Chapter 3 - Termination of contract

Question 1

What are the three main ways a contract can be discharged?

Answer 1

1. Performance: Complete or substantial performance discharges the contract. Damages may be payable. Partial performance – but only if contract is severable.
2. Frustration: The contract is impossible to perform due to unforeseen circumstances. No fault of either party.
3. Breach: Failure to perform contractual obligations leads to remedies for the breach.

Question 2

What is substantial performance?

Answer 2

When most obligations are completed, allowing the party to claim payment, although damages may still apply for incomplete parts.

Question 3

What happens if a contract is discharged due to frustration?

Answer 3

Neither party is liable for failure to perform, provided the frustration was due to circumstances beyond their control, such as destruction of the subject matter or government intervention.

Question 4

Can a contract be frustrated if alternative modes of performance are possible?

Answer 4

No, a contract is not frustrated if performance is still possible, even if it is more difficult or expensive.

Question 5

What happens if one party prevents the other from performing their obligations under a contract?

Answer 5

The party prevented from performing is discharged from their obligations and may:
- Sue for damages for breach of contract.
- Bring a quantum meruit claim to recover payment for the work already completed (‘as much as they deserve’).

Question 6

What is a quantum meruit?

Answer 6

Literal Meaning: ‘As much as he deserves’ in Latin.
Purpose: To prevent unjust enrichment by ensuring that a party who has provided a benefit is compensated fairly.
When It Applies:
- A contract is incomplete or frustrated.
- One party prevents the other from completing their obligations.
- There is no pre-agreed price for the work performed.

Example Scenarios:
A contractor starts work on a project but is prevented from completing it by the client. The contractor can claim quantum meruit for the value of the work already completed.
A service provider performs work without a finalized price, and the other party benefits from it. Quantum meruit allows the service provider to recover fair compensation.
It’s an equitable remedy to ensure fairness in situations where a contract fails or does not specify payment terms.

Example Scenarios:
- A contractor starts work on a project but is prevented from completing it by the client. The contractor can claim quantum meruit for the value of the work already completed.
- A service provider performs work without a finalized price, and the other party benefits from it. Quantum meruit allows the service provider to recover fair compensation.

Question 7

What is frustration in contract law?

Answer 7

A contract is frustrated when it becomes impossible to perform due to circumstances beyond the parties’ control, such as destruction of the subject matter or government intervention.

Question 8

Under what circumstances will a contract NOT be frustrated?

Answer 8

1. If an alternative mode of performance is possible, even if it is more expensive or difficult.
2. If a force majeure clause covers the situation – ‘what will you do in certain situations’.

Question 9

Give examples of frustration scenarios.

Answer 9

1. Destruction of subject matter (e.g., a venue burns down).
2. Personal incapacity (e.g., a musician unable to perform due to illness).
3. Government intervention (e.g., new laws prohibiting performance).
4. Non-occurrence of a key event (e.g., cancellation of a planned event central to the contract).

Question 10

What does the Law Reform (Frustrated Contracts) Act 1943 provide for frustrated contracts?

Answer 10

Recovery of money paid before frustration.
Payment of reasonable expenses incurred.
Compensation for any valuable benefit gained by one party before frustration.

Question 11

What constitutes a breach of contract?

Answer 11

Failure to perform obligations under the contract without a lawful excuse.

Question 12

What is a lawful excuse for non-performance of a contract?

Answer 12

1. The other party has rejected performance.
2. The other party has made performance impossible.
3. The parties have agreed to non-performance.

Question 13

What is a repudiatory breach?

Answer 13

A significant breach that deprives the injured party of the main benefit of the contract, allowing them to terminate and claim damages.
AT DATE
Agree to do something and its not done on the date of performance

Question 14

What is an anticipatory breach? What can the injured party do?

Answer 14

When one party indicates before performance is due that they will not perform their contractual obligations, giving the other party the right to terminate or sue immediately.
PRIOR WARNING
Said I will not be turning up on day of performance between date of agreement and performance

Where the breach is sufficiently serious, the injured party may choose (at the time of the breach)
either to:
 Treat the contract as discharged immediately and sue for damages
 Allow the contract to continue until there is an actual breach and take action at that time.
If the innocent party elects to treat the contract as still in force, he may continue with his preparations for performance and recover the agreed price for his services. The duty to mitigate his losses does not arise until he accepts the breach.

