LREB 315 Exam 3 | 2026/2027 Edition Standard
University School of Business | Actual Q&A |
Undergraduate Business and Pre-Law Students
Comprehensive 200-Question Examination with Detailed Rationales
Based on the 2026/2027 LREB 315 Legal Environment of Business curriculum and
current legal standards
Question 1: Which statement best describes an agency relationship in business
law?
• A) A relationship in which one party agrees to act on behalf of and
subject to the control of another party ✓✓
• B) A relationship that can exist only between two corporations and never
with individuals
• C) A relationship that automatically eliminates all liability for both parties
• D) A relationship that requires a public stock offering before it becomes
valid
Rationale: Clarkson, Miller, and Cross define agency as a consensual relationship
in which an agent acts for a principal and is subject to the principal's control.
Consent and control are central elements.
Question 2: A company expressly tells its purchasing manager, 'You may sign
supply contracts up to $25,000.' What type of authority does the manager
have for such contracts?
• A) Express authority ✓✓
• B) Implied authority
• C) Apparent authority
, • D) Ratification authority
Rationale: Express authority is authority specifically stated by the principal to the
agent. The company's express statement creates actual express authority for
contracts up to $25,000.
Question 3: Which of the following is required to create a principal-agent
relationship?
• A) A written contract
• B) Consent by both parties ✓✓
• C) A formal agreement witnessed by a notary
• D) Consideration
Rationale: An agency relationship requires mutual consent—the principal
consents to have the agent act on their behalf and the agent consents to act. A
written contract is not required in most cases.
Question 4: A principal's liability for an agent's torts is based on the doctrine
of:
• A) Express authority
• B) Implied authority
• C) Respondeat superior ✓✓
• D) Apparent authority
Rationale: Respondeat superior ("let the master answer") is the doctrine holding
an employer (principal) liable for the torts of an employee (agent) committed
within the scope of employment.
Question 5: Which of the following is NOT a fiduciary duty owed by an agent
to a principal?
• A) Duty of loyalty
, • B) Duty to account
• C) Duty to compete with the principal ✓✓
• D) Duty of confidentiality
Rationale: Agents owe fiduciary duties of loyalty, obedience, accounting,
confidentiality, and care. An agent has a duty not to compete with the principal or
take opportunities that belong to the principal.
Question 6: Apparent authority arises from:
• A) Express instructions from the principal to the agent
• B) The principal's conduct leading a third party to reasonably believe
the agent has authority ✓✓
• C) A written contract
• D) Necessity
Rationale: Apparent authority arises from the principal's manifestations to third
parties, not to the agent. It is based on the reasonable belief of the third party.
Question 7: An agent who acts beyond their actual authority but the principal
later approves the act is said to have:
• A) Apparent authority
• B) Authority by ratification ✓✓
• C) Implied authority
• D) Inherent authority
Rationale: Ratification occurs when a principal approves, accepts, or adopts an act
performed on their behalf by a person who lacked authority to act. Ratification
validates the act retroactively.
Question 8: Under the doctrine of respondeat superior, an employer is liable
for an employee's torts if:
, • A) The employee was acting solely for personal benefit
• B) The employee was acting within the scope of employment ✓✓
• C) The employee was on a lunch break
• D) The employee was off-duty
Rationale: Respondeat superior applies when the employee's tort is committed
within the scope of employment. Personal benefit or "frolic" activities are
generally outside the scope.
Question 9: An agent's duty of loyalty requires the agent to:
• A) Compete with the principal
• B) Disclose all information to the principal
• C) Act solely in the principal's best interest ✓✓
• D) Ignore the principal's instructions
Rationale: The duty of loyalty requires the agent to act solely in the principal's
best interest and avoid conflicts of interest, including not competing with the
principal or taking opportunities belonging to the principal.
Question 10: A principal may be liable for the torts of an independent
contractor if:
• A) The independent contractor was not supervised
• B) The work involves inherently dangerous activities ✓✓
• C) The principal provided no instructions
• D) The independent contractor was negligent
Rationale: Generally, principals are not liable for the torts of independent
contractors. However, liability may arise for inherently dangerous activities or if
the principal failed to exercise reasonable care in selecting the contractor.
