36

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.

disclosed

The doctrine of respondeat superior means:

"let the master answer."

_____ is the authority the principal wants the agent to possess and is based on the principal's communications or manifestations to the agent.

Actual authority

In which of the following cases is the agent, but not the principal, liable?

An agent with no authority contracts for a disclosed principal.

_____ 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.

Apparent authority

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?

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

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?

Birch, since he was not in scope of employment.

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?

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

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?

Hillary is liable because Baker is an unidentified principal.

_____ means that the principal's rights and liabilities are what they would have been if the principal had known what the agent knew.

Imputation

Which of the following is true of implied authority?

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

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?

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

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?

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

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?

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

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?

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

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?

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

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?

Yes, Juan did have apparent authority to act.

Ordinarily a principal is not made liable for any of the torts committed by:

an independent contractor.

A(n) _____ case involves harm caused by the principal's negligence regarding the agent.

direct liability

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:

implied authority.

Sometimes, if an agent incurs tort liability the principal is required to _____.

indemnify the agent

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:

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

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 ______.

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:

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

Ordinarily, an agent is not liable for unauthorized acts made on behalf of a principal if:

the principal eventually ratifies the contract.

Implied ratification arises when:

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

Express authority is created by:

words.

Which of the following is true regarding the requirements of ratification?

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?

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

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?

Exculpatory clause

_____ 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.

Express ratification

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?

Sandra is liable because of the direct liability doctrine.

Able was employed as a security guard for Seep Corporation. Able'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, Able 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, Able stopped his car, ran up to the fence, pulled Johnny off of it, and beat him up. Johnny sues Seep Corporation for Able's assault and battery (both intentional torts). Which of the following is most likely to be the court's verdict?

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

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?

Vicarious liability

Principals may try to escape liability for an agent's misrepresentations by including _____.

exculpatory clauses

Kin is an agent for a disclosed principal, Tracy. Kin contracts with Phil on Tracy's behalf. Kin becomes liable to Phil when:

he signs the contract "Kin, agent."

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: ;Phillips is directly liable for negligent hiring.

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:

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

An agent is not liable for making an unauthorized contract if:

the third party actually knows that the agent lacks authority.

A principal will not be liable to a third party for a tort committed by an agent:

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