Question 15

What are the options for the injured party in the event of an anticipatory breach?
A. Treat the contract as discharged immediately and sue for damages.
B. Wait until there is an actual breach and take action then.
C. Both A and B.
D. Continue with the contract without any legal action.

Answer 15

C. Both A and B.

Correct Answer: C. Both A and B.

Question 16

In an anticipatory breach, what is the injured party’s duty regarding mitigation of losses?
A. The duty arises immediately upon the breach.
B. The duty arises only when the breach is accepted by the injured party.
C. The injured party has no duty to mitigate losses.
D. The duty arises after legal proceedings commence.

Answer 16

B. The duty arises only when the breach is accepted by the injured party.

Question 17

What remedies are available for a repudiatory breach of contract?
A. Refusal to accept further performance.
B. Reclaiming money already paid for defective performance.
C. Both A and B.
D. Continuing with the contract without recourse to damages.

Answer 17

C. Both A and B.

Question 18

In the case of a repudiatory breach, what is the status of the injured party’s contractual obligations?

A. The party is discharged from all past and future obligations.
B. The party is discharged from future obligations but not past ones.
C. The party is still bound to all obligations.
D. The party must continue to perform until legal action is taken.

Answer 18

B. The party is discharged from future obligations but not past ones.

Question 19

What is the purpose of awarding damages for breach of contract?
A. To punish the breaching party.
B. To put the injured party in the position they would have been in if the contract was performed.
C. To terminate the contract without compensation.
D. To ensure future performance of the contract.

Answer 19

B. To put the injured party in the position they would have been in if the contract was performed.

Question 20

What are the two elements considered in awarding damages?
A. Value of the contract and moral culpability.
B. Remoteness of damage and measure of damages.
C. Severity of the breach and future implications.
D. Reasonableness of the clause and alternative options.

Answer 20

B. Remoteness of damage and measure of damages.

Question 21

What are the key principles for awarding damages for breach of contract?

Answer 21

1. Remoteness of damage: Damages must arise naturally or be within the parties’ contemplation.
2. Measure of damages: Damages aim to put the claimant in the position they would have been in if the contract was performed.

Question 22

Can abnormal losses be claimed as damages?

Answer 22

No, unless the breaching party was aware of the special circumstances causing the abnormal losses.

Question 23

According to the rule of remoteness, when can damages be awarded?
A. When losses arise naturally or are reasonably foreseeable.
B. When the breach occurs, regardless of foreseeability.
C. Only if the contract explicitly provides for damages.
D. When the injured party can prove intent to harm by the breaching party.

Answer 23

A. When losses arise naturally or are reasonably foreseeable.

Question 24

Louise runs a homemade cake business. Cook & Co contract to sell her a large industrial oven to enable her to expand her business by enabling her to increase cake production. Louise tells Cook & Co that she has also been awarded a contract to bake 100 jacket potatoes daily during November and December for a local street fair in the run up to Christmas and so needs the oven by 31 October. Cook & Co agree to deliver the oven by 28 October. Unknown to Cook & Co, Louise has also agreed to allow Bob the Baker to use the oven on Fridays (her day off) so that he can meet his extra customer demands over the weekends.

Owing to a dispute between the manufacturer and Cook & Co, the oven is not delivered to Louise until 12 November. Louise is therefore unable to fulfil the jacket potatoes contract and also is unable to increase cake production as planned. She has also lost the hire payment agreed by Bob in respect of two Fridays.

What is the legal position of Cook & Co?

Answer 24

Cook & Co were aware of the nature of her business and therefore will be liable to pay damages for her loss of normal profits arising from her inability to increase cake production between 28 October and 12 November. The losses on the baked potatoes contract are also recoverable from 1 – 12 November since, although they cannot be said to arise from the ordinary course of her business, Louise made Cook & Co aware of the contract. The agreement to let Bob hire the oven was not in the ordinary course of her business and the special circumstances were not known to Cook & Co, so they would not be liable for the loss of special profits on this contract.

