MGMT 254 FINAL EXAM PURDUE QUESTIONS AND ANSWERS | PURDUE MGMT 254 STUDY GUIDE &
PRACTICE TEST 2026/2027
principal - ANS ✔✔-one who is ultimately the party of the contract
-often don't have time to complete all acts
-can be: LLCs, corporations, partnerships, people
agent - ANS ✔✔-one who acts on principal's behalf
-must have contractual capacity
-must have legal purpose
law of agency - ANS ✔✔Principal -> agent -> third party
example of law of agency - ANS ✔✔real estate:
want to sell your house, hire real estate agent to deal with third parties
agency contracts - ANS ✔✔-sometimes the agency relationship is based on a contract
-can be expressed or implied
-the contract appoints an agent by the principal
-"employer" must have legal capacity but agent doesn't have to
-no consideration required
employment relationships - ANS ✔✔-master/servant
-principal/agent
-principal/independent contractor
master/servant relationship (employer/employee) - ANS ✔✔right to:
-hire, suspend, or dismiss
-to have particular person do work
principal/agent relationship - ANS ✔✔-owner delegates authority to agent to manage business
ex. car salesmen/(buyer)
-express/implied
-agent can sign on behalf of principal
principal/independent contractor relationship - ANS ✔✔-profession or trade
-uses own place and equipment/tools
-payment of wages to own employees
-payment to contractor done with no taxes withheld
-1099 (no taxes withheld) vs W2 (taxes withheld by employer)
power of attorney (general) - ANS ✔✔gives someone the authority to act as their agent to do things on
their behalf
-attorney in fact
ex. parent/child
lawyer/client
, art dealer/artist
trustee/benefactor
agency by ratification - ANS ✔✔-agency exceeds both actual and apparent authority
-principal is not bound but still may ratify:
---by intentionally expressing the ratification
---inadvertently by principal taking a benefit under the agreement
agents duties - ANS ✔✔duty of:
-performance
-obedience
-notification
-accountability
-loyalty
duty of performance - ANS ✔✔-must be legal
-must be cautious and use skill
-failure to perform (BREACH)
duty of obedience - ANS ✔✔-obey all lawful instructions of principal
duty of notification - ANS ✔✔-maintain information of all transactions
-keep principal informed (try to)
duty of accountability - ANS ✔✔-maintain accounting of all transactions undertaken on behalf of
principal
duty of loyalty - ANS ✔✔-an agent owe a fiduciary duty not to act adversely to the interests of the
principal
(follow the principals wishes)
NO DUAL AGENCY
-cannot meet a duty of loyalty of 2 parties w/ conflicting interest
usurping opportunity - ANS ✔✔agent cannot usurp (take advantage of) an opportunity
self dealing - ANS ✔✔prohibited from undisclosed self-dealing w/ principal
misuse of confidential information - ANS ✔✔can't disclose or use private info outside of agency
relationships
competing with the principal - ANS ✔✔prohibited, no competition allowed
principals duties - ANS ✔✔duty of:
-compensation
-reimbursement (paid back)
-indemnification (reimburse for any losses agent may suffer)
-cooperation (cooperate w agent, don't interfere w their duties)
-provide safe working conditions
PRACTICE TEST 2026/2027
principal - ANS ✔✔-one who is ultimately the party of the contract
-often don't have time to complete all acts
-can be: LLCs, corporations, partnerships, people
agent - ANS ✔✔-one who acts on principal's behalf
-must have contractual capacity
-must have legal purpose
law of agency - ANS ✔✔Principal -> agent -> third party
example of law of agency - ANS ✔✔real estate:
want to sell your house, hire real estate agent to deal with third parties
agency contracts - ANS ✔✔-sometimes the agency relationship is based on a contract
-can be expressed or implied
-the contract appoints an agent by the principal
-"employer" must have legal capacity but agent doesn't have to
-no consideration required
employment relationships - ANS ✔✔-master/servant
-principal/agent
-principal/independent contractor
master/servant relationship (employer/employee) - ANS ✔✔right to:
-hire, suspend, or dismiss
-to have particular person do work
principal/agent relationship - ANS ✔✔-owner delegates authority to agent to manage business
ex. car salesmen/(buyer)
-express/implied
-agent can sign on behalf of principal
principal/independent contractor relationship - ANS ✔✔-profession or trade
-uses own place and equipment/tools
-payment of wages to own employees
-payment to contractor done with no taxes withheld
-1099 (no taxes withheld) vs W2 (taxes withheld by employer)
power of attorney (general) - ANS ✔✔gives someone the authority to act as their agent to do things on
their behalf
-attorney in fact
ex. parent/child
lawyer/client
, art dealer/artist
trustee/benefactor
agency by ratification - ANS ✔✔-agency exceeds both actual and apparent authority
-principal is not bound but still may ratify:
---by intentionally expressing the ratification
---inadvertently by principal taking a benefit under the agreement
agents duties - ANS ✔✔duty of:
-performance
-obedience
-notification
-accountability
-loyalty
duty of performance - ANS ✔✔-must be legal
-must be cautious and use skill
-failure to perform (BREACH)
duty of obedience - ANS ✔✔-obey all lawful instructions of principal
duty of notification - ANS ✔✔-maintain information of all transactions
-keep principal informed (try to)
duty of accountability - ANS ✔✔-maintain accounting of all transactions undertaken on behalf of
principal
duty of loyalty - ANS ✔✔-an agent owe a fiduciary duty not to act adversely to the interests of the
principal
(follow the principals wishes)
NO DUAL AGENCY
-cannot meet a duty of loyalty of 2 parties w/ conflicting interest
usurping opportunity - ANS ✔✔agent cannot usurp (take advantage of) an opportunity
self dealing - ANS ✔✔prohibited from undisclosed self-dealing w/ principal
misuse of confidential information - ANS ✔✔can't disclose or use private info outside of agency
relationships
competing with the principal - ANS ✔✔prohibited, no competition allowed
principals duties - ANS ✔✔duty of:
-compensation
-reimbursement (paid back)
-indemnification (reimburse for any losses agent may suffer)
-cooperation (cooperate w agent, don't interfere w their duties)
-provide safe working conditions
