Agency MCQ Quiz - Objective Question with Answer for Agency - Download Free PDF

The correct answer is Option 4

Key Points Section 186 – Agent’s Authority May Be Expressed or Implied:
This section states that the authority given to an agent by the principal can be either:

• Express, or
• Implied.
• That means, an agent doesn't always need a written or verbal contract to act—sometimes their authority can arise from conduct or circumstances.

Section 187 – Definition of Express and Implied Authority:
Express Authority:

• When the principal directly tells the agent what to do, through spoken or written words, the authority is called express.
• Implied Authority:
• When the authority is not directly stated, but is understood from the conduct, circumstances, or usual course of business, it is called implied authority.

➤ Things said, written, or done earlier, or how business has usually been conducted, can help infer this authority.

The correct answer is correct 

Key Points

• The statement "No consideration is necessary to create an agency" is correct, and it is explicitly laid down under Section 185 of the Indian Contract Act, 1872.
• This means that an agency relationship can be validly created without any consideration between the principal and the agent.
• Unlike normal contracts which require consideration under Section 10 of the Indian Contract Act, an agency is based on authority and representation, not necessarily on a contractual exchange.
• When a person (principal) authorizes another person (agent) to act on their behalf, that authorization itself is enough to form an agency whether or not money or other consideration is exchanged.

The correct answer is Option 4.

Key Points Section 182–238 of the Indian Contract Act, 1872:

These provisions govern the law of agency, which defines the relationship between a principal and an agent.

Creation of Agency:

1. Express Appointment:

   • An agency can be created explicitly through an agreement where one party (the principal) appoints another (the agent) to act on their behalf.
   • Example: A written or verbal agreement of appointment.

2. Implied Appointment or Conduct of Parties:

   • An agency may arise through the conduct or circumstances indicating the intention to create such a relationship.
   • Example: A person managing another's property without formal agreement but with implied consent.

3. Agency by Necessity:

   • In certain emergencies, an agency relationship may arise by necessity when one person acts on behalf of another to protect their interests.
   • Example: A shipmaster selling perishable goods to prevent loss when the owner is unreachable.

4. Agency by Ratification (Section 196–200):

   • An agency can be created retrospectively if the principal ratifies an act performed on their behalf without prior authority.
   • Example: If a person buys goods on behalf of another without authority, and the latter subsequently accepts the act, an agency relationship is created.

The correct answer is option 2

Key Points Agency and Consideration:

• As per Section 185 of the Indian Contract Act, 1872, consideration is not required for a contract of agency.
• A contract of agency is an exception to the general rule that a contract must be supported by consideration.

Agent’s Entitlement:

• Even though consideration is not necessary, an agent is entitled to reasonable remuneration, unless otherwise specified in the agreement.
• This ensures the agent is compensated for their services in the absence of specific terms.

Distinction from Other Contracts:

• Contracts such as bailment, partnership, and pledge generally require consideration as an essential element for validity.
• The lack of a consideration requirement makes the contract of agency unique compared to these contracts.
• A contract of agency is valid without consideration, making agency the correct answer.

The correct answer is A is bound to make good the loss to B.

Key Points

• The above question is taken from the illustration (c) of Section 212 of the Indian Contract Act, 1872.
• Section 212 provides for the Skill and diligence required from agent.
• It states that —An agent is bound to conduct the business of the agency with as much skill as is generally possessed by persons engaged in similar business, unless the principal has notice of his want of skill. The agent is always bound to act with reasonable diligence, and to use such skill as he possesses; and to make compensation to his principal in respect of the direct consequences of his own neglect, want of skill, or misconduct, but not in respect of loss or damage which are indirectly or remotely caused by such neglect, want of skill, or misconduct.
• Illustration (c): A, an insurance-broker employed by B to effect an insurance on a ship, omits to see that the usual clauses are inserted in the policy. The ship is after wards lost. In consequence of the omission of the clauses nothing can be recovered from the underwriters. A is bound to make good the loss to B.

The correct answer is Option 1

Key Points“Agency is a relationship which exists where one person (the principal) authorizes another (the agent) to act on his behalf, and the agent agrees to do so.” 

chapter 10 (section 182-238) of the Indian Contract act,1872  deals with contract of agency   A contract of agency is a fiduciary relationship between two parties where one party (the principal) contracts-with and authorizes (implicitly or explicitly) another person (the agent) to act on his behalf and provides him with the capacity to create legal relationships between the principal and third parties. 

