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BOVAEP REN NCC study materials
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BOVAEP REN NCC practice questions

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Question 1Regulatory framework and the real estate profession in Malaysia (BOVAEP, Act 242, REN registration)

Which statute is the principal legislation regulating estate agency practice and the registration of negotiators in Malaysia?

  1. Act 118
  2. Act 242 Correct answer.
  3. Act 757
  4. Act 318

Explanation

Act 242 is the Valuers, Appraisers, Estate Agents and Property Managers Act 1981. It establishes the Board and governs the registration and practice of valuers, appraisers, estate agents, property managers and negotiators.

Question 2Regulatory framework and the real estate profession in Malaysia (BOVAEP, Act 242, REN registration)

Which statement best describes BOVAEP?

  1. A private trade association of estate agents
  2. A statutory board regulating the property professions Correct answer.
  3. A tribunal that hears buyer complaints against developers
  4. A department of the local authority that issues licences

Explanation

BOVAEP is the statutory board established under Act 242. It regulates valuers, appraisers, estate agents and property managers, and it administers the registration of negotiators.

Question 3Regulatory framework and the real estate profession in Malaysia (BOVAEP, Act 242, REN registration)

A person wants to start work as a real estate negotiator. What must he do first?

  1. Obtain a trade licence from the local council
  2. Join a recognised real estate trade association
  3. Be registered with BOVAEP as a negotiator Correct answer.
  4. Register a company with the Companies Commission

Explanation

Estate agency work may only be carried out by persons registered with the Board. A negotiator must hold a current negotiator registration before dealing with clients, and that registration is held through a registered estate agency firm.

Question 4Regulatory framework and the real estate profession in Malaysia (BOVAEP, Act 242, REN registration)

Which statement best describes the position of a registered negotiator within an estate agency firm?

  1. The negotiator is a partner of the firm and shares its licence.
  2. The negotiator is the licensed estate agent and may sign agreements alone.
  3. The negotiator may act for clients without involving the firm.
  4. The negotiator acts under the supervision of a registered estate agent. Correct answer.

Explanation

A negotiator's registration is tied to the estate agency firm and to the registered estate agent responsible for it. The negotiator acts under that firm's authority, and the firm, not the negotiator, is the contracting party with the client.

Question 5Regulatory framework and the real estate profession in Malaysia (BOVAEP, Act 242, REN registration)

Which group was most recently brought within the scope of the Board's regulatory powers?

  1. Appraisers
  2. Valuers
  3. Estate agents
  4. Property managers Correct answer.

Explanation

Property managers were added to the Board's scope by amendment, which is why the Board's name now includes property managers. Valuers, appraisers and estate agents were regulated from the outset.

Question 6Regulatory framework and the real estate profession in Malaysia (BOVAEP, Act 242, REN registration)

Which of the following is a statutory function of BOVAEP?

  1. Approving housing development licences
  2. Maintaining the registers of registered practitioners Correct answer.
  3. Registering land titles at the land office
  4. Setting ceiling prices for residential property

Explanation

The Board keeps the registers of registered valuers, appraisers, estate agents, property managers and negotiators, and these registers are available for public inspection. Registration status can therefore be verified by any member of the public.

Question 7Regulatory framework and the real estate profession in Malaysia (BOVAEP, Act 242, REN registration)

A person who is not registered obtains a fee for introducing a buyer to a seller. How is this best characterised?

  1. Lawful, because no licence is needed for a one-off introduction
  2. Lawful if the commission is small
  3. An offence under Act 242 Correct answer.
  4. A matter to be reported to the Companies Commission

Explanation

Only a registered estate agent, acting through a properly licensed firm, may charge a fee for estate agency work. An unregistered person who does so commits an offence and may also be restrained from continuing the activity.

Question 8Regulatory framework and the real estate profession in Malaysia (BOVAEP, Act 242, REN registration)

A buyer hands a negotiator a booking deposit cheque. What should the negotiator do with it?

  1. Hand it to the firm for its client account Correct answer.
  2. Keep it in his own safe until completion
  3. Endorse it over to the developer immediately
  4. Deposit it into his personal bank account for safekeeping

Explanation

Monies received in the course of estate agency work belong to the client and must be handled by the firm through its client account. A negotiator should never take client money into personal custody.

Question 9Regulatory framework and the real estate profession in Malaysia (BOVAEP, Act 242, REN registration)

Who is the contracting party to the estate agency agreement signed with a seller?

