Foundation Level Business Law

3b FBLW
21 May 2001
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.

Answer the ONE question in section A (this has 25 sub-questions).

Answer TWO questions ONLY from section B.

Write your examination number in the boxes provided on the front of the answer book.

Write FBLW on the line marked "Subject" on the front of the answer book.

Write your examination number on the special answer sheet for section A which is on page 3 of
this question paper booklet.
Detach the sheet from the booklet and insert it into your answer book before you hand this in.

Do NOT write your name or your student registration number anywhere on your answer book.

Tick the appropriate boxes on the front of the answer book to indicate which questions you have
answered.

© The Chartered Institute of Management Accountants 2001

SECTION A — 50 MARKS
ANSWER ALL TWENTY-FIVE SUB-QUESTIONS – 2 MARKS EACH

Each of the sub-questions numbered from 1.1 to 1.25 inclusive, given below, has only ONE correct
answer.

Question One

1.1 Which ONE of the following is the highest court in England?

A The Court of Appeal.

B The House of Lords.
C The High Court.
D The Crown Court.

1.2 Which part of a case decided by the courts is binding on lower courts dealing with the
same material facts?

A Obiter dicta.
B The decision of the judge.
C The ratio decidendi.
D All the above.

1.3 In the tort of negligence, damages are payable in respect of

A reasonably foreseeable losses.

B losses which are a direct consequence of the breach of duty.
C all the losses caused by the breach of duty.
D losses which are within the contemplation of the parties.

1.4 Which of the following statements is/are correct?

(i) An employer is vicariously liable for the torts of employees committed in the course
of their employment.
(ii) An employer is vicariously liable for the torts of independent contractors, if they
were committed whilst carrying out work for the employer.

A (i) only.
B (ii) only.
C Both (i) and (ii).
D Neither (i) nor (ii).

FBLW 2 May 2001

1.5 Which of the following statements is/are correct?

(i) A contract of employment must be in writing.

(ii) An employer must provide written particulars of the employment for the employee.

A (i) only.
B (ii) only.
C Both (i) and (ii).
D Neither (i) nor (ii).

1.6 Which ONE of the following statements is incorrect?

A It is automatically unfair to dismiss an employee for trade union activity.

B It is automatically unfair to dismiss an employee who becomes pregnant.
C It is automatically unfair to dismiss an employee who enforces a statutory right.
D It is automatically unfair to dismiss an employee who refuses to obey a reasonable
instruction.

1.7 Which ONE of the following is incorrect?

A An employer is obliged to provide an employee with a reference.

B An employer must allow Health and Safety representatives reasonable paid time off work
to perform their functions.
C An employer must provide an employee with a safe working environment.
D Employees who have three months’ continuous employment are entitled to paid leave.

1.8 Which of the following statements is/are correct?

(i) If an agreement is stated to be “binding in honour only”, the parties have decided
that the agreement should not have contractual force.

(ii) If an agreement is not in writing, the parties are presumed to have intended that it
should not be legally enforceable.

A (i) only.
B (ii) only.
C Neither (i) nor (ii).
D Both (i) and (ii).

May 2001 3 FBLW

1.9 A contract entered into as a result of a misrepresentation is

A enforceable.
B voidable.
C void.
D absolutely valid.

1.10 Which ONE of the following does NOT discharge a contract?

A Precise performance of all the contractual obligations.

B A subsequent event causing the contract to be impossible to perform.
C Breach of a warranty.
D The agreement of the parties, contained in a deed, to the effect that the contract should be
discharged.

1.11 Which ONE of the following remedies for breach of contract must be awarded by the court
if there has been a breach of contract?

A An injunction.
B Damages.
C Specific performance.
D Recission.

1.12 Which ONE of the following statements is incorrect?

A Payment by the debtor of less than the full amount of the debt will satisfy the whole debt at
common law, if paid early at the request of the debtor.
B Payment by a third party of less than the full amount of the debt will discharge the whole
debt at common law.
C Payment of less than the full amount of the debt will discharge the whole debt at common
law, if agreed to by the creditor.
D Payment of less than the full amount of the debt will discharge the whole debt at common
law, if extra consideration is provided by the debtor.

FBLW 4 May 2001

1.13 Which of the following statements is/are correct?

(i) A contractual term which attempts to exclude liability for damage to property caused
by negligence is void unless reasonable.
(ii) A contractual term which attempts to exclude liability for death or personal injury is
void.

A (i) only.
B (ii) only.
C Neither (i) nor (ii).
D Both (i) and (ii).

1.14 In relation to company law, which ONE of the following statements is correct?

A A company limited by shares is fully liable for all its debts.

B Shareholders are fully liable for the debts of the company.
C Directors are fully liable for the debts of the company.
D A company secretary is fully liable for the debts of the company.

1.15 Which ONE of the following statements in relation to partnership law is incorrect?

A In England, a partnership has no existence separate from the partners.

B Each partner can bind the firm in contract if acting in the ordinary course of business.
C Partners are not liable for debts contracted before they became partners.
D To be binding, a partnership agreement must be in writing.

1.16 Which of the following statements is/are correct?

(i) A company’s authorised share capital must be stated in its Memorandum of

Association.
(ii) A company may not increase its authorised share capital.

A (i) only.
B (ii) only.
C Both (i) and (ii).
D Neither (i) nor (ii).

May 2001 5 FBLW

1.17 Which ONE of the following statements is correct in relation to companies limited by
shares?

A All new shares issued must be offered to the existing members first.

B All new shares issued for cash must be offered to the existing members first in the case of
a public company only.
C All new shares must be offered to the existing members first in the case of a private
company.
D All shares issued for cash must be offered to the existing members first.

