Paper 2.

2(ENG)
Corporate and
Business Law
(English)

PART 2

TUESDAY 2 DECEMBER 2003

QUESTION PAPER

Time allowed 3 hours

This paper is divided into two sections

Section A SIX questions ONLY to be answered

Section B TWO questions ONLY to be answered

Section A – SIX questions ONLY to be attempted

1 What are the main sources of contemporary United Kingdom law?

(10 marks)

2 Explain the meaning of the following:

(a) a unilateral contract; (5 marks)
(b) a collateral contract. (5 marks)
(10 marks)

3 In relation to the contents of a contract explain the following:

(a) conditions; (4 marks)
(b) warranties; (3 marks)
(c) innominate terms. (3 marks)
(10 marks)

4 Explain how an agency relationship can be established in the following ways:

(a) by agreement; (2 marks)
(b) by ratification; (2 marks)
(c) by estoppel; (3 marks)
(d) by necessity. (3 marks)
(10 marks)

5 Explain the liability of the members of partnerships formed under the following Acts:
(a) Partnership Act 1890; (3 marks)
(b) Limited Partnerships Act 1907; (3 marks)
(c) Limited Liability Partnership Act 2000. (4 marks)
(10 marks)

6 Explain briefly:
(a) the clauses that are required to be contained in a company’s memorandum of association. (5 marks)
(b) the legal limitations on the names that may be adopted by companies. (5 marks)
(10 marks)

7 In relation to a company’s shares explain the following:

(a) authorised capital; (2 marks)
(b) issued capital; (2 marks)
(c) paid-up capital; (3 marks)
(d) the difference between nominal value and market value. (3 marks)
(10 marks)

2
8 In company law explain:
(a) how a director of a company may be appointed. (3 marks)
(b) how a director may be removed from his position. (7 marks)
(10 marks)

3 [P.T.O.
Section B – TWO questions ONLY to be attempted

9 Al owns a bookshop which specialises in acquiring and selling rare books. He recently saw an advertisement in a
specialist book magazine for a first edition copy of the only book written by Bruce. The advertisement, which had
been placed by Chris, stated that it was ‘on offer for £1,000’. Al phoned Chris stating that he would buy the book for
£750. Chris replied that he would sell it for £900. Al then said he would need time to think about buying the book
at that price. Chris agreed not to sell the book to anyone else until Al phoned him back in three days time with his
final decision.
On the same day, Dan came into Al’s shop and asked if he had any first edition copies of the Bruce book and told
him that he was willing to pay £1,500 for one. Al agreed to sell a Bruce first edition to Dan and immediately phoned
Chris to say that he would accept his original asking price of £1,000. However, Chris informed him that he had
already sold the book to Eve for £1,250.
Subsequently Al wrote to Eve offering her another rare book for £1,000. Eve replied to Al by return of post stating
that she agreed to buy the book on offer at his asking price. However, after posting the letter of acceptance she decided
that she had already spent too much money on books and sent Al a fax telling him to ignore her letter when it arrived.
Required:
(a) Analyse the above situation in relation to the law of contract. (12 marks)
(b) Advise the various individuals as to their potential rights and liabilities in contract law. (8 marks)
(20 marks)

10 Frank has been employed as a masseur by Glow Healthclub Ltd for the past four years receiving wages with tax
deductions at source on a PAYE (Pay as you Earn) basis.
The company has told Frank that in order to reduce its costs, they will require him to become self-employed and to
sign a contract to that effect. He has been told that under the proposed contract he will continue to receive his previous
level of payment from the company. In return he will be expected to carry on doing exactly the same work as he has
always done and will be required to be available for the same hours as before. The company also insists that Frank
cannot work independently on his own account.
Required:
Advise Frank:
(a) why it is important to distinguish between contracts of service and contracts for services; (4 marks)
(b) how the courts decide whether someone is self employed or is an employee; (13 marks)
(c) into which category he is likely to fall. (3 marks)
(20 marks)

4
11 Helen is a director of Industria plc, but she also carries out her own business as a wholesale supplier of specialist
metals under the name of Jet ltd.
Last year Industria plc entered into a contract to buy a large consignment of metal from from Jet ltd. Helen attended
the board meeting that approved the contract and voted in favour of it, without revealing any link with Jet ltd. The
contract price was considerably above the market price and Jet ltd and Helen made a considerable profit from it.
Nevertheless the previous year has been a particularly good year for Industria plc and it was revealed at a board
meeting on 25 March that it had made larger than expected profits.
On learning this Helen immediately bought more shares in Industria plc, before the news of the profits was announced
on 1 April.
Required:
Analyse the situation explaining any potential liability that Helen may have in relation to:
(a) the sale of the metal to Industria plc by Jet ltd; (10 marks)
(b) her purchase of the shares. (10 marks)
(20 marks)

12 Mat and Nan have conducted a wholesale greengrocers’ business as Orange Produce Consortium Ltd. They have been
the sole directors since its incorporation in 1990. The business was never particularly successful and has never made
profits on which to declare dividends. It has only managed to carry on trading by using its £20,000 overdraft facility
with the Peoples Bank plc.
In January 2000, Orange Produce Ltd entered into a large contract in the strawberry futures market, and by July 2000
it was obvious that it had lost £100,000 on the contract. Mat and Nan disguised the loss by unilaterally ignoring the
limit on their agreed overdraft and delaying the payments on their outstanding contracts. They decided that they
should try to trade their way out of their loss situation, relying on a buoyant lettuce market. Unfortunately the lettuce
market wilted by September and the company lost another £50,000. Undaunted, the pair decided that they could
recoup everything in the following summer’s mango market. Again their optimism was unfounded and they lost an
additional £25,000.
In October 2001 Mat and Nan applied to have Orange Produce Consortium Ltd wound up, owing debts of £100,000.
The realisable value of the company’s assets is £10,000.
Required:
Analyse the above situation from the perspective of Mat and Nan’s potential liability for either fraudulent or
wrongful trading under the Insolvency Act 1986. In particular, explain their potential liability to the various
creditors.
(20 marks)

End of Question Paper