Principal and Agent Problems from West Business Law
1. National Supplies Company hires Owen and Paula as employees to deal with third-party purchasers and suppliers. Owen and Paula are:
a. agents and principals.
b. agents only.
c. neither agents nor principals.
d. principals only.
2. Home Interiors, Inc. (HII), tells Jan, whose business is purchasing for others, to select and buy $200 worth of certain goods and ship them to HII’s office. Jan buys the goods from Brand Name Products Store and ships them as directed, keeping an account for the expense in HII’s name. HII and Jan
a. do not have an agency relationship, because Jan’s business is buying for others.
b. do not have an agency relationship, because Jan did not indicate that she was acting for Baron.
c. do not have an agency relationship, because their agreement is not in writing.
d. have an agency relationship
3. Based on a Sample CPA Question. Doug agrees to act as an agent for Great Sales Corporation (GSC) on a commission basis. The agreement does not call for Doug to pay expenses out of his commission. GSC is required to
a. keep records, account to Doug, and pay Doug according to the agreement.
b. reimburse Doug for all authorized expenses.
c. both a and b.
d. none of the above.
4. Greg, a salesperson at Home Electronics Company, tells Irma, a customer, “Buy your computer here, and I’ll set it up for less than what Home would charge.” Irma buys the computer, Greg sets it up, and Irma pays Greg, who keeps the money. Greg has breached the duty of
a. loyalty
b. notification.
c. obedience.
d. performance.
5. Carol is a salesperson who works for Delta Products, Inc. In determining whether Carol is Delta’s employee or an independent contractor, the most important factor is
a. the degree of control that Delta exercises over Carol.
b. the distinction between Delta’s business and Carol’s occupation.
c. the length of the working relationship between Delta and Carol.
d. the method of payment.
6. Standard Company and Tom wish to enter into an agency relationship for the purpose of buying computers for Standard’s offices. This relationship requires
a. a written agreement and consideration.
b. a written agreement only.
c. consideration only.
d. neither a written agreement nor consideration.
7. Ann gives Bill the impression that Carol is Ann’s agent, when in fact she is not. Bill deals with Carol as Ann’s agent. Regarding any agency relationship, Ann
a. can deny it.
b. can deny it to the extent of any injury suffered by Bill.
c. can deny it to the extent of any liability that might be imposed on Ann.
d. cannot deny it.
8. Eagle Company hires Fran, who holds herself out as possessing special accounting skills, to act as its agent. As an agent, Fran must use the degree of skill or care expected of
a. an average, unskilled person.
b. a person having those special skills.
c. a reasonable person.
d. Eagle Company.
9. Pat asks Quinn, a real estate broker, to sell her land. Quinn learns that Retail Mall Corporation (RMC) is willing to pay a high price for the land. Without telling Pat about RMC, Quinn says that he will buy the land himself. Instead, however, Pat sells the land to Sam. Quinn sues Pat. Quinn will
a. lose, because Pat was not Quinn’s principal.
b. lose, because Quinn breached his duty to Pat.
c. win, because Pat breached her duty to Quinn.
d. win, because Quinn was never Pat’s agent.
10. Andy is an officer for Beta Corporation. When acting for Beta in ordinary business situations, Andy is
a. an agent only.
b. an agent and a principal.
c. a principal only.
d. neither an agent nor a principal.
11. Java Company hires Ken to manage one of its stores. Although their employment agreement says nothing about Ken being able to hire employees to work in the store, Ken has this authority. This is
a. apparent authority.
b. express authority.
c. imagined autheority.
d. implied authority.
12. Macro Company employs Nora as an agent. To terminate Nora’s authority, Macro must notify
a. Nora and third parties who know of the agency relationship.
b. only Nora.
c. only third parties who know of the agency relationship.
d. the public generally.
13. Security Guns & Ammo, Inc., directs its salespersons never to load a gun during a sale. Bert, a salesperson, loads a gun during a sale. The gun fires, negligently injuring Kathy, who is in the store. Security is
a. not liable, because Bert was not acting within the scope of employment.
b. not liable because employers are not responsible for their employees’ torts.
c. liable under the doctrine of respondeat superior.
d. liable under the doctrine of res ipsa loquitur.
14. Ron orally engages Dian to act as his agent. During the agency, Ron knows that Dian deals with Mary. Ron also knows that Pete and Brad are aware of the agency but have not dealt with Dian. Ron decides to terminate the agency. Regarding notice of termination,
a. Dian need not be notified in writing.
b. Dian’s actual authority terminates without notice to her of Ron’s decision.
c. Dian’s apparent authority terminates without notice to Mary.
d. Pete and Brad must be directly notified.
15. Smith Petroleum, Inc. contracts to sell oil to Jones Petrochemicals, telling Jones that it is acting on behalf of a “a rich Saudi Arabian who doesn’t want his identity known.” Smith signs the contract, “Smith, as agent only.” In fact, Smith is acting on its own. If the contract is breached, Smith may
a. not be liable, because Smith signed the contract as an agent.
b. not be liable, unless Jones knew Smith did not have authority to act.
c. be liable, unless Jones knew Smith did not have authority to act.
d. be liable, because Smith signed the contract as an agent.
16. Quality Products Company requires its customers to pay by check. Ray, a Quality agent, tells customers that they can pay him with cash. Quality learns of Ray’s collections, but takes no action to stop them. Ray steals some of the cash. Quality may be liable for the loss under the doctrine of
a. apparent authority.
b. express authority.
c. imagined authority.
d. implied authority.
