Contract SBAQs

Question 1

A girl, aged 17 years, is keen on performing arts and decides to pursue a career in it. She sets up a small business selling dance and stage clothing. The money she makes from the business pays for singing and dancing lessons. After a few months the girl’s main supplier discovers she is only 17 years of age and refuses to deal with her. This leaves the girl without enough business to pay for this month’s lessons. Her tutor is pressing her for payment. The girl is also in arrears with her mobile phone account.

Which of the following statements best describes the girl’s legal position in relation to one or other of the contracts she has entered?

A.
The contract for the supply of the stage clothes was not binding on the girl as it was a trading contract.
B. The contract for the singing and dancing lessons would not be binding on the girl as it was not a contract for necessaries.
C. The girl can terminate the mobile phone contract and the contract for the singing and dancing lessons.
D. The girl is bound by the contracts for the clothes she sells as she needs the proceeds of sales to pay for her lessons.
E. The mobile phone contract would be deemed a contract for necessaries and as such it would bind the girl but not the mobile phone company.

Answer 1

The correct option is A. The contract for the supply of the clothes to her and the contracts of resale would not bind the girl as they are trading contracts. These contracts are not contracts for necessaries. This explains why D is wrong.

B is wrong because the contract for the lessons looks like a contract for necessaries as it is a contract of service which is on the whole for her benefit.

C is wrong as both contracts are likely to be deemed to be contracts for necessaries.

E is wrong because although the phone contract may well be deemed a contract for necessaries the mobile phone company would be bound by the contract in any event.

Question 2

On 1 April Ken bought an antique desk from Sumi for £2,000. At the time of the contract Sumi agreed that Ken could pay on 1 June. On 15 April Sumi telephoned Ken and said she needed the money straight away to pay for a holiday. She told Ken that if he would pay £1,500 immediately she would let him off the balance. Ken agreed and paid the £1,500. Six weeks later Sumi wrote to Ken claiming the final £500.

Which ONE of the following is CORRECT?

A. Sumi is entitled to be paid the final £500 because of the rule in Foakes v Beer.

B. Sumi would have to give Ken reasonable notice and then she would be entitled to the final £500.

C. If Sumi sued for the £500 Ken could rely on the case of Williams v Roffey as a defence.

D. If Sumi sued for the £500 Ken could rely on the exception in Pinnel’s case as a defence.

Answer 2

The only correct Statement is D

– if Sumi sued for the £500 Ken could rely on Pinnel’s case. Pinnel’s case forms an exception to the rule in Foakes v Beer and provides that if “different” consideration is provided then the creditor’s promise to accept a reduced sum will be binding. Here Ken provided “different” consideration by making an earlier payment in order to help Sumi.

The case of Williams v Roffey does not apply to a simple part payment of a debt where there is no additional benefit.

Question 3

In general if the doctrine of promissory estoppel applies it will only suspend rights.

Which one of the following cases added the proviso that the promise will be irrevocable if the promisee cannot resume his original position?

A. D & C Builders v Rees

B. Tool Metal Manufacturing v Tungsten

C. Ajayi v Briscoe

D. Combe v Combe

Answer 3

C is the correct answer.

The P.C. added the proviso in the case of Ajayi v Briscoe.

Question 4

Which ONE of the following statements is CORRECT?

A. A principal will never be bound by a contract unless the agent had authority at the time the contract was negotiated.

B. A principal will be estopped from denying an agent had authority if the agent represented they had authority and the third party acted in reliance on it.

C. Where an agent enters a contract purportedly on behalf of the principal but has no authority neither the agent nor the principal will be bound by the contract.

D. Where an agent purports to contract on its own behalf a principal can never enforce the contract because the principal was not privy to it.

Answer 4

Statement C is the only correct statement.

The agent would be liable to the third party for breach of warranty of authority or in the tort of deceit.

Statement A is wrong as a principal may ratify an unauthorised act if certain conditions are satisfied.

Statement B is wrong because apparent/ostensible authority only arises where the principal has falsely represented the agent had authority.

Statement D is wrong because the doctrine of the undisclosed principal may operate.

Question 5

Which of the following statements best sums up legal principles that govern intention to create legal relations?

A. With commercial agreements there is a non-rebuttable presumption of intention to create legal relations; whereas with domestic agreements there is no intention to create legal relations.

B. With domestic agreements there is a strong presumption of no intention to create legal relations which is difficult to rebut unless very clear words are used.

C. With all agreements involving individuals the presumption is that they did not intend to create legal relations; whereas in business-to-business contracts there is a very strong presumption the parties intended legal relations.

D. In a commercial context there is a strong presumption that the parties intended legal relations but it may be rebutted if the agreement is stated to be ‘binding in honour only’.

