Law Exam 2 (Chapter 36)

What is the term for when a principal may be forced to be liable for an agent's actions to a third party based on a detrimental change in position of the third party and a reasonable belief that the agent was truly acting with the authority from the principal? A. Estoppel B. Undisclosed C. Ratification D. Incorporation

A. Estoppel

Phillips hires Addis, who had sixteen prior convictions for the use of hallucinogenic drugs, as an air traffic controller for his private airport. Phillips could easily have discovered the convictions had he bothered to make a routine criminal record check, but this was just too much trouble. Phillips knew nothing whatsoever about the job of an air traffic controller, and, when he hired Addis, merely told him to "get the planes in safely the best way you know how; the details are up to you." One day, Phillips held a private birthday party for a celebrity and invited 20 of his rich and famous friends, all of whom were to arrive by a private jet. As it turned out, Addis was under the influence of drugs on this day and, as a result, all 20 of Phillips's friends were killed. After this national tragedy, Phillips and Addis were sued for negligence by the estates of these people. In this case: A. Phillips is directly liable for negligent hiring. B. Phillips is liable only under the doctrine of respondeat superior. C. Phillips is not liable because Addis is an independent contractor. D. Phillips is not liable because he could never have foreseen Addis' negligence.

A. Phillips is directly liable for negligent hiring.

Express authority is created by: A. words. B. actions. C. past dealings. D. body language.

A. words.

_____ is the authority the principal wants the agent to possess and is based on the principal's communications or manifestations to the agent. A. Apparent authority B. Actual authority C. Incidental authority D. Traditional authority

B. Actual authority

If a subagent contracts with a third party in an authorized transaction then who is liable by the subagent's actions? A. The local district attorney B. The agent C. The principal D. No one

B. The agent

A(n) _____ case involves harm caused by the principal's negligence regarding the agent. A. respondeat superior B. direct liability C. vicarious liability D. implied warranty

B. direct liability

A principal is _____ if a third party knows or has a reason to know that the agent is acting for a principal and the principal's identity. A. formalized B. nonexistent C. disclosed D. undisclosed

C. disclosed

The doctrine of respondeat superior means: A. "let the buyer be aware." B. "you may have the body." C. "of private right." D. "let the master answer."

D. "let the master answer."

What is the nature of the principal if a third party knows that the agent is acting for the principal and also is aware of the principal's identity? A. Unidentified B. Nonexistent C. Disclosed D. Undisclosed

C. Disclosed

Nina hired Sue to work as a janitor in Nina's apartment building. Sue was negligent in that she left a crack in the marble staircase unrepaired, without putting up a warning sign. Seth slipped on the staircase and suffered severe injuries. Who is liable for this accident? A. Nina is liable for the accident under the doctrine of respondeat superior. B. Sue is liable for the accident since she did not perform her duty with reasonable care. C. Sue will be held liable for committing an intentional tort out of her scope of employment. D. Nina will be directly liable for Sue's negligence.

A. Nina is liable for the accident under the doctrine of respondeat superior.

Cyrano hired Roxanne to purchase a yacht. Cyrano did not want sellers to know that he was the buyer because he was very rich and he thought that sellers would demand a higher price if they were aware of this. So he instructed Roxanne to inform the sellers that she was acting for an anonymous buyer. Roxanne followed these instructions and entered into a contract to purchase a yacht from Richard. However, Cyrano did not like the yacht that Roxanne selected and refused to pay the purchase price. Richard insisted that Roxanne herself pay the purchase price. If Richard sues Roxanne to enforce the contract against her, what will be the outcome? A. Richard will win because Roxanne did not disclose her principal's identity. B. Richard will win because Roxanne did disclose that she was acting as an agent, and not for herself. C. Richard will lose because Roxanne did disclose that she was acting as an agent, and not for herself. D. Richard will lose because Roxanne was acting as an agent with actual express authority.

