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Chapter 29Relationship of Principal and Agent TRUE/FALSE 1. A gratuitous agent has a duty of loyalty but is not liable for any harm caused by his careless perform- ance. ANS: F TOP: AICPA BB-Legal MSC: AACSB Analytic 2. An agent will not be authorized to act for a principal unless he receives some consideration for the task. ANS: F TOP: AICPA BB-Legal MSC: AACSB Analytic 3. Anna employs Mark to purchase for her a suitable site for a roller rink. Mark owns a huge site himself and sells it to Anna at fair market value without disclosing to her that he is the owner of the land. Anna may not rescind the transaction, because Mark has not breached his fiduciary duty to his principal. ANS: F TOP: AICPA BB-Legal MSC: AACSB Analytic 4. Diane appoints Edward as her agent to sell goods in markets where the highest price can be obtained. Edward sells the goods in a market that is glutted and obtains a low price, even though he could have obtained a higher price in a nearby market by using more care in obtaining the available market in- formation. Edward is liable to Diane for breach of the duty of diligence. ANS: T TOP: AICPA BB-Legal MSC: AACSB Analytic 5. An agency contract appointing the agent for a period of more than one year must be in writing. ANS: T TOP: AICPA BB-Legal MSC: AACSB Analytic 6. As a general rule, a person may do through an agent whatever business activity he may accomplish personally. ANS: T TOP: AICPA BB-Legal MSC: AACSB Analytic 7. The capacity to be a principal, and thus to act through an agent, depends on the capacity of the princip- al to do the act. ANS: T TOP: AICPA BB-Legal MSC: AACSB Analytic 8. A minor cannot act as an agent. ANS: F TOP: AICPA BB-Legal MSC: AACSB Analytic 9. A fiduciary duty, arising out of a relationship of trust and confidence, is one of utmost loyalty and good faith. ANS: T TOP: AICPA BB-Legal MSC: AACSB Analytic 10. An agent must act solely in the interest of his principal in all acts that would affect the principal's busi- ness. ANS: T TOP: AICPA BB-Legal MSC: AACSB Analytic 11. Usually, an agency is automatically terminated when the principal goes bankrupt. ANS: T TOP: AICPA BB-Legal MSC: AACSB Analytic 12. Linton, as a sales agent for Nancy, may keep the money for the sales in his personal bank account until due to her as long as he keeps accurate records of the amounts he must separate out to pay to her. ANS: F TOP: AICPA BB-Legal MSC: AACSB Analytic 13. A principal owes to any agent the same duties under tort law that the principal owes to all parties. ANS: T TOP: AICPA BB-Legal MSC: AACSB Analytic 14. Actual authority conferred upon an agent for a specified time does not continue after the specified time.... View Full Document

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