Question 25

When looking into the measure of damages, what 2 types of interest should we factor in?

Answer 25

Expectation and Reliance Interest.
Look at expectation first if not look at reliance to calculate

Question 26

What is expectation interest?

Answer 26

To put the person in the position he would have been in if the contract had been performed.

Question 27

What is reliance interest?

Answer 27

To put the claimant in the position he would have been in if he had not relied on the contract.

Question 28

In what situation are damages for mental distress recoverable?
A. When financial loss is also claimed.
B. When the contract’s main purpose is enjoyment or pleasure.
C. When explicitly written into the contract.
D. When the breach involves gross negligence.

Answer 28

B. When the contract’s main purpose is enjoyment or pleasure.

Question 29

Why were additional damages awarded in the holiday case?

Answer 29

Financial compensation alone did not address the disappointment and distress caused by the failure to provide the promised enjoyment, which was the contract’s principal purpose.

Question 30

What is the claimant’s duty to mitigate loss in a breach of contract?

Answer 30

The claimant must take all reasonable steps to reduce their losses but is not required to take excessive or risky actions.

Question 31

Can a claimant recover losses if they fail to mitigate them?

Answer 31

No, the claimant cannot recover avoidable losses. The defendant must prove that the claimant failed to take reasonable steps to reduce the losses.

Question 32

Who bears the burden of proof to show that the claimant failed to mitigate their losses?
A. The claimant.
B. The breaching party.
C. The court.
D. An independent arbitrator.

Answer 32

B. The breaching party.

Question 33

What are liquidated damages, and when are they enforceable?

Answer 33

Liquidated damages are a pre-agreed estimate of likely losses. They are enforceable if they represent a genuine attempt to predict actual damages rather than penalize the breaching party.

Question 34

What is a penalty clause?

Answer 34

A penalty clause is a contractual term that imposes excessive liquidated damages and is not enforceable if it is disproportionate to the likely loss caused by a breach.

Question 35

How can courts determine if a clause is a penalty clause?

Answer 35

Courts assess whether the liquidated damages are a genuine attempt to pre-estimate loss or whether they are excessive and intended to penalize the breaching party.

Question 36

Why is a penalty clause unenforceable?
A. Because penalties are not permitted in contracts.
B. Because they are arbitrary and not based on actual losses.
C. Because they are always against public policy.
D. Because they benefit only one party.

Answer 36

B. Because they are arbitrary and not based on actual losses.

Question 37

IQ 7
Chana agrees to buy a car from Mike’s Motors for £6,000. Mike had paid £5,500 for the car. On the agreed day, Chana arrives at the dealers but refuses to accept or pay for the car. In the meantime, the car’s market value has risen to £7,000. The following week Mike sells the car for £7,500. Mike claims against Chana for damages.

What sum is Mike likely to be awarded?
A Nothing
B £6,000
C £5,500
D £7,000

Answer 37

Nothing. Mike has completely mitigated his loss by the subsequent sale.

Question 38

What does remedies mean?

Answer 38

Remedies in contract law refer to the legal solutions or actions available to a party when the other party breaches a contract. The purpose of remedies is to address the harm caused by the breach and to restore the injured party as closely as possible to the position they would have been in if the contract had been performed.

Question 39

What is specific performance, and when is it awarded?

Answer 39

Specific performance is an equitable remedy where the court orders a party to perform their contractual obligations instead of paying damages. It is awarded only when:
- Damages are inadequate.
- It does not require supervision (e.g., not for building contracts).
- It is not for personal service contracts (e.g., employment contracts).

Question 40

What is an injunction?

Answer 40

An injunction stops you from doing something.

Question 41

What are the three types of injunctions that a court may grant?

Answer 41

1. Mandatory injunction: Requires the defendant to take positive action to rectify a breach (e.g., demolishing a building).
2. Prohibitory injunction: Prevents a party from doing something.
3. Asset-freezing injunction: Restrains a party from dissipating their assets.

