Contract

Question 1

If friends, A and B, agree to share prize money from a joint lottery ticket, what presumption of intention to create legal relations applies, and can it be rebutted?

Answer 1

The law presumes the domestic agreement is not intended to be legally binding, but this presumption can be rebutted if there is clear evidence of a mutual agreement to share, as seen in Simpkins v Pays.

Question 2

A bookshop displays a textbook in the window with a price tag. Is the display an offer or an invitation to treat?

Answer 2

It is an invitation to treat (a declaration of willingness to negotiate).

Question 3

What is a unilateral contract?

Answer 3

A contract where one party makes a promise (e.g., a reward), and no obligations arise until a specific act is complete.

Question 4

An offeree responds to an offer by proposing a change to the terms. What is the effect of this counter offer on the original offer?

Answer 4

A counter offer destroys the original offer.

Question 5

When is acceptance effective if the offeror has stated they require “notice in writing”?

Answer 5

The Postal Rule is excluded, meaning acceptance is effective only when it is received, not when it is posted.

Question 6

What three conditions must be met for the Postal Rule to apply?

Answer 6

1) It has to be reasonable to post, 2) It has to be properly stamped, addressed and posted, and 3) The offeror must not have excluded the rule.

Question 7

When is the revocation of an offer effective?

Answer 7

Revocation is only effective when it is communicated to the offeree

The postal rule doesn’t apply so if posted it will be effective when letter is received (communicated), rather than posted

Question 8

Generally, are minors bound by contracts?

Answer 8

No, minors are generally not bound, except for contracts for necessities (e.g., necessary goods or services such as a phone contract) or beneficial contracts of service.

Question 9

What happens in a “battle of the forms”?

Answer 9

Each party attempts to contract on their own terms, and the court looks at the common intention of the parties and whether terms are implied to decide whose terms apply.

Question 10

If a company invites tenders for a supply contract, is there an obligation to award the cheapest bid?

Answer 10

No, there is no obligation to award the cheapest bid, but the invitation may give rise to a unilateral contract implying a promise to consider all conforming tenders.

Question 11

Define Consideration.

Answer 11

An exchange between parties that results in a benefit to one party and detriment to another (Currie v Misa).

Question 12

Based on the general rule (Stilk v Myrick), does performing an existing legal duty count as good consideration?

Answer 12

No, consideration generally will not apply if performing an existing legal duty.

Question 13

If a supplier agrees to finish a job early, providing the client with the practical benefit of avoiding late fees, is this performance considered good consideration?

Answer 13

Yes, where they have obtained a practical benefit (e.g., not paying late fees), this can be consideration (Williams v Roffey Bros).

Question 14

A debtor owes £1,000 but only pays £500, and the creditor agrees to accept this as full settlement. Can the creditor later sue for the remaining £500?

Answer 14

Yes, because part payment of a debt is not good consideration to forgo the balance, and the creditor is bound to pay the full amount (Foakes v Beer / Pinnels).

Question 15

A boy, aged 16 years, is keen on becoming a professional magician. He sets up a small business selling magic tricks. The money he makes from the business pays for magic lessons. After a few months the boy’s main supplier of magic tricks discovers he is only 16 years of age and refuses to deal with him. This leaves the boy without enough business to pay for this month’s magic lessons. His tutor is pressing him for payment. The boy is also in arrears with his mobile phone account.

Which of these contracts is the boy bound by?

Answer 15

Minors are bound by:

• Contracts that are necessary goods / services
• Contracts of service for minor’s benefit e.g. contracts of employment (but must be more favourable than not to the minor)

Question

• Contract for magic tricks - not bound as trading contract
• Contract for magic lessons - bound as it’s a contract that is on the whole for his benefit
• Mobile phone contract - bound as necessaries

Question 16

Give one exception to the rule that part payment of a debt is not good consideration.

Answer 16

The debtor provides something other than what was originally agreed (e.g., payment earlier than agreed or goods rather than cash).

Question 17

What is the general rule regarding past consideration?

