Documente Academic
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Question and
Answer Book
Write here your full examination number
Centre Code:
Hall Code:
Desk Number:
3b FBLW
18 November 2002
Day 1 – early afternoon
INSTRUCTIONS TO CANDIDATES
Read this page before you look at the questions
You are allowed two hours to answer this question paper. All questions are compulsory.
Answer the ONE question in section A (this has 25 sub-questions and is on pages 2-8)
Answer the THREE questions in section B (these are on pages 9-14)
You are advised to spend 10 minutes reading through the paper before starting to answer the questions.
You should spend no more than 55 minutes on answering the ONE question in section A, which has 25
sub-questions.
You should spend no more than 55 minutes on answering the THREE questions in section B.
You are advised that, in section B questions, you will receive no marks if you exceed the word limits
indicated.
Hand this entire booklet to the invigilators at the end of the examination. You are NOT permitted to leave
the examination hall with this booklet.
Do NOT write your name or your student registration number anywhere on this booklet.
Each of the sub-questions numbered from 1.1 to 1.25 inclusive, given below, has only ONE correct
answer.
REQUIRED:
Place a circle “O” around the letter A, B, C or D that gives the correct answer to each sub-question.
If you wish to change your mind about an answer, block out your first answer completely and then circle
another letter. You will NOT receive marks if more than one letter is circled.
Please note that you will NOT receive marks for any workings to these sub-questions.
Question One
(i) Auditors who provide negligent advice may be held liable for breach of contract by the company
which appointed them.
(ii) Auditors who provide negligent advice to the company which appointed them may be held liable
for breach of contract by the company and its shareholders.
(iii) Auditors who provide advice to a particular person and who know what the advice will be used
for may be held liable to that person in the tort of negligence if the advice proves to be incorrect
and was carelessly prepared.
A (i) only.
A All English courts must apply European Law even if it contradicts English Law.
B If European and English Law conflict, English courts cannot apply either law.
C An English court must apply English Law unless it obtains the government's permission to apply
European Law.
D All English courts are obliged to apply English Law even if it contradicts European Law.
(i) A contract is entered into voluntarily whereas criminal offences are imposed by the state.
(ii) A tort is entered into voluntarily whereas criminal offences are imposed by the state.
(iii) A contract is entered into voluntarily whereas a tort is imposed by the state.
A (i) only. B (ii) only. C (i) and (iii) only. D (ii) and (iii) only.
A (i) only. B (ii) only. C (ii) and (iii) only. D (iii) only
1.5 Brian has been employed by Wye Ltd for 10 years. His contract of employment states that if either
Wye Ltd or Brian wishes to terminate the contract, each party must give the statutory minimum period
of notice.
B Brian is entitled to 10 weeks’ notice but Wye Ltd is entitled to only 1 week’s notice.
C Brian is entitled to 1 month’s notice and Wye Ltd is entitled to 10 weeks’ notice.
(i) The contract was concluded by the fall of the Auctioneer’s hammer.
(ii) The Auctioneer’s call for bids was an invitation to treat.
(iii) Once the bidding had started, the Auctioneer was unable to withdraw the goods from the sale.
A (i) only. B (i) and (ii) only. C (ii) and (iii) only. D (i), (ii) and (iii).
A (i) and (ii) only. B (i) only. C (i), (ii) and (iii). D (ii) only.
A (i) and (ii) only. B (i) and (iii) only. C (ii) and (iii) only. D (i), (ii) and (iii).
A (i) only. B (ii) only. C (i) and (iii) only. D (ii) and (iii) only.
1.10 In which of the following is there a presumption that legal relations are intended?
A A contract is frustrated when something happens after it has been entered into which renders the
contract more difficult to perform.
B A contract is frustrated when a party expressly agrees to manufacture and supply goods and then
discovers that they will be far more expensive to produce than he thought at the time of the contract.
C A contract is frustrated when something happens after it has been entered into which renders the
contract impossible to perform.
