ICAEW BL · Chapter 6
Agency MCQs with Answers
10 multiple-choice questions on Agency for ICAEW BL Business Law. Try each one before revealing the answer and explanation.
Practise this chapter interactivelyQuestion 1
Monique tells her letting agent in writing: 'You may sign tenancy agreements on my behalf for my flat at a rent of at least £1,200 a month.' What type of authority does the agent have to sign a tenancy at £1,300 a month?
- A) Apparent (ostensible) authority
- B) Authority by ratification
- C) Agency of necessity
- D) Express actual authority
Show answer & explanation
Answer: D) Express actual authority
Express actual authority is authority the principal gives the agent expressly, orally or in writing. Signing at £1,300 falls within Monique's written instruction. Apparent authority comes from a representation to a third party, ratification happens after the event, and agency of necessity arises only in an emergency.
Question 2
For several years Tobias, the manager of a garden centre, has ordered stock from Greenleaf Supplies in the owner's name and the owner has always paid. The owner then privately tells Tobias he must no longer place orders above £5,000, but does not tell Greenleaf. Tobias orders £9,000 of stock from Greenleaf. Is the owner bound?
- A) No, because Tobias exceeded his actual authority
- B) Yes, because Tobias had apparent authority based on the owner's previous conduct towards Greenleaf
- C) No, because an agent's authority can never exceed the limit set by the principal
- D) Yes, but only if the owner ratifies the order
Show answer & explanation
Answer: B) Yes, because Tobias had apparent authority based on the owner's previous conduct towards Greenleaf
Apparent authority arises where the principal represents to a third party, often by a course of dealing, that the agent has authority, and the third party relies on it. The owner let Greenleaf deal with Tobias without limit and did not tell Greenleaf of the new restriction, so he is bound (compare Freeman & Lockyer). Tobias exceeded his actual authority and may be liable to the owner, but that does not affect Greenleaf. Ratification is not needed.
Question 3
Which of the following is NOT a requirement for a principal validly to ratify a contract made by an agent who had no authority?
- A) The agent must have purported to act on behalf of the principal
- B) The principal must have existed and had capacity at the time the contract was made
- C) The third party must consent to the ratification
- D) The principal must ratify the whole contract within a reasonable time
Show answer & explanation
Answer: C) The third party must consent to the ratification
For ratification, the agent must have contracted as agent for a named or identifiable principal. That principal must have existed and had capacity at the time of the contract, and must ratify the whole contract within a reasonable time with full knowledge of the material facts. The third party's consent is not required, because ratification relates back to the date of the original contract.
Question 4
Before Lumen Ltd is incorporated, its promoter Saul orders printing from Inkwell Ltd 'for and on behalf of Lumen Ltd'. The written order states, at Saul's insistence and with Inkwell's agreement, that Saul accepts no personal liability. After incorporation, Lumen Ltd's board passes a resolution to 'ratify' the order, but no new contract is made with Inkwell, and Lumen Ltd later refuses to pay. Who is liable to Inkwell Ltd on the contract?
- A) Neither Saul nor Lumen Ltd, because s51 makes the promoter liable only subject to any agreement to the contrary, and the company cannot ratify a pre-incorporation contract
- B) Lumen Ltd, because its board ratified the contract after incorporation
- C) Saul, because personal liability under s51 cannot be excluded by agreement
- D) Lumen Ltd's first directors, jointly and severally
Show answer & explanation
Answer: A) Neither Saul nor Lumen Ltd, because s51 makes the promoter liable only subject to any agreement to the contrary, and the company cannot ratify a pre-incorporation contract
Under s51 Companies Act 2006, a contract that purports to be made by or for a company before it is formed has effect as a contract with the person acting for it, who is personally liable, but this is 'subject to any agreement to the contrary'. Inkwell expressly agreed that Saul would not be liable, so he is not. A company cannot ratify a contract made before it existed (Kelner v Baxter), so the board's resolution has no effect. Lumen Ltd would be bound only if it entered into a new contract (novation) with Inkwell, which it did not.
Question 5
Rufus is engaged by Aldermoor Ltd to find a buyer for its surplus machinery. Without telling Aldermoor, Rufus accepts a 'finder's fee' of £3,000 from the buyer he introduces. What is the legal position?
