Contract SBAQ's part 2- Misrepresentations, Undue Influence, SBAQ past paper Flashcards
A builder and a client have agreed that the builder will paint the client’s garden fence
for £100. The client now wants to vary the contract to include the painting of two
garden gates, in addition to the fence.
Which of the following best describes the most effective step the client can
take to make sure the variation is binding?
A Make sure that the variation is in writing and signed.
B Offer to pay the builder more than the initial £100.
C Check that the builder intends to create legal relations.
D Make sure that the initial contract is destroyed.
E Make it clear the client is making a new formal offer and ensure the builder
gives a formal acceptance to that offer.
Option B is correct.
Although all elements of contract formation (offer, acceptance,
intention and consideration) are required for a valid variation, the key issue on any
variation where one party is asking the other party to do more by way of performance
is to show that consideration is being provided in exchange for that extra
performance. Therefore, paying more money is the most effective step the client can
take.
Option A is wrong. There is no requirement for a valid contract to be in writing and
signed and this will not impact on the validity of the variation.
Option C is wrong. Although intention is an important element of contract formation
and variation, in reality intention is not in issue here (the relationship is a commercial
one, where such intent will be presumed and there is nothing on the facts to rebut
that presumption). Therefore, this is not the most effective step she can take.
Option D is wrong. There is no requirement to destroy the initial contract to ensure
there is a binding variation.
Option E is wrong. Although offer and acceptance is crucial for a valid variation,
there is no need for the client to take steps to highlight the offer and acceptance in a formal way, as these will be implied from the discussions between the parties.
Therefore this is not the most effective step the client can take.
The client, a cleaning company, provides services to landlords. It recently verbally
agreed with a new landlord customer to clean several flats, starting next week, “on
the usual standard terms”. Nothing else has been agreed but the client has suddenly
lost several staff. It cannot start any new cleaning work and it has told the landlord to
go elsewhere. The landlord argues that the client is contractually bound to start work
next week.
Which of the following statements best describes whether the client will be in
breach of contract if it does not start work next week?
A. As the agreement was reached in a commercial context the parties intended
to create legal relations and so the client will be in breach of contract.
B. There is no written agreement, so there is no contract. The client will not be in
breach of contract.
C. The loss of staff is an unforeseen event making performance impossible and
discharging the client from all contractual obligations. The client will not be in
breach of contract.
D. “On the usual standard terms” is too vague for sufficient certainty on essential
terms to create a binding contract. The client will not be in breach of contract.
E. The client has verbally agreed to start cleaning next week, which amounts to a contract. The client will be in breach of contract.
Option D is correct.
A binding contract can only exist, and be enforceable, if its terms
are certain. The agreement must be complete, not leaving out essential terms.
Alternatively, it must not be uncertain or vague or ambiguous. In Scammell v Ouston (1941) AC 251, the House of Lords held that an agreement to acquire goods ‘on
hire-purchase’ was too vague to be enforced because many kinds of hire-purchase contract existed on very different terms. It was impossible to ascertain on what terms
the parties had agreed to contract. The phrase “on the usual standard terms” is
similarly too vague, there can be many kinds of cleaning contracts and no clear or certain agreement on terms can be said to have been reached.
Option A is wrong. Even though the agreement was reached in a commercial context
(meaning that intention to create legal relations can be presumed), this will not
render enforceable an agreement that is incomplete or uncertain. There is no
contract, due to the lack of certainty explained above.
Option B is wrong because it suggests the contract had to be in writing before it
could be effective. In law a contract does not have to be in writing to be effective; it can be verbal.
A client wishes to set aside a contract which he claims he cannot now perform as a
result of circumstances that rendered performance impossible. The client does not
know if the other party is aware of these circumstances.
Which of the following statements best describes the type of mistake that will
render a contract void for common mistake?
A One party makes a mistake as to the quality of the subject matter of the
contract.
B One party makes a mistake as to the terms of the contract of which the other
is aware.
C Both parties make a mistake as to the quality of the subject matter of the
contract.
D After the contract is made an event or change of circumstances renders
performance impossible or radically different.
E Before the contract is made a change of circumstances renders performance
of the contract impossible or radically different from what both parties
anticipated
Option E is correct.
Common mistake requires that the mistake is a mistake made by both parties as to a fundamental matter in the contract at the moment the contract is made, e.g., the existence of the subject matter. Common mistake must not be the fault of either party, and the contract must not make express provision on the matter. It must be fundamental, i.e. a mistake that renders the contract fundamentally different from that which both parties anticipated.
