You are required to answer Five Questions. (If you provide answers to more than five questions, you must draw a clearly distinguishable line through the answer(s) not to be marked. Otherwise, only the first five answers to hand will be marked).
The Institute of Certified Public Accountants in Ireland, 17 Harcourt Street, Dublin 2.

THE INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS IN IRELAND
FORMATION I EXAMINATION – APRIL 2010
Time Allowed: 3 hours, plus 10 minutes to read the paper.
Number of Questions to be answered: FIVE
(Only the first five questions answered will be marked).
All questions carry equal marks.
1.
Briefly outline the nature of the criminal and civil law jurisdiction under the Irish Court system.
[Total: 20 marks]
2.
Trace the distinction between and discuss legal and equitable interests in the law of real property.
[Total: 20 marks]
3.
Margo decides to buy a car and sees an advertisement in the paper that states, ‘’05 Ford Fiesta for sale,
10,000 miles, 1 careful owner.’ Margo rings the number in the advertisement and agrees with Eve, the owner, to come to see the car. When Margo meets Eve they discuss the car. Eve states that it has never given her any trouble and that she can guarantee Margo that it should run fine for at least 12 months.
Margo agrees to buy the car and pays Eve for it, they sign on a contract that states ‘Margo agrees to buy
’05 Fiesta from Eve for €4,000, Eve accepts no liability for any damage done to the car.’
As Margo is driving home the car breaks down. When Margo brings the car to a mechanic she states that the previous owner clearly was a very bad driver as the car parts are badly worn from being driven roughly.
Advise Margo as to what are the terms of her contract with Eve.
[Total: 20 marks]
4.
Explain the nature of negotiable instruments with particular reference to Bills of Exchange, Cheques and
Promissory notes.
[Total: 20 marks]
5.
Give a brief outline of Companies, Partnerships and Sole Traders in Irish Law.
[Total: 20 marks]
6.
Describe in detail the core elements of the hire purchase agreement.
7.
Describe in detail the principle of indemnity in Irish Insurance Law.
[Total: 20 marks]
[Total: 20 marks]
END OF PAPER
Page 1

THE INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS IN IRELAND
FORMATION I EXAMINATION – APRIL 2010
SOLUTION 1
Briefly outline the nature of the criminal and civil law jurisdiction under the Irish Court system.
[Total 20 marks]
General Comments
This question requires the students to understand the difference between civil and criminal law and to apply this court system. It requires a descriptive answer though students will be required to demonstrate that they can describe the difference between the two systems.
The distinction between the civil and criminal law system is one of the central aspects of the Irish legal system. The differences between the two are based on who brings the proceedings, the standard of proof and the consequences of a decision by the Court.
[2 marks]
Civil law deals with wrongs that maybe public or private. It settles disputes between parties and allocates rights and responsibilities between the parties. The burden of proof moves between the parties depending on the point of law that is being proved. The facts must be proved on the balance of probabilities. Issues arising out of tort, commercial law, contract law or employment law among others come under civil jurisdiction. The judge in the case settles the dispute between the parties by allocating rights and responsibilities. It is open to the judge to award damages, grant an injunction, order specific performance or some other remedy depending on the nature of the proceedings. Only a small number of civil cases are now heard before a jury.
[5 marks]
Criminal law deals with public law and it is the State that commences proceedings against individuals who have breached the criminal law. The Office of the Director of Public Prosecutions begins proceedings after receiving a report from An
Garda Síochána. In criminal cases, the accused is presumed innocent and it must be proved beyond a reasonable doubt that the accused has committed a crime. The consequences for a breach of the criminal law may involve a custodial sentence, a fine, an order to keep the peace or a community service order of some kind.
[5 marks]
The district court is the lowest court and under the Courts and Court Officers (Amendment) Act 2007 the numbers of judges should not be more than 63, excluding the President of the Court. The District Court’s civil jurisdiction covers matters up to €6,349 and also grants dance and liquor licences. Its criminal jurisdiction covers summary offences and some indictable cases of a minor nature.