Answer 17

Past consideration (a promise made after the act) is not good consideration

Exceptions - all 3 must be satisfied
1) Act was done at promisor’s request
2) Mutual understanding between parties it would be compensated in some way
3) Had the promise been made in advance, it would have bene legally enforceable e.g. intention to create legal relations

Question 18

What is Apparent Authority?

Answer 18

Authority that arises when a principal creates the appearance that an agent has authority, even though they do not, and a third party relies on that appearance.

Question 19

If an agent acts without authority (unauthorised agent), can the principal be sued by the third party?

Answer 19

No, the principal generally cannot be sued or sue the third party.

Question 20

A principal decides to approve (ratify) an agent’s previous unauthorized actions. What requirement related to third parties must this ratification meet?

Answer 20

The ratification cannot unfairly prejudice the third party.

Question 21

For a breach of implied term for sale of goods (under SGA), what can the buyer do?

Vs breach of Supply of Goods and Services (under SGSA)

Answer 21

Sale of goods breach - The buyer can terminate the contract and reject the goods, even if the breach is minor. As term term is deemed a condition

Vs breach of services - they are innominate terms so it depends on the nature of the breach. If it deprives the innocent party of substantially the whole benefit of the contract, they can terminate (condition). If not, then will be warranty and entitled to damages

Question 22

Under the CRA 2015, what is the time limit for a consumer to reject non-perishable goods due to a breach of implied quality terms?

Answer 22

30 days.

Question 23

Under CRA, if a supplier breaches the sale of goods implied terms, what can they demand?

Vs terms for services under CRA

Answer 23

Breach of sale of goods:
1) Short term right to reject and refund, then
2) Right to repair and replace e.g. if short term right to reject has gone, then
3) Right to price reduction or partial refund to reflect customers use

Breach of services under CRA - repeat performance if feasible. Or price reduction if not possible for repeat performance

Question 24

What is the remedy for a breach of warranty?

Answer 24

The only remedy is damages no matter how serious the breach of warranty

Question 25

Do all terms under SGA, SGSA and CRA require strict liability?

Answer 25

No - the terms relating to services are not strict liability e.g. reasonable care & skill, reasonable price (if not stated), within reasonable time (if not stated) The terms relating to goods e.g. description, satisfactory quality & fit for purpose are strict liability

Question 26

Can implied terms from SGA, SGSA and CRA be excluded under UCTA?

Answer 26

Sale of goods and sale of goods and services can be excluded if reasonable under UCTA (and not for death or PI) Implied terms under CRA can't be excluded Also can't exclude the implied term as to title that they have 'right to transfer property in the goods'

Question 27

What is the remedy for a breach of a condition?

Answer 27

The innocent party can terminate the contract and claim damages.

Question 28

A court determines that a contractual term is an innominate term. How does the court decide if the innocent party can terminate the contract?

Answer 28

It depends on the seriousness of the breach; termination is allowed only if the breach deprived the innocent party of substantially the whole benefit of the contract.

Question 29

If a buyer retains goods for longer than a reasonable time after delivery, what right is lost if they later discover a breach of condition regarding the goods?

Answer 29

The right to reject the goods is lost.

Question 30

How does the *Contra Proferentum* rule apply to an ambiguous exemption clause?

Answer 30

The court will interpret the clause against the defaulting party (the one trying to rely on the clause).

Question 31

Under UCTA, what specific liability can never be excluded?

Answer 31

Liability for negligence resulting in death or personal injury.

Question 32

When assessing reasonableness under UCTA, if an exemption clause is pointed out to a party and the contract price is reduced, how does this affect the clause's enforceability?

Answer 32

It is more likely to be found reasonable, as the party was induced to agree to the term and took on the risk.

Question 33

If a claimant is suing for money already owed under the contract, why is this "Action for agreed sum" preferable to claiming damages for expectation loss?

Answer 33

It is a debt action, so there are no issues regarding remoteness or mitigation.

Question 34

When are damages for disappointment awarded?

Answer 34

Only where the main purpose of the contract was pleasure or peace of mind.

Question 35

What type of loss is recoverable only when the primary loss suffered is the loss of opportunity to bargain for a release from a contractual obligation?

