U1: T16 - KEY LEGAL CONCEPTS

Question 1

Joanne lives in London and her property in Brighton is on the market for £300,000. The property is currently unoccupied. Joanne is going away on business for six weeks and explains to her estate agent, Martin, that it might be difficult to contact her during that time. She tells him to do whatever is necessary to sell the property, as she is desperate for the money.

Answer 1

There is no cut‐and‐dried answer to this question. Martin certainly didn’t have ‘actual authority’ to make that decision, but he might have had ‘apparent authority’. Would it be reasonable to assume that in saying “do whatever is necessary” Joanne accepted that this might include creating a tenancy and accepting an offer that is £15,000 less than the asking price? If the property had been on the market for a long time, Joanne might decide to ratify Martin’s decision. If, on the other hand, this was the first offer, or she had already rejected an offer around £285,000, she might feel differently about the way Martin acted.

Question 2

Marian was married but had no children, although her parents were still alive. She died without leaving a will. The value of her estate was £600,000. How much did her husband inherit?

Answer 2

Marian’s husband inherited her entire estate. Parents only inherit if there is no spouse or children.

Question 3

Ian, who made no will, left an estate of £350,000. How much did his wife and each of his two children inherit?

Answer 3

Ian’s wife inherited £310,000 (ie the first £270,000 plus half the excess above that figure); Ian’s children inherited £20,000 each (ie the remaining £40,000 of the estate shared between them).

Question 4

Jagdeep is a partner in Pascoe & Partners. In the event that the business becomes insolvent, her liability is limited to the amount she has invested in the partnership, together with any personal guarantees she has given.

True or false?

Answer 4

False.

There is no information here to suggest that the partnership is a limited liability partnership (LLP) so Jagdeep has unlimited personal liability.

Question 5

Jagdeep is also a shareholder in Allenton Engineering Ltd. If the company were to become insolvent, what personal liability would she have for its debts?

Answer 5

None.

As a limited company, Allenton Engineering Ltd is a separate legal entity and shareholders would not be liable for its debts.

Question 6

For a contract to be valid, there must be consideration. What does this mean?

a) There must be payment or a promise to provide payment.
b) Both parties to the contract must be aged 18 or over.
c) Both parties must be open and honest in their dealings with each other.
d) There is a right to cancel the contract.

Answer 6

Answer is A)

There must be payment or a promise to provide payment. In a contract, one party provides goods or services, the other makes payment or a promise to pay.

Question 7

Rebecca owns a small paddock that she no longer needs for her horses. The neighbouring farmer has offered to buy it and they shook hands on the sale over a drink at the pub. Later, the farmer changed his mind and tried to withdraw from the purchase. Rebecca argued that their agreement in the pub constituted a contract and he must honour it.

Was she right?

Answer 7

No.

Contracts for sale of land must always be in writing and the transfer effected by deed.

Question 8

Which is true of independent financial advisers in terms of agency law?

a) They act on behalf of a network.
b) They act on their own account.
c) They act as agents of their client.
d) They act as agents of their company.

Answer 8

Answer is C)

They act as agents of their client.

Question 9

Why do mortgage lenders insist that joint mortgages are always on a joint tenancy basis?

Answer 9

The use of joint tenancy reduces the prospective risk to the lender. A joint tenancy means that each of the mortgagors has a stake in the entire property. Thus if one borrower should default on the mortgage, the lender will be able to pursue repayment from the remaining borrower(s). If the mortgage were on a tenants‐in‐common basis, the lender would only be able to pursue the borrower who had defaulted for the value of that borrower’s share of the property.

Question 10

Which of the following statements about the requirements for a valid will is correct?

a) An executor cannot be a beneficiary.
b) There must be a minimum of one witness.
c) A witness cannot inherit.

Answer 10

Answer is A)

A witness cannot inherit under the terms of a will.

Question 11

Harry has died without leaving a will. His estate will be distributed by:

a) an administrator.
b) a solicitor.
c) an executor.
d) an official receiver.

Answer 11

Answer is A)

An administrator. (An executor distributes the estate of a person who has made a valid will.)

Question 12

What role does the Court of Protection play in relation to enduring powers of attorney?

a) Enduring powers of attorney must be registered upon execution with the Court of Protection.
b) Any action taken by attorneys must be agreed by the Court of Protection.
c) The Court of Protection retains a list of all those qualified to act as attorneys.
d) Enduring powers of attorney can only be revoked with the consent of the Court of Protection.

Answer 12

Answer is D)

Enduring powers of attorney can only be revoked with the consent of the Court of Protection. They must be registered with the Office of the Public Guardian.

Question 13

One of the financial restrictions placed on undischarged bankrupts is that:

a) they are only able to borrow nominal amounts of money.
b) they are unable to buy goods, except for their own consumption.
c) they are unable to contribute to protection policies.
d) they are only able to work on an employed basis.