E. With domestic agreements it is irrebuttably presumed the parties did not intend legal consequences.

Answer 5

The correct statement is D.
Commercial agreements do not just cover business-to-business contracts. They cover all agreements that are not made between family and friends.

This is why C is wrong.

Both presumptions are rebuttable hence why A and E are wrong. The commercial presumption is very strong and difficult to rebut unless clear words are used.

The presumption in relation to domestic agreements may be rebutted by a number of factors including how close is the parties’ relationship and the amount of money at stake – hence why B is wrong.

Question 6

A client owns a car dealership and sells high value, nearly new cars to business customers looking to purchase company cars.

The Sales Manager can agree to sell a maximum of three cars in any transaction. Any larger transaction must first be approved by the Finance Officer.

Last week, the Sales Manager agreed to sell five sports cars to a valued customer with delivery agreed to be made next week. The client has now been informed of the transaction by the Finance Officer, who found out about it yesterday and had not approved it.

Which of the following statements best describes whether the client will be in breach of contract if it does not perform the contract?

A. No, because the Sales Manager did not have authority to enter the contract.

B. No, because the contract has not yet been completed and can be revoked.

C. Yes, because the Sales Manager had actual authority to enter the contract.

D. Yes, because the client represented to the customer that the Sales Manager had authority to enter the contract.

E. Yes, because the Sales Manager represented to the customer that he had authority to enter the contract.

Answer 6

The correct option is D.

The Sales Manager (SM) is likely to have apparent authority to act as the client’s agent. There is a representation that the client (as principal) has made to the customer that the SM had authority to agree the sale of the five cars. It is likely this is created by the SM being in charge at the showroom and the customer having made previous purchases there. The customer has relied on this representation believing the SM had authority to enter the contract and the customer has altered his position by entering in to the contract to buy the cars.

It must be the principal who makes the representation, not the agent, so E is wrong.

A is wrong as apparent authority is likely to exist here and C is wrong as the actual authority to sell this number of cars has not been given to the SM on the facts.

B is wrong as the contract is already formed so the client will be in breach if the client does not perform it.

Question 7

Tom, a builder, built three new greenhouses for Talbots Garden Centre. He did not do the job with reasonable care and skill with the result that the roof of one of the greenhouses collapsed, causing damage to Talbots’ plants. The contract contains an exemption clause.

Is the following statement TRUE or FALSE?

Tom is in breach of s13 of the Supply of Goods and Services Act 1982 but can rely on the exemption clause provided the clause is incorporated into the contract, covers the breach or damage that has occurred and satisfies the reasonableness test.

Answer 7

The statement is true. Section 2(2) of the Unfair Contract Terms Act 1977 provides that the exemption clause is valid if reasonable.

Question 8

Paul ordered new machinery from Buildco Ltd for use in his business and to be delivered on 14 December. Buildco were three months late delivering the machinery. The signed contract contains a clause stating that Buildco will not be liable for late delivery of the machinery.

Which ONE of the following is WRONG?

A. Buildco has broken an express term of the contract. Section 3 of the Unfair Contract Terms Act 1977 will apply to the exemption clause if Paul is dealing on Buildco’s written standard terms of business.

B. If s3 of the Unfair Contract Terms Act 1977 applies the exemption clause will be void.

C. If s3 of the Unfair Contract Terms Act 1977 applies the exemption clause will be valid if reasonable.

D. If s3 of the Unfair Contract Terms Act 1977 does not apply, the exemption clause will be valid.

Answer 8

B is the incorrect statement as if s3 applies the exemption clause will be valid if reasonable

Question 9

Is the following statement TRUE or FALSE?

In a business-to-consumer services contract, if the service is not carried out with reasonable care and skill the consumer may require repeat performance or a price reduction.

Answer 9

The statement is true- ss54- 56 Consumer Rights Act 2015.

Question 10

Is the following statement TRUE or FALSE?

Section 1 of the Contracts (Rights of Third Parties) Act 1999 allows a third party to rely on an exemption clause in a contract provided the contract expressly provides that he may or the clause purports to confer a benefit on him and provided he is named in the clause.

Answer 10

The statement is false. The third party does not have to be named provided he is identified by class or description e.g. employee.

Question 11

A client advertised his second-hand car for sale in a local shop. The stated price was £8,000 and the car was described as being in good working order.

A neighbour went to inspect the car and bought it for the advertised price without first taking it for a test drive. The next day the car broke down. The neighbour has been reliably informed that there is a serious problem with the camshaft and wants to reject the car, get a refund and claim damages.

Which one of the following statements best describes the client’s legal position?

A. The client will not be in breach of any statutory implied terms as to the quality or reasonable fitness for purpose of the car.

B. The general rule is ‘buyer beware’ and so the client will not be in breach of contract.

C. The client is in breach of contract but the neighbour cannot reject the car: the only remedy will be damages.

D. The client is not liable for breach as it would be irrebuttably presumed there was no intention to create legal relations.