[2 marks]
Under the Court and Court Officers (Amendment) Act 2007 the Circuit Court has no more than thirty seven judges and a
President. It is divided into eight circuits: one judge is permanently assigned to a circuit while in busier courts the number maybe larger. Civil cases up to €38,092 maybe heard in the Circuit Court, the parties may consent to unlimited jurisdiction in certain circumstances. In criminal cases, “Circuit Court deals with indictable offences triable by jury. It is also the court of appeal for both civil and criminal cases from the District Court
[2 marks]
The High Court has jurisdiction over all matters to come before the Courts. This includes matters arising out of the
Constitution. Under the 2007 Court and Court Officers (Amendment) Act, there is a President who is also a member of the Supreme Court and not more than thirty five judges. Generally judges sit on their own, though at times in certain cases three judges sit together. A jury also sits on certain civil cases and in criminal cases where a plea of not guilty has been entered. It is also the Court of Appeal from the District and Circuit Courts. For criminal cases the court sits as the
Court of Criminal Appeal. The Special Criminal Court was set up under the Offences against the State Act 1939 and sits with no jury.
[2 marks]
Page 3

The Supreme Court is the highest court in the system and is the court of appeal for any cases which originated in the High
Court and cases from both the District and Circuit Courts. The Chief Justice plus seven other judges sit on the Court and the President of the High Court is an ex officio member. The President may send a Bill to the Supreme Court to test its constitutionality before signing it into law.
[2 marks]
SOLUTION 2
Trace the distinction between and discuss legal and equitable interests in the law of real property.
[Total 20 marks]
General Comments
The aim of this question is to examine the students’ knowledge of the different forms of ownership of real property and their ability to distinguish between legal and equitable interests. Students are expected to know the differences between the two forms of interests and the effect that they have. The students are expected to give a descriptive answer. The question is relatively straightforward and in-depth analysis is not required. Extra marks will be given for students who incorporate statutes or case law into their answers.
The distinction between the two forms of ownership has its origins in medieval law. Judges in the courts of common law were more concerned with legal interests and the Chancellor of the Court of Chancery was concerned with equitable interests. Even though these two systems were integrated towards the end of the 19th century, the distinctions between the two systems remain deeply embedded in the law despite the passage of several acts in the area.
[4 marks]
The importance of whether rights are attributed with legal or equitable character has its origin in the time when legal rights were those that were recognised exclusively by the courts of the common law, while equitable rights were enforced by the courts of equity. Once a legal estate or interest has been created, it can be enforced against any and all persons who later acquire rights in the land, irrespective of whether those subsequent rights were granted in return for valuable consideration and also irrespective of whether the person who acquired them had any knowledge as to the existence of the prior legal estate or interest. The common law takes a simple approach to priority between two competing legal interests and that is that the one first created prevails. When land (or an interest in land) is transferred to a third party, legal rights that previously attached to the land remain attached to it and are as a result binding on the third party. The purchaser therefore has notice that ownership of the property is subject to any other legal rights established by others.
There are important differences between legal and equitable interests in land. The fact that there is unregistered and registered land in Ireland further complicates the legal and equitable ownership of land. This leads to clarity and efficiency in the law.
[8 marks]
Legal estate or interests which have been established successfully have the strongest claim on property and have the strongest right of enforcement. A legal interest is enforceable against any and all persons who later acquire rights in the land; this is irrespective of whether those subsequent rights were acquired or granted in return for valuable consideration and irrespective of whether the person who acquired them had any knowledge of the existence of the prior legal estate or interest. In contrast equitable ownership initially only confers rights in personam or in person, which compels trustees to personally perform the trust. Equity also has developed the notion of the bona fide purchaser for value as well as the doctrine of notice. This will grant some rights to subsequent purchasers of land who have given consideration for the property. However in contrast to the holder of the legal interest the equitable owner never holds an absolutely indefeasible title, therefore the equitable owner’s claim to the title is never as strong as the legal owner.
[8 marks]
Page 4

SOLUTION 3
Margo decides to buy a car and sees an advertisement in the paper that states, ‘’05 Ford Fiesta for sale, 10,000 miles,
1 careful owner.’ Margo rings the number in the advertisement and agrees with Eve, the owner, to come to see the car.
