LEVEL 3 - UNIT 2 CONTRACT LAW SUGGESTED ANSWERS - JUNE 2011

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1 Note to Candidates and Tutors: LEVEL 3 - UNIT 2 CONTRACT LAW SUGGESTED ANSWERS - JUNE 2011 The purpose of the suggested answers is to provide students and tutors with guidance as to the key points students should have included in their answers to the June 2011 examinations. The suggested answers do not for all questions set out all the points which students may have included in their responses to the questions. Students will have received credit, where applicable, for other points not addressed by the suggested answers. Students and tutors should review the suggested answers in conjunction with the question papers and the Chief Examiners reports which provide feedback on student performance in the examination. SECTION A 1. It is necessary here to identify any of the following: Consideration, intention or capacity. There is not any requirement for the use of supporting Authority. 2. It is an expression of willingness to contract on certain terms with the intention that it shall become binding upon acceptance. Any alternative and suitable explanation of this is acceptable. The important issue here is to identify the willingness, the certainty and the intention to be bound. 3. Candidates should explain that an invitation to treat is an invitation to other[s] to make an offer, and it does not incur any liability. An offer however, is the first formal stage in the creation of a contract. It does incur liability, as it can be accepted. Authorities: Carlill v Carbolic Smokeball Co [1893], Fisher v Bell (1960). 4. Candidates should be able to discuss that performing an existing contractual duty is normally good consideration, as it is part of the agreement. If however, one of the parties expects more than that agreed for performing that duty, this then will obviously not be good consideration. The only time that additional payment can be demanded is if they are actually providing more consideration to justify this. Any suitable explanation or example of this will be acceptable, supported with relevant Authorities: Eg. Stilk v Myrick (1809), Hartley v Ponsonby (1809). 5. Candidates should explain that there is a rebuttable presumption in social and domestic agreements that the parties did not intend for their agreement to be legally binding. The presumption may be rebutted by various methods, which include behaviour, placing oneself at a disadvantage, or the elements of a commercial arrangement being present. Relevant Authorities: Merritt v Merritt [1970], Balfour v Balfour (1919), Simpkins v Pays (1955). Page 1 of 6

2 6. Candidates can list any 3 of the following: Section 12: The seller has the right to sell the goods Section 13: The goods must correspond with their description Section 14(2): The goods must be of satisfactory quality Section 14(3): The goods must be fit for their purpose Section 15: The bulk of the goods must correspond with the sample It is not necessary to provide the section numbers or suitable Authority as there are only 3 marks awarded here. 7. (a) The remedy for a breach of warranty is damages only. The candidates should explain that repudiation is available and this would be the ending of the parties contractual obligations. Damages are also available and the aim of them is to put the claimant in the same position as if the contract had been properly performed. Damages are available even if the claimant decides not to repudiate but to carry on with the contract. 8. The candidates should define misrepresentation as an untrue statement of fact or law, made by one contracting party to another which induces the other party to enter a contract with the statement-maker. 9. An opinion will not normally amount to an actionable misrepresentation. This will only happen if the opinion is based on fact, or the statement-maker has special skills or knowledge. Authorities: Bisset v Wilkinson (1927), BG v Nelson, Smith v Land & House Property Corporation (1884). 10. A discussion on the fact that a contract must be performed in accordance with its terms. Anything less than this will be partial performance. Credit can also be given here for any discussion on substantial performance. Authorities: Cutter v Powell (1795), Bolton v Mahadeva (1972), Hoenig v Isaacs (1952). 11. A brief explanation of two situations when the court will award damages for non-pecuniary losses [which is rare in contract] by using any two of the following: a. Contracts for pleasure b. Contracts for peace of mind c. Contracts for freedom from distress d. Contracts breach causes inconvenience and/or discomfort Authorities: Jarvis v Swan Tours (1973), Farley v Skinner (2001), Jackson v Horizon Holidays (1975). Credit will be given here for any suitable explanation or example of the above. Scenario 1 Questions SECTION B 1. (a) This question requires the identification of an offer and acceptance (constituting an agreement), acceptance, consideration and intention. If candidates merely identify agreement then credit would be given for this, as would capacity. Page 2 of 6

