1. What is the primary role of an agent in an agency relationship?
a) To act on behalf of the principal
b) To manage the principal’s personal finances
c) To provide legal representation
d) To make decisions for the principal’s business
Answer: a) To act on behalf of the principal
2. Which principle governs the relationship where an agent acts with authority granted by the principal?
a) Duty of loyalty
b) Duty of care
c) Duty of authority
d) Duty of disclosure
Answer: c) Duty of authority
3. What is “actual authority” in the context of agency?
a) Authority granted by the agent’s actions
b) Authority that is expressly given or implied by the principal
c) Authority inferred by third parties
d) Authority based on the agent’s personal relationships
Answer: b) Authority that is expressly given or implied by the principal
4. What is “apparent authority” in an agency relationship?
a) Authority that the agent believes they have
b) Authority that the principal explicitly communicates
c) Authority that a third party reasonably believes the agent possesses based on the principal’s representations
d) Authority that is granted by the court
Answer: c) Authority that a third party reasonably believes the agent possesses based on the principal’s representations
5. Which of the following is a key duty of an agent towards their principal?
a) Duty to act in good faith and with loyalty
b) Duty to avoid all risks
c) Duty to report to the public
d) Duty to seek personal gain
Answer: a) Duty to act in good faith and with loyalty
6. What is “ratification” in the context of agency?
a) The agent’s unauthorized actions
b) The principal’s confirmation of an unauthorized act performed by the agent
c) The agent’s refusal to act on the principal’s instructions
d) The termination of the agency relationship
Answer: b) The principal’s confirmation of an unauthorized act performed by the agent
7. When does an agent have a duty to disclose material facts to the principal?
a) Only when asked by the principal
b) Only if the agent thinks it is important
c) Always, even if the principal does not request the information
d) Only when the agent has personal interest in the matter
Answer: c) Always, even if the principal does not request the information
8. What is the consequence of an agent exceeding their authority?
a) The principal is bound by the agent’s actions
b) The agent may be personally liable for the unauthorized actions
c) The agent is automatically forgiven
d) The third party is responsible for the agent’s actions
Answer: b) The agent may be personally liable for the unauthorized actions
9. What is the “duty of care” in an agency relationship?
a) The duty to act with reasonable skill and diligence
b) The duty to act in the best interest of the agent
c) The duty to provide financial support to the principal
d) The duty to act solely based on the principal’s instructions
Answer: a) The duty to act with reasonable skill and diligence
10. Which of the following describes “fiduciary duty” in the context of agency?
a) The agent’s duty to act with honesty and integrity
b) The agent’s obligation to act with only personal interests in mind
c) The principal’s duty to compensate the agent
d) The agent’s obligation to comply with statutory regulations
Answer: a) The agent’s duty to act with honesty and integrity
11. How can an agency relationship be terminated?
a) By mutual agreement between the principal and the agent
b) By the agent’s performance of a new contract
c) By the principal’s decision to stop paying the agent
d) By a third party’s request
Answer: a) By mutual agreement between the principal and the agent
12. What is the effect of an agency relationship on contracts made by the agent?
a) The contracts are invalid
b) The contracts are binding on the principal if the agent acted within their authority
c) The contracts are binding only if the principal explicitly approves them
d) The contracts are only binding if the agent is personally liable
Answer: b) The contracts are binding on the principal if the agent acted within their authority
13. What is the “duty of loyalty” in an agency relationship?
a) The duty to act in a way that benefits both the agent and principal equally
b) The duty to avoid conflicts of interest and act in the best interest of the principal
c) The duty to follow all instructions from the principal without question
d) The duty to disclose personal financial status to the principal
Answer: b) The duty to avoid conflicts of interest and act in the best interest of the principal
14. What happens if an agent acts outside the scope of their authority without ratification?
a) The principal is bound by the agent’s actions
b) The agent is not liable for any damages
c) The principal is not bound by the agent’s actions
d) The third party is bound by the agent’s actions
Answer: c) The principal is not bound by the agent’s actions
15. What does “implied authority” mean in an agency context?
a) Authority that is granted by a formal written agreement
b) Authority that is explicitly stated in the agency contract
c) Authority that is inferred from the agent’s role and the principal’s conduct
d) Authority that is granted by a court order
Answer: c) Authority that is inferred from the agent’s role and the principal’s conduct