  1. The licensed estate agency firm Correct answer.
  2. The negotiator's team leader
  3. The individual negotiator who handled the listing
  4. BOVAEP, acting as trustee

Explanation

The estate agency agreement is made between the client and the licensed firm. The negotiator acts for the firm and has no personal contractual relationship with the client under that agreement.

Question 10Regulatory framework and the real estate profession in Malaysia (BOVAEP, Act 242, REN registration)

For a completed sale, the commission payable by the client is owed to which party?

  1. The negotiator personally
  2. The firm that is party to the agreement Correct answer.
  3. BOVAEP, which then distributes it
  4. The solicitor handling the transfer

Explanation

Commission is earned by the firm under its agreement with the client. The firm then pays the negotiator according to their internal arrangement, so a negotiator has no direct claim against the client.

Question 11Regulatory framework and the real estate profession in Malaysia (BOVAEP, Act 242, REN registration)

Which requirement applies to a person applying for negotiator registration for the first time?

  1. A degree in real estate management
  2. Owning a licensed estate agency company
  3. Passing the Negotiator's Certification Course Correct answer.
  4. Five years of experience in a developer's sales office

Explanation

Applicants for negotiator registration must pass the Negotiator's Certification Course conducted by a Board-approved provider. They must also be attached to a registered estate agent through a licensed firm.

Question 12Regulatory framework and the real estate profession in Malaysia (BOVAEP, Act 242, REN registration)

Which body may inquire into a complaint of misconduct by a registered negotiator?

  1. The local authority
  2. The Malaysian Institute of Estate Agents
  3. The Magistrates' Court
  4. BOVAEP, through a disciplinary inquiry Correct answer.

Explanation

Disciplinary jurisdiction over registered practitioners rests with the Board, which may hold an inquiry and impose sanctions such as a fine, suspension or revocation. Courts deal with civil or criminal claims, not professional discipline.

Question 13Regulatory framework and the real estate profession in Malaysia (BOVAEP, Act 242, REN registration)

A negotiator is instructed by both the seller and a prospective buyer in the same transaction. What should he do?

  1. Ask BOVAEP to decide which client to act for
  2. Continue without disclosure because the sale benefits both sides
  3. Withdraw from the buyer without telling either party
  4. Disclose the conflict to both clients and obtain consent Correct answer.

Explanation

A negotiator owes undivided loyalty to his client, so acting for both sides is permitted only after full disclosure to both parties and their informed consent. Without that consent the conflict cannot be managed.

Question 14Regulatory framework and the real estate profession in Malaysia (BOVAEP, Act 242, REN registration)

What identifying information should appear on a property advertisement placed by a negotiator?

  1. The commission the negotiator expects to earn
  2. Only the firm's telephone number
  3. The firm's name and the negotiator's number Correct answer.
  4. The seller's identity card number

Explanation

Advertisements must identify the firm and the negotiator's registration number so that members of the public can verify who is acting for the seller. This supports accountability and allows the public to check registration status with the Board.

Question 15Regulatory framework and the real estate profession in Malaysia (BOVAEP, Act 242, REN registration)

A negotiator whose registration has lapsed continues to negotiate a sale. How should this be described?

  1. He is acting lawfully because the firm's licence covers him
  2. He is entitled to continue while renewal is pending
  3. He needs only to tell the client verbally that renewal is pending
  4. He is contravening Act 242 and is liable to discipline Correct answer.

Explanation

Estate agency work requires a current registration at the time the work is done. Practising while unregistered is a breach of the Act and exposes the negotiator to disciplinary action, regardless of any pending renewal.

Question 16Regulatory framework and the real estate profession in Malaysia (BOVAEP, Act 242, REN registration)

A client suffers loss because a negotiator misstated a property's details while marketing it for the firm. Who is answerable to the client?

  1. Only the developer of the property
  2. Only the negotiator, because he made the statement
  3. The firm, which is the negotiator's principal Correct answer.
  4. Neither, because marketing statements are not binding

Explanation

The firm is the contracting party and the principal under whose authority the negotiator acts, so statements made in the course of the firm's business bind the firm. The negotiator may separately face disciplinary action by the Board.

Question 17Regulatory framework and the real estate profession in Malaysia (BOVAEP, Act 242, REN registration)

Which circumstance disqualifies a person from being registered under Act 242?