1.18 Which ONE of the following statements is incorrect?

A A private company limited by shares must have at least one director.

B A public company limited by shares must have at least two directors.
C A private company must have authorised share capital of at least £30,000.
D A public company must have an authorised share capital of at least £50,000.

1.19 In order for a private company to alter its Articles of Association, the shareholders must
pass

A a special resolution.
B an ordinary resolution.
C an extraordinary resolution.
D an elective resolution.

1.20 In relation to directors, which ONE of the following statements is incorrect?

A The board of directors is the agent of the company.

B The board of directors is the agent of the shareholders.
C The board may appoint a person to be the managing director.
D Proceedings at board meetings are regulated by the company’s Articles of Association.

FBLW 6 May 2001

1.21 Which ONE of the following statements is/are correct?

(i) In general, it is illegal for a company to provide financial assistance for the purchase
of its own shares.
(ii) A private company may provide financial assistance for the purchase of its own
shares as long as it follows the correct procedure.

A (i) only.
B (ii) only.
C Both (i) and (ii).
D Neither (i) nor (ii).

1.22 Which ONE of the following resolutions is required to enable a company to borrow
money?

A A special resolution.
B An ordinary resolution.
C An extraordinary resolution.
D A board resolution.

1.23 Which ONE of the following statements is incorrect?

A The Articles of Association form a contract between the shareholders and the board.
B The Articles of Association form a contract between the shareholders and the company.
C The Articles of Association form a contract between each shareholder and the other
shareholders.
D The Articles of Association are only contractual in respect of ordinary membership rights.

1.24 Which ONE of the following statements is correct?

A A floating charge has priority over a fixed charge.

B The preferential creditors take priority over fixed charge holders.
C A fixed charge has priority over a floating charge.
D Unsecured creditors take priority over floating charge holders.

May 2001 7 FBLW

1.25 In relation to elective resolutions, which ONE of the following statements is incorrect?

A The resolution must be passed by all the members.

B The resolution applies only to private companies.
C The resolution may be used to dispense with the need to lay accounts before the general
meeting.
D The resolution must be agreed to by all the members present and voting.

(Total = 50 marks)

FBLW 8 May 2001

SECTION B – 50 MARKS
ANSWER TWO QUESTIONS ONLY

Question Two
(a) Identify and explain the sources of English Law.
(15 marks)
(b) Bee plc owned 5% of the shares in Cee plc and was considering making a take-over bid for
the shares in Cee plc. In December 2000, Bee plc wrote to Cee plc's auditors, A & Co,
asking if their audit report could be relied upon as representing an accurate review of the
financial position of Cee plc. Tom, the senior partner of A & Co, replied in writing that Bee
plc could indeed rely on the accuracy of their report. As a result, Bee plc submitted a take-
over bid and gained control of the entire share capital of Cee plc. Bee plc has now
discovered that Cee plc's assets are worth far less than stated by A & Co in their audit
report. Bee plc considers this to have been caused by A & Co carelessly overvaluing
Cee plc's assets. This resulted in Bee plc paying more for the shares than it would have
done had the truth been known.

Required:
As the Finance Director of Bee plc, write an internal memorandum to the board explaining
whether Bee plc appears to be entitled to receive any compensation from A & Co.
(10 marks)
(Total = 25 marks)

Question Three
(a) By reference to examples, explain:
(i) the remedies available to the innocent party in the event of a breach of a
condition or a warranty;
(12 marks)
(ii) how the law determines whether a contractual term is a condition or a
warranty.
(8 marks)
(b) Charlotte is a self-employed Business Consultant. She contracted with Zed plc to carry out
a thorough review of the company's operations. The review was to last 8 weeks and to
commence on 5 February 2001. The contract included the following terms:
Clause 1: "It shall be a term of this contract that Charlotte will attend the board
meeting of Zed plc to be held on 5 February 2001."
Clause 2: "A breach of Clause 1 of this agreement shall entitle Zed plc to terminate
the contract."
Charlotte was ill on 5 February 2001 and her secretary sent a fax to Zed plc apologising for
the fact that she would not be able to start until 9 February 2001.
Charlotte has now been advised that Zed plc has terminated her contract.

Required:
Explain whether Charlotte is entitled to any compensation in respect of Zed plc's actions.
(5 marks)
(Total = 25 marks)

FBLW 9 M2001
Question Four
(a) In relation to companies limited by shares, explain:
(i) how directors may be appointed and dismissed;
(8 marks)
(ii) the duties owed by directors to shareholders.
(8 marks)
(b) Asif and Ben are the only directors of AB Ltd, each holding 20% of the shares. The
remaining shares are held by Claire, Debbie and Edward, who also each own 20% of the
shares.
AB Ltd recently entered into a contract with XY Ltd for the construction of new office
premises. The building work carried out by XY Ltd proved unsatisfactory, and a
considerable amount had to be spent by AB Ltd on remedying the defects. At a board
meeting, Asif and Ben decided that the company should not sue XY Ltd, as it would be likely
to take up a considerable amount of time and money, and, in any event, it seemed unlikely
that XY Ltd would be able to pay.
Claire, Debbie and Edward strongly object to the decision and have written a letter to the
board insisting that the company should sue XY Ltd.

Required:
As the Company Secretary of AB Ltd, write an internal memorandum to the board
explaining:
(i) whether the shareholders can force the directors to cause AB Ltd to sue XY
Ltd;
(6 marks)
(ii) whether the shareholders themselves can sue XY Ltd.
(3 marks)
(Total = 25 marks)

End of paper

M2001 10 FBLW