EXAMINATION PAPER

Examination Session: Year: Exam Code:

MAY 2015 BUSS2051WE01

Title:

PRINCIPLES OF BUSINESS LAW

Time Allowed: 2 Hours 15 Minutes

Additional Material provided: Multiple Choice Answer sheet for Section A.

Answer booklet.

Materials Permitted: None.

Calculators Permitted: No.

Visiting Students may use dictionaries: Yes.

Instructions to Candidates: This exam is divided into two compulsory sections:

SECTION A (40 marks): There are twenty multiple-choice

questions. Each question is equally weighted. You should
attempt ALL questions in this section.

For section A please use the Multiple Choice Answer Sheet

provided. Please fill out the answer sheet with the following
information:
Your anonymous examination code
Date of the examination
Title and code of the examination

SECTION B (60 marks): There are four questions in this

section. Each question is equally weighted. You should attempt
any THREE questions in this section.
Revision:
Page 2 of 8 BUSS2051WE01

SECTION A Answer ALL questions in this section

1. David enters into a contract with Ken for the purchase of Ken's car on behalf of Richard,
for whom David is acting as an agent. Applying the basic principles of agency law, who
may sue and be sued specifically under this contract?
a) David and Ken.
b) Richard and Ken.
c) David and Richard.
d) David, Ken and Richard.

2. Which one of the following terms describes someone who acts as a director of a company
but who has not been formally appointed as a director?
a) An alternative director.
b) A de facto director.
c) A shadow director.
d) A non-executive director.

3. Which one of the following statements appropriately describes the fundamental role of a
‘Receiver’ in accordance with the Insolvency Act 1986?

a) To realise an asset subject to a fixed charge on behalf of the appointing creditor.

b) To manage the company pending the appointment of an administrator or liquidator.
c) To maintain the company as a going concern.
d) To pay off creditors with preferential rights.

4. Which one of the following definitions appropriately defines a ‘misrepresentation’?

a) A false statement of fact which materially induces a party to enter into a contract.
b) A false statement of opinion which materially induces a party to enter into a contract.
c) A false statement of law which materially induces a party to enter into a contract.
d) A true statement of fact which materially induces a party to enter into a contract.

5. Which one of the following is NOT a factor to be taken into account in seeking to establish
a duty of care via a 'special relationship' in cases where the loss suffered is purely
economic?
a) The special skill of the person giving the advice.
b) The reliance on the advice by the person to whom it is given.
c) Whether the person giving the advice knew or should have known that the other
person would rely on it.
d) Whether the loss suffered was reasonably foreseeable.

continued
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6. Celia is a partner in Fell & Co., a firm that supplies camping and mountaineering
equipment. Her partners, Niall and Ruth, agree that she should buy some army knives up
to the value of £1,000. Celia discovers a new and innovative model of army knife being
offered by Surplus Ltd and raises an order worth £1,500. Niall and Ruth refuse to pay the
invoice when it arrives because they say Celia has exceeded her authority. Which of the
following best describes the legal position here?

a) Surplus Ltd cannot enforce the contract because Celia’s authority was limited and
Surplus Ltd should have asked for evidence of her authority.
b) Fell & Co. is not bound by the contract because Celia acted beyond her authority.
c) Surplus Ltd can enforce the contract because it dealt with Celia and Fell & Co. in good
faith.
d) Fell & Co. is bound because Celia had usual authority to enter into the contract with
Surplus Ltd.

7. There are rules contained in the Companies Act 2006 that restrict the use of a company's
share premium account. For which one of the following transactions is it lawful for the
share premium account to be used?
a) To pay a dividend.
b) To pay up new shares allotted as fully paid bonus shares.
c) To write off expenses incurred in the formation of the company.
d) To write off expenses incurred in connection with an issue of debentures.

8. Which of the following statements is/are correct in relation to a contract made by an agent
acting within his or her authority?

(i) The principal can be sued on the contract

(ii) The third party can be sued on the contract
(iii) The agent can be sued on the contract

a) (i) and (ii) only.

b) (ii) and (iii) only.
c) (i) and (iii) only.
d) All of the above.

9. Which one of the following is NOT one of the tests applied in determining whether or not a
duty of care exists?
a) Whether the damage was in the contemplation of the parties at the time of the
negligent act or omission.
b) Whether it is fair to impose a duty on the defendant in the circumstances.
c) Whether there is a sufficient degree of proximity between the parties.
d) Whether a duty of care should be imposed as a matter of public policy.

continued
Page 4 of 8 BUSS2051WE01

10. A director's duty to promote the success of the company, set out in the Companies Act
2006, requires a director to have regard to the relevant interests of which of the following?
(i) Creditors
(ii) Members
(iii) Employees
a) All of the above.
b) None of the above.
c) (i) and (ii) only.
d) (ii) and (iii) only.

