Law
Posted by Asok K Nadhani on

Contract of Agency- Multiple Choice Questions

1. Which one of the following statements is incorrect?

  1. An agency relationship may be created through necessity.
  2. An agency relationship may be created through estoppel.
  3. All agents are entitled to be paid for their services.
  4. An agent creates a legal relationship between a third party and a principal.

Normally, Agents are entitled to be paid for their services,  But, in certain circumstances, a gratuitous agent i.e. someone who is not paid for their service, may also be an Agent.

Answer: C

2. An agency relationship which is made retrospectively is know as an agency by:

  1. Estoppel
  2. Ratification
  3. Necessity
  4. Commerce

An agency agreement may be created by estoppel, necessity or ratification. Where a principal retrospectively ratifies an agreement, after it has been made on his behalf, then an agency by ratification is created.

Answer: B

3. X Ltd has two directors, Jai and Harish. Neither of the directors have authority to individually enter contracts on behalf of the company. In practice, Jai (with Harish’s acquiescence) enters into all the contracts on behalf of the company. What type of agency has been created when a third party acting in good faith enters into a contract with Jai who states he is acting on behalf of X Ltd?

  1. An express agency.
  2. An agency by estoppel.
  3. An agency by ratification.
  4. An agency of necessity.

This is a case of agency created by estoppel between Company X and the third Party.

Answer: B

4. Cute appoints Govind, to act as his agent for two weeks. Govind agrees to act without payment. Cute instructs Govind to collect rent each Friday morning from his tenants and pay the rent into the bank next door. In the second week, Govind collects the rent but fails to bank it. On the way home he leaves it on the bus and it is never recovered. Can Cute take action against Govind for breach of his agency duties?

  1. No, Cute has provided no Consideration and therefore there is no agency agreement.
  2. No, Govind is a gratuitous agent and has no duty to follow instructions.
  3. Yes, even though Govind is a gratuitous agent if he must do in accordance with instructions set out by the principal.
  4. Yes, provided he pays Govind for being an agent.

An unpaid (gratuitous) agent will have no duty to act as no Consideration has been provided by the principal, but if he does act, he must do so in accordance with the instructions set out by the principal.

In this case, Cute has provided no Consideration. But Consideration is not essential to create an agency agreement. So, a valid agency is created.

 Even though Govind is a gratuitous agent, he must do in accordance with instructions set out by the principal. So, Cute can take action against Govind for breach of his agency duties?

Answer: C

5. Pranab asked his agent, Hari to purchase her 500 shares in X Ltd. Hari owned 600 shares in X Ltd., so without informing Pranab where the shares come from he sells his shares to Pranab at market value. Is Hari in breach of his agency duties?

  1. Yes, because he has a duty to avoid a conflict of interest.
  2. Yes, because he has a duty to account.
  3. No, because he has sold Pranab the shares at market value.
  4. No, because he has acted according to Pranab’s instructions and she has the shares as she requested.

Even though the shares are sold at market, Hari is in breach of his agency duties, due to conflict of interest.

Answer: A

6. When does apparent (ostensible) authority of an agent arise?

  1. When the agent acts with the usual authority of his job.
  2. When the principal gives the agent implied authority to act.
  3. When the agent has actual authority to act.
  4. When the principal represents to a third party that an agent has authority to act when in fact he does not.

The authority of an agent may be actual, express, implied or apparent (ostensible) authority. If a third party relies on the representations of the principal that the agent has apparent authority, the principal will be bound by the agreement.

 The Agent may act on behalf of principal, if the Principal represents to a third party that an agent has authority to act, though, in fact he does not.

Answer: D

7. Which one of the following is not a duty of an agent?

  1. Duty to exercise care and skill.
  2. Duty to take a commission.
  3. Duty to account.
  4. Duty to avoid a conflict of interest.

Agents have a number of duties but they do not have a duty to take a commission.

Answer: B

8. Fakir enters into a contract with Shilpa believing that Shilpa is acting on her own behalf when in fact she is acting as an agent for Dipak on his express instructions. In the event of a breach of contract, against whom Fakir take action?

  1. No-one, the contract is invalid.
  2. Shilpa.
  3. Dipak.
  4. Dipak or Shilpa.

In this case, an undisclosed agency has been created. So, the third party, Fakir can take action against either the agent (Shilpa) or the principal (Dipak).

Answer: D

9. What is an undisclosed agency?

  1. Where a third party is not informed of the existence of the principal and believes the agent is acting on his own behalf.
  2. Where the agent indicates through conduct he is acting as an agent.
  3. Where the principal is not in existence.
  4. Where the third party knows there is a principal but does not know his name.

