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ICAEW ACA Business Law study materials
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ICAEW ACA Business Law practice questions

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Question 1Business law

A private limited company wishes to raise new equity from the public. Under the Companies Act 2006, which prohibition applies to it?

  1. It may offer shares only after ten years of trading
  2. It may not offer its shares to the public at large Correct answer.
  3. It may offer shares only with court approval
  4. It may offer shares only to employees

Explanation

Section 755 of the Companies Act 2006 prohibits a private company from offering its securities to the public. A public company is the correct vehicle for a public offer of shares. Breach does not automatically invalidate the allotment but exposes the company and officers to criminal sanction.

Question 2Business law

Which characteristic distinguishes a limited liability partnership from a general partnership under the law of England and Wales?

  1. It cannot own property in its own name
  2. It is dissolved automatically on the death of a member
  3. It must have at least three designated members
  4. It has a separate legal personality distinct from its members Correct answer.

Explanation

The Limited Liability Partnerships Act 2000 gives an LLP a body corporate with legal personality separate from its members, so it contracts and holds property in its own name. A general partnership has no separate personality. Members of an LLP also enjoy limited liability, unlike ordinary partners.

Question 3Business law

A director of a solvent company causes the company to pay a dividend out of capital rather than distributable profits. Which statement best describes the legal position?

  1. The dividend is valid because the board approved it by resolution
  2. The dividend is valid provided it is disclosed in the next annual accounts
  3. The dividend is void but recipients are never liable to repay
  4. The dividend is unlawful and is repayable by the recipients if they knew or had reasonable grounds to believe it was unlawful Correct answer.

Explanation

Part 23 of the Companies Act 2006 permits distributions only out of profits available for the purpose. A distribution made otherwise is unlawful, and a member who knew or had reasonable grounds to believe it was unlawful must repay it. Directors who authorised it may also be liable for breach of duty.

Question 4Business law

In the context of contract formation, which of the following is generally treated as an invitation to treat rather than an offer?

  1. A display of goods in a shop window with a price attached Correct answer.
  2. An acceptance communicated by instantaneous email
  3. A tender submitted in response to a request for tenders
  4. A written promise to keep an offer open for seven days in exchange for payment

Explanation

Goods displayed in a shop window are treated as an invitation to treat, following the general principle that the customer makes the offer at the till. A promise supported by consideration to keep an offer open is a binding option, not an invitation. A tender in response to a request is itself an offer.

Question 5Business law

A buyer sends an order for 500 widgets at £10 each. The seller replies accepting but stating the price is £12 each. Which analysis is correct under the mirror image rule?

  1. The seller's reply is a valid acceptance creating a contract at £10
  2. The seller's reply is a counter-offer that destroys the original offer Correct answer.
  3. The seller's reply creates a contract at £12 immediately
  4. The seller's reply is a mere request for information

Explanation

A purported acceptance that introduces new terms is not an unqualified acceptance but a counter-offer, which extinguishes the original offer. The buyer may accept the counter-offer, but no contract arises until that happens. This reflects the mirror image rule in English contract law.

Question 6Business law

Which of the following best satisfies the requirement for consideration in a simple contract?

  1. A promise to perform an existing contractual duty owed to the promisor
  2. A promise to refrain from suing on a valid but disputed claim Correct answer.
  3. A promise to perform an existing public duty owed to a third party
  4. A promise made under duress

Explanation

Forbearance to sue on a disputed claim is generally good consideration because it involves giving up a right. Performing an existing duty owed to the promisor is not good consideration, nor is performance of a public duty. Consideration must also be given freely, so a promise obtained by duress is not valid.

Question 7Business law

A party seeks to rely on a term excluding liability for death caused by negligence. What is the effect of section 65 of the Consumer Rights Act 2015 in a business-to-consumer contract?

  1. The exclusion is valid if written in bold type
  2. The exclusion is not permitted and the term is not binding Correct answer.
  3. The exclusion is valid up to a statutory cap
  4. The exclusion is valid if the consumer signed the contract

Explanation

Section 65 of the Consumer Rights Act 2015 prevents a trader from excluding or restricting liability for death or personal injury resulting from negligence. Such a term is not binding. Neither prominence nor signature can make an otherwise prohibited exclusion effective.