11. A partnership is a significant form of business organisation, particularly among providers

of professional services such as architects and accountants. Which one of the following
statements about partnerships is NOT correct?

a) A partnership is not recognised in law as an artificial legal person.

b) A partnership is an example of an unincorporated business organisation.
c) Professional codes of practice may require members of the profession to trade as
partners or as sole traders rather than through companies.
d) Partners in a partnership formed under the Partnership Act 1890 generally benefit
from limited liability for any debts incurred as a result of their business activities.

12. Esther agreed to bake and freeze 100 birthday cakes for her friend Jane, who was
planning to open a small shop selling home-baked products, at a total price of £500. When
Esther had frozen 60 cakes, she learned that Jane had been unable to secure a lease of
the retail premises. She telephoned Jane to confirm that she had baked 60 cakes and was
all ready to bake the last 40, but Jane said she had changed her mind about starting a
business and had decided to go back into teaching instead. Esther felt very let down by
this. Which one of the following best describes the legal position?
a) Esther has no cause of action against Jane because she could have avoided any loss
by waiting until Jane had secured the lease.
b) Esther has no cause of action against Jane because she can still use or sell the
cakes, hence she has not suffered any loss.
c) Esther can recover the agreed sum of £500 from Jane because she would have been
entitled to this sum under the principle of specific performance.
d) Jane is in breach of contract and Esther can sue for damages or bring a quantum
meruit claim for £300 in respect of the 60 cakes already prepared.

continued
Page 5 of 8 BUSS2051WE01

13. A contract between Gary and his employer Go-Go Ltd contains the following four
provisions. Which of these would be indicative of a contract of service rather than a
contract for services?
(i) The contract refers to Gary as 'the employee' and Go-Go Ltd as 'the employer'.
(ii) The contract provides that Gary must perform his duties himself unless he is ill, in
which case he can delegate them to either of two named persons.
(iii) The contract provides for Go-Go Ltd to exercise control over Gary in a number of
respects.
(iv) Go-Go Ltd is required to provide work and Gary is required to perform it.

a) (i) only.
b) (i), (iii) and (iv) only.
c) (i), (ii) and (iii) only.
d) All of the above.

14. Jack was a skilled worker in leather and ran a business as a sole trader making bridles,
saddles and other leather goods. He was advised by his solicitor to incorporate his
business as a private limited company. He took this advice, buying 98 of the 100 shares in
Lush Leather Ltd. The company's liabilities quickly exceeded its assets and the company
became insolvent, owing £87,000. Is Jack liable to indemnify Lush Leather Ltd against its
debts?
a) Yes, the veil of incorporation will be lifted to reveal the company as a sham.
b) Yes, in practice there is no difference between Jack as sole trader of the business and
Jack as 98% shareholder in the business.
c) No, the debts belong to the company alone.
d) No, the company's liability is limited and therefore the members' liability is also limited.

15. Lakeside Ltd proposes to offer shares to existing members in accordance with their
statutory rights of pre-emption under the Companies Act 2006. What is the time period
during which the offer of shares may be accepted?
a) 7 days.
b) 14 days.
c) 21 days.
d) 28 days.

continued
Page 6 of 8 BUSS2051WE01

16. Lord Evans engaged Gavin to ride his horse in the Grand National. Three months before
the race, Gavin wrote to Lord Evans saying that he was not willing to ride the horse in the
race. Lord Evans wrote back to Gavin saying that he has decided to treat the contract as
discharged if Gavin pays him £1, which Gavin duly does. Which of the following
statements is correct?
(i) Lord Evans retains the right to sue Gavin for anticipatory breach of contract.
(ii) Gavin remains liable to Lord Evans for a fundamental breach of contract.
(iii) Lord Evans cannot claim damages from Gavin because accord and satisfaction has
taken place between the parties before performance was due.
(iv) Lord Evans can claim damages for any loss he has suffered but his right to do is
operative only from the date of the race.

Which of the above statements is/are incorrect?

a) (i), (ii) and (iv) only.

b) (i), (iii) and (iv) only.
c) All of the above.
d) None of the above.

