Managers And the Legal Environment Strategies for the 21st Century 7th Edition by Constance E. Bagley

Complete Test Bank With Answers

Sample Questions Posted Below

Chapter 5

Agency

True-False Questions

In agreeing to act on behalf of the principal, the agent becomes a fiduciary.

ANSWER: True

SKILL LEVEL: Analytic

OBJECTIVE: AICPA: Legal

In all cases, an agency agreement must be written in order to be enforceable.

ANSWER: False

SKILL LEVEL: Analytic

OBJECTIVE: AICPA: Legal

Whether a person is an independent contractor or an employee depends on what he or she does, not how the relationship is characterized by the parties.

ANSWER: True

SKILL LEVEL: Analytic

OBJECTIVE: AICPA: Legal

A master-servant agency is a type of agency that is illegal.

ANSWER: False

SKILL LEVEL: Analytic

OBJECTIVE: AICPA: Legal

An independent contractor is also considered an employee of the person for whom work is being done.

ANSWER: False

SKILL LEVEL: Analytic

OBJECTIVE: AICPA: Legal

The Electronic Signatures in Global and National Commerce Act provides that contracts executed by electronic agents are invalid.

ANSWER: False

SKILL LEVEL: Analytic

OBJECTIVE: AICPA: Legal

Implied ratification of an agent’s unauthorized acts can occur through the silence of the principal.

ANSWER: True

SKILL LEVEL: Analytic

OBJECTIVE: AICPA: Legal

The respondeat superior doctrine typically applies to the actions of independent contractors.

ANSWER: False

SKILL LEVEL: Analytic

OBJECTIVE: AICPA: Legal

The principal has the right to demand reimbursem*nt from the agent for any damages paid to a third party because of an agent’s negligence.

ANSWER: True

SKILL LEVEL: Analytic

OBJECTIVE: AICPA: Legal

The fact that leased workers are on the payroll of an employment agency does not preclude them from being considered employees of the company at which they are actually working on a joint employer theory.

ANSWER: True

SKILL LEVEL: Analytic

OBJECTIVE: AICPA: Legal

The term “usual authority” refers to the authority that an agent has been allowed to exercise in the past.

ANSWER: True

SKILL LEVEL: Analytic

OBJECTIVE: AICPA: Legal

An agent who refuses to follow legal instructions of a principal has breached the duty of care.

ANSWER: False

SKILL LEVEL: Analytic

OBJECTIVE: AICPA: Legal

An undisclosed principal will be bound by any contract the agent enters into with actual authority.

ANSWER: True

SKILL LEVEL: Analytic

OBJECTIVE: AICPA: Legal

The Telephone Records and Privacy Protection Act of 2006 makes it illegal for a person to use fraud to obtain individual customer billing records and other customer information from telephone companies.

ANSWER: True

SKILL LEVEL: Analytic

OBJECTIVE: AICPA: Legal

Unless state law is to the contrary, an agent may lawfully conceal ________ of the principal.
the existence
the identity
the existence and identity
nothing regarding

ANSWER: C

SKILL LEVEL: Analytic

OBJECTIVE: AICPA: Legal

An agent may bind the principal due to the agent’s ________ authority.
express
implied
apparent
express, implied, or apparent

ANSWER: D

SKILL LEVEL: Analytic

OBJECTIVE: AICPA: Legal

Which of the following is true regarding situations in which an agent enters into a contract without authority?
The principal is not bound nor is the agent bound.
The principal is bound and the agent may be personally liable.
The principal is not bound, but the agent may personally liable.
Neither the principal nor the agent is bound if the contract is oral; but if the contract is written,

both the principal and agent are bound.

