- Which of the following correctly describes the duty of care owed by an agent to the principal?
Answer: An agent must act with the care and skill reasonably expected of a person in that position, and a professional agent must use the care and skill of a reasonably competent professional in their field.
An agent owes the principal a duty to act with the care and skill of a reasonably competent person in similar circumstances. If the agent holds themselves out as a professional (such as a real estate broker, attorney, or accountant), they are held to the standard of a reasonably competent professional in their field. This is a negligence standard, not strict liability. Answer A (highest possible standard) is too demanding and is not the legal standard. Answer C (strict liability) is incorrect because the agent's duty is based on reasonable care, not strict liability. Answer D is incorrect because the agency relationship does create legal obligations including the duty of care.
- Under agency law, what is ratification?
Answer: The principal's approval of an unauthorized act already performed by the agent, which retroactively binds the principal to the contract as if the act had been authorized from the beginning.
Ratification occurs when a principal approves or affirms an unauthorized act that was purportedly done on their behalf. Upon ratification, the contract is treated as if it had been authorized from the outset, and the principal is fully bound. Ratification generally requires that the principal know all material facts at the time of ratification and that the principal ratify the entire transaction. Answer B describes the principal giving instructions to the agent, not ratification of past acts. Answer C describes an agency agreement. Answer D is incorrect because ratification is an act by the principal, not the third party.
- An agent acting without authority enters into a contract on behalf of a principal. The principal later learns of the contract but decides not to ratify it. What remedy does the third party have?
Answer: The third party may sue the agent for breach of the implied warranty of authority.
When an agent acts without authority and the principal does not ratify, the agent is personally liable to the third party for breach of the implied warranty of authority. By purporting to act as an agent, the agent impliedly warrants that they have the authority to bind the principal. When that warranty is breached, the agent is liable for the third party's resulting damages. Answer A is incorrect because the principal is not bound by an unauthorized act that was not ratified. Answer B is incorrect because the third party does have a remedy against the agent. Answer C is incorrect because rescission is a remedy for contract formation defects, not for the agent's lack of authority.
- An agent is personally liable to a third party for a contract when which of the following is true?
Answer: The agent acted for an undisclosed principal, because the third party reasonably believed they were contracting with the agent personally.
An agent is personally liable on a contract when they fail to disclose the existence of the principal, creating an undisclosed principal situation. The third party believed they were dealing with the agent directly and is entitled to hold the agent liable. The agent is also personally liable if they disclose that they are acting as an agent but do not reveal the principal's identity (partially disclosed principal). Answer B is incorrect because full disclosure removes the agent from personal liability. Answer C is incorrect because acting within actual authority for a disclosed principal also removes personal liability. Answer D is incorrect because signing in the principal's name is proper agency conduct that removes the agent from liability.
- What is the 'equal dignity rule' in the context of agency law?
Answer: The rule that if a contract is required to be in writing to be enforceable (under the Statute of Frauds), the agent's authority to enter into that contract on behalf of the principal must also be in writing.
The equal dignity rule provides that an agent's authority must be granted with the same formality required for the underlying transaction. If the contract the agent is authorized to make must be in writing to be enforceable (e.g., a real estate contract under the Statute of Frauds), then the authority to enter into that contract must also be in writing (typically through a power of attorney). Answer A is incorrect because the rule does not address equal treatment of agents and principals. Answer B is incorrect because compensation for the agent does not trigger the equal dignity rule. Answer D is incorrect because the rule addresses the form of granting authority, not the scope of authority.
- An employee delivers goods for their employer and, while making a delivery, takes a minor detour to buy lunch at a nearby restaurant. During the detour, the employee negligently causes an accident. Is the employer liable?
Answer: Yes, because a minor detour (a 'detour') from the scope of employment does not remove the act from the scope of employment, and the employer remains vicariously liable.