E. The client will be not liable for breach of contract as the car was second-hand and satisfactory quality as implied by statute is a relative standard.

Answer 11

Statement A is correct. It was a consumer to consumer sale of goods so the Consumer Rights Act does not apply. Satisfactory quality and fitness for purpose is only implied into contracts for the sale of goods under the Sale of Goods Act where goods are sold in the course of a BUSINESS.

This also explains why Statement E is wrong.

Statement B- the general rule is ‘buyer beware’ but the client misdescribed the car and so will be in breach of the term implied by the Sale of Goods Act into all sales by description that the goods will correspond with their description.

The implied term as to description is a condition and so the neighbour may potentially reject the car. This explains why Statement C is wrong.

Statement D- it is not irrebuttably presumed that there is no intention to create legal relations in social circumstances. In any event the normal presumption would no doubt be rebutted on the facts.

Question 12

A client company (the Client) entered into a written contract with another company (the Company) which was drafted by a director of the Company. One particular term of the contract was specifically defined as a ‘condition’.

The term provided that over a long period, one of two named representatives of the Client would visit the Company every week. There was no provision to substitute other representatives and no provision for the Company to say a visit was inconvenient.

One week the Company did not receive a visit as agreed and sought to terminate the contract.

Which ONE of the following statements best describes the legal position?

A. The term breached was defined as a condition and so the Company was entitled to terminate for any breach (however small).

B. The parties could not have intended the particular term to be a ‘condition’ in the legal sense and so damages would be the only remedy for breach.

C. Commercial contracts cannot be terminated for breach of a condition if the breach is so slight it would be unreasonable to terminate.

D. As the contract was between two companies and had been reduced into writing and signed the definition of the term as a ‘condition’ would be conclusive.

E. Terms in contracts drafted by non-lawyers are neither conditions nor warranties: the remedy for breach will always depend on the seriousness of the breach.

Answer 12

B is the correct statement.

On the face of it the contract had not been drafted by a lawyer and the parties must have known the term would be breached at some time or another. Consequently, they could not have intended one breach to justify terminating the contract- Schuler v Wickman.

The fact the term had been defined as a condition would not be conclusive in the circumstances; hence statements A and D are wrong.

Statement C- a very slight breach of a condition is only a bar to rejecting goods in a commercial contract for the sale of goods (s15A Sale of Goods Act).

Statement E is wrong. As a matter of construction particular terms may have been intended to be warranties or conditions in the strict legal sense.

Question 13

Which one of the following statements is WRONG?

A. A party cannot recover damages for losses which he could have avoided by taking reasonable steps.

B. The onus of proof is on the claimant to show that he mitigated his loss.

C. The onus of proof is on the party in breach ie he must show that the claimant could have mitigated but did not do so.

D. If the claimant does take reasonable steps to mitigate he can claim any expenses incurred in trying to mitigate even though his attempt was unsuccessful.

Answer 13

the only answer that is not correct is B.

Question 14

Which ONE of the following statements is WRONG?

A. Specific performance is an equitable remedy awarded at the discretion of the court when damages alone would be inadequate.

B. Specific performance will not generally be ordered in relation to contracts for personal service e.g. employment contracts.

C. Action for an agreed sum is a debt action and so there are no issues in relation to remoteness and mitigation.

D. Prohibitory injunctions are ordered whenever there is a threatened breach of a restrictive obligation in a contract.

Answer 14

All the statements are correct except D.

An injunction is an equitable remedy awarded at the discretion of the court and so prohibitory injunctions will not be ordered whenever there is a threatened breach of a restriction in a contract.

Question 15

A client (the ‘Client’) runs a small fitness club, which makes a weekly profit of about £1,000. Last month the Client closed it for refurbishment and as part of this, contracted with a company (the ‘Company’) to rewire the premises.

The rewiring was done negligently and caused a fire which destroyed the club. The cost of rebuilding and refitting the premises will be £300,000 and the club will be unable to reopen for six months. The closure will mean loss of profit in the region of £30,000 including £6,000 on a very lucrative contract the Client recently secured with a national fitness magazine. The Client has also suffered distress as a result of the breach including disappointment in losing the magazine deal.

A. The Client will be awarded the cost of rebuilding and refitting the premises plus £30,000 loss of profit caused by the breach.

B. The Client will be awarded in the region of £324,000 subject to the Client’s duty to mitigate.

C. The Client will be awarded damages for all losses suffered as a result of the breach, including damages for distress.

D. Damages will be awarded for all the Client’s losses: the losses are not too remote and so the extent of them is irrelevant.

E. Provided the Client can prove he took reasonable steps to mitigate loss, damages will be awarded for all losses except distress and disappointment.