Options A and B are wrong. Common mistake must be a mistake of both parties. Option C is wrong. A mistake as to quality of the subject matter is not sufficiently fundamental.
Option D is wrong as this describes frustration where the event or change in
circumstances takes place after the contract is made.
A client and her partner jointly own their cottage (‘the Cottage’), which is mortgaged
to a bank (‘the Bank’). The client is disabled and cannot work but manages the
couple’s finances. Her partner is sole owner of a small business. To expand the
business her partner approached the Bank for a loan. The Bank agreed on condition
it had a second charge on the Cottage. The client was loathe to re-mortgage the
Cottage but was eventually persuaded by her partner. The Bank manager went to
the Cottage to see the couple. The client said she understood the risks and signed
the necessary paperwork. Her partner defaulted on the loan and the Bank is seeking
to repossess the Cottage.
Would the client have any ground(s) for arguing that the re-mortgage should
be set aside?
A Yes, because the client may be able to establish actual undue influence by
her partner and that the Bank had constructive notice of it.
B Yes, because undue influence would be presumed and the Bank did not insist
the client took independent advice.
C Yes, because undue influence by her partner would be presumed and the
Bank had actual notice of it.
D No, because the Bank was not put on inquiry of any undue influence and the
client understood the risks.
E No, because the client managed the couple’s finances and was aware of the
risks involved in re-mortgaging the Cottage.
Option A is correct.
The client may be able to show actual undue influence (Daniel v
Drew). The Bank should have been put on inquiry as the relationship between the client and debtor was non-commercial and the loan was not for their joint benefit. The Bank does not appear to have had a private meeting with the client to explain the risks and she did not take independent advice: so the Bank would have constructive notice of the undue influence.
B and C are wrong. Undue influence would not be presumed as the relationship
between client and partner was not by its nature or in fact one of trust and confidence. She managed the finances, had been loath to re-mortgage the Cottage
and said she understood the risks. Also there is no evidence the Bank had actual
notice of undue influence.
D is wrong. The Bank should have been put on inquiry as the relationship between
the client and debtor was non-commercial and the loan was not for their joint benefit.
E is wrong because there appears to have been undue influence of which the Bank
had constructive notice.
A client, a professional tree sculpture artist, appointed an agent to negotiate new
commissions, but not to finalise deals until the client had approved the scope and
feasibility of projects. Last month a potential customer approached the client and
enquired about transforming a fallen tree into a sculpture. The client took some basic
details and said he would forward them to the client’s agent. The agent visited the
customer, took measurements of the tree and discussed possible designs and likely
time scale. Last week the customer decided on a particular wildlife sculpture and the
agent quoted £5,000 for the project. The customer accepted the quotation but the
client is furious and refusing to honour the deal. To make a profit on the project the
client would have to charge the customer at least £6,000.
Which of the following statements best describes the legal position?
A The client is not bound to do the work for £5,000 as the agent had no express authority to conclude the deal.
B The client is bound to do the work for £5,000 as the client will be estopped
from denying the agent had authority.
C If the client refuses to do the work for £5,000 the customer can claim
damages from the agent for breach of warranty of authority.
D It would be an implied term of the deal that the client would be paid a
reasonable sum for the sculpture.
E The agent will not be liable for breach of the agency agreement as the agent
had apparent authority.
Option B is correct as the agent would have had apparent authority. The client gave the
false impression that the agent had authority and the customer relied on that
representation.
Option A is wrong as the agent had apparent authority.
C is wrong as no false representation appears to have been made by the agent.
D is wrong as statute only implies payment of a reasonable sum where a price has not
been agreed. Even though the agent had apparent authority the agent still breached the agency
agreement and so could be sued by the client. This explains why Option E is wrong.
Two weeks ago a client bought a new electric car for personal use from a dealership.
The sales-person had assured the client that the car would do at least 250 miles
when fully charged. The client had stressed the importance of this and double-
checked before signing the paperwork. The written contract did not mention mileage
per charge. Yesterday the client discovered that the car will do no more than 200
miles per charge.
Which of the following statements best describes the client’s legal position?
A The client can reject the car, get a full refund and may be entitled to damages.
B The client will only be entitled to a partial refund as he will be deemed to have
accepted the car.
C The client will be entitled to rescind the contract and claim damages for loss of
expectation.
D Rescission will be barred but the client may be awarded damages assessed
on a tortious basis.