Additional InformationSection182. ‘Agent’ and ‘principal’ defined.—An ‘agent’ is a person employed to do any act for another, or to represent another in dealings with third person. The person for whom such act is done, or who is so represented, is called the ‘principal’. —An ‘agent’ is a person employed to do any act for another, or to represent another in dealings with third person. The person for whom such act is done, or who is so represented, is called the ‘principal’.

The correct answer is Section 194.

Key Points

• Section 194 of the Indian Contract Act 1872 provides for Substituted Agent.
• Section 194- Relation between principal and person duly appointed by agent to act in business of agency—Where an agent, holding an express or implied authority to name another person to act for the principal in the business of the agency, has named another person accordingly, such person is not a sub-agent, but an agent of the principal for such part of the business of the agency as is entrusted to him.

The correct answer is Option 3. 

Key Points A contract of agency is a legal relationship where one person (the principal) appoints another person (the agent) to perform transactions on their behalf. The agent is subject to the principal's control. 

• Section 182 defines an agent as someone who is employed to perform an act for another person or to represent them in dealings with third parties. The person who gives the agent authority is called the principal.

An agency contract is a legal agreement between a company and a third-party agent. It defines the terms and conditions of their working relationship, including: 

• The scope of services to be provided
• The commission rate
• The duration of the contract

The Indian Contract Act of 1872 governs the legal relationship between the principal and agent.

Essentials for the formation of contract of agency
Principal’s competency

• Section 183 of the Indian Contract Act 1872 explains the eligibility requirement of the principal for the formation of a contract.
• According to this section, any person can employ an agent who is of sound mind and has attended the majority as per law. 

Agent’s competency

• Section 184 of the Indian Contract Act of 1872 explains the eligibility requirements for agents.
• Any person could be appointed as an agent except for those who are either of unsound mind or have not reached the majority age as per law.

Consideration is not essential

• Section 185 of the Indian Contract Act 1872, there is no consideration for the formation of the agency contract.
• Mostly, commission is paid to the agent for providing services, but no payment is required while appointing an agent.

Creation of Agency
The following are the ways to create an agency:

• Expressed
  • Any competent principal person can appoint an agent as his representative through a contract. The appointment contract can be in oral or also in written form.
• Implied
  • The principal person can appoint an agent indirectly, and an implied agency will be created. The formation of the implied agency can be through relationships or certain situations.
• By Subsequent Ratification of Unauthorised Act
  • If the principal does not authorise the act of the agent initially by later the agent authorises it, then the principal accepts the act as done on behalf of him. Such authorisation is the ratification.

The correct answer is Destruction of the subject matter of the contract of agency.

Key Points Agency Contract:

• An agency contract is a legal relationship, where one person appoints another to transact on his behalf.
• The contract person who appoints another person to look after his transactions is called the original person.
• Whereas the person who sees any transaction of the original person is the agent. 

Important Points

•  The agency is contractual.
• There is a special contract under the Indian Contract Act 1872.
• According to this contract, if the subject matter of the contract of the agency is lost, it cannot be a valid agency.
• It is absolutely necessary to have the subject matter in the agency for a contract.

The correct answer is option 3.

Key Points

• Section 192 of the Indian Contract Act, 1872, discusses the representation of a principal by a sub-agent and outlines the responsibilities of the principal, the agent, and the sub-agent.
• Here's a breakdown of the key points:

      1. Representation of Principal by Sub-Agent:

•       When a sub-agent is properly appointed, the principal is represented by the sub-agent with respect to third persons.
• The principal is bound by and responsible for the acts of the sub-agent, as if the sub-agent were originally appointed by the principal.

       2. Agent's Responsibility for Sub-Agent:

The agent (the person originally appointed by the principal) is responsible to the principal for the acts of the sub-agent. 

      3. Sub-Agent's Responsibility:

•    The sub-agent is responsible for his acts to the agent.
• However, the sub-agent is not directly responsible to the principal except in cases of fraud or willful wrongdoing.
• In cases of fraud or willful wrong, the sub-agent's responsibility extends to both the agent and the principal.

Additional Information

• ​ Agent:
  • An "agent" is a person who is employed or authorized to act on behalf of another individual or entity.
  • The agent performs specific acts or tasks on behalf of the person or entity, known as the principal.
  • The agent may have the authority to make decisions, enter into contracts, or represent the principal in various dealings with third parties.
• Principal:
  • The "principal" is the person for whom the agent is acting or representing.
  • The principal is the individual or entity that empowers the agent to act on their behalf.
  • The actions and decisions of the agent are generally binding on the principal, within the scope of the authority granted.
• Section 182 of the Act-“Agent” and “principal” defined.—An “agent” is a person employed to do any act for another, or to represent another in dealings with third persons. The person for whom such act is done, or who is so represented, is called the “principal”.

