Chapter 1: Contract formation

1 Which of the following types of contract must be in writing or evidenced in

writing?

A. A partnership agreement

B A contract for the sale of goods

C An agreement for the transfer of land

D An employment contract

LO 1a

2 Which of the following terms describes a contract where one party may set it
aside, but property transferred before avoidance is usually irrecoverable from a
third party?

A Void

B Voidable

C Unenforceable

LO 1a

D Valid

3 Gary intends to promise Carl that he (Gary) will pay the debts owed to Carl by
Duncan, in the event that Duncan fails to pay them himself.

Which of the following is true with regard to Gary's proposed guarantee so that
it will be enforceable in a court of law?

A It must be by deed.

B It must be in writing.

C It can be oral provided it is evidenced in writing.

D It can be oral only.

LO 1a

4 Denzil puts a notice in the local post office saying "Reward. Lost cavalier
King Charles spaniel named Barnie. £150 reward for his safe return". Florence
finds Barnie and, unaware of Denzil's notice, takes him to Denzil's home address
which is inscribed on the dog's name tag.

Which of the following statements best describes the legal position?

A Florence is not entitled to the reward. The offer is invalid as it is not made to
an identifiable class of persons.

B Florence is entitled to the reward. The offer is valid and her acceptance of the
offer can be inferred from her act of returning the dog.

C Florence is not entitled to the reward. She failed to claim the reward at the
time of returning. Barnie (and accepting Denzil's offer) and has therefore waived
her right to receive it.

LO 1a

D Florence is not entitled to the reward as she did not even know that a reward
was being offered.

5 Clarence sells champagne and high quality wines from home. He delivers a
glossy flyer to all the £1 million plus homes in the Clifton area of Bristol,
offering a 1998 Chablis for £30 a bottle. On reading his copy of the flyer,
Kenton goes to Clarence's home and asks for a case of Chablis.

Is the flyer issued by Clarence a valid offer?

A Yes

B No

Is Clarence in breach of contract if he says to Kenton that the Chablis is out of

stock and that he is unable to get hold of any more?

C Yes

D No

LO 1a, 1b

6 A local newspaper advertises "50 Whizzalong scooters remaining. 3 feet high.

Only £20 each". Which legal term best describes the advert?

A Offer

B Statement of intention
C Invitation to treat

D Supply of information

LO 1a

7 All of the following, except one, have the effect of terminating an offer. Which
is the exception?

A Rejection

B Counter offer

C When a pre-condition is satisfied

D A lapse of time

LO 16

8 Michael offers to sell his Laser 2000 sailing dinghy to Rupert for £1,500,
provided he gets the job for which he has just been interviewed, since that would
result in him having to live somewhere too far from sailing facilities. Rupert is
delighted and thinks £1,500 is an excellent price. Michael fails to get the job.

What is the consequence of Michael failing to get the job?

A The offer is terminated.

B The contract is rendered voidable.

C The contract is rendered unconditional.

D The contract is rendered unenforceable.

LO 16

9 On Monday, George offers to sell his piano to Hilda for £1,500, to be delivered
on Thursday. On Tuesday, Hilda replies, saying that she will only buy the piano
if George will delay delivery until the following Monday. George doesn't reply
but sells his piano to Ivy on Thursday.

On Friday, Hilda sees George and accepts his offer. Is there a binding contract
between George and Hilda?

A Yes, Hilda's reply on Tuesday constitutes an acceptance of the offer.

B. No, Hilda's reply on Tuesday constitutes a counter offer which destroys the
original offer.
C No, the offer is terminated when George sells the piano to Ivy on Thursday.

D Yes, Hilda's reply on Tuesday is a request for information only and on Friday
she accepts his offer.

10 Frank offered Mary his lawnmower for £200. Mary asked whether he might
be willing to accept £100 now and £100 at the end of the month when she is
paid.

Which of the following best describes the status of Mary's reply?

A It is a rejection of Frank's offer.

B It is an implied acceptance because she was clearly agreeable to the price.

C It is a counter offer.

D It is a request for information.

LO 1a

11 Mark emails Nathan and offers to sell his tandem to him for £250. Nathan
texts him back to say that he'd love it, but he will only pay £230. Two days later
Mark says he'll accept £230 but Nathan has bought one on eBay for £200.

Which of the following best describes the legal position between the parties?

A Nathan's reply is a rejection of Mark's offer.

B Nathan's reply is a counter offer which Mark accepts.

C. Nathan's reply is merely a request for information as to whether Mark will

accept £20 less.

D Nathan's reply constitutes a counter offer but this is revoked when he buys a
tandem from eBay.

LO 1a

12 Are the following statements true or false?

If an offer states that it will remain open for three months, the offeror cannot
revoke it before three months have passed.

A True
B False

A letter of revocation is effective when posted.

C True

D False

LO 1a

13 Ralph writes to Theo offering to buy Theo's sand yacht for £300. In his letter,
he writes "If I do not hear from you, I shall consider it mine and pick it up on
Tuesday".

Which of the following best describes the legal position as to whether or not a
contract exists?

A There is a contract because Ralph waived the need for acceptance.

B There is a contract because Theo complied with Ralph's terms exactly.

C There is a contract because acceptance can be inferred from Theo's conduct.

D There is no contract because there is no positive act to indicate acceptance.

LO 1a

14 On 28 May, Abigail writes to Gill and offers to sell her all her old
accountancy Workbooks for £50. Gill posts a letter together with a cheque for
£50 on 1 June saying that she'll pick them up on 3 June. However on 2 June,
Abigail discovers that she has failed two of her papers and so sends a letter to
Gill saying that the books are no longer for sale. On 3 June, each receives the
other's letter.

