Contract of Agency Exercises

EXERCISES IN AGENCY INCLUDING PAST CPA EXAMINATION QUESTIONS

TRUE OR FALSE 1. In agency agency, the “authority “authority”” given to an agent is the mandate, mandate, while while “power” “power” refers refers to the extent of the mandate. (TRUE)

2. The agent, agent, if authorized authorized to borrow money money,, he can be the lender, lender, but generally generally he cannot be the borrower if he is authorized to lend. (TRUE)

3. The The agent agent is calle called d upon upon to sacrif sacrifice ice his intere interest st and give it to the princip principal al if  there is a conflict of interest. (TRUE)

4. The agent agent is responsible responsible for the acts acts of his sub-agent, sub-agent, if he (agent) (agent) was was not given given the power to appoint one and he is not also prohibited from appointing one. (TRUE)

5. A commission commission agent is an agent agent having having the option option of acting acting in his his own name name or in that of his principal. (TRUE)

6. If the agency agency has been entrust entrusted ed for the purpose purpose of contrac contracting ting with with specified specified persons, its revocation shall not prejudice the latter if they were not given notice thereof. (TRUE)

7. An agency agency cannot be revoked revoked if a bilateral bilateral contract contract depends depends upon it, or if it is the means of fulfilling an obligation already contracted, or if a partner is appointed manager of a partnership in the contract contract of partnership partnership and his removal from the management is unjustifiable. (TRUE)

8. In agency agency,, the agent represents represents an incapacitated incapacitated person. person. (FALSE)

9. When a sale of a piece of land is made through an agent, his authority must be in writing; otherwise, the sale is unenforceable. (FALSE

10.If the agent dies, the heirs must notify the principal immediately, and must continue the objective of the agency until it is accomplished or until the principal appoints a new agent. (FALSE)

11. If an agent acts in his own name, the principal has no right of action against the persons with whom the agent has contracted; neither have such persons against the principal. (TRUE)

In such case, the agent is the one directly bound in favor of the person with whom he has contracted; as if the transactions were his own, except when the contract involves things belongings to the principal.

12.Every agent is bound to render an account of his transactions and to deliver to the principal whatever he may have received by virtue of the agency, even though it may not be owning to the principal. (TRUE)

13.If a person specially informs another or states by public advertisement that he has given a power of attorney to a third person, the latter thereby becomes a duly authorized agent, in the former case with respect to the person who received the special information, and in the latter case with regard to any person. The power  shall continue to be in full force until the notice is rescinded in the same manner  in which it was given. (TRUE)

14.When two or more principals have granted a power of attorney for a common transaction, any one of them may revoke the same without the consent of the others. (TRUE)

15.Anything done by the agent, without knowledge of the death of the principal or of  any other cause which extinguishes the agency, is valid and shall be fully effective with respect to the third persons who may have contracted with him in good faith. (TRUE)

16.The limits of the agents authority shall not be considered exceeded should it have been performed in a manner more advantageous to the principal that specified by him. (TRUE)

17.The principal may revoke the agency at will, and compel the agent to return the document evidencing the agency. Such revocation may be express or implied. (TRUE)

18.In agency, there is fiduciary relation between two persons because it is based on utmost trust and confidence. (TRUE)

19.If the agent is incapacitated, the contract between him and the third person is binding against the principal, provided the principal is capacitated. (TRUE)

20.The general rule is that a guardian cannot purchase the property of a person under guardianship. However, he may do so at a public auction when done through his agent.( FALSE

21.To lease real property to another person, the authority of the agent must be in a special power of attorney if the lease is for one year.( FALSE)

22.The responsibility of two or more agents, even though they have been appointed simultaneously, is not solidary, if solidarity has not been expressly stipulated. (TRUE)

If solidarity has been agreed upon, each of the agents is responsible for  the non-fulfillment of the agency, and for the fault or negligence of his fellow agents, except in the latter case when the fellow agent acted beyond the scope of their authority.