E The client will not have a remedy as sales-puff is not meant to be believed
and is non-actionable
Option A is correct. On the facts the assurance would no doubt be deemed to be a term of the contract. The statement was made by an expert to a non-expert just before the contract and the client had stressed to importance of it. No doubt breach of the term
implied by CRA that goods sold by a trader to a consumer will comply with description. So the client would have the short-term right to reject and claim damages.
Option B is wrong as the client still has the short-term right to reject and acceptance only applies to B2B contracts for the sale of goods.
Option C- there is no entitlement to rescind and damages for misrep are awarded on a tortious basis.
Option D- there appear to be no bars to rescission.
Option E is wrong as the assurance was not mere puff.
In May a buyer entered into a contract to buy a farm shop having been deliberately misled by the seller as to the gross profit made by the shop over the previous three years. The buyer made extensive alterations to the shop including the addition of a tea room. Then in August the buyer discovered the fraudulent misrepresentation and decided he no longer wanted the shop.
Could the buyer rescind the contract of sale?
A. No, because rescission would be barred by undue delay.
B. No, because rescission is an equitable remedy and damages would adequately compensate the buyer.
C. No, because restitution is impossible.
D. Yes, because rescission is potentially available for all forms of misrepresentation and the buyer has not affirmed the contract.
E. Yes, because rescission is always available for fraudulent misrepresentation.
C is correct. As the buyer made extensive alterations to the shop including the addition of a new tea room restitution would be impossible.
A is wrong as rescission would not be barred by delay. With fraudulent misrepresentation time runs from discovering the misrepresentation.
B is wrong as rescission may be awarded in addition to damages.
D is wrong. Rescission is potentially available for all forms of misrepresentation but would be barred on the facts as restitution is impossible.
E is wrong as rescission is not available as of right for any misrepresentation.
A client recently bought a tenanted house. Before buying the property he had enquired about the tenant and was told by the seller that he was ‘a most desirable tenant’. The client has now discovered that the tenant is seriously in arrears with the rent and has only ever paid under pressure.
If the client sues the seller which ONE of the following is the most likely outcome?
A. The contract of sale will be set aside and the client will be awarded damages for breach of contract.
B. The claim will fail as the seller was simply expressing an opinion which is not actionable.
C. The client will be awarded damages assessed on a tortious basis.
D. The claim will be dismissed on the basis the client should have undertaken proper due diligence.
E. The client will be awarded damages in lieu of rescission.
The most likely outcome is reflected in Statement C i.e. the client will be awarded damages on a tortious basis. The seller could not have reasonably believed the tenant was ‘most desirable’ and so the statement would be actionable as a misrepresentation. This explains too why Statement B is wrong.
The preliminary statement would not be deemed to be a term of the contract; hence Statement A is wrong. Also, the court might not order rescission which is an equitable remedy awarded at the discretion of the court and which may be barred in any event.
Statement D is wrong. There is no obligation to check the accuracy of preliminary statements.
Statement E is wrong. The statement is unlikely to have been made innocently and in any event rescission may not be available.
A year ago a client bought a business. After 6 months he discovered the seller had misrepresented the turnover of the business and gross annual profit. The client was advised to continue running the business but to put it up for sale. Last week the client sold the business and wants advice on what, if any remedies he may have against the seller.
Which ONE of the following best explains the client’s legal position?
A. The client may rescind the contract and claim damages for all consequential losses including loss of profit.
B. Damages would be awarded in lieu of rescission if the misrepresentation had been made innocently.
C. The client will not be entitled to claim damages unless he can prove that the seller was fraudulent.
D. The client cannot rescind the contract but may be awarded damages if he can prove a misrepresentation and loss.
E. The client will be awarded all consequential losses except loss of profit: loss of profit is expectation loss and as such not available.
Statement D is correct. Rescission is barred as the business has been sold: this also explains why statements A and B are wrong. If the client sues for damages under s2(1) Misrepresentation Act all he has to prove is a misrepresentation which caused loss. The onus is then on the misrepresentor to show that he honestly and reasonably believed what he said to be true and that is a difficult burden of proof to discharge. The reversal of the burden of proof also explains why Statement C is wrong.
Statement E is wrong as damages may be awarded for loss of profit, but they are not calculated on an expectation loss basis. If the misrepresentation had not been made the client would not have bought the particular business, but another similar one. The measure of damages would be the difference between the profit the client actually made and the profit the client would have made if the client had bought a similar business.
A client wholesaler received a written order for goods from what appeared to be a reputable company with which the client was familiar: instead the order had been placed by a rogue company (the ‘Company’) trading from the same retail park. The client dispatched the goods to the Company but has never been paid for them. Before the client discovered the fraud the Company had sold the goods to a third party who bought them in good faith. The client wants to repossess the goods from the third party.
