CASE 1

Ann owns a shop selling prints. She placed an advertisement in the Friday edition of her local paper stating:

'Unique opportunity to own an original Bell print for 500 cash. One only available. Offer valid for one day only - tomorrow Saturday.'

When Con saw the advert, he immediately posted a letter of acceptance. On Monday morning Con's letter arrived.

On Saturday, Di came into Ann's shop and asked Ann if she would take a cheque for 500, but Ann refused to accept the cheque and told Die she could not have the print. Later that day Ann sold the print to Evi.

Question 1

Ann's advertisement is

A an offer

B an invitation to treat

C a mere statement of selling price

D a statement of intention

Question 2

Which of the following is correct?

A Con has a right to the Bell print because he accepted Ann's offer when he posted his acceptance

B Con does not have a right to the Bell print because his letter arrived on Monday outside the Saturday deadline

C Con does not have a right to the Bell print because his acceptance letter is an offer, not an acceptance

D Con does not have a right to the Bell print because Ann sold it to Evi

Question 3

Are the following statements true or false?

A When Di suggested payment by cheque this was a counter-offer TRUE / FALSE

B When Di suggested payment by cheque this was acceptance since payment by cheque is the same as payment in cash TRUE / FALSE

C Di has a right to the Bell print TRUE / FALSE

D Di does not have a right to the Bell print because Ann sold it to Evi TRUE / FALSE

CASE 2

Alf sells prestige used cars. In the window of his office showroom Alf displays a whiteboard. On January 20 Alf wrote on this board:

"2015 Ferrari, just arrived, mint condition, 50,000. Special offer

2015 Porsche, just arrived, like new, 40,000".

Question 4

Which TWO of the following statements are correct?

A In relation to the Ferrari the statement on the whiteboard is an invitation to treat

B In relation to the Ferrari the statement on the whiteboard is an offer

C In relation to the Porche the statement on the whiteboard is an invitation to treat

D In relation to the Porche the statement on the whiteboard is an offer

Question 5

On January 21 Benz came into the showroom and offered Alf 400,000 for the Ferrari. Alf told Benz that he would consider his offer and get back to him. On January 22 Alf phoned Benz and said he would definitely accept 450,000 for the Ferrari. Benz requested time to think about his decision. Alf agreed he would hold the offer to Benz open, and not accept an offer from anyone else, until 12 noon on January 26. On January 25 Benz posted a letter to Alf agreeing to buy the Ferrari for 450,000. Benz's letter arrived at 9.30 am on January 26.

Which TWO of the following statements regarding the Ferrari are correct?

A When Alf said he would accept 450,000 for the Ferrari this was an offer

B When Alf said he would accept 450,000 for the Ferrari this was a counter-offer

C Benz has a right to the Ferrrari because he posted his letter agreeing to buy the Ferrari before the 12 noon deadline

D Benz has a right to the Ferrrari because his letter agreeing to buy the Ferrari arrived before the 12 noon deadline

Question 6

On January 21 Cam came into the showroom and offered Alf 300,000 for the Porsche. Alf told Cam that he would consider his offer and get back to him. On January 22 Alf phoned Cam and said he would definitely accept 350,000 for the Porsche. Cam requested time to think about his decision. Alf told Cam that for payment of 100 he would hold the offer to Cam open, and not accept an offer from anyone else, until 12 noon on January 26. Cam paid Alf 100. At 11.45 am on January 26 Cam phoned Alf. Alf then told Cam that he couldn't have it because it was already sold to someone else. Alf then said he was nevertheless agreeing to buy the Porche for 350,000 since he'd paid Alf not to sell to anyone else before the 12 noon deadline.

Which TWO of the following statements regarding the Porsche are correct?