Does the letter of revocation take effect on 2 June?

A Yes

B No

Does Gill's acceptance take effect on 3 June?

C Yes

D No

15 Are the following statements true or false?

Acceptance may be express or inferred from conduct.

A True

B False

Acceptance must always be communicated to the offeror in order for it to be

effective.

C True

D False

LO 1a

16 On Monday, Peter writes to Quentin offering to sell his car to Quentin for
£900. Peter's letter is received the next day. On Wednesday, Peter posts a letter
to Quentin saying that he has changed his mind. Later that day, Quentin speaks
to Peter and says that he accepts his offer.

Is there a valid contract between Peter and Quentin?

A No, because Peter posted his revocation before Quentin accepted the offer.

B Yes, because Quentin accepts the offer before he receives Peter's letter of
revocation.

C No, because Quentin's acceptance should have been in writing since the offer
was made in writing.

D Yes, because Quentin's acceptance is made in a more expeditious manner than

the offer.

LO 1a

17 Are the following statements true or false?

An acceptance of a contractual offer sent by email takes effect as soon as the

person accepting the offer presses the 'send' key.

A True

B False

Whether or not postal acceptance is within the contemplation of the parties is a

question of fact and may be deduced from all the circumstances.

C True
D False

LO 1a

18 Are the following statements true or false?

Where the offeror prescribes a mode of communication of acceptance, the

offeree can normally use an alternative mode, provided it is at least as
expeditious as the mode prescribed.

A True

B False

Where no mode of communication of acceptance is prescribed, the offeree

should use the same mode as that used for the offer.

C True

D False

19 On 1 May, Hugh offered to sell his boat to Jeff for £5,000, stating that his
offer had to be accepted by notice in writing. Jeff posted a letter of acceptance
on 3 May, but it never arrived.

Does the postal rule apply ie, is the acceptance effective as soon as it is posted?

A Yes

B No

Is there a contract between Hugh and Jeff?

C Yes

D No

LO 1a

20 Brenda writes to Carol on 1 January offering to sell her gold necklace for
£100. Carol receives the letter on 3 January and on 5 January posts a letter
accepting Brenda's offer and sends a cheque for £100. In the meantime,
however, Brenda has sold the necklace to her sister Daisy for £150 believing
that Carol wasn't interested. She wrote to Carol telling her this on 4 January but
the letter wasn't received by Carol until 6 January. Brenda received Carol's
cheque on 7 January.
Which of the following is true?

A Carol's acceptance is effective on 5 January.

B Brenda's offer is revoked on 4 January.

C Carol's acceptance is effective on 7 January.

D There is no binding agreement between Brenda and Carol.

LO 1a

21 With regard to the terms of a contract, answer the following:

Where a contract is in writing, will the courts allow the parties to rely on any
terms that are agreed between them but not embodied in the written document?

A Yes

B No

Can a term implied by custom and practice be overridden by a written term?

C Yes

D No

LO 1a

22 Mr and Mrs Higgins own two flats in Bristol which they let to students.
When their eldest son, Crispin,

was offered a place at Bristol University to read Law, he and his parents entered
into a tenancy agreement allowing him to reside at one of the flats during his
university studies for a rent of £190 per month. He was allowed to sublet the
second bedroom for a rent of £200 per month. In the light of the rebuttable
presumption that no intention to create legal relations exists in the case of a
family, social or domestic arrangement, which of the following statements best
describes the

legal position as to whether the necessary intention to create legal relations

exists in this instance?

A No, because it is a family or domestic arrangement and so no such intention is

presumed.
B No, because the fact that Crispin pays a reduced rent is evidence that no such
intention exists.

C Yes, the normal presumption in family arrangements is rebutted by the fact

that the parties enter into a written agreement and rent is payable.

D Yes, because the normal presumption does not apply where the arrangement
relates to

property.

LO 1a

23 Are the following statements true or false?

There is a rebuttable presumption that social, domestic and family arrangements

are not intended to be legally binding.

A True

B False

There is an irrebuttable presumption that parties to a commercial agreement

intend it to be legally. binding.

C True

D False

LO 1a

24 Which of the following statements best describes consideration?

A Consideration must be adequate and sufficient.

B Consideration must be adequate but need not be sufficient.

C Consideration must be sufficient but need not be adequate.

D Consideration need be neither sufficient nor adequate.

LO 1a

25 Can the following constitute valid consideration? The payment of £1 per year
as rent for a house

A Yes

B No
A promise by Adam not to pursue his action for breach of contract against Ben,
if Ben agrees to do Adam's accounts for him for 12 months without charge

C Yes

LO 1a

D No

26 Zoe was employed to give one lunchtime recital per month at a prestigious
eating venue in London. Her contract contained a provision that she would stay
behind and meet with appreciative members. of the audience after the recital, as
part of the venue's aim of making music more accessible and less elitist. After
about 18 months, Zoe's recitals had become very popular but she was always
keen to get away quickly after each performance. The manager offered her £50
(on top of her recital fee) if she would stay behind and meet with appreciative
members of the audience for up to an hour after each recital.

Can Zoe enforce the promise to pay her the extra £50?

A Yes. It is a fresh promise that the manager chose to make.

B Yes, because the contractual provision had become redundant through its non-
observance.

C No, because she was obliged to perform that duty anyway.

D No. It was simply a goodwill gesture and is not intended to be legally binding.

LO 1a

27 Zak owes Eve £100. Finding that he has insufficient cash, Zak offers Eve his
bicycle worth £90 instead. Eve accepts.

Which of the following statements best describes the legal position as to whether
there is valid consideration?

A Yes, Eve was not already entitled to the bicycle so it is sufficient consideration
for waiver of the debt.

