Chapter 25: Nature and Creation of an Agency

_____ authority refers to the authority that the third person believes the agent possesses because of the statements made by the principal. a. Customary b. Implied c. Apparent d. Express

c. Apparent The principal, without regard to custom, may have behaved in a way or made statements that caused the third party to believe that the agent has the authority. This is called apparent authority. Review the section "Extent of Authority" in Chapter 25.

Pendleton Assurance, an insurance provider appoints agents in different locations to clarify the issues of their clients and handle the paperwork for obtaining insurance. Pendleton advises its clients to contact their agents for all their insurance queries. Emily Jones, an agent authorized by Pendleton, collects auto insurance premiums from three clients and deposits the money in her personal account. The clients, who are unaware of the authority of Jones, have been sending money to Jones for three years. Marlin Haskins, one of the clients, runs his car off the road. When he files an insurance claim, Pendleton refuses to pay. Which of the following makes Pendleton liable to provide insurance cover to Marlin, even though it did not receive any premium from him? a. Emily's apparent authority b. Express authority of Emily c. Emily's explicit authority d. Implied authority of Emily

a. Emily's apparent authority Apparent authority is the authority that the third person believes the agent possesses because of the way the principal behaved or the statements that the principal made. Limitations on an agent's authority do not bind a third party who has no knowledge of them, but they do bind a third party who knows of them. Review the section"Extent of Authority" in Chapter 25.

When an agency is created by appointment: a. the statute of frauds does not require it to be in writing. b. it must be in writing if it is to transfer title to real estate. c. the contract must be formal. d. the contract must be in writing to be enforceable.

b. it must be in writing if it is to transfer title to real estate. An agency by appointment may be created orally or in writing and may be formal or informal; however if it is to transfer title to real estate the statute of frauds requires it to be in writing. Review the section"Appointment" in Chapter 25.

A contract of an independent contractor differs from a contract of employment in that: a. an independent contractor is not held responsible for the proper performance of the contract. b. the other contracting party does not control an independent contractor as to the means by which the contractor performs. c. the other contracting party will be held liable for any injuries the independent contractor negligently causes to third parties. d. contract of an independent contractor creates a principal-agent relationship.

b. the other contracting party does not control an independent contractor as to the means by which the contractor performs. The other contracting party does not control an independent contractor as to the means by which the contractor performs except to the extent that the contract sets forth requirements to be followed. Review the section "Independent Contractor" in Chapter 25.

Stan and Silvia Waterson go on a vacation and leave their 17 year old daughter, Jessie, in charge of the house and her two younger siblings. While the elder Watersons are away, a severe storm knocks down power lines and the electricity is off for a week. Since all the food in the refrigerator and freezer spoiled, Jessie talks the owner of a small grocery store into letting her have groceries on credit. When the Waterson parents come back home, the store demands payment from them for the groceries. On what basis must the parents pay for the groceries? a. Agency by implication b. Agency by estoppel c. Agency by necessity d. Agency by ratification

c. Agency by necessity Since parents have an obligation to support their minor children, Jessie could pledge their credit in order to provide food for the children. Review the section "Necessity" in Chapter 25.

Hoffmann's Retail is a supermarket chain operated by Hoffmann Group. Hoffmann's appoints agents to manage each of its retail outlets. These agents are responsible for managing the daily operations and customer service requirements in the stores. After observing that the store was running out of stock, Jennifer Hyman, a manager at one of the retail outlets, places an order with Bagel's foods. Which of the following is true regarding the scenario? a. Only explicit enumeration in the agency agreement allows Jennifer to place an order. b. Only explicit enumeration in the power of attorney allows Jennifer to place an order. c. Implied authority allows Jennifer to place the order. d. Customary authority disallows her from placing the order.

c. Implied authority allows Jennifer to place the order. Jennifer Hyman has implied authority as a store manager to place orders to the wholesalers in order to have goods to sell. Review the section"Extent of Authority" in Chapter 25.

The law of agency permits a person to delegate to an agent: a. any act opposed to the welfare of society. b. the right to vote by proxy in a public election. c. all acts a person can do except personal or unlawful acts. d. all those things that can otherwise be done by the person.

c. all acts a person can do except personal or unlawful acts. The law permits the delegation of all those things that can otherwise be done by the person except those that are of a personal nature or unlawful. Review the section "What Powers May Be Delegated to an Agent" in Chapter 25.

The term for a general agent who has been appointed by a written authorization is: a. independent contractor. b. broker. c. attorney in fact. d. factor.

c. attorney in fact. An attorney in fact is a general agent who has been appointed by a written authorization. Review the section "Attorneys in Fact" in Chapter 25.

Larry Jones, a resident of Royal Park in Potsi, wanted to sell his house in Marshall. He asked Patrick Miller, a broker, to find a buyer for the house. Miller was not authorized to decide on the specifications of the sale without the approval of Jones. Based on his role, Miller can be regarded as a(n): a. attorney in fact. b. express agent. c. special agent. d. general agent.

c. special agent. Patrick Miller is a special agent. A special agent is one authorized by a principal to transact some specific act or acts. Such an agent has limited powers that may be used only for a specific purpose. Review the section "Special Agents" in Chapter 25.

