BUSINESS LAW – COMPULSORY ONLINE TEST 2
PRACTICE MULTIPLE CHOICE QUESTIONS (MCQs)
These questions are provided as sample MCQs to assist with your revision of the examinable
topics in preparation for Compulsory Online Test 2.
You will notice below that there are multiple versions of the same question for the “scenario”
MCQs. These variations have been included to show you that a similar question can be asked
in several different ways. Depending on how a question is phrased, an answer that is right in
one version of a question might be wrong in another version of the question.
The answers to these practice questions are included at the end of this document. Make sure
that you attempt the questions before looking at the answers!
Looking at the answers without attempting the questions will not give you an opportunity to
test your knowledge.
MCQs will be worth 15 marks on your test. The other 10 marks will consist of hypothetical
legal problem questions. Please see the detailed test instructions provided on Moodle for full
details of your test and its requirements.
Best of luck with your study and for the test.
1. Business or commercial agreements:
A. Raise a presumption that the parties intend to create legal relations.
B. Raise a presumption that legal relations were not intended.
C. Are enforceable where there is a written document, expressly stating that legal
relations were not intended.
D. Have the same legal status as social or domestic arrangements.
2. Which of the following is not a rule of consideration?
A. Past consideration is not good consideration.
B. Performing an existing contractual obligation is good consideration.
C. Consideration must be sufficient, but need not be adequate.
D. Consideration may come in the form of a ‘practical benefit’.
3. A business will be able to rely on an exclusion clause and avoid liability if the clause is:
A. Contained in a written and signed contract.
B. Included in a sign, and brought to the attention of the other party by reasonable
notice.
C. Neither A nor B are correct.
D. Both A and B are correct.
4. If a contract has been breached, which of the following is correct?
A. The innocent party can terminate the contract and claim damages.
B. The innocent party may be able to terminate the contract and claim damages,
depending on the breach.
C. The innocent party may elect to keep the contract on foot (that is, keep the contract
in existence).
D. Both B and C are correct.
5. Which of the following is incorrect in relation to terminating contracts?
A. Contracts are terminated when they are fully performed.
B. Contracts are terminated when they are substantially performed.
C. Contracts may be terminated for breach of condition.
D. Contracts may be terminated for breach, in some circumstances, even where there
has not been a breach of condition.
6. Which one of the following is not one of the conditions to be proved before a contract
will be frustrated?
A. Neither party caused the frustrating event.
B. The frustrating event was foreseen and was specially referred to in the contract.
C. The frustrating event caused a fundamental change to the nature of the contract, and
to the obligations of the parties, under the contract.
D. It would be unfair to enforce the contract, given the changed circumstances.
7. Which of the following is correct, in relation to remedies that can be sought for a
breach of contract?
A. Specific performance is the main remedy for breach of contract, in the Australian legal
system.
B. Damages are the main remedy for breach of contract, in the Australian legal system.
C. Injunctions are the main remedy for breach of contract, in the Australian legal system.
D. Restitution is the main remedy for breach of contract, in the Australian legal system.
8. What types of losses can a business seek compensation for, in an action for breach of
contract?
A. All losses resulting from the breach, which were foreseeable by the business.
B. All losses that would ordinarily flow from the breach of contract.
C. Losses arising from special circumstances, where those circumstances were made
known to the other party at the time of contracting.
D. Both B and C are correct.
Questions 9-11 relate to the scenario below.
Paul owns a successful accountancy practice. Business is booming, so he decides to
renovate his office premises. During a meeting with Mark, the managing director of Elite
Constructions Pty Ltd, specific details of the refurbishment are discussed and agreed
upon. Before signing the contract, Paul seeks confirmation of Mark’s statement that the
interior office windows will be frosted, to ensure privacy when meeting with clients.
Mark assures him that this will be the case. Upon completion of the renovations, Paul is
dismayed to discover that the interior office windows have clear panes. The written
contract made no reference to the windows.
9. Which of the following best describes the likely outcome if the matter proceeds to
court?
A. The court is likely to decide that as there is a written contract, Mark’s statement has
no legal effect.
B. The court is likely to decide that Mark’s statement is a condition of the contract,
which has been breached, with Paul then entitled to damages.
C. The court is likely to determine that the oral statement is a collateral contract,
entitling Paul to terminate the contract and sue for damages.
D. The court is likely to hold that the oral statement was a collateral contract, that the
term has been breached, and that Paul is entitled to damages.
10. Which of the following is correct?
A. The statement about the frosted windows is likely to be legally enforceable, as a
collateral contract, even though it is not included in the signed contract.
B. The contract was in writing, and because of this, the parol evidence rule will prevent
Mark’s statement about the frosted windows having any contractual effect, as there are
no exceptions to the parol evidence rule.
C. There would ordinarily have been a collateral contract, however there is no collateral
contract in this case, as this would be inconsistent with the main contract.
D. Mark’s statement is incorporated into the written contract, because it was a promise,
rather than a representation.
11. Which of the following is correct?
A. The contract was in writing, and because of this, the parol evidence rule will preclude
Mark’s statement about the frosted windows having any contractual effect, as there are
no exceptions to the parol evidence rule.
B. It is likely that the oral statement was a collateral contract, that this term has been
breached, and that Paul is entitled to damages.
C. It is likely that the oral statement is a collateral contract, entitling Paul to terminate
the contract and sue for damages.
D. As the contract is in writing, Mark’s statement would have no legal effect.
Questions 12-14 relate to the scenario below.