Which ONE of the following statements best describes whether, or not, the client’s action will succeed?
A. No, because although there had been a misrepresentation by the Company rescission would be barred.
B. No, because it would have been reasonable for the client to have checked the name and address of the Company before accepting the order.
C. No, because the client’s mistake was not fundamental enough to get the contract avoided: it was only a mistake as to the creditworthiness of the buyer.
D. Yes, because the client had made a unilateral mistake and the contract with the Company would be void.
E. Yes, because the Company had made a fraudulent misrepresentation: the contract with the Company would be set aside and title to the goods would revert to the client.
Statement D is the correct one. Based on Cundy v Lindsay, the contract would be void for mistaken identity (unilateral mistake) in which case title will have reverted to the client before the Company sold to the third party. This explains too why Statement C is wrong- the cases seem to draw a distinction between cases of mistaken identity made in a face-to-face situation and those made at a distance as here.
Statement A – there had been a fraudulent misrepresentation and rescission would be barred (by the bona fide third party) but the contract would no doubt be void for mistake in which case the action would succeed.
Statement B- no obligation on the client to check and so this statement is wrong.
Statement E - there had been a fraudulent misrepresentation but rescission would be barred (by the bona fide third party). The contract would no doubt be void for mistake.
A baker’s shop entered into a contract to bake a cake which was to be iced with a gay rights slogan. The bakers subsequently refused to bake the cake on the basis that the owners were devout Christians and they sought to refund the customer instead.
If the bakers were taken to court which ONE of the following would be the most likely outcome?
A. The contract was illegal as being contrary to public policy and therefore unenforceable by the customer.
B. The baker’s refusal to carry out the contract was because the customer was gay and as such amounted to unlawful discrimination and was illegal.
C. The baker’s refusal to perform the contract was legal because the baker should not be forced to express a political opinion in which he did not believe.
D. The contract was legal and as the baker had not properly performed it should be liable to pay damages to the customer.
E. The contract was legal but the baker’s refusal to perform it as agreed was illegal because it amounted to a fundamental breach of contract.
The correct statement is C. The contract was legal and to have required the baker to ice the slogan on the cake would have breached the baker’s human rights.
A is wrong because the contract itself was legal.
B is wrong. The baker’s refusal to perform the contract as agreed was not because the customer was gay. It would have required the baker supplying a cake iced with a message with which the baker profoundly disagreed and that was contrary to the baker’s human rights.
D is wrong. The contract was legal but the bakers were entitled to refuse to perform it as agreed.
E is wrong. Performance of a contract will not be illegal just because it amounts to a fundamental breach of contract.
Which ONE of the following statements is CORRECT?
Hide answer choices
A. The doctrine of undue influence is based on inequality of bargaining power.
B. The doctrine of undue influence is always based on someone deliberately abusing a dominant position for personal gain.
C. In order to have a contract set aside a claimant must prove, on the balance of probabilities, that the claimant entered the contract as a result of undue influence.
D. A contract may be set aside because of undue influence exerted by a third party.
Option D is correct.
A is false – there must be an abuse of position by the ‘dominant’ party. B may be true in most cases, but not all of them. C is false – in some circumstances there will be a presumption of undue influence. D is true – an authority is Credit Lyonnais v Burch (1997).
A client entered into a contract with a decorator to paint the outside of the client’s house which was in urgent need of attention. The agreed price was £3,000. Not long after the decorator had started painting the house, he explained to the client he had underestimated the cost and would need another £500 in order to finish the job. The client was outraged, but as the client could not find another decorator to complete the painting agreed to pay the extra money. The work was completed but the client only paid the decorator £3,000. The decorator is now suing the client for the extra £500.
Which one of the following best explains whether, or not, the decorator’s action will succeed?
A. No, because the decorator was simply performing an existing duty owed to the client and so gave no consideration for the promise of extra money.
B. No, because although the decorator conferred a practical benefit by completing the work the client could raise duress as a defence.
C. No: although the decorator conferred a practical benefit the variation would be void as the promise to pay more was made under duress.
D. Yes, because the decorator conferred a practical benefit and it would be inequitable for the client to renege on her promise to pay the extra money.
E. Yes, because the decorator gave consideration and the promise to pay the extra money was made as a result of hard but legitimate bargaining.
Statement B is correct. Performance of an existing duty owed to the other party is consideration if it confers a real practical benefit. There appears to have been an illegitimate threat though which left the client with no practical choice but to concede. Consequently, the client could rely on economic duress as a defence if sued by the decorator.