A. Richard will win because Roxanne did not disclose her principal's identity.

For a principal to be directly liable in a Tort case, the following individual must be at fault for the injury to the victim: A. The principal B. The agent C. The subagent D. The incorporator

A. The principal

Which of the following states that the agent has authority only to make representation contained in the contract and that only those representations bind the principal? A. Representation clause B. Exculpatory clause C. Liability clause D. Agent's clause

B. Exculpatory clause

Typically a principal is not held liable for the actions of a nonemployee agent, but an exception to this general rule is: A. If the principal profits more than $100 by the nonemployee agent's actions B. The principal's hiring of a dangerously incompetent nonemployee agent C. The principal filing a Notice of Danger D. The principal notifying an incorporator of the independence of a nonemployee agent

B. The principal's hiring of a dangerously incompetent nonemployee agent

Stan hired Mason to work as a janitor in Stan's apartment building. Mason was negligent. He left the floor in the building lobby wet and slippery, without putting up a warning sign. Martha slipped and fell on the wet floor. If Stan is liable for this accident, what is the source of his liability? A. Direct liability B. Vicarious liability C. Strict liability D. Negligent liability

B. Vicarious liability

_____ arises when the principal's manifestations cause a third party to form a reasonable belief that the agent is authorized to act in a certain way. A. Contractual authority B. Incidental authority C. Apparent authority D. Actual authority

C. Apparent authority

Corine engaged Datz as her agent. It was mutually agreed that Datz would not disclose that he was acting as Corine's agent. Instead he was to deal with prospective customers as if he were a principal acting on his own behalf. In this way he made several contracts for Corine. If a third party were to file a lawsuit on one of the contracts, which of the following statements would be true? A. Corine is disallowed from ratifying Datz's contracts in order to transfer liability. B. Datz has no liability once he discloses that Corine is the real principal. C. The third party can hold only Datz liable since the third party believed that Datz was the principal. D. The third party may choose to hold either Datz or Corine liable.

C. The third party can hold only Datz liable since the third party believed that Datz was the principal.

Ordinarily, an agent is not liable for unauthorized acts made on behalf of a principal if: A. the third party has no knowledge about the principle's identity. B. the third party knows that the principle lacks legal capacity. C. the principal eventually ratifies the contract. D. the principal is undisclosed.

C. the principal eventually ratifies the contract.

_____ means that the principal's rights and liabilities are what they would have been if the principal had known what the agent knew. A. Notification B. Authorization C. Ratification D. Imputation

D. Imputation

Sandra hired Jeff to work as a taxi driver for Sandra. Jeff had a long criminal record for violent assaults, including three cases of vehicular homicide. However, Sandra was not aware of this and she does not check employees' criminal records. While Jeff was driving a passenger, Ben, they got involved in a heated argument. Jeff pulled Ben out of his car and hit him. Which of the following is true of this case? A. Since Sandra was not aware of Jeff's criminal history, she will not be held liable for this incident. B. Jeff was outside the scope of his employment, hence he is liable for this tort, and Sandra escapes liability. C. Sandra is liable for the incident only under the vicarious liability doctrine. D. Sandra is liable because of the direct liability doctrine.

D. Sandra is liable because of the direct liability doctrine.

An agent is not liable for making an unauthorized contract if: A. the third party does not know that the agent lacks authority. B. the principal fails to subsequently ratify the contract. C. the agent does not notify the third party that he does not warrant his authority to contract. D. the third party actually knows that the agent lacks authority.

D. the third party actually knows that the agent lacks authority.

In which of the following cases is the agent, but not the principal, liable? A. An agent with no authority contracts for a disclosed principal. B. An agent with actual authority contracts for an unidentified principal. C. An agent with apparent authority contracts for an unidentified principal. D. An agent with apparent authority contracts for a disclosed principal. When an agent with no authority contracts for a disclosed principal, the principal is not liable on the contract. Rather, the agent is liable for breach of the implied warranty of authority.In which of the following cases is the agent, but not the principal, liable? A. An agent with no authority contracts for a disclosed principal. B. An agent with actual authority contracts for an unidentified principal. C. An agent with apparent authority contracts for an unidentified principal. D. An agent with apparent authority contracts for a disclosed principal. When an agent with no authority contracts for a disclosed principal, the principal is not liable on the contract. Rather, the agent is liable for breach of the implied warranty of authority.

