EXERCISES IN AGENCY

INCLUDING PAST CPA EXAMINATION QUESTIONS

TRUE OR FALSE

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

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

3. The agent is called upon to sacrifice his interest and give it to the principal if
there is a conflict of interest. (TRUE)

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

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

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

7. An agency cannot be revoked if a bilateral contract 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 of partnership and his removal from the
management is unjustifiable.
(TRUE)
8. In agency, the agent represents an incapacitated 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. I only c. Both I and II

b. II only 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 c. No.1 is true; No.2 is false

b. Both are 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 c. No. 1 is true; No. 2 is

false
b. Both are false 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 seller-
manufacturer.
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 non-
fulfillment 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 c. No. 1 is true; No. 2 is false

b. Both are 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 c. No. 1 is true; No. 2 is

false
b. Both are false 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 c. ll only

b. l and lll 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 sub-
agent.
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 16. T
2. T 17. T
3. T 18. T
4. T 19. T
5. T 20. F
6. T 21. F
7. T 22. T
8. F 23. T
9. F 24. F
10. F 25. T
11. T 26. T
12. T 27. T
13. T 28. T
14. T 29. F
15. T 30. T

SUGGESTED ANSWERS

LAW ON AGENCY
MULTIPLE CHOICE

1. C 26. A
2. B 27. E
3. B 28. C
4. C 29. D
5. C 30. B
6. D 31. E
7. D 32. A
8. B 33. D
9. D 34. D
10. B 35. B
11. A 36. C
12. D 37. A
13. A 38. D
14. D 39. A
15. A 40. D
16. A 41. D
17. D 42. D
18. B 43. A
19. B 44. B
20. A 45. C
21. C 46. A
22. D 47. D
23. B 48. D
24. B 49. B
25. D 50. B