BUSINESS AND FINANCIAL LAW
MOCK EXAM PAPER
SECTION A (COMPULSORY)
Question 1
Is a contract valid as long as there is an offer and an acceptance?
Discuss.
(40 marks)
SECTION B (ANSWER ANY TWO QUESTIONS)
Question 2
(a) What do you understand by statute law?
(10 marks)
(b) What is the difference between a Court and a Tribunal?
(20 marks)
Question 3
Compare and contrast the features of fixed charges and floating charges?
(30 marks)
Question 4
(a) What do you understand by consideration?
(15 marks)
(b) What is the difference between an ordinary resolution and a special resolution?
(15 marks)
Question 5
(a) Under what circumstances may a company be compulsorily wound up?
(15 marks)
(b) What is the meaning of privity of contract?
(15 marks)
BUSINESS AND FINANCIAL LAW
MOCK EXAM PAPER
MODEL ANSWERS
Question 1
This question requires candidates to demonstrate an understanding of the principles
governing the law of contract namely that in addition, there should be consideration and an
intention to create legal relations. They are further expected to discuss these couple of
requirements, and also discuss what a valid offer and what a valid acceptance is.
Question 2
(a)
Statute law is set down by legislature and it is the Parliament where such law emanates from.
In particular, a statute starts as a bill proposed to the House: the National Assembly. If the bill
is approved by the relevant houses of the legislature, it becomes a law when it is signed by
the executive officer (the president at national level in some countries or the governor at the
state level in other countries). In particular, the Parliament is responsible for the statute law
in the sense that lawmaking powers are entrusted to officials duly elected.
On the other hand, case law is the responsibility of the judiciary where the law is made by
judges in response to specific cases before court. In general, the judicial opinions will based
on few general rules in shaping the meaning or scope of a statute. If a statute does not provide
suitable definitions of vague terms, courts must infer a suitable meaning for words or phrases.
(b)
Advantages of Tribunals

The main advantages of resorting to Tribunals rather than Courts are as follows;

Matters are dealt much faster using Tribunals than using Courts

Tribunals entail much cheaper costs than Courts

There is Informality in the sense that there are no strict Laws or precedent cases which
are binding.

It is more accessible to individuals.
However, the major disadvantage is that legal aid is not provided to individuals filing a case
at a Tribunal. Legal advice and assistance can be sought. However, the presentation of
arguments is mainly conducted by individuals who are not expert in Law.
Question 3
Creditors must be offered some protection for a debt owed by the company. As such, a charge
on assets will confer rights to a creditor to have prior claim over other creditors with regards
to the repayment of the company’s debt out of these assets. Charges can be fixed or floating.
Fixed Charges
These charges are ranked first in order of priority in case of liquidation and are attached to a
specific asset. There are three main characteristics of a fixed charge.

The asset must be identified

There is the intention to keep the asset permanently in the business e.g Buildings, land
etc

The company cannot deal with the asset without the consent of the creditor.
Floating Charges
The main characteristics of a floating charge are as follows;

The asset will change from time to time in the ordinary course of the company’s
business

The company can deal with the charged assets to carry its business until the holders
enforce the charge.

A floating charge on the company’s assets also applies to the future and current assets.
The floating charge does not attach any specific assets until crystallization. In effect,
crystallization entails that the company cannot deal with the charged assets as done before. In
effect, crystallization will occur when there is liquidation or the company is unable to pay its
debt or has ceased its operations.
Fixed and Floating Charges
Broadly speaking, a fixed charge entails more security than a floating charge in terms of its
repayment priority in case of liquidation. Also, value of the security is uncertain under
floating charges until the charge crystallizes. However, a floating charge will be based on
assets which are relatively short term and liquid. For instance, a floating charge on an
inventory will be easier to realize than a fixed charge on a factory building.
Question 4
(a)
In contracts, each party provides a benefit to the other in return for a benefit received. As such,
consideration must shift to and from each side which differentiates contracts from gifts. In
particular, a gift is one-sided as only one part receives the benefit. Therefore, a gift does not
form part of a contract as it has no consideration. Consideration is an essential element for a
valid contract. However, it may happen that special types of contract do not provide for
consideration- for instance a contract made by deed is still enforceable.
Based on the case of Currie v Misa (1875), consideration can be defined as ‘ consisting either
is some right, interest, profit or benefit accruing to one party, or some forbearance, detriment,
loss or responsibility given, suffered or undertaken by the other’.
A consideration can either be Executory where there is an exchange by each party for a
promise to do something for the future or Executed where there an act in exchange for a
promise at the time the contract is made. For instance, an individual may offer to reward
anyone retrieving his or her lost mobile phone. If a person performs this act, i.e manages to
retrieve the mobile phone and return it back to its owner, Executed consideration is observed
and the contract is binding.
For consideration to be valid, it has to be sufficient (of some recognizable monetary value) but
need not to be adequate (of same value as the other party’s consideration). With regards to
adequacy, the Courts will not assess the comparative value of the promises or acts exchanged.
For instance, based on Thomas v Thomas (1842) case, there was a promise by a husband by
his will to rent a house to a widow for one pound per annum. There is no monetary value
attached to the promises by the husband’s wishes. However, the nominal rent of one pound
was sufficient though not adequate. As such, consideration is sufficient if there is some
recognizable monetary value even though this value may not be viewed as a good bargain for
one party in terms of being adequate.
Past consideration is no consideration. If an act has already been performed prior to the other
party providing the promise, then the consideration is considered as Past consideration and
it is not sufficient to be considered as binding. As an example, following the Re McArdle (1951)
case, could be that repairs were done on a house used by one member of the family though it
was being used by other members. The other members had promised to reimburse the costs
of repairs afterwards. However, the work on the house was completed before the documents
were signed by the other members. As such, there is no consideration in the sense that at the
time of executing the agreement, all the work had been completed. Consideration for the
agreement was therefore wholly past consideration.
However, a past act can be considered as valid if the act was performed at the request of the
promisor and if parties had right from the start considered that payment would be effected.
(b)
In particular, resolutions can be classified as follows;

