Contract Law Flashcards
A contract was entered into between a house builder and a kitchen company to carry out various works at three houses for the sum of £23,000. Without the house builder’s knowledge, the kitchen company subcontracted some of the work to a local contractor and agreed to pay them £4,000 for their work. The work was completed satisfactorily, but the kitchen company have not paid the sub-contractors. The subcontractors send a letter of claim to the house builder claiming the sum of £4,000. The house builder consults his solicitor.
What is the best advice to give the house builder about what action he should take with reference to his contractual liability to the subcontractors?
a) The house builder should pay the sum of £4,000 to avoid further proceedings by the subcontractors which will incur further costs
b) The house builder should ignore the letter as he has no contractual obligation to the subcontractors
c) The house builder should formally respond to the letter of claim within a reasonable timescale stating that he has no contractual obligation to the subcontractors
d) The house builder should suggest a mediation of the dispute between himself and all parties
e) The house builder must pass the letter of claim on to the contractors for them to deal with
c) The house builder should formally respond to the letter of claim within a reasonable timescale stating that he has no contractual obligation to the subcontractors
Correct. The house builder has no legal obligation to the subcontractors for the monies outstanding. A contract is private to the contracting parties and only a person who is a party to a contract can sue on it (Dunlop v Selfridge [1915]). There is no enforceable contract between the house builder and the contractors and therefore the contractor must seek redress directly from the kitchen company. However, it would be sensible, having received a letter of claim, to respond to the claim in accordance with the Practice Direction—Pre-Action Conduct and Protocols setting out the basis for rejecting the claim otherwise proceedings might be issued without further notice.
A long-standing client, a wine dealer, telephones his solicitor. That morning, the client had received an inquiry by email from a wine merchant, with whom he has done business in the past, asking for his lowest price for six crates of a particular and rare wine. The client replied that the lowest price was £10,000. The merchant emailed the following reply: ‘We agree the purchase of six crates of wine for £10,000. Funds have been transmitted by bank transfer. Please deliver within 24 hours.’ The client is in a position to deliver the wine but does not wish to do so as he has promised the wine to another merchant.
What advice should the solicitor give as to whether a contract has been formed which the client must perform?
a) A contract has been formed as all necessary components are present and the client must deliver the wine.
b) A contract has been formed as there is an established course of dealing between the businesses and the client must deliver the wine.
c) A contract has not been formed as the client had prior to the email exchange promised the wine to another merchant.
d) A contract has not been formed as there has been no acceptance and there is no obligation on the client to deliver the wine.
e) Any contract that has been formed is voidable for frustration as the subject matter of the contract is not actually available as it has been promised to another merchant and, therefore, the client does not need to deliver the wine.
d) A contract has not been formed as there has been no acceptance and there is no obligation on the client to deliver the wine.
There has been no complete offer and acceptance, which are fundamental requirements for a valid contract. The statement in the first email from the dealer to the merchant was an invitation to treat and not an offer (Harvey v Facey [1893]). The second email from the merchant to the seller was in fact the offer to buy albeit framed as an acceptance of the dealer’s offer. There is no agreement as the offer was not accepted by the dealer.
A client, who is a house builder, consults her solicitor. The client explains that, 18 months ago, she agreed with a local housing association to build 50 houses to be completed within 12 months. However, bad weather, the difficulty of hiring labour and the rising costs of materials have made the project more expensive and more difficult than first envisaged. She wishes to vary the contract to claim for increased costs and to extend the timescale for completion to prevent a claim for compensation for delay.
What is the best advice the client should be given as to her contractual obligations, if any?
a) The client should be advised that she should continue to perform the contract on the terms originally agreed although she should aim to seek a variation to the terms in relation to increased costs and timescale arguing that the contract has been frustrated.
b) The contract is frustrated as there is a fundamental change in circumstances which goes to the root of the contract and holds the parties to a new agreement.
c) The client should be advised that she can unilaterally vary the terms of the contract to increase the costs to a reasonable level and extend the timescale for completion of the work.
d) The contract is void where the original terms of performance of the contract fundamentally change; therefore, the client is discharged from further performance.
e) The contract is exempt from the common law of contract as it is a contract with a housing association which is a government body.
a) The client should be advised that she should continue to perform the contract on the terms originally agreed although she should aim to seek a variation to the terms in relation to increased costs and timescale arguing that the contract has been frustrated.
This follows the case of Davis Contractors Ltd v Fareham Urban District Council [1956]—the shortage of labour and the increased costs made the contract more burdensome but did not make the contract radically different to that originally envisaged and did not operate to frustrate the contract. The advice here is delicately balanced as the client should not be given false hope and therefore the client must accept the likely harsh reality, hence continuing with the contract as best she can but at the same time seeking a variation to the terms arguing the case on frustration.