When Margo meets Eve they discuss the car. Eve states that it has never given her any trouble and that she can guarantee
Margo that it should run fine for at least 12 months. Margo agrees to buy the car and pays Eve for it, they sign on a contract that states, and ‘Margo agrees to buy ’05 Fiesta from Eve for €4,000, Eve accepts no liability for any damage done to the car.’
As Margo is driving home the car breaks down. When Margo brings the car to a mechanic she states that the previous owner clearly was a very bad driver as the car parts are badly worn from being driven roughly.
Advise Margo as to what are the terms of her contract with Eve.
General Comments
This is general question on the terms of a contract. It requires the students to understand the difference between express and implied terms and between terms with are mere representations and terms which form part of the contract and details of exclusion clauses. The students are expected to give a descriptive answer. Extra marks will be given for students who incorporate statutes or case law into their answers
Margo must be advised as to what aspects of her negotiations form part of her contract and what aspects are mere representations. The contents of a contract are known as terms and they set out what the rights, obligations and rules which form the contract. All contracts are bound by certain requirements, which vary according to the content of the contract are. These maybe express terms or implied terms, however all statements expressly made or written down do not necessarily form part of the contract.
[2 marks]
Not every statement made by the parties will form part of the contract, for example statements made during preliminary negotiations or in advertising materials. Express terms may be written or oral. In Margo’s case the advertisement in the newspaper may or may not be part of the contract. If the court finds that the advertisement was not an offer and just an invitation to treat it will not form part of the contract and Margo will not be able to rely on the statement that there was 1 careful owner as an express term. However the oral statement that it will not give her trouble for 12 months may form part of the negotiations even though it was not in the written statement. For express terms there is a distinction between mere representations and warranties. Mere representation has no contractual effect while a warranty is a term which has contractual effect. Though the word warranty has several different meanings in contract law when deciding whether a term is a warranty or a representation the words used by the parties nor the use of the word warranty will be conclusive. The
Court will therefore have to decide whether Eve’s statement was a warranty and thus has contractual effect.
[6 Marks]
The written agreement stating that Eve accepts no liability could be classed as an exclusion clause. Exclusion clauses are terms in a contract that attempt to restrict or exclude entirely the liability of one of the parties or both. The Sale of Goods and Supply of Services Act 1980 S 46 limits exclusion clauses use in those contracts covered by the statute. The courts are unwilling to enforce very broad exclusion clauses that limit all liability such as in Pearson v Dublin Corporation, where the Court decided to ignore the exclusion clause when assessing liability. In this instance the Court will have to interpret the written statement and consider whether it falls outside the Sale of Goods and Supply of Services Act, whether it is too broad, or whether it only covers damage to the car caused after purchase or whether it includes damage already done to the car.
[6 marks]
The vast majority of terms will be contained in a written contract or be expressed in some form or another. But it is possible that some terms were overlooked or left out. The court adds some terms by implication into the contract. Implied Terms maybe: custom, judge made, by law or by fact, statute based or under the constitution. As an example in this instance the Sale of Goods and Supply of Services Act could be implied to include a term that would require the car to be fit for purpose. It is unlikely that custom would be implied in this situation as firstly it must be certain; it must be clearly established in the case law or otherwise identifiable and consistent, secondly it must be notorious; it must be well known by those doing business in the particular trade or place and such that an outsider making inquiries could discover. Thirdly it must be recognised as binding therefore compliance with it must come out a sense of legal obligation rather than as a matter of choice or commercial convenience. In regard to the constitution, express and unenumerated fundamental rights and freedoms maybe implied into a contract, though again this would not be applicable here.
[6 marks]
Page 5

SOLUTION 4
Explain the nature of negotiable instruments with particular reference to Bills of Exchange, Cheques and Promissory notes.
General Comments
This question is designed to test students’ knowledge in the area of documentary intangibles particularly negotiable interests. The question requires a descriptive answer. Students are expected to set out any general issues regarding documentary intangibles and negotiable instruments before going on to explain what Bills of Exchange, Cheques and
Promissory notes are. Extra marks will also be awarded if students can refer to any relevant secondary legislation.
