Kelley School of Business - L201 Final
Exam (McCrory)
Ima hires Billy to buy, sell, and lease real estate for him in Indiana. She tells Billy not to
tell anyone that he is working for her. One day, Billy sees a car that he knows Ima would
like. So, without asking Ima, he buys the car.
Which of the following is true?
A) Billy does not have implied authority
B) Billy has express authority
C) Two of the above
D) None of the above
Is Ima a disclosed principle? - AnswerBilly Bob does not have implied authority to buy
the car (A)
Ima IS NOT a disclosed principal
Which of the following is true?
A) A gratuitous agent is an agent who acts beyond the scope of his/her apparent
authority
B) Once an agent has fulfilled the requirements of his/her duty to obey, the agent is
allowed to disclose confidential information.
C) Commingling and embezzlement is a violation of the agent's duty to account
D) A and B, but not C
E) None of the above - AnswerC
In the case of Frontier Leasing Corp v. Links Engineering, LLC, the court found that
Fleming had apparent authority to enter into the contract for the beverage cart. -
AnswerFalse
Mitsubishi Case - AnswerBoys in suits sell woman car at car show (not employees
though)
-they don't have authority of any kind
-the owner of the car ratifies the sale of the car
-HOW could he ratify? => the agent was unauthorized, he could not have ratified if the
agent had authority.
-if the owner were to say "these boys don't work for me" and the customer rescinds, the
owner cannot ratify.
*Set up a situation for apparent authority:*
,-the owner stands behind guys watching and nods head the entire time.
Agency - Answera 2-party relationship in which one party (the agent) has the power to
act on behalf of, and under control of, the principal.
Purpose of agency law ? - Answerto stimulate commerce
Method of agency law? - AnswerUSUALLY common law, but also codified by 3rd
restatement of agencies + other statutes
Fiduciary Relationship - Answera trusting relationship b/w a principle and agent, in
which the agent is supposed to act in the best interest of the principle, even to their own
detriment.
Does an agency agreement require consideration? - AnswerNo! (not contractual! No
consideration necessary)
Does an agency agreement require capacity? - AnswerYES, but it's complicated.
=> an agent can be any person
=> a principle must have the capacity to do the required acts
Ex: A principle is a normal sane adult with a crazy minor agent. Agent enters into a
contract with a third party. Is it valid?
=> Yes, an agent can be anyone if the principle's actions would be valid, then the
agent's are as well.
Ex: A principle is a crazy minor and the agent is a 35-year-old normal adult. Is it valid?
=> No, the principle has to have the capacity (minors don't have capacity), it is voidable
Exception:
-there are some laws that protect crazy/minors because the only way they can enter into
a contract is through an agent
CASE: MDM vs. CX Reinsurance - Answer-MDM is an insurance broker who
developed a program for insuring ski resort against risk of "paid skier days" would fall
below a stated minimum.
-CX agreed to underwrite policies covering the risks for a year, and MDM received
12.5% commission.
-1999 was a bad year, costing CX $23M
-MDM sued CX for liability/breach of fiduciary duty stating they handled it improperly,
causing resort not to renew policies and MDM lost commission.
-MDM was originally awarded $6.7M by the courts
, -CX appealed and judge reversed, stating that the "obligations a principal owes an
agent are not fiduciary"
Nondelegable Obligations? - Answerduties/actions that can't be performed by an
agent.
Ex: lawyers, doctors, athletes, entertainers
Outline the 2 types of authority - Answer*an agent can bind its principle to a
contract/other matters only when the agent has the authority to do so.
2 types-
1) Actual- must be communicated to the agent
a. Express: the principle has manifested the agent using SPECIFIC/DETAILED
LANGUAGE
Ex: homeowner tells tree removal expert that they aren't allowed to remove ash trees.
b. Implied- to act in a way the agent reasonably believes is necessary to perform duties
Ex: Interns told to get burgers and hotdogs. The "implied" part would be picking out a
store to go to, their means of transportation, the brand, etc.
2) Apparent - must be communicated to the third party
*arises when principle's manifestations cause a third party to believe reasonably that the
agent is authorized to act a certain way.
-depends on what the principle communicates to the third party
3 Rules-
1) Agents cannot give themselves apparent authority
2) doesn't exist when agent creates appearance of authority without principle's consent
3) third party must reasonably believe in agent's authority
CASE: CBS vs. FCC - Answer-Janet Jackson has a nip slip
-FCC gets complaints for viewers and asks CBS for broadcasting info and determines
CBS is liable for a forfeiture penalty of $550,000 because they were responsible for
actions of Jackson and Timberlake.