  1. Being employed by a developer
  2. Being an undischarged bankrupt Correct answer.
  3. Not owning any real property
  4. Having less than five years of experience

Explanation

Undischarged bankruptcy goes to a person's financial standing and integrity, which are central to handling client money and giving property advice. It is therefore a bar to registration.

Question 18Regulatory framework and the real estate profession in Malaysia (BOVAEP, Act 242, REN registration)

An estate agency firm receives a deposit paid by a purchaser on behalf of a client. How must the firm deal with the money?

  1. Treat it as the firm's commission on signing
  2. Pay it over to the negotiator who handled the deal immediately
  3. Keep it in a client account separate from firm funds Correct answer.
  4. Record it in the firm's general trading account

Explanation

Client money must be kept in a client account kept separate from the firm's own money and properly accounted for. Mixing client funds with the firm's funds or applying them early is a serious breach that can lead to disciplinary action.

Question 19Regulatory framework and the real estate profession in Malaysia (BOVAEP, Act 242, REN registration)

A registered negotiator leaves one estate agency firm to join another. What must happen before he acts for clients of the new firm?

  1. An application to BOVAEP to record the new firm Correct answer.
  2. Nothing, because negotiator registration is independent of any firm
  3. Only the new firm's internal approval is needed
  4. A fresh attempt at the certification course

Explanation

A negotiator's registration is linked to the firm through which it is held, so a change of firm must be reflected in the Board's records. Until then the negotiator is not properly attached to the new firm and should not act on its behalf.

Question 20Regulatory framework and the real estate profession in Malaysia (BOVAEP, Act 242, REN registration)

A person registered only as a negotiator describes himself publicly as a registered estate agent. How should this be regarded?

  1. Acceptable so long as the client does not object
  2. Correct, since both titles mean the same thing
  3. Misuse of a protected title Correct answer.
  4. A matter for the local council only

Explanation

The titles are distinct: only a person registered as an estate agent may present himself as one. A negotiator who adopts the estate agent title misrepresents his status and is exposed to disciplinary action.

Question 21Law of contract and law of agency

A supermarket places a bottle of cooking oil on its shelf with a price label of RM20. A shopper takes the bottle to the cashier and says, 'I accept your offer at RM20.' Which statement best describes the legal position?

  1. The price label is a unilateral offer made to the world at large.
  2. The display is a binding quotation that the supermarket cannot withdraw.
  3. The display is an offer that the shopper has accepted, so a binding contract is formed on the spot.
  4. The display is an invitation to treat, and the shopper's statement is an offer. Correct answer.

Explanation

The display of goods with a price tag is generally an invitation to treat rather than an offer, because the seller retains the freedom to refuse to sell. The shopper makes the offer, which the cashier may accept or reject at the counter.

Question 22Law of contract and law of agency

An offeror writes to an offeree: 'If I do not hear from you by Friday, I shall assume you have accepted my offer.' The offeree stays silent. Is a contract formed on Friday?

  1. No, because the offer lapsed automatically on Friday before acceptance.
  2. No, because silence does not in itself amount to acceptance. Correct answer.
  3. Yes, because the offeror has dispensed with the need for communication.
  4. Yes, because silence over a stated period amounts to conduct signifying acceptance.

Explanation

Acceptance must be communicated to the offeror; an offeror cannot impose a contract on an offeree by stipulating that silence will be treated as acceptance. Since no acceptance was communicated, no contract arises, and the offer simply remains open.

Question 23Law of contract and law of agency

In a commercial agreement between two companies, what is the usual presumption about intention to create legal relations?

  1. There is a presumption that the parties did not intend legal relations.
  2. There is a rebuttable presumption that the parties intended legal relations. Correct answer.
  3. There is no presumption, so intention must be proved by evidence in every case.
  4. There is an irrebuttable presumption that the parties intended legal relations.

Explanation

In commercial dealings the courts presume that the parties intended their agreement to have legal consequences, but the presumption can be rebutted by clear words or circumstances. The position is reversed for social and domestic arrangements, where no legal relations are presumed.

Question 24Law of contract and law of agency

Under section 2(d) of the Contracts Act 1950, from whom may consideration for a promise move?

  1. From the promisee or any other person. Correct answer.
  2. Only from the promisor.
  3. From the promisee and the promisor jointly.
  4. Only from the promisee.