Question 42

What are the three types of injunctions available in contract law?

A. Compensation injunction, Specific injunction, Asset-freezing injunction.
B. Mandatory injunction, Prohibitory injunction, Asset-freezing injunction.
C. Advisory injunction, Prohibitory injunction, Liquidated injunction.
D. Declaratory injunction, Asset-freezing injunction, Advisory injunction.

Answer 42

B. Mandatory injunction, Prohibitory injunction, Asset-freezing injunction.

Question 43

What is Alternative Dispute Resolution (ADR)?

Answer 43

ADR is a process where parties resolve disputes without going to court, using methods like arbitration, mediation, or conciliation.

Question 44

What are the advantages of ADR compared to litigation?

Answer 44

1. Expertise: Access to specialists in the relevant field.
2. Cost: Often cheaper than litigation.
3. Privacy: Proceedings are private.
4. Flexibility: Tailored solutions, such as apologies or explanations.
5. Speed: Quicker than court proceedings.

Question 45

What are the disadvantages of ADR?

Answer 45

1. Lack of legal authority in decisions unless agreed upon.
2. The process can still result in court disputes if agreements are not enforced.
3. Privacy can limit the transparency of proceedings.
4. No defined timescale as there isn’t a court timetable.

Question 46

What is arbitration?

Answer 46

Arbitration is a process where an independent third party (arbitrator) settles a dispute between parties. The arbitrator acts similarly to a judge, and the process is governed by an arbitration agreement made between the parties.

Question 47

What must parties do for arbitration to take place?
A. Sign a court order mandating arbitration.
B. Agree to submit to the arbitration process, usually via an arbitration agreement.
C. Agree to forego all legal proceedings.
D. Allow the arbitrator to create their own contract terms.

Answer 47

B. Agree to submit to the arbitration process, usually via an arbitration agreement.

Question 48

What does an arbitration agreement typically outline?

Answer 48

The agreement specifies:
- the rights and obligations of the parties
- the process to be followed
- how arbitrators are appointed.

Question 49

What happens if parties disagree with an arbitration agreement?

A. They must renegotiate the agreement independently.
B. They can submit disagreements to court unless resolved another way.
C. The arbitrator has the authority to enforce the terms.
D. The agreement is automatically terminated.

Answer 49

B. They can submit disagreements to court unless resolved another way.

Question 50

How is mediation different from arbitration?

Answer 50

In mediation, the third party helps the disputing parties reach their own resolution without acting like a judge. Unlike arbitration, mediation agreements are not automatically legally binding.

Question 51

What is the role of the third party in mediation?
A. To impose a decision on the disputing parties.
B. To facilitate a resolution by helping the parties come up with their own solution.
C. To issue legally binding rulings.
D. To provide punitive remedies.

Answer 51

B. To facilitate a resolution by helping the parties come up with their own solution.

Question 52

Are mediation and conciliation agreements legally binding?

Answer 52

No, mediation and conciliation agreements are not automatically legally binding unless the parties agree otherwise.

Question 53

What is the key difference between arbitration and mediation?
A. Mediation is binding, whereas arbitration is not.
B. Arbitration involves an independent decision-maker like a judge, while mediation facilitates mutual agreements.
C. Arbitration is informal, while mediation is formal.
D. Mediation always results in financial settlements.

Answer 53

b. Arbitration involves an independent decision-maker like a judge, while mediation facilitates mutual agreements.

Question 54

Why might parties prefer ADR to litigation?

Answer 54

ADR is faster, less expensive, private, and allows for tailored solutions like apologies or explanations rather than just financial compensation.

Question 55

Why are exclusion causes used by companies?

Answer 55

To help prevent them from being sued. courts do not like this.

Question 56

What is an exclusion clause?

Answer 56

A clause that limits or excludes liability for breach of contract or negligence. These clauses are used to shift risks but must comply with statutory requirements to be enforceable.

Question 57

How must an exclusion clause be incorporated into a contract?

Answer 57

1. If the document is signed, it is binding.
2. If unsigned, it must be properly communicated to the party before the contract is made.

Question 58

How does timing affect the incorporation of an unsigned exclusion clause?