A. An agent with no authority contracts for a disclosed principal.

Which of the following is true regarding the requirements of ratification? A. An agent's illegal contract cannot be made binding by the principal's subsequent ratification. B. An agent should disclose the principal's identity when entering into a contract with a third party. C. A principal without legal capacity can ratify the unauthorized acts of the agent. D. An agent's beneficial acts can be ratified by the principal while the detrimental ones can be rejected.

A. An agent's illegal contract cannot be made binding by the principal's subsequent ratification.

Andy works for Sparkles, a jewelry store. While selling a zircon-studded ring to a customer, Andy falsely states that the zircon is a diamond. The customer, delighted to find a diamond ring at an affordable cost, buys the ring. If the customer files a lawsuit for damages, which of the following will most likely be the court's verdict? A. Andy had the actual and apparent authority from Sparkles to make true statements, hence Sparkles is liable for Andy's misrepresentations. B. Andy will be held liable for the misrepresentation and will have to pay damages to the customer and to Sparkles. C. The customer will be held responsible since he was negligent in the purchase, but may receive a small percentage of damages from Sparkles. D. Andy will be held liable for the misrepresentation to the customer, and will have to pay him damages.

A. Andy had the actual and apparent authority from Sparkles to make true statements, hence Sparkles is liable for Andy's misrepresentations.

Dart Corp. dismissed Ritz as its general sales agent. Dart notified all of Ritz's known customers by letter. Bing Corp., a retail outlet located outside of Ritz's previously assigned sales territory, had never dealt with Ritz. However, Bing knew of Ritz as a result of various business contacts. After his dismissal, Ritz sold Bing goods, to be delivered by Dart, and received from Bing a cash deposit for 20 percent of the purchase price. It was not unusual for an agent in Ritz's previous position to receive cash deposits. In an action by Bing against Dart on the sales contract, which of the following is true? A. Bing will win the lawsuit because Dart's notice was inadequate to terminate Ritz's apparent authority. B. Bing will win the lawsuit because Dart, the principal, is an insurer of Ritz's, the agent's acts. C. Bing will lose the lawsuit, because Ritz lacked any express or implied authority to make the contract. D. Bing will lose the lawsuit because Bing was negligent while making a contract with Ritz.

A. Bing will win the lawsuit because Dart's notice was inadequate to terminate Ritz's apparent authority.

Borg is the vice-president of purchasing for Crater Corp. He has authority to enter into purchase contracts on behalf of Crater provided that the price under a contract does not exceed $2 million. Dent, who is the president of Crater, is required to approve any contract that exceeds $2 million. Borg entered into a $2.5 million purchase contract with Shady Corp. without Dent's approval. Shady was unaware that Borg exceeded his authority. Neither party substantially changed its position in reliance on the contract. What is the most likely result of this transaction? A. Crater will be bound because of Borg's apparent authority. B. Crater will not be bound because Borg exceeded his authority. C. Crater will only be bound up to $2 million, the amount of Borg's authority. D. Crater will be bound because of Borg's actual authority.

A. Crater will be bound because of Borg's apparent authority.

_____ occurs when a principal manifests assent that his legal relations be affected, such as stating orally that he wishes to be bound by a contract that has already been made. A. Express ratification B. Unauthorized ratification C. Implied ratification D. Valid ratification

A. Express ratification

If an agent has, within the scope of the agency relationship, committed both negligent and intentional acts resulting in injury to third parties, the principal: A. may be liable even if the agent's acts were unauthorized. B. may effectively limit his or her liability to those third parties if the agent has signed a disclaimer absolving the principal from liability. C. will be liable under the doctrine of respondeat superior only for the intentional acts of the agent. D. will never be criminally liable unless he or she actively participated in the acts.

A. may be liable even if the agent's acts were unauthorized.

Implied ratification arises when: A. the principal's conduct justifies a reasonable assumption that he consents to the agent's act. B. the principal manifests assent that his legal relations be affected. C. the third party withdraws from the contract before the principal manifests assent. D. the principal binds himself to an unauthorized or illegal act done by an agent.

