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Exam 32: Agency Formation and Duties

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Question 21

True/False

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When an agent, acting within the scope of his or her authority, contracts with a third party, a disclosed principal is liable to the third party.

A) True
B) False

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Question 22

Multiple Choice

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Raj agrees to act as a sales agent for Service Company on a commission basis. Their contract stipulates six-months' notice of termination. The firm ends the deal without notice. If Raj seeks payment of commissions on sales for the six months following the termination, a court is most likely to hold that

A) the amounts accrue to Service, which had the power to end the agency.
B) any compensation on sales during the period should be split equally.
C) Raj can recoup expenses but no profit.
D) Raj is entitled to the commissions.

E) A) and B)
F) None of the above

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Question 23

Multiple Choice

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Dino, a certified public accountant and an investor, and Elma, an insurance salesperson and a realtor, may create an agency relationship for

Roman is the chief executive officer of Salty Snax Corporation. Roman's responsibilities include decisions on product development, marketing, and other significant business directions. Roman is subject to the approval and oversight of Salty Snax's board of directors. Teri is a Salty Snax manager whose duties include the firm's day-to-day hiring, firing, purchasing, and selling. Umberto is a Salty Snax salesperson, whose daily activities are controlled by Teri. Velma writes sales manuals and promotional materials for Salty Snax's products according to Roman's instructions and subject to Salty Snax's control, but has no dealings with the company's customers or suppliers. Warren writes copy on a contract-per-project basis and is not otherwise subject to Salty Snax's control. Who is a principal? Who is an agent? Who is an employee? Who is an independent contractor?

Once the agency relationship between a principal and an agent has ended, the agent loses the right to bind the principal.

When an agent is an employee, he or she is covered by state workers' compensation insurance, which reduces the duty of the principal to provide safe working conditions.

Rubio is injured in an accident with Stavros. Unable to use his hands due to the injury, Rubio indicates that Tam should sign a settlement agreement on Rubio's behalf with Stavros's insurance company. This is

Gaye agrees to act as a sales agent for Homewood Company on a commission basis. They further agree that either party can terminate the agency relationship at will. If Homewood ends their deal, the act of termination is called

An independent contractor is, by definition, an employee because the person's physical conduct is controlled, or subject to control, by the employer.

Ben manages a warehouse and its inventory for Coffee Roaster Inc. To operate this part of the business, Ben's authority can be inferred

In the course and scope of employment, Oscar, an agent for Processed Food Inc., violates state sanitation regulations by mishandling certain food products distributed by Quality Transport Corporation. In some jurisdictions, liability for the violations could extend to

If an agent has the apparent authority to act, the principal will be liable unless the principal placed any undisclosed limitations on that authority.

When an agent breaches an agency agreement, the right to avoid the contract can be exercised at the election of

By using agents, a principal can conduct multiple business operations simultaneously in various locations.

An event does not automatically terminate an agency merely because its occurrence makes it improbable that the principal would want performance.

Without authority, Dot contracts purportedly on Eva's behalf with Field & Farm Equipment Inc. for the purchase of a tractor. Liability on the contract extends to

The duties that an agent owes a principal must be set forth in the agency agreement because they do not arise by operation of law.

Ruby, an agent for Shipping Company, leases a warehouse from Transit Facilities Inc. without stating that she is acting on Shipping Company's behalf. Liability for nonpayment of rent under the lease may be imposed on

Deft Construction Company hires Egan, an independent contractor, to excavate and grade a certain parcel of land for a commercial development. Negligence in Egan's work causes the ground to subside, leading to the collapse of a building in which Deft workers are injured. Liability for the injuries extends to

Masonry Corporation fails to inspect work areas and to warn agents and employees of unsafe situations in the firm's plant. Noh, an employee, is injured in an accident whose cause can be attributed to the employer's failure. Most likely, Masonry is liable to Noh for breach of the duty