A client tells his solicitor that he had verbally agreed with a house owner to rent a large house for the sole purpose of attending a week-long summer festival which was to be held on land adjacent to the house. The client agreed to take up occupation on the first day of the festival. However, because of severe weather and forecast storms, the festival was cancelled. The client telephoned the house owner and explained the situation and has been told that he must pay the full rental in the sum of £5,000.
What is the best advice to give the client about his contractual obligations, if any?
a) The client must pay the rental due as he is still able to occupy the house and the cancellation of the festival is incidental to the contract.
b) The client should argue that the contract is frustrated and therefore the client is discharged from his obligations to pay the rent.
c) The contract is voidable by the client and he may choose not to pay the rent.
d) The contract is likely to be held as valid and the rent payable as it would be unreasonable to include terms in the contract, either expressly or by implication, relating to events over which neither party has any control.
e) The contract is likely to be held to be void as it can no longer be performed as intended.
b) The client should argue that the contract is frustrated and therefore the client is discharged from his obligations to pay the rent.
This follows the case of Krell v Henry [1903]. Where a contract depends on the happening of a certain event—here the summer festival—which the client says was his sole reason for renting the property, and the event does not occur, the contract is discharged. The client should be advised that the court may also find that, had there been other reasons why the client might take up occupation, for example to enjoy a holiday in the general area, then the contract would be regarded as valid and he would be obliged to pay the rent (see Herne Bay Steamboat Co v Hutton [1903]).
The marketing director of a small company which makes beauty products placed an advertisement in a local advertisers’ booklet circulated to 200,000 residents in the West Midlands area of the UK. The advertisement read ‘Buy and use our shampoo daily for a month and your money back if you are not completely delighted with the results—proof of purchase required.’ One person, having used the shampoo for a month, wrote to the company enclosing her receipt for £14.50 and claiming a refund stating simply that she was not completely delighted with the results. The marketing director telephones his solicitor for advice as he is concerned that the company will lose money if too many users claim a refund.
What advice should the solicitor give to the director about the company’s contractual obligations arising from the advertisement, if any?
a) There is no obligation to refund the money as the advertisement was ‘mere puff’ and there was no intention to create legal relations.
b) There is no obligation to refund the money as acceptance of the terms of the offer had to be communicated directly to the company.
c) There is an obligation to refund the money as the user has complied with the express terms of the offer.
d) There is an obligation to refund the money as the advertisement has given rise to a unilateral contract and no acceptance is required by members of the public.
e) There is no obligation to refund the money as terms are implied into such advertisements to limit contractual liability where an offer is made to a group of persons.
c) There is an obligation to refund the money as the user has complied with the express terms of the offer.
Although the answer is partly correct inasmuch as there is an obligation to refund the money, the reasoning is wrong because there is a contract between the parties. There is no such thing as a unilateral contract—a contract requires agreement between the parties through offer and acceptance, both of which are demonstrated on the facts (Carlill v Carbolic Smoke Ball Co [1893]).
Last month, a client was visited by his adult nephew, who is a car dealer. The nephew was worried about a downturn in business and he needed to buy some desirable cars to sell. The client, having given his nephew money on several previous occasions, made a verbal promise to give his nephew £20,000 at the end of the month. The nephew thanked his uncle and, in reliance on the promise, bought two cars on credit. The client now wishes that he had not made the promise to his nephew and is unwilling to pay his nephew £20,000.
What advice should the solicitor give her client about his contractual obligations, if any, to the nephew?
a) The client has no contractual obligation to his nephew as a bare promise cannot be enforced.
b) The client has no contractual obligation to his nephew as there has been no valuable consideration passing from the nephew to the uncle.
c) The client has no contractual obligation to pay his nephew as there is always a presumption against related parties intending to create legal relations.
d) The client must pay the nephew the sum of £20,000 as he is contractually obliged to do so.
e) The client is contractually obliged to pay the nephew the sum of £20,000 because the nephew was unduly influenced by the uncle’s promise to enter into legally enforceable credit agreements.
d) The client must pay the nephew the sum of £20,000 as he is contractually obliged to do so.
There is a fully formed contract here as there is an offer (the promise), an acceptance (the thank you) and consideration which, here, is a detriment to the nephew (the promisee) as he has bought cars on credit in reliance upon the uncle’s promise of payment (see Currie v Misa [1875]). Therefore, the uncle must pay the money as promised. Valuable consideration is defined as ‘some right, interest, profit or benefit accruing to one party or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other’, which here would include the detriment suffered by the nephew in buying cars on credit in reliance upon his uncle’s promise.
A client is opening a new hotel. She seeks advice as to whether, and how, liability can be excluded for loss or damage caused to paying guests on the premises. The client has drafted a notice which she intends to display in the hotel bedrooms which reads as follows: ‘The hotel owner will not be held liable for injury to persons or loss of or damage to personal property however caused.’