A. the principal's conduct justifies a reasonable assumption that he consents to the agent's act.

Maple hired Birch to work as a taxi driver for Maple. After a long, hot summer day of city driving and dealing with other rude drivers, Max, another driver, cut Birch off and slightly dented Birch's taxicab. An enraged Birch pulled Max out of the car and hit him with a brick that was lying on the road. Max suffered serious and permanent injuries and wants to sue. Who is liable in this situation? A. Maple, under the doctrine of direct liability. B. Birch, since he was not in scope of employment. C. Maple and Birch, since the principal and the agent are responsible for the agent's torts. D. Max instigated the incident and hence will not be successful in the lawsuit.

B. Birch, since he was not in scope of employment.

Hillary tells Iris that she wants to buy Iris's house "on behalf of a party who wishes her identity not to be known." The party is Baker Associates. With Baker's consent, Hillary contracts with Iris on Baker's behalf to buy the house. What is Hillary's liability on this contract? A. Hillary is liable because Baker is an undisclosed principal. B. Hillary is liable because Baker is an unidentified principal. C. Hillary can be liable only if she expressly agreed to be liable. D. Hillary is liable because Baker is a legally non-existent principal.

B. Hillary is liable because Baker is an unidentified principal.

Ralph, the owner of a medium-sized business, which is operated as a sole proprietorship, gives his vice-president, Wanda, authority to hire a new manager for the firm. Ralph gives Wanda detailed instructions about the salary she can contract to pay, but tells her that under no circumstances can she make commitments regarding the new manager's pension. Wanda contracts to hire Nick for the new managerial position. But to get Nick to sign up, she has to make certain specific pension commitments to him. Some years later, Nick sues Ralph for copping out on those pension commitments. Which of the following is true in this case? A. Ralph has no liability, because he expressly told Wanda that she didn't have authority to bind him on pension matters. B. Ralph is bound on the basis of Wanda's apparent authority. C. Ralph is bound on the basis of Wanda's implied authority. D. Ralph is bound on the basis of Wanda's actual authority.

B. Ralph is bound on the basis of Wanda's apparent authority.

Abel was employed as a security guard for Seep Corporation. Abel's job was to guard a fenced-in area and to use force to keep intruders from climbing the fence to enter the plant. His working hours were from 8:00 A.M. to 5:00 P.M. At about 11:00 P.M. one evening, Abel drove past his place of employment. He saw a teenager named Johnny climbing the outside of the fence that he guarded during the day. Angered by this violation of Seep's property rights and by the fact that Johnny had called him a "potbellied moron" only three days earlier, Abel stopped his car, ran up to the fence, pulled Johnny off of it, and beat him up. Johnny sues Seep Corporation for Abel's assault and battery (both intentional torts). Which of the following is most likely to be the court's verdict? A. Seep's is directly liable because Abel was an employee of the corporation at the time of the incident. B. Seep's is not liable because Abel didn't act within the scope of his employment. C. Seep's is liable under the doctrine of respondeat superior, since Abel was an employee. D. Seep's is not liable for the intentional torts committed by its employees.

B. Seep's is not liable because Abel didn't act within the scope of his employment.

Principals may try to escape liability for an agent's misrepresentations by including _____. A. defensive conditions B. exculpatory clauses C. torts D. ratification clauses

B. exculpatory clauses

A principal will not be liable to a third party for a tort committed by an agent: A. unless the principal was legally nonexistent. B. unless the tort was committed within the scope of the agency relationship. C. if the agency agreement limits the principal's liability for the agent's tort. D. if the tort is also regarded as a criminal act.

B. unless the tort was committed within the scope of the agency relationship.

Which of the following is true of implied authority? A. It can contradict a principal's express statements. B. It exists even when the principal has limited the agent's authority through clear instructions. C. It is usually derived from a grant of express authority by the principal. D. It exists only if there is a relevant grant of express authority.