Question 8Business law

Which remedy is available as of right to a buyer where goods delivered by a business seller fail to conform to the contract under the Consumer Rights Act 2015?

  1. The short-term right to reject the goods and obtain a refund Correct answer.
  2. An order for specific performance of the contract
  3. A claim for damages for loss of profit
  4. A right to rescind the contract for misrepresentation

Explanation

Under the Consumer Rights Act 2015 the consumer has a 30-day short-term right to reject non-conforming goods and obtain a full refund. Beyond that period the consumer can require repair or replacement, then a price reduction or final rejection. Specific performance and loss of profit are not the standard consumer remedies in this context.

Question 9Business law

A company enters administration. Which statutory objective of the administrator is given priority where it is reasonably practicable?

  1. Paying the preferential creditors in full
  2. Rescuing the company as a going concern Correct answer.
  3. Realising property to pay the petitioning creditor
  4. Maximising the return to the secured creditor

Explanation

Paragraph 3 of Schedule B1 to the Insolvency Act 1986 sets a hierarchy of objectives. The administrator must first aim to rescue the company as a going concern if reasonably practicable. Only if that is not practicable does the administrator pursue the next objectives, such as achieving a better result for creditors as a whole.

Question 10Business law

A supplier and a retailer agree that the supplier will sell goods to the retailer at a fixed minimum resale price. Which statement reflects the competition law position under the Competition Act 1998?

  1. Resale price maintenance is permitted if the retailer agrees in writing
  2. Resale price maintenance is lawful where the parties are not competitors
  3. Resale price maintenance is a form of anti-competitive agreement that may infringe the Chapter I prohibition Correct answer.
  4. Resale price maintenance is lawful because it protects brand value

Explanation

Resale price maintenance is treated as a restriction of competition and can breach the Chapter I prohibition under the Competition Act 1998. It is not saved by brand protection, writing, or the absence of horizontal competition. It may benefit from an exemption only if the strict criteria are met, which is exceptional.

Question 11Business law

Which of the following is a fundamental principle of the UK GDPR regarding the processing of personal data?

  1. Personal data must be processed lawfully, fairly and transparently Correct answer.
  2. Personal data must always be stored within the United Kingdom
  3. Personal data may be processed only with written consent
  4. Personal data must be deleted within thirty days of collection

Explanation

Article 5 of the UK GDPR sets out principles including lawfulness, fairness and transparency. Consent is one lawful basis but not the only one, and there is no general rule requiring storage in the UK or a thirty-day deletion period. These principles underpin all processing of personal data.

Question 12Business law

An employee is dismissed for a reason related to their trade union membership. What is the legal status of that dismissal?

  1. It is fair if the employer followed a disciplinary procedure
  2. It is potentially fair if the employee had less than two years' service
  3. It is a wrongful dismissal but not unfair
  4. It is automatically unfair regardless of length of service Correct answer.

Explanation

Dismissal for a reason connected with trade union membership is one of the automatically unfair reasons under the Employment Rights Act 1996. No qualifying period of service is required. Following a procedure cannot make an automatically unfair dismissal fair.

Question 13Business law

Which duty does a director owe under section 172 of the Companies Act 2006?

  1. To maximise the share price in the short term
  2. To act in the way the director considers, in good faith, would promote the success of the company for the benefit of its members as a whole Correct answer.
  3. To act in the best interests of the majority shareholder
  4. To follow the instructions of the board without independent judgment

Explanation

Section 172 requires a director to act in good faith in the way most likely to promote the success of the company for the benefit of members as a whole. In doing so the director must have regard to stakeholders and long-term consequences. The duty is subjective but constrained by the specified factors.

Question 14Business law

A company wishes to remove a director before the expiry of his term. Which procedure is required under the Companies Act 2006 for a company with a general meeting?