Answer 13

Answer is A)

They are only able to borrow nominal amounts of money.

Question 14

Which contracts must be made in writing?
1) Business
2) Property
3) Land

Answer 14

3) Land

Note that all agreements for the sale of land must be made in writing and conveyances of land (the actual transfer of ownership) must be performed by deed.

Question 15

Conveyances of Land must be performed by:
1) A Lawyer
2) The deed
3) The property owner

Answer 15

2) The deed

Note that all agreements for the sale of land must be made in writing and conveyances of land (the actual transfer of ownership) must be performed by deed.

Question 16

What is the minimum age for making a valid will is?

A) 21
B) 18
C) 16

Answer 16

B) 18

Question 17

A witness cannot be a beneficiary of a will.

True or False?

Answer 17

True.

It is important that the witnesses chosen must not be beneficiaries under the will (or the spouses of beneficiaries). If a beneficiary were to be a witness, they would not be able to inherit under the terms of the will.

Question 18

Fill in these gaps:

“In order to be effective for tax purposes, the deed of variation must be executed within X___ years of the death, and HMRC must be informed within X____ of its execution.

Answer 18

2 years
and 6 months

In order to be effective for tax purposes, the deed of variation must be executed within two years of the death, and HMRC must be informed within six months of its execution.

Question 19

If someone has left a will what legal document is required by the implementors of the will in order to implement the will?

A) Grant of probate
B) Letters of administration

Answer 19

A) Grant of probate

Legal authority for executors to distribute an estate according to the terms of a valid will.

Question 20

If someone has not left a will what legal document is required by the implementors of the will in order to implement the will?

A) Grant of probate
B) Letters of administration

Answer 20

B) Letters of administration

Legal authority to distribute the estate of a person who has died without leaving a valid will.

Question 21

If someone has left a will, who implements it?

A) The executor
B) The administrator

Answer 21

A) The executor

Person named by the testator as being responsible for carrying out the wishes expressed in a valid will.

Question 22

If someone dies intestate, who implements their asset distribution?

A) The Executor
B) The Administrator

Answer 22

B) The Administrator

Person given the role of distributing the estate according to the rules of intestacy.

Question 23

When someone dies in intestacy and the estate is shared equally among the children.

What can be said about their family hierarchy?
A) The deceased leaves a spouse but no children
B) There is both a spouse and children
C) There are children but no spouse
D) There is neither spouse nor children

Answer 23

C) There are children but no spouse

Question 24

When someone dies in intestacy and the spouse inherits the deceased’s entire estate.

What can be said about their family hierarchy?

A) The deceased leaves a spouse but no children
B) There is both a spouse and children
C) There are children but no spouse
D) There is neither spouse nor children

Answer 24

A) The deceased leaves a spouse but no children

Question 25

When someone dies in intestacy and the spouse inherits the deceased’s personal chattels, plus the first £270,000, plus half of the residue above £270,000 absolutely; the other half of the residue in excess of £270,000 is divided equally between the children.

What can be said about their family hierarchy?

A) The deceased leaves a spouse but no children
B) There is both a spouse and children
C) There are children but no spouse
D) There is neither spouse nor children

Answer 25

B) There is both a spouse and children

Question 26

When someone dies in intestacy and the estate goes to the parents of the deceased, or (if they are dead) to the deceased’s brothers and sisters.

What can be said about their family hierarchy?

A) The deceased leaves a spouse but no children
B) There is both a spouse and children
C) There are children but no spouse
D) There is neither spouse nor children

Answer 26

D) There is neither spouse nor children

Question 27

What are the 2 conditions of Trustees?

Answer 27

1) Over the aged of 18
B) Of sound mind

Question 28

How long does a bankruptcy order remain in force in the UK?

A) 12 months
B) 24 months
C) 6 months

Answer 28

A) 12 months

Most bankruptcy orders remain in force for 12 months, during which time the person is said to be an undischarged bankrupt. I

Question 29

What is the minimum debt size required to declare bankruptcy?

A) 2,000
B) 5,000
C) 10,000

Answer 29

A person can petition to have themselves declared bankrupt, or a creditor may petition to have someone else declared bankrupt if they owe (or are owed jointly with other creditors) £5,000 or more.

Question 30

Under agency law, ratification is where:

a) Although the agent acted outside the terms of the agency agreement, the principal agreed to the actions after the event.
b) The other party to a contract agrees that it should remain in place, despite the agent acting outside their authority.
c) The principal did or said something that could be seen as giving the agent powers outside the agency agreement.
d) The contract is deemed to be valid by a court.

Answer 30

a) Although the agent acted outside the terms of the agency agreement, the principal agreed to the actions after the event.

Question 31

To register a lasting power of attorney, application should be made to the:

a) Office of the Public Guardian.
b) County Court.
c) County Registrar.
d) Court of Protection.

Answer 31

a) Office of the Public Guardian.