Answer 58

For unsigned documents, the exclusion clause must be clearly communicated to the other party before or at the time the contract is formed. If it is introduced after the contract is signed, it will not be enforceable unless both parties explicitly agree to it.

Question 59

What happens if an exclusion clause is ambiguous?

Answer 59

If an exclusion clause is ambiguous, courts will interpret it against the party seeking to rely on it (known as the contra proferentem rule).

Question 60

HIGHLY EXAMINABLE
What does the Unfair Contract Terms Act 1977 (UCTA) do?

Answer 60

Restricts exclusion clauses in commercial contracts by declaring them void or enforceable only if reasonable, depending on factors like bargaining power and knowledge of the clause.

Question 61

HIGHLY EXAMINABLE
What key provisions does UCTA declare void?

Answer 61

1. Clauses excluding liability for death or personal injury due to negligence
2. Clauses excluding liability for other losses unless reasonable
3. Clauses restricting implied terms on title in contracts for sale or hire purchase.

Question 62

HIGHLY EXAMINABLE
What does UCTA not apply to?

Answer 62

It does not apply to insurance contracts or contracts to transfer land. It does not apply to contracts between private individuals who may restrict liability as much as they wish.

Question 63

What does the Consumer Rights Act 2015 provide?

Answer 63

Protects consumers against unfair terms in contracts, ensuring they are written in plain language and do not create significant imbalances against the consumer.

Question 64

What is the purpose of the reasonableness test under UCTA?

Answer 64

The reasonableness test ensures that exclusion clauses are fair and do not create a significant imbalance between the contracting parties. It protects weaker parties, such as consumers or those with less bargaining power, from unfair terms.

Question 65

What 5 factors determine the reasonableness of an exclusion clause?

Answer 65

1. Strength of the parties’ bargaining positions.
2. Inducements offered.
3. Whether the innocent party knew of the term.
4. Availability of insurance for the loss.
5. Presence of misrepresentations.

Question 66

What is considered an unfair term under the Consumer Rights Act 2015?
A. A term that is written in plain language and benefits both parties equally.
B. A term that causes significant imbalance in the parties’ rights to the detriment of the consumer.
C. A term that is hidden within the contract but reasonable.
D. A term that protects the consumer from liability.

Answer 66

B. A term that causes significant imbalance in the parties’ rights to the detriment of the consumer.

Question 67

What must courts consider to determine if an exclusion clause is fair under the Consumer Rights Act?

Answer 67

1. Whether the term was written in plain and intelligible language.
2. The circumstances under which the contract was signed, including the consumer’s knowledge and understanding.
3. The nature of the contract, such as whether it involved essential goods or services.

Question 68

Provide an example of an unfair exclusion clause.

Answer 68

A term in a car park ticket stating that the company is not liable for damage to vehicles, even if the damage results from the company’s negligence, may be considered unfair under the Consumer Rights Act.

Question 69

Nominal damage DEFINE

Answer 69

Nominal damages are a small, symbolic sum awarded by a court when a legal wrong has occurred, but the plaintiff has not suffered substantial loss or injury. These damages serve to acknowledge that the plaintiff’s rights were violated, even in the absence of significant harm.
CORNELL LAW SCHOOL

Purpose of Nominal Damages:

Recognition of Rights: They affirm that the plaintiff’s legal rights were infringed upon, even without measurable economic damage.
LEGAL

Symbolic Victory: They provide a formal acknowledgment of the plaintiff’s claim, underscoring that the defendant’s actions were wrongful.
LEGAL

Legal Precedent: Awarding nominal damages can set a precedent, influencing future cases and legal standards.
LEGAL

Common Scenarios for Nominal Damages:

Breach of Contract: When a contract is breached without causing significant financial loss, nominal damages may be awarded to recognize the violation.
UPCOUNSEL

Civil Rights Violations: In cases where an individual’s rights are violated without resulting in substantial harm, courts may award nominal damages to acknowledge the infringement.
EXPERTISE

Amount Awarded:

The sum is typically minimal, often as low as £1 in the UK or $1 in the US, emphasizing the symbolic nature of the award.
LAW TEACHER

Legal Implications:

While the monetary value is small, nominal damages can have significant legal implications, such as:

Establishing a Legal Wrong: They confirm that the defendant’s actions were unlawful.