Answer 15

The correct statement is Statement B.

The cost of rebuilding/refitting the premises and ordinary loss of profit would not be too remote. Loss of profit on the magazine deal is likely to be too remote and damages for distress/disappointment only tend to be awarded where the main purpose of the contract was pleasure/peace of mind.

Statement C is wrong.
Damages for distress/disappointment only tend to be awarded where the main purpose of the contract was pleasure/peace of mind.

Statement A is wrong as loss of profit on the magazine deal is likely to be too remote.

Statement D is wrong. Damages for distress/disappointment only tend to be awarded where the main purpose of the contract was pleasure/peace of mind and loss of profit on the magazine deal is likely to be too remote.

Statement E is wrong. With mitigation the onus of proof is on the defaulting party to show failure to mitigate. Also as stated above loss of profit on the magazine deal is likely to be too remote.

Question 16

A client used to own a business. When the client sold the business the sale agreement included a restrictive covenant not to compete with the business nor to solicit customers. Unbeknown to the buyer the client had already set-up a rival business and the client began operating in competition and poaching customers. As a result the buyer lost a considerable amount of business. The buyer is now suing the client for negotiating damages in relation to breach of the restrictive covenant.

A. Yes, because the buyer lost the opportunity to negotiate a fee for relaxing the restrictive covenant and there was no other loss.

B. Yes, because the buyer lost the opportunity to negotiate a release fee and it would be unfair to allow the client to benefit from breaching the restrictive covenant.

C. Yes, because the buyer lost the chance to negotiate a release fee and the client made profit at the expense of the buyer.

D. No, because it would be impossible for the court to know what release fee, if any, would have been negotiated.

E. No, because the buyer suffered an ascertainable financial loss other than the chance to negotiate a release fee.

Answer 16

The correct statement is E. Negotiating damages will only be awarded where there is no financial loss other than the chance to negotiate a release fee. Here there was loss of business which could be assessed albeit with difficulty.

A, B and C are wrong. Negotiating damages will only be awarded where there is no financial loss other than the chance to negotiate a release fee. Here there was clear loss of business.

D is wrong because in appropriate circumstances a court will award a reasonable sum based on a hypothetical negotiation.

Question 17

Tom employs Karen to paint his kitchen for £400, payment to be on completion. Karen starts work but then Tom tells her to stop as he has changed his mind.

Which one of the following statements is CORRECT?

Karen could sue Tom for the agreed sum of £400 because Tom wrongfully prevented her completing the work.

A. Karen could sue Tom for the agreed sum of £400 because Tom wrongfully prevented her completing the work.

B. Karen could obtain a decree of specific performance to force Tom to allow her to finish the work

C. Karen could sue for damages or for a quantum meruit

D. Karen’s only claim is for damages for loss of profit

Answer 17

C is the correct answer.

B is not correct as the court will not order specific performance of a contract for services.

A is not correct as the duty to pay has not yet arisen (payment was to be on completion).

Question 18

Which one of the following is CORRECT?

A. Section 13 of the Supply of Goods and Services Act 1982 is a condition

B. Section13 of the Supply of Goods and Services Act 1982 is an innominate term

C. Sectiom13 of the Supply of Goods and Services Act 1982 is a warranty

Answer 18

The answer is B – s.13 of the Supply of Goods and Services Act 1982 is an innominate term.

Question 19

Andrew engaged Sparrow Ltd, a firm of building contractors to repair a garden wall for £1,000 which he paid in advance. Sparrow Ltd was due to start work on 1 May. On 2 April Sparrow Ltd told Andrew that they would be unable to do the work. Andrew telephoned a few other contractors and found a firm who would repair the wall for £700 and start work on the 1 May.

What is the most appropriate remedy for Andrew?

A. Specific performance

B. Damages

C. Restitution - total failure of consideration

D. Restitution - quantum meruit

Answer 19

C is the correct answer

The most appropriate remedy would be restitution on the basis of total failure of the consideration ie Andrew would get back his £1,000.

Question 20

Delia owns a restaurant. She enters into a contract with the celebrity chef Nigel Bites to work at her restaurant for the month of June. Nigel agrees not to work as a chef elsewhere during this period. On 1 May Nigel telephones Delia and says he will not be working for her as he has received a more lucrative offer to work as a chef elsewhere.

Indicate whether the following statement is TRUE or FALSE.

Delia could probably obtain an injunction to prevent Nigel working as a chef elsewhere during the month of June.

Answer 20

The statement is true!

Injunctions have been awarded to enforce negative covenants in employment contracts and as the time limit is relatively short (1 month), and he is only prevented from working as a chef, the court would probably award an injunction in this case.

Question 21

Stan agrees to build a conservatory for Jade, price £12,000, payable on completion. Stan does some of the work and then abandons the job. Jade gets another contractor to finish the work for £5,000.

