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TESTBANK
to accompany
BUSINESS LAW
3rd edition
Prepared by
Nickolas James
Bond University
Updated by
Verity Greenwood
Macquarie University
Chapter 7
Dealing with Agents
1. Solicitors are:
General Feedback:
See Chapter 7, 'Getting someone else to do it'.
General Feedback:
See Chapter 7, 'Getting someone else to do it'.
General Feedback:
See Chapter 7, 'Getting someone else to do it'.
c. Selling stock, insurance, finance, cars etc. that they have purchased.
d. Selling stock, insurance, finance, cars etc. that they own.
General Feedback:
See Chapter 7, 'Getting someone else to do it'.
General Feedback:
See Chapter 7, 'Getting someone else to do it'.
Feedback:
a) See Chapter 7, 'Getting someone else to do it'.
and the client.
7. Del credere agents are generally paid a higher commission than other agents because:
*a. They agree to indemnify the principal in the event of non-performance by the third
party.
b. They have special skills and experience.
c. They agree to indemnify the principal in the event of negligence on their part.
d. They work in at the upper end of the stock market dealing with high volumes of
premium stocks and shares.
General Feedback:
See Chapter 7, 'Getting someone else to do it'.
General Feedback:
See Chapter 7, 'Scope of authority'.
9. Which of the following is not a requirement for establishing that an agent has apparent
authority?
General Feedback:
See Chapter 7, 'Scope of Authority'.
10. In which of the following circumstances will an agent's act not generally be binding on
the principal because the agent has no authority (leaving aside contexts in which the agent
has apparent authority)?
a. When the agent was given verbal authority by the principal to do the act.
b. When the principal has ratified the act verbally.
c. When the act was something necessary or appropriate given the scope of the
agent's actual authority although they had no express authority.
*d. When the agent's authority was given verbally in circumstances in which
legislation required the authority to be given in writing.
General Feedback:
See Chapter 7, 'Scope of Authority'.
11. The nature and extent of the implied authority of a company director to act on behalf of
the company:
General Feedback:
See Chapter 7, 'Scope of authority'.
12. An agent will have 'authority by estoppel' to bind the principal in circumstances in which
the agent:
*a. Does not have actual authority but has apparent authority.
b. Does not have actual or apparent authority but has behaved in good faith.
c. Has not behaved in a manner that was unconscionable.
General Feedback:
See Chapter 7, 'Scope of Authority'.
13. When a principal tells an agent not to enter into a contract or behave in a particular
manner and the agent does so regardless, the principal will still be liable for the legal
consequences of the agent's act provided that, among other things:
*a. The principal has done something which has the effect of holding the agent out as
having the necessary authority.
b. The third party has suffered detriment and damages are an inappropriate remedy.
c. The third party knew that the agent did not have actual authority but thought on
reasonable grounds that the agent had apparent authority.
d. The principal ought to have foreseen that the agent would do the act or enter into
the contract.
General Feedback:
See Chapter 7, 'Scope of Authority'.
14. Freud Fallis, an organisational psychologist with the Australian Tax Department ('ATD'),
has long been complaining to management about the drabness of the ATD's offices and its
detrimental effect on staff morale. Weary of his persistence in championing unorthodox ideas,
ATD's management decide that Freud's contract will not be renewed. After this decision is
communicated to Freud, as a 'last hurrah' and without express authority, he moves ahead his
plans to engage the producers of a 60 minute makeover television show to revamp the ATD's
offices on a weekend. To Freud's surprise the ATD's management is not happy with the erotic
sculptures, strobe lighting and psychedelic wallpaper the decorators use. Which of the
following would mean that the ATD is not liable to pay the show's producers?
a. The producers of the show did not have actual or implied authority to transform the
offices of the tax department.
*b. It was not reasonable for the makeover show's producers to assume that Freud had
authority to make such outlandish renovations, and at the time they were engaged,
they did not believe that he had such authority.
c. Freud was not an independent contractor but was an employee of the ATD.
d. The ATD was not intending to renew Freud's contract and thus could not have
authorised the renovations.
General Feedback:
See Chapter 7, 'Scope of Authority'.
15. James Pierce is a Sydney pet shop owner who frequently orders litters of pedigree
puppies from interstate. These are delivered by rail to a local station where James collects
them. On one particular occasion, due to industrial action in Sydney, James cannot make it to
the station to collect a litter. Jeff, the manager of the rail yard, sees the train arrive and, after a
time, takes the liberty of arranging for the litter to be put into a nearby pet hotel for the
© John Wiley and Sons Australia, Ltd 2014
7.5
Testbank to accompany Business Law 3e by James
weekend, fearing that they will not survive at the rail yard in the summer heat. James, upset at
the high cost of the pet hotel, refuses to honour the contract Jeff has made with the hotel
owners. Which of the following matters is not relevant in determining whether or not James
must pay the hotel bill?
a. Whether Jeff could have contacted James at the time of the delivery to get express
instructions.
b. Whether Jeff acted in good faith.
c. Whether Jeff effectively had possession and control of the pets.