B No, the bicycle is not sufficient as it does not match or exceed the value of the
debt.

C No, consideration must be in money or money's worth.

D Yes, a bicycle constitutes sufficient consideration because it has an
identifiable value.

LO 1a

28 In which of the following scenarios is there insufficient consideration for a

waiver of rights by Oscar where Humphrey owes him £1,000 to be paid on 13
May?

A Oscar agrees to accept a car instead.

B Oscar agrees to accept £980 on 13 May in cash.

C Oscar agrees to accept £980 from Humphrey's sister in full satisfaction of the
debt.

D Humphrey agrees to pay Oscar £700 on 1 May.

LO 1a

29 With regard to terms being implied into contracts, are the following true or
false?

The courts will imply a term into a contract if required to do so by statute,

A True

B False

Terms may be implied on the basis of a custom or practice of a particular trade.

C True

D False

LO 1a

30 Prunella agrees to pay Paul £500 if Paul will landscape Phillip's garden.
There is no agency relationship and the Contract (Rights of Third Parties) Act
1999 does not apply. Who may enforce the terms of the contract?

A Prunella, Paul and Phillip

B Prunella and Phillip only

C Paul and Phillip only

D Prunella and Paul only

LO 1a

31 In relation to the intention to create legal relations: The parties to a social or

domestic agreement are presumed to have intended the agreement to be legally
enforceable, although this intention is rebuttable.

A True

B False

The parties to a commercial agreement are presumed to have intended the

arrangement to be legally enforceable.

C True

D False

Sample Exam, LO 1a

32 On Monday, Andrew advertised his car for sale for £5,000 in a local
newspaper. Brian saw the advertisement and telephoned Andrew offering him
£4,500 for the car. Andrew eventually offered to sell the car to Brian for £4,800.
Brian replied that he would need to test-drive the car before he could agree such
a price. Brian then agreed a time to meet at Andrew's house the following
weekend for the test drive.

On Friday, Andrew sold his car to his neighbour Carol for £4,500.

Are the following statements true or false?

Andrew's advertisement in the newspaper is purely an invitation to treat and as

such is incapable of acceptance and forming a legally binding contract.

A True

B False

Brian has no right of action against Andrew because no acceptance took place.

C True

D False

Sample Exam, LO 1a

33 Matt runs a small hotel. One of his friends, Louise, decorated two of the
bedrooms for him, as a surprise, when he was away on holiday. On his return,
Matt was delighted and agreed to give her a laptop in consideration for all her
work. As a separate matter, he also agreed to pay Louise's brother, Adam, the
sum of £300 to fit new lights and sockets in the bedrooms. Adam performs the
work.

When Louise and Adam come to collect the laptop and the money Matt refuses
to give them either.

Which of the following statements is correct?

A The contract with Louise is valid; the contract with Adam is valid.

B The contract with Louise is valid; the contract with Adam is invalid.

C The contract with Louise is invalid; the contract with Adam is invalid.

D The contract with Louise is invalid; the contract with Adam is valid.

Sample Exam, LO 1a

34 On 1 February, Harry posts a letter to Beth offering to sell his car. On 2

February, Beth receives Harry's

letter.

On 3 February, Harry changes his mind and posts a letter to Beth telling her that
the car is no longer for sale. On the same day, Beth posts a letter to Harry
accepting the offer contained in his letter of 1 February.

On 4 February, Beth receives Harry's letter informing her that the car is no
longer for sale.

Is there a valid contract between Beth and Harry regarding the sale of Harry's
car?

A Yes, acceptance took place on 3 February and Harry's revocation took place
on 4 February.

B No, Harry revoked the offer before Beth posted her acceptance.

C Yes, Harry cannot revoke the offer once it has been communicated to Beth.

D No, Harry's revocation took place on 3 February, so Beth's acceptance is too

late.

Sample Exam, LO 1a
35 A contractual offer may be terminated by:

Rejection

A Yes

B No

Lapse of time

C Yes

D No

Sample Exam, LO 16

36 To be valid, a contract must contain:

Written evidence of the principal terms of the contract

A Yes

B No

An agreement

C Yes

D. No

LO 1a

37 Are the following statements true or false?

To be effective, a revocation of an offer must be made in writing.

A True

B False

To be effective, a revocation can be made by an authorised agent of the offeror.

C. True

LO 1a

D False
38 Raheem is visiting Karl's office. Whilst he is there, he sees a photocopier that
Karl no longer needs. Raheem offers Karl £500 for the photocopier and Karl
accepts, Raheem pays Karl, loads the photocopier into his van and drives away.

Which type of consideration is present in the contract between Raheem and

Karl?

A Past

B Executed

C Executive

D Executory

LO 1a

39 Which of the following statements correctly describes privity of contract?

A Individuals and businesses only have rights and obligations under a contract if
they are a party to it

B To be valid, contracts must contain agreement, consideration and intention to

create legal relations.

C Consideration must be sufficient but need not be adequate.

D Contractual terms are a private matter to be decided by the contracting parties.

LO 1a

Chapter 2: Termination of contract

1 Which term best describes a contract, such as a building contract, that provides
for payment at various stages of the contractor's progress?

A A divided contract

B A segmented contract

C A severable contract

D A partial contract

LO 1a

2 Abigail agrees to let her flat to Xavier for one day for the purpose of viewing a
carnival. Xavier pays her a £50 deposit with £80 due to be paid at the end of the
carnival. Due to civil unrest, the government prohibits all street entertainment
and the carnival is cancelled just before Xavier is due to travel to the flat.
Neither party has incurred any costs (save for payment of the deposit) in
performance of the contract.

