BA4: Business law

Answer: D. A legally binding contract generally requires an offer, acceptance, consideration (something of value exchanged) and an intention to create legal relations, together with the capacity to contract. Many contracts need not be in writing or signed by a solicitor, do not require government approval, and may involve payment other than cash. These essential elements, not any particular formality, determine whether a binding agreement exists.

Answer: A. A display of goods with a price is normally an invitation to treat — an invitation for customers to make an offer — rather than an offer itself. The customer makes the offer at the till, which the shop may accept or decline. Treating the display as a binding offer would oblige the shop to sell even where, for example, the price was wrongly marked. Acceptance and consideration are separate elements of contract formation.

Answer: B. Consideration is something of value that each party gives or promises in exchange — often described as the price of the other's promise. It is not the time spent thinking, the written terms, or a witness's signature. Consideration must generally be sufficient (have some value in the eyes of the law), though it need not be adequate (a fair price). It is one of the essential elements of a binding contract.

Answer: C. Unfair dismissal focuses on whether the employer had a fair (legally permitted) reason for dismissal and followed a fair procedure in carrying it out. It is distinct from wrongful dismissal, which concerns breach of the contractual notice terms. Pay arrangements, holiday entitlement and branding do not determine unfairness. Eligible employees who are unfairly dismissed may bring a claim to an employment tribunal.

Answer: D. The principal sources of English law include statute (Acts of Parliament) and case law (precedent developed by the courts, also called common law). Company press releases, trade journals and internal policies are not sources of law, though internal policies may bind employees contractually. Understanding the sources of law underpins the rest of business law, including how contract and employment rules arise and are interpreted.

Answer: A. A condition is a fundamental term going to the root of the contract; its breach entitles the injured party to treat the contract as repudiated (terminate it) and to claim damages. A warranty is a lesser term, breach of which gives only a right to damages, not termination. A condition is not without legal effect, nor merely a writing requirement. Classifying terms determines the remedies available for breach.

Answer: B. The standard remedy for breach of contract is damages — monetary compensation intended to put the injured party in the position they would have been in had the contract been performed. Imprisonment is a criminal sanction, not a contract remedy, and cancelling debts or ordering an apology are not standard remedies. Equitable remedies such as specific performance or injunctions are available only in limited circumstances.

Answer: D. Criminal law deals with conduct regarded as offences against the state or society, prosecuted by the state and potentially punished by penalties such as fines or imprisonment. Civil law resolves disputes between private parties, typically with remedies such as damages. Imprisonment is a criminal, not civil, outcome, criminal law applies to individuals as well as companies, and the two branches are clearly distinct in purpose and procedure.

Answer: A. Donoghue v Stevenson established the modern law of negligence and the 'neighbour principle' — the idea that a person owes a duty of care to those so closely and directly affected by their acts that they ought reasonably to have them in mind. Separate legal personality comes from Salomon, share capital rules from company law, and comply or explain from governance codes. The case underpins the duty-of-care element of negligence.

Answer: B. An implied term is one that, although not expressly stated, is read into a contract — by statute (such as consumer protection legislation), by custom, or by the courts to give the contract business efficacy. Expressly agreed terms are 'express' terms, a breached term is simply one that has not been honoured, and an illegal term is a separate matter. Implied terms fill gaps the parties did not spell out.

Answer: C. The degree of control an organisation exercises over how, when and where work is done is a key factor in distinguishing an employee from a self-employed contractor, alongside tests such as mutuality of obligation and whether the worker provides their own equipment. Uniform colour, organisation size and nationality are not determinative. The distinction matters because employees have statutory rights that the self-employed do not.

Answer: D. The postal rule provides that, where post is a reasonable means of acceptance, the acceptance takes effect when the letter is properly posted, not when it is received or read by the offeror. This is an exception to the general rule that acceptance must be communicated. Postal acceptance is valid, and timing runs from posting. The rule can be displaced if the offer requires actual receipt of acceptance.

Answer: A. A counter-offer rejects the original offer and puts a new offer in its place, so the original offer can no longer be accepted unless it is renewed. It does not by itself form a contract, is legally significant rather than ineffective, and need not be in writing. The principle, illustrated by the case of Hyde v Wrench, means that haggling over terms can destroy an earlier offer.

Answer: B. In commercial agreements, the law generally presumes that the parties intend to create legal relations, so the agreement is enforceable unless that presumption is rebutted. In social and domestic arrangements, the opposite presumption usually applies. Intention is an essential element of a binding contract, not irrelevant, and it does not depend simply on the size of the transaction. The commercial presumption reflects the business context.

Answer: C. Frustration discharges a contract where, after it is made, an unforeseen event beyond the parties' control makes performance impossible, illegal, or radically different from what was agreed — without fault on either side. A mere change of mind, a modest increase in cost, or late performance does not amount to frustration. Frustration brings the contract to an end and releases both parties from future obligations.

Answer: A. Exclusion clauses are subject to legal controls: to be effective they must be properly incorporated into the contract and, under legislation such as unfair contract terms rules, may be struck down if they are unreasonable or unfair, particularly against consumers. They are neither automatically enforceable nor automatically void, and they are not limited to oral contracts. The courts scrutinise such clauses closely to protect weaker parties.

Answer: B. Hadley v Baxendale established the rules on remoteness of damage in contract: a claimant can recover losses that arise naturally from the breach, or that were within the reasonable contemplation of both parties when the contract was made. It does not concern company formation, auditors, or preference shares. The remoteness rule limits the losses recoverable, so that defendants are not liable for unforeseeable consequences.

Answer: C. The injured party is under a duty to take reasonable steps to mitigate — that is, to reduce — the loss flowing from the breach, and cannot recover damages for losses that could reasonably have been avoided. They cannot deliberately increase their losses or sit back and let losses mount unchecked. Mitigation ensures that damages compensate genuine, unavoidable loss rather than rewarding inaction.

Answer: D. Vicarious liability makes an employer legally responsible for torts (civil wrongs) committed by an employee while acting in the course of their employment, even though the employer was not personally at fault. It does not make employees liable for company debts, prevent a company being sued, or grant directors immunity. The doctrine reflects the idea that an employer who benefits from an employee's work should also bear responsibility for related wrongs.

Answer: B. As a general rule, contracts made by a minor are not binding on the minor, to protect them, although exceptions exist — notably contracts for 'necessaries' (such as essential goods and services) and certain beneficial contracts of employment or training. Such contracts are not automatically binding in every case, do not bind the parents simply because the contractor is a minor, and are not illegal. Capacity is an essential element of a valid contract.

Answer: C. A representation is a statement made during negotiations that induces a party to enter the contract but does not become a term of it; if it proves false, the remedy lies in misrepresentation rather than breach of contract. A term is a binding promise within the contract, breach of which gives a contractual remedy. A representation is not a heading or an exclusion clause. Distinguishing terms from representations affects the remedies available.

Answer: D. Redundancy is a form of dismissal arising where the employer's need for employees to carry out particular work has ceased or diminished — for example, because of a business closure, relocation or reduced demand — so the job no longer exists. It is not a resignation, a promotion, or annual leave. Eligible redundant employees may be entitled to a statutory redundancy payment and a fair selection and consultation process.