17. An employee is required to obey all of his employer's reasonable instructions except in
certain circumstances. Three of the following are examples of circumstances which would
permit an employee to refuse to obey his employer's reasonable instructions. Which of the
following is NOT one of those circumstances?
a) If they require him to do something unlawful
b) If they require him to do something that is not in his employer's best interest
c) If they require him to do something that exposes him to personal danger not inherent
in his work
d) If they require him to do something outside his employment contract

18. Which one of the following refers to ‘harassment’ per the Equality Act 2010?

a) A applies to B a provision, criterion or practice which is discriminatory in relation to a

relevant protected characteristic.
b) A treats B less favourably than A treats or would treat others because of a protected
characteristic.
c) A subjects B to a detriment because B does a protected act.
d) A engages in unwanted conduct related to a relevant protected characteristic which
has the purpose or effect of violating B’s dignity.

continued
Page 7 of 8 BUSS2051WE01

19. Bart agreed to purchase a second-hand Audi motor car from motor dealers Homer Ltd. A
sales executive of Homer Ltd had told Bart that the clutch was defective, necessitating
what he thought to be a minor repair, costing £200 or £300. Bart traded in his old car and
agreed to pay £15,750 in cash. Bart had chosen this option rather than paying £16,000
and letting Homer Ltd repair the clutch. Two weeks later Bart arranged for another garage
to repair the clutch. The total cost of this repair came to £1,000. Bart wishes to claim
compensation under contract law. What is the legal position here?

a) Bart can claim for breach of an implied contractual term from s.14(2) Sale of Goods
Act 1979 that the car supplied must be of satisfactory quality.
b) Bart can claim for breach of an implied term from the common law doctrine of
business efficacy that the goods supplied must be of merchantable quality.
c) Bart is unable to claim damages for breach of contract because the defect was drawn
to his attention and could not therefore render the car of unsatisfactory quality.
d) Bart is unable to claim damages for breach of contract because he did not discharge
his responsibility to examine the car adequately for defects before taking delivery.

20. When a buyer breaches a contract which involves the sale of goods a seller may have the
right to resell those goods but several conditions apply. Which one of the following is not a
requirement here?

a) The seller has declared a lien over the goods.

b) The goods are perishable.
c) The buyer has failed to pay for the goods.
d) The seller has notified the buyer of his intention to resell.

continued
Page 8 of 8 BUSS2051WE01

SECTION B Answer THREE questions from this section

21. With regard to the English legal system explain how the doctrine of precedent operates.
(20 marks)

22. Joshua is Secretary of Lanchester village rugby union club. He hires a bus from Stanley
Bus Hire Ltd (SBH) to take 30 members of the club to see a RBS Six Nations match
between England and Italy at Twickenham on 14th February. A contract term provides that
“this contract may be cancelled with at least three days’ notice, otherwise the full hire
charge is payable”. Joshua pays a deposit of £100 in advance against the full contract
price of £600. SBH, in accordance with the custom of the industry, guarantees that its bus
will be roadworthy. The bus designated for Joshua’s contract was properly serviced on
13th February, the day before the rugby club’s scheduled trip to Twickenham. On the
morning of the 14th February England Rugby announces that the scheduled match
between England and Italy has been postponed due to overnight vandalism which has left
the pitch unplayable. Joshua immediately claims that the contract with SBH has been
frustrated and demands the return of the £100 deposit.

Advise Joshua of his legal rights and responsibilities here. (20 marks)

23. Paul and Art run an outdoor activity centre located in the wilds of Weardale. The centre
has a good reputation and has grown rapidly in popularity. Paul and Art would like to
replicate this success at three or more other sites which they have under consideration.
They currently trade as an ordinary partnership, Garfunkimon & Co. They have come to
you for advice on whether to continue trading as an ordinary partnership or look at
alternative set-ups.

Advise Paul and Art concerning the advantages and disadvantages of trading as an
ordinary partnership relative to viable alternatives. (20 marks)

24. Barbourry Ltd is a small manufacturer based in Sunderland which manufactures and sells
clothes mainly for the export market but which also retails from its own locally-based shop.
Hannah, aged 28, took up employment with Barbourry Ltd as the shop’s part-time
assistant manager on a job-share basis with her colleague Karen from 1st January 2013
and became its full-time manager on 1 January 2014. Apart from normal holiday
entitlement Hannah has only one other period of absence on her record during this period,
specifically a five-day absence due to illness. On 1st January 2015 Hannah was formally
notified by the company that her services are no longer required following the planned
closure of the shop so that the company can concentrate on its export commitments. The
notice specified that Hannah would not receive any recompense for the loss of her
employment but she could if she wished take up an alternative post as a packer on the
distribution line at a much reduced salary.

Advise Hannah as to her rights to redundancy in these circumstances. (20 Marks)

END