A Alf has a right to the Porche because he agreed to buy it before the 12 noon deadline

B When Alf sold the the Porche to someone else he was in breach of the collateral contract with Cam

C When Alf told Cam he had sold the Porche to someone else this was a revocation of his ofer to sell to Cam, so Alf does not have a right to the Porche

D Cam has a right to get his 100 back from Alf

CASE 3

Last year Carol decided to open a gallery selling her artwork. She approached her sister Gemma and her friend Molly, as she knew that they were both interested in purchasing paintings for their business premises.

Gemma ordered 2 paintings for her caf at a total cost of 800. Molly ordered 5 paintings for her new office, which she wanted to look impressive when welcoming new clients, at a total cost of 1,000.

Several months passed while Carol worked on the paintings.

The final painting for Molly took slightly longer than expected, it was eventually delivered one month later than the initial date agreed. This was partly due to Carol being busier than expected, as Carol's gallery became well-known and financially successful very quickly.

Molly and Gemma, although delighted with their paintings, feel Carol 'doesn't really need the money' and are now reluctant to pay for the paintings.

Question 7

Which of the following statements regarding the agreement between Carol and Gemma is correct?

A This is a family agreement and therefore outside the scope of the legal system

B Gemma can avoid the contract on the grounds that Carol took advantage of their family relationship and charged excessive consideration

C This is a business agreement and therefore the presumption is there is an intention to create legal relations

D If Gemma returns the paintings she will be under no obligation to pay for them

Question 8

Which of the following statements regarding the agreement between Carol and Molly is correct?

A This is a social agreement and therefore outside the scope of the legal system

B Molly can avoid the contract based on the late delivery of the final painting

C This is a business agreement and therefore the presumption is there is an intention to create legal relations

D If Molly returns the paintings she will be under no obligation to pay for them

Question 9

If Carol's agreement with Gemma included a term stating there was no intention to create legal relations and the agreement was 'binding in honour only' would Carol be able to enforce the agreement with Gemma through the courts?

A No, because even without the term this is a family agreement and therefore outside the scope of the legal system

B Yes, because the agreement is a business agreement and the presumption to create legal relations cannot be rebutted

C Yes, because a valid contract exists following offer and acceptance, and consideration

D No, because the term would rebut the presumption of the intention to be legally bound

CASE 4

Grace, an accountant, has recently won a lucrative contract from Expansion Ltd to undertake all the company's payroll work. The initial period is for six months, renewable thereafter on a 12 monthly basis as long as the work done by Grace is satisfactory.

In order to undertake the work for Expansion Ltd, Grace hires a powerful desktop computer together with dedicated software from Office Supplies Ltd. Grace signed a written hire contract with Office Supplies Ltd but she did not read it. It contained a clause stating that 'Office Supplies Ltd is not liable for any financial losses or other losses, however caused, occasioned by using hardware or software products supplied by the company'.

Neither the computer nor the software operated correctly because of negligent design and manufacture by the company and as a result Grace failed to make proper National Insurance deductions for the employees of Expansion Ltd. Expansion Ltd consequently refused to renew the contract with Grace and she has suffered considerable loss in her profits as a result. In addition, because the desktop computer had been negligently manufactured by Office Supplies Ltd, Grace suffered damage to her eyes as a consequence of using the machine.

Office Supplies Ltd admits that it has been negligent but denies any liability to Grace on the basis of the exclusion clause in the contract.

Question 10

In relation to the law of contract, has the exemption clause been incorporated into Grace's contract with Office Supplies Ltd?

A Yes because Grace signed the contractual document

A No because she did not read it

B Yes because Grace is an accountant and so she ought to know she ought never to sign things without reading them first

Question 11

In relation to the law of contract, does the exemption clause satisfy the contra proferentem rule?

A Yes because Grace signed the contractual document

B Yes because its wording is clear

C No because its wording is unclear

Question 12

In relation to the damage to Grace's eyes, what is the status of the exemption clause under the Unfair Contract Terms Act 1977?

