Question 1

A person who undertakes to make a contract on behalf of another person gives an implied warranty that he is in fact authorized to make the contract on behalf of the person he purports to represent.

Accepted Answer

This is the legal principle of "agency law," which holds that an agent (i.e. the person making the contract on behalf of another) has implied authority to act on behalf of the principal (i.e. the person they represent) and thus carries an implied warranty that they are authorized to do so. If the agent is not actually authorized, the principal can potentially void the contract.

Question 2

Which of the following is correct with regard to the doctrine of respondeat superior ?

Accepted Answer

The doctrine of respondeat superior is a form of liability without fault, meaning that an employer can be held liable for the acts of their employees or independent contractors even if they did not personally commit the wrongful act. However, the liability of the principal (employer) is vicarious, meaning that it depends on proof of wrongdoing by the employee within the scope of their employment. Choice D correctly summarizes both aspects of the doctrine.

Question 3

To effect a ratification, the principal must manifest an intent to do so with knowledge of all material facts concerning the transaction.

Accepted Answer

This statement is true. To ratify a transaction, the principal must have knowledge of all material facts regarding the transaction and must intend to ratify it.

Question 4

Under the Second Restatement, except in cases of death or incapacity, or where the performance of an authorized act becomes impossible, actual notice of termination of agency is required to the third party if she is one:

Accepted Answer

All of the choices are situations where actual notice of termination of agency is required under the Second Restatement. When dealing with someone on credit, it is important to inform them of the termination so that they do not continue to extend credit to the agent after the agency has ended. Similarly, when an agent has been specially accredited to deal with a particular third party, it is necessary to let that party know when the agent's authority has been revoked. Finally, when an agent has already begun to deal with a third party, the principal should know that it is important to inform the third party of the termination of agency to avoid any confusion or misunderstandings.

Question 5

Which of the following is true regarding an agent who is acting for an undisclosed principal?

Accepted Answer

An agent who is acting for an undisclosed principal will bind both himself and the principal on most contracts. The third party will not know that the agent is acting on behalf of a principal and will assume that the agent is liable for the contract. However, if the agent discloses the existence of the principal and the principal's identity, the principal will then become bound by the contract as well. Failure to disclose the name of the principal is not necessarily a form of fraud, but it may be if the agent intentionally deceives the third party about the principal's identity.

Question 6

The doctrine of respondeat superior is most often applied in situations involving:

Accepted Answer

Respondeat superior holds a principal or employer liable for the torts (wrongful acts) committed by their agent or employee within the scope of their employment. It does not apply to other types of liabilities such as negligence or contract breaches. However, if an agent or employee commits a crime while acting within the scope of their employment, the principal or employer may still be held liable.

Question 7

Edward is hired to manage Fred's business. Which of the following is untrue regarding Edward's authority?

Accepted Answer

Since Edward was only hired to manage Fred's business, he can only perform tasks that fall within the scope of his job description. Hiring of employees is within his scope, but firing them without Fred's consent is not.

Question 8

An agent acts for a(n) __________ principal when the agent appears to be acting on her own behalf and the third person with whom she is dealing has no knowledge that she is an agent.

Accepted Answer

An agent acts for an undisclosed principal when the agent appears to be acting on her own behalf and the third person with whom she is dealing has no knowledge that she is an agent.

Question 9

An agent, at his principal's direction, fixes prices with the principal's competitors. The result is:

Accepted Answer

Both the principal and the agent would be criminally liable for price fixing, as it is a violation of antitrust laws. Price fixing is considered an illegal and anti-competitive business practice. Therefore, both parties involved could face severe legal and financial consequences.

Question 10

Under the Third Restatement, an agent representing an undisclosed principal is discharged from liability if the third party:

Accepted Answer

Under the Third Restatement, an agent representing an undisclosed principal is discharged from liability if the third party gets a satisfied judgment against the principal. Therefore, option A is the correct answer. Option B is incorrect because the agent is still liable until the third party becomes aware of the principal. Option C is incorrect because it does not discharge the agent from liability. Option D is incorrect because the agent can be discharged from liability under certain circumstances.