University School of Business | Actual Q&A |
Undergraduate Business and Pre-Law Students
Comprehensive 200-Question Examination with Detailed Rationales
Based on the 2026/2027 LREB 315 Legal Environment of Business curriculum and
current legal standards
Question 1: Which statement best describes an agency relationship in business
law?
• A) A relationship in which one party agrees to act on behalf of and
subject to the control of another party ✓✓
• B) A relationship that can exist only between two corporations and never
with individuals
• C) A relationship that automatically eliminates all liability for both parties
• D) A relationship that requires a public stock offering before it becomes
valid
Rationale: Clarkson, Miller, and Cross define agency as a consensual relationship
in which an agent acts for a principal and is subject to the principal's control.
Consent and control are central elements.
Question 2: A company expressly tells its purchasing manager, 'You may sign
supply contracts up to $25,000.' What type of authority does the manager
have for such contracts?
• A) Express authority ✓✓
• B) Implied authority
• C) Apparent authority
, • D) Ratification authority
Rationale: Express authority is authority specifically stated by the principal to the
agent. The company's express statement creates actual express authority for
contracts up to $25,000.
Question 3: Which of the following is required to create a principal-agent
relationship?
• A) A written contract
• B) Consent by both parties ✓✓
• C) A formal agreement witnessed by a notary
• D) Consideration
Rationale: An agency relationship requires mutual consent—the principal
consents to have the agent act on their behalf and the agent consents to act. A
written contract is not required in most cases.
Question 4: A principal's liability for an agent's torts is based on the doctrine
of:
• A) Express authority
• B) Implied authority
• C) Respondeat superior ✓✓
• D) Apparent authority
Rationale: Respondeat superior ("let the master answer") is the doctrine holding
an employer (principal) liable for the torts of an employee (agent) committed
within the scope of employment.
Question 5: Which of the following is NOT a fiduciary duty owed by an agent
to a principal?
• A) Duty of loyalty
, • B) Duty to account
• C) Duty to compete with the principal ✓✓
• D) Duty of confidentiality
Rationale: Agents owe fiduciary duties of loyalty, obedience, accounting,
confidentiality, and care. An agent has a duty not to compete with the principal or
take opportunities that belong to the principal.
Question 6: Apparent authority arises from:
• A) Express instructions from the principal to the agent
• B) The principal's conduct leading a third party to reasonably believe
the agent has authority ✓✓
• C) A written contract
• D) Necessity
Rationale: Apparent authority arises from the principal's manifestations to third
parties, not to the agent. It is based on the reasonable belief of the third party.
Question 7: An agent who acts beyond their actual authority but the principal
later approves the act is said to have:
• A) Apparent authority
• B) Authority by ratification ✓✓
• C) Implied authority
• D) Inherent authority
Rationale: Ratification occurs when a principal approves, accepts, or adopts an act
performed on their behalf by a person who lacked authority to act. Ratification
validates the act retroactively.
Question 8: Under the doctrine of respondeat superior, an employer is liable
for an employee's torts if:
, • A) The employee was acting solely for personal benefit
• B) The employee was acting within the scope of employment ✓✓
• C) The employee was on a lunch break
• D) The employee was off-duty
Rationale: Respondeat superior applies when the employee's tort is committed
within the scope of employment. Personal benefit or "frolic" activities are
generally outside the scope.
Question 9: An agent's duty of loyalty requires the agent to:
• A) Compete with the principal
• B) Disclose all information to the principal
• C) Act solely in the principal's best interest ✓✓
• D) Ignore the principal's instructions
Rationale: The duty of loyalty requires the agent to act solely in the principal's
best interest and avoid conflicts of interest, including not competing with the
principal or taking opportunities belonging to the principal.
Question 10: A principal may be liable for the torts of an independent
contractor if:
• A) The independent contractor was not supervised
• B) The work involves inherently dangerous activities ✓✓
• C) The principal provided no instructions
• D) The independent contractor was negligent
Rationale: Generally, principals are not liable for the torts of independent
contractors. However, liability may arise for inherently dangerous activities or if
the principal failed to exercise reasonable care in selecting the contractor.