A It is void and this means that Grace cannot sue Office Supplies Ltd

B It is void and this means that Grace can sue Office Supplies Ltd

C It is void unless Grace proves that it is unreasonable

D It is void unless Office Supplies Ltd proves that it is reasonable

Question 13

In relation to Grace's loss of profits with her deal with Expansion Ltd, what is the status of the exemption clause under the Unfair Contract Terms Act 1977?

A It is void and this means that Grace cannot sue Office Supplies Ltd

B It is void and this means that Grace can sue Office Supplies Ltd

C It is void unless Grace proves that it is unreasonable

D It is void unless Office Supplies Ltd proves that it is reasonable

CASE 5

Live The Dream Ltd provides a limousine and driver hire service. All of the company's clients sign the company's standard contract. The contract includes a clause, within the standard terms and conditions, that states: 'Live The Dream Ltd accepts no liability whatsoever for any financial loss, property damage or personal injury incurred during the hire period'.

Leona hired a limousine and driver for her 40th birthday night out. She signed the standard contract which included the standard terms and conditions and paid 500, the full cost of the hire, in advance.

When Leona was getting into the limousine at the start of her night out, the vehicle was nudged from behind by a passing car. As a result, the limousine rolled forward and ran over Leona's foot.

Leona's foot was badly bruised and Leona was in too much pain to continue with her birthday night out. The other vehicle involved drove off, and all subsequent attempts to identify the vehicle and the driver failed.

Live The Dream Ltd has used the exclusion clause to justify not refunding any of the 500 Leona paid.

Question 14

Has the exclusion clause been incorporated into the contract?

A Yes, Leona has signed the contract, which includes the exclusion clause, so it is incorporated

B Possibly, but only if the clause was highlighted and explained to Leona before she signed

C Possibly, but only if Leona received a copy of the signed contract after signing

D No, exclusion clauses included within the standard terms and conditions cannot be incorporated into contracts involving consumers

Question 15

Which of the following statements regarding the impact of The Unfair Contract Terms Act 1977 on this scenario is correct?

A Under the Act, the exclusion clause is void because it was included within the standard terms and conditions

B The Act would not apply as the contract is for provision of a service

C Under the Act, the exclusion clause will be void unless found to be reasonable

D Under the Act, the wording of the exclusion clause is too general and is therefore void

Question 16

The Consumer Rights Act 2015 allows a challenge to made to unfair terms in certain contracts if the term causes a significant imbalance in the rights of the parties to the detriment of the consumer.

Which of the following statements regarding the impact of the Consumer Rights Act 2015 on this scenario is correct?

A Leona cannot bring a challenge under the Act because the contract is for the provision of a service

B Leona cannot bring a challenge under the Act because her signature signifies acceptance of the term, regardless of whether it is unfair

C Leona cannot bring a challenge under the Act because it does not apply to exclusion clauses as they are governed solely by the Unfair Contract Terms Act 1977

D Leona can bring a challenge under the Act on the basis that the exclusion clause is unfair

CASE 6

Carl has a contract to supply Georgina with a gold necklace based on a design supplied by Georgina, to be delivered to Georgina on May 31. The contracted price is 500, payment due on delivery.

On May 2, Carl contacted Georgina and mentioned that the price of gold had risen to such an extent that he would make a loss on the contract.

On May 4 Carl contacted Georgina again and said: "I'm sorry Georgina but I'm running a business here not a charity. I can't supply the necklace, I suggest you look for a different supplier".

Question 17

Think whether or not Carl has committed an anticipatory or an actual breach, or indeed any breach at all. Do you remember what an anticipatory breach is?

Question 18

What are the TWO options open to Georgina in relation to the timing of taking action against Carl?

Question 19

Can you identify the common law remedies available to Georgina?

CASE 7

Andrew is an accountant. He agrees with George, a garage proprietor, that he will assist George with his annual tax return if George will service his car for him on the Monday. At the beginning of the negotiations Andrew told George that he absolutely must have the car for the following Tuesday since he needed it to go to an important meeting with a client to pitch for a valuable deal.