Potential for Further Remedies: In some jurisdictions, awarding nominal damages can open the door for the plaintiff to seek punitive damages or other legal remedies.
CONSUMER SHIELD

In summary, nominal damages play a crucial role in the legal system by formally recognizing violations of rights, even when no substantial harm has occurred.

Question 70

1 Which term best describes a contract, such as a building contract, that provides for payment at various stages of the contractor’s progress?
A A divided contract
B A segmented contract
C A severable contract
D A partial contract

Answer 70

1 Correct answer(s):
C A severable contract
It may also be known as a divisible contract.

Question 71

2 Abigail agrees to let her flat to Xavier for one day for the purpose of viewing a carnival. Xavier pays her a £50 deposit with £80 due to be paid at the end of the carnival. Due to civil unrest, the government prohibits all street entertainment and the carnival is cancelled just before Xavier is due to travel to the flat. Neither party has incurred any costs (save for payment of the deposit) in performance of the contract.
Requirement
Applying the Law Reform (Frustrated Contracts) Act 1943, which of the following statements is correct?
A Abigail can keep the deposit but cannot claim the balance.
B Abigail can keep the deposit and Xavier is liable to pay the balance.
C Abigail must pay back the deposit and Xavier need not pay the balance.
D Abigail can keep the deposit and Xavier must pay an additional £15 so that each party bears an equal loss.

Answer 71

2 Correct answer(s):
C Abigail must pay back the deposit and Xavier need not pay the balance.
The Act aims to reflect the fact that neither party is to blame for the contract coming to an end.

Question 72

3 Are the following statements true or false?
Anticipatory breach may be implied from conduct and need not be explicit.
A True
B False
Where an innocent party elects to treat a contract as discharged, they waive the right to claim damages from the party in default.
C True D False

Answer 72

3 Correct answer(s): A True
Correct answer(s):
D False
They may treat the contract as discharged and sue for damages.

Question 73

5 Are the following statements true or false?
Damages for breach of contract are primarily intended to restore the injured party to the same position they were in at the time when the contract was made.
A True B False
The claimant is required to take every opportunity to mitigate their loss arising as a consequence of a breach of contract.
C True D False

Answer 73

5 Correct answer(s): B False
Damages are intended to put the party in the position they would have been in had the contract been performed.
Correct answer(s): D False
The claimant is required to take only reasonable steps, not ones that carry undue risk or that are discreditable.

Question 74

7 Aktar contracted to buy a rare sports car from Jeremy for £23,000 but refused to take delivery as agreed. Jeremy, who had recently bought the car for £20,000, was able to sell the car to Bernice for £24,100, but sued Aktar for breach of their contract.
Requirement
Which of the following best describes the legal position?
A Jeremy is entitled to recover £23,000 from Aktar, that being the agreed contract price and there being no excuse for James’ breach.
B Jeremy is entitled to nominal damages only since he has been able to sell the car for greater profit.
C Jeremy is entitled only to recover from Aktar the £20,000 that he had in fact paid for the car himself since he was able to sell the car on for profit following the breach by Aktar.
D Aktar is no longer in breach of contract because Jeremy has mitigated his loss totally.

Answer 74

7 Correct answer(s):
B Jeremy is entitled to nominal damages only since he has been able to sell the car for greater profit.
Aktar is in breach of contract and therefore liable to pay damages, but Jeremy is unlikely to be able to show any outstanding loss.

Question 75

8 Siegfried employs Marij to plan and build a go-kart course on his field which he intends to open to the public on 1 May. His viability and market research studies lead him to expect that he will earn £300 per day in the first three months of business. Marij contracts to construct the course and surrounding areas according to certain plans and specifications and to complete the work by no later than 30 March for a contract price of £10,000. The contract provides that Marij will be liable to pay Siegfried £150 for every day work overruns the scheduled completion date.
Requirement
Which of the following best describes the legal position?
A The provision is for unliquidated damages and is valid because it is less than the anticipated loss.
B The provision is for liquidated damages and is valid because the figure is not penal in nature and protects Siegfried’s legitimate interest.
C The provision is void because it states a sum in excess of 1% of the total contract price.
D The provision is likely to be void because the same amount is payable regardless of the actual loss.