- A) Rufus may keep the fee, because it was paid by a third party and not by his principal
- B) Rufus may keep the fee if Aldermoor Ltd suffered no loss from the sale
- C) The sale contract is automatically void because of the payment
- D) Rufus has breached his fiduciary duty and must account to Aldermoor Ltd for the £3,000
Show answer & explanation
Answer: D) Rufus has breached his fiduciary duty and must account to Aldermoor Ltd for the £3,000
An agent owes fiduciary duties, including not to make a secret profit or take a bribe from the third party. An undisclosed payment must be accounted for to the principal, whether or not the principal suffered a loss. The principal may also be entitled to refuse the agent's commission and to rescind the contract with the third party, but the contract is not automatically void.
Question 6
Which of the following is a right that an agent has against its principal?
- A) To be indemnified for expenses and liabilities properly incurred in performing the agency
- B) To delegate all the agent's duties to another person without the principal's consent
- C) To make a profit from the agency in addition to agreed remuneration, provided it is reasonable
- D) To disregard instructions the agent believes are commercially unwise
Show answer & explanation
Answer: A) To be indemnified for expenses and liabilities properly incurred in performing the agency
An agent is entitled to agreed remuneration and to an indemnity for expenses and liabilities properly incurred in acting within its authority. It may also have a lien over the principal's property. An agent must generally act personally and may not delegate without authority. It must not make undisclosed profits and must obey the principal's lawful instructions, even if it disagrees with them.
Question 7
Imran, claiming to act for Westcliff Ltd, signs a contract with a supplier. In fact he has no authority of any kind, and Westcliff Ltd refuses to ratify. What remedy does the supplier have?
- A) It may enforce the contract against Westcliff Ltd because Imran used the company's name
- B) It may sue Imran for breach of warranty of authority
- C) It has no remedy, because it should have checked Imran's authority
- D) It may sue Westcliff Ltd for negligent appointment of Imran
Show answer & explanation
Answer: B) It may sue Imran for breach of warranty of authority
A person who claims to act as agent impliedly warrants that they have the authority claimed. If they do not, and the principal is not bound, the third party can sue the 'agent' for breach of warranty of authority (Collen v Wright). This is strict liability and does not depend on fraud. Westcliff Ltd is not bound because there was no actual or apparent authority and no ratification.
Question 8
Nadia buys goods from a wholesaler on credit. The wholesaler does not know that she is buying as agent for Corbin Ltd, which has authorised the purchase. The goods are not paid for, and the wholesaler then discovers Corbin's involvement. What is the wholesaler's position?
- A) It may sue only Nadia, because it contracted with her alone
- B) It may sue only Corbin Ltd, because Nadia was merely an agent
- C) It may elect to sue either Nadia or Corbin Ltd, but once it clearly elects one it cannot later sue the other
- D) It may sue both Nadia and Corbin Ltd and recover the full price from each
Show answer & explanation
Answer: C) It may elect to sue either Nadia or Corbin Ltd, but once it clearly elects one it cannot later sue the other
This is the doctrine of the undisclosed principal. The agent is personally liable because the third party believed it was dealing with her alone. When the principal is discovered, the third party may sue the principal instead, but it must elect between them. A clear election to pursue one releases the other. It cannot recover twice.
Question 9
Halcyon Ltd revokes the authority of its purchasing agent, Fintan, but does not tell its regular suppliers. A week later Fintan places an order with one of them in Halcyon's name. Which statement is correct?
- A) Halcyon Ltd is not bound, because revocation ends an agent's authority for all purposes immediately
- B) Halcyon Ltd is not bound, because the supplier should have checked Fintan's current status
- C) Only Fintan is liable, because revocation turned the order into a personal contract of his
- D) Halcyon Ltd may be bound, because Fintan's apparent authority continues until the supplier has notice of the revocation
Show answer & explanation
Answer: D) Halcyon Ltd may be bound, because Fintan's apparent authority continues until the supplier has notice of the revocation
Revocation ends the agent's actual authority as between principal and agent. Third parties who previously dealt with the agent may still rely on apparent authority until they are told of the termination. Halcyon should have notified its regular suppliers. Halcyon may then claim against Fintan for acting without authority.
Question 10
The board of a company appoints Selina as managing director but says nothing about the scope of her powers. On what basis does she have authority to make the contracts that a managing director would normally make?
- A) Agency by estoppel arising from a statement she made herself
- B) Agency of necessity
- C) Implied (usual) actual authority arising from her appointment to that position
- D) Ratification by the shareholders in general meeting
Show answer & explanation
Answer: C) Implied (usual) actual authority arising from her appointment to that position
Appointing a person to a position gives them implied actual authority to do whatever is usually incidental to that role (Hely-Hutchinson v Brayhead). Estoppel depends on the principal's representation, not the agent's own statement. Agency of necessity arises only in emergencies, and no ratification is needed where actual authority exists.