If there are no provisions in the contract to deal with this situation, which of the following is correct?
1.13 A Ltd contracted to deliver a quantity of goods to B Ltd for £5,000. The goods were delivered and
A Ltd submitted an invoice to B Ltd for the amount due which contained a number of new terms.
A The invoice is a contractual document and B Ltd is bound by the terms on the invoice.
B B Ltd is only bound by the terms if it was given notice of them at or before the time of the contract.
C B Ltd is bound by the terms if there is a sufficient course of dealings between A Ltd and B Ltd so that
B Ltd is assumed to know of the terms.
D If B Ltd is unaware of the terms, it can only be bound by them if it agrees to be so.
1.14 ABC Ltd has contracted with DEF Ltd. If ABC Ltd acts in breach of a warranty, which of the following is
correct?
(i) DEF Ltd may terminate the contract and sue for damages.
(ii) DEF Ltd may sue for damages but may not terminate the contract.
(iii) DEF Ltd may ignore the breach and continue with the contract.
A (i) only. B (i) and (iii) only. C (ii) and (iii) only. D (i), (ii) and (iii).
1.15 Which ONE of the following remedies is NOT available for a breach of a contract to provide personal
services?
A Damages.
C An injunction.
A (i) and (ii) only. B (ii) only. C (i), (ii) and (iii). D (iii) only.
A (i) only. B (ii) only. C (i) and (ii) only. D (ii) and (iii) only.
1.18 Quentin was employed by Bee Ltd as its senior design consultant. Quentin contracted with Bee Ltd
that when his employment with the company ceased, he would not act in competition with it or solicit
its customers. After Quentin left Bee Ltd, he registered a company called Cee Ltd, which immediately
began working in competition with Bee Ltd and soliciting its customers. Bee Ltd complained to Quentin
about this conduct, but Quentin stated that as the work was being undertaken by Cee Ltd, a separate
legal entity, he had not acted in breach of the agreement with Bee Ltd.
A Quentin is correct and cannot be said to be in breach of the agreement with Bee Ltd.
B If the court finds that Cee Ltd was set up by Quentin to avoid the agreement with Bee Ltd, it will “lift the
corporate veil” and enforce Quentin’s contract with Bee Ltd against Quentin and Cee Ltd.
C Cee Ltd will be bound by the agreement because a company is always liable for the actions of its
shareholders.
D The agreement between Bee Ltd and Quentin is of no legal effect as it attempts to regulate Quentin’s
activities after he has left Bee Ltd’s employment.
1.19 The Memorandum of Dee Ltd, a property development company, states that the company has power
to borrow in furtherance of its objects and that the directors have authority to borrow up to £200,000.
The board has resolved to purchase a piece of land for £300,000. The Midwest Bank plc has agreed
to make a loan of £250,000 to Dee Ltd to acquire the land.
B As the directors have exceeded their authority, the bank cannot enforce the loan against Dee Ltd.
C As the directors have resolved to obtain the loan, the transaction is lawful.
D The loan is ultra vires the directors who will be personally liable for any loss caused to the company
unless their actions are ratified by the shareholders.
(i) A public company cannot commence trading until it has received a certificate from the Registrar
of Companies confirming that it has satisfied the minimum requirements as to authorised and
issued share capital.
(ii) If a public company commences trading without a trading certificate, and fails to meet its
obligations, the directors may be held jointly and severally liable for those obligations.
(iii) A private company may commence trading upon receipt of its certificate of incorporation.
A (i) and (ii) only. B (ii) and (iii) only. C (i) and (iii) only. D (i), (ii) and (iii).
A The shares of all public limited companies are quoted on the Stock Exchange.
D A public limited company cannot trade until it has paid-up share capital of at least £50,000.
1.22 Which ONE of the following may requisition an extraordinary general meeting?
A Members holding not less than one-twentieth of the company’s issued share capital which carries
voting rights.