17. Based on a Sample CPA Exam Question. Kay acts within the scope of her authority to enter into a contract with First National Bank on behalf of Kay’s undisclosed principal, Digital Engineering, Inc. Digital is
a. liable on the contract only if Digital ratifies the contract.
b. liable on the contract only if Digital’s identity is later disclosed.
c. liable on the contract under the stated circumstances.
d. not liable on the contract
18. National Manufacturing, Inc., employs Mark as an assembly worker. While attempting, without National’s knowledge, to steal a forklift from National’s property, Mark has an accident, negligently injuring Pam. Pam can recover from
a. National only.
b. Mark only.
c. National and Mark.
d. none of the above
19. Standard Delivery Company employs Tina as a driver. While driving within the scope of employment, Tina causes an accident in which Vic is injured. Vic can recover from
a. neither Standard nor Tina
b. Standard only.
c. Standard or Tina.
d. Tina only.
20. American Grocers, Inc. employs Jill to buy and install a computer system for American’s distribution network. When the system is set up and running, the agency
a. terminates automatically.
b. terminates after fourteen days.
c. continues for one year.
d. continues indefinitely.
1. Don contracts with Eve to buy a certain horse for Eve, who asks Don not to reveal her identity. Don makes a deal with Farm Stables, the owner of the horse, and makes a down payment. Eve fails to pay the rest of the price. Farm Stables sues Don for breach of contract. Can Don hold Eve liable for whatever damages he has to pay?
2. Alpha Corporation wants to build a new mall on a specific tract of land. Alpha enters into a contract with Beth to buy the land. When Beth learns the difference between the price that Alpha is willing to pay and the price at which the owner is willing to sell, she wants to buy the land and sell it to Alpha herself. Can she do that?
3. Ann, owner of Best Goods Company, employs Cathy as an administrative assistant. In Ann’s absence, and without authority, Cathy represents herself as Ann and signs a promissory note in Ann’s name. In what circumstance is Ann liable on the note?
4. United Delivery Service employs Otis as a driver. One afternoon, United tells Otis to deliver a certain package within the hour. While making the delivery, to bypass a traffic jam, Otis recklessly drives onto the sidewalk, injuring Bea. Is United liable to Bea? Is Otis liable to Bea?
5. Great State Bank encourages its depositors to ask its advice concerning their investments. Holly, one of the bank’s investment counselors, tells Ira to invest in Jiffy Corporation, although Holly knows its financial situation is precarious. If Ira loses money on the deal, can the bank be held liable?
A. Ford Motor Credit Co. is a subsidiary of Ford Motor Co. with its own offices, officers, and directors. Ford Credit buys contracts and leases of automobiles entered into by dealers and consumers. Ford Credit also provides inventory financing for dealers’ purchases of Ford and non-Ford dealers. Dealers and consumers are not required to finance their purchases or leases of Ford vehicles through Ford Credit. Ford Motor is not a party to the agreements between Ford Credit and its customers and does not directly receive any payments under those agreements. Also, Ford Credit is not subject to any agreement with Ford Motor ‘restricting or conditioning’ its ability to finance the dealers’ inventories or the consumers’ purchases or leases of vehicles. A number of plaintiffs filed a product liability suit in a Missouri state court against Ford Motor. Ford Motor claimed that the court did not have venue. The plaintiffs asserted that Ford Credit, which had an office in the jurisdiction acted as Ford’s “agent for the transaction of its usual and customary business” there. Is Ford Credit an agent of Ford Motor? Discuss. [State ex rel. Ford Motor Co. v. Bacon, 63 S.W.3d 641 (Mo. 2002)]
B. Lee Dennegar and Mark Knutson lived in Dennegar’s house in Raritan, New Jersey. Dennegar paid the mortgage and other household expenses. With Dennegar’s consent, Knutson managed their household’s financial affairs and the “general office functions concerned with maintaining the house.” Dennegar allowed Knutson to handle the mail and “to do with it as he chose.” Knutson wrote checks for Dennegar to sign, although Knutson signed Dennegar’s name to many of the checks with Dennegar’s consent. At & T Universal issued a credit card in Dennegar’s name in February 2001. Monthly statements were mailed to Dennegar’s house, and payments were sometimes made on those statements. Knutson died in June 2003. The unpaid charges on the card of $14,752.93 were assigned to New Century Financial Services, Inc. New Century filed a suit in a New Jersey state court against Dennegar to collect the unpaid amount. Dennegar claimed that he never applied for or used the card and knew nothing about it. Under what theory could Dennedar be liable for the charges? Explain. [New Century Financial Services, Inc. v. Dennegar, 394 N.J. Super. 595, 928 A.2d 48 (A.D. 2007)]
C. Summerall Electric Co. and other subconstractors were hired by National Church Services, Inc. (NCS), which was the general contractor on a construction project for the Church of God at Southaven. As work progressed, payments from NCS to the subcontractrors were late and eventually stopped altogether. The church had paid NCS in full for the entire project beforehand, but apparently NCS had mismanaged the project. When payments from NCS stopped, the subcontractors filed mechanic’s liens (see chapter on Creditor’s Rights) for the value of the work they had performed but for which they had not been paid. The subcontractors sued the church, contending that it was liable for the payments because NCS was its agent on the basis of either actual or apparent authority. Was NCS an agent for the church, thereby making the church liable to the subcontractors? Explain your reasoning. [Summerall Electric Co. v. Church of God at Southaven, 25 So. 3d 1090 (App. Miss. 2010)]
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