ANSWER: C

SKILL LEVEL: Analytic

OBJECTIVE: AICPA: Legal

The most basic legal characteristic of the employer-employee relationship is that the employer has the right to
deduct taxes
control the conduct of the employee
provide health care
deduct taxes, control the conduct of the employee, and provide health care

ANSWER: B

SKILL LEVEL: Analytic

OBJECTIVE: AICPA: Legal

Which of the following is true regarding an independent contractor’s entitlement to fringe benefits offered by a principal?
An independent contractor is generally eligible for the same fringe benefits provided to employees.
An independent contractor is generally eligible for the same medical insurance provided to employees but not for retirement benefits.
An independent contractor is generally eligible for the same retirement benefits provided to employees but not for medical benefits.
An independent contractor is not generally eligible for the fringe benefits provided to employees.

ANSWER: D

SKILL LEVEL: Analytic

OBJECTIVE: AICPA: Legal

Which of the following is not usually considered an independent contractor?
A delivery driver working for a delivery service
A lawyer working for a client
A plumber working for a homeowner
An architect working for a developer

ANSWER: A

SKILL LEVEL: Reflective Thinking

OBJECTIVE: AICPA: Critical Thinking

Which of the following is not one of the factors the law looks at in distinguishing between employees and independent contractors?
The amount of experience of the worker
Whether the work is usually performed by a specialist without supervision
Whether the worker is paid hourly or by the job
The degree of skill the work requires

ANSWER: A

SKILL LEVEL: Reflective Thinking

OBJECTIVE: AICPA: Critical Thinking

Which of the following is true regarding whether an independent contractor is an agent of a principal?
An independent contractor is always an agent of the principal.
An independent contractor, by definition, is not an agent of the principal.
An independent contractor may or may not be an agent generally depending on whether the independent contractor has authority to enter into contracts on behalf of the hiring party.
An independent contractor is an agent only if the hiring party is a merchant.

ANSWER: C

SKILL LEVEL: Analytic

OBJECTIVE: AICPA: Legal

Which of the following terms refers to a slight deviation from the employer’s business that is still within the scope of employment?
Frolic
Detour
Errand
Chore

ANSWER: B

SKILL LEVEL: Analytic

OBJECTIVE: AICPA: Legal

An agency by ________ occurs when a person leads another to believe that someone else is his or her agent and is thereafter prevented from denying it.
ratification
conduct
agreement
estoppel

ANSWER: D

SKILL LEVEL: Analytic

OBJECTIVE: AICPA: Legal

As referenced in the case in the text involving Hewlett-Packard in the text, what is “pretexting”?
A practice whereby a person pretends to be someone else, typically over the telephone, in order to obtain information.
A practice whereby a person pretends to be someone else, typically through a personal visit, in order to obtain information.
A practice whereby a person induces someone, often an elderly person, to sign a contract purchasing unneeded services.
A practice whereby a person induces someone, often an elderly person, to sign a contract purchasing unneeded goods.

ANSWER: A

SKILL LEVEL: Analytic

OBJECTIVE: AICPA: Legal

Apparent authority may be based on which of the following?
Only words of the principal or acts of the principal.
Only words of the principal or knowledge that the principal has allowed its agent to engage in certain activities on its behalf over an extended period of time.
Words of the principal, acts of the principal, or knowledge that the principal has allowed its agent to engage in certain activities on its behalf over an extended period of time.
Express contractual authority only.

ANSWER: C

SKILL LEVEL: Analytic

OBJECTIVE: AICPA: Legal

A principal may be held liable for the torts of a(n) ________ only in extraordinary circ*mstances, usually involving highly dangerous acts or nondelegable duties.
agent
servant
employee
independent contractor

ANSWER: D

SKILL LEVEL: Analytic

OBJECTIVE: AICPA: Legal

When would the “aided-in-the-agency” theory likely be asserted?
By a defending employer in an attempt to show that although an employee was acting within the scope of employment, the employer should not be held responsible for the employee’s actions because the employee was aided by a non-employee.
By a plaintiff in an attempt to show that even if an employee was acting outside the scope of employment, the employer may be liable for the employee’s action because the employee was aided by the agency relationship.
By a defending employer in an attempt to show that an employee was acting outside the scope of employment and that the employer should not, therefore, be held liable for the employee’s actions.
By a plaintiff in an attempt to show that an employee was acting within the scope of employment and that the employer should, therefore, be held liable for the employee’s actions.