B Members holding not less than one-tenth of the company’s issued share capital which carries voting
rights.
C Members holding not less than one-quarter of the company’s issued share capital which carries voting
rights.
D Members holding not less than one-half of the company’s issued share capital which carries voting
rights.
1.23 What type of resolution is needed if a private company wishes to reduce, to 90%, the percentage
needed to authorise the provision of short notice?
A The proposal is lawful, if approved by a special or written resolution and the correct procedure is
followed.
B The proposal is lawful, if the company passes an ordinary resolution and the correct procedure is
followed.
C The proposal is lawful, only if it is approved by the court and the correct procedure is followed.
D The proposal is unlawful, as a company cannot give financial assistance for the purchase of its own
shares.
1.25 Which ONE of the following correctly describes the “maintenance of capital” principle?
A A company cannot use its share capital which must be set aside as a fund for creditors.
B In general, a company can use its share capital for any reason whatsoever, as long as it ensures that
there is sufficient remaining to meet the company’s debts.
C In general, a company must use its capital for the purposes set out in its objects clause and cannot
return it to its members.
D A company cannot use its share capital and may only return it to its members with the permission of
the court.
Total = 50 Marks
Question Two
A Ltd contracted to install computerised security systems at each of B plc's 100 shops by 30 June 2002 for a
total price of £200,000.
The contract between A Ltd and B plc contained the following clause:
"A Ltd hereby agrees to pay B plc the sum of £1,000 per day by way of liquidated damages, in respect
of each unfinished shop for each day after 30 June 2002."
A Ltd sub-contracted with C Ltd which agreed to install the systems at 50 of B plc's shops by 30 June 2002.
On 1 February 2002, however, C Ltd wrote to A Ltd to explain that because of financial problems, the
company would be unable to complete the contract by 30 June 2002. On 4 February 2002, A Ltd agreed to
lend C Ltd £15,000 secured by a floating charge over C Ltd's stock. In addition, A Ltd promised to pay C Ltd
a bonus of £5,000 if the company completed the work on time.
Following this sequence of events, the following facts have emerged:
(i) C Ltd completed the work on time, but was placed in insolvent
liquidation on 1 July 2002. A Ltd has refused to pay the bonus of
£5,000.
(ii) A Ltd completed its contract with B plc, but was four days late in
finishing three of the shops. As a result, B plc has advised A Ltd Do not write in these
that the price of £200,000 will be reduced by £12,000 in accordance columns below
with the above liquidated damages provision.
. (Maximum of 30 words)
(b) State the three characteristics of a floating charge
(i)
(ii)
(iii)
3
(Maximum of 10 words for each of the three sentences) Sub-total:
7
. (Maximum of 30 words) 3
(e) Complete this sentence:
If it could be shown that C Ltd had lied about its financial difficulties,
in order to pressurise A Ltd into promising to pay a bonus, then A Ltd
would not be liable to pay the bonus of £5,000 because
. (Maximum of 30 words) 4
Sub-total:
10
Total Marks for Question Two = 17
. (Maximum of 30 words) 3
Sub-total:
9
1
.
(Maximum of 3 words)
Michelle, Nicola, Owen and Paul have decided to go into business together selling mobile telephones
through a company limited by shares. A company is to be incorporated called MNOP Ltd and each person is
to subscribe for 25,000 ordinary £1 shares at a cost of £50,000.
"Any member who wishes to sell his or her shares must Do not write in these
offer them to the other members who shall purchase them columns below
at a fair price as determined by the company’s auditor."
statement that
. 2
(Maximum of 20 words)
Sub-total:
6
. (Maximum of 30 words) 3
(d) Delete as appropriate * and complete these sentences:
As the 100,000 ordinary £1 shares have been issued for a total price
of £200,000, a total of £ (State the amount) must be 1
transferred to a account. (Maximum of 2 1
words) The amount held in that account may* / may not* be used to
1
pay a dividend.