2.0 Business Law REG Practice Quiz

• A. Apparent authority, authority that exists because the principal's conduct led the third party to reasonably believe the agent was authorized
• B. Actual express authority, authority explicitly granted to the agent in the principal's instructions
• C. Actual implied authority, authority reasonably necessary to carry out the express authority
• D. Authority by ratification, the principal later adopts the agent's unauthorized act

Apparent authority (also called ostensible authority) arises from the principal's manifestations to THIRD PARTIES that lead those parties to reasonably believe the agent has authority. Key elements: (1) The principal must make some representation (words, conduct, past dealings) that creates the appearance of authority; (2) The third party must reasonably rely on that representation; (3) The agent may not actually have authority. Example: a company consistently allows its sales representative to sign contracts, even if the representative's authority has been revoked, apparent authority may continue for third parties who knew of the prior pattern and received no notice of revocation. Apparent authority binds the principal to the third party even though the agent acted without actual authority.

• A. An offer, acceptance, consideration, contractual capacity, and legality of subject matter, all five elements must be present
• B. A written agreement signed by both parties, oral contracts are not enforceable under common law
• C. An offer and acceptance only, consideration is not required under modern contract law
• D. A notarized agreement and at least two witnesses, all contracts must be formally executed to be enforceable

A valid common law contract requires ALL FIVE elements: (1) OFFER: a definite proposal by the offeror communicated to the offeree expressing intent to be bound upon acceptance; must be definite (identify parties, subject matter, price, quantity, time); (2) ACCEPTANCE: the offeree's unequivocal agreement to all terms of the offer (mirror image rule under common law); must be communicated to the offeror; (3) CONSIDERATION: something of legal value given in exchange (money, goods, services, forbearance from legal right); must be bargained-for; past consideration is not valid; (4) CONTRACTUAL CAPACITY: parties must have legal capacity to contract, minors (under 18) can generally disaffirm contracts; incompetents and intoxicated persons may have voidable contracts; (5) LEGALITY OF SUBJECT MATTER: the contract's purpose must be legal, contracts for illegal activities are void.

• A. No. Acme Corp. is not liable because Sam's negligence was an independent act; employers are only liable for employee actions they specifically authorize
• B. Yes, under respondeat superior, an employer is vicariously liable for the negligent acts of an employee committed within the scope of employment; driving the delivery route is clearly within Sam's scope of employment
• C. Yes, but only if Acme Corp. had prior knowledge that Sam was a negligent driver; liability requires Acme's actual knowledge of the risk
• D. No, respondeat superior only applies when the employee intends to harm; negligent (unintentional) acts are always the employee's personal responsibility

Respondeat superior (Latin: 'let the master answer') imposes vicarious liability on an employer for the negligent acts of an employee committed within the SCOPE OF EMPLOYMENT. Analysis: (1) Employee relationship: Sam is Acme's employee (not an independent contractor), respondeat superior applies to employees; (2) Scope of employment: Sam was driving the delivery truck on his normal route at the time of the accident, driving the route is exactly what he was employed to do; (3) Conclusion: Acme is vicariously liable to the injured party for Sam's negligence, even though Acme did not personally do anything wrong. Rationale: employers benefit from employees' work, can supervise employees, can purchase insurance, and can spread the cost of accidents across the business, they are better positioned to bear and manage the risk than injured third parties. Sam remains personally liable as well, vicarious liability is joint, not exclusive.

• A. Yes, verbal contracts for services are always enforceable regardless of the time period or dollar amount
• B. No, under the Statute of Frauds, contracts that cannot be performed within one year from the date of making must be in writing; the 18-month performance period triggers this requirement, making the oral contract unenforceable
• C. No, contracts for the sale of goods over $500 must be in writing under UCC Article 2; the $200,000 contract must be written to be enforceable
• D. Yes, the Statute of Frauds only applies to real estate transactions; service contracts are always enforceable orally

The Statute of Frauds (common law) requires that contracts that BY THEIR TERMS cannot be performed within one year from the date of making must be evidenced by a signed writing. The software development contract requires 18 months of performance, it cannot possibly be performed within one year from the date of making. Therefore, the one-year provision applies, and the oral agreement is UNENFORCEABLE. The company's denial of the oral contract would succeed because there is no written evidence of the agreement. Note: the Statute of Frauds is a defense to enforcement, it does not make the contract void (it makes it unenforceable if the defendant raises the statute as a defense).