23.Should the commission agent receive on a sale, in addition to the ordinary commission, another called a guarantee commission, he shall bear the risk of  collection and shall pay the principal the proceeds of the sale on the same terms agreed upon with the purchaser. (TRUE)

24.If the agent is prohibited from appointing a sub-agent, any act executed by the latter is unenforceable on the part of the principal. (FALSE)

25.The agency shall remain in full force and effect even after the death of the principal, if it has been constituted in the common interest of the latter and of the agent, or in the interest of a third person who has accepted the stipulation in his favor. (TRUE)

26.An agency couched in general terms compromises only acts of administration, even if the principal should state the he withholds no power or that the agent may execute such acts as he may consider appropriate, or even though the agency should authorize a general and unlimited management. (TRUE)

27.If the principal directly manages the business entrusted to the agent, there is implied revocation of the agency. (TRUE)

28.In agency, there is a meeting of minds between the parties, expressly or  impliedly; while in negotiorium gestio, there is no meeting of minds between the two persons because the relation is created by operation of law. (TRUE)

29.To make customary gifts for charity, the authority of the agent must be a special power of attorney. (FALSE)

30.If the agent acted in the name of the principal but without authority, the contract is unenforceable subject to ratification. (TRUE)

MULTIPLE CHOICE 1. It is a contract wherein a person binds himself to render special service or to do something in behalf of another with consent of the latter.

a. Contract of a piece of work b. Contract of service c. Contract of agency d. Contract of exchange 2. If P leads X to believe that A is his (P’s) agent, as a matter of fact such is not true, and A acts on such misrepresentation, there is – a. An implied agency b. An agency by estoppel c. An agency by necessity d. An express agency by words spoken 3. M Company wrote a letter to its customers introducing a certain A as its duly authorized agent. X, a customer, dealt or transacted business with A. Later, A’s authority was revoked and was published in a newspaper of general circulation. Notwithstanding his knowledge of such revocation, X continues to transact business with M thru A. Is M Company still liable for the agent’s act even after revocation? a. Yes, because the revocation was not given in the same way the power was granted. b. No more, because the third person (X) is in bad faith. c. No more, because the transaction that will be entered after revocation will be void. d. Answer not given. 4. Today, P appointed A1 his agent covered by general power to lease his car to X for 6 months. The next day, P appointed A2 with special power to lease the same car to X for 5 months. On the third day, P directly transacted business with X leasing the car  for 2 months. What is the effect of agency between the parties? a. The appointment of A1 remains to be valid because it has got a prior date. b. The appointment of A2 is still in full force and effect because it is covered by a special power. c. The agency of A1 and A2 are considered revoked because the principal directly transacted with X. d. None of the above. 5. A passenger bus while in motion collided with another bus. X, the conductor of the bus was bodily injured. D, the driver, although not authorized, engaged the services of a physician in the name of the company. In here, there is an – a. Implied agency b. Agency by estoppel c. Agency by necessity d. None of the above

6. Agency is extinguished by any of the following causes, EXCEPT – a. By its revocation b. By the withdrawal of the agent c. By the death of the agent or the principal d. None of the above 7. The principal is not liable for the expenses incurred by the agent – a. If the agent acted in contravention of the principal’s instruction. b. Expenses were due to the fault of the agent. c. Agent incurred them knowing that an unfavorable result would ensure, and the principal was not aware thereof. d. All of the above. 8. A appoints B as his agent to sell his land, which of the following is valid? a. The authority of B is in writing but B mortgages it also in writing. b. The authority of B from is by way of letter and B sells the land C in writing. c. The authority of B is oral and B sells the land to C for P50,000 in a written contract of sale. d. The authority of B is in writing but the sale of the land in writing was made beyond the period expressly set forth by A. 9. A was retained, in writing, to act as P’s agent for the sale of P’s memorabilia collection. Which of the following statements is correct? I. To be an agent, A must be at least 18 years of age. II. P would be liable to A of the collection was destroyed before A found the purchaser. a. b.