  1. Ordinary resolution on special notice of 28 days Correct answer.
  2. Special resolution with 14 days' notice
  3. Board resolution alone
  4. Written resolution of the members

Explanation

Section 168 permits removal by ordinary resolution, but special notice of 28 days must be given to the company. The director has a right to make representations. A board resolution alone cannot remove a director appointed by the members.

Question 15Business law

A shareholder holding 5% of the voting rights wishes to requisition a general meeting. Which statement is correct?

  1. Requisition requires a court order
  2. Only the board may call a general meeting
  3. Only members holding at least 25% may requisition a meeting
  4. Members holding at least 5% of the paid-up voting capital may requisition a general meeting Correct answer.

Explanation

Section 303 of the Companies Act 2006 allows members holding at least 5% of the paid-up capital carrying voting rights to requisition a general meeting. If the directors fail to call it within the statutory period, the requisitionists may call it themselves. No court order is required.

Question 16Business law

In the law of agency, which situation creates apparent (ostensible) authority?

  1. The principal expressly forbids the transaction in a private document
  2. The agent acts without any communication with the principal
  3. The principal represents that the agent has authority, and a third party relies on that representation Correct answer.
  4. The agent secretly exceeds actual authority

Explanation

Apparent authority arises where the principal's representation leads a third party reasonably to believe the agent has authority. The principal is then bound even if actual authority was absent. Secret limitations unknown to the third party do not prevent apparent authority from arising.

Question 17Business law

Which of the following statements about the tort of negligence is correct?

  1. A duty of care requires foreseeability of harm, proximity and that it is fair, just and reasonable to impose it Correct answer.
  2. Contributory negligence defeats the claim entirely
  3. A duty of care arises only where a contract exists
  4. A duty of care is owed only to the person who physically caused the harm

Explanation

The test for a duty of care derives from the Caparo principles: foreseeability, proximity and fairness, justice and reasonableness. Tortious duties can exist independently of contract. Contributory negligence reduces damages rather than defeating the claim.

Question 18Business law

A party wishes to escape liability under a contract on the ground of economic duress. Which element is essential?

  1. A mistake about the contract price
  2. A failure of consideration
  3. A simple commercial negotiation with a hard bargain
  4. Illegitimate pressure that compels the victim to enter the contract Correct answer.

Explanation

Economic duress requires illegitimate pressure that leaves the victim with no practical choice but to submit. A hard bargain lawfully negotiated is not duress. Mistake and failure of consideration are distinct doctrines.

Question 19Business law

Which statement correctly describes the effect of the doctrine of frustration on a contract?

  1. The contract is discharged automatically by operation of law on an unforeseen event making performance impossible Correct answer.
  2. The contract is suspended until performance becomes possible
  3. The contract is void from the outset
  4. The contract continues but the innocent party may claim damages for breach

Explanation

Frustration discharges a contract automatically when an unforeseen event, outside the parties' control, makes performance impossible or radically different. It operates by law, not by the choice of the parties. The Law Reform (Frustrated Contracts) Act 1943 governs the adjustment of money and benefits.

Question 20Business law

A promoter enters into a contract on behalf of a company that has not yet been incorporated. What is the promoter's position under section 51 of the Companies Act 2006?

  1. Neither party is bound until the company ratifies the contract
  2. The contract is void for lack of capacity
  3. The company becomes automatically liable on incorporation
  4. The promoter is personally liable on the contract subject to any agreement to the contrary Correct answer.

Explanation

Section 51 makes a person acting for a company before incorporation personally liable on the contract, subject to any agreement to the contrary. The company does not become liable merely by being incorporated. The company may later enter into a new contract on the same terms.

Question 21Business law

Which document must a company deliver to Companies House when it wishes to change its name?

  1. A statutory declaration signed by all creditors
  2. A copy of the resolution and the required fee, together with the new name Correct answer.
  3. A court order authorising the change
  4. A copy of the amended articles only

Explanation

A company changes its name by special resolution and files the resolution with Companies House, paying the prescribed fee. A new certificate of incorporation is then issued. Creditor declarations and court orders are not generally required for an ordinary name change.

Question 22Business law

A director is also a majority shareholder and votes on a contract in which he has a material interest. What is the primary concern under the Companies Act 2006?