Answer 35

Negotiating damages (or damages for breach of a restrictive covenant) where the only loss suffered is the opportunity to negotiate a release fee However, these will NOT be awarded if the claimant has suffered any financial loss as a result of the breach (e.g. loss of profit from competition)

Question 36

If a loss is unusual, under which condition can it still be recovered under the rule of remoteness from *Hadley v Baxendale*?

Answer 36

If the special circumstances which gave rise to the loss are known to both parties at the time the contract is made.

Question 37

If a claimant fails to take reasonable steps to reduce the loss after a breach of contract, which party must prove that failure?

Answer 37

The proof is on the party in breach (mitigation).

Question 38

What is the difference between a Penalty Clause and a Specified Damages Clause?

Answer 38

A penalty clause aims to put pressure on the other party and is invalid, while a specified damages clause is a genuine attempt to pre-estimate the loss likely to be caused by the breach.

Question 39

According to the *Dunlop* guidelines, if a contract requires a lump sum payment if there is a minor or serious breach (e.g., the same sum is due if the delivery is 1 day late or 1 week late), is it likely a penalty or specified damages?

Answer 39

It is likely a penalty.

Question 40

When does an Anticipatory Breach occur, and what option does the innocent party have?

Answer 40

It occurs when a party indicates in advance they will not be able to fulfil a contractual obligation. The innocent party can sue immediately or wait until the fixed time for performance.

Question 41

A builder completes 90% of a house renovation, but the contract stipulated precise completion before payment. Which exception to the Doctrine of Complete Performance may apply, and what is the outcome?

Answer 41

Substantial performance. Payment is due, less the cost of remedying defects.

Question 42

When can a claimant recover money paid using restitutionary damages?

Answer 42

When there has been a complete failure of consideration.

Question 43

What three main criteria must an event meet to frustrate a contract?

Answer 43

It must be fundamental (making the contract radically different or impossible), without fault of either party, and unforeseen.

Question 44

If a concert venue is destroyed by fire, making the performance impossible, which category of frustrating event applies?

Answer 44

Impossibility.

Question 45

Under the Law Reform Act 1943 (S1(2)), if money was due to be paid *before* the frustrating event but was unpaid, does the obligation to pay that money remain?

Answer 45

No, the obligation to pay money due before the event is relieved.

Question 46

If both parties make the same fundamental error (e.g., they are mistaken about the subject matter), what type of mistake is this, and what is its legal effect?

Answer 46

Common mistake. It makes the contract void if the mistake renders performance impossible or radically different.

Question 47

What is the general rule regarding Restraint of Trade clauses?

Answer 47

They are generally void unless they protect a specific business interest (e.g., confidentiality) and are reasonable in terms of geographical area, duration and scope of prohibited activities.

Question 48

What is the legal effect of an actionable misrepresentation?

Answer 48

It makes the contract voidable.

Question 49

What are the damages awarded in fraudulent & negligent misrepresentation?

Answer 49

Tort of deceit for all consequential losses & **not subject to remoteness** The damages will be the difference between if the statement was true and the actual profit

Question 50

Who has the burden of proof in: a) Fraudulent misrepresentation b) Negligent misrepresentation

Answer 50

a) **Fraudulent misrepresentation** - onus is on party suing to prove the breach b) **Negligent misrepresentation** - the claimant raises and defendant msut prove that their statement was honestly held, although not on reasonable grounds (otherwise would be innocent misrepresentation)

Question 51

When might silence amount to a misrepresentation? Give one example.

Answer 51

Where a statement of fact was true but a change of circumstances occurs before the contract is formed that makes the statement untrue, and that change is not disclosed.

Question 52

A mechanic (expert) tells a customer (non-expert) that a car engine is perfect, and the customer buys the car based on this. Is the statement likely a term or a representation?

Answer 52

It is likely a term because one party had greater skill and knowledge.

Question 53

If an innocent party successfully proves an innocent misrepresentation, what remedy are they entitled to, and what remedy can the court award instead?