Which one of the following is CORRECT?

A. Stan is entitled to some payment as he has substantially performed his obligations.

B. Stan is not entitled to any payment for the work done.

C. Stan is entitled to a reasonable sum for the work he has done as Jade has accepted his partial performance.

D. Stan is entitled to some payment for the work he has done, but the maximum amount he can receive is £7,000

Answer 21

B is the right answer.

The doctrine of complete performance applies here – Stan has not performed his side of the contract properly and so is not entitled to payment.

None of the exceptions apply here.

Substantial performance does not apply as Stan has not finished the work.

Jade has not voluntarily accepted Stan’s partial performance. Jade has not wrongfully prevented Stan performing the contract and the obligations are not divisible.

Question 22

A landlord, wanted to upgrade one of his rental properties. He entered into a contract with a bathroom fitter to remove the old bathroom fittings and to replace them with new sanitary ware. The contract price was £8,000. The landlord paid the builder £500 in advance and agreed to pay the balance on completion. The work was finished but the shower tray leaks (as it was not sealed properly) and so the shower cannot be used. The landlord is refusing to pay the balance of the contract price.

If the builder sued for breach of contract which of the following would be the most likely legal outcome?

A. The builder would be awarded £7,500 .

B. The builder would keep £500 but not be entitled to any more money.

C. The builder would be awarded £7,500 less the cost of properly sealing the shower tray.

D. The builder would have to forfeit £500 and not be entitled to any more money.

E. The builder would be awarded a reasonable sum in restitution for the work he had done.

Answer 22

C is correct. There has been substantial performance as the work had been finished but appears to be only slightly defective.

The builder is not entitled to £7,500 as the work was not precise/exact (the doctrine of complete performance) and so A is wrong.

B is wrong. The builder would be entitled to keep £500 in restitution (as there’s not been a total failure of consideration) but would be entitled to more money due to having substantially performed the contract

D is wrong. The builder can keep £500 advance payment in restitution as there was not a total failure of consideration.

E is wrong –the builder is not entitled to a reasonable sum for what he did as there was no voluntary acceptance of part performance (Sumpter v Hedges).

Question 23

A builder and a man enter into a contract for the builder to construct a garage for the man. The agreed price is £10,000 (being £1,000 to clear the site, £5,000 for building materials and £4,000 for labour) payable on completion of the work. The builder begins work by clearing the site. Before the builder commences construction of the garage he realises he has not charged enough for the work and will not be able to finish the job and make a profit. The builder asks the man for more money but the man refuses. The builder decides to abandon the job.

The builder sends an invoice to the man for £500 to cover the cost of clearing the site. The man refuses to pay the invoiced sum.

The man employs a new builder who completes the garage at an agreed price of £9,750. The builder commences legal action to claim the sum due under the invoice.

Will the man be liable to pay the £500?

A. Yes, because in providing his services the builder provided good consideration for the sum claimed under the invoice.

B. Yes, because the builder had finished the first stage of the job and is entitled to be paid for this work.

C. No, because the man will be entitled to damages due to the builder’s breach of contract and the man’s damages will exceed the invoiced sum.

D. Yes, because the man voluntarily accepted the work done to clear the site.

E. No, because the builder would only be entitled to payment when he completes the work.

Answer 23

Option E is correct.

The man promised to pay £10,000 on completion of the work. In a contract where the parties agree that the work must be done before the price falls due, the doctrine of complete performance provides that the builder will only be entitled to the price when performance is complete. As the builder did not complete the work then he is not entitled to any part of the contract price.

Options A and B are wrong because the man did not promise to pay £500 for the clearance of the site. He agreed to pay the full price when the job was complete.

The builder is in breach of contract but the man does not appear to have suffered any loss. He has paid £9,750 for his new garage. This is less than the sum he agreed to pay the builder. As the man has suffered no loss, Option C is wrong.

Question 24

Which ONE of the following cases illustrates that a party cannot rely on ‘self-induced’ frustration?

A. Krell v Henry

B. Herne Bay v Hutton

C. Davis Contractors v Fareham UDC

D. The Super Servant Two

Answer 24

The correct answer is D.

Here the contract was not frustrated because the court said that the defendants had a choice.

Question 25

Julie hired a holiday cottage, ‘Field View’, from Holiday Letts Ltd. for the month of August for £2,000. Julie paid £200 immediately and agreed to pay the balance of £1,800 on 31 August. Holiday Letts agreed to put locks on all of the cottage windows. On 5 August the cottage was destroyed by fire. Holiday Letts had spent £250 on fitting the window locks.

Assuming that the contract is frustrated and the Law Reform (Frustrated Contracts) Act (LR(FC)A) 1943 applies, which ONE of the following is CORRECT?