Explanation

Section 2(d) provides that consideration exists when, at the desire of the promisor, the promisee or any other person does or abstains from doing something. Malaysian law therefore does not require consideration to move from the promisee, unlike the stricter English position.

Question 25Law of contract and law of agency

Which statement correctly reflects the law on the capacity of a minor to act as an agent?

  1. A minor may bind the principal by acting as agent but is not answerable to the principal. Correct answer.
  2. A minor cannot be appointed as an agent in any circumstances whatsoever.
  3. A minor may act as an agent only where his guardian consents in writing to the appointment.
  4. A minor may act as an agent and is personally answerable to the principal for any loss caused by negligence.

Explanation

Any person may become an agent, but a person who is not of the age of majority and of sound mind cannot be responsible to the principal. A minor agent can therefore bind the principal in dealings with third parties without incurring personal liability to the principal.

Question 26Law of contract and law of agency

Under the Contracts Act 1950, which description best defines an agent?

  1. A person employed to do an act for another or to represent him in dealings with others. Correct answer.
  2. A person who holds property on trust for the benefit of another.
  3. A person who guarantees, by a written instrument, the performance of another person's contractual obligations.
  4. A person who lends money to another for the purposes of trade.

Explanation

An agent is a person employed to do an act for another, or to represent another in dealings with third persons; the person represented is the principal. The relationship is one of authority to affect the principal's legal position with outsiders.

Question 27Law of contract and law of agency

Which statement describes a contingent contract?

  1. A contract that becomes enforceable only after it has been duly registered.
  2. A contract whose performance is expressed to depend solely on the unfettered will of the promisor.
  3. A contract to do or not to do something if some collateral event does or does not happen. Correct answer.
  4. A contract in which the price payable is left to be fixed later by an independent third party.

Explanation

A contingent contract makes performance dependent on the happening or non-happening of a collateral event that is not part of the promisor's own promise. Enforcement therefore waits on that uncertain event.

Question 28Law of contract and law of agency

Under the Contracts Act 1950, a proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer. Which statement follows from that rule?

  1. An offer can never be revoked once it has been communicated to the offeree.
  2. Revocation by the offeror is effective as soon as the letter of revocation is posted.
  3. An offer cannot be revoked once acceptance is complete against the proposer. Correct answer.
  4. Revocation is effective only if the offeree agrees to it.

Explanation

Revocation takes effect only when it is communicated to the offeree, and it is too late once acceptance has become complete as against the proposer. The acceptance may be complete against the proposer even before the offeror learns of it, for instance where a postal rule applies.

Question 29Law of contract and law of agency

On 1 March, A posts an offer to B inviting a reply by post. B posts an acceptance on 3 March. A posts a revocation on 4 March, which B receives on 6 March. The acceptance reaches A on 7 March. What is the position?

  1. No contract was formed, because A revoked the offer before receiving the acceptance.
  2. A contract was formed on 3 March, when B posted the acceptance. Correct answer.
  3. A contract was formed on 7 March, when A received the acceptance.
  4. No contract was formed, because B did not use the quickest means of communication.

Explanation

Communication of acceptance is complete as against the proposer when it is put into a course of transmission to him so as to be out of the acceptor's power. The revocation on 4 March therefore came too late, and the contract was concluded on 3 March.

Question 30Law of contract and law of agency

A 17-year-old student living away from home buys a set of textbooks and a month's supply of food on credit. He later refuses to pay. Which statement is correct?

  1. The supplier may be reimbursed out of the minor's property, as the goods are necessaries. Correct answer.
  2. The supplier has no claim at all, because a minor's contract is void.
  3. The supplier may recover the price only if the minor ratified the purchase after attaining the age of eighteen.
  4. The supplier may sue the minor personally for the price of the goods.

Explanation

A person who supplies necessaries suited to the condition in life of a person incapable of contracting is entitled to reimbursement from that person's property. The claim lies against the minor's estate rather than against the minor personally.

Question 31Law of contract and law of agency

Under the Contracts Act 1950, when is a person of unsound mind competent to contract?

  1. When a medical certificate confirms that he was passing through a lucid interval at the time.
  2. When the contract relates only to necessaries.
  3. When his guardian consents in writing to the contract.
  4. When he can understand it and form a rational judgment on its effect on his interests. Correct answer.

Explanation

The statutory test is applied at the time of contracting: the person must be capable of understanding the contract and of forming a rational judgment as to its effect on his interests. A medical opinion is evidence of that capacity, not a substitute for the test.