I only II only

c. Both I and II d. Neither I nor II

10. Statement #1: If the agent dies, the heirs must notify the principal immediately, and must continue the objective of the agency until it is accomplished or until the principal appoints a new agent. Statement #2: If the agent is prohibited from appointing a sub-agent, any act executed by the latter is unenforceable on the part of the principal. a. Both are true b. Both are false

c. No.1 is true; No.2 is false d. No.1 is false; No.2 is true

11. Statement #1: If the agent is incapacitated, the contract between him and the third person is binding against the principal, provided the principal is capacitated.

Statement #2: In agency, there is fiduciary relation between two persons because it is based on outmost trust and confidence. a. Both are true false b. Both are false

c. No. 1 is true; No. 2 is d. No. 1 is false; No. 2 is true

12. A foreign manufacturer of computers and a Philippine distributor entered into a contract whereby the distributor agreed to order 1,000 units of the manufacturer’s computers every month and to resell them in the Philippines at the manufacturer’s suggested prices plus 10%. All unsold units at the end of the year shall be bought back by the manufacturer at the same price they were ordered. The manufacturer  shall hold the distributor free from any claim for defects in the units. Is the agreement one for sale or agency? What agreement did the parties entered into? a. Contract of Sale because the distributor has a right to resell them. b. Sale with a right to repurchase, because the manufacturer may buy back the unsold units at the end of the year. c. Contract of sale, because the warranty for defects is borne by the sellermanufacturer. d. Agency to sell because there is no intention to transfer ownership to the buyer. 13. The agency shall remain in full force and effect even after the death of the principal, if it has been constituted in the common interest of the latter and of the agent, or in the interest of a third person who has accepted the stipulation in his favor. a. True b. False 14. P wrote a letter authorizing A to sell his parcel of land situated in Bulacan. The land was purchased by X, but the agent (A) did not give the money to P. The sale of A to X is: a. Void because the authority of A is not in a public instrument. b. Unenforceable because the authority of A is not in a public instrument. c. Inexistent because the authority of A is in a private writing. d. Valid and enforceable 15. Statement #1: Should the commission agent receive on a sale, in addition to the ordinary commission, another called a guarantee commission; he shall bear the risk of collection and shall pay the principal the proceeds of the sale on the same terms agreed upon with the purchaser.

Statement #2: The responsibility of two or more agents, even though they have been appointed simultaneously, is not solidary, if solidarity has not been expressly stipulated. If solidarity has been agreed upon, each of the agents is responsible for the nonfulfillment of the agency, and for the fault or negligence of his fellow agents, except in the latter case when fellow agents acted beyond the scope of their authority. a. Both are true b. Both are false

c. No. 1 is true; No. 2 is false d. No. 1 is false; No. 2 is true

16. Statement #1: Every agent is bound to render an account of his transactions and to deliver to the principal whatever he may have received by virtue of the agency, even though it may not be owing to the principal. Every stipulation exempting the agent from the obligation to render an account shall be void. Statement #2: An agency couched in general terms comprises only act of  administration, even if the principal should state that he withholds no power or that the agent may execute such acts as he may consider appropriate, or even though the agency should authorize a general and unlimited management. a. Both are true false b. Both are false

c. No. 1 is true; No. 2 is d. No. 1 is false; No. 2 is true

17. The principal is not liable for expenses incurred by the agent. a. When the agent has complied with his obligations by acting according to the principal instructions. b. When it was stipulated that the agent would only be allowed a certain sum. c. When the expenses were incurred without the fault of the agent. d. When the agent incurred them with knowledge that an unfavorable result would ensue and the principal was aware of it. 18. P sent a telegram to his uncle A to sell his specific parcel of land located at Tarlac for  P40,000. A, in carrying out his authority to sell, looked for a buyer and orally sold the land to X, his best friend of ten (10) years, in straight term for P500,000 with P400,000 down payment and the balance payable one month after delivery, with a specific promise that the Deed of Absolute Sale shall be executed upon complete payment of the purchase price. As soon as he receive the down payment, A fled without giving the money to P and reneging on his promise to X. X is in a position to deliver the balance of P100,000.00. Given this scenario, which statement is incorrect? a. The sale between A and X is valid. b. The sale between A and X is unenforceable.