  1. The director must declare the interest and, where required, the members must approve the transaction Correct answer.
  2. The transaction is automatically void
  3. The contract is valid only if audited
  4. The director must resign before the meeting

Explanation

Sections 177 and 182 require a director to declare an interest in a proposed or existing transaction. Where the transaction is a substantial property transaction or a loan, member approval may be required. Breach does not automatically render the contract void but may give rise to liability.

Question 23Business law

Which of the following best describes the purpose of the unfair prejudice remedy under section 994 of the Companies Act 2006?

  1. To allow a creditor to wind up an insolvent company
  2. To protect a member whose interests have been unfairly prejudiced by the conduct of the company's affairs Correct answer.
  3. To enable a member to challenge the company's tax return
  4. To compel a director to resign

Explanation

Section 994 allows a member to petition the court where the company's affairs are conducted in a manner unfairly prejudicial to their interests. The court has broad remedial powers, including ordering a share purchase. It is not a creditor remedy or a tax procedure.

Question 24Business law

A company's articles contain an entrenched provision requiring the consent of a named shareholder for any change to the objects. Which statement reflects the Companies Act 2006 position?

  1. Entrenchment is permitted only for public companies
  2. Entrenchment requires the consent of the registrar
  3. Entrenchment is void because articles must be amendable by special resolution
  4. Entrenchment is permitted if the articles so provide at incorporation or by unanimous agreement Correct answer.

Explanation

Section 22 of the Companies Act 2006 permits entrenched provisions, but only where they are included in the articles on formation or subsequently by unanimous agreement of the members. Entrenchment restricts the usual special resolution amendment procedure. It is not limited to public companies.

Question 25Business law

Which of the following statements about the doctrine of precedent in England and Wales is correct?

  1. Decisions of the Supreme Court bind lower courts, although the Supreme Court may depart from its own earlier decisions Correct answer.
  2. Obiter dicta are always binding
  3. Decisions of the High Court bind the Court of Appeal
  4. Only statutes create binding law

Explanation

The Supreme Court's decisions bind courts below it, and under the Practice Statement 1966 it may depart from its own previous decisions. The Court of Appeal is not bound by High Court decisions. Obiter dicta are persuasive rather than binding.

Question 26Business law

A sole trader supplies goods to a customer in the course of business. Which implied term under the Sale of Goods Act 1979 requires the goods to be fit for a particular purpose made known to the seller?

  1. Section 12
  2. Section 13
  3. Section 14(3) Correct answer.
  4. Section 14(2)

Explanation

Section 14(3) implies a term that goods are reasonably fit for any particular purpose expressly or by implication made known to the seller, provided the buyer relies on the seller's skill or judgment. This is distinct from the general satisfactory quality term.

Question 27Business law

A consumer buys a kettle from a retailer. The kettle has a latent manufacturing defect and scalds the consumer. Under the Consumer Protection Act 1987, against whom may the consumer bring a claim for a defective product?

  1. The consumer must sue the importer in all cases
  2. Only the retailer who sold the product
  3. The producer, including the manufacturer and the own-brander Correct answer.
  4. Only the person who physically assembled the product

Explanation

The Consumer Protection Act 1987 imposes strict liability on producers, which includes manufacturers, own-branders and importers into the UK. A claim can be brought without proving fault or a contract with the manufacturer.

Question 28Business law

A business displays a notice at its entrance stating that it accepts no liability for any loss of or damage to customers' property. A customer's coat is stolen due to the business's negligence. What is the effect of the notice under the Unfair Contract Terms Act 1977?

  1. The notice is ineffective because liability for negligence causing loss of property cannot be excluded by a business notice Correct answer.
  2. The notice is effective because the coat was not in the business's possession
  3. The notice is fully effective because property damage is not personal injury
  4. The notice is effective only if the customer signed it

Explanation

Under section 2(2) of the Unfair Contract Terms Act 1977, a business cannot exclude or restrict liability for negligence causing loss or damage other than death or personal injury unless the term satisfies the reasonableness requirement. A blanket notice of this kind will generally fail that test.

