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KELLEY SCHOOL OF BUSINESS - L201
FINAL EXAM (MCCRORY) QUESTIONS
AND ANSWERS 100% PASS
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? - ANS 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.
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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 - ANS C
T/F: 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. - ANS False
Mitsubishi Case - ANS Boys 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 - ANS a 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 ? - ANS to stimulate commerce
Method of agency law? - ANS USUALLY common law, but also codified by 3rd restatement of
agencies + other statutes
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Fiduciary Relationship - ANS a 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? - ANS No! (not contractual! No
consideration necessary)
Does an agency agreement require capacity? - ANS YES, 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 - ANS -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.
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-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? - ANS duties/actions that can't be performed by an agent.
Ex: lawyers, doctors, athletes, entertainers
Outline the 2 types of authority - ANS *an agent can bind its principle to a contract/other
matters only when the agent has the authority to do so.
2 types - Actual and Apparent
Apparent Authority - ANS Dfn: 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
KELLEY SCHOOL OF BUSINESS - L201
FINAL EXAM (MCCRORY) QUESTIONS
AND ANSWERS 100% PASS
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? - ANS 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.
, ©THESTAR 2025 ALL RIGHTS RESERVED
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 - ANS C
T/F: 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. - ANS False
Mitsubishi Case - ANS Boys 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 - ANS a 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 ? - ANS to stimulate commerce
Method of agency law? - ANS USUALLY common law, but also codified by 3rd restatement of
agencies + other statutes
, ©THESTAR 2025 ALL RIGHTS RESERVED
Fiduciary Relationship - ANS a 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? - ANS No! (not contractual! No
consideration necessary)
Does an agency agreement require capacity? - ANS YES, 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 - ANS -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.
, ©THESTAR 2025 ALL RIGHTS RESERVED
-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? - ANS duties/actions that can't be performed by an agent.
Ex: lawyers, doctors, athletes, entertainers
Outline the 2 types of authority - ANS *an agent can bind its principle to a contract/other
matters only when the agent has the authority to do so.
2 types - Actual and Apparent
Apparent Authority - ANS Dfn: 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