Andrew assists George, but because the service was not done correctly the car breaks down when Andrew is on the way to the important meeting. Andrew is very late for this meeting and as a result the client switches his work, worth some 25,000, to another accountant. In addition Andrew incurs 500 costs putting right the defective service.

Andrew now wishes to sue George for damages for breach of contract.

Question 20

Is Andrew's claim against George for putting right the defective service

A a normal loss

B an abnormal loss

C neither a normal nor an abnormal loss

D both a normal and an abnormal loss

Question 21

Is Andrew's claim against George for the loss of the client

A a normal loss

B an abnormal loss

C neither a normal nor an abnormal loss

D both a normal and an abnormal loss

Question 22

Which of the following is correct in relation to the damages that Andrew will be able to recover from George? (Ignore the possible implications of tax and mitigation).

A 500 in damages

B 25,000 in damages

C 25,500 in damages

D Nominal damages only

CASE 8

Kay, Lei, and May formed a partnership to run a petrol station. The partnership agreement expressly stated that the partnership business was to be limited exclusively to the sale of petrol. They also agreed that Kay's liability for debts would be limited to her capital contribution of 10,000.

Question 23

Which of the following is correct?

A The partnership must be a limited partnership since the partners have agreed that Kay's liability is to be limited to 10,000

B If Kay is sued by a customer for a debt owing of 60,000 she will only have to pay 10,000

C If Kay is sued by a customer for a debt owing of 60,000 she will only have to pay 20,000

D If Kay is sued by a customer for a debt owing of 60,000 she will have to pay 60,000

Question 24

Lei entered into a 15,000 contract on behalf of the partnership to buy some used cars, which he hoped to sell from the garage forecourt.

Which of the following is correct?

A The partnership is not bound by this contract because it is contrary to the partnership agreement

B The partnership is bound by this contract because it falls within Lei's actual authority

C The partnership is bound by this contract because it falls within Lei's implied authority

D The partnership is bound by this contract because it falls within Lei's apparent authority

Question 25

May received 10,000 from the partnership's bank drawn on its overdraft facility. She told the bank that the money was to finance a short-term partnership debt but in fact she used the money to pay for a round-the-world cruise.

Which of the following is correct?

A The partnership is not bound by this borrowing because May used the money for personal purposes

B The partnership is bound by this borrowing because it falls within May's actual authority

C The partnership is bound by this borrowing because it falls within May's implied authority

D The partnership is bound by this borrowing because it falls within May's apparent authority

CASE 9

Ho, Io, and Jo formed an ordinary partnership, called 3OS, some 5 years ago.

Question 26

Ho is a sleeping partner, whereas Io and Jo are active in the running of the business. Ho's liability for partnership debts was agreed between the partners to be limited to the amount of his capital contribution, 15,000.

Which of the below best describes the liability of Ho, Io, and Jo for partnership debts?

A It is joint and several which means that several of the partners can be sued and since Ho is a sleeping partner he is not liable for any of the debts

B It is joint and several which means that all partners, excluding Ho, have unlimited personal liability and could be sued and required to pay the full amount of all the debts

C It is joint and several which means that all partners, including Ho, are responsible for a share of the partnership debts in the same proportion as they share out the profits

D It is joint and several which means that each and every partner, including Ho, is fully liable without limit for all of the partnership debts and creditors can sue the partners simultaneously in one legal action or to choose to bring successive actions

Question 27

Ho now retires from 3OS. Prior to doing so Ho gave notice of his retirement to existing customers and advertised his retirement in the London Gazette.

After Ho's retirement Io entered into a contract on behalf of 3OS with Kay, a longstanding client of the firm. The contract has resulted in a debt of 13,600 owed to Kay.

Which of the below best describes Ho's potential liability in relation to the debt owed to Kay?