In a disclosed agency, the agent indicates expressly or through conduct that he is acting as an agent. The actual name of the principal need not be disclosed.

Where a third party is not informed of the existence of the principal and believes the agent is acting on his own behalf, is an undisclosed Agency.

Answer: A

10. Which of the following statements is incorrect?

  1. An agency may be terminated by death of either party.
  2. An agency may be terminated by express agreement.
  3. An agency agreement can always be terminated by a principal.
  4. Mental incapacity of an agent will terminate the agency relationship.

Some agency agreements such as a Lasting Power of Attorney cannot be revoked once registered with the Office of the Public Guardian and the principal no longer has his mental capacity.

Hence the Option A that an agency agreement can always be terminated by a principal is correct, as the Statement is incorrect. All other staements are correct.

Answer: A

11. Principal is NOT liable for the agents act if
(a) Agent acts within the scope of his authority
(b) Agent exceeds his authority
(c) Fraud or misrepresentation committed for benefit of the principal
(d) Work done out of his authority but the principal accepts it

Answer – B

12. An agency comes to an end:-
(a) By performance of contract
(b) By agreement between the principal and the agent
(c) By renunciation of his authority by the agent
(d) All of the above

Answer – D

13. An agency is irrecoverable:
(a) Where the authority of agency is one coupled with interest
(b) Where the agent has incurred personal liability
(c) Both (a) and (b)
(d) None of the above

Answer – C

14. In case the contract of agency has been terminated and a third party enters into a contract with the agent without knowing this fact, then
(a) The contract will be binding on the principal
(b) The contract will not be binding on the principle
(c) The contract will only be binding on the agent
(d) None of the above

Answer – A

15. A, an agent engaged in carrying on for B a business, in which it is the custom to invest from time-to-time, at interest, the moneys which may be in hand, omits to make such investments.

A. A need not make good to B the interest usually obtained by such investments

B. A can partially make good to B the interest usually obtained by such investments

C. A must make good to B the interest usually obtained by such investments

D. None of these

Answer – C

16. A, an agent for the sale of goods, having authority to sell on credit, sells to B on credit, without making the proper and usual inquires as to the solvency of B. B at the time of such sale is insolvent.

A. A need not make compensation to his principal in respect of any loss thereby sustained

B. A can partially make compensation to his principal in respect of any loss thereby sustained

C. A must make compensation to his principal in respect of any loss thereby sustained

D. None of these

Answer – C

17. Termination of an agency with public authority or a public body may attract judicial intervention in writ petition:

A. If the termination be unreasonable

B. If the termination be arbitrary

C. If the termination be unconscionable

D. All of them

Answer – D

18. The agency extends to receiving notice on behalf of his principal of whatever is material to be stated in the course of the proceedings. For this rule to operate:

I. the agent must be under a duty to communicate

II. the information must be material

III. it must have been obtained in the course of business for which the agent has been engaged

IV. the agent is not privy to a fraud on the principal

A. I, II

B. II, IV

C. Ill, IV

D. All of them

Answer – D

19. The extent of an agent’s authority, whether express or implied, depends upon:

A. The nature of act or business for which he has been appointed

B. Things which are incidental to the business or are usually done in carrying it out

C. The usual customs and usages of the trade

D. All of them

Answer – D

20. The doctrine of apparent authority applies:

I. where a person allows another who is not his agent to appear as his agent

II. where a principal allows his agent to appear to possess more authority than he actually has

III. where the principal reserves or limits the authority of an agent which the agent would have in ordinary course of business, but does make this known to third parties

IV. where the principal allows it to appear that the agent has authority although his authority has been terminated

A. I, II

B. II, IV

C. Ill, IV

D. All of them

Answer – D

21. The conditions which entitle an agent to exceed his authority under the doctrine of necessity are:

A. That he could not communicate with his principal

B. That the course he took was necessary in the sense that it was in the circumstances the only reasonable and prudent course to take

C. That he acted bona fide in the interest of the parties concerned

D. All of them

Answer – D

22. Which type of agency is created in relation of husband – wife ?
(a) Agency of implication
(b) Agency of estoppel
(c) Agency of necessity
(d) Agency of appointed

Ans. (c)

23. When agent is liable to pay compensation to principal ?
(a) Negligence
(b) Misconduct
(c) Giants of skills
(d) All of the above

Ans. (d)

24. The liability of pretended agent is know as __
(a) liability by holding out
(b) liability created by law
(c) liability by rectification
(d) liability of relation

Ans. (a)

25. To create an agency ……….. is not required
(a) principal
(b) agent
(c) consideration
(d) None of the above

Ans. (c)

26. To whom the agent is responsible ?
(a) Contractor
(b) None of these
(c) Sub Agent
(d) Principal

Ans. (d)

