Multiple Choice Questions
1. At Business University, semester enrollment begins at midnight on April 1. Jasper asked his
roommate Alonso as a favor to register him for an important required course. Alonso agreed to do so
but then overslept. As a result, Jasper could not enroll in the required course he needed to graduate
and had to stay in school for an additional semester. Is Alonso liable to Jasper?
(a) No, because an agency agreement is invalid unless the agent receives payment.
(b) No, because Alonso was not grossly negligent.
(c) No, because the cost of the extra semester is unreasonably high.
(d) Yes, because Alonso disobeyed his instructions.
Answer: B. A gratuitous agent is only liable for gross negligence.
2. Finn learns that, despite his stellar record, he is being paid less than other salespeople at Barry Co. So
he decides to start his own company. During his last month on the Barry payroll, he tells all of his
clients about his new business. He also tells them that Barry is a great company, but his fees will be
lower. After he opens the doors of his new business, most of his former clients move with him. Is
Finn liable to Barry?
(a) No, because he has not been disloyal to Barry -- he praised the company.
(b) No, because Barry was underpaying him.
(c) No, because his clients have the right to hire whichever company they choose.
(d) Yes, Finn has violated his duty of loyalty to Barry.
Answer: D.
3. Kurt asked his car mechanic, Quinn, for help in buying a used car. Quinn recommends a Ford Focus
that she has been taking care of its whole life. Quinn was working for the seller. Which of the
following statements is true?
(a) Quinn must pay Kurt the amount of money she received from the Ford's prior owner.
(b) After buying the car, Kurt discovers it needs $1000 in repairs. He may recover that amount from
Quinn, but only if Quinn knew about the needed repairs before Kurt bought the car.
(c) Kurt cannot recover anything because Quinn had no obligation to reveal her relationship with the
car’s seller.
(d) Kurt cannot recover anything because he had not paid Quinn for her help
Answer: A.
4. Figgins is the dean of a college. He appointed Sue acting dean while he was out of the country and
posted an announcement on the college web site announcing that she was authorized to act in his
place. He also told Sue privately that she did not have the right to make admissions decisions. While
Figgins was gone, Sue overruled the admissions committee to admit the child of a wealthy alumnus.
Does the child have the right to attend this college?
(a) No, because Sue was not authorized to admit him.
(b) No, because Figgins did not ratify Sue’s decision.
(c) Yes, because Figgins was a fully disclosed principal.
(d) Yes, because Sue had apparent authority.
Answer: D.
5. CPA QUESTION A principal will not be liable to a third party for a tort committed by an agent:
(a) Unless the principal instructed the agent to commit the tort
(b) Unless the tort was committed within the scope of the agency relationship
(c) If the agency agreement limits the principal’s liability for the agent’s tort
(d) If the tort is also regarded as a criminal act
Answer: B.
6. CPA QUESTION Cox engaged Datz as her agent. It was mutually agreed that Datz would not
disclose that he was acting as Cox’s agent. Instead he was to deal with prospective customers as if he
were a principal acting on his own behalf. This he did and made several contracts for Cox.
Assuming Cox, Datz, or the customer seeks to avoid liability on one of the contracts involved, which
of the following statements is correct?
(a) Cox must ratify the Datz contracts in order to be held liable.
(b) Datz has no liability once he discloses that Cox was the real principal.
(c) The third party can avoid liability because he believed he was dealing with Datz as a principal.
(d) The third party may choose to hold either Datz or Cox liable.
Answer: D.