Negotiable Instruments are transferable commercial documents that enable individuals and companies to transfer money or property. They have been created through statute and through custom. It is defined in the Bills of Exchange Act 1882 as ‘a chose in action, the full and legal title to which is transferable by mere delivery of the instrument with the result that complete ownership of the instrument and all the property it represents passes free from equities to the transferee, provided the latter takes the instrument in good faith and for value.’ The title to a negotiable instruments is passed on delivery if the instrument is payable to the bearer or by delivery and signature of the previous holder. Transferees have an unqualified right to payment of the full amount and are entitled to sue on the instrument in their own name. They do not include postal or money orders.
[5 marks]
A bill of exchange is defined in s. 3(1) of the Bills of Exchange Act 1882 as: ‘an unconditional order in writing, addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at a fixed or determinable future time a sum certain in money to or to the order of a specified person, or to bearer’.
Originally the most important aspect of the bill of exchange was its negotiability. A bill of exchange can be transferred once it has been endorsed without the need for formal assignment or transfer and the holder of the bill of exchange is entitled to bring an action before the courts on the basis of the instrument. This is an exception to the law of privity of contract.
Once the new holder of the bill of exchange has taken the bill in good faith and for value or some worth and without notice of any defects in the title or ownership of the person who negotiated the bill then they become known as a holder in due course and may have better title than the original holder. In ordinary usage cheques have generally taken the place of bills of exchange; however their use is still important as cheques are generally not intended to be negotiated, though there are instances where cheques may be.
[5 marks]
The Bills of Exchange Act 1882 is still the foundation on the law of surrounding the use of cheques and other negotiable instruments. The Cheques Act 1959 is also relevant in relation to banks and their liabilities with regard to cheques. Under the Act a cheque is defined in section 73 of the Act as ‘a bill of exchange drawn on a banker payable on demand.’
Generally cheques are not used as negotiable instruments that often, but are instead used as a direct method of payment and lodged to the payee's account. A bank may become what is known as a holder in due course if the bank has taken a cheque in good faith and for value and without notice of any defects in the title of the person who negotiated the cheque originally and may have better title than the original cheque holder. The Cheques Act 1959 the balance of liability generally is in favour of the bank. The use of cheques as negotiable instruments does open up the possibility of fraud. The Bills of
Exchange Act under Section 76 provides for the crossing of cheques to increase the security of the cheque as a method of payment. Cheques can be crossed by simply drawing two parallel lines. The phrase “not negotiable” on the face of the cheque which is accompanied by the general crossing provides for further security. Another form of crossing, an account payee crossing has the effect of rendering the cheque non-transferable and valid only as between the parties.
[5 marks]
A promissory note is an unconditional promise in writing made by one person to another, signed by the marker, engaging to pay on demand or at a fixed or determinable time in the future, a sum of money to, or to the order of, a specified person or bearer. A promissory note therefore has two parties to it, the promissory and the promise; this is in contrast to for example a bill of exchange which has three. It is a promise to pay not an order for someone else to pay. A promissory note is complete when it is delivered to the promisee. It is defined under the Bills of Exchange Act 1882 as, ‘an unconditional promise in writing made by one person to another signed by the maker, engaging to pay, on demand or at a fixed or determinable future time, a sum certain in money, to, or to the order of, a specified person or to bearer.’
[5 marks]
Page 6

SOLUTION 5 .
Give a brief outline of companies, partnerships and sole traders in Irish Law.
[Total 20 Marks]
General Comment
This question asks the for a brief summary of the various forms of business organisations under Irish law. Students will be required to outline the main elements of companies, partnerships and sole traders. This is a descriptive question.
Extra marks may be gained from the inclusion of legislation or case law.