3 Candidates should recognise that the relationship of brothers raises the issue of intention. This is the intention to create a legally binding relationship between the parties and is essential for there to be a contract. In a social or domestic arrangement the court presumes there is no legal intent. That presumption may be rebutted by the behaviour of one party, a party being disadvantaged or a payment involved, suggesting a commercial arrangement. Authorities: Merritt v Merritt (1970), Balfour v Balfour (1919), Jone v Padvatton [1969], Simpkins v Pays [1955]. 2. (a) Consideration is a benefit to one party and a detriment to the other. It can also be the price paid for a promise. Authorities: Currie v Misa (1875), Dunlop v Selfridge (1915). It is necessary here to recognise that past consideration is not good consideration. It would be accurate to state that there is consideration provided by but that it is not good. Adam painted the wall before Ben promised to pay him for this. Authority: Re McArdle (1951). 3. (a) It was necessary here to identify each type of misrepresentation: Innocent, statement-maker having genuine belief that the statement is true; Negligent, the statement-maker will be liable unless he has reasonable grounds to believe, and did believe the facts were true; Fraudulent, the statement-maker knows that he is making a false statement, does not believe his statement is true, or is reckless in establishing the truth of the statement. There is not a requirement in this answer to provide Authority. (i) Adam s statement is clearly an untrue statement of fact, and Chris was induced into the contract by it. If Adam knew it was untrue then it will be fraudulent but if he did not bother to determine the truth of the statement, then he will be negligent. Credit would also be given here for identifying the Misrepresentation Act Authority: Smith v Land and House Property Corp (1884). (ii) It does not matter if Chris does not check the truth of the statement, and he can choose to rely on Adam s false statement. Authority: Redgrave v Hurd [1881]. 4. (a) It is necessary here to identify that a breach of warranty amounts to the breach of a minor term of the contract. A breach of condition however, is the breach of a fundamental and major term of the contract. Authorities: Bettini v Gye (1876), Poussard v Spiers & Pond (1876). (c) This answer could be argued either way, stating that it can be a breach of warranty or a breach of condition, depending on the importance of the term. For a breach of warranty damages will be available but not repudiation. For a breach of condition the claimant can choose to end the contract (repudiate it), and claim damages or continue with the contract and claim damages. Page 3 of 6

4 (d) The term here can be treated as an innominate, and the Court will look at the effect of the breach to determine the appropriate remedy. Authority: Hong Kong Fir v Kawasaki (1962). Scenario 2 Questions 1. (a) Candidates should define/explain an invitation to treat as being an invitation for offers that does not incur any liability. There should also be a discussion on offer, that fact that it does incur liability, and the fact that this could be unilateral (an offer to the whole world). Authorities: Carlill v Carbolic Smokeball Co [1893], Fisher v Bell [1960]. Any suitable explanation or example of this would be credited. (c) (d) There should be an explanation of the situation if the advertisement is a unilateral offer by stating that by being one of the first 20 customers could amount to acceptance by conduct, or if it is an invitation to treat then it cannot be accepted. The question should be raised that has Eloise made an offer? If she has then Daniel can refuse/reject this. There was also the possibility here of the issue of revocation as if this was an offer, Daniel could have revoked it. Candidates were required to explain that revocation of an offer must be communicated to the offeree before acceptance. It can be done however, by a reliable third party. If this is a unilateral offer it must be revoked in the same way it was made the newspaper. Authority: Errington v Errington Woods (1952). The notice in the newspaper on 26 May could be valid revocation as it is done in the same was as the unilateral offer was made. Daniel telling Eloise will also be acceptable. 2. Candidates here should have been able to discuss the fact that Fatima makes an offer, and Eloise asking for the poster to be included could be making a counter-offer. The effect of this is that it cancels the original offer. It could also be argued that Eloise is merely making a request for information, and if this is the case then the original offer still stands, and is capable of acceptance. Credit was given here for discussing the above and making a reasonable conclusion as to whether there is an agreement or not. This will obviously depend on whether the assumption is in favour of a counter-offer or request for information. Authorities: Hyde v Wrench (1840), Stevenson v McLean (1880). 3. Candidates needed to explain that acceptance must be communicated to the offeror and if not, there is not a valid agreement. An answer-phone message would be considered as an instantaneous and modern method of communication. This however, will only be valid during office hours. The issue is that Fatima failing to listen to the message will not invalidate Eloise s acceptance as it was left at 3.30pm. Authorities: Brinkibon Ltd (1982), Entores v Miles Far East Corporation (1955). 4. (a)(i) Here it was necessary to state that damages are a common-law right for breach of contract. They are to place the claimant in the position he would have been had the contract been properly performed. (a)(ii) Injunctions are an equitable remedy, available at the Court s discretion. They are to prevent the defendant from carrying out an act or to make him carry out an act. Authority: Warner Bros v Nelson (1937). Page 4 of 6

