NUMBER 1 Items 1 through 5 are based on the following: Lace Computer Sales Corp. orally contracted with Banks, an independent consultant, for Banks to work part-time as Lace's agent to perform Lace's customers' service calls. Banks, a computer programmer and software designer, was authorized to customize Lace's software to the customers' needs on a commission basis, but was specifically told not to sell Lace's computers. On September 15, Banks made a service call on Clear Co. to repair Clear's computer. Banks had previously called on Clear, customized Lace's software for Clear, and collected cash payments for the work performed. During the call, Banks convinced Clear to buy an upgraded Lace computer for a price much lower than Lace would normally charge. Clear had previously purchased computers from other Lace agents and had made substantial cash down payments to the agents. Clear had no knowledge that the price was lower than normal. Banks received a $1,000 cash down payment and promised to deliver the computer the next week. Banks never turned in the down payment and left town. When Clear called the following week to have the computer delivered, Lace refused to honor Clear's order Required: Items 1 through 5 relate to the relationship between the parties. For each item, select from List I whether only statement I is correct, whether only statement I is correct, whether both statements I and II are correct, or whether neither statement I nor II is correct. List 1 a. I only b. II only c. Both I and II. d. Neither I nor II. 1. I II. Lace's agreement with Banks had to be in writing for it to be a valid agency agreement. Lace's agreement with Banks empowered Banks to act as Lace's agent. 2. I. Clear was entitled to rely on Banks implied authority to customize Lace's software. II. Clear was entitled to rely on Banks' express authority when buying the computer. 3. I. II. Lace's agreement with Banks was automatically terminated by Bank's sale of the computer. Lace must notify Clear before Bank's apparent authority to bind Lace will cease. 4. I. II. Lace is not bound by the agreement made by Banks with Clear. Lace may unilaterally amend the agreement made by Banks to prevent a loss on the sale of the computer to 5. I. II. Lace, as a disclosed principal, is solely contractually liable to Clear. Both Lace and Banks are contractually liable to Clear