Statement A is wrong. Performance of an existing duty owed to the other party is consideration if it confers a real practical benefit. The client appears to have got the practical benefit of having the urgently needed work completed without having to find someone else to do it.
Statement C is wrong. Duress makes a variation voidable, not void.
Statement D is wrong as equity is not a relevant factor.
Statement E is wrong as there appears to be duress rather than just hard-bargaining.
A client manufactures precision parts for the aeronautical industry. Six months ago it won a large contract with a major aeroplane manufacturer. To fulfil this contract the client reached agreement with a tool making company (the ‘Company’) to supply certain equipment by the end of last week. Two months ago the Company told the client that it had underestimated costs and would have to charge an extra £6,000 if it was to carry on. The client protested but reluctantly agreed as it could not find another manufacturer to do the job. The equipment was made on time and the client paid the Company £16,000 (ie the original contract price plus the extra £6,000) on delivery.
Which of the following statements best describes the legal position?
A. The client’s promise to pay more would not be binding as the Company had given no consideration for it.
B. The contract with the Company could be set aside and the client would be refunded £16,000 because the promise to pay extra was made under duress.
C. The contractual variation would be binding because the Company had conferred a practical benefit and exerted no duress, just hard commercial bargaining.
D. The Company had provided consideration for the extra £6,000 but the variation would be voidable because of duress.
E. The promise to pay more money would be voidable because of duress but rescission would be barred.
The correct statement is D.
A is wrong because performance of an existing duty owed to the other party may be consideration if it confers a practical benefit.
B is wrong because even if the promise to pay more was made under duress it is only the variation that could be set aside in which case our client would be entitled to have £6,000 refunded.
C is wrong because the Company most likely exerted duress ie made an illegitimate threat which left our client with no practical choice and was a significant reason for promising to pay more.
Finally, E is wrong because on the facts there is nothing to suggest that rescission would be barred eg by delay. Affirmation would not apply as it appears the client had to pay the total price (including the extra) in order to take delivery of the goods.
A husband and wife are directors and shareholders of a limited company. He makes all decisions; she has no real role and relies fully on him. The company recently obtained a bank loan, secured by personal guarantees from each of them. After the guarantee had been given the bank obtained a faxed letter signed by her confirming she understood her liability under the guarantee. The bank now wants to enforce the guarantee against her. The wife alleges undue influence by her husband. She seeks advice on the availability of this doctrine to protect her from the bank.
Which of the following best describes whether the wife can allege undue influence in an attempt to set aside the guarantee?
A. An irrebuttable presumption of undue influence can be raised. The wife trusted her husband fully and the relationship between them requires the transaction to be explained.
B. A rebuttable presumption of undue influence cannot be raised. Although the wife trusted her husband fully, the relationship between them does not require the transaction to be explained.
C. Undue influence cannot be alleged. The wife signed a letter to the bank confirming she understood the implications of the guarantee and she is bound by it.
D. Undue influence can be alleged. The bank should have had a private meeting with the wife to warn of the risks or written directly to her requiring that she obtain separate legal advice.
E. Undue influence cannot be alleged. The bank had constructive notice of the possibility of undue influence but took reasonable steps to satisfy itself that her agreement to the guarantee was given without it.
Option D is the best answer. The wife clearly trusted and had confidence in her husband. It is less clear whether the relationship between them required the transaction to be explained, but this is arguable. Applying the “Etridge” guidance for these situations, the bank would be put “on enquiry” and at risk of being unable to enforce its security if undue influence is proven. The Court’s guidance in Etridge is that banks should require either a formal private meeting with the guarantor to warn them of the risks or production of a solicitor’s letter advising the guarantor of the risks involved. The bank’s acceptance of a faxed signed letter was not in accordance with that guidance.
Option A is wrong. The relationship of husband and wife is not one that can raise an irrebuttable presumption of undue influence, only a rebuttable one.
Option B is wrong. The relationship of husband and wife can give rise to a rebuttable presumption of undue influence, if the criteria are met. The facts indicate trust and confidence but it cannot be said with certainty that the transaction does not require explanation.
Option C is wrong. The fact that the wife has supplied a faxed signed letter is not good evidence that she was not subject to undue influence, or even that she knows of the content of the letter. Accordingly, undue influence may still be established if the usual criteria are met.
Option E is wrong. The steps taken by the bank would be inadequate to defeat an allegation of undue influence if such an allegation can be established. Please see the feedback on option D as to what steps the bank should have taken in this situation.