Answer 75

8 Correct answer(s):
B The provision is for liquidated damages and is valid because the figure is not penal in nature and protects Siegfried’s legitimate interest.
The amount of £150 when compared against the contract price is only 1.5% per day and would not be thought of as excessive. It is intended to protect Siegfried’s legitimate interest of ensuring the work is completed on schedule and is therefore a valid liquidated damages clause.

Question 76

9 Which of the following statements in relation to contractual remedies is incorrect?
A Specific performance is awarded at the discretion of the court where damages would not be an adequate remedy.
B Specific performance is likely to be more appropriate than damages in a contract involving personal services.
C Specific performance is likely to be awarded in a contract for the sale of land.
D A mandatory injunction often has the same result as specific performance but is less common.

Answer 76

9 Correct answer(s):
B Specific performance is likely to be more appropriate than damages in a contract involving personal services.
Specific performance is unlikely to be ordered in such a case because of the difficulties in supervising compliance with the award.

Question 77

12 Which of the following descriptions best describes the statutory test of reasonableness under the Unfair Contract Terms Act 1977?
A Whether an ordinary person in the normal course of business would consider the clause to be reasonable in all the circumstances
B Whether it is fair and reasonable, with regard to all the circumstances which were, or which ought to have been known to the parties when the contract was made
C Whether it is fair and reasonable with regard to all the circumstances which were known to or in the reasonable contemplation of the parties
D Whether it is fair and reasonable to exclude liability, having regard to the relative bargaining strengths of the parties

Answer 77

12 Correct answer(s):
B Whether it is fair and reasonable, with regard to all the circumstances which were, or which ought to have been known to the parties when the contract was made
This is how the test is expressed in the Act. The parties’ relative bargaining strengths (D) will be taken into account, as well as whether any inducement was offered and whether the innocent party knew, or should have known of the term.

Question 78

13 Foul Foods Ltd, a company specialising in the production and sale of cream cakes on an industrial scale, bought a large oven from Ovens & Co intending to extend their existing business to include the production of pizza bases. The delivery of the oven was three months later than the contract date. During those three months Foul Foods Ltd tried unsuccessfully to buy another oven.
Foul Foods Ltd has claimed for its lost profits in the following two ways:
(1) Profits which would have been made from the expected increase in business following their increased capacity; and
(2) Profits which they would have made from a lucrative contract for the supply of pizza bases to a nationwide supermarket chain for which they would have been able to bid.
Requirement
Is Foul Foods Ltd’s claim for its lost profits likely to be successful?
A Yes, but only the lost profits from the expected general increase in trade are recoverable, not those from the loss of the lucrative supermarket contract.
B No, in accordance with the rules governing the award of damages for breach of contract both losses are too remote.
C Yes, the lost profits from the expected general increase in trade and the loss of the lucrative supermarket contract are recoverable.
D No, as Foul Foods Ltd have failed to mitigate its losses.

Answer 78

13 Correct answer(s):
A Yes, but only the lost profits from the expected general increase in trade are recoverable, not those from the loss of the lucrative supermarket contract.
Damages for losses sustained are recoverable to the extent that they are reasonably foreseeable and not too remote. The losses claimed under the first head can be described as arising in the ordinary course of business and are likely to be recoverable. However, those under the second head are too remote. Even if Foul Foods Ltd had been able to bid for the lucrative contract, there is no certainty that the company would have been awarded the contract.

Question 79

14 The equitable remedy of specific performance can be awarded in cases involving:
Requirements
The performance of personal services A True
B False
A contract to build a house
C True D False

Answer 79

14 Correct answer(s): B False
Specific performance is not usually awarded in cases of personal service.
Correct answer(s):
D False
Likewise specific performance is unlikely in such a contract, where supervision would be required.