A company has its own legal personality, and therefore is an entirely separate legal person to its members. This means that its members have limited liability. The Companies Acts 1963-2009 contain the statutory provisions in regard to company law. It also created the Director of Corporate Enforcement in the Company Law Enforcement Act 2001. The public office ensures that companies comply with all the rights and responsibilities in company law. A company must be registered as either a public or private limited company. A private company restricts the right of transfer of shares, they cannot be issued to the public, and it has at least two members and not more than ninety-nine members excluding employees. A public company is any registered company that is not private with seven or more members. A company has limited liability, this comes in three forms: limited by guarantee where members are liable for the amount they have guaranteed in writing to contribute in a situation where the assets of the company are insufficient to discharge the debts of the company, limited by shares where the member’s liability is limited to the nominal value of the shares held by them in the company and unlimited liability where the members are liable for all the debts of the company including as far as their personal assets. The principle of separate legal personality is central, this allows a company, and not its members, to make contracts, own property, sue and be sued as a legal person. The landmark case of Saloman v Saloman & Co.
(1897) established this principal.
[8 marks]
The Partnership Act 1890 under Section 1 defines a partnership as ‘a relationship which subsists between persons carrying on a business in common with a view to profit.’ Section 45 defines a business as every trade, occupation or profession. It is unnecessary that a profit is actually made once it is the intention of the partners to make one. There are no formal arrangements for creating a partnership. It can be formed expressly through a partnership contract, or impliedly through the conduct of the parties. A partnership contract is the most common. A partnership contract usually contains details on the place and nature of the partnership, the duration and commencement of the partnership, the admission and expulsion of partners, the dissolution of the partnership, the powers and duties of the partners, how profits and losses are to be divided and how disputes will be solved. Each partner in the firm is jointly liable for all the debts and obligations of the firm which are incurred in the course of the firm’s transactions. All the partners will be jointly personably liable for any action taken against the partnership as a whole. However, if the action is only against some of the partners, only those partners party to the transaction will be liable
[6 marks]
Sole traders are the most straightforward group of business organisations. Unlike the other forms of businesses there is not a requirement for limited liability or incorporation. It is usually entirely owned by one person who is fully liable for all the assets and debts of the business. From a tax perspective, the sole trader will not be liable to pay corporate tax. They will be required to comply with other element of the law such as employment and health and safety. There are three core legal obligations as a sole trader. Firstly under the Registration of Business Names Act 1963 the sole trader must register the business name under which she is trading under if the trading name is not carried out under her own name. Secondly, the sole trader is legally obliged to register as a sole trader for central tax purposes with the Revenue Commissioners and finally the sole trader will be operating her business concern with full and total personal liability and responsibility for any an all outstanding debts, charges, fines and or litigation matters that the business may incur.
[6 marks]
Page 7

SOLUTION 6
Describe in detail the core elements of the hire purchase agreement including the contents of the contract and its termination and questions of title.
General Comments
This question is designed to test the student’s knowledge of the hire purchase agreement. It requires a descriptive though specific answer regarding its nature and content. Extra marks will be gained for knowledge of case law.
The Consumer Credit Act 1995 outlines the law of hire purchase, though the Sale of Goods and Supply of Services Act
1980 is also relevant. Hire purchase agreements are a form of obtaining ownership under which the owner of the goods allows another person to use them in return for rental payments. It is a form of bailment or delivery of possession where the bailee may buy the good or under which the goods will or may pass to the bailee. The bailee has an option to buy the good but is not bound the do so. Thus the bailee does not agree to buy the good when agreeing the contract, thus the bailee cannot pass the goods to a third party. In the case of Helby v Matthews (1895) the court held that good title could not be passed to a third party before all the terms of the hire purchase agreement had been complied with.
[4 marks]
Hire-purchase agreements are subject to the usual rules relating to the law of contract, this includes offer and acceptance, misrepresentations, mistake etc., but there are also statutory requirements. Under section 57 of the Consumer Credit Act the owner must notify the hirer of the cash price of the goods before the agreement is made, this may be done in writing, by having it clearly labelled and attached to the good, or by having it clearly stated in the catalogue, price list or advertisement. The hire purchase agreement itself must be in writing and signed by the hirer and the other parties to the agreement. Section 58 of the Act sets out the required contents of the contract which includes, the statement of the total price, the amount of each instalment and the dates of payment, a list of the goods, the words Hire Purchase Agreement prominently displayed, the names and addresses of all the parties to the contract, any costs or penalties for breach, a statement of right of withdrawal within 10 days and a statement that the hirer must inform the seller of the whereabouts of the goods when a written request to do so is received. A copy of the agreement must be sent to the hirer within 10 days of making the agreement. Failure to do so will make the agreement unenforceable. Though the Court may waive the requirements under Section 59 of the Act if it dells that it would be just and equitable to grant relief to the hirer.