c. X can validly sue P to enforce the sale. d. None of the above 19. Which of the following transactions involving the properties of the principal is valid if  made by an agent even if the agent’s authority is not in writing? a. P authorizing his agent to sell P’s leasehold right in the land owned by X. b. P authorizing his agent to sell his house located in the land belonging to X. c. P authorizing his agent to assign P's real estate mortgage right constituted over  the land belonging to X. d. P authorizing his agent to sell his specific house and lot. 20. P instructed his agent A to immediately charter a small pump boat that would transport the former’s (P’s) 500 pieces of clay pots from Masbate to Sorsogon and sell all of them for P25 per pot at P15/pot profit. However, PAG-ASA issued a typhoon bulletin preventing all small sea vessels from sailing across the stormy waters of the Visayas and Bicol regions. A decided that it would be safe to transport the products after one week. Meanwhile, prices of clay pots dipped to P15 per pot reducing expected profits on the part of P. Premises considered: a. A is not liable to P for the unrealized profits as he was not supposed to execute the agency as it would have resulted to injury, losses or damages to the principal. b. A is liable to P for the entire unrealized profits as consequence of his failure to follow and execute the instruction of P. c. A is liable to P only for the difference between the expected and realized profit. d. A is liable to P but the liability is tempered or limited as he could not execute the agency by reason of fortuitous event beyond his control.

21. Which of the following statements concerning agency law is (are) true? l. A contract is needed to have an agency relationship. ll. The agent owes a fiduciary duty to the principal. Ill. The principal owes a fiduciary duty to the agent a. l and ll only b. l and lll only

c. ll only d. l, ll and lll

22. 1st Statement: Authority refers to the orders given by the principal to his agent in relation to the business of the agency, while instructions relate to the transaction that the agent is commissioned to act. 2nd Statement: Authority of the agent may be investigated or inquired into by third persons dealing with agent, while instructions of the agent need not be determined by third persons. a. Both statements are true.

b. Both statements are false. c. 1st statement is true while 2nd statement is false. d. 1st statement is false while 2nd statement is true. 23. P after becoming an American citizen, came back to the Philippines to visit and be with ailing mother in Leyte. X, a former neighbor and classmate in high school approached P and offered to sell his house and lot fronting a beach for nearly half  the market value of the property, that is, for P1 Million. P, nearing his retirement age, left the Philippines after appointing his brother A as his attorney-in-fact for the purpose of buying the said property for such price as offered by X. Said appointment was through an unnotarized special power attorney (SPA). Y, the only child and heir of X, was very much opposed to the sale as he wanted to sell the property for P2.4 Million, therefore, a lesion of more than ¼ of the value of the property. He refuses to surrender the transfer Certificate of Title (TCT) of the property which is presently in his possession. What is the status of the sale between X and A acting P? a. Voidable because P is incapacitated because he is an alien while X is legally capacitated to sell the property. b. Void because the agent is being made to perform an act that the principal is, under the law, prohibited from performing by himself. c. Unenforceable because the SPA was not notarized; thus, not binding on Y who is the possessor of the title to the property d. Rescissible because the seller suffered a lesion of more than ¼ of the value of  the property. 24. If the agent appoints a substitute against the expressed will of the principal, and the sub-agent enters into a contract with third persons, which is correct? a. The agent is not liable at all for the acts of the sub-agent with respect to third persons who may suffer damages. b. The acts of the sub-agent are without legal effect as far as the principal is concerned; hence, considered void or inexistent. c. The appointment is valid but the agent is liable for acts of the sub-agent only if  the principal suffers damages. d. The appointment is valid but the agent is liable only if the sub-agent is notoriously incompetent or insolvent. 25. Three of the following requires a special power of attorney, which is the exception? a. Accept inheritance. b. To waive obligation gratuitously. c. To bind the principal in a contract of partnership. d. None of the above. 26. P appointed A as his agent to borrow P10,000 from C. A borrowed P10,000 but acted in his name. Upon maturity, who is liable?