A He is not liable for it as although Kay was an existing client at the time of his retirement, it was incurred afterwards and he was no longer a part of the business at that time

B He is not liable for it as although Kay was an existing client at the time of his retirement, it was incurred afterwards and he had already given notice of his retirement in the London Gazette

C He is not liable for it as although Kay was an existing client at the time of his retirement, it was incurred afterwards and he had already given actual notice of his retirement to existing customers

D He is fully liable as the amount owed is less than the 15,000 agreed to limit his liability

Question 28

Also after Ho's retirement Io entered into a contract on behalf of 3OS with Laura, a new customer who has never read the London Gazette and believed that Ho was still a partner in the business. The contract with Laura incurred a debt of 16,000.

Which of the below best describes Ho's potential liability in relation to the debt owed to Laura?

A He is not liable for it as Laura was not an existing client at the time of his retirement, it was incurred afterwards and he was no longer a part of the business at that time

B He is not liable for it as Laura was not an existing client at the time of his retirement, it was incurred afterwards and he had already given notice of his retirement in the London Gazette

C He is not liable for it as Laura was not an existing client at the time of his retirement, it was incurred afterwards and he had already given actual notice of his retirement to existing customers

D He is liable not for the full amount but only for the amount of 15,000, as this is what he had agreed with the other partners in terms of limiting her liability

CASE 10

Sim, Tim and Una formed a partnership, under the Partnership Act 1890, to run a pottery business trading under the name STU Potteries. On formation, Sim introduced 6,000 into the business, Tim introduced 3,000 and Una introduced 1,000. All of them took an active part in the operation of the business and the partnership agreement stated that all profits and losses should be divided in proportion to the capital contribution. However, as Una was the person who would actually be making the pottery, it was agreed that she would not be liable for any more than her initial contribution towards any future debts. After some time, Sim provided the partnership with an advance of 1,000 in order to sustain the operation of the business.

Unfortunately, the business is not successful and has made significant losses. Today the partners decide that it would be best to stop trading and dissolve the partnership. Its assets are worth 5,000 and its external debts are 9,000.

Question 29

Work out how much each partner will have to contribute to paying the external debts;

Question 30

Make a decision as to how Sim's advance of 1,000 will be dealt with.

CASE 11

Dee and Eff are major shareholders in Fan Ltd. They are also its only directors.

Question 31

According to s830 Companies Act 2006 dividends may only be paid out of

A the net assets of the company

B the current year's profits

C accumulated realisable profits less accumulated realisable losses

D accumulated realised profits less accumulated realised losses

Question 32

Last year Fan Ltd's financial statements showed an accumulated loss of 2,000. This year Fan Ltd made a profit of 3,000 and, due to a revaluation, the value of its land and buildings increased by 5,000.

As a consequence, Dee and Eff recommended, and the shareholders approved, the payment of 4,000 in dividends.

What is the maximum dividend that Fan Ltd can pay to its shareholders?

A 4,000

B 2,000

C 3,000

D 1,000

Question 33

What are the potential consequences for Dee and Eff as directors and shareholders should there have been an illegal dividend payment?

A Face criminal negligence charges

B Face civil wrongful trading charges

C Pay a fine decided by the court

D Repay dividends back to Fan Ltd

CASE 12

Jon, who is 65 years of age, has just retired from his employment with a pension and a lump sum payment of 100,000. He is keen to invest his money but has absolutely no knowledge of business or investment. He does not wish to take any great risk with his investment but he would like to have a steady flow of income from it.

He has been advised that he can invest in the following range of securities:

1 Preference shares

2 Ordinary shares

3 Debentures secured by a fixed charge

4 Debentures secured by a floating charge

Question 34

In relation to the above investment forms, which is the most secure?

A Ordinary shares

B Preference shares

C Debentures secured by a fixed charge

D Debentures secured by a floating charge

Question 35

In relation to the above investment forms, which may have a cumulative right to dividends?

