Business Associations bar exam questions & notes.

A retiree is leaving for a three-month cruise and asks her neighbor, a college student, to sell her vintage motorcycle while she is away. She says, "List it, show it to buyers, and sign the bill of sale for anything over $8,000." The neighbor agrees but refuses any payment, saying he is glad to help. Nothing is put in writing. While the retiree is at sea, the neighbor negotiates with an interested buyer and signs a bill of sale for $9,200 in the retiree's name.

Which fact best supports the conclusion that an agency relationship existed between the retiree and the neighbor?

1. The neighbor, rather than the retiree, was the one who physically signed the bill of sale.
2. The retiree asked the neighbor to act on her behalf and under her direction, and he agreed. Correct
3. The motorcycle ultimately sold for more than the $8,000 minimum the retiree had specified.
4. The arrangement between the retiree and the neighbor was never put into a written contract.

A 16-year-old works weekends at an art gallery owned by a collector. The collector, who is fully competent, authorizes the teenager to negotiate and accept offers on paintings up to $5,000 while the collector attends an out-of-state fair. The teenager agrees. A visitor offers $4,500 for a landscape, and the teenager accepts on the gallery's behalf and takes a deposit. The collector later refuses to honor the sale, arguing that a minor cannot form a binding contract and therefore could not bind the gallery.

Is the collector's argument that the teenager's age prevents the gallery from being bound correct?

1. Yes, because a minor lacks the legal capacity needed to enter a contract on another's behalf.
2. Yes, because the collector was outside the state when the teenager accepted the offer.
3. No, because a principal with capacity may act through an agent who has only minimal capacity. Correct
4. No, because the collector ratified the sale by accepting the visitor's deposit.

A small the state coffee roaster hires a manager and tells her in a signed memo, "You may purchase green coffee beans on the company's credit for up to $10,000 per order." The manager places an order with a supplier for $7,500 of beans, signing on the roaster's behalf. The roaster receives the beans but, facing a cash shortage, refuses to pay, claiming the manager had no power to commit the company because the owner never personally approved this particular order.

Did the manager have actual authority to bind the roaster to the $7,500 order?

1. Yes, because the roaster's written instruction expressly authorized purchases within that limit. Correct
2. Yes, because the manager reasonably appeared to the supplier to run the roaster's operations.
3. No, because the owner did not personally approve this specific purchase order beforehand.
4. No, because express authority must be renewed in writing for each individual order placed.

A regional bank seats an employee at a desk labeled "Loan Officer" in its the state branch and lists her on its website as authorized to approve consumer loans. A customer applies for a $15,000 auto loan, and the loan officer signs a commitment letter on the bank's letterhead approving it. Unknown to the customer, the branch had internally capped this officer's approvals at $10,000 that week. The bank now refuses to fund the loan, pointing to the internal cap.

On what basis is the bank most likely bound to honor the loan commitment?

1. The loan officer expressly told the customer that she had authority to approve the loan.
2. The customer relied on the loan officer's own statement that the loan had been approved.
3. The bank and the customer had a prior course of dealing on several similar consumer loans.
4. The bank held the officer out in a role customers reasonably trust to approve such loans. Correct