ANSWER: B

SKILL LEVEL: Analytic

OBJECTIVE: AICPA: Legal

Which of the following was the result in EBC I, Inc. v. Goldman, Sachs, & Co., the case in the text in which it was claimed that Goldman Sachs breached a fiduciary duty in acting as an underwriter and in providing advice to eToys, the plaintiff’s predecessor, in regard to an initial public offering of stock?
The court dismissed the case on the basis that Goldman Sachs as an underwriter could not be considered a fiduciary based on its role in the transactions at issue.
The court refused to order a dismissal of the plaintiff’s claim and found that Goldman Sachs’ failure to disclose a material conflict of interest established a claim for breach of fiduciary duty.
The court dismissed the case because Goldman Sachs had every right to make a profit out of the transaction so long as no actual misrepresentations were made to the plaintiffs.
The court refused to order a dismissal of the plaintiff’s claim and found that Goldman Sachs’ could be held liable based on material misrepresentations made to the plaintiffs regarding the value of the stock involved in the initial public offering.

ANSWER: B

SKILL LEVEL: Analytic

OBJECTIVE: AICPA: Legal

Under the Uniform Computer Information Transactions Act, what would be the result if an electronic agent agrees to a click-wrap agreement?
The user of the electronic agent would not be liable for the agreement.
The user of the electronic agent would be liable for the agreement only if the evidence established that the user had an opportunity to look over the agreement and cancel it within a reasonable length of time.
The use of the electronic agent would be liable for the agreement.
The user of the electronic agent would be liable for the agreement only if the user was a merchant in respect to goods or services of the type purchased by the agreement.

ANSWER: C

SKILL LEVEL: Analytic

OBJECTIVE: AICPA: Legal

Which of the following was the result in O’Shea v. Welch, the case in the text involving whether an employee was acting within the scope of his employment when, while driving to deliver a vendor’s gift (football tickets) to his employer’s office, he turned into a service station to obtain an estimate regarding nonemergency maintenance on his car?
The court found that as a matter of law the employee was not acting within the scope of his employment because he was involved in a frolic of his own.
The court found that as a matter of law the employee was not acting within the scope of his employment because he was involved in a detour.
The court found that as a matter of law the employee was acting within the scope of his employment because he was involved in only a detour, not a frolic on his own.
The court found that the jury should determine whether the employee was acting within the scope of his employment during the time period at issue.

ANSWER: D

SKILL LEVEL: Analytic

OBJECTIVE: AICPA: Legal

Which of the following are autonomous computer programs that can be dispatched by the user to execute certain tasks?
Electronic agents
Software identifiers
Click programs
Fortran identifiers

ANSWER: A

SKILL LEVEL: Technology

OBJECTIVE: AICPA: Legal

Which of the following is true regarding respondeat superior?
Under that theory, a principal may be liable for not only the contracts but also the torts of its agents.
Under that theory, a principal may be liable for only the contracts of its agents, not the torts.
Under that theory, a principal may be liable for only the torts of its agents, not the contracts.
Under that theory, a principal may not be held liable for either the contracts or torts of its agent unless the principal expressly authorize the agent’s actions.

ANSWER: A

SKILL LEVEL: Analytic

OBJECTIVE: AICPA: Legal

Maureen owns a business that makes kites. Maureen’s agent Bob entered into an agreement with Alice to purchase some land for a new kite factory. Maureen’s agency relationship with Bob was not memorialized by any writing. The day after Bob signs the papers finalizing the sale, Maureen learned of the purchase, was furious with Bob, and said that she wanted out of the deal. Assuming that Bob was legally considered the agent of Maureen in making the purchase, which of the following is Maureen’s best argument?
That the agency agreement with Bob was not in writing and that under the equal dignities rule she should not be bound.
That agency agreements may not extend to the purchase of land.
That under the exclusion principle, Bob was not authorized to purchase land unless expressly authorized by Maureen.
That she did not need land and that therefore she should not be bound because Bob was mistaken.