Question 29Business law

A company wishes to allot new shares. Which document must generally be delivered to Companies House following an allotment of shares?

  1. A confirmation statement on Form CS01
  2. A notice of change of directors on Form AP01
  3. A statement of capital on Form SH19
  4. A return of allotment on Form SH01 Correct answer.

Explanation

Section 555 of the Companies Act 2006 requires a company to deliver a return of allotment to Companies House within one month of making an allotment. Form SH01 is the prescribed form and includes a statement of capital.

Question 30Business law

A private company limited by shares has model articles with no amendments. The directors wish to allot shares. Which statement best describes the position on authority to allot?

  1. The directors require a special resolution of the members in every case
  2. The directors may allot freely without any authorisation
  3. The directors require the consent of the company's auditors
  4. The directors may allot only if authorised by the articles or by an ordinary resolution of the members Correct answer.

Explanation

Section 549 of the Companies Act 2006 restricts directors from exercising any power to allot shares unless authorised by the articles or by a resolution of the company. Model articles alone do not confer a general authority.

Question 31Business law

A company's board is deadlocked and the company is suffering serious financial loss. A member petitions the court for relief. Which ground is most likely to support a just and equitable winding-up petition under section 122(1)(g) of the Insolvency Act 1986?

  1. The company has changed its accounting reference date
  2. The company has failed to file its annual accounts on time
  3. The substratum of the company has failed and the deadlock cannot be resolved Correct answer.
  4. A director has breached a duty to the company

Explanation

Section 122(1)(g) permits winding up where the court considers it just and equitable. Established categories include the failure of the company's substratum and irreconcilable deadlock in management.

Question 32Business law

An individual is disqualified from acting as a director following a disqualification order. Which consequence follows if the individual continues to manage a company?

  1. The company is automatically dissolved
  2. The individual commits a criminal offence and may be personally liable for the company's debts Correct answer.
  3. The individual's shares are transferred to the Crown
  4. The disqualification is automatically extended by five years

Explanation

Under the Company Directors Disqualification Act 1986, acting while disqualified is a criminal offence. The court may also hold the disqualified person personally liable for debts incurred while so acting.

Question 33Business law

A company wishes to pay a dividend. Which statutory test must be satisfied under the Companies Act 2006 before a distribution may lawfully be made?

  1. The company must obtain member approval by special resolution
  2. The company must have distributable profits available for the purpose Correct answer.
  3. The company must have positive cash flow for the year
  4. The company must have paid all corporation tax due

Explanation

A company may only make a distribution out of profits available for the purpose, as determined by reference to its relevant accounts under Part 23 of the Companies Act 2006. Cash flow and tax status are not the statutory test.

Question 34Business law

A contract contains a clause stating that time is of the essence for delivery. The seller delivers two days late. What is the buyer's position at common law?

  1. The buyer may treat the contract as repudiated and terminate Correct answer.
  2. The buyer must accept late delivery and deduct a penalty
  3. The buyer must refer the matter to arbitration before terminating
  4. The buyer may only claim damages and cannot terminate

Explanation

Where time is expressly made of the essence, failure to deliver on time is a breach of a condition entitling the innocent party to terminate and claim damages. Without such a stipulation, late delivery would generally sound only in damages.

Question 35Business law

A buyer and seller agree that the price will be fixed by a named valuer, but the valuer dies before fixing the price. Under the Sale of Goods Act 1979, what is the effect?

  1. The contract is void from the outset
  2. The contract is automatically rescinded
  3. The buyer must pay a reasonable price Correct answer.
  4. The seller may unilaterally set the price

Explanation

Section 9 of the Sale of Goods Act 1979 provides that where the price is to be fixed by a third party's valuation and that valuation is not made, the buyer must pay a reasonable price. The contract is not void.

Question 36Business law

Which statement best describes the effect of a retention of title clause in a contract for the sale of goods?

