Question 1

Tara,an agent,enters into a contract on behalf of Sue to buy 100 pencils for $1 each and 100 pens for $2 each.Sue determines that Tara got a good price for pencils but made a poor deal on pens.Sue indicates she wishes to ratify only the agreement to buy pencils.Has Sue acted properly?
A)Yes,because Sue is free to ratify or not ratify any part of the contract.
B)Yes,but only if Tara had legal capacity at the time of contracting
C)No,because a principal must ratify an entire contract,not just the favorable parts.
D)No,unless Tara had express authority to bind Sara to both contract terms.

Accepted Answer

A principal must ratify an entire act or contract.He cannot ratify the beneficial parts and reject those that are detrimental.

Question 2

Which of the following determines an agent's actual authority?
A)The agent's reasonable understanding of the principals' manifestations and objectives.
B)The actions the agent must take that are necessary and incidental to achieving the principal's objectives.
C)The authority implied by the conduct of the principal
D)The authority third parties believe the agent has based on the agent's conduct.

Accepted Answer

The agent's reasonable understanding of the principal's manifestations and objectives determines the agent's actual authority.

Question 3

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.

Accepted Answer

Apparent authority protects third parties who reasonably rely on a principal's manifestations that an agent has authority.It assumes special importance in cases where the principal has told the agent not to make certain contracts that the agent ordinarily would have actual authority to make,but the third party knows nothing about this limitation and has no reason to know about it.

Question 4

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

Accepted Answer

Ratification is a process whereby a principal binds himself to an unauthorized act done by an agent,or by a person purporting to act as an agent.Ratification relates back to the time when the contract was made.It binds the principal as if the agent had possessed authority at that time.

Question 5

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

Accepted Answer

Express authority is actual authority that the principal has specified in very specific or detailed language.

Question 6

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.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 had actual authority to act.
B)Yes,Juan had express authority to act.
C)Yes,Juan had implied authority to act.
D)Yes,Juan had apparent authority to act.

Accepted Answer

Apparent authority protects third parties who reasonably rely on a principal's manifestations that an agent has authority.It assumes special importance in cases where the principal has told the agent not to make certain contracts that the agent ordinarily would have actual authority to make,but the third party knows nothing about this limitation and has no reason to know about it.

Question 7

Susan is hired to manage a business.Because she has been hired as a manager,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.

Accepted Answer

An agent generally has implied authority to do whatever it is reasonable to assume that his principal wanted him to do,in light of the principal's manifestations to the agent and the principal's objectives of the agency.

Question 8

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 principal's identity.
B)the third party knows that the principal lacks legal capacity.
C)the principal eventually ratifies the contract.
D)the principal is undisclosed.

Accepted Answer

Ratification is a process whereby a principal binds himself to an unauthorized act done by an agent,or by a person purporting to act as an agent.

Question 9

________ 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

Accepted Answer

Apparent authority 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.

Question 10

Ralph,the owner of a medium-sized business 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 failing to fulfill the 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.

Accepted Answer

Apparent authority protects third parties who reasonably rely on a principal's manifestations that an agent has authority.It assumes special importance in cases where the principal has told the agent not to make certain contracts that the agent ordinarily would have actual authority to make,but the third party knows nothing about this limitation and has no reason to know about it.

Question 11

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.

Accepted Answer

Implied ratification arises when the principal's conduct justifies a reasonable assumption that he consents to the agent's act.Examples include the principal's part performance of a contract made by an agent,or the principal's acceptance of benefits under such a contract.

Question 12

________ 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

Accepted Answer

An express ratification 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.

Question 13

How does agency law stimulate business activity?
A)By binding principals to contracts to create certainty
B)By holding principals accountable for agent actions,protecting consumers
C)By letting principals contract through agents,multiplying their dealings
D)By restricting the liability of principal's for the actions of agents

Accepted Answer

By letting principals contract through their agents and thereby multiplying their dealings,agency law stimulates business activity.

Question 14

What are the two types of authority an agent can have to make the principal liable on a contract made by the agent?
A)Actual and apparent authority
B)Actual and ratification authority
C)Apparent and ratification authority
D)Ratification and estoppel authority

Accepted Answer

A principal is liable on a contract made by his agent if the agent had actual or apparent authority to make the contract.

Question 15

What happens if a third-party gives proper notification to an agent with apparent authority to receive it?
A)The principal is bound only if the agent had express authority to receive notification.
B)The principal is bound based on the doctrine of third party estoppel.
C)The principal is bound as if the notification had been given directly to him.
D)The principal is not bound unless it is proven the agent transmitted the notification.

Accepted Answer

If a third party gives proper notification to an agent with actual or apparent authority to receive it,the principal is bound as if the notification had been given directly to him.

Question 16

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.

Accepted Answer

Implied authority usually derives from a grant of express authority by the principal.On occasion,however,implied authority may exist even though there is no relevant grant of express authority.

Question 17

What are the two types of ratification?
A)Express and implied ratification
B)Express and actual ratification
C)Estoppel and express ratification
D)Estoppel and implied ratification

Accepted Answer

Ratification can be express or implied.

Question 18

________ 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

Accepted Answer

In certain circumstances,an agent's knowledge of facts is imputed to the principal.This means that the principal's rights and liabilities are what they would have been if the principal had known what the agent knew.

Question 19

________ 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

Accepted Answer

Actual authority is the authority the principal wants the agent to possess.It is based on communications or manifestations from the principal to the agent.

Question 20

Maria authorizes Frederick to sell her Maria-branded tee-shirts for $20 or more.Frederick sells the tee-shirts for $25 each.What type of authority gives Frederick authority to sell the tee-shirts?
A)Express authority
B)Implied authority
C)Estoppel
D)Ratification

Accepted Answer

Express authority is the actual authority the principal has specified in very specific or detailed language.Maria specified Frederick's authority in detailed language.

Quiz 36: Third-Party Relations of the Principal and the Agent

Tara,an agent,enters into a contract on behalf of Sue to buy 100 pencils for $1 each and 100 pens for $2 each.Sue determines that Tara got a good price for pencils but made a poor deal on pens.Sue indicates she wishes to ratify only the agreement to buy pencils.Has Sue acted properly?

Which of the following determines an agent's actual authority?

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 ________.

Express authority is created by:

Susan is hired to manage a business.Because she has been hired as a manager,she has the authority to make contracts that are reasonably necessary for conducting the business.This is called:

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

________ 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.

Implied ratification arises when:

________ 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.

How does agency law stimulate business activity?

What are the two types of authority an agent can have to make the principal liable on a contract made by the agent?

What happens if a third-party gives proper notification to an agent with apparent authority to receive it?

Which of the following is true of implied authority?

What are the two types of ratification?

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

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

Maria authorizes Frederick to sell her Maria-branded tee-shirts for $20 or more.Frederick sells the tee-shirts for $25 each.What type of authority gives Frederick authority to sell the tee-shirts?