Question 80

15 Which of the following may be used to resolve disputes, even after court proceedings have been commenced?
(1) Negotiation
(2) Expert determination
(3) Mediation
(4) Adjudication
A (1) only
B (2), (3) and (4) only
C (1) and (4) only
D All of them

Answer 80

15 Correct answer(s):
D All of them
There is nothing to prevent the parties from continuing to settle the dispute themselves and the courts will actively encourage alternative forms of dispute resolution.

Question 81

18 Are the following statements true or false?
LO 1b
Under contract law, parties to a contract are required to substantially perform their obligations. This is sufficient to prevent the other party from seeking redress if they are not happy with their performance.
A True B False
Breach of contract occurs in all cases where one party to a contract fails to perform their contractual obligations.
C True D False

Answer 81

18 Correct answer(s): B False
The other party may seek redress in respect of that part of the performance which did not match the contractual obligations completely.
Correct answer(s): D False
There will be no liability for lack of performance if the party has a lawful excuse, for example if the contract is discharged by frustration.

Question 82

22 The amount of money needed to put the claimant in the position they would have achieved if the contract had been performed protects their reliance interest.
A True B False
If a claimant is seeking to reclaim money they have wasted in performing a contract that the defendant has breached, they are looking to protect their expectation interest.
C True D False

Answer 82

22 Correct answer(s): B False
The amount of money needed to put the claimant in the position they would have achieved if the contract had been performed protects their expectation interest.
Correct answer(s): D False
If a claimant is seeking to reclaim money they have wasted in performing a contract that the defendant has breached, they are looking to protect their reliance interest.

Question 83

24 Which of the following statements concerning the Unfair Contract Terms Act 1977 and the Consumer Rights Act 2015 is correct?
A The Unfair Contract Terms Act 1977 only applies to commercial contracts between businesses.
B Businesses are not eligible for protection under the Consumer Rights Act 2015.
C Consumers may be eligible for protection under the Unfair Contract Terms Act 1977.
D The Consumer Rights Act 2015 applies to consumer contracts but not consumer notices.

Answer 83

24 Correct answer(s):
A The Unfair Contract Terms Act 1977 only applies to commercial contracts between businesses.
The Unfair Contract Terms Act 1977 only applies to clauses inserted into agreements between commercial concerns or businesses. Consumers are not eligible for protection. The Consumer Rights Act 2015 provides statutory control in respect of consumer contracts and consumer notices. Businesses may be classified as a consumer and therefore eligible for protection in certain circumstances.

Question 84

24 Which of the following statements concerning the Unfair Contract Terms Act 1977 and the Consumer Rights Act 2015 is correct?
A The Unfair Contract Terms Act 1977 only applies to commercial contracts between businesses.
B Businesses are not eligible for protection under the Consumer Rights Act 2015.
C Consumers may be eligible for protection under the Unfair Contract Terms Act 1977.
D The Consumer Rights Act 2015 applies to consumer contracts but not consumer notices.

Answer 84

24 Correct answer(s):
A The Unfair Contract Terms Act 1977 only applies to commercial contracts between businesses.
The Unfair Contract Terms Act 1977 only applies to clauses inserted into agreements between commercial concerns or businesses. Consumers are not eligible for protection. The Consumer Rights Act 2015 provides statutory control in respect of consumer contracts and consumer notices. Businesses may be classified as a consumer and therefore eligible for protection in certain circumstances.

Question 85

26 Which of the following statements concerning arbitration is correct?
A A court appoints an expert to hear each party’s case and decide on an appropriate remedy.
B Parties are free to decide for themselves how arbitration will work for them.
C The arbiter’s decision is final and may not be appealed.
D Parties will only draw up an arbitration agreement once there is a dispute to be resolved.

Answer 85

26 Correct answer(s):
B Parties are free to decide for themselves how arbitration will work for them.
In arbitration, the parties are free to decide how the arbitration process will work for them in their circumstances. They do this in an arbitration agreement, which is drawn up when they form their contract, rather than when there is a dispute. The parties themselves determine who the arbiter(s) is/are and their decision can be appealed to the courts.