A Debentures secured by a floating charge

B Ordinary shares

C Preference shares

D Debentures secured by a fixed charge

Question 36

In relation to the above investment forms, which NORMALLY participates in surplus capital?

A Preference shares

B Ordinary shares

C Debentures secured by a fixed charge

D Debentures secured by a floating charge

CASE 13

A number of years ago, Cold Ltd entered into the following borrowings in the same year in an endeavour to sustain its business:

1 It borrowed 50,000 from Dee, secured by a floating charge. The floating charge was created on 1 April and it was registered on 15 April.

2 It borrowed 50,000 from Ezra. This loan was secured by a floating charge created on 3 April and registered on 12 April.

3 It borrowed 50,000 from Fixit Bank. This loan was secured by a fixed charge. It was created on 5 April and was registered on 16 April.

All three charges are on some or all of the same assets of Cold Ltd. The three creditors are now aware that these secured assets are not sufficient to repay all their loans. They are also aware that none of the charges contain negative pledge clauses.

Question 37

Think whether or not the three charges have been validly registered with the Registrar of Companies.

Question 38

ASSUMING* all three charges have been validly registered:

(i) state the order in which the three creditors will be ranked for payment;

(ii) think about your reasoning.

*Please note. You are advised NOT to alter your answer to part (a) based on the assumption in the question requirement of part (b) that the three charges were validly registered. They may have been, on the other hand they might not have been.

CASE 14

Earlier this year Ger was disqualified from acting as a company director for a period of 10 years under the Company Directors Disqualification Act 1986 for engaging in fraudulent trading.

However, he decided to continue to pursue his fraudulent business and, in order to avoid the consequences of the disqualification order, he arranged for his accountant Kim to run the business on his instructions. Although Kim took no shares in the company, and was never officially appointed as a director, he nonetheless assumed the title of managing director.

Question 39

Identify which of the following categories of director applies to each of Ger and Kim.

De facto director

De jure director

Non-executive director

Shadow director

Kim

Ger

Question 40

Which of the following characteristics apply to non-executive directors?

A They attend, but do not vote at, board meetings

B They are involved in the day-to-day business of the company

C They have contracts of employment with the company

D They owe fiduciary duties to the company

CASE 15

Lazo is one of the directors of Popov plc.

Question 41

According to the Companies Act 2006, generally a company director owes duties to which of the following?

A To any individual member of the company as well as all its creditors

B To any individual member of the company but not any of its creditors

C To the company as well as any individual members of it

D To the company only but not any individual members of it

Question 42

According to the Companies Act 2006, which type of a company director is the one owing the duties?

A Any company director

B Executive directors only as they are responsible for executing the company's strategy

C Non-executive directors only as they are responsible for forming the company's strategy

D The managing director only as he is responsible for the day-to-day management of the company

Question 43

The board of Popov plc has been in negotiations with a few different companies trying to select the most suitable one to which an important 5 year contract would be awarded.

Lazo has recently been approached by Hannah, the managing director of Montana Ltd, one of the companies interested in the potential contract with Popov plc. In the private meeting between the two Hannah offered Lazo as a "thank you" gift a two-week holiday in the Maldives, saying he would be flown in in Montana Ltd's company jet, stay at Montana Ltd's luxurious residence and have unlimited use of Montana Ltd's newest yacht. Hannah said it was a way of expressing Montana Ltd's appreciation of the hard work done so far by Lazo in the negotiations and insisted that he deserved a bit of a rest too.

Lazo, thinking that Hannah had made a few fair points, was easily convinced and, without informing the rest of Popov plc's directors of the event, soon left to enjoy his holiday. Returning from it well rested, with a fresh and clear mind, he immediately recommended Montana Ltd to the board, convincing everyone that following detailed research he had realised it was the best company to award the contract to.

According to the Companies Act 2006, which TWO of the below duties has Lazo breached?