-court looked at Reid factors (to determine if they were independent contractors vs.
employees) to understand:
*the performers hired for a brief, 1-time event
Exam (McCrory)
Ima hires Billy to buy, sell, and lease real estate for him in Indiana. She tells Billy not to
tell anyone that he is working for her. One day, Billy sees a car that he knows Ima would
like. So, without asking Ima, he buys the car.
Which of the following is true?
A) Billy does not have implied authority
B) Billy has express authority
C) Two of the above
D) None of the above
Is Ima a disclosed principle? - AnswerBilly Bob does not have implied authority to buy
the car (A)
Ima IS NOT a disclosed principal
Which of the following is true?
A) A gratuitous agent is an agent who acts beyond the scope of his/her apparent
authority
B) Once an agent has fulfilled the requirements of his/her duty to obey, the agent is
allowed to disclose confidential information.
C) Commingling and embezzlement is a violation of the agent's duty to account
D) A and B, but not C
E) None of the above - AnswerC
In the case of Frontier Leasing Corp v. Links Engineering, LLC, the court found that
Fleming had apparent authority to enter into the contract for the beverage cart. -
AnswerFalse
Mitsubishi Case - AnswerBoys in suits sell woman car at car show (not employees
though)
-they don't have authority of any kind
-the owner of the car ratifies the sale of the car
-HOW could he ratify? => the agent was unauthorized, he could not have ratified if the
agent had authority.
-if the owner were to say "these boys don't work for me" and the customer rescinds, the
owner cannot ratify.
*Set up a situation for apparent authority:*
,-the owner stands behind guys watching and nods head the entire time.
Agency - Answera 2-party relationship in which one party (the agent) has the power to
act on behalf of, and under control of, the principal.
Purpose of agency law ? - Answerto stimulate commerce
Method of agency law? - AnswerUSUALLY common law, but also codified by 3rd
restatement of agencies + other statutes
Fiduciary Relationship - Answera trusting relationship b/w a principle and agent, in
which the agent is supposed to act in the best interest of the principle, even to their own
detriment.
Does an agency agreement require consideration? - AnswerNo! (not contractual! No
consideration necessary)
Does an agency agreement require capacity? - AnswerYES, but it's complicated.
=> an agent can be any person
=> a principle must have the capacity to do the required acts
Ex: A principle is a normal sane adult with a crazy minor agent. Agent enters into a
contract with a third party. Is it valid?
=> Yes, an agent can be anyone if the principle's actions would be valid, then the
agent's are as well.
Ex: A principle is a crazy minor and the agent is a 35-year-old normal adult. Is it valid?
=> No, the principle has to have the capacity (minors don't have capacity), it is voidable
Exception:
-there are some laws that protect crazy/minors because the only way they can enter into
a contract is through an agent
CASE: MDM vs. CX Reinsurance - Answer-MDM is an insurance broker who
developed a program for insuring ski resort against risk of "paid skier days" would fall
below a stated minimum.
-CX agreed to underwrite policies covering the risks for a year, and MDM received
12.5% commission.
-1999 was a bad year, costing CX $23M
-MDM sued CX for liability/breach of fiduciary duty stating they handled it improperly,
causing resort not to renew policies and MDM lost commission.
-MDM was originally awarded $6.7M by the courts
, -CX appealed and judge reversed, stating that the "obligations a principal owes an
agent are not fiduciary"
Nondelegable Obligations? - Answerduties/actions that can't be performed by an
agent.
Ex: lawyers, doctors, athletes, entertainers
Outline the 2 types of authority - Answer*an agent can bind its principle to a
contract/other matters only when the agent has the authority to do so.
2 types-
1) Actual- must be communicated to the agent
a. Express: the principle has manifested the agent using SPECIFIC/DETAILED
LANGUAGE
Ex: homeowner tells tree removal expert that they aren't allowed to remove ash trees.
b. Implied- to act in a way the agent reasonably believes is necessary to perform duties
Ex: Interns told to get burgers and hotdogs. The "implied" part would be picking out a
store to go to, their means of transportation, the brand, etc.
2) Apparent - must be communicated to the third party
*arises when principle's manifestations cause a third party to believe reasonably that the
agent is authorized to act a certain way.
-depends on what the principle communicates to the third party
3 Rules-
1) Agents cannot give themselves apparent authority
2) doesn't exist when agent creates appearance of authority without principle's consent
3) third party must reasonably believe in agent's authority
CASE: CBS vs. FCC - Answer-Janet Jackson has a nip slip
-FCC gets complaints for viewers and asks CBS for broadcasting info and determines
CBS is liable for a forfeiture penalty of $550,000 because they were responsible for
actions of Jackson and Timberlake.
-court looked at Reid factors (to determine if they were independent contractors vs.
employees) to understand:
*the performers hired for a brief, 1-time event