What is the correct advice which the client’s solicitor should give the client in these circumstances?
a) Liability cannot be excluded or restricted for death or personal injury resulting from negligence but can be excluded for any other damage to or loss of property however caused.
b) Liability for death, injury or damage, however caused, can be excluded provided that the exclusion notice is placed prominently in the hotel bedrooms.
c) Liability cannot be excluded or restricted for death or personal injury resulting from negligence and, in the case of other loss or damage, can be excluded insofar as the notice satisfies the requirement of reasonableness.
d) Liability for loss and damage cannot be excluded by notice for new guests but any paying guests who have previously stayed with the hotel will be bound by notices displayed prominently in the hotel bedrooms.
e) Liability can be excluded where the terms are incorporated into the contract at the time of booking in to the hotel upon arrival and are signed by the guest.
c) Liability cannot be excluded or restricted for death or personal injury resulting from negligence and, in the case of other loss or damage, can be excluded insofar as the notice satisfies the requirement of reasonableness.
This is correct as provided for by s2(1) and (2) of UCTA 1977. In any event, the Consumer Rights Act 2015 is also relevant, which provides that a trader cannot ‘by a term of a consumer contract or by a consumer notice exclude or restrict liability for death or personal injury resulting from negligence’. Moreover, where a term of a consumer contract, or a consumer notice, purports to exclude or restrict a trader’s liability for negligence, a person is not to be taken to have voluntarily accepted any risk merely because the person agreed to or knew about the term or notice.
A client seeks advice from her solicitor about a contract which she had entered into for the purchase of an expensive car from a private seller. The sum of £47,000 was to be paid as consideration. The day before the contract was agreed, and without the seller’s knowledge, the car, which was insured, caught fire and was destroyed. The client has been contacted by the seller who maintains that the money must still be paid under the terms of the contract but the money will be reimbursed to the client when the seller receives settlement from the insurance company.
What is the best advice that the solicitor should give the client on the relevant law?
a) There has been a unilateral mistake by the seller as to the existence of the subject matter which renders the contract voidable by the seller who may, if he wishes, seek to enforce the contract
b) There has been a negligent misrepresentation as to the existence of the subject matter which renders the contract voidable.
c) The contract is valid and enforceable as the subject matter of the contract was insured and the buyer can be compensated in damages
d) There has been a mistake as to the existence of the subject matter which renders the contract voidable.
e) There has been a mistake as to the existence of the subject matter which renders the contract void
e) There has been a mistake as to the existence of the subject matter which renders the contract void
There is nothing on the facts to suggest that this is a negligent misrepresentation as the seller believed at the time of the contract that the car existed. In any event, in these circumstances it is better that the contract is void for mistake as to the existence of the subject matter and that relieves the client of any obligations under the contract.
A client, a farmer, seeks advice about the following circumstances. The client had arranged for the repair of a large part for his only forklift truck which was usually in constant use. He arranged for a parcel delivery service to collect the broken part and anticipated the part being delivered within two working days. Unfortunately, there was a delay delivering the parcel to the repair engineer and a further delay by the engineer in repairing the component, who had not been told of any urgency. As he was unable to use his own truck whilst it was being repaired, the farmer hired a truck. The farmer lost control of the truck because he was unused to its controls and sustained some minor personal injury which, in turn, prevented him from working the farm as usual, requiring the farmer to employ casual labour.
What advice should the client be given about the remedies available to him in these circumstances?
a) The farmer is entitled to claim damages for breach of contract for the costs of the hire of a different truck, damages for personal injury and the cost of employing casual labour and any other consequences arising from the breach of contract.
b) The farmer may claim damages of a kind which should have been foreseen by a reasonable person, however unlikely its occurrence might have been.
c) The farmer is likely only to recover damages for the hire of the forklift truck provided that the cost might fairly and reasonably be considered to have arisen naturally from the breach of contract or might reasonably be supposed to have been in the contemplation of the parties when the parties made the contract.
d) The farmer is likely to recover damages for the hire of the truck, the personal injury sustained and the employment of casual labour as all might be considered to arise naturally from the breach of contract or might reasonably be supposed to have been in the contemplation of the parties when the contract was made.
e) The farmer is unlikely to recover any damages at all.
e) The farmer is unlikely to recover any damages at all.
This follows the case of Hadley v Baxendale [1854] and is a statement of the principles of recovery of damages for breach of contract. The farmer, on the facts, may struggle to recover any damages as he did not make the urgency of the situation known to either the driver or the repair engineer.
What factors will a court use to determine whether a clause is or liquidated damages or whether it is a penalty clause and therefore unenforceable?
1 The clause would be considered to be a penalty if the sum claimed is ‘extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved to have followed from the breach’.