  1. Property in the goods does not pass to the buyer until the seller's conditions are met Correct answer.
  2. The clause transfers risk to the seller until payment
  3. The clause is void unless registered at Companies House
  4. The buyer obtains title on delivery but the seller keeps a lien

Explanation

A retention of title clause preserves the seller's ownership of the goods until specified conditions, typically payment, are satisfied, notwithstanding delivery to the buyer. It operates as an exception to the general passing of property rules.

Question 37Business law

A tenant occupies business premises under a lease. The landlord wishes to forfeit the lease for non-payment of rent. Which step is generally required before forfeiture by court proceedings?

  1. The landlord must apply to the local authority
  2. The landlord must serve a statutory notice under the Landlord and Tenant Act 1954
  3. The landlord must obtain the tenant's written consent
  4. The landlord must serve a formal demand for the rent Correct answer.

Explanation

Forfeiture for non-payment of rent generally requires a formal demand unless the lease dispenses with it. Where forfeiture is sought through the courts, section 146 of the Law of Property Act 1925 requires a notice specifying the breach and requiring remedy.

Question 38Business law

An employer dismisses an employee with the correct contractual notice but without following any disciplinary procedure. The employee has two years' continuous service. Which claim is most likely to arise?

  1. A claim for breach of the Working Time Regulations
  2. Unfair dismissal for procedural unfairness Correct answer.
  3. Wrongful dismissal for breach of contract
  4. A claim for a redundancy payment

Explanation

Dismissal with proper notice is not wrongful, but the absence of a fair procedure may render the dismissal unfair. Section 98 of the Employment Rights Act 1996 requires the employer to act reasonably, and procedural fairness is central to that test.

Question 39Business law

Which of the following is a characteristic of a limited liability partnership under the Limited Liability Partnerships Act 2000?

  1. It cannot hold property in its own name
  2. It is taxed as a company in all circumstances
  3. It must have at least two general partners with unlimited liability
  4. It has legal personality separate from its members Correct answer.

Explanation

An LLP is a body corporate with legal personality separate from its members, and the members' liability is generally limited to their agreed capital contributions. This distinguishes it from a traditional partnership.

Question 40Business law

A partnership at will is dissolved. In the absence of agreement, how are partnership assets applied on dissolution?

  1. In paying debts to third parties, then repaying partners' advances, then distributing the residue according to profit-sharing ratios Correct answer.
  2. To the firm's largest creditor as a priority
  3. Equally between partners before any debts are paid
  4. To the partner who contributed the most capital

Explanation

Under section 44 of the Partnership Act 1890, losses and deficiencies are paid first out of profits, then capital, and finally by the partners individually. Assets are applied in paying third-party debts, then repaying advances and capital, before any residue is shared.

Question 41Business law

Which statement correctly describes the liability of a new partner who joins an existing general partnership?

  1. The new partner is liable for debts incurred after joining but not generally for pre-existing debts Correct answer.
  2. The new partner's liability is limited to their capital contribution
  3. The new partner has no liability for partnership debts
  4. The new partner is liable for all debts whenever incurred

Explanation

Under section 17 of the Partnership Act 1890, a person admitted as a partner does not thereby become liable to the creditors for anything done before becoming a partner. Liability for pre-existing debts requires a novation or agreement.

Question 42Business law

A company's articles contain a provision requiring the consent of a named shareholder for any change to the company's name. Which statement best describes the status of such an entrenched provision?

  1. It is binding only if it is consistent with the Companies Act 2006 and is recorded in the articles Correct answer.
  2. It binds only the named shareholder and not the company
  3. It is void because the Act does not permit entrenched provisions
  4. It is automatically enforceable as a statutory contract

Explanation

Section 22 of the Companies Act 2006 permits entrenched provisions in a company's articles, but they must be consistent with the Act and properly adopted. Such provisions operate as part of the statutory contract between the company and its members.

Question 43Business law

A director of a small company is also its sole shareholder. The director causes the company to enter into a transaction that benefits the director personally. Which principle is most relevant to assessing the validity of the transaction?