*d. Whether Jeff was authorised by his employer to take the puppies to the pet hotel.
General Feedback:
See Chapter 7, 'Scope of Authority'.
General Feedback:
See Chapter 7, 'Scope of Authority'.
a. It may be express.
b. It may be implied.
*c. It may take place before the act to be ratified has occurred.
d. A new company ('the principal') can ratify acts made by its founders ('the agents')
before the company came into existence.
General Feedback:
See Chapter 7, 'Scope of Authority'.
General Feedback:
See Chapter 7, 'Scope of Authority'.
© John Wiley and Sons Australia, Ltd 2014
7.6
Chapter 7: Dealing with Agents
19. Generally speaking, when will a person become expressly authorised to act as agent for a
principal?
General Feedback:
See Chapter 7, 'Scope of Authority'.
20. What is the relationship between the concepts of 'agent' and 'employee'?
General Feedback:
See Chapter 7, 'Getting someone else to do it'.
21. An agent who does something that they were not in fact authorised to do, but had
apparent authority to do, will:
General Feedback:
See Chapter 7, 'The agent's duties'.
22. If an agent does an act that they were expressly instructed by the principal not to do, and
the act is beyond the scope of their express or apparent authority, what will generally happen
if the act is a tort that causes harm to a third party?
*a. The Principal will not be liable for the agent's actions and the third party will not be
able to sue the principal in respect of the tort.
b. The Principal will be entitled to terminate the agent's employment and have them
prosecuted.
c. The Principal will be liable for the agent's actions and can be sued for the tort.
d. The agent will be an independent contractor.
General Feedback:
See Chapter 7, 'The agent's duties'.
*a. Will not be in breach of the duty to follow instructions if they have interpreted the
instructions honestly.
b. Has a duty to seek to clarify them before acting, or they will breach their duty to
follow instructions.
c. Is not obliged to follow the instructions.
d. Has a lower standard of care to the principal in respect of the task that is related to
the instructions.
General Feedback:
See Chapter 7, 'The agent's duties'.
*a. Any information they learn in the course of acting on behalf of the principal that a
reasonable person would think to be of interest to the principal.
b. Only information expressly requested by the principal.
c. Only information required to be passed on to the principal by the legislation
governing their relationship.
d. Any information they learn in the course of acting on behalf of the principal.
General Feedback:
See Chapter 7, 'The agent's duties'.
25. A real estate agent who learns that a property comparable to their client's property, in the
same street, sold for a price well above that for which their client's property is listed on the
market should:
General Feedback:
See Chapter 7, 'The agent's duties'.
26. An agent in Queensland who fails to carry out their job with due care and skill will not be
liable in negligence if:
*a. They are a professional and they acted in a manner that is widely accepted in
Australia by peer professional opinion to be competent professional practice.
b. They have exercised the level of skill and competence that they and their peers
would exercise in their own affairs.
c. They are not a professional.
d. They are a gratuitous agent and therefore owe a lesser standard of care to the
principal.
General Feedback:
See Chapter 7, 'The agent's duties'.
General Feedback:
See Chapter 7, 'The agent's duties'.
28. The test for determining whether or not a gratuitous agent has breached their duty of care
to the principal is:
a. A subjective test which entails consideration of what the agent thought was
reasonable action in the circumstances.
b. A subjective test which entails consideration of the degree of care a professional of
reasonable skill and competence would exercise.
c. An objective test which entails consideration of the degree of care that the agent
ordinarily uses in attending to their own affairs.
*d. An objective test which entails consideration of the degree of care a reasonable
person would exercise.
General Feedback:
See Chapter 7, 'The agent's duties'.
29. An agent has a fiduciary duty to exercise their duties in a way that:
General Feedback:
See Chapter 7, 'The agent's duties'.
*a. Prudent.
b. Conduct that conflicts with the agent's fiduciary duty.
c. A crime.
d. A bribe.
General Feedback:
See Chapter 7, 'The agent's duties'.
31. If an agent is found to have received a secret commission from a third party, the principal
is not entitled to:
a. Recover the secret commission and report the matter to the relevant authorities.
b. Refuse to pay any commission owed to the agent.
c. Terminate the contract with the agent and the contract with the third party.
*d. Sue the agent in the tort of passing off.
General Feedback:
See Chapter 7, 'The agent's duties'.