Applying the Law Reform (Frustrated Contracts) Act 1943, which of the
following statements is correct?

A Abigail can keep the deposit but cannot claim the balance.

B Abigail can keep the deposit and Xavier is liable to pay the balance.

C Abigail must pay back the deposit and Xavier need not pay the balance.

D Abigail can keep the deposit and Xavier must pay an additional £15 so that
each party bears an equal loss.

Sample Exam, LO 1b

3 Are the following statements true or false?

Anticipatory breach may be implied from conduct and need not be explicit.

A True

B False

Where an innocent party elects to treat a contract as discharged, they waive the
right to claim damages from the party in default.

C True

D False

LO 16

4 Monster Mowers Ltd agrees to sell one of its ride-on mowers to Geoff in the
knowledge that Geoff is taking on new customers from Percy, a commercial
gardener, who is retiring and that Geoff is unable to cope with the increased
workload with his present mower. The company fails to deliver the mower until
10 days after the due date for delivery and Geoff is forced to continue working
with his old mower as best he can. As a result he is unable to complete all the
contracts he has agreed with Percy's old customers. He is also unable to accept
an offer from the local botanical gardens to be their grass-cutting contractor for
the next 12 months because he cannot begin work immediately.
Which of the following statements best describes the legal position of Monster
Mowers Ltd?

A The company would be entitled to assume that Geoff could perform his
contracts without the new mower and will not be liable for damages as a result.

B. The company will be liable for damages in respect of breaches of Geoff's

contracts with existing customers but not the new customers from Percy's
business.

C The company will be liable for damages in respect of breaches of Geoff's

contracts with all his customers but not in respect of the botanical gardens'
potential contract as this was not a normal loss and the company was not aware
of it.

D The company will be liable for damages in respect of breaches of contract

with all his customers and for the lost contract with the botanical gardens since
this was a reasonably foreseeable part of Geoff's business plans with his new
mower.

LO 1b

5 Are the following statements true or false?

Damages for breach of contract are primarily intended to restore the injured
party to the same position they were in at the time when the contract was made.

A True

B False

The claimant is required to take every opportunity to mitigate their loss arising
as a consequence of a breach of contract.

C True

D False

LO 16

6 Henry agreed to advertise the services provided by his father's business, The
Complete Service Ltd, in appropriate publications over a period of 24 months. It
was agreed that Henry would be liable to pay a sum of £5,000 in respect of any
advertising error or missed deadline.

Which of the following describes this contractual provision?

A A liquidated damages clause

B An unliquidated damages clause

C An exclusion clause

D A penalty clause

LO 1b

7 James contracted to buy a rare sports car from Jeremy for £23,000 but refused
to take delivery as agreed. Jeremy, who had recently bought the car for £20,000,
was able to sell the car to Richard for £24,100, but sued James for breach of
their contract.

Which of the following best describes the legal position?

A Jeremy is entitled to recover £23,000 from Jarnes, that being the agreed
contract price and there being no excuse for James' breach.

B Jeremy is entitled to nominal damages only since he has been able to sell the
car for greater profit.

C Jeremy is entitled only to recover from James the £20,000 that he had in fact
paid for the car himself since he was able to sell the car on for profit following
the breach by James.

D James is no longer in breach of contract because Jeremy has mitigated his loss
totally.

LO 1b

8 Siegfried employs Marij to plan and build a go-kart course on his field which
he intends to open to the public on 1 May. His viability and market research
studies lead him to expect that he will earn £300 per day in the first three months
of business. Marij contracts to construct the course and surrounding areas
according to certain plans and specifications and to complete the work by no
later than 30 March for a contract price of £10,000. The contract provides that
Marij will be liable to pay Siegfried £150 for every day work overruns the
scheduled completion date.

Which of the following best describes the legal position?

A The provision is for unliquidated damages and is valid because it is less than
the anticipated loss.
B The provision is for liquidated damages and is valid because the figure is not
penal in nature and protects Siegfried's legitimate interest.

C. The provision is void because it states a sum in excess of 1% of the total

contract price.

D The provision is likely to be void because the same amount is payable

regardless of the actual loss.

LO 16

9 Which of the following statements in relation to contractual remedies is

incorrect?

A Specific performance is awarded at the discretion of the court where damages

would not be an adequate remedy.

B Specific performance is likely to be more appropriate than damages in a

contract involving personal services.

C Specific performance is likely to be awarded in a contract for the sale of land.

D A mandatory injunction often has the same result as specific performance but
is less common.

LO 1b

10 Colin was engaged as a coach of the South of England Athletics Squad

(SEAS) and his contract contained a clause that he would not coach any other
team without the consent of the SEAS. The SEAS management discovered that
unknown to them, he had in fact been coaching the South Wales team for three
months and brought action against him for breach of contract.

Which of the following is the most likely remedy to be granted in addition to

possible damages?

A A mandatory injunction

B A quantum meruit award

C. Specific performance

D A prohibitory injunction

LO 1b
11 The Unfair Contract Terms Act 1977 renders some exclusions void and others
subject to the reasonableness test:

In a contract between two businesses, is a clause which limits liability for losses
due to negligence void, however reasonable it might appear?

A Yes

B No

Is a clause limiting liability for personal injury resulting from negligence in a

contract between two private individuals subject to the reasonableness test?

C Yes

D No

LO 16

12 Which of the following descriptions best describes the statutory test of

reasonableness under the Unfair Contract Terms Act 1977?