C. It is usually derived from a grant of express authority by the principal.

Kin is an agent for a disclosed principal, Tracy. Kin contracts with Phil on Tracy's behalf. Kin becomes liable to Phil when: A. he signs the contract "Kin, by Tracy." B. he signs the contract "Kin, on behalf of Tracy." C. he signs the contract "Kin, agent." D. he signs the contract "Kin, for Tracy."

C. he signs the contract "Kin, agent."

Susan is hired to manage a business. This means that she has the authority to make contracts that are reasonably necessary for conducting the business. This is called: A. express authority. B. apparent authority. C. implied authority. D. fixed authority.

C. implied authority.

The state of Indiana hires the Reliable Construction Company to do some excavation work on an interstate highway. The state lays out the general objectives that Reliable has to achieve, but the details of the job are up to Reliable. The job involves digging holes ten feet deep, the whole way, across the highway. Given the nature of the job, it's important that Reliable be especially careful in putting up flashers and warning signs to steer oncoming motorists onto a detour. Reliable, however, does not do an adequate job in this regard and motorists are continually driving their cars into the construction area at high speed. One of these drivers, Tim, is unable to stop in time, and drives his car into the hole, suffering severe personal injury and damage to his car. Tim sues Reliable and the state for Reliable's negligence. In this case: A. the state is liable under the doctrine of respondeat superior. B. the state is not liable because Reliable is an independent contractor. C. the state is liable for Reliable's failure to take requisite special precautions. D. the state is not liable because it was not negligent.

C. the state is liable for Reliable's failure to take requisite special precautions.

Lee, a landlord, hires Shomo, a repairman, to fix a broken staircase in the house occupied by his tenants, the Grants. However, Mrs. Grant has an accident while climbing down the stairs and injures herself severely. It was found that Shomo had not fixed the staircase properly, which caused this accident. Which of the following is true of this situation? A. The Grants can file a lawsuit against Shomo, since Shomo was an agent and did not perform his duties properly. B. Lee will be held liable under the doctrine of respondeat superior for the non-performance of Shomo. C. The Grants can hold Lee directly liable for Shomo's tortious behavior, since Shomo was Lee's employee. D. Lee will be held directly liable for Shomo's failure to perform, since Shomo was Lee's nonemployee agent.

D. Lee will be held directly liable for Shomo's failure to perform, since Shomo was Lee's nonemployee agent.

Anna hired Juan to act as her sales agent in her auto dealership. However, Anna has instructed Juan not to enter into any sales contracts before she has had a chance to review the transaction. However, one day Juan entered into a sales contract with William, without informing Anna first. Has Juan created a contract with William that is binding on Anna in this situation? A. Yes, Juan did have actual authority to act. B. Yes, Juan did have express authority to act. C. Yes, Juan did have implied authority to act. D. Yes, Juan did have apparent authority to act.

D. Yes, Juan did have apparent authority to act.

Ordinarily a principal is not made liable for any of the torts committed by: A. a reckless employee. B. an employee. C. an agent. D. an independent contractor.

D. an independent contractor.

Sometimes, if an agent incurs tort liability the principal is required to _____. A. ratify the agency B. dismiss the agency C. transfer the agent D. indemnify the agent

D. indemnify the agent

The process by which a principal binds himself to an unauthorized act done by an agent, or by a person purporting to act as an agent, is called ______. A. indemnification B. notification C. liability D. ratification

D. ratification

Maco Corp. is a real estate development firm and regularly engages real estate brokers to act on its behalf in acquiring parcels of land. The brokers are authorized to enter into such contracts, but are instructed to do so in their own names without disclosing Maco's identity or Maco's relationship to the transaction. If a broker enters into a contract with a seller on Maco's behalf: A. Maco will be bound by the contract because of the broker's apparent authority. B. the broker will not be personally bound by the contract because the broker has express authority to act. C. Maco will not be liable for the intentional torts of the broker committed while acting on Maco's behalf. D. the broker will be held liable on contracts he/she signs without disclosing Maco as the principal.

D. the broker will be held liable on contracts he/she signs without disclosing Maco as the principal.