ANSWER: A

SKILL LEVEL: Reflective Thinking

OBJECTIVE: AICPA: Critical Thinking

Fact Pattern 5-1 (Questions 32-33 apply)

Candy owns a nail and hair salon. She reaches an agreement with Todd, an independent contractor, allowing him to do nails in her salon three days per week. Todd has a sign on his desk informing his customers that he is an independent contractor of the shop. After working for a month, Todd asks Candy if she has been paying appropriate social security taxes for him. He also informs Candy that Phyllis, a customer, is preparing to sue both Todd and Candy based upon a nasty nail fungus she developed after having her nails done by Todd.

Refer to fact pattern 5-1. Which of the following is true regarding the duty of Candy, if any, to pay social security taxes for Todd?
Candy must pay all of Todd’s social security taxes.
Candy is responsible for 50% of Todd’s social security taxes, and he is responsible for 50%.
Candy is responsible for all of Todd’s social security taxes only if he works at least 30 hours per week; otherwise, Todd is responsible for all of the taxes.
Candy is not responsible for any of Todd’s social security taxes.

ANSWER: D

SKILL LEVEL: Reflective Thinking

OBJECTIVE: AICPA: Critical Thinking

Refer to fact pattern 5-1. Which of the following is true regarding legal responsibility to Phyllis assuming negligence on the part of Todd can be established?
Both Candy and Todd are responsible to Phyllis with Candy being primarily responsible meaning that if Todd pays then he can recover any payments from Candy.
Both Candy and Todd are responsible to Phyllis with Todd being primarily responsible meaning that if Candy pays then she can recover any payments from Todd.
Candy owes 50% of any payments due Phyllis, and Todd owes 50%; but neither Candy nor Todd can recover against the other.
Candy does not owe Phyllis any amounts.

ANSWER: D

SKILL LEVEL: Reflective Thinking

OBJECTIVE: AICPA: Critical Thinking

Fact Pattern 5-2 (Questions 34-35 apply)

Billy owns a used car lot. Samantha works for Billy selling used cars. Billy fully directs and controls her work, sets her hours, and pays her an hourly salary as well as a commission. Belinda comes to the lot to buy a used car. Samantha, however, tells Belinda that she needs to sell her mother’s used vehicle and that if Belinda will meet her after hours, she will give Belinda an excellent deal. Belinda meets Samantha after work and ends up buying the car belonging to Samantha’s mother. The next day, Samantha, acting within the scope of her employment, is moving a car. She, however, is in a hurry and in a grossly negligently manner backs it over the foot of Wesley, another customer. While waiting for the ambulance to come for Wesley, Belinda storms onto the lot complaining about the condition of the vehicle she purchased from Samantha’s mother. Billy fires Samantha on the spot based on her obviously intoxicated condition and the fact that she arranged for the sale of her mother’s vehicle. Samantha informs him that she has been an excellent employee and that he has no reason to be unhappy with her.

Refer to fact pattern 5-2. Did Samantha breach any fiduciary duties owed to Billy?
Yes, only the duty of loyalty
Yes, only the duty of care
Yes, both the duty of loyalty and the duty of care
No

ANSWER: C

SKILL LEVEL: Reflective Thinking

OBJECTIVE: AICPA: Critical Thinking

Refer to fact pattern 5-2. Who is liable for Wesley’s injured foot?
Only Billy
Only Samantha
Both Billy and Samantha with Billy having he right to recover from Samantha any amounts paid
Both Billy and Samantha with Samantha having he right to recover from Billy any amounts paid

ANSWER: C

SKILL LEVEL: Reflective Thinking

OBJECTIVE: AICPA: Critical Thinking

Essay Questions

Agents owe a fiduciary duty to the principal. Describe the specific responsibilities that are generated by this duty. Discuss fully.

ANSWER: Students should fully discuss the duties of loyalty, obedience, and care. The duty of loyalty involves an agent’s duty to act solely for the benefit of his or her principal in all matters directly connected with the agency undertaking. Under the duty of obedience, an agent is obligated to obey all reasonable orders of his or her principal. The duty of care includes a duty to avoid mistakes, whether through negligence, recklessness, or intentional misconduct.