Roth Computing contracted to provide computer software and support to the Ute Mountain Tribe. The chief financial officer (CFO) of the tribe, who was authorized to contract for it, signed the agreement which stated the contract could be enforced by a court. The parties carried out their respective responsibilities for eighteen months and then the tribe failed to make any more payments. On what basis should Roth claim the CFO had the authority to agree the tribe could be sued in court? a. Ratification by the tribe b. Agency by necessity c. Express authority d. Agency by estoppel

d. Agency by estoppel An agency by estoppel arises when a party leads another to believe that a third party has the authority to do a particular act. Since the tribe had accepted the benefits of the contract for eighteen months and failed to complain about its provisions, it was bound on it in order to prevent an injustice to Roth. If the CFO did not have the authority to agree to the enforcement of the contract by a court, the principal (the tribe) misled Roth by abiding by the contract terms for eighteen months. Review the section "Estoppel" in Chapter 25.

Jessica Thompson is an agent working in a store that sells automobile spare parts. She is in charge of assisting the customers and managing the store in general. Jessica notices that the store is running low on one of the cataloged items. Therefore, she takes the liberty of placing an order for it. Jessica has the authority to do so, even though this authority is not explicitly enumerated in the agency agreement. Which of the following gives her this right? a. Estoppel authority b. Apparent authority c. Express authority d. Implied authority

d. Implied authority The authority of the agent to do things not specifically enumerated in the agreement in order to carry out the purposes of the agency is called implied authority. Hence the retailer is said to have implied authority. Review the section "Extent of Authority" in Chapter 25.

Susan Fox had business cards printed that said, "Susan Fox, special agent for Ransom, Inc." Fox entered into a contract as the agent of Ransom to buy specialty windows from Welwyn Windows before Ransom was incorporated. Others promoted the incorporation of Ransom and Welwyn delivered the windows to Ransom. What is required for Ransom to now ratify the contract and be bound on it? a. Nothing, since Ransom is now capable of ratifying. b. Ransom need only ratify before Welwyn withdraws and reclaims the windows. c. Ransom need only accept half of the windows. d. Ransom cannot ratify since it did not have the capability of making the contract when it was made.

d. Ransom cannot ratify since it did not have the capability of making the contract when it was made. The one attempting to ratify must have been capable of authorizing the act at the time the act was done. Since Ransom was not incorporated at the time the contract was made it could not have authorized it at that time. Review the section "Ratification" in Chapter 25.

Why is it necessary for business owners to delegate business transactions to agents? a. The law does not permit one person to make all the contracts of a business. b. Agents are the only people with authority to make contracts. c. Routine matters must be delegated to agents. d. The magnitude and complexity of industries mean one person cannot always handle all the details.

d. The magnitude and complexity of industries mean one person cannot always handle all the details. While small businesses can be run by one person, a large business needs many people to run it and this means the owners must delegate transactions to agents. Review the section "Importance of Agency" in Chapter 25.

An agency by estoppel arises when: a. an agent's authority is extended beyond one year from the date of contract, through a formal contract of appointment. b. an assumed agent who purported to act as an agent without actual or apparent authority commits an unauthorized act. c. an agency relationship is created due to some unforeseen emergency. d. a person by words or conduct leads another person to believe that a third party is an agent or has the authority to do particular acts.

d. a person by words or conduct leads another person to believe that a third party is an agent or has the authority to do particular acts. Agency by estoppel arises when a person by words or conduct leads another person to believe that a third party is an agent or has the authority to do particular acts. Review the section "Estoppel" in Chapter 25.

Noel Cormier, a dealer of used automobiles, sells on credit. He guarantees to the owner of the car that the purchase price will be paid by the purchaser or by himself. After making a sale, he deducts the commission and remits the balance to the original owner of the car. Cormier can be regarded as a(n): a. implied agent. b. estoppel agent. c. broker. d. factor del credere

d. factor del credere. Noel Cormier is a factor del credere. A factor del credere is a commission merchant who sells on credit and guarantees to the principal that the purchase price will be paid by the purchaser or by the factor. Review the section "Factors Del Credere" in Chapter 25.

When an assumed agent purports to act as an agent without actual or apparent authority: a. the supposed principal may ratify only part of the act of the assumed agent. b. such an act can never bind the supposed principal. c. the act can be ratified even after the third party has withdrawn from the transaction. d. the supposed principal may ratify the act and be bound by the assumed agent.

d. the supposed principal may ratify the act and be bound by the assumed agent. A supposed principal who was capable of authorizing the act at the time it was done and capable of authorizing it when approved may ratify the unauthorized act of another done in the principal's name. Ratification of the entire act must be done before the third party withdraws from the transaction. Review the section "Ratification" in Chapter 25.