Question 11

The doctrine of __________ is the basis for an employer's liability for an unauthorized tort committed by an employee within the scope of employment.

Accepted Answer

Respondeat superior is the doctrine that holds an employer liable for the acts of their employees that are committed within the scope of their employment. This means that if an employee commits a tort (negligent or intentional act that harms another person) while carrying out their job responsibilities, the employer can be held responsible for any resulting damages.

Question 12

An agent is not normally liable on a contract he makes with a third party on behalf of a(n):

Accepted Answer

When an agent enters into a contract with a third party on behalf of a disclosed principal, the third party knows the identity of the principal and therefore can hold the principal liable for any breach of contract. In contrast, when an agent enters into a contract with a third party on behalf of an undisclosed or unidentified principal, the third party may be unable to hold the principal liable and may only be able to sue the agent. Therefore, an agent is not normally liable on a contract he makes with a third party on behalf of a disclosed principal.

Question 13

A subagent is an agent of both the principal and the agent.

Accepted Answer

A subagent is authorized by an agent to act on behalf of the principal and holds a position between the principal and the agent. The subagent is considered an agent of both the principal and the agent.

Question 14

Which of the following is not correct regarding the relationship between an independent contractor and a principal?

Accepted Answer

The contractor is not liable under respondeat superior because they are not an employee of the principal. Respondeat superior applies to the liability of an employer for the actions of their employees, not independent contractors.

Question 15

The principal may ratify either the entire contract or the part that is advantageous to the principal.

Accepted Answer

Ratification by a principal must be of the entire contract, not merely a part of it. Ratification is an all-or-nothing action where the principal accepts all terms of the contract, including both its benefits and its burdens.

Question 16

Which of the following is true with regard to contractual relations between the principal and a third party?

Accepted Answer

An undisclosed principal and the third party are contractually bound if the agent acts within her actual authority, unless the contract specifies otherwise. This is because the third party enters into the contract with the agent believing the agent to be the principal, therefore the undisclosed principal can be bound by the contract as long as the agent was acting within the scope of her actual authority. The other choices are incorrect. There may be liability on the part of the principal even if the agent acts with implied authority (A). A principal can be bound even if the agent acts without any authority if the principal ratifies the contract after the fact (C). An unidentified principal can be bound if the agent acts with either actual or apparent authority (D).

Question 17

Pat bought a cotton sweater at Ivey's Fashion Store. Sue, the salesperson, told her the sweater was guaranteed not to shrink if washed in cold water by hand. Pat washes the sweater as directed, and it shrinks. Which of the following is correct?

Accepted Answer

Sue, the salesperson, had apparent authority to make warranties, which means the store is bound by her statements. Therefore, Pat can hold the store responsible for the misrepresentation made by Sue.

Question 18

Richard writes a letter to Sarah authorizing her to sell his car and sends a copy of the letter to Timothy, a prospective purchaser. The next day, Richard sends a letter to Sarah revoking her authority, but he fails to notify Timothy. Sarah:

Accepted Answer

Sarah has apparent authority to sell the car to Timothy because she was authorized by Richard and sent a copy of the authorization letter to Timothy. Timothy had no reason to believe that the authority was revoked since he was not notified of the revocation. Therefore, he could reasonably assume that Sarah still had the authority to sell the car. This is known as apparent authority.

Question 19

Sam is George's agent. George decides to fire Sam. Mel is an old customer of George's and he has dealt with Sam for over 20 years. Ellie is a prospective customer that Sam has spoken with on numerous occasions in his capacity as George's agent, and George was aware of the preliminary negotiations. Mel orders goods from Sam after Sam has been fired but Mel has no knowledge of the firing. Later, Sam takes an order from Ellie, who does not know of the firing. Using the rules of the Second Restatement, which of the following statements would apply to this scenario?

Accepted Answer

The answer of Sam is George's agent. George decides to...

Question 20

For a ratification to be effective, the principal:

Accepted Answer

For ratification to be effective, the principal must have been aware of all the material facts related to the transaction and must have existed at the time the act in question was performed. This ensures that the principal can make an informed decision to ratify the act and that the act was legally capable of being ratified at the time it was performed.

Quiz 29: Relationship With Third Parties