a. A only b. P only c. Both A and P d. Contract is void

27. A guarantee commission agent – a. Bears the risk of collection on the same terms agreed upon with the purchaser. b. Is liable to the principal even if the buyer is really insolvent. c. Is liable for damages if he will not collect the credit on time. d. Is entitled to another commission aside from ordinary commission. e. All of the above. 28. An agent without any expressed authority from the principal appointed a sub-agent to help him carry out the agency. a. The substitution is void. b. The substitution is valid but the agent is the only one liable for the acts of the subagent. c. Both the agent and the sub-agent are liable to the principal for the acts of  the sub-agent under the valid substitution. d. The substitution is valid but the substitute is the only one liable for his own acts. e. None of the above. 29. In three of the following, a special power of attorney is required. Which one is considered the exception. a. To obligate the principal as guarantor. b. To effect novations which put an end to obligation already contracted before the agency. c. To borrow money not necessary for the preservation of the property under  administration. d. To lease real property to another person for one year. 30. Three of the following are modes of extinguishing an agency. Which is the exception? a. Insanity of the principal or agent. b. Death of the principal, but the agency is for the interest of the principal and agent. c. Accomplishment of agency. d. Dissolution of the firm or corporation which entrusted or accepted the agency. 31. Agency may be created by:

a. Appointment b. Ratification c. Necessity d. All of the above 32. P delivered to A 10,000 pieces of cebu fabricated shell craft jewelries for the purpose of selling them at P1.00 each. Out of the proceeds of the expected sale, A is to receive a 10% commission. After 3 days, however, A sold all the items at P1.50 each to B, but on a 30-day credit. Under the situation: a. A must pay P10,000 immediately. b. A cannot be compelled to pay at all. c. A must pay P15,000 immediately. d. A must pay P5,000 immediately and P10,000 after 60 days. e. A must pay P10,000 after collecting from B.

33. Without P’s authority, S sold P’s car to b in P’s behalf. a. The transaction entered by S is unauthorized therefore unenforceable. b. The right of B is only against S as a rule. c. The contract can be ratified, hence it is considered as a validable contract. d. All of the above. 34. The agent has no implied authority in three of the following. Which is the exception? a. If he is authorized to collect a debt from a debtor. b. If he is authorized to collect a debt, he is not authorized to receive partial payment. c. But he has got implied authority to endorse the check he received as partial payment. d. None of the above . 35. An agent with general general powers of administration given to him by the principal in writing, desirous of improving the financial condition of his principal, sold two parcels of rice fields. One for less than the price appearing in the inventory prepared by the principal, and the other for double the price that appeared in the said inventory. a. The sale for double price appearing in the inventory is binding upon the principal. b. The two contracts cannot be enforced against the principal. c. The sale for less than the price appearing in the inventory is binding upon the principal. d. Both contracts are binding upon the principal. e. None of the above. 36. Which of the following statements is true?

a. If the principal appoints an agent in writing with respect to the sale of a piece of  land and the latter sold it to a buyer orally, the contract between the agent and the buyer is void. b. A contract of agency is generally gratuitous. c. To lease personal property to another person for more than one year does not require special power of attorney. d. The insolvency of the principal but not the agent shall extinguish the agency. 37. If an agent contracts in the name of his principal, exceeding the scope of his authority, what would be the status and effect of the contract? a. Unenforceable b. Void c. Voidable d. Valid e. None of the above

38. A commission agent: a. Has the option to act in his own name. b. Generally, cannot sell on credit. c. May be an agente del credere if he receives guaranty commission. d. All of the above. 39. In agency, the agent represents: a. A person who is capacitated. b. A person who is incapacitated. c. Heirs and creditors of the estate of the debtor. d. Judicial court. e. None of the above.