A. Julie will still have to pay the £1,800 due on the 31 August.

B. Under s1(2) of the LR(FC)A Holiday Letts can keep the £200 Julie paid on the making of the contract and Julie will have to pay a further £50 to cover the expenses incurred by Holiday Letts.

C. Under s1(2) of the LR(FC)A Julie could get back the £200 she paid on making the contract and would not have to pay anything to Holiday Letts for the expenses they incurred.

D. As Holiday Letts incurred expenses in performing the contract then under s1(2) of the LR(FC)A the court may allow Holiday Letts to retain some or all of the £200 Julie paid on making the contract

Answer 25

D is correct.

If a contract is frustrated the parties are discharged from future obligations so Julie does not have to pay the £1,800. Section 1(2) of the LR(FC)A1943 provides that a court may allow a party who has incurred expenses in performing the contract to recover some or all of these but only out of money paid or payable before the frustrating event.

So here the court may allow Holiday Letts to retain some or all of the £200 but this is the maximum they can get.

Question 26

Is the following statement TRUE or FALSE?

When assessing whether or not a valuable benefit has been conferred for the purposes of s1(3) LR(FC)A the court is not concerned with the end product so much as the time and expense involved in producing it.

A. True

B. False

Answer 26

The correct answer is False- BP Exploration v Hunt is authority for the fact that “valuable benefit” refers to the end product.

Question 27

Which ONE of the following statements is WRONG?

A. If the terms of an agreement are uncertain the contract will be terminated and the parties will be released from any future obligations.

B. The terms of an agreement must be certain in order for there to be a binding contract.

C. An agreement can be sufficiently certain if it lays down how the terms can be clarified.

D. Where parties have had dealings in the past, their previous agreements may be used to clarify seemingly uncertain terms.

Answer 27

Statement A is wrong. If the terms of an agreement are uncertain there cannot be a binding contract: the contract will be void.

All the other statements are correct.

Statement B - a case in which a contract was held to be void for uncertainty is Scammell v Ouston.

Foley v Classique Coaches is authority for Statement C

Hillas v Arcos is authority for Statement D

Question 28

A client owns a warehouse and agreed to let it on terms including the following:

RENT : £200 per month payable in advance on the first day of each month

TERM : One year from and including 1 March

ROOF : Landlord to repair the roof within first two weeks of the Term

The tenant paid the rent on 1 March and the client carried out the repairs to the roof at a cost of £500. Then on 2 April the warehouse was completely destroyed by an accidental fire and will take at least 10 months to repair. The tenant had not paid the rent due on 1 April.

Which of the following statements describes the most likely legal position?

A. The tenant will be liable to pay the rent for the full term as a lease of land cannot be frustrated.

B. The lease will come to an end as a matter of law but the tenant will be liable for breach of contract if he does not pay the rent that was due on 1 April.

C. If the client sues the tenant for non-payment of rent the tenant may claim the contract is frustrated.

D. If the contract is frustrated the tenant must be refunded £200 rent paid in March and the client will be entitled to £500 to cover the cost of repairing the roof.

E. If the contract is frustrated neither party will be in breach and they can elect to treat the contract as at an end.

Answer 28

C is correct. Whether the contract is in fact frustrated would depend on whether there was a valid force majeure clause or the lease otherwise including an express provision on the matter.

A is wrong as a lease of land may be frustrated eg if the event/change of circumstances makes performance totally different.

B is wrong. If a contract is frustrated both parties are released from future obligations as a matter of law and neither party will be liable for breach.

D is wrong. Repayment of expenses incurred is at the discretion of the court and the most the landlord would be entitled to here is £400 (ie the total paid and payable by the tenant at the time of the frustrating event.

E is wrong because if a contract is frustrated the contract automatically comes to an end.

Question 29

A company regularly supplies specialist industrial equipment to a power station on the north west coast of the UK. All deliveries are made by rail for reasons of safety. Prolonged heavy rainfall and sudden flooding has collapsed the railway bridge nearest the power station and the railway is closed for repairs. No other road or rail access is available but delivery by sea might be possible. The company wants to know if it can avoid being liable for ending the contract as a result of the closure.

Which of the following options best describes whether or not the defence of frustration will be available?

A. Closure of the railway was not a foreseeable event that a supplier should have in mind when contracting for the supply of goods. The defence of frustration is therefore available.

B. Prolonged rainfall and flooding are not predictable or common events which parties should consider before entering a contract for the supply of goods. The defence of frustration is therefore available.

C. Closure of the railway was a foreseeable event of the sort that a supplier should have in mind when entering a contract for supply of goods. The defence of frustration is not therefore available.

D. Closure of the railway was unforeseeable and using sea transport is radically different from what was agreed. The defence of frustration is available.