Courts distinguish between a detour (a minor deviation from the assigned route) and a frolic (a substantial departure for purely personal purposes). A minor side trip such as stopping for lunch near the delivery route is generally a detour, which does not take the employee outside the scope of employment. The employer remains vicariously liable for accidents during detours. Answer A incorrectly characterizes all deviations as frolics. Answer B is incorrect because vehicle ownership is not determinative. Answer D is incorrect because minor lunch breaks near the work route are typically detours, not frolics, and do not categorically remove the activity from scope of employment.
- A principal terminates an agent's actual authority. A long-standing customer then deals with the former agent, unaware of the termination. Is the principal bound by the former agent's acts?
Answer: Yes, because the former agent still has apparent authority until the principal provides actual or constructive notice of the termination to third parties who previously dealt with the agent.
When actual authority is terminated, apparent authority may survive until proper notice of termination is given. Third parties who previously dealt with the agent are entitled to actual notice of termination (direct notification). Third parties who knew of the agency but never personally dealt with the agent are entitled to constructive notice (such as publication). Until proper notice is given, the principal may be bound by the former agent's acts under apparent authority theory. Answer B is correct. Answer A addresses only the termination of actual authority and ignores the apparent authority that survives until the principal provides proper notice to parties who previously dealt with the agent. Answer C is incorrect because apparent authority does not automatically terminate with actual authority; it persists until notice is communicated. Answer D incorrectly conditions the outcome on the customer proving damages; the binding effect of apparent authority does not require a showing of harm.
- Which of the following correctly describes the requirements for a principal to successfully ratify an unauthorized act by an agent?
Answer: Ratification requires that the principal have knowledge of all material facts at the time of ratification, ratify the entire transaction, and ratify before the third party withdraws.
For a valid ratification, the principal must: (1) have full knowledge of all material facts at the time of ratification, (2) ratify the entire transaction (cannot ratify the beneficial parts while rejecting the unfavorable parts), (3) ratify before the third party has withdrawn from the contract, and (4) ratify while the principal has capacity to do so. Answer A is incorrect because ratification does not require consideration; it is a unilateral act by the principal. Answer C is incorrect because ratification may be express or implied and does not require a writing unless the underlying contract requires one. Answer D is incorrect because the agent's consent is not required for ratification.
- Under agency law, when does an agent have 'emergency authority' to act beyond the scope of granted authority?
Answer: When an unforeseen emergency arises that threatens harm to the principal's interests and the agent cannot reach the principal in time to obtain instructions.
Emergency authority (or authority by necessity) allows an agent to take reasonable actions beyond granted authority when an unforeseen emergency arises that threatens the principal's interests and the agent cannot timely consult with the principal. The emergency must be genuine and the agent's response must be reasonable under the circumstances. Answer A is incorrect because the agent's personal judgment that something would benefit the principal does not create emergency authority. Answer B is incorrect because mere inability to reach the principal by phone is not sufficient; there must be a genuine emergency threatening harm. Answer C is incorrect because disagreement with instructions does not create emergency authority.
- An agent contracts with a third party but does not disclose the existence of the principal at all. This is a contract made on behalf of an undisclosed principal. Which of the following correctly describes the third party's rights?
Answer: When the undisclosed principal's identity is later revealed, the third party may sue either the agent or the undisclosed principal, but must elect one upon obtaining a judgment.
When a contract is made on behalf of an undisclosed principal, both the agent and the principal may be held liable because the third party did not know there was a principal. Upon discovering the principal's identity, the third party may sue either the agent or the principal. However, once the third party obtains a judgment against one, they typically cannot pursue the other on the same contract (election of remedies). Answer A is incorrect because the agent may also be sued. Answer B is incorrect because the undisclosed principal may also be liable once discovered. Answer C is partially correct in the election concept but overstates the limitation to pre-judgment.
- Implied actual authority of an agent arises from which of the following?
