Areas of difficulty

Question 1

What is a force majeure clause?

Answer 1

Commercial contracts often contain a force majeure clause which states what will happen to the contractual relationship between the parties should a particular set of circumstances materialise

Question 2

What happens if there is a force majeure clause in the contract?

Answer 2

The doctrine of frustration cannot override express and unambiguous contractual provision for the frustrating event

Question 3

What is valuable consideration defined as?

Answer 3

‘Some right, interest, profit or benefit accruing to one party or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other’

This includes a detriment suffered by one party relying on the other’s promise

Question 4

What is the position if unknown to the parties, the specific subject matter of the contract is in fact non-existent at the date of the contract

Answer 4

No contract can be formed. There is a mistake as to the existence of the subject matter which renders the contract void

Question 5

During lengthy negotiations, various verbal statements about a deal are made by two contracting parties. The negotiations eventually conclude and, one week later, some of the statements are put in writing by way of an agreed contract which is signed by the parties.

Which statements are most likely to be contractual terms?

Answer 5

The written-down statements and any important verbal statement made near to the time when the contract was written

• importance of the statement
• the time the statement was made

Question 6

What is unjust enrichment?

Answer 6

When one person is enriched at the expense of another in a way the court considers unjust. One party has unfairly benefitted at the expense of another.

It can apply to situations including:

• mistaken payments
• delivering goods by mistake
• informal contracts

The money should be repaid to avoid a claim for restitution

Question 7

What is a repudiatory breach?

Answer 7

A repudiatory breach of contract deprives the innocent party substantially of the whole benefit of the contract where the breach is fundamental and goes to the root of the contract

Question 8

What is the legal position in regard to a contract of goodwill?

Answer 8

No cause of action where no consideration is given for the gesture of goodwill

E.g., neighbour promises to cut down their tress and doesn’t - no cause of action against neighbour in contract

Question 9

How can verbally negotiated terms form part of a contract?

Answer 9

Terms can be negotiated verbally and reduced to writing to record them (e.g., in an email). The terms contained in the email will form part of the contract.

Where special terms have been specifically negotiated and agreed, these usually prevail over standard terms of a contract

Question 10

What is the effect of frustration on a contract?

Answer 10

If a contract is frustrated, the effect is that the contract is terminated on both sides

Question 11

How should you advise a client who informs you they have agreed to pay a witness as an incentive to attend court for trial?

Answer 11

The client should be advised firmly not to pay the witness - this is in direct breach of Code of Conduct seeking to influence the substance of evidence

This would place both the client and solicitor in contempt of court

Question 12

What is an anticipatory breach and what does it grant the innocent party?

Answer 12

Where a party indicates they will not perform their contractual obligations in advance of the date for performance

The innocent party has an immediate right to accept the renunciation and treat the contract as terminated and sue for damages arising from the breach

Question 13

What is the position regarding consideration for performance of an existing obligation owed to a third party?

Answer 13

Performance of an existing obligation owed to a third party is good consideration

Performance of a pre-existing obligation is regarded as sufficient consideration for a promise given by the promisor

Question 14

What is the rule of consideration concerning part payment of debt?

Answer 14

Where a debtor pays a lesser sum to his creditor than that which was due, the general rule is that the debtor is not discharged from his obligation to pay the balance

Question 15

What is the exception for the rule of incorporating express terms into a signed written contract?

Answer 15

If the document signed was not one which was intended to have any contractual effect, the terms within it will not form part of the contract

• e.g., a document acknowledging receipt of goods or a post-contractual document - signing this document does not indicate intention to be bound by its terms

Question 16

What happens if an innominate term is breached?

Answer 16

The innocent party may or may not be entitled to terminate the contract, depending on the consequences of the breach

Question 17

What is the situation for remedies available / not available to a party following a breach of term implied by CRA that goods will comply with their description?

Answer 17

The remedies available as a result of such a breach are as set out in CRA 2015

Question 18

What is the position under CRA 2015 for limitation / exclusion clauses for services

Answer 18

• Any attempt to entirely exclude the obligation to provide a service with reasonable care and skill is not binding on a consumer
• Any attempt to restrict / limit liability will not be binding to the extent that it would prevent a consumer from recovering the price paid - liability cannot be limited to less than price paid

Question 19

What is an example of a limit to the doctrine of freedom of contract?

Answer 19

• A clause which seeks to protect a legitimate interest of must be reasonable
• A contract in restraint of a freedom (e.g., restraint of trade) may be unenforceable at common law if it does not reasonably protect a legitimate interest
• A reasonable restriction may be binding

Question 20

What is the effect of mental incapacity on the contract?

Answer 20

The contract will be voidable if the [mentally incapable] person is able to prove they lacked mental capacity at the time of the contract, and that the other party knew or ought to have known about the incapacity

If mental incapacity is proven - the contract is voidable

Question 21

Who bears the burden for establishing mental incapacity?

Answer 21

The burden of establishing mental incapacity rests with the party raising it
- it is for them to show that the other party knew or ought to have known about the mental incapacity

Question 22

What is the effect of frustration on a contract?

Answer 22

The effect of frustration is to discharge the parties of any future obligations under the contract

Any obligations that arose before the frustrating event are not affect by the frustration –> the parties are not discharged of all obligations under the contract (it is future obligations)

Question 23

When must reasonable notice be provided for incorporation of a clause into a contract?

Answer 23

Reasonable notice must be provided before or at the time the contract is formed
- if notice comes too late = the clause is not incorporated

If notice of a clause is only provided with delivery (of the goods, for instance), this would be too late for notice and the clause would not be incorporated

Question 24

What is an implied term in a consumer contract and what is the effect of this?
CRA 2015

Answer 24

• goods should be of satisfactory quality
• goods should be reasonably fit for any purpose
• goods are sold by description

The implied term that goods are of satisfactory quality is a condition of the contract. Breach of condition of the implied terms entitled the consumer to reject the goods and claim a full refund - can treat the contract as repudiated

Question 25

Breach of contract

Answer 25

• If at the time the contract was entered into, the facts were as agreed between the parties, there is no breach of contract
• If an intervening act then changes the facts affecting the performance of the contract, frustration may apply (but not automatically)