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ACCA Applied Skills · Corporate and Business Law (Global) · Agency law

Hana acts as agent for Verdant Ltd, which instructs her to buy raw materials. She incurs legitimate expenses of $2,000 while acting within her authority, and Verdant Ltd later refuses to reimburse her, saying she was only paid commission. Which statement is correct?

Hana can recover the $2,000 because a principal has a duty to indemnify an agent for expenses properly incurred within authority. This right exists regardless of commission and does not need a written agreement or termination.

  1. AHana cannot recover because commission covers all expenses by default
  2. BHana may recover the $2,000 only if the agency agreement was in writing
  3. CHana may recover the $2,000 under the principal's duty to indemnify the agent for expenses properly incurredCorrect
  4. DHana may recover the $2,000 only if she first terminates the agency

Explanation

A principal must reimburse and indemnify an agent for expenses and liabilities properly incurred within authority, unless the agreement says otherwise. Writing is not required for this right, and termination is not a precondition.

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