A Whether an ordinary person in the normal course of business would consider

the clause to be reasonable in all the circumstances

B Whether it is fair and reasonable, with regard to all the circumstances which
were, or which ought to have been known to the parties when the contract was
made

C Whether it is fair and reasonable with regard to all the circumstances which
were known to or in the reasonable contemplation of the parties

D Whether it is fair and reasonable to exclude liability, having regard to the

relative bargaining strengths of the parties

LO 1b

13 Foul Foods Ltd, a company specialising in the production and sale of cream
cakes on an industrial scale, bought a large oven from Ovens & Co intending to
extend their existing business to include the production of pizza bases. The
delivery of the oven was three months later than the contract date. During those
three months Foul Foods Ltd tried unsuccessfully to buy another oven.

Foul Foods Ltd has claimed for its lost profits in the following two ways:
(1) Profits which would have been made from the expected increase in business
following their increased capacity; and

(2) Profits which they would have made from a lucrative contract for the supply
of pizza bases to a nationwide supermarket chain for which they would have
been able to bid.

Is Foul Foods Ltd's claim for its lost profits likely to be successful?

A Yes, but only the lost profits from the expected general increase in trade are
recoverable, not those from the loss of the lucrative supermarket contract.

B No, in accordance with the rules governing the award of damages for breach
of contract both losses are too remote.

C Yes, the lost profits from the expected general increase in trade and the loss of
the lucrative supermarket contract are recoverable.

D No, as Foul Foods Ltd have failed to mitigate its losses.

Sample Exam, LO 1b

14 The equitable remedy of specific performance can be awarded in cases

involving: The performance of personal services

A True

B False

A contract to build a house

C True

D False

Sample Exam, LO 1b

15 Which of the following may be used to resolve disputes, even after court
proceedings have been commenced?

(1) Negotiation

(2) Expert determination

(3) Mediation

(4) Adjudication
A (1) only

B (2), (3) and (4) only

C (1) and (4) only

D All of them

LO 1b

16 Some situations will cause a contract to be discharged by frustration..

A manor house which was hired for a wedding reception is destroyed by fire a
week before the wedding.

Is this contract discharged by frustration?

A Yes

B No

A boat supplier in England has a contract to supply boats to a foreign country.

However, due to tensions between the nations, the contract has become subject
to a number of onerous legal requirements that make it difficult, but not
impossible, to perform the contract.

Is this contract discharged by frustration?

C Yes

D No

LO 1b

17 A contract between two businesses included a clause restricting the potential

liability of the seller if the goods supplied were not of satisfactory quality. The
seller was a large multinational pic, the buyer a small retail shop that operates as
a private limited company.

Can the seller rely on this clause if they supply unsatisfactory goods to the
buyer?

A No, because the buyer is in a weaker position than the seller.

B Yes, but only if the clause passes the reasonableness test set out in the Unfair
Contract Terms Act (UCTA) 1977.
C Yes, the clause applies because there are no restrictions on the terms that can
be agreed in a business-to-business contract.

D No, because exemption clauses do not apply to the sale of unsatisfactory

goods.

LO 16

18 Are the following statements true or false?

Under contract law, parties to a contract are required to substantially perform

their obligations. This is sufficient to prevent the other party from seeking
redress if they are not happy with their performance.

A True

B False

Breach of contract occurs in all cases where one party to a contract fails to
perform their contractual obligations.

C True

D False

LO 16

Chapter 10: Criminal law

1 In order to receive the protection conferred by the whistleblowing provisions

of the Public Interest Disclosure Act 1998:

Does a person need to be an 'employee'?

A Yes

B No

Does the person need to be of a minimum age?

C Yes

D No

LO 3f

2 Sam has been working in his employer's factory for five months. He plans to
make public some information about his employer's unsafe working practices,
but he has been told the following things. about the protection afforded by the
whistleblowing provisions contained in the Public Interest

Disclosure Act 1998.

Are they true or false?

Statutory protection is not available to Sam because he has less than one year's
continuous service with his employer.

A True

B False

He will have to prove that his employer's working practices are unsafe.

C. True

D False

LO 3f

3 Which of the following criteria does a person not always have to show in order
to receive the protection offered by statute in a case of whistleblowing?

A That the disclosure is a qualifying disclosure

B That it is made with a reasonable belief in its truth

C That they have some documentary evidence of the matter complained of

D That it has been made to an appropriate person or recognised regulatory body

LO 3f

4 Which of the following disclosures is or are qualifying disclosure(s)?

(1). That a criminal offence is likely to be committed

(2) That their employer has been guilty of negligence

(3) That the work of their employer is causing damage to the environment

(4) That their employer is engaging in unsafe working practices

A (1) and (4) only

B (1), (3) and (4) only

C All of the above

D (3) and (4) only

LO 31

5 The Public Interest Disclosure Act 1998 protects workers who make a
qualifying disclosure in relation to their employer's activities.

Are the following statements true or false?

It is sufficient that the worker making the disclosure to the appropriate

regulatory body (eg, the Health and Safety Executive in health and safety cases)
holds a reasonable belief that the information they are disclosing is correct.

A True

B False

Disclosure of information by a worker to the Environment Agency, which shows

a cover-up by their employer of damage that the employer has caused to the
environment, may constitute a qualifying disclosure.

C True

D False

LO 3f

6 Raj worked as a junior administrator in the offices of an insurance company

Be Sure & Co. He had been hoping to be promoted to a senior post recently but
his colleague was given the job, even though he was younger than Raj and had
not worked in the office as long as Raj had. Raj has also discovered that his boss
was paying the staff in the post room less than the minimum wage. Still angry
about missing out on his promotion, he has passed this information on to the
senior partner of Be Sure & Co.

Are the following true or false?

The disclosure is a qualifying disclosure under the Public Interest Disclosure Act
1998 because it reveals non-compliance with a legal obligation to which the
employer is subject.