  1. The director must avoid conflicts of interest and disclose any interest in a proposed transaction Correct answer.
  2. The director may proceed because shareholders cannot challenge their own decisions
  3. The transaction is valid provided it is recorded in the minutes
  4. The director's duty is owed only to creditors once the company is profitable

Explanation

Sections 175 and 177 of the Companies Act 2006 require directors to avoid conflicts of interest and to declare any interest in a proposed transaction. These duties apply even where the director is also the sole shareholder.

Question 44Business law

A company wishes to reduce its share capital. Which procedure is generally available to a private company under the Companies Act 2006?

  1. The solvency statement procedure supported by a special resolution Correct answer.
  2. A resolution of the board of directors only
  3. An ordinary resolution alone, without further formality
  4. An application to the Secretary of State for approval

Explanation

Sections 641 to 644 of the Companies Act 2006 permit a private company to reduce its capital by special resolution supported by a solvency statement, without court approval. The statement must be made by all directors.

Question 45Business law

A company is being wound up voluntarily and is solvent. Which declaration is required to commence a members' voluntary winding up?

  1. A declaration of solvency made by the directors Correct answer.
  2. A court order approving the winding up
  3. A statement of affairs filed by the creditors
  4. A special resolution of the creditors

Explanation

A members' voluntary winding up requires the directors to make a declaration of solvency under section 89 of the Insolvency Act 1986, stating that the company will be able to pay its debts in full. Without it, the winding up is treated as a creditors' voluntary winding up.

Question 46Business law

An agent acts for a principal without actual authority but the principal later ratifies the contract. What is the effect of ratification?

  1. The principal may ratify only part of the contract
  2. The agent becomes personally liable for the contract
  3. The contract is treated as having been authorised from the outset Correct answer.
  4. The contract is valid only from the date of ratification

Explanation

Ratification by the principal retrospectively validates the agent's unauthorised act, so the contract is treated as authorised from the beginning. The principal must ratify the whole contract and with full knowledge of the facts.

Question 47Business law

A principal appoints an agent to sell goods but privately instructs the agent not to sell below a stated price. The agent sells below that price to a third party who is unaware of the restriction. What is the principal's position?

  1. The principal is not bound because the instruction was breached
  2. The principal is bound only if the agent acted fraudulently
  3. The principal is bound because the agent acted within apparent authority Correct answer.
  4. The principal may rescind the sale against the third party in all cases

Explanation

Where an agent acts within the usual authority of the role, a third party dealing in good faith is entitled to assume that authority exists. The principal's private restriction does not bind the third party and the principal is bound.

Question 48Business law

Which statement best describes the effect of the doctrine of privity of contract?

  1. A third party may enforce a contract if they are named in it
  2. Any person who benefits from a contract may enforce it
  3. Consideration must always move from the promisee under statute
  4. Only a party to a contract may enforce its terms, subject to statutory exceptions Correct answer.

Explanation

The privity doctrine means that only parties to a contract can enforce it. The Contracts (Rights of Third Parties) Act 1999 creates statutory exceptions where a third party is expressly or impliedly intended to benefit.

Question 49Business law

A party to a contract makes a false statement of fact during negotiations that induces the other party to enter the contract. The statement is made carelessly but honestly. What type of misrepresentation is this?

  1. Breach of a collateral warranty
  2. Fraudulent misrepresentation
  3. Negligent misrepresentation Correct answer.
  4. Innocent misrepresentation

Explanation

A statement made carelessly without reasonable grounds for belief is a negligent misrepresentation. Fraudulent misrepresentation requires knowledge of falsity or reckless disregard for the truth, while innocent misrepresentation involves reasonable belief in the statement's truth.

Question 50Business law

A contract is entered into by a minor for the purchase of a laptop for personal use. Which statement best describes the minor's position at common law?

  1. The contract is generally voidable at the minor's option, but the minor remains liable for the price if the contract is for necessaries Correct answer.
  2. The contract is binding on the minor in all circumstances
  3. The contract is void and the minor cannot be liable for any price
  4. The minor may avoid the contract only with the consent of the seller

Explanation

Contracts for non-necessaries are generally voidable by a minor, but a minor is liable to pay a reasonable price for necessaries under section 3 of the Sale of Goods Act 1979. Whether a laptop is a necessary depends on the minor's circumstances.