A Duty to exercise reasonable care, skill and diligence

B Duty not to accept benefits from third parties

C Duty to act within powers

D Duty to declare any interest in a proposed transaction or arrangement with the company

Question 44

Nas, a majority shareholder in Popov plc, has recently found out about Lazo's holiday and is very upset by the recent events.

What action can he take in relation to these events?

A He can sue Lazo for breach of duty and this will remove Lazo from his position as a director

B He can require the board to sack Lazo

C As he is a majority shareholder he can, at a general meeting of which special notice has been given, pass an ordinary resolution for Lazo's removal

D As he is a majority shareholder he can achieve Lazo's removal through a written resolution and no general meeting is required

CASE 16

The board of directors of Sea Ltd is considering a proposal that the company buy a ship from one of its directors, Tan, at its fair market value of 150,000. They know that Tan proposes to vote in favour of the contract at the board meeting called to approve the contract. They also know that as a shareholder Tan proposes to vote in favour of the resolution at the members' meeting. They also know that in both situations Tan will be voting in his own selfish interests, rather than in the interests of Sea Ltd.

Question 45

Think whether or not the board alone can commit Sea Ltd to this contract and why.

Question 46

Think whether Tan is in breach of any the seven general duties owed by a director to his company:

(i) at the board meeting;

(ii) at the general meeting.

CASE 17

Cee is a director of BB plc, which hosts corporate events. She has never been formally appointed as chief executive but has conducted the day-to-day business of the company as if she had been. The other directors have never objected to her making it appear she is the chief executive and have always agreed with her decisions and carried out the contracts she has entered into on behalf of the company. Cee has recently decided that BB plc should branch out into other areas of business and has entered into a contract on behalf of BB plc to sell marquees.

Dan is the chairman of BB plc. Without consulting the other directors he placed an order in the name of BB plc for champagne. In fact the champagne was delivered to his own house and he used it at his daughter's wedding.

Question 47

Which of the following categories of director best describes Cee?

A De facto

B Non-executive

C Shadow

D De jure

Question 48

Which of the following best describes the legal position of the contract for the sale of marquees?

A Cee has acted with express authority as the other directors have always allowed her to do anything.

B Cee has acted with implied authority as the contract is incidental to the hosting of corporate events.

C Cee has acted with apparent authority of a chief executive as she has entered into a commercial contract.

D Cee has acted with implied authority of a chief executive as she has entered into a commercial contract.

Question 49

Dan is the chairman of BB plc. Without consulting the other directors he placed an order in the name of BB plc for champagne. In fact the champagne was delivered to his own house and he used it at his daughter's wedding.

In relation to the contract made by Dan for the purchase of the champagne, state whether the following are true or false

A BB plc is bound by this contract because Dan is the chairman TRUE / FALSE

B BB plc is not bound by this contract because Dan used the champagne for his personal use TRUE / FALSE

C BB plc is bound by this contract because it is within Dan's implied authority TRUE / FALSE

D BB plc is bound by this contract because it is within Dan's apparent authority TRUE / FALSE

CASE 18

Fop Ltd is well known for its granite range of high quality kitchens.

Gi is the managing director of Fop Ltd. Hi, Io and Jay are the rest of the company's directors. The company's articles contain a clause according to which the board are required to obtain sanction of an ordinary resolution for any single borrowing exceeding 3 million.

Last month the following events occurred:

Question 50

On behalf of Fop Ltd Gi entered into a 3-year contract with a new granite supplier, Kigran plc, without discussing this in advance with the other three board members. Io and Jay were most unhappy about it when they found out as they wanted to continue using the services of the existing granite supplier, Logran Ltd. They felt Logran Ltd was better value for money as it offered granite much more cheaply. Gi, however, argued that the new supplier would be able to provide better quality granite and therefore was the better option in the long term. However, Io and Jay insisted that Fop Ltd should not be bound by the new contract with Kigran plc and just extend its contract with Logran Ltd.