5 Specific performance would not normally be given when damages are sufficient compensation for the breach. If this CD had been rare then it is possible but in this case it is highly unlikely that it would be granted. Scenario 3 Questions 1. Candidates should explain that consideration is an essential element for a binding contract. It is a benefit to one party and a detriment to the other. It can also be the price paid for a promise. If a party demands extra for performing an existing contractual duty, then this will not be good consideration. If extra duties are carried out in addition to those agreed in the contract, then this will be good consideration to request extra payment. In this scenario there was not any additional consideration provided, and therefore the extra money cannot be demanded. If candidates argued that Hassan had received a benefit as he did not have to look for someone else to carry out the task, then credit was given for this. Authorities: Currie v Misa (1875) Stilk v Myrick [1809], Hartley v Ponsonby (1857), Williams v Roffey Bros [1990]. 2. (a) Candidates needed to identify S14(2) of the Sale of Goods Act 1979, which relates to satisfactory quality as the freezer has broken down after only 2 days of use. S14(3) relates to fitness for purpose, as a freezer should be fit to actually freeze food. This clearly is not. Credit was given for any relevant Authority or example given. It was necessary here to explain that contractual damages are to put the claimant (Hassan) in the same position as he would have been had the contract been properly performed. Hassan would not have lost his stock and now has to pay extra for an equivalent item. Remoteness of damage could have been an issue here and an explanation of this, being that loss should be in the reasonable contemplation of the parties, and if a freezer breaks down it is normal to assume that the contents will be damaged in some way. Authorities: Robinson v Harman (1848), Hadley v Baxendale (1854). 3. (a) Candidates should be able to explain a breach of a term is either of a condition or of a warranty. The breach of a warranty is a minor term of a contract which entitles the claimant to recover damages only. However, the breach of a condition is a major and fundamental term of a contract which entitles the claimant to repudiate (end) the contract and claim damages. Authorities: Bettini v Gye (1876), Poussard v Spiers & Pond [1876]. The wrong name, the fact that the sign states frozen instead of fresh, and the incorrect telephone number all needed to be discussed as either a breach of condition or warranty, depending on the consequences of this breach. It is likely that the incorrect name would be considered a warranty as the contract could continue without losing Hassan any business. The issue of frozen rather than fresh could create many problems for Hassan as customers would not want frozen pizza from a delivery service. This is more likely to be a breach of condition. The telephone number is obviously a breach of condition as without the number there will not be any business. 4. (a) The answer should explain that frustration of a contract is when an unforeseeable event, which is neither party s fault, makes the contract either impossible to perform upon or pointless. This contract is now Page 5 of 6

6 clearly frustrated. Authorities: Taylor v Caldwell [1863], Krell v Henry (1903). As this contract would now be impossible to perform upon, the contractual obligations end. The Law Reform [Frustrated Contracts] Act 1943 regulates damages in frustration by S1 (2): Money paid is repaid and money due is not to be paid Subject to a deduction of reasonable expenses Hassan should therefore be able to recover his less Leonard s expenses. Page 6 of 6