Answer 53

They have the right to rescind the contract, but the court may award damages in lieu of rescission.

Question 54

Why is a unilateral mistake (contract is **void**) fundamentally different from a misrepresentation (contract is **voidable**) when dealing with a rogue who sells goods to an innocent third party?

Answer 54

If the contract is *void*, the rogue never had title, and the original owner can reclaim the goods. If the contract is *voidable*, the rogue has title until the contract is rescinded, and the innocent third party usually keeps the title.

Question 55

What is the legal effect of duress?

Answer 55

It makes the contract voidable Mistakes are the only one that makes a contract void

Question 56

A contractor threatens to commit a tort unless the client signs a variation to the contract. What challenge might the client raise, and what is the remedy available?

Answer 56

Duress (illegitimate threat). The remedy is rescission, but no damages are available.

Question 57

In cases of Undue Influence, what two factors must be shown for presumed undue influence to arise?

Answer 57

1) There must be a relationship of trust 2) The transaction must call for an explanation.

Question 58

When are banks (mortgagees) deemed to have "constructive notice" of undue influence regarding wives guaranteeing husbands’ debts?

Answer 58

If they should have been aware of the risks of undue influence and failed to take reasonable steps to address it (e.g., ensuring independent advice).

Question 59

If an advert states the item will go to the first person who responds, is this an invitation to treat or offer?

Answer 59

General rule is that adverts are invitations to treat, but in this situation it's an offer as it will go to the first person who responds.

Question 60

How can offers to the world (e.g. in an advert) be withdrawn?

Answer 60

By taking reasonable steps to communicate revocation, e.g. posting another advert.

Question 61

Are minors bound by contracts?

Answer 61

Generally no, except for necessities or beneficial contracts of service (e.g. necessary goods or services).

Question 62

What happens when a practical benefit has been conferred but there has been an illegitimate threat?

Answer 62

When an illegitimate threat leaves the client no practical choice but to concede, the contract is voidable. ## Footnote Always check for economic duress.

Question 63

If you ask your brother to make blinds and afterwards he says he will pay you £100, what is the legal position?

Answer 63

May have consideration as the act was done at the promisor's request.

Question 64

If a tenant was given a reduced rate 'until things pick up' and then got a new job, do they have to start paying rent again?

Answer 64

To use promissory estoppel, a debtor must have 'clean hands' and so it would be advisable to tell the landlords about the new job.

Question 65

If a landlord reduces rent, can they immediately increase it again?

Answer 65

No - they must give reasonable notice.

Question 66

A client entered a contract to rent a holiday cottage for the month of August. The contract did not contain a force majeure clause. The contract price was £4,000 which the client paid. On 8 August the cottage was struck by lightning and rendered uninhabitable. It is estimated it will take 3 months to reinstate the cottage. Will the contract be frustrated? B: No, because performance was not rendered impossible: the client had one week’s use of the cottage. D: Yes, because there was no appropriately worded force majeure clause in the contract. E: Yes, because the lightning happened without fault and made performance radically different.

Answer 66

D is correct - Lightening happened without fault and made performance radically different but** there was no appropriately worded force majeure** clause (one which referred to lightening and was reasonable) E is wrong as no force majeure clause B is wrong as performance does not have to be impossible- here it was rendered **radically different**

Question 67

Who has the burden of proof in determining whether an exemption clause is reasonable?

Answer 67

The burden of proof is **on the party relying on the limitation / exemption clause** to show it is reasonable

Question 68

A client, the owner of a small off-licence business, recently sold two bottles of whisky to an elderly customer (the Customer) for a total price of £60. Yesterday the Customer’s daughter went to the client’s off-licence and demanded the client take back the whisky and refund the price. Unbeknown to the client the Customer has dementia and apparently does not remember buying the whisky. The daughter says she only realised when and where the client had bought it when she saw the receipt. **Which of the following best explains the legal position?** A) The contract with the Customer would be void: neither party would be bound by it. B) The contract would be voidable and could be rescinded by, or on behalf of, the Customer. D) The contract would be binding as the client was unaware the Customer has dementia.