E. Whether or not closure of the railway was foreseeable, using sea transport means performance of the contract is possible. The defence of frustration will not be available.

Answer 29

Option D is correct because performance of the contract has been rendered radically different (by sea not rail).

Option A is wrong because closures or interruptions of the railway network are foreseeable just as they are for the road network.

Option B is wrong because rainfall and floods are not uncommon events which could affect delivery of goods.

Option C is wrong because the defence of frustration may still be available where an event is foreseeable but was not in fact foreseen by the parties.

Option E is wrong because even if performance is possible using sea transport it is radically different from rail transport.

Question 30

A woman agreed to hire a caravan from a man for four months beginning on 1 July to travel around the United Kingdom. The total cost of hire is £2,000. The woman paid a deposit of £500 and agreed to pay a further £500 on 1 August and the remaining £1,000 on 1 October. They agreed that the man would partly furnish the inside area of the caravan to suit the woman’s needs. The man spent £500 on adapting the kitchenette area and a new mattress. On 20 July the caravan was completely destroyed by fire. As a result of the fire the contract between the woman and the man is frustrated.

Which of the following best describes the financial consequences of that frustrating event?

A. The woman does not have to pay the remaining £1,500, but she cannot claim back anything she has already paid as the frustration of contract only discharges future obligations.

B. The woman does not have to pay the remaining £1,500, and she can claim back the money that she paid before the frustrating event in full, being the £500 deposit with no deductions.

C. The man can claim compensation for the expenses he incurred on furnishing the caravan which means he can recover £500.

D. The woman does not have to pay the remaining £1,500, and she can in theory claim back the money that she paid before the frustrating event in full, but the court is likely to deduct the man’s expenses in furnishing the caravan, with the result that neither party receives anything.

E. As the woman had a use of the caravan for approximately 20 days the court could decide that this usage constituted a valuable benefit for which the woman should pay a just sum. It is likely that this just sum will be calculated by reference to the daily hire rate for the caravan.

Answer 30

Option E is the best answer.

As the contract has been frustrated, the Law Reform (Frustrated Contracts) Act 1943 will likely govern the financial consequences as follows:

The woman can recover any money already paid under the contract and (as a matter of common law) is discharged from paying any further monies. Option A therefore is wrong.
However, the man may be entitled to recover his expenses in furnishing the caravan up the value of any monies paid and payable by the woman (which in this case is £500). Practically, therefore, the man is likely to deduct his expenses of £500 from the money he would otherwise have to refund to the woman, with the result that (so far) neither party has to pay any money to the other. Option B therefore is wrong in failing to address the man’s likely ability to recover his expenses; option C is wrong in failing to address the fact that the money already paid by the woman has to be set off against any compensation the man might receive.

The reason why option D is not the best answer is that the woman’s usage of the caravan for 20 days before the frustrating event is arguably a valuable benefit in respect of which the court can (in its discretion) award a just sum. That sum is likely to be calculated by reference to the daily hire rate of the caravan.

Working through the 1943 Act therefore means that practically the woman’s right to recover money already paid and the man’s potential ability to recover compensation for expenses cancel each other out, with the result that the only item that becomes payable is a possible just sum for the woman’s usage of the caravan.

Question 31

In January a woman agrees with an owner to hire his hotel for her 60th birthday party in June. The woman pays the first instalment of £2,000 immediately. She agrees to pay a further £3,000 eight weeks before the party and a final payment of £5,000 one month before the party. The owner agrees to purchase a temporary indoor water fountain for the party.

Seven weeks before the party the hotel is struck by lightning and the resulting fire destroys the building. It will take 12 months to repair the hotel and therefore the party cannot take place in June.

The woman has not paid the second and third instalments. The owner has paid £800 for the water fountain which was destroyed in the fire.

Assuming the contract has been frustrated by the fire, which of the following statements best describes the powers of the court to do justice between the parties?

A. The woman will not be required to pay the second and third instalments and the owner must return the first instalment subject to the deduction of a fair sum for purchasing the water fountain.

B. The owner can keep the first instalment and the woman will be required to pay the second instalment because all of this money was due before the fire happened.

C. As there has been a total failure of consideration the owner must return the first instalment and the woman does not have to pay the other two instalments.

D. The woman must pay £800 for the benefit she obtained under the contract and, having retained this sum, the owner must return the balance of the first instalment.

E. The woman must pay the agreed sum of £10,000 for the hire of the venue. The owner will keep the first instalment and the woman will be required to pay both of the outstanding instalments

Answer 31

Option A is correct. In the event of frustration of a contract the contract is automatically terminated at common law and the parties are discharged from future obligations. This means that the woman will not have to pay the final instalment.

