1. Acme Controls (Acme) hired Allan to be the sales agent for the company. However, after a month, Acme terminated the agency with Allan. Southwest, a customer who had dealt with Allan earlier, was not aware of the termination. Southwest approached Allan to buy some equipment and wrote him a check of $20,000, a down payment of the equipment, which Allan said would be delivered in a few weeks. When Southwest did not receive the equipment, it contacted Acme and demanded that Acme Sales honor the contract, since Allan sold the equipment as Southwest's agent. Which of the following is true of this situation?

A. Since Allan's agency was terminated, Acme Sales is not required to honor his contract with Southwest

B. Southwest's duty was to contact Acme Sales at the time of the order. Its failure to do this removes Southwest's liability to honor the contract.

C. As Acme Sales terminated the agency with Allan in violation of his rights, Allan has the direct authority to sell her paintings.

D. Allan had express authority as Acme Sales' agent, which was not terminated with the termination of their agency.

E. None of the above answers is correct.

2. Richard is the owner of a sole proprietorship. He told his vice-president (VP) to hire a new individual for the firm, giving the VP authority to negotiate salary, but not to offer any retirement benefits. The VP hired William, but in order to get him to take the position, the VP made some retirement commitments to him. Some years later, William sued Richard for failing to honor the retirement commitments. Which of the following is true in this case?

A. Richard has no liability, because he expressly told VP that he didn't have authority to bind him on continuing education matters.

B. Richard is bound on the basis of VP's implied authority

C. Richard is not bound because the company is a sole proprietorship and Richard did not make the promises.

D. Richard is bound on the basis of VP's actual authority

E. Richard is bound on the basis of VP's apparent authority.