Answer 68

Option D is correct. When a contract is made with a person who lacks mental capacity and the other party is aware of it the contract will be **voidable, not void** Here the client was **unaware** the Customer had dementia so it is **binding** If she was aware, it would be voidable not void

Question 69

A man paid for a very secure locker at the train station. As the man left the train station by the only available exit (the train station operating a one-way system with one entrance and one exit), there was a notice on the wall which the man did not read. When he returned to the station one hour later, his locker was empty. On complaining to staff in the train station, they pointed to the notice, clause 15 of which stated in very small print that the train station operator would not be liable for any loss of belongings. **Which of the following best describes if the exemption clause has been incorporated into the contract between the train station operator and the man?** D) The exemption clause has not been incorporated into the contract as the train station operator did not take reasonable steps to bring the clause to the man’s attention. E) The exemption clause is incorporated because it was contained in a written notice found on the station’s premises.

Answer 69

Option D is the best answer. The exemption clause will be valid if it has been incorporated into the contract between the man and the train station operator through reasonable notice. However, it will only be incorporated if notice was given before or at the time of contracting. The notice **by the exit** is likely therefore to have come **too late **to satisfy this test. Option E is not the best answer. It is not sufficient simply that the exemption clause was set down in writing. Notice of the clause should have been given **before or at the time of contracting**, and the notice should have been placed somewhere other than by the exit.

Question 70

An employee is working as a sales manager on behalf of a food distribution company. She has never worked for the company before. As a result of the work she does, the employee builds up a detailed profile of the company’s customer base, including delivery schedules and prices. The employee sells this information to a competitor. There is nothing in the employee’s employment contract or in employment legislation that prevents her from selling this information to a competitor. **Which of the following best describes whether the employee’s actions amount to a breach of her employment contract?** C) It is reasonable to imply a term that the employee shall not disclose confidential information. The employee is in breach of that implied term. D) An obligation not to disclose confidential information is a necessary incident of all employment contracts. The employee is in breach of that implied term.

Answer 70

Option D is correct. Courts can imply terms into certain types of contract where they regard those terms as a **necessary incident of that type of contract**. This commonly happens in employment contracts, where the employee has a duty to provide an honest and loyal service (and this term will extend to prevent the employee for the duration of her employment from using or disclosing confidential information gained in the course of her employment). Option C is wrong. The common law will not imply terms simply because it is reasonable to do so. Instead, the common law **may imply terms where those terms are necessary.**

Question 71

A buyer purchases a piano from an individual for £50,000. Both parties believe the piano to be a limited edition type, made by Steinway. After the buyer bought it, they decide to have it tuned and the tuner told the buyer that the piano was a copy which was worth approximately £5,000. The buyer wants to return the piano to the seller and obtain a refund. **Will the buyer be able to obtain a refund for the price paid for the piano?** C) Yes, because there is a common mistake as to the subject matter of the contract. E) No, because there is a mistake as to the quality of the subject matter of the contract.

Answer 71

E is correct - there is a mistake but it has happened because, independently, both parties believed the piano to possess an attribute it did not. This is a mistake as to quality and is not enough to affect the contract: Bell v Lever Bros. C is incorrect as there is not a mistake as to the subject matter itself but the mistake is the quality of the subject matter

Question 72

A business is sold. In the sale and purchase agreement the seller promises the buyer that the seller will reimburse all costs, expenses or losses caused by claims arising out of known disputed unpaid invoices owed to the business being sold. **Which of these statements correctly identifies the nature of the promise?** D) The promise is an indemnity that creates a primary obligation in the sale and purchase agreement and although usually included in a written agreement this is not essential nor is it required for the indemnity to be evidenced in writing. E) The promise is an indemnity that creates a secondary obligation in the sale and purchase agreement in addition to the sale of the business. As such the promise must be included in a written agreement.

Answer 72

Option D is correct. An indemnity creates a **primary obligation**. It is effectively where one party promises to reimburse pound-for-pound the other party in respect of a particular loss arising under the contract. **As indemnities are primary obligations they do not have to be evidenced in writing.**