2 As a follow-on from point 1, the clause will be a penalty if the breach is simply one of not paying money due under the contact and the sum claimed under the clause is greater than the sum owed.
3 The sum would be presumed to be a penalty if it stipulated that a single lump sum was to be paid as damages no matter whether the breach was serious or trivial.
4 Finally, Lord Dunedin indicated that it would not prevent the sum stipulated under the clause being seen as liquidated damages if it was difficult to accurately pre-estimate what the loss might be as a result of the breach. Indeed, this was precisely the sort of situation where the parties might reach an agreement in advance as to the damages to be paid.
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A well-known champagne house entered into a written agreement with the owner of a small wine shop. To protect the champagne house’s reputation, the agreement provided that the champagne was never to be sold at a price less than £175 per bottle and that £350 was to be paid as a charge for every bottle of champagne sold in breach of the agreement. The wine shop did sell the champagne at reduced prices on a regular basis. The champagne house now seeks to enforce the agreement and claims damages of £35,000 by way of charges. The owner of the wine shop seeks advice from her solicitor.
What advice should the owner of the wine shop be given with regard to payment of the charges?
a) The owner should argue that the contract breaches UCTA 1977 and is therefore unenforceable.
b) The owner should argue that the contract is void for illegality as it is a contract in restraint of trade and therefore unenforceable.
c) The owner should pay half of the charges as there is an inequality of bargaining position between the parties.
d) The owner should argue that the damages sought are more in the nature of a penalty and seek to be excused payment of the stated amount.
e) The owner should pay the charges as they were agreed by the parties as a term of the contract.
e) The owner should pay the charges as they were agreed by the parties as a term of the contract.
The court will, amongst other factors, consider whether the amount is extravagant and unreasonable in amount by comparison to the greatest loss that has ensued (see Dunlop v New Garage Co [1915]). However, although the sum seems disproportionate, the champagne house also wishes to protect its reputation and in the context of the product being supplied the figure is likely to be seen as reasonable to ensure that the champagne is not sold at an under-price on the wider market.
A bathroom fitter is contracted to fit three new shower rooms in a large house. There is no written contract and no fixed price is agreed but a daily labour rate of £400 is agreed plus parts. He fitted two of the shower rooms. The house owner then complained, without proper explanation, that she is not happy with the work done and refuses to allow the fitter to complete the third shower room and refuses to pay him for the work which he has already completed. The fitter seeks legal advice as to his position.
What is the correct advice to give the fitter?
a) He should make a claim for damages for breach of contract, and damages for unjust enrichment on a quantum meruit basis and for the cost of the parts.
b) He should make a claim for damages for unjust enrichment on a quantum meruit basis and for the cost of the parts.
c) He should make a claim for damages for breach of contract.
d) He should make a claim for rescission of the contract to put the parties back into the position they were in before the contract was made.
e) He should make a claim for damages for misrepresentation as it was agreed that he would be paid for the services provided.
a) He should make a claim for damages for breach of contract, and damages for unjust enrichment on a quantum meruit basis and for the cost of the parts.
This covers the possible remedies which the fitter might seek and enable him to recover on a quantum meruit basis in the event that a claim for breach of contract is unsuccessful as it is not tied to the existence of a contract. This is an example of unjust enrichment which relies upon equity to provide a remedy to the innocent party. Here, the house owner has been enriched at the fitter’s expense and that enrichment was unjust. The court is reluctant to find a right to payment in the absence of a contract and, although there is evidence of a verbal contract here, it would have been far better that it was in writing. However, the fitter should be able to demonstrate that the house owner has been enriched at his expense and that that enrichment was unjust (see Moorgate Capital (Corporate Finance) v HIG European Capital Partners LLP [2019] EWHC 1421 (Comm)).
3 matters fundamental to the scope of UCTA
- Does not apply to consumer contracts
- Applies only to business liability - breach of obligations arising from actions of a person in the course of business or from occupation of premises used for business purposes of the occupier
- Only regulates exemption clauses which limit or exclude liability whether directly or indirectly
How UCTA can operate in contracts
Only applies:
1. Where contract purports to limit liability for death or PI caused by negligence - this is unenforceable
2. And makes terms incorporated by ‘standard terms’ subject to the test of reasonableness
SO, if the exemption clause in question comes from a standard term then even if the other clauses are negotiated UCTA will apply
What is the ‘reasonableness test’ under UCTA?
A term must be fair and reasonable having regard to the circumstances known (or ought to have been known) to the parties at the time the contract was made
Court will take into account:
(a) strength of bargaining positions
(b) whether C received inducement to agree the term
(c) whether C knew or should reasonably have known about the existence and extent of the term
(d) where exemption clause is conditional, whether was reasonable at time of contract to expect that compliance with that condition would be practicable
(e) whether goods manufactured, processed or adapted to special order of that customer
VERY factual - little value in precedent decisions