Question 32Law of contract and law of agency

A seller of a house knows that the roof leaks badly. He patches the ceiling and paints over the stains before showing the house and says nothing about it. The buyer, who does not inspect the roof, purchases the house. Which statement is correct?

  1. The buyer's only remedy is rescission for innocent misrepresentation.
  2. The contract is voidable at the buyer's option, because the concealment is fraud. Correct answer.
  3. The contract is void, because both parties were mistaken about the roof.
  4. The buyer has no remedy at all, because the seller made no false statement of fact to him.

Explanation

Fraud includes the active concealment of a fact by one party who knows the facts and intends to deceive the other. The buyer's consent was obtained by fraud, so the agreement is voidable at his option, and he may also claim damages.

Question 33Law of contract and law of agency

Which factor distinguishes undue influence from coercion?

  1. Undue influence makes a contract void, whereas coercion makes it voidable.
  2. Undue influence applies only to agreements between close relatives.
  3. Undue influence flows from a relationship of dominance, coercion from a threat. Correct answer.
  4. Undue influence requires a threat of an unlawful act against the other party, whereas coercion does not.

Explanation

Coercion involves committing or threatening an act forbidden by the Penal Code in order to induce the agreement, whereas undue influence operates through a relationship in which one party dominates the other's will. Both vitiate consent and render the agreement voidable.

Question 34Law of contract and law of agency

A company agrees to hire a hall for a concert. Before the date, the hall is destroyed by a fire that was not caused by either party. Which statement is correct?

  1. The contract is voidable at the hirer's option only.
  2. The contract continues, but the hire fee is reduced proportionately.
  3. The contract remains fully binding on both parties, and the hirer must pay the whole of the hire fee.
  4. The contract becomes void when performance becomes impossible, discharging both parties. Correct answer.

Explanation

Where a contract is to do an act which afterwards becomes impossible by an event the promisor could not prevent, the contract becomes void when the act becomes impossible. Both parties are discharged from further performance from that point.

Question 35Law of contract and law of agency

A contractor promises to complete renovation works by 30 June. In May he writes to the owner, 'I will not be doing your renovation.' Which statement is correct?

  1. The owner may recover only the cost of engaging a replacement contractor.
  2. The owner must wait until 30 June before taking any step against the contractor.
  3. The owner may treat the contract as at an end and sue at once for damages. Correct answer.
  4. The contractor's letter has no legal effect until 30 June has passed.

Explanation

An unqualified refusal to perform before the due date is an anticipatory breach, which the innocent party may treat as terminating the contract and sue on immediately. Alternatively the innocent party may keep the contract alive until performance falls due.

Question 36Law of contract and law of agency

A contracts with B, agreeing to pay B RM5,000 to renovate A's mother's house. A fails to pay. Who may sue A for the price?

  1. B, because he is the party to the contract with A. Correct answer.
  2. The mother, because she benefits from the renovation.
  3. Either the mother or B, at their election.
  4. The mother, because she owns the house being renovated.

Explanation

Only a person who is a party to a contract may enforce it; a stranger to the contract cannot sue upon it even if he benefits from performance. B alone is privy to the agreement with A.

Question 37Law of contract and law of agency

A contract provides that on late delivery the seller shall pay 'RM10,000 as agreed damages'. Delivery is three days late and the buyer's proved loss is RM800. What may the buyer recover?

  1. RM800 only, because the agreed sum is a penalty and therefore void.
  2. Reasonable compensation up to RM10,000 for the loss actually proved. Correct answer.
  3. Nothing, because the agreed sum is the buyer's only remedy.
  4. RM10,000, because the parties fixed that sum in advance.

Explanation

Where a sum is named in the contract as payable on breach, the innocent party is entitled to reasonable compensation not exceeding that sum, whether or not the clause is penal. The court assesses compensation against the loss proved rather than enforcing the stated figure automatically.

Question 38Law of contract and law of agency

Which requirement must be satisfied for a principal to ratify an agent's unauthorised act?

  1. The principal must ratify the whole transaction with full knowledge of the facts. Correct answer.
  2. The principal must ratify within 14 days of learning of the act.
  3. The principal must ratify before the third party has performed the contract.
  4. The principal must obtain the third party's written consent to the ratification.

Explanation

Ratification must be of the entire transaction, not selected parts, and must be made with full knowledge of the material facts. An act done without authority may also not be ratified if it would injure a third person.