32. An agent must keep the funds of the principal at all times:
General Feedback:
See Chapter 7, 'The agent's duties'.
33. The agent's duty of confidentiality is a duty that prevents the agent from:
a. Ever disclosing to others information about the affairs of the principal or using for
their own benefit information about the principal.
b. Disclosing damaging information about the affairs of the principal.
c. Ever using information about the principal for their own benefit.
*d. Disclosing to others or using for their own benefit information about the principal's
Feedback:
*d) See Chapter 7, 'The agent's duties'.
affairs without consent.
General Feedback:
See Chapter 7, 'The agent's entitlements'.
a. For payments, expenses and liabilities specifically agreed upon either verbally or in
writing.
b. For payments, expenses and liabilities contemplated by both parties at the time of
entry into the agency agreement.
c. For all payments, expenses and liabilities covered by the terms of their agreement.
*d. For all payments, expenses and liabilities incurred by the agent as a necessary result
of carrying out the principal's instructions.
General Feedback:
See Chapter 7, 'The agent's entitlements'.
*a. Payment.
b. Gratitude.
c. Indemnity.
d. Damages.
General Feedback:
See Chapter 7, 'The agent's entitlements'.
*a. All payments made, expenses incurred and liabilities assumed as a necessary result
of carrying out the instructions of the principal
b. All of the agent's business expenses.
c. All of the expenses and liabilities of the agent however they arise.
d. All payments made and expenses and outlays incurred while the agent is carrying
out the instructions of the principal, but not liabilities to third parties.
General Feedback:
See Chapter 7, 'The agent's entitlements'.
38. If the principal owes money to the agent and the agent holds some of the principal's
property, the agent may:
a. Sell the property or hold the property until the money is paid.
b. Sell the property and recover the amount of money owned to them.
*c. Hold the property until the money is paid.
General Feedback:
See Chapter 7, 'The agent's entitlements'.
39. Which of the following circumstances is not an exception to the rule that an agent is not
personally liable for liabilities incurred on behalf of the principal?
General Feedback:
See Chapter 7, 'Liability of agent and principal'.
40. If a third party learns that an agent was acting for an undisclosed principal, the third party
has the right to:
a. Enforce the contract against the principal and the agent jointly.
b. Enforce the contract against the principal only.
c. Enforce the contract against the agent only.
*d. Enforce the contract against either the principal or the agent but not both.
General Feedback:
See Chapter 7, 'Liability of agent and principal'.
41. Where a third party contracts with an undisclosed principal via an agent, the principal will
still be able to enforce the contract with the third party unless:
*a. The agent did not have authority to act for the principal or the agent told the third
party that they were acting on their own behalf.
b. The agent did not act in good faith.
c. The third party chooses not to proceed with the contract.
d. The terms of the contract are unfair to the third party.
General Feedback:
See Chapter 7, 'Liability of agent and principal'.
42. Which of the following is not a requirement for establishing a breach of warranty of
authority on the part of an agent?
a. The agent claimed that they were making a contract on behalf of the principal.
*b. The agent claimed that they were making a contract on their own behalf.
c. The agent did not in fact have authority to act on behalf of the principal.
d. The third party relied on the agent's representation and would not have entered into
the contract but for the representation.
General Feedback:
See Chapter 7, 'Liability of agent and principal'.
a. An ideal or value.
b. The head of a school or organisation.
*c. A person represented by an agent and legally responsible for that agent.
d. A person who is the employer of an agent and legally responsible for that agent.
General Feedback:
See Chapter 7, 'Getting someone else to do it'.
General Feedback:
See Chapter 7, 'Getting someone else to do it'.
a. The agent may still have actual authority to act on behalf of the principal.
*b. The principal may still be liable for acts of the agent that are committed whilst the
agent is acting within the scope of their apparent authority.
c. The principal may still be liable for acts of the agent that are committed whilst the
agent is acting within the scope of their implied authority.
d. The principal will be liable to third parties in respect of acts of their agent in any
case in which they have not notified the third party in writing that the agent is no
longer acting for them.
General Feedback:
See Chapter 7, 'Concluding the agency'.
46. If an agent appointed under a power of attorney acts on behalf of a principal after the
principal dies but before the agent has been informed of the death, power of attorney
legislation in each state provides that:
a. The agent's act will not bind the principal's estate and any contracts entered into by
the agent on the principal's behalf are void.
b. The agent will be personally liable for any contracts entered into.
*c. The agent's actions will bind the estate of the principal.
d. Any contracts entered into on behalf of the principal by the agent are voidable and
may be terminated at the discretion of the executors of the principal's estate.
General Feedback:
See Chapter 7, 'Concluding the agency'.
