R01 Contract, capacity and agency: free practice questions

1. Question 1 of 5

   Which of the following is required for a binding contract?

   Option A: A written document signed by both parties in all casesOption B: Consideration, such as a premium in return for coverOption C: Approval of the contract's terms by the FCA in advanceOption D: An independent witness present when the agreement is made

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   The answer is B: Consideration, such as a premium in return for cover

   A binding contract needs offer and acceptance, clear terms, intention to create legal relations, capacity to contract, and consideration from both sides.

   Why the other options are wrong

   A

   Many contracts are valid without being in writing.

   C

   Contracts don't need regulatory approval.

   D

   Witnesses aren't a general requirement for contracts.

2. Question 2 of 5

   How do the disclosure duties of consumers and commercial customers differ?

   Option A: Consumers: take reasonable care not to misrepresent. Commercial: make a fair presentation of the riskOption B: Both must simply answer the insurer's questions honestly, with no further duty on either sideOption C: Consumers: disclose everything material, asked or not. Commercial: only answer the questions askedOption D: Consumers have no disclosure duty; commercial customers must disclose everything material

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   The answer is A: Consumers: take reasonable care not to misrepresent. Commercial: make a fair presentation of the risk

   Under the Consumer Insurance (Disclosure and Representations) Act 2012, consumers must take reasonable care not to misrepresent. Under the Insurance Act 2015, non-consumers must make a fair presentation of the risk.

   Why the other options are wrong

   B

   Commercial customers must make a fair presentation, which goes further than answering questions.

   C

   This reverses and misstates the two duties.

   D

   Consumers have a duty to take reasonable care not to misrepresent.

3. Question 3 of 5

   At 17, Theo takes a lease on a flat. Under the rules on minors' contracts, what is his position?

   Option A: The lease binds only the landlord and the landlord's agentOption B: It binds him unless he repudiates it while a minor or soon afterOption C: The lease is void from the start because he is under 18Option D: The lease binds him fully and he can never cancel it

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   The answer is B: It binds him unless he repudiates it while a minor or soon after

   Leases, partnerships and shareholdings are 'binding unless repudiated'. A minor can cancel during minority or within a reasonable time after turning 18, ending future liability such as rent.

   Why the other options are wrong

   A

   It binds the minor too unless repudiated.

   C

   A lease isn't void; it binds unless repudiated.

   D

   It can be cancelled by repudiation.

4. Question 4 of 5

   Before paying the first premium on an accepted life proposal, a proposer suffers a serious accident. The insurer refuses the premium. Following Canning v Farquhar, is the insurer liable?

   Option A: Yes, because the insurer can't refuse a premiumOption B: No, because accidents are never covered by life assuranceOption C: Yes, because the proposal had already been accepted by the insurerOption D: No, because no binding contract existed and the risk had changed

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   The answer is D: No, because no binding contract existed and the risk had changed

   The acceptance was a counter offer. It couldn't be accepted once the risk had changed, as the health statements were no longer true, so no contract was formed.

   Why the other options are wrong

   A

   The insurer could refuse because the risk had materially changed.

   B

   Life policies generally pay on death from accidents; the issue is that no contract existed.

   C

   The 'acceptance' was only a counter offer, so no contract existed yet.

5. Question 5 of 5

   A client tells their IFA about a heart condition, but the IFA leaves it off the proposal. What is the likely effect on the policy?

   Option A: None, as the IFA is the insurer's agentOption B: The FCA will pay any claim insteadOption C: There has been non-disclosure and the contract may be voidOption D: The insurer must pay any claim and recover the cost from the IFA

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   The answer is C: There has been non-disclosure and the contract may be void

   The IFA is the client's agent, so what the client tells the IFA isn't treated as told to the insurer. There's been non-disclosure and the contract may be void.

   Why the other options are wrong

   A

   An IFA acts for the client, not the insurer.

   B

   The FCA doesn't pay claims.

   D

   The insurer isn't responsible for the IFA's acts.

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