Question 39Law of contract and law of agency

A principal has for years allowed his property manager to sign tenancy agreements on his behalf. Without telling the tenants, the principal now instructs the manager not to sign any further agreements. A tenant, unaware of the instruction, signs a tenancy with the manager. Is the principal bound?

  1. Yes, but only if the tenant pays the principal an agency fee.
  2. Yes, because the principal's conduct represented that the manager had authority. Correct answer.
  3. No, because the manager's actual authority had already been withdrawn before the tenancy was signed.
  4. No, because the tenant should have asked to see the manager's authority.

Explanation

Where a principal by words or conduct leads third persons to believe that a person has authority to act for him, he is bound by acts within the scope of that apparent authority. A secret withdrawal of authority does not affect third parties who deal with the agent in ignorance of it.

Question 40Law of contract and law of agency

An estate agent engaged by a seller to find a buyer secretly accepts RM5,000 from the buyer to recommend that buyer's offer. Which statement is correct?

  1. The principal may recover the secret profit and also refuse to pay the commission. Correct answer.
  2. The principal may only report the agent's conduct to the relevant regulatory authority.
  3. Nothing can be done, because the agent's commission was separately agreed with the seller.
  4. The principal may recover the secret profit only if it exceeds the agreed commission.

Explanation

An agent owes the principal a fiduciary duty not to make a secret profit out of the agency, and must account for any such benefit. The principal may also repudiate the transaction and decline to pay commission where the agent has acted in breach of duty.

Question 41Law of contract and law of agency

A laundry contracts with a carrier to deliver a boiler part. The carrier is told only that the part is needed 'for a machine'. Delivery is delayed and the laundry loses a lucrative dyeing contract which it had never mentioned. Applying the Contracts Act 1950, what can the laundry recover?

  1. Only losses arising naturally, since the special loss was not communicated. Correct answer.
  2. The lost profit, provided the laundry proves the carrier knew of some contract.
  3. The full value of the lost dyeing contract, because it flowed from the breach.
  4. Nothing, because the loss is purely economic and not physical damage.

Explanation

Compensation is recoverable for losses arising naturally in the usual course of things from the breach, or for special losses which the parties knew at the time of contracting to be likely to result. Since the exceptional dyeing contract was never communicated, only the natural losses are recoverable.

Question 42Law of contract and law of agency

An agent, without disclosing that he acts for a principal, buys goods from a supplier in his own name. The principal seeks to sue the supplier for delivery. Which statement is correct?

  1. The principal may sue only if the supplier consents after the event.
  2. The principal may sue, and the supplier has no defences against the principal.
  3. The principal may intervene and sue, but the supplier keeps defences arising on the contract. Correct answer.
  4. The principal cannot sue at all, because the contract was made in the agent's own name with the supplier.

Explanation

An undisclosed principal may intervene and sue on a contract made by his agent, but he takes the contract subject to the equities. The supplier may therefore raise against the principal any defence or set-off that would have been available against the agent.

Question 43Law of contract and law of agency

An agent is appointed to manage a building and, as part of the arrangement, lends the principal RM200,000 on terms that the agent collects the rents until repaid. The principal now purports to revoke the agency. Which statement is correct?

  1. The principal may revoke on reasonable notice, and the agent may then sue for damages.
  2. The agency cannot be revoked, because the agent has an interest in its subject matter. Correct answer.
  3. The principal may revoke at will, because every agency is revocable on notice.
  4. The agency ends on revocation, and the agent becomes a secured creditor of the principal.

Explanation

Where the agent has himself an interest in the subject matter of the agency, the authority cannot be revoked to the prejudice of that interest. Revocation is therefore ineffective so long as the interest requires protection.

Question 44Law of contract and law of agency

A agrees to buy from B a specific cargo of coffee then believed to be aboard a named ship. Unknown to both parties, the cargo had already been destroyed by fire. Which statement is correct?

  1. The contract is valid, because the parties made the same assumption and may rely on frustration.
  2. The contract is enforceable, because a mistake of fact never affects consent.
  3. The contract is voidable at the seller's option, because the seller bore the risk of loss.
  4. The contract is void, because both parties were mistaken about a fact essential to it. Correct answer.

Explanation

Where both parties are under a mistake as to a matter of fact essential to the agreement, the agreement is void; the subject matter no longer existed at the time of contracting. Frustration is not available because the destruction occurred before the contract was made, not after it.