27. Who creates the contractual relation between two parties ?
(a) Principal
(b) Co-Agent
(c) Broker
(d) Agent

Ans. (c)

28. A person employed to do and represent is called ………..
(a) principal
(b) servant
(c) agent
(d) owner

Ans. (c)

29. ……….. agents gets extra remuneration.
(a) General Agent
(b) Broker
(c) Sub Agent
(d) del credere

Ans. (d)

30. Who can become an agent ?
(a) Minor
(b) Both Minor & Adult
(c) Adult person
(d) Dead person

Ans. (b)

31. Which acts can be rectified by principal ?
(a) Illegal acts
(b) Criminal acts
(c) Void acts
(d) Legal acts

Ans. (d)

32. How the agency is create ?
(a) by ratification
(b) by necessity
(c) by implication
(d) by all of the above methods

Ans. (d)

33. Auctioneer agent gets ……….. lien.
(a) general
(b) none of these
(c) particular
(d) special

Ans. (c)

34. Broker who does only the work of insurance called __
(a) general agent
(b) del credere agent
(c) special agent
(d) commission agent

Ans. (c)

35. On whose insolvency the agency is terminated ?
(a) Sub agent
(b) Del credere
(c) Agent
(d) Principal

Ans. (d)

36. Under which circumstances agent become personally responsible ?
(a) fraudulent transactions
(b) ultra virus
(c) fraud
(d) All of above

Ans. (d)

37. To whom the acts of agent are binding ?
(a) Del – Credere
(b) Sub agent
(c) Third party
(d) Principal

Ans. (d)

38. Which Guarantee is given by del credere agent ?
(a) Solvency of purchaser
(b) Solvency of Agent
(c) Own Solvency
(d) Solvency of seller

Ans. (a)

39. A sub-agent is the employee who is specially employed by the original agent to act under his control in the business of the agency. The usual rule and regulation are that an agent is not allowed to delegate his authority to another person especially when he/she has not the permission of his principal. Under what conditions an agent may hire or appoint a sub-agent and delegate the work?
(A). The principal has expressly allowed a delegation of such authority.
(B). The ordinary custom of trade a sub-agent may be employed.
(C). The nature of work is such that a sub-agent is essential
(D). All of these

Answer: (D).

40. By which methods, agency can be created?
(A). by agreement
(B). by ratification
(C). by estoppel
(D). All of these
Answer: (D).

41. Select the correct statement. Where a sub-agent is appropriately selected and appointed by an agent to delegate the work :
(A). The principal is bound by the acts of the sub-agent as if the subagent was an agent originally appointed by the principal.
(B). The agent is accountable and answerable to the principal for the acts of the subagent.
(C). The sub-agent is accountable and answerable for his acts to the agent, but not to the principal, except in case of scam or fraud.
(D). All of these
Answer: (D).

42. Which of the following are considered as acting as agents?
(A). Auctioneer
(B). Company directors and managers
(C). Partners in a business partnership
(D). All of these
Answer: (D).

43. A _____________ authorizes the agent to do all acts on behalf of principal

A. Special power of attorney

B. Particular Power of attorney

C. General power of attorney

D. All of the above

Answer C.

44. The power of attorney is an example of agency by ________________________

A. Express Agreement

B. Implied agreement

C. Ratification

D. special agreements

Answer A.

45. Incase of ratification, the principal must ratify __________

A. Part transaction based on necessity

B. the agreement of agency

C. whole transaction

D. the third party about agency

Answer C.

46. _______ means to give full consent or approval to an act which was originally done without authority

A. Estoppel

B. Ratification

C. Holding out

D. Express agency

Answer B

47. The consideration in case of Contract of Agency ______________

A. can be past, present, future

B. Need not be adequate

C. Need to be real

D. Not Essential

Answer D.

48. An agent who is appointed to sell a house is ___________

A. General agent

B. Special agent

C. Mercantile agent

D. Non mercantile Agent

Answer B.

49. Advocates are classified as ______________

A. General agent

B. Special agent

C. Mercantile agent

D. Non mercantile Agent

Answer D.

50. In case of war between the principal’s and agent’s countries then the Contract of agency will be

A. Holding out

B. Terminated by agreement between parties

C. Termination by operation of Law

D. continued as anybody can become an agent.

Answer C.

51. Irrevocable agency will be terminated when

A. death of agent/principal

B. Principal becomes incapable

C. Time lapses

D. agent’s obligations are performed

Answer D.

52. Agency may be terminated by Operation of Law, on :

A. Lapse of time

B. Death of Agent or Principal

C. Occurrence of a specified event

D. Purpose achieved

Answer B.