Answer: Authority that is reasonably necessary to carry out the agent's expressly granted duties, or that is customarily associated with the agent's position.
Implied actual authority is actual authority that is not expressly stated but is reasonably inferred from the nature of the agent's position, the express authority granted, or the circumstances of the agency. It includes authority to do things that are customary, necessary, or incidental to carrying out the express authority. Answer A describes apparent authority, which is based on third-party perception. Answer C describes emergency authority or authority by necessity, a more specific concept. Answer D describes ratification, not implied authority.
- A fully disclosed agent enters into an authorized contract on behalf of a principal. The principal later breaches the contract. Which of the following correctly states the agent's liability to the third party?
Answer: The agent has no personal liability to the third party; only the principal is liable for the breach of an authorized contract made for a fully disclosed principal.
When an agent acts for a fully disclosed principal within actual authority, the contract is between the principal and the third party. The agent is not a party to the contract and bears no personal liability for the principal's subsequent breach. The agent's role was merely as a conduit to form the contract. Answer B is incorrect because the agent's full disclosure of the principal removes the agent from personal liability. Answer C is incorrect because signing on behalf of a disclosed principal (in the principal's name or as agent) does not create personal liability. Answer D is incorrect because the agent's knowledge of the breach does not create personal liability.
- An agent commits fraud against a third party while conducting the principal's business. Under which theory may the principal be liable for the agent's fraud?
Answer: The principal may be liable under respondeat superior if the agent's fraudulent act was within the scope of employment, or under apparent authority if the principal's conduct enabled the fraud.
A principal may be liable for an agent's fraud under respondeat superior if the fraudulent act was within the scope of employment, even though fraud is an intentional tort. Additionally, a principal who creates the apparent authority that enables an agent to commit fraud may be liable on an apparent authority theory. Courts have held that employers are vicariously liable for employee fraud when the employment facilitated or enabled the fraud. Answer B is incorrect because intentional torts within the scope of employment can give rise to respondeat superior liability. Answer C is incorrect because the principal need not personally participate. Answer D is incorrect because the principal's property is not the relevant test.
- An employee driving a company car has an accident while running a personal errand during work hours. Under respondeat superior, is the employer liable for the accident?
Answer: No, because the employee was on a frolic (a personal deviation from the scope of employment), and the employer is generally not liable for torts committed outside the scope of employment.
Under respondeat superior, an employer is liable for the torts of an employee only if the tort is committed within the scope of employment. A frolic is a substantial departure from the employer's business for purely personal reasons, which removes the activity from the scope of employment. A personal errand during work hours may constitute a frolic, for which the employer is not vicariously liable. Answer A is incorrect because vehicle ownership does not determine vicarious liability; scope of employment is the test. Answer B is incorrect because working hours alone do not establish scope of employment if the employee is pursuing personal activities. Answer C is incorrect because the vehicle's ownership is not the determining factor.
- An agent makes a contract with a third party on behalf of a disclosed principal. The third party later learns that the contract is unfavorable. Against whom may the third party bring a breach of contract action?
Answer: Against the principal, because the agent acted for a disclosed principal and the principal is bound by the agent's authorized acts; the agent is generally not personally liable.
When an agent acts for a disclosed principal (a principal whose identity is known to the third party) and within authority, the contract is between the third party and the principal. The agent is generally not personally liable on the contract. The third party's remedy for breach is against the principal. Answer C is correct. Answer A is incorrect because the agent escapes personal liability when acting for a disclosed principal within authority; the agent's signature does not create personal liability when the principal is fully disclosed. Answer B is incorrect because there is no exhaustion-of-remedies requirement; the third party may proceed directly against the principal without first pursuing the agent, and the agent has no personal liability on the contract in a disclosed principal transaction. Answer D is incorrect because full disclosure of the principal's identity generally removes the agent from personal liability on the contract.