A True

B False
The disclosure is not protected under the Public Interest Disclosure Act 1998
because the motive behind it shows a lack of good faith.

C True

D False

LO 3f

7 Nina is a nurse working in the National Health Service. She has seen Mike, an
NHS consultant for whom she often works, stealing medicinal drugs from the
hospital supplies on three occasions in the last month. Mike knows that she has
seen him but believes that she would never divulge the information to anybody.

Are the following statements true or false?

Nina must disclose Mike's wrongdoing either internally within the NHS or to a
legal adviser, in order to receive the protection afforded by the Public Interest
Disclosure Act 1998.

A True

B False

If, as a result of her disclosing what she knows, Nina is denied a promotion, she
will be entitled to compensation.

C True

D False

LO 3F

8 Martin proposes to disclose information to the police about his employer's

criminal acts but he has been told that he will need to satisfy certain criteria in
order for such a disclosure to be protected by the Public Interest Disclosure Act
1998. For instance:

Does it matter if Martin's proposed disclosure is made, principally, for personal

gain?

A Yes

B No

Does Martin need to have raised the matter already internally or with a
prescribed regulator?
C Yes

D No

LO 3f

9 With regard to the offence of fraud under the Fraud Act 2006, is it necessary to
show that the defendant intended to make a gain for themselves or another
person?

A Yes

B No

If a director of a company is found guilty of fraudulent trading, will they

automatically be disqualified from acting as a director?

C Yes

D No

LO 3d

10 All of the following, except one, are the specified ways in which the statutory
offence of fraud may be committed under the Fraud Act 2006.

Which is the exception?

A Fraud by abuse of position

B Fraud by dishonestly appropriating property belonging to another

C Fraud by making false representation

D Fraud by failing to disclose information

LO 3d

11 The Public Interest Disclosure Act 1998 offers protection for workers who
choose to disclose wrongdoing at their place of work.

A Yes

Does the Act protect workers who disclose wrongdoing by their fellow workers?

B No

To offer protection, must the disclosure be made in the public interest?

D No

LO 3f

C Yos

12 Jack has been convicted of fraud under the Fraud Act 2006. What is the
maximum sanction that can be imposed on him?

A 7 years' imprisonment and an unlimited fine

B 10 years' imprisonment and a fine of up to £100,000

C 7 years' imprisonment and a fine of up to £100,000

D 10 years' imprisonment and an unlimited fine

LO 3d

13 With regard to the criminal offence of fraudulent trading, answer the

following: Can this offence be committed by a director of a company even if the
company is not in liquidation?

A Yes

B No

Is this offence committed where a business is carried on for any fraudulent

purpose?

C Yes

LO 3d

D No

14 Nigel and Kevin are directors of Go Karts Ltd. Leo, the company's financial
adviser, tells Kevin that the company is facing mounting debts and that its assets
and projected income is not sufficient to pay them. Notwithstanding this, Kevin
orders 20 state-of-the-art go-karts, in the hope that he would be able to keep at
least one of the go-karts once the company was wound up (as he knew it would
be). Three months later, the company goes into compulsory liquidation. Nigel
has never been involved with the day-to-day running of the company as he is
much too busy with his other business ventures. As far as he's concerned, Go
Karts Ltd is doing very well.
Which of the following best describes who is and who is not guilty of the
criminal offence of fraudulent trading?

A Kevin and Leo are guilty. Nigel is not guilty because he is unaware of the
situation.

B Kevin and Nigel are guilty. Leo is not guilty because he is a financial adviser
and not a director.

C Kevin is guilty. Leo and Nigel are not guilty because neglect or lack of
positive dishonest action cannot constitute fraudulent trading.

D Nigel, Kevin and Leo are all guilty because they are all aware or should be
aware that insolvency is likely.

LO 3d

15 The Criminal Justice Act 1993 governs the criminal offence of insider
dealing.

Which of the following best describes the offence of insider dealing?

A Making public information relating to price-affected securities in order to

influence dealings in those securities

B Dealing in securities while in possession of inside information as an insider,

the securities being price-affected by the information

C Acquiring securities with the benefit of price-sensitive information obtained as

an insider

D Being an insider and in possession of confidential information about the likely

effect of dealings on the price of securities

LO 3d

16 Richard is a fund manager with Burrington Fund Managers Ltd. He hears that
Ventures plc is about to announce a successful takeover and that its share price
will rise significantly as a result. He texts his brother-in-law, Jeff, and says "If I
were you, I'd buy as many shares as you can in Ventures plc". Jeff has mislaid
his mobile phone and doesn't receive the information until after the takeover has
been

announced.

Is Richard guilty of insider dealing contrary to the Criminal Justice Act 1993?
A Yes

B No

Would it make any difference if Jeff bought shares in Ventures pic?

C Yes

D No

LO 3d

17 Robert is a corporate banker and is just about to close a deal in which Bigfish
plc is to take over Smallfry Ltd. He knows that this will mean a huge increase in
the share price of Smallfry Ltd. He is chatting to a friend, Freya, over lunch and
tells her all about it because it has been an exciting deal. Freya has never dealt in
shares and never seems to have any money to spend anyway. However,
unknown to Robert, Freya has just inherited £10,000 and immediately goes out
and buys shares in Smallfry Ltd.

Is Robert guilty of encouraging another person to deal, contrary to the Criminal

Justice Act 1993?

A Yes

B No

Is Robert guilty of disclosing inside information that he obtained in the course of

his employment?

C Yes

D No

LO 3d

18 Andy is an auditor doing an audit of Sunstar plc. During the course of the
audit, he learns that the

company has made an unexpected heavy loss in the current financial year. He
tells his colleague Zara

back in the firm's office and she sells her shares in Sunstar plc..

