Contracts of Agency - Free MCQ Practice Test with solutions, UGC NET

Statement 1 is correct because the principal and agent can mutually agree to terminate their relationship at any time.

Statement 2 is incorrect; the principal can revoke the authority before the agent acts in a way that binds the principal, unless the agency is irrevocable.

Thus, the correct answer is Option A.

A contract of agency is fundamentally characterized by the relationship where one party (the principal) appoints another (the agent) to conduct transactions on their behalf. This relationship allows the agent to perform tasks or represent the principal in dealings with third parties, making it a crucial aspect of business and legal operations. Interestingly, agency relationships can arise even without a formal written contract, as they can be established through verbal agreements or implied by the actions of the parties involved.

• The Assertion is true: Ratification does indeed create the same legal effects as if the act were authorized from the outset.
• The Reason is false: While Section 196 allows a principal to disown unauthorized acts, it does not negate the fact that ratification leads to legal consequences similar to authorization.
• Since the Reason does not correctly explain the Assertion, the correct answer is Option A.

• The Assertion is true; a ship's master does have the authority to act in urgent situations for the benefit of the principal, especially under maritime law.
• The Reason is false; agency by estoppel can occur even without explicit authorization if the principal's conduct leads a third party to believe that the agent was authorized to act.
• Since the Assertion is true and the Reason is false, the Reason does not provide a correct explanation for the Assertion.

- The Assertion is true because the Indian Contract Act does indeed grant agents the right to retain goods until they are compensated for lawful charges.

- The Reason is also true as it accurately reflects Section 221 of the Indian Contract Act, which provides this right to agents.

- Furthermore, the Reason serves as the correct explanation of the Assertion, as it directly supports the validity of the Assertion.

- Thus, the correct answer is Option A.

A contract of agency, an "agent" is an individual who is authorized to act on behalf of another person, known as the principal, in legal or financial matters. This role is crucial as it allows the agent to make decisions, enter into contracts, and perform various tasks that the principal would otherwise need to handle personally. An interesting fact is that the agent's actions can create legal obligations for the principal, emphasizing the importance of trust and responsibility in agency relationships.

An individual who is of sound mind and has reached the age of majority is eligible to employ an agent. This means that minors and those not of sound mind do not have the legal capacity to engage someone as an agent. Understanding this concept is crucial in legal and business, as it establishes who can enter into agency agreements and the responsibilities that come with them.

The Indian Contract Act, 1872, an 'agent' is defined as a person authorized to act on behalf of another, known as the 'principal'. This relationship allows the agent to engage with third parties, effectively representing the interests of the principal. Understanding this definition is crucial for recognizing the legal implications of agency relationships in various business transactions.

• The Assertion (A) is correct as it accurately describes that agency can indeed be established through implied agreements based on the actions or conduct of the parties.
• The Reason (R) is false because implied agency does not require a formal written contract; it can arise from the circumstances and behavior of the parties involved.
• Since the Assertion is true but the Reason is false, the correct answer is Option C.

Statement 1 is correct as an agency established for a specific purpose does terminate when that purpose is fulfilled or becomes unachievable.

Statement 2 is incorrect; according to Section 209 of the Indian Contract Act, 1872, the agency ends if the principal becomes mentally incapacitated.

Therefore, the correct answer is Option A.