Ordinary Resolution

Special Resolution

Written Resolution (applicable only for private companies)
Ordinary Resolution

Requires the majority (more than 50%) to pass

Notice is to be given to registrar if it’s only mandated by the statute

The purpose of this type of resolution is for most business where there are no major
changes
Special Resolution

Requires at least 75% to pass

Notice is to provided to Registrar of Companies within 15 days

The purpose of this type of resolution is for major changes in the company in terms of
change of name, winding up of company, reduction in share capital, and change in the
articles amongst others.
Question 5
(a)
If a company is unable to pay its debt, a creditor may file a case in court asking for the winding
up of the company. The court can also demand compulsory liquidation if it is just and
equitable to wind up the company. For public companies, it may happen that it is in the
interest of the public to wind up the company such that the state may petition for compulsory
winding up.
A creditor asking for compulsory liquidation through court must show evidence that the
company is effectively insolvent. The following issues are therefore considered:

A creditor has forwarded a written demand for payment at the registered office of the
company but the company has ignored such demand or is unable to offer a guarantee
meeting such demand within a notice of 21 days.

The creditor has obtained a judgment in his favour for payment. However, the
company does not own any assets which can be liquidated for payment of such debt.

The creditor shows that the assets of the company on the balance sheet are lower than
the liabilities (balance sheet test) or provide evidences that the company cannot honor
its obligations as in a timely manner.
Just and Equitable ground
A company can also be wound up on the grounds that members are dissatisfied with the
management of the directors or controlling shareholders of the company. In particular,
dissatisfaction has to be supported by the claim that it is just and equitable for the parties to
wind up the company. It cannot solely be based on mere opinions of members. In particular,
the followings may be considered by court when granting liquidation on the grounds of just
and equitable:

A court may order the winding up of a company if the objectives as stated in its articles
cannot be fulfilled. For instance, if the objects of the company were solely to import
coffee from Latin American Countries and the company fails in its attempt to obtain
an import permit from the government, there is reasonable grounds for the winding
of such company since the objects of the company can no longer be achieved.

It is possible that there is a deadlock in the managerial state of the company’s affairs.
For instance, directors who are also owners of the company have serious clashes such
that they are unable to work together. In this case, it is just and equitable for the court
to order liquidation.

There may be cases where past relationships which were the basis of the association
have been unfairly treated and there is no other remedy to establish fairness and equity
other than winding up the company.
(b)
In general, only a party to a contract has enforceable rights or obligations. Third parties have
no rights or obligations emanating from the contract. In effect, the doctrine of Privity of
Contract entails that, in general, a contractual obligation cannot bind a third party or be
enforced against them. As an example, there was an initial agreement between Dunlop
Pneumatic Tyre Co Ltd and Dew & Co where Dew & Co was provided 10% discount on tyres
bought from Dunlop Pneumatic Tyre Co Ltd. However, it was also agreed that Dew & Co will
need to obtain a written undertaking from any firms not to re-sell below a certain price.
Selfrige & Co Ltd bought tyres from Dew & Co and did sign the undertaking not to sell below
the agreed price. However, Selfrige & Co Ltd had actually sold the tyres below the agreed
price. As such, Dunlop Pneumatic Tyre Co Ltd initiated legal proceedings against Selfridge &
Co Ltd for breach of contract. In the Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co ltd
(1915) case, the court held that the initial contract was between Dunlop Pnemactic Tyre Co
Ltd and Dew & Co and that Selfridge & Co Ltd was a third party. As such, Dunlop Pnemactic
Tyre Co Ltd could not sue Selfrige & Co Ltd for breach of the initial terms of the contract.
There are some exceptions to the doctrine of Privity where a third party to a contract may, in
their own right, enforce a term of the contract. There are two main conditions attached for
them to do so. Firstly, the contract expressly provides that he or she may do so. Secondly, the
term avows to confer a benefit to the third party.