• A. The homeowner need not pay anything, any deviation from specified contract terms is a material breach that entitles the non-breaching party to withhold all payment
• B. The contractor is entitled to the contract price less the cost of replacing the Brand Y tiles with Brand X tiles, substantial performance entitles the contractor to the contract price minus the cost to remedy the minor defect
• C. The contractor is entitled to the full contract price, substantial performance means the homeowner must pay the contract price in full with no deduction
• D. Substantial performance is not available as a defense for contractors, contractors must strictly perform all specified terms or they have no right to payment

Substantial performance doctrine (common law): when a party has substantially (but not perfectly) performed, they have satisfied their contractual duty and are entitled to compensation, but the other party is entitled to a REDUCTION reflecting the defect. Result: Contract price − Cost to remedy the defect = Amount owed to contractor. The remedy for substantial performance is the diminution in value caused by the breach, either: (a) Cost of cure (if not disproportionately costly): cost to replace Brand Y with Brand X tiles in that bathroom; or (b) Diminution in value: difference in market value of the home with Brand Y vs. Brand X tiles (likely minimal for same-quality tiles). The contractor receives the contract price minus this relatively small amount. Note: if the homeowner specified Brand X for personal or aesthetic reasons and the substitution materially mattered to the homeowner's purpose (subjective dissatisfaction is relevant in construction cases), the analysis may be more favorable to the homeowner.

• A. Acme is not bound. Maria clearly exceeded her actual authority, and Vendor Corp. should have verified Maria's authority for large purchases
• B. Acme is not bound but Maria is personally liable for the full $35,000 as the unauthorized agent
• C. Acme is bound under the doctrine of apparent authority. Vendor Corp. reasonably believed Maria had authority based on prior large orders; additionally, Acme ratified the contract by accepting and using the equipment
• D. Acme is bound because all purchasing managers inherently have unlimited authority to bind their employers to contracts with vendors

Two independent theories bind Acme: (1) APPARENT AUTHORITY: Acme's prior course of dealing with Vendor Corp. through Maria on multiple large orders created an appearance that Maria had authority for large purchases. Vendor Corp. reasonably believed Maria had authority based on this pattern, this constitutes apparent authority. Acme's conduct (allowing Maria to transact large orders repeatedly) created the reasonable impression. (2) RATIFICATION: even if no apparent authority existed, Acme ratified the unauthorized contract by receiving and using the $35,000 of equipment. Ratification requires: (a) the principal (Acme) knew or should have known the material facts of the unauthorized transaction; (b) Acme affirmed the transaction through conduct (using the equipment). By retaining and using the equipment, Acme adopted the contract and cannot later disclaim liability. These are alternative theories, either alone would bind Acme.

• A. No contract is formed, under the common law mirror image rule, the additional arbitration term is a counteroffer that must be accepted by ABC before a contract exists
• B. A contract IS formed because Seller's response is a seasonable expression of acceptance; the arbitration clause (an additional term) automatically becomes part of the contract because both parties are merchants
• C. A contract IS formed between merchants; the arbitration clause, as an additional term, becomes part of the contract UNLESS ABC objects within a reasonable time, or the term materially alters the contract; arbitration clauses are generally considered material alterations that do not become part of the contract without ABC's specific assent
• D. No contract is formed; under UCC §2-207, any response to an offer that includes different or additional terms is automatically treated as a rejection

UCC §2-207 Battle of the Forms analysis: (1) Is a contract formed? YES. Seller's acknowledgment is a definite expression of acceptance of the quantity and price terms (the core terms match), a contract is formed for 500 widgets at $10 each; (2) What happens to the additional arbitration term? Between merchants, additional terms in an acceptance are proposals that automatically become part of the contract UNLESS they materially alter the original agreement. Arbitration clauses are well-established as material alterations, they dramatically change the parties' rights by substituting private arbitration for court adjudication. Therefore: the arbitration clause does NOT become part of the contract without ABC's express agreement. The contract exists but WITHOUT the arbitration clause, disputes would be resolved in court under the default rules.

• A. The contract is void. Seller can rescind because Dana was never disclosed; concealment of a principal always voids real estate contracts
• B. Only Tom is liable, once an undisclosed principal is revealed, the principal assumes all liability and the agent is released from personal liability on the contract
• C. The contract is enforceable only between Tom and Seller. Dana cannot enforce or be bound by a contract she did not personally sign
• D. Dana (undisclosed principal) is bound by the contract and can enforce it; Seller may elect to hold EITHER Tom (the agent) OR Dana (the undisclosed principal) liable on the contract; Tom as agent for an undisclosed principal is personally liable on contracts he signs

Undisclosed principal doctrine: When an agent enters a contract without disclosing the existence of or identity of the principal: (1) The contract is valid and enforceable; (2) The UNDISCLOSED PRINCIPAL (Dana) IS BOUND by the contract, the principal can be held liable even though the third party didn't know of the principal's existence at contract formation; (3) ELECTION by the Seller: upon discovering the undisclosed principal, the Seller may ELECT to hold EITHER: (a) Tom (the agent, who signed in his own name), the agent is personally liable when acting for an undisclosed principal; OR (b) Dana (the undisclosed principal), the principal is liable on the agent's contracts within actual authority; (4) Election is final: once Seller elects and obtains judgment against one party, Seller cannot then pursue the other; (5) Dana can ENFORCE the contract: the undisclosed principal can enforce the contract against Seller, subject to any defenses Seller had against Tom; (6) Exception, personal service contracts: if the contract is specifically personal in nature (Seller contracted specifically because of Tom's identity), the undisclosed principal may not be able to enforce it.