40. Without P’s authority, A (agent), sold P’s car to X in P’s behalf. The contract is: a. Unauthorized b. Unenforceable c. Subject to ratification d. All of the above 41. A special power to sell includes power to – a. Mortgage b. Barter  c. Subject to ratification d. None of the above

42. Bears risk of collecting form the buyer the price of the sale. a. Commission agent b. Delegacion c. Quasi-traditio d. Agente del credere e. None of the above

43. P appointed A as his agent to sell his specific car in cash for P10,000 with !0% commission. A, using persuasive skills, was able to sell it for P15,000 on credit.  After the sale but before payment of the buyer – a. A must give P10,000 only. b. A must give P10,000 minus the commission. c. A must give P15,000 minus the commission. d. A must give P15,000, and in turn P is to give A P5000 as commission.

44. P appointed A to sell the former’s car for P200,000. A sold the car to X for P200,000 but A acted in her own name. After delivery, X inspected the car and she found hidden defects on it. Can X file an action against P even when A acted in her own name? a. No, under the principle of  “caveat emptor” or let the buyer beware. b. Yes, because this is a contract involving property belonging to the principal. c. No, because A acted in her own name not of the principal. d. No, because the contract of sale is already perfected. 45. P appointed A as his agent orally to sell his parcel of land for P10,000. Five days after, A sold to B the parcel of land for P8,000 by means of public instrument executed between A and B. What is the effect and the status of sale between A and B? a. The sale is valid because it was executed in a public instrument. b. The sale is unenforceable because the agent acted beyond the scope of his authority for selling the land for less than the price instructed. c. The sale is void because the appointment of the agent is oral. d. The sale can be ratified although the appointment of A is oral, because the sale by A to B is in public instrument. 46. A appoints B to sell his land. Statement #1: If the authority of B oral and B sells the land in writing. The sale is valid.

Statement #2: If the authority of B is in writing and B sells the land orally. The sale is valid. Which of the following is correct? a. First statement is false but the second statement is true. b. Both statements are true. c. Both statements are false. d. First statement is true but the second statement is false.

47. Considered “mere acts of administration”, which an agent is authorized to do if given an agency couched in “general term”. Which is the exception? a. To sue for the collection of debts and to engage services of a counsel to preserve the ownership and possession of the principal’s property. b. To give customary gifts for charity or to employees in the business managed by the agent. c. Unregistered lease of real property to another person for one year. d. None of the above. 48. An implied agency may be created by – a. Ratification. b. Lack of action by the principal. c. Silence of the principal. d. All of the above. 49. P appointed A as his agent with general powers on January 1. The next day, X transacted business with A. On January 5, P revoked the agency and published it in a newspaper of general circulation. However, X did not read the newspaper  publication. After 5 days, (January 10) X consummated another transaction with A. Is the act of A binding against P? a. Yes, because X is in good faith. b. No, because the agency is considered revoked and its publication is sufficient warning. c. No, because the power is general, there must also be a special power. d. Yes, because there was no special notice sent to X. 50. P appointed A orally as his agent to sell his car for P10,000. A sold the car to X, who acted in his (A’s) name. If upon delivery, the car has hidden defects, is P liable? a. No, because the contract is unenforceable, it is orally entered into. b. Yes, because the thing belongs to the principal. c. No, because the agent acted in his name. d. None of the above.

SUGGESTED ANSWERS LAW ON AGENCY

TRUE OR FALSE 1. T 2. T 3. T 4. T 5. T 6. T 7. T 8. F 9. F 10. F 11. T 12. T 13. T 14. T 15. T

16. T 17. T 18. T 19. T 20. F 21. F 22. T 23. T 24. F 25. T 26. T 27. T 28. T 29. F 30. T

SUGGESTED ANSWERS LAW ON AGENCY MULTIPLE CHOICE 1. C 2. B 3. B 4. C 5. C 6. D 7. D 8. B 9. D 10. B 11. A 12. D 13. A 14. D 15. A 16. A 17. D 18. B 19. B 20. A 21. C 22. D 23. B 24. B

26. A 27. E 28. C 29. D 30. B 31. E 32. A 33. D 34. D 35. B 36. C 37. A 38. D 39. A 40. D 41. D 42. D 43. A 44. B 45. C 46. A 47. D 48. D 49. B

25. D

50. B