SKILL LEVEL: Reflective Thinking

OBJECTIVE: AICPA: Critical Thinking

Sam is an employee of Binky, Inc. While delivering a truckload of binkies to a local retailer, Sam decided to stop at his bank to deposit his paycheck. The bank is three blocks from the retailer and it takes approximately 15 minutes to deposit a check. While Sam is in the bank, the truck rolled down the street because Sam negligently forgot to set the parking brake. The truck crashed through the window of Market, killing two people and causing $500,000 in damage. Discuss the issues involved in determining whether Binky, Inc. is liable for the damages at issue. If Binky, Inc. is liable, can it recover against Sam for the damages?

ANSWER: Market would have to prove that Sam should be considered as acting within the scope of his employment. At issue is whether Sam was on a detour, for which Binky, Inc. would have liability or a frolic, for which Binky, Inc. would not have liable. If Binky, Inc. is held liable, it can recover the judgment from Sam.

SKILL LEVEL: Reflective Thinking

OBJECTIVE: AICPA: Critical Thinking

Carl is a contractor that is building a home for Orel. Pam is one of Orel’s neighbors. One day Pam was walking in the neighborhood. As she passed the construction site, a piece of lumber fell from the partially finished garage roof and hit her in the head, injuring her severely. The lumber was left negligently on the roof by Carl. Pam now wishes to sue Orel. Should Orel be held liable to Pam? Discuss.

ANSWER: Carl would likely be considered an independent contractor as opposed to an employee. The situation here is not one, such as conduct involving ultrahazardous activities, for which a principal would be held liable for the actions of an independent contractor.

SKILL LEVEL: Reflective Thinking

OBJECTIVE: AICPA: Critical Thinking

Molly wants to buy a vacant lot that is for sale in her neighborhood. The problem is that she had a skirmish with the current owner, Ben, over his dog barking at all hours of the night. Molly asks Sam if he will purchase the lot on her behalf without telling Ben that she will be the true owner. Sam agrees and reaches an agreement with Ben. A few months after the purchase, Molly begins to do some work on the lot. Ben sees her and asks what she is doing. Molly tells him that she was the true purchaser. Ben becomes furious and yells at her that he will have the sale rescinded and sue both Molly and Sam for fraud. What will be the likely result if Ben sues Molly and Sam?

ANSWER: Ben will lose as to both Molly and Sam because an agent may lawfully conceal the existence of a principal.

SKILL LEVEL: Reflective Thinking

OBJECTIVE: AICPA: Critical Thinking

Discuss the elements that are considered in determining whether a worker is an employee or an independent contractor.

ANSWER: Considerations include the amount of control the employer exercises; whether the employed person engages in an occupation distinct from that of the employer; whether the kind of work being done is usually performed under the direction of an employer or by a specialist without supervision; the degree of skill the work requires; whether the employer provides tools and a place of work; the length of time the worker is employed; whether the worker is paid on the basis of time or by the job; and whether the worker offers his or her services to the public at large.

SKILL LEVEL: Analytic

OBJECTIVE: AICPA: Legal

What factors do courts consider in determining whether an act of an agent was within the scope of employment?

ANSWER: Courts consider (1) whether the employee’s act was authorized by the employer, (2) the extent to which the employer’s interests were advanced by the act, (3) whether the employer furnished the instrumentality (for example, truck or machine) that caused the injury, and (4) whether the employer had reason to know the employee would perform the act.

SKILL LEVEL: Analytic

OBJECTIVE: AICPA: Legal

What is considered in determining the scope of an agent’s implied authority?

ANSWER: To determine an agent’s implied authority, courts look to the usual and customary authority of the agent. Usual authority is the authority that the agent has been allowed to exercise in the past. Customary authority consists of the authority that agents of that type normally would have.

SKILL LEVEL: Analytic

Managers And the Legal Environment Strategies for the 21st Century 7th Edition by Constance E. Bagley – Test Bank (2024)

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