The Law Reform (Frustrated Contracts) Act 1943 (the Act) regulates what is to happen in relation to money paid or payable before frustration and expenses incurred before the frustrating event:

Under s1(2) of the Act money paid must bereturned. The first instalment must be repaid.
Money payable before frustration, but not yetpaid, need not be paid. The second instalment need not be paid.
If the recipient of that money (the owner)incurred expenses in performance of the contract (£800 for the water fountain)then the court has an absolute discretion to award a fair sum out of the totalof money paid and payable before frustration (£2,000 + £3,000 = £5,000).
The court may order the owner to receive a fair sum (likely no more than the £800 spent on the water fountain). Subject to that he would have to return the balance of the first instalment and the woman would not have to pay the second instalment. The woman does not have to pay the third instalment under the common law.

Option B is not the best answer. Under the 1943 Act, monies paid before the frustrating event are generally returned to the paying party, and monies payable before the frustrating event need not be paid. As the owner’s expenses are only £800 it is not likely that the fair sum the court may order to cover the owner’s expenses will exceed this sum. As a result, that sum can be met by deductions from the first instalment, and it is unlikely that the woman will be ordered to pay any of the second instalment.

Option C is not the best answer. There has been a total failure of consideration but this is due to frustration and the Act provides that there is a possibility that the owner may receive a fair sum for expenses he incurred under the contract. The court may order a fair sum to be paid to the owner out of the first instalment (and possibly, but unlikely, out of the second instalment).

Option D is wrong. Under s1(3) of the Act a court can order someone who has received a benefit under the contract to pay a fair sum for that benefit. However, the woman has not received any benefit as the hotel was destroyed before the party.

Option E is wrong. Given the contract has been frustrated, the second and third instalment will not need to be paid and the first instalment will be returned (subject to the award of a fair sum for expenses).

Question 32

Adam was induced to buy a desk because Polly, an antique dealer, misrepresented that the desk was Georgian. Adam paid £5,000 for the desk.

He has now found out that it is a fake and worth only £500. Had it really been Georgian, it would have been worth £6,000.

Adam does not wish to rescind the contract.

Which ONE of the following statements is CORRECT?

A. Damages assessed under s.2(1) Misrepresentation Act 1967 would be £5,000.

B. Damages assessed under s.2(1) Misrepresentation Act 1967 would be £5,500.

C. Damages assessed under s.2(1) Misrepresentation Act 1967 would be £4,500

D. Damages assessed under s.2(1) Misrepresentation Act 1967 would be £6,000

Answer 32

C is the correct answer.

Remember that when assessing damages under s.2(1) the court aims to put the innocent party in the position he would have been in if the statement had not been made. If the statement had not been made Adam would still have £5,000. He has a desk worth £500, so he needs £4,500 in damages.

Question 33

Which ONE of the following statements is WRONG?

A. A unilateral mistake as to identity will only render the contract void where the identity (as opposed to a specific attribute) of the other party is of fundamental importance.

B. In order to make a contract void, a mistake must precede the contract.

C. When deciding whether or not there has been a mistake sufficient to make the contract void the courts will look at the facts subjectively.

D. A mistake can only negate consent if it induced the mistaken party to enter the contract.

Answer 33

All the statements are correct except C.

As always in contract law the courts adopt an objective test when deciding whether or not a mistake is sufficiently fundamental to void a contract.

Question 34

Is the following statement TRUE or FALSE?

Covenants in restraint of trade are prima facie void as being contrary to public policy but may be enforceable if they go no further than reasonably necessary to protect a legitimate business interest.

True or False

Answer 34

The statement is true.

There must be a legitimate interest to protect (e.g. trade secrets and customers) and the restraint is reasonable in terms of geographical area, duration and scope of prohibited activities.

Question 35

A client, a sheep farmer, recently bought a farm. Before buying the farm the client had asked the seller how many sheep he believed the farm would sustain. The farm had never held sheep, but the seller said that in his judgement it would support 2,000 sheep. The client now realises the farm will only sustain 1,500 sheep maximum and wants compensation from the seller.

Which ONE of the following best describes whether the client has a cause of action against the seller for damages?

A. Yes, the false preliminary statement would be actionable as a misrepresentation.

B. Yes, the client would have an action for breach of an express term as the matter was an important factor in deciding to enter the contract.

C. Yes, the client could sue for breach of contract as the client reasonably relied on the seller’s judgement.

D. No, because the preliminary statement was neither a term of the contract nor a misrepresentation.

E. No, the general rule is ‘buyer beware’ so the client should have checked how many sheep the farm could sustain before entering the contract.

Answer 35

Statement D is correct.

If the seller had simply expressed an honest and reasonably held opinion the false statement would not amount to breach of an express term or a misrepresentation- Bissett v Wilkinson. This also explains why Statements A, B and C are wrong.

Statement E is wrong as there is no obligation to check the accuracy of preliminary statements.