- Stellar Corp appoints Mia as its sales agent and provides her with business cards identifying her as 'Regional Sales Director.' Stellar then secretly instructs Mia that she may not offer discounts exceeding 10%. Mia offers a customer a 20% discount and signs a contract. Is Stellar bound by this contract?
Answer: Yes, because Mia had apparent authority as 'Regional Sales Director' to offer normal sales discounts, and the customer reasonably relied on her title.
Stellar created apparent authority by holding Mia out as 'Regional Sales Director' - a title that a reasonable customer would associate with authority to negotiate typical sales terms including discounts. The secret internal restriction on discounts does not limit Mia's apparent authority because the customer had no notice of it. The principal is bound when a third party reasonably relies on apparent authority created by the principal's representations. Answer B is correct. Answer A focuses only on the exceeded actual authority and ignores apparent authority; actual authority and apparent authority are independent bases for binding the principal, and exceeding actual authority does not defeat apparent authority. Answer C is incorrect because a third party is not required to independently verify every agent's authority when the principal has held the agent out with a title. Answer D is incorrect because the agent's good faith is not the determinative factor for apparent authority.
- Nexus Corp hires an independent contractor to repave its parking lot. During the work, a third party pedestrian is injured due to the contractor's negligence. Under what exception to the general rule might Nexus Corp be liable?
Answer: Nexus Corp may be liable under the inherently dangerous activity exception, which holds the principal liable for negligence involving activities that are inherently or abnormally dangerous.
While a principal is generally not liable for an independent contractor's negligence, exceptions apply for: (1) inherently dangerous or abnormally hazardous activities, (2) non-delegable duties imposed by law, (3) negligence in selecting or supervising the contractor, and (4) work done in a public place. Repaving a parking lot may involve inherent hazards (heavy equipment, traffic proximity), potentially triggering the inherently dangerous exception. Answer A is incorrect because property ownership does not create automatic liability for contractor torts. Answer B is incorrect because routine maintenance is not inherently dangerous. Answer D is incorrect because retaining the right to inspect the completed work (not the work process) generally does not create liability.
- Which of the following facts is most determinative in distinguishing an employee from an independent contractor for agency liability purposes?
Answer: The degree of control the principal exercises over the manner and means by which the work is performed.
The most important factor in distinguishing an employee from an independent contractor is the degree of control the principal exercises over the manner and means of performing the work. An employee is subject to the principal's direction and control in how they do their work; an independent contractor is only controlled as to the result. Answer A (payment method) is a factor but not the most determinative. Answer B (tools and equipment) is a relevant factor but secondary to control. Answer D is incorrect because the label in a contract does not conclusively determine the legal status; courts look at the actual relationship.
- Under agency law, which of the following correctly describes actual express authority of an agent?
Answer: Authority that is explicitly granted to the agent by the principal through spoken or written words, creating the right to act on the principal's behalf within the scope of that grant.
Express authority is the most direct form of actual authority. It is created when the principal explicitly communicates to the agent (orally or in writing) that the agent has the right to act in a specified manner on the principal's behalf. Answer B describes implied actual authority, which arises from the circumstances of the relationship. Answer C describes apparent authority or authority implied from position. Answer D is incorrect because express authority may be oral; a writing is not required (though the equal dignity rule may require a writing when the agent is to execute a contract that must be in writing).
- Under the duty of loyalty, which of the following is prohibited for an agent?
Answer: An agent purchasing for themselves property that the principal has instructed the agent to purchase on the principal's behalf, without the principal's consent.
The duty of loyalty requires an agent to act solely in the principal's interests and to avoid self-dealing or conflicts of interest without the principal's fully informed consent. An agent who purchases for themselves property that the principal directed the agent to acquire has engaged in prohibited self-dealing - a classic breach of the duty of loyalty. Answer B describes proper performance of duties. Answer C describes fulfillment of the duty to inform/communicate, which is required, not prohibited. Answer D is a legitimate act that does not conflict with the principal's interests.