Question 32

Which of the following is a reason a contract could be deemed invalid?

a) The buyer was aged 18.
b) The buyer promised to pay the full purchase price.
c) The contract was to buy 200 litres of smuggled rum
d) It was a contract for land performed by deed.

Answer 32

c) The contract was to buy 200 litres of smuggled rum

Question 33

Bartholomew has debts he cannot service and has applied for an individual voluntary arrangement (IVA). He owes £15,000 to his credit card company, £2,000 to a local builder, £1,500 to his bank and £1,500 to a local furniture shop. Which of the following is true?

a) The credit card company can veto the IVA application.
b) The IVA application can be approved if the builder, bank and furniture shop agree.
c) All four creditors must agree for the IVA application to be approved.
d) William can insist on the IVA being approved.

Answer 33

a) The credit card company can veto the IVA application.

Creditors who represent at least 75% of the value of the debt must agree to the IVA. 75% of Bartholomew’s debts is £15,000. That means that if the credit card company does not agree to the IVA, it will not be approved.

Question 34

Graham is a 2% shareholder in a small limited company. What is his liability if the company becomes insolvent?

a) His liability is limited to the amount he has invested in the company.
b) He is fully liable for 2% of the company’s UK debts.
c) He is jointly and severally liable for all of the company’s debt with other shareholders.
d) He is fully liable for 2% of the company’s worldwide debts.

Answer 34

a) His liability is limited to the amount he has invested in the company.

Question 35

Gary is a 50% partner in a limited liability partnership with his friend Mike. Gary has invested £30,000 and has provided a personal guarantee on a £50,000 bank loan the partnership took out. The business has become insolvent with debt of £1,000,000 and Mike cannot be found. What is Gary’s liability?

a) 50% of the partnership’s debts.
b) The £30,000 he initially invested.
c) The £30,000 he initially invested and the £50,000 bank loan.
d) All the debts of the partnership.

Answer 35

c) The £30,000 he initially invested and the £50,000 bank loan.

Question 36

Novak died without a valid will, leaving an estate of £500,000. He had not made a will because he assumed that his estate would automatically pass to his civil partner, and then to their two adult children. How will Novak’s estate be distributed?

a) His wife will inherit £385,000 and the children will inherit £57,500 each.
b) His wife will receive £500,000, and on her death the children will inherit whatever is left.
c) His wife will inherit £270,000 and the children will inherit £115,000 each.
d) The courts will decide on a fair distribution of the estate.

Answer 36

a) His wife will inherit £385,000 and the children will inherit £57,500 each.

Question 37

Which one of the following is not a legal requirement for a will to valid but is recommended?

a) The testator must be aged 18 or over.
b) The will must be dated.
c) The will must be properly executed.
d) The will must be in writing.

Answer 37

b) The will must be dated.

Question 38

On receipt of a policy claim, an insurer suspects inaccurate information was provided on the original application form. Under the Consumer Insurance (Disclosure and Representations) Act 2012, the insurer:

a) can apply a compensatory remedy if the applicant took reasonable care and any misrepresentation was honest and reasonable.
b) must pay the full claim if the consumer had just been careless when completing the application form.
c) can refuse the claim if there was deliberate misrepresentation when completing the application form.
d) cannot refuse the claim in any circumstance.

Answer 38

c) can refuse the claim if there was deliberate misrepresentation when completing the application form.

Question 39

A property owned on a joint-tenancy basis will allow each owner to leave their share to their chosen beneficiaries.

a) True
b) False

Answer 39

b) False

A joint tenancy means both owners technically own 100% of the property, and on one death legal ownership of the property automatically passes to the survivor, regardless of any will or the laws of intestacy.

Question 40

What are the 7 requirements for a contract to be legally binding?

Answer 40

C.O.M.I.L.C.C

Consideration
Offer and Acceptance
Misrepresentation
Intention to establish legal relationship
Legality of Object
Contract terms
Capacity to Contract

Question 41

What are 2 formalities required for a valid will

Answer 41

1) Will must be in writing
2) The Will must be properly executed

Question 42

The document that formally amends the will is called a?

Answer 42

Codicil

Question 43

The Will executor will most likely issue a deed of variation for?

A) Tax enhancement purposes (to reduce IHT liability)
B) Serve their best interests
C) Correct errors made

Answer 43

A) Tax enhancement purposes (to reduce IHT liability)

Question 44

If a financial institution cannot demonstrate a scam victim was ‘grossly negligent’ they must:

1) refund money lost in the past
2) refund with interest

Answer 44

2) refund with interest

Now, if a scam victim has been tricked into handing over details that enabled someone else to take money from their account, the financial institution needs to be able to demonstrate that the victim was ‘grossly negligent’ in doing so in order to refuse a refund. This is a much higher standard than simply being careless or negligent. If they cannot prove this, then the victim must be refunded with interest.