Is the information passed to Zara inside information for the purposes of the
insider dealing provisions of the Criminal Justice Act 1993?

A Yes
B No

Is Zara an insider for the purposes of those provisions?

C Yes

D No

LO 3d

19 Lucy is a UK national who has been living in France for the past three years.
She now wishes to return to England and is keen to secure a deal on a very
desirable building plot being sold by First Class Homes plc at auction. She
knows the managing director of the company and so, keen to avoid attending an
auction, she offers him £5,000 in cash (for his personal account) if he will
arrange for the company to sell the building plot to her by private agreement,
rather than by auction. The director refuses and the property goes to auction
where Lucy is outbid by another buyer.

Are the following statements true or false?

Where the person who is offered money refuses it, no offence of bribery is
committed.

A True

B False

Lucy may be guilty of the offence of bribery.

D False

C True

LO 3c

20 Are the following statements true or false?

Bribery is a criminal offence and is governed by statute.

A True

B False

The maximum penalty is an unlimited fine and imprisonment for up to seven

years.

C True
D False

LO 3c

21 Which of the following best describes the offence of money laundering

which is governed by the Proceeds of Crime Act 2002?

A It is the process by which the proceeds of illegal activity are disposed of into
apparently legitimate business activities.

B It is the process by which monies are transferred from business to business or

place to place in order to conceal their original source.

C It is the process by which property illegally obtained is converted into cash in

order to facilitate its disposal.

D It is the process by which the proceeds of crime are converted into assets
which appear to have a legitimate origin.

LO 3b

22 What is the maximum length of imprisonment that can be imposed under the
Proceeds of Crime Act 2002 for failing to report a suspicion of money
laundering?

A 5 years

B 7 years

C 10 years

D 14 years

LO 3b

23 Nathan works as an accountant with Moneyneeds Ltd, a financial services

company. He is asked to prepare some accounts which he strongly suspects are
going to be used to enable the company to evade some of its tax liability. He
makes a report to the MLRO nominated by his employer but, in fear of losing
his job if he does not do as he is asked, he also prepares the accounts as
required.

Is he guilty of money laundering under the Proceeds of Crime Act 2002?

A Yes

B No
Is he guilty of tipping off under the Proceeds of Crime Act 2002?

C Yes

D No

Sample Exam, LO 3b

24 James is an accountant in a local accountancy firm and advises Creedy Ltd,

the parent company of a number of subsidiaries. Jarnes notices that a number of
transactions taking place between the subsidiaries in the group appear to have no
explanation or business justification and also that each subsidiary is transferring
funds to an overseas subsidiary (in a tax haven) with increasing frequency. He
strongly suspects that the companies are being used to conceal proceeds of
criminal activities, but he is worried about his duty of client confidentiality.
Assuming his suspicions are reasonably well founded:

Should James report his suspicions to the nominated MLRO within his firm?

A Yes

B No

Should James tell one of the directors of Creedy Ltd about his suspicions?

C Yes

D No

LO 3b

25 Gary owns a large estate agency business and has recently become aware that
he is required by law to establish some internal systems and procedures designed
to prevent the possibility of money laundering. He comes to you for advice in
respect of the Money Laundering Regulations 2017 and in particular as to
whether the following are true or false.

The appointment of a Money Laundering Reporting Officer is recommended but

not compulsory.

A True

B False

Failure to implement measures required by the Regulations is punishable by an

unlimited fine and up to two years' imprisonment.
C True

D False

LO 3b

26 There is no defence to a charge of bribery.

A True

B False

Whenever an employee commits an offence of bribery, the commercial

organisation for which they work is also guilty of an offence under the Bribery
Act 2010 for failing to prevent the commission of

the offence.

C True

D False

LO 3c

27 Under the Public Interest Disclosure Act 1998 a worker would be required to
follow their organisation's internally or externally mandated whistleblowing
procedures where they have a reasonable belief that:

A criminal offence is being committed eg, fraud

A Yes

B No

The health and safety of their organisation's workers is being put at risk

C Yes

D No

Sample Exam, LO 3f

28 Under the Companies Act 2006 the maximum penalty that can be given
where an officer of a company has been convicted of carrying on their
company's business with intent to defraud, may include:

An unlimited fine

A True
B False

A period of imprisonment of up to 10 years

C True

D False

Sample Exam, LO 3d

29 Are the following statements true or false in relation to the provisions relating
to fraudulent trading. contained in the Companies Act 2006?

They do not apply unless the business was carried on with intent to defraud or
for any fraudulent purpose.

A True

B False

A successful conviction for fraudulent trading could be secured against an

officer of a company who had secured further credit for the company, at a time
when they suspected that there was no reasonable prospect of the company
being able to repay the debt.

C True

D False

Sample Exam, LO 3d

30 In relation to the criminal offence of bribery:

Offering a person in public office money or other favours in order to circumvent

the ethical guidelines of their professional body is an offence.

A True

B False

It is punishable by a term of imprisonment or a fine, or in serious cases both

imprisonment and a fine.

C True

D False

Sample Exam, LO 3c, 3e

31 Brisco LLP, a firm of ICAEW Chartered Accountants, is the auditor of Spelt
plc. At a meeting in April with Spelt plc's directors, Abel Brisco, Brisco's senior
partner, signed the auditor's report in respect of the financial statements for the
year ended 31 January. At that meeting Spelt plc's finance director mentioned a
forthcoming takeover bid for a majority of the shares of Spelt plc by Wyman plc,
and said that Wyman pic would be using the most recent set of financial
statements in fixing a price for the shares of Spelt plc.

