact all affairs in connection with a particular type of business or trade or to transact all business at a certain place

False

A third person who deals with a person claiming to be an agent has the right to rely on the statements made by the agent concerning the extent of the agent's authority.

False

Agency is a relationship by which the principal is authorized to act on behalf of an agent in negotiating and making contracts with third persons

False

An agent is distinguished from an ordinary employee in that employees are hired to represent the employer in dealings with third persons

False

An agent's duties must be expressly stated in the agency agreement and may not be implied from the principal's words or conduct.

False

The term apparent authority is used when an appearance of authority has been created by a principal, but actual authority does not exist.

True

A "right to control" test determines whether an individual is an agent, an employee, or an independent contractor.

True

A person has apparent authority as an agent when the principal's words or conduct leads a third person to reasonably believe that the person has that authority and the third person relies on that appearance.

True

A person who has knowledge of a limitation on an agent's authority cannot disregard that limitation

True

A special agent is authorized by the principal to handle a definite business transaction or do a specific act.

True

A written authorization of agency is called a power of attorney.

True

An agency coupled with an interest is an exception to the general rule regarding termination of the agency and the agent cannot be discharged or fired before the expiration of the interest.

True

An agency may arise by appointment, conduct, ratification, or operation of law.

True

An agent is authorized to make contracts for, and is under the control of, the principal

True

By virtue of an agency, one person can make contracts at numerous places with many different parties

True

For ratification to occur, the agent must have purported to act on behalf of, or as agent for, the identified principal.

True

If a principal terminates an agency without giving notice of the termination to third persons, the agent may retain the power to make contracts that will bind the principal and third persons.

True

In performing agency duties, the agent must exercise the care that a reasonably prudent person would exercise under the same circumstances.

True

Notification may be implied when the principal does not object to a contract and accepts its benefits.

True

The Uniform Durable Power of Attorney Act (UDPAA) changes the general rule that insanity of a principal terminates an agent's authority to act for the principal.

True

The burden of proving the existence of an agency relationship rests on the person who seeks to benefit by such proof.

True

The employer of an independent contractor does not have control over the performance of the work by the independent contractor

True

The intention to ratify an unauthorized act may be expressed by words or conduct.

True