Question 45Law of contract and law of agency

A property owner appoints a managing agent, who then engages a separate firm to collect rents, without any authority from the owner to do so. Which statement is correct?

  1. The firm is an agent of necessity, and the owner must pay its reasonable fees.
  2. The firm is jointly liable to the owner as though it were the original agent.
  3. The firm is a substituted agent, and the owner is therefore bound by all of its acts done on the owner's behalf.
  4. The firm is a sub-agent, and the owner is not bound unless the appointment was authorised. Correct answer.

Explanation

A sub-agent is a person employed by and acting under the control of the agent, so the agent remains responsible to the principal for the sub-agent's acts. The principal is bound by the sub-agent's acts only where the agent had express or implied authority to appoint him.

Question 46Law of contract and law of agency

Which statement about consideration under the Contracts Act 1950 is correct?

  1. Consideration may be furnished by a third party instead of the promisee. Correct answer.
  2. An agreement made without consideration is void in every case.
  3. Consideration must always be paid in money.
  4. Consideration must always be adequate in value to the promise.

Explanation

Under section 2(d) of the Contracts Act 1950, consideration must be given at the promisor's desire, but it may be furnished by the promisee 'or any other person', so an act or forbearance by a third party can support the promise. The Act does not require adequacy of consideration, and section 26 preserves certain agreements that are valid despite the absence of consideration.

Question 47Law of contract and law of agency

Which of the following events terminates an agent's authority by operation of law?

  1. The agent asks the principal for a higher commission.
  2. The agent becomes insolvent.
  3. The principal dies. Correct answer.
  4. The principal appoints a second agent for a different property.

Explanation

Section 154 of the Contracts Act 1950 provides that an agency is terminated by revocation by the principal, renunciation by the agent, completion of the business of the agency, the death or insanity of the principal or agent, or the insolvency of the principal. The death of the principal therefore ends the agent's authority automatically, even if the agent has not been told.

Question 48Law of contract and law of agency

A shop puts a watch in its window with a tag reading 'RM2,000'. A customer walks in and says, 'I'll take that watch at the marked price.' Which statement best describes the legal position?

  1. The display is a standing offer accepted by the customer entering the shop.
  2. The display is an invitation to treat and the customer's demand is an offer. Correct answer.
  3. The display binds the shop to sell at the marked price to anyone who asks.
  4. The display is an offer that the customer accepts by demanding the watch.

Explanation

A display of goods with a marked price is ordinarily an invitation to treat, meaning an invitation to others to make offers, not an offer capable of acceptance. The customer's demand is therefore the offer, which the shop is free to accept or refuse, so no contract arises simply because the goods were displayed at that price.

Question 49Law of contract and law of agency

An owner instructs a negotiator in writing to find a buyer for his factory, with commission payable on completion of a sale. The negotiator introduces a prospective buyer, who inspects the factory. The owner then breaks off contact and three weeks later sells the factory to that same buyer through a different negotiator. Which statement best describes the first negotiator's entitlement?

  1. He is entitled to nothing, because the sale was completed through another negotiator.
  2. He is entitled to commission if he was the effective cause of the sale. Correct answer.
  3. He is entitled to nothing, because the buyer never made an offer through him.
  4. He is entitled to nothing, because commission is earned only when the agent personally executes the sale agreement.

Explanation

An agent engaged to find a buyer earns commission when he is the effective cause of the sale, normally by introducing the person who goes on to buy the property. The principal cannot avoid liability by completing the transaction through someone else once the agent's introduction has brought about the sale.

Question 50Law of contract and law of agency

A real estate firm buys another firm's agency business and goodwill. As part of the sale, the seller agrees not to operate a competing agency within 20 km for two years. Which statement best reflects the position under the Contracts Act 1950?

  1. The clause is valid only if the buyer pays a separate sum for the restraint.
  2. The clause is void, because a restraint of trade may never exceed twelve months.
  3. The clause is void, because every agreement in restraint of trade is void without exception.
  4. The clause is valid if the limits are reasonable for the business sold. Correct answer.

Explanation

Section 28 of the Contracts Act 1950 makes agreements in restraint of trade void, but it excepts an agreement by the seller of the goodwill of a business not to carry on a similar business within specified local limits, provided the limits appear to the court reasonable having regard to the nature of the business. A two-year, 20 km restraint may therefore be enforced if it satisfies that test of reasonableness.