Which of the following is correct in relation to the contract between Fop Ltd and Kigran plc?

A Fop Ltd will not be bound because Gi had no actual authority to enter into the contract

B Fop Ltd will not be bound because although Gi acted within his implied authority, two out of four directors refuse to honour the contract

C Fop Ltd will be bound because Gi as a managing director had implied authority to enter into this contract of a commercial nature on the behalf of the company

D Fop Ltd will be bound because irrespective of whether Gi had any authority or not the contract has already been entered into on the behalf of the company

Question 51

Unknown to the rest of the directors of Fop Ltd, Hi entered on the behalf of Fop Ltd into a contract for the purchase of a brand new powerful computer, monitor and large multi-function laser printer with Myoffice Ltd. At the time of the purchase Hi told Myoffice Ltd that he was buying the equipment for the head office of Fop Ltd but in fact he took delivery of it in his own house and kept it there for his personal use. The invoice sent to Fop Ltd by Myoffice Ltd has remained outstanding as the rest of the directors, having found out about the purchase, refuse to pay it from the company's bank account.

Which of the following is correct in relation to the contract between Fop Ltd and Myoffice Ltd?

A Fop Ltd will not be bound because Hi had no actual or apparent authority to enter into the contract

B Fop Ltd will not be bound because Hi purchased the equipment for his personal use

C Fop Ltd will be bound because although Hi had no actual authority, as a director of Fop Ltd he had implied authority to enter into any contract of an administrative nature on the behalf of the company

D Fop Ltd will be bound because irrelevant of whether Hi had any authority or not the contract has already been entered into on the behalf of the company

Question 52

All four directors of Fop Ltd agreed that a new factory building was needed for the business and approached the company's bank for a loan. The loan of 5 million went ahead easily as it was secured by a fixed charge on the new building purchased by Fop Ltd. Since it was an urgent matter and the financing was needed quickly in order to complete the factory purchase, the board finalised everything without obtaining any permission from the members.

Which of the following is correct in relation to the loan agreement between Fop Ltd and its bank?

A Fop Ltd will not be bound because the board had no actual authority to enter into the contract, obtaining no permission from the members as required by the comFopy's Articles

B Fop Ltd will be bound because the loan was secured by a fixed charge on the company's factory

C Fop Ltd will be bound because although the board had no actual authority, the bank is presumed to have dealt with the company in good faith

D Fop Ltd will be bound because irrelevant of whether the board had any authority or not the contract has already been entered into on the behalf of the company

CASE 19

Flora is the company secretary of Flower plc, a company whose business is providing gardening services. Flora has recently entered into the following contracts in the name of Flower plc. The directors of Flower plc have only recently become aware of these contracts.

They are really perturbed since Flora has not followed the company's purchase order policy and they refuse to pay the invoices for these contracts.

Question 53

Flora entered into an extremely expensive, long-term contract with Glophoto plc for the maintenance of Flower plc's photocopiers.

Is Flower plc bound to pay the invoice?

A Yes because Flora had actual authortity

B Yes because this contract falls within Flora's implied authority, it is a commercial contract for Flowers's business

C Yes because Flora had implied authority because of her position as company secretary

D No because this was a very expensive contract beyond her authority as company secretary

Question 54

Flora entered into a contract to hire a car from Hiro Ltd which she used for her own, non-business related, purposes.

Is Flower plc bound to pay the invoice?

A Yes because Flora had actual authortity

B Yes because this contract falls within Flora's implied authority, it is a commercial contract for Flowers's business

C Yes because Flora had implied authority

D No because she used the car for her own purposes

Question 55

Flora entered into a contract with Indiflora plc to landscape the garden of her, Flora's, personal house.

Is Flower plc bound to pay the invoice?

A Yes because Flora had actual authortity

B Yes because this contract falls within Flora's implied authority, it is a commercial contract for Flowers's business

C No because Flora had no authority

D No because the landscaping was done at her own house