Free CICM Business Law (7CO) Practice Questions

Sample Practice Questions

Try these 10 sample questions from the CICM Business Law (7CO) practice bank. Each includes the answer and explanation. Continue with the interactive practice above to review the full question set.

1. 1In the English doctrine of precedent, what is the ratio decidendi of an earlier judgment?

   1. A.The legal proposition necessary to decide the caseCorrect answer: A
   2. B.Every observation made while discussing the dispute
   3. C.The parties' agreed description of the court's powers
   4. D.The factual allegations appearing in the claim form

   Explanation: The source states: "the statement of law which decided the case." The ratio is the proposition used to decide the earlier case. Remarks, pleaded allegations and parties' descriptions do not themselves supply that proposition.

   Reference: Lord Justice Laws: Our Lady of Common Law — para. 7, pp. 3–4

2. 2An insurer offers cover on stated terms. The applicant replies accepting only if the excess is reduced. How should that reply be treated for contract formation?

   1. A.An unqualified acceptance of the original terms
   2. B.A completed contract with an automatic reduction
   3. C.A proposed change rather than an unqualified acceptanceCorrect answer: C
   4. D.A binding acceptance pending the insurer's objection

   Explanation: The source states: "there must be acceptance and this must be unqualified" The reply changes a material term. It does not unconditionally accept the offered excess; the insurer must agree to the proposed change.

   Reference: HMRC IPT03650: What constitutes a contract? — Essential elements of a valid contract

3. 3A business buys 200 units from an unspecified, unascertained stock. No identified-bulk ownership exception applies. Under Sale of Goods Act 1979 section 16, what must happen before property in those goods can pass?

   1. A.The buyer must first pay the whole purchase price.
   2. B.The goods must be ascertained before property can pass.Correct answer: B
   3. C.The seller must accept the buyer's order.
   4. D.The parties must fix a delivery date.

   Explanation: The source states: "no property in the goods is transferred to the buyer unless and until the goods are ascertained." Ascertainment is a statutory prerequisite where the identified-bulk exception is excluded. Order acceptance and fixing delivery do not themselves ascertain goods, and section 16 does not impose universal full prepayment.

   Reference: Sale of Goods Act 1979 — s. 16

4. 4In the ordinary consensual model of agency, whose consent establishes the principal–agent relationship?

   1. A.The principal's consent alone, regardless of the proposed agent's response
   2. B.Both the principal's consent to representation and the agent's consent to actCorrect answer: B
   3. C.The agent's consent alone, provided the proposed principal receives a benefit
   4. D.The third party's consent to dealing, without either proposed party's consent

   Explanation: The source states: "the principal, consents that another party, the agent, shall act on his behalf, and the agent consents so to act." Agency in this model requires consent on both sides; a benefit or a third party's willingness does not replace either party's consent.

   Reference: Bates v Post Office Ltd (No 3), agency principles — Paragraph 796

5. 5A debt is covered by a valid, unlimited guarantee. All required notices have been given, and the guarantee imposes no requirement to sue the borrower first. Must the creditor exhaust proceedings against the borrower before proceeding against the guarantor?

   1. A.Yes; a final judgment against the borrower is always required.
   2. B.Yes; the borrower's insolvency must first be established.
   3. C.No; the creditor may proceed against either or both obligors.Correct answer: C
   4. D.No; proceeding against the guarantor releases the borrower.

   Explanation: The source states: "C can (after due notice) proceed against either or both of PD and S." The creditor can choose either or both defendants subject to the stated terms and notice. Suing the guarantor does not itself release the principal debtor.

   Reference: In re Kaupthing Singer & Friedlander Ltd — Paragraph 11

6. 6A judge's observation was unnecessary to the decision in an earlier English case. What follows for its force as precedent?

   1. A.It binds a later court whenever it appears in a published judgment
   2. B.It is not binding merely because it appears in that judgmentCorrect answer: B
   3. C.It has the same binding force as the reason necessary for the decision
   4. D.It binds only when the earlier judgment was unanimous

   Explanation: The source states: "A statement of law which was not necessary for the earlier decision is not ratio" An unnecessary observation is not the ratio and does not become binding simply through publication or unanimity. The ratio/other-observation distinction matters.

   Reference: Lord Justice Laws: Our Lady of Common Law — para. 7, pp. 3–4

7. 7In an ordinary contractual exchange, what does consideration refer to?

   1. A.A party's underlying personal motive for entering the agreement
   2. B.A court's assessment of whether the bargain was financially wise
   3. C.An exchange requiring each party to receive equal monetary value
   4. D.An act, promise or forbearance exchanged for the other's undertakingCorrect answer: D

   Explanation: The source states: "rights are acquired by one or more persons on exchange for acts or forbearance on the part of the other or others." Consideration concerns the exchange supporting the agreement. It is not a private motive, equal price comparison or retrospective profitability assessment.

   Reference: HMRC IPT03650: What constitutes a contract? — Definition of contract

8. 8For specific or ascertained goods in an English business sale, what primarily determines when ownership passes under section 17?

   1. A.Physical delivery must always occur before ownership passes.
   2. B.Full payment must always occur before ownership passes.
   3. C.The parties' intention determines when ownership passes.Correct answer: C
   4. D.Signature of the order always determines when ownership passes.

   Explanation: The source states: "the property in them is transferred to the buyer at such time as the parties to the contract intend it to be transferred." The parties' intention governs, assessed using contractual terms, conduct and circumstances. The alternative events do not independently determine ownership.

   Reference: Sale of Goods Act 1979 — s. 17(1)

9. 9A business owner authorises a friend to act on her behalf, and the friend agrees to act without payment. What is the effect of the absence of a contract between them on the agency relationship?

   1. A.Agency is postponed until the friend receives a commission.
   2. B.Agency can exist even though the friend acts gratuitously.Correct answer: B
   3. C.Agency requires a written employment contract between them.
   4. D.Agency is impossible unless the gratuitous appointment is by deed.

   Explanation: The source states: "The relationship between principal and agent need not be contractual: an agent can act gratuitously" A contractual exchange is not essential to the grant of authority. Gratuitous representation can still be agency.

   Reference: Bates v Post Office Ltd (No 3), agency principles — Paragraph 796

10. 10A borrower and an unlimited guarantor are both insolvent. A creditor has proved for the whole £40,000 debt against each estate. Ignoring interest and costs, what is the maximum total recovery of that debt from the two estates?

    1. A.£20,000
    2. B.£40,000Correct answer: B
    3. C.£60,000
    4. D.£80,000

    Explanation: The source states: "C can prove against each for 100p in the pound but may not recover more than 100p in the pound in all." Separate proofs do not allow double recovery. The combined ceiling is 100% × £40,000 = £40,000; £80,000 counts the same debt twice and the other figures do not express the full-debt ceiling.

    Reference: In re Kaupthing Singer & Friedlander Ltd — Paragraph 11