ACCA F4 - Agency Law Exam Practice Test

25 Questions | Total Attempts: 480

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ACCA Quizzes & Trivia

ACCA F4 - Agency Law Exam Practice Test Most relationships in the business environment are made through the use of agents. It is for this reason why there are some laws governing the agent and client relationship. Take up this revision quiz on agency law and see if you are ready for the test that is around the corner.


Questions and Answers
  • 1. 
    An _______ is a person who is authorised to act for another (the principal) in the making of legal relations with third parties.
  • 2. 
    Contracts are made between the principal and the third party or directly with the agent. 
    • A. 

      True

    • B. 

      False

  • 3. 
    An agency relationship can be established in one of five ways: 
    • A. 

      Express agreement

    • B. 

      Implied agreement

    • C. 

      By necessity

    • D. 

      By ratification

    • E. 

      By estoppel

    • F. 

      Implied necessity

    • G. 

      Express necessity

    • H. 

      Enforced agreement

  • 4. 
    _________ agreement is where P actually appoints A as his agent. The agreement can be made orally or in writing.
  • 5. 
    ________ agreement is where P has not expressly agreed that A should be his agent. However, the agreement can be ________ from the parties’ conduct or relationship.
  • 6. 
    To become an agent by necessity requires four conditions to be satisfied:
    • A. 

      P’s property is entrusted to A

    • B. 

      An emergency arises making it necessary for A to act

    • C. 

      It is not possible to communicate with P

    • D. 

      A acts in the interest of P

    • E. 

      A’s property is entrusted to P

    • F. 

      An emergency arises making it necessary for P to act

    • G. 

      It is not possible to communicate with A

    • H. 

      P acts in the interest of A

  • 7. 
    Becoming an agent by necessity is shown in -
    • A. 

      Great Northern Railway v Swaffield (1874)

    • B. 

      Kelner v Baxter (1866)

    • C. 

      Freeman & Lockyer v Buckhurst Park Properties Ltd (1964)

  • 8. 
    If a properly appointed agent exceeds his authority, or a person having no authority purports to act as an agent, the principal has no liability on that contract unless the principal _______ the contract. 
  • 9. 
    • A. 

      Have the contractual capacity to make the contract

    • B. 

      Have been in existence both when the contract was made and at the date of ratification

    • C. 

      Be identified when the contract is made

    • D. 

      Be aware of all the material facts

    • E. 

      Clearly signify his intention to ratify the whole contract within a reasonable time

    • F. 

      Be aware of the main material facts

    • G. 

      Clearly signify his intention to ratify the all/some of the contract within a reasonable time

    • H. 

      Have the legal capacity to make the contract

  • 10. 
    Note that a void or illegal contract may still be ratified.
    • A. 

      True

    • B. 

      False

  • 11. 
    In order for the principal to ratify a contract P must have been in existence both when the contract was made and at the date of ratification.  As shown in -
    • A. 

      Kelner v Baxter (1866)

    • B. 

      Great Northern Railway v Swaffield (1874)

    • C. 

      Freeman & Lockyer v Buckhurst Park Properties Ltd (1964)

  • 12. 
    _______ arises where P implies that A is his agent even though he is not. He is then prevented or 'stopped' from denying A’s authority.
  • 13. 
    Agent by estoppel can be shown in -
    • A. 

      Freeman & Lockyer v Buckhurst Park Properties Ltd (1964)

    • B. 

      Kelner v Baxter (1866)

    • C. 

      Great Northern Railway v Swaffield (1874)

  • 14. 
    The authority of an agent is a central issue in the concept of agency. It determines:
    • A. 

      The powers that the agent has on behalf of the principal

    • B. 

      For which acts the principal is liable

    • C. 

      For which acts the third party is liable

    • D. 

      The powers that the principal has on behalf of the agent

  • 15. 
    If the agent exceeds his powers the principal may still be liable to the third party, but he may have rights against the agent for breach of contract
    • A. 

      True

    • B. 

      False

  • 16. 
    _______ authority is authority that P has explicitly given to A.
  • 17. 
    An agent has _______ authority to do things which: - are reasonably incidental to the performance of an expressly authorised act - an agent occupying that position would usually have authority to do - have not been expressly prohibited by P  
  • 18. 
    _______ authority arises where A is held out by P as having authority. The representation by P may arise from: - the appointment of A to an office or position (in which case A has authority to do those things which are usually done by a person occupying that position) - previous dealings (allowing A to make contracts in the past is a representation that A has authority to continue to do so in the future)  
  • 19. 
    A third party cannot rely on apparent authority when he knows of the lack of actual authority. 
    • A. 

      True

    • B. 

      False

  • 20. 
    A principal is ______ where the existence of the principal has been made known to the third party. It is not necessary for the principal to be identified to the third party.
  • 21. 
    As a general rule, the contract is between the principal and the third party. The agent is neither liable nor entitled under the contract. However, the agent will be personally liable in the following exceptional circumstances:
    • A. 

      Where the agent showed an intention to undertake personal liability, e.g. by signing a written contract in his own name

    • B. 

      Trade usage or custom

    • C. 

      Where the agent refuses to identify the principal

    • D. 

      Where the agent is acting on behalf of a fictitious principal

    • E. 

      When the third party discovers the existence of the principal

  • 22. 
    An __________ principal is where the principal’s existence has not been made known to the third party. When the third party discovers the existence of P, he can elect to treat P or A as bound by the transaction.
  • 23. 
    An agent has a fiduciary relationship with his principal. This is a position similar to that of a trustee. It has the following consequences:
    • A. 

      A must not allow his personal interests to conflict with those of P

    • B. 

      A must always act in the best interests of P

    • C. 

      A must not make a secret profit

    • D. 

      A has a duty to account to P for all money and property received

    • E. 

      P must always act in the best interests of A

    • F. 

      P can refuse to pay any money owed to A or recover any money already paid

  • 24. 
    Where an agent is in breach of his fiduciary duty, the following remedies are available:
    • A. 

      P can repudiate the contract with the third party

    • B. 

      A can be dismissed without notice

    • C. 

      P can refuse to pay any money owed to A or recover any money already paid

    • D. 

      P can recover any secret profit made or any bribe

    • E. 

      A can be dismissed following sufficient notice

    • F. 

      P can reclaim any fees, commission or pay previously awarded to A

  • 25. 
    Principal’s liability to the agent: 
    • A. 

      To claim remuneration or commission for services performed

    • B. 

      To claim an indemnity against P for all expenses reasonably incurred in carrying out his obligations

    • C. 

      To exercise a lien over P’s property.

    • D. 

      To claim an indemnity against P for most expenses reasonably incurred in carrying out his obligations

    • E. 

      To request remuneration or commission for services performed