[8 marks]
Sections 74 – 77 of the Act imply conditions and warranties relating to title, the merchantable quality and the fitness for purpose of the goods. Section 74 implies a condition that the owner has or will have a right to sell the goods unless the hire purchase agreements states that the owner should transfer only the title that the owner has. There is an implied warranty that the goods are free from any charge that was not made known to the hirer and that he hirer will enjoy quiet possession of the goods. Section 75 requires the goods to be as described and if sold by sample that the goods correspond with the sample. Section 76 requires the goods to be of a reasonable standard and suitable for purpose and durable as is reasonable to expect, though not if these have been brought to the attention of the hirer or if the hirer has examined the goods to the extent that any problems would have been revealed.
[6 marks]
Under Section 63 of the Act a hire purchase agreement maybe terminated before the final instalment if the hirer decides to not continue or defaults on the agreement. This may be done in writing or in person. If the hirer terminates they become liable to pay all outstanding sums to bring the instalments up to one half of the purchase price.
[2 marks]
Page 8

SOLUTION 7
Describe in detail the principle of indemnity in Irish Insurance Law
General Comments
In this question the students should be able to give a detailed description of the doctrine of indemnity in Ireland. This will include a thorough description of the core principles involved. The question is asked in a clear manner and students should be able to give a sufficient description of the relevant law in the area. Extra marks will be given to students who include information on any relevant cases or statutes.
The legal definition of what constitutes a contract of indemnity was established in Vance v Forster. The Court stated that the insured may name any amount that he or she wishes and that he or she will also pay a premium; this does not mean that the company by accepting the risk has to pay out the amount specified by the insured. The insured cannot recover a figure above that amount however the insurance company may decide on the facts to pay out less as the insured can only recover an amount which is equal to the damage that has been sustained.
[2 marks]
There are four elements necessary for there to be a contract of indemnity. The first is that the insured must pay a premium to the insurer and the insurer must cover the risks of the insured. The second is that there must be a loss to the insured; this does not require complete destruction as the Court outlined in Colquhoun v London and Manchester Assurance Co, and theft for example will be covered in certain insurance contracts. The third is that the insurer is only liable for the actual loss suffered. They are therefore only entitled to be indemnified for their loss and are not entitled to recover on any other basis. Finally the insured must pay a fee to the insurer in order that the insurer is paid for the risk he has undertaken.
The Insurer's liability to the insured will not automatically equate to the sum insured in the policy. This principle was considered in Brodigan v Imperial Live Stock & Genera Insurance Company Ltd. The ordinary contract of insurance contained in a marine or fire policy is also a contract of indemnity under Castellain v Preston. It is clear from what was said earlier, that the sum insured under a policy is not, the sum which the insured will automatically acquire should a loss arise. The sum payable will be the sum which will compensate the insured for the actual loss sustained. This will be the cost of placing the insured in the same position he was in the day before the loss arose.
[10 marks]
Other Characteristics of indemnification policies include subrogation. The doctrine of subrogation gives an insurer the right to be placed in the position of the insured. The court in Doyle v Wicklow County Council stated that this doctrine arises once the insurer has indemnified the insured against a loss. The doctrine provides that, “all claims of the insured arising out of any ground of legal responsibility vest in the insurer by subrogation.” In essence this doctrine allows an insurer to succeed to all rights and remedies against third parties in respect of the loss or damage to the insured property. There is also the doctrine of reinstatement. This means that the insurers undertake to make good the insured's loss by replacement or rebuilding the property, as opposed to paying the insured the amount of the loss. Where an insured recovers any payment from a third party, in respect of loss or damage sustained, this must be taken into account in assessing an insurer's liability. An insured is only entitled to indemnity and should never be more than fully indemnified.
[8 marks]
Page 9