A few months later, in October, following its successful takeover bid for Spelt
plc, Wyman pic sued Brisco LLP for negligence in auditing Spelt's financial
staternents which, Wyman plc claimed, significantly overstated the value of
revenue. In a private meeting about the case with the Brisco partners, Abel
Brisco said that because there had been no written notification of Wyman pic's
reliance on the financial statements he would deny having received any verbal
notification.

Are the following statements true or false?

Brisco is likely to owe a duty of care to Wyman which was a known bidder,
even though the firm had. not been informed in writing.

A True

B False

Abel Brisco is likely to be in breach of the ICAEW Code of Ethics in respect of

professional behaviour.

C True

D False

LO 3e

32 Gavin, a partner in Ingatestone & Co, is the engagement partner on the audit
of Tolleshunt Electronics Ltd (Tolleshunt). He is in a close personal relationship
with the finance director of Tolleshunt, and agrees to sign an unmodified audit
report on the company's accounts despite its. having declared a dividend which
is illegal under the Companies Act 2006. The finance director has a substantial
personal shareholding in Tolleshunt.

Is Gavin in breach of:

The Proceeds of Crime Act 2002 in respect of money laundering?

A Yes

B No

The ICAEW Code of Ethics in respect of professional behaviour?

C Yes

D No

LO 3a, 3e

33 Harriet is the Money Laundering Reporting Officer of Maldon and Braintree,

a firm of chartered accountants. A trainee in the firm suspects that an excessive
amount of cash sales in a client's accounts signifies laundered funds, and reports
this suspicion to Harriet. Harriet immediately notifies the National Crime
Agency.

It is later discovered that the cash sales were genuine and that no money
laundering has taken place. Can the client take legal action against Maldon and
Braintree for breach of confidentiality?

A Yes

B No

Is Harriet in breach of the ICAEW Code of Ethics in respect of confidentiality?

C Yes

D No

LO 3a, 3e

34 Which cybercrime threat is described below?

Criminals record what the user types onto their keyboard.

A Phishing

B Keylogging

C Ad clicker

D Screenshot manager

LO 3d
35 Angelina was recently sent an email that appeared to be from her bank. It
instructed her to click on a link and confirm some of her security information.
Just days later she noticed that someone had transferred money out of her bank
account. Angelina has been the victim of phishing.

A True

B False

This is an example of fraud by abuse of position.

C True

D False

LO 3d

36 Which of the following would be offences under the Computer Misuse Act
1990?

(1) The creation of ransomware

(2) Accidentally spreading a computer virus

(3) Hacking a private computer network

(4) Accessing a colleague's email account by guessing their username and

password

A (1) and (4) only

B (1), (3) and (4) only

C All of the above

D (3) and (4) only

LO 3d

37 The Computer Misuse Act 1990 makes a number of actions illegal. In

relation to the Act, which of the following statements are true or false? It is an
offence to carry out unauthorised acts with intent to impair the operation of a
computer system.

A True

B False
It is an offence to supply or obtain articles that another individual can use to
access a computer system.

C True

D False

LO 3d

38 Roger is guilty of dealing and encouraging another to deal in price affected

securities, contrary to the Criminal Justice Act 1993 and has four possible
arguments in defence of his guilt. All except one of these defences are valid.

Which is the exception?

A He did not expect there to be a profit.

B He had reasonable grounds to believe that the information had been disclosed
widely.

C He would have done what he did even without the information.

D He passed the information on in the course of his employment.

LO 3d

39 If a director is found guilty of fraudulent trading, what is the maximum

period that they may be disqualified from acting as a director or being involved
in the management of companies?

A 5 years

B 10 years

C 15 years

D Unlimited period, they may be permanently disqualified

LO 3d

40 Are the following statements true or false?

The penalty for failing to prevent bribery is a fine.

A True

B False
Bribing a public official whilst outside of the UK is an offence under the Bribery
Act 2010.

C True

D False

LO 3c

41 How does pharming differ from phishing?

A Phishing is a virus, pharming is an online scam.

B Pharming is based on legitimate looking websites, phishing is based on

legitimate looking emails.

C Phishing for an individual is a long-term activity, pharming is instant.

D Pharming is a targeted version of phishing.

LO 3d

42 Fraudulent card payments may be prevented by cardholders keeping their

bank cards in a safe location at all times.

A True

B False

In 'spear phishing', an individual is targeted for fraud by the fraudster building

up a relationship with them over time and then persuading them to give them
either their personal details or money.

C True

D False

LO 3d

43 Ewan is a Chartered Accountant who works for a small firm of accountants

which conducts the majority of its business electronically. As part of his role,
Ewan uploads and enters personal information about clients to various websites,
for example when making tax returns and filing company information with
Companies House.

What should Ewan do to minimise the risk of him and his clients becoming
victims of pharming?
A Very carefully check websites to ensure they are legitimate before entering
any information.

B Install and run anti-virus software.

C Set up secure configurations.

D Update web browsers when patches are released.

44 Mina is currently working on the audit of High Hair Ltd. The company runs a
chain of low-cost hairdressers, and last year decided to begin a plan of major
expansion. Much of the company's income is cash. Whilst the cash balances are
large, they have remained stable for the last five years. Mina has noted that over
the course of the business's expansion in the last six months, it started
transferring funds overseas. These transfers began a week after a new area
manager was employed to oversee the running of 10 branches. When Mina
enquired about whether they thought the expansion was a success, the directors
of High Hair Ltd said they did not know as it was too early to tell.Which of the
following should be a 'red flag' to Mina that money laundering may be
occurring?

A Large cash balance

B Cash transfers overseas

C Employment of a new area manager

D Directors not knowing the answer to Mina's question on the expansion

LO 3aA