The correct answer is Option 1

Key Points“Agency is a relationship which exists where one person (the principal) authorizes another (the agent) to act on his behalf, and the agent agrees to do so.” 

chapter 10 (section 182-238) of the Indian Contract act,1872  deals with contract of agency   A contract of agency is a fiduciary relationship between two parties where one party (the principal) contracts-with and authorizes (implicitly or explicitly) another person (the agent) to act on his behalf and provides him with the capacity to create legal relationships between the principal and third parties. 

Additional InformationSection182. ‘Agent’ and ‘principal’ defined.—An ‘agent’ is a person employed to do any act for another, or to represent another in dealings with third person. The person for whom such act is done, or who is so represented, is called the ‘principal’. —An ‘agent’ is a person employed to do any act for another, or to represent another in dealings with third person. The person for whom such act is done, or who is so represented, is called the ‘principal’.

The correct answer is Section 194.

Key Points

• Section 194 of the Indian Contract Act 1872 provides for Substituted Agent.
• Section 194- Relation between principal and person duly appointed by agent to act in business of agency—Where an agent, holding an express or implied authority to name another person to act for the principal in the business of the agency, has named another person accordingly, such person is not a sub-agent, but an agent of the principal for such part of the business of the agency as is entrusted to him.

The correct answer is Option 3. 

Key Points A contract of agency is a legal relationship where one person (the principal) appoints another person (the agent) to perform transactions on their behalf. The agent is subject to the principal's control. 

• Section 182 defines an agent as someone who is employed to perform an act for another person or to represent them in dealings with third parties. The person who gives the agent authority is called the principal.

An agency contract is a legal agreement between a company and a third-party agent. It defines the terms and conditions of their working relationship, including: 

• The scope of services to be provided
• The commission rate
• The duration of the contract

The Indian Contract Act of 1872 governs the legal relationship between the principal and agent.

Essentials for the formation of contract of agency
Principal’s competency

• Section 183 of the Indian Contract Act 1872 explains the eligibility requirement of the principal for the formation of a contract.
• According to this section, any person can employ an agent who is of sound mind and has attended the majority as per law. 

Agent’s competency

• Section 184 of the Indian Contract Act of 1872 explains the eligibility requirements for agents.
• Any person could be appointed as an agent except for those who are either of unsound mind or have not reached the majority age as per law.

Consideration is not essential

• Section 185 of the Indian Contract Act 1872, there is no consideration for the formation of the agency contract.
• Mostly, commission is paid to the agent for providing services, but no payment is required while appointing an agent.

Creation of Agency
The following are the ways to create an agency:

• Expressed
  • Any competent principal person can appoint an agent as his representative through a contract. The appointment contract can be in oral or also in written form.
• Implied
  • The principal person can appoint an agent indirectly, and an implied agency will be created. The formation of the implied agency can be through relationships or certain situations.
• By Subsequent Ratification of Unauthorised Act
  • If the principal does not authorise the act of the agent initially by later the agent authorises it, then the principal accepts the act as done on behalf of him. Such authorisation is the ratification.

correct answer is (3)

 Key PointsSection 182 of the Indian Contract Act, defines "Agent"and "Principle".

Agent is a person employed to do any act for another or to represent another in dealing with third persons.

The person for whom such act is done, or who is so represented, is called the “principal”.

A, a businessman, appoints B to buy some goods on his behalf. Here, A is the principal and B is the agent, and the person from whom the goods are bought is the ‘Third Person’.

Additional InformationA person who is of sound mind and attained age of majority can act as an agent (Section 184). 
The authority of the agent can be expressed or implied (Section 187).

The correct answer is the contract is voidable at the option of C.

Key Points

• The above question is taken from the illustration (a) of Section 238.
• Section 238 provides for the Effect, on agreement, of misrepresentation of fraud, by agent.
• It states that —Misrepresentation made, or frauds committed, by agents acting in the course of their business for their principals, have the same effect on agreements made by such agents as if such misrepresentations or frauds had been made or committed by the principals; but misrepresentations made, or frauds committed, by agents, in matters which do not fall within their authority, do not affect their principals.
• Illustration (a): A, being B’s agent for the sale of goods, induces C to buy them by a misrepresentation, which he was not authorized by B to make. The contract is voidable, as between B and C, at the option of C.