Soon after renovations are complete, Paul enters into another contract, this time for the
purchase of new office furniture and equipment. He signs a contract for its delivery, with
a carrier company (that is, a company responsible for transporting goods). On the way to
the premises the furniture and equipment are damaged as a result of a collision caused
by the negligence of the driver of the van. There is an exclusion clause in the signed
contract, excluding the carrier’s liability ‘for any loss or damage caused to goods
pursuant to the contract’.
12. Which of the following statements is correct?
A. The carrier will not be liable, as the exclusion clause was contained in a contract
signed by Paul.
B. The carrier will not be liable, as the clause excludes liability for negligence.
C. The carrier will be liable, as the exclusion clause was ambiguous so cannot be relied
upon to avoid liability.
D. The carrier will be liable, because the exclusion clause will not be interpreted to cover
liability for negligence.
13. Which of the following statements is correct?
A. Since the exclusion clause is ambiguous, it can’t be relied upon by the carrier to avoid
liability.
B. Exclusion clause terms are only effective if they are interpreted to cover the events
that have occurred, and that would not be the case here.
C. Exclusion clauses in signed contracts are always effective to protect against liability, so
this clause will protect the carrier in this case.
D. Exclusion clauses are always ineffective against negligence claims, so this clause will
not protect the carrier in this case.
14. Which of the following statements is correct?
A. The exclusion clause will not cover the damage to the furniture and equipment
because the van driver’s actions are beyond the scope of the contract.
B. The exclusion clause will be considered a term of the contract, but when interpreted,
it does not cover the events that have occurred.
C. Exclusion clauses are always ineffective against negligence claims, so this clause will
not protect the carrier in this case.
D. The carrier will be liable, as the exclusion clause was ambiguous so cannot be relied
upon to avoid liability.
Questions 15-17 relate to the scenario below.
The accountancy practice continues to grow. Early in January 2020, Paul promises
Amanda (his long-serving administrative assistant) a bonus of $3,000 in her next pay for
her outstanding service to the firm during 2019.
15. Which of the following statements is correct?
A. Paul’s promise of the $3,000 bonus is contractually enforceable, as Amanda has
provided valuable consideration.
B. Paul’s promise of the $3,000 bonus is not contractually enforceable, as Amanda’s
outstanding work was performed before the promise of the bonus was made.
C. Amanda is entitled to the $3,000 bonus, as there was an understanding that she
would be paid for her outstanding work.
D. The promise for payment of the $3,000 bonus is enforceable, as Amanda’s
outstanding work has been completed at Paul’s request.
16. Which of the following statements is correct?
A. An exception to the rule that past consideration is not good consideration applies
here, since the work was completed at Paul’s request, and there was an understanding
that Amanda would be paid for her outstanding work.
B. The rule that past consideration is not good consideration applies here, and Amanda
cannot enforce Paul’s promise.
C. There is no issue of past consideration here, as Amanda is currently employed by Paul,
and Paul has made a promise to pay a $3,000 bonus, which has not yet been paid.
D. The promise to pay a $3,000 bonus is enforceable as it doesn’t matter whether or not
Amanda’s work was worth $3,000 (since consideration must be adequate, but need not
be sufficient).
17. Which of the following statements is correct?
A. Paul’s promise of the $3,000 bonus is contractually enforceable, as Amanda has
provided valuable consideration.
B. The promise to pay a $3,000 bonus is enforceable as it doesn’t matter whether or not
Amanda’s work was worth $3,000 (since consideration must be adequate, but need not
be sufficient).
C. Amanda is not entitled to the $3,000 bonus, because past consideration is not good
consideration.
D. Amanda is entitled to the $3,000 bonus, because the work was completed at Paul’s
request, and there was an understanding that Amanda would be paid for her
outstanding work.
Questions 18-20 relate to the scenario below.
Paul successfully negotiates a contract with Joseph to present a taxation seminar to his
staff on 15 May. The firm hires a venue in the city specifically for this purpose, and a
deposit is paid. One week before the seminar, Joseph contacts Paul and advises that he is
no longer available, because he has received a better offer from another accounting firm
to present to its staff on the same day.
18. Which of the following statements is incorrect?
A. Joseph’s actions amount to repudiation of the contract; Paul can immediately
terminate the contract and sue for damages (including the cost of the deposit for
booking the city venue).
B. Joseph’s act of informing Paul that he no longer intends to present at the seminar
amounts to an anticipatory breach of their contract.
C. The firm will be unsuccessful if it seeks an order for specific performance of the
contract by Joseph.
D. The firm would be successful if it seeks an order for an injunction, preventing Joseph
from breaching the contract.
19. Which of the following statements is incorrect?
A. Joseph has breached a condition of the contract, allowing Paul to terminate the
contract, and claim damages (including the deposit paid to book the city venue).
B. Joseph has anticipatorily breached the contract, allowing Paul to terminate the
contract, and claim damages (including the deposit paid to book the city venue).
C. Joseph has repudiated the contract, allowing Paul to terminate the contract, and
claim damages (including the deposit paid to book the city venue).
D. Joseph will be liable for damages, regardless of whether Paul elects to terminate the
contract immediately or not.
20. Which of the following statements is correct?
A. Joseph’s actions have caused the contract to be terminated for frustration.
B. Joseph has breached a condition of the contract, allowing Paul to terminate the
contract, and claim damages (including the deposit paid to book the city venue).
C. Joseph has anticipatorily breached the contract, allowing Paul to terminate the
contract, and claim damages (including the deposit paid to book the city venue).
D. The firm would be successful if it seeks an order for an injunction, preventing Joseph
from breaching the contract.
ANSWERS – PRACTICE MCQ QUESTIONS
1. A
2. B
3. D
4. D
5. B
6. B
7. B
8. D
9. D
10. A
11. B
12. D
13. B
14. B
15. B
16. B
17. C
18. D
19. A
20. C