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Business Law Chapter 14 Study Guide
True/False
Indicate whether the statement is true or false.
1. An agent owes a principal the duty of obedience.
2. Agents are held liable for all mistakes made on behalf of the principal.
3. Good faith means to deal honestly with another party with no intent to
seek advantage or to defraud.
4. An agency may be terminated by acts of the parties.
5. Vicarious liability is based on the principle of respondeat superior.
6. A proprietor can be held liable for the torts of an independent contractor.
7. Gratuitous agents do not have to follow the fiduciary duty of obedience.
8. Agents keep the principal’s money safe and separate by using a trust
account.
9. Principals are usually held liable for proven injuries in contractual
disputes.
10. When employees are acting within the scope of employment, they are
usually held liable for the actions of their employers.
Multiple Choice
Identify the choice that best completes the statement or answers the question.
11. An agent's obligation to deal honestly with another party is known as
a. mutual agreement.
c. habeas corpus.
b. good faith.
d. implied authority.
12. An agent who suffers a loss as a result of a principal's instructions is
entitled to
a. indemnification.
b. compensation.
c. cooperation.
d. remuneration.
13. A principal who makes his or her agent's job difficult or impossible has
breached the duty of
a. reimbursement.
c. cooperation.
b. authority.
d. obedience.
14. An agent who has an interest in the subject matter of the agency has a(n)
a. irrevocable agency.
c. interested agency.
b. express agency.
d. undisclosed agency.
15. Which of the following is NOT a fiduciary duty that an agent owes a
principal?
a. good faith
c. hope
b. obedience
d. loyalty
16. If an agent is authorized to sell a car for a person, but the car is totaled in
an accident, then
a. the agency relationship is terminated.
b. the agent is held liable for the car.
c. the principal is held liable for the car.
d. the agency is terminated by mutual consent.
17. If the third party is not aware of the agency relationship, the principal
a. should use an actual notice.
c. can give notice by telephone.
b. should use a notice by
d. does not need to give notice.
publication.
18. Which of the following is NOT an obligation that principals have to their
agents?
a. compensation
c. cooperation
b. obedience
d. indemnification
19. The agent becomes liable for an injury to a third party if
a. the principal has made an agreement or performed tasks beyond his
or her authority to do so.
b. the agent is a minor and does not have capacity to sign a contract
but the principal has not disclosed this fact.
c. the principal is undisclosed and the third party can not identify the
principal.
d. the agent has decided to hire independent contractors to complete
the task.
20. When a proprietor fails to fire an independent contractor after learning
that he or she is unable to do the job, it is called
a. incompetent retention.
c. negligent retention.
b. incompetent hiring.
d. negligent hiring.
Completion
Complete each statement.
21. The agent's duty to notify the principal of all matters pertaining to the
agency relationship is known as ____________________.
22. An agency relationship is ____________________ when the parties have
fully carried out their duties.
23. A principal who fails to notify third parties that an agency has ended may
be ____________________ for future acts of his or her agent.
24. Notice by ____________________ mail is a smart way to give actual
notice of termination of an agency relationship.
25. A principal does not have a duty to pay ____________________ to a
gratuitous agent.
26. A(n) ___________________ duty is one that cannot be transferred to
another party.
27. Agency relationships can be terminated by operation of law or by the acts
of the ____________________.
28. When the third party has done only a cash business with the agent, a(n)
____________________ is sufficient to terminate the agency relationship.
29. Fiduciary comes from the Latin word for ____________________.
Matching
Match each term with its definition.
a. fiduciary relationship
f.
b. respondeat superior
g.
c. self-dealing
h.
d. double representation
i.
e. reimbursement
j.
indemnification
cooperation
compensation
actual notice
notice by publication
30. The duty of the principal not to interfere with the performance of tasks
that the principal assigns to the agent
31. A legal doctrine that says the master is responsible for the torts of his or
her servants
32. When an agent works for two competing principals
33. Repayment for money spend on someone else's behalf
34. Based on trust
35. When agents make deals that benefit themselves rather than their
principals
36. Given directly to a party, usually using certified mail with a receipt
37. Usually given by publishing a notice in a local newspaper
38. Fair payment for the job performed
39. Repayment of money lost as a result of instruction given by principal and
carried out by agent
Short Answer
40. Discuss the two ways agency relationships can be terminated. Provide an
example of each.
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