47. Complete loss of intellectual/legal capacity on the part of the principal will:
a. Give the principal the right to elect to terminate the agency agreement.
b. Automatically terminate the agency unless the agent was appointed under the
authority of a general power of attorney.
*c. Automatically terminate the agency unless the agent was appointed under the
authority of an enduring power of attorney.
d. Increasing the standard of care owed by the agent to the principal and broaden the
scope of their duties.
General Feedback:
See Chapter 7, 'Concluding the agency'.
General Feedback:
See Chapter 7, 'Concluding the agency'.
49. Felicity Featherstone is appointed by Giovanni, the owner of the restaurant The Purple
Palace ('TPP'), to arrange cleaning contractors to clean TPP. Before she has had a chance to
take any step toward hiring cleaners, TPP is totally destroyed by flood. What is the effect, in
law, of this event on the agency agreement between Felicity Featherstone and Giovanni?
General Feedback:
See Chapter 7, 'Concluding the agency'.
General Feedback:
See Chapter 7, 'Getting someone else to do it'.
General Feedback:
See Chapter 7, 'Getting someone else to do it'.
*a. An agent who is authorised to sell the principal's property without being in
possession of the property.
b. An agent who is authorised to sell the principal's property while being in possession
of the property.
c. A principal who is authorised to sell the agent's property without being in
possession of the property.
d. A principal who is authorised to sell the agent's property while being in possession
of the property.
General Feedback:
See Chapter 7, 'Getting someone else to do it'.
*a. Agrees to indemnify the principal in the event of non-performance by the third party.
b. Is usually not entitled to a commission.
c. Agrees to indemnify the principal in the event of negligence.
d. Is authorised to do anything on behalf of the principal that the principal can do.
General Feedback:
See Chapter 7, 'Getting someone else to do it'.
General Feedback:
See Chapter 7, 'Scope of authority'.
55. A is engaged as the personal assistant for P, a famous celebrity. A regularly hires luxury
cars on behalf of P, for which P regularly pays. One weekend, without P's permission, A hires
a Porsche in P's name for A's own personal use. Is P entitled to refuse to pay for the hiring of
the Porsche?
General Feedback:
See Chapter 7, 'Scope of authority'.
General Feedback:
See Chapter 7, 'Scope of authority'.
57. An agent may have apparent authority to act on behalf of the principal:
General Feedback:
See Chapter 7, 'Scope of authority'.
58. P, the manager of a DVD store, tells A, a sales person, not to sell a particular DVD
because it has been set aside for another customer. A accidentally sells the DVD to T. Can P
recover the DVD from T?
General Feedback:
See Chapter 7, 'Scope of authority'.
59. P enters into a contract with A according to which A is to deliver a crate of P's
watermelons to a customer in another State by a certain date. The delivery is delayed by
flooding, and rather than allow the watermelons to perish, A sells them to local buyers along
the way. P sues A for compensation. Could A successfully argue that they had the authority
to sell the watermelons on P's behalf?
General Feedback:
See Chapter 7, 'Scope of authority'.
General Feedback:
See Chapter 7, 'Scope of authority'.
General Feedback:
See Chapter 7, 'Scope of Authority'.
62. T makes a written offer to A to lease certain property to P, which A accepts on behalf of P.
A did not have actual authority to accept the offer on behalf of P. T withdraws the offer. P
then ratifies the A's acceptance. Does T have an agreement with P?
General Feedback:
See Chapter 7, 'Scope of Authority'.
63. Which of the following statements about employees and agents is correct?
General Feedback:
See Chapter 7, 'Getting someone else to do it'.
*a. Fiduciary.
b. Non-contractual.
c. Platonic.
d. Equal.
General Feedback:
See Chapter 7, 'The agent's duties'.
65. An agent who acts without actual authority but with apparent authority is likely to be:
General Feedback:
See Chapter 7, 'The agent's duties'.
*a. All information they learn during the period they are acting as an agent that a
reasonable person would think to be of interest to the principal.
b. All money acquired during the period they are acting as an agent.
c. All money paid by the third party including any commission payable by the
principal to the agent.
d. All information they learn during the period they are acting as an agent.
General Feedback:
See Chapter 7, 'The agent's duties'.
General Feedback:
See Chapter 7, 'The agent's duties'.,
General Feedback:
See Chapter 7, 'The agent's duties'.
a. Legal.
b. Normal.
c. Equitable.
*d. Criminal.
General Feedback:
See Chapter 7, 'The agent's duties'.
70. An agent's should keep any funds of the principal that they acquire:
General Feedback:
See Chapter 7, 'The agent's duties'.
General Feedback:
See Chapter 7, 'The agent's entitlements'.
General Feedback:
See Chapter 7, 'Liability of agent and principal'.