LEVEL 3 - UNIT 2 CONTRACT LAW SUGGESTED ANSWERS - JANUARY 2014

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1 Note to Candidates and Tutors: LEVEL 3 - UNIT 2 CONTRACT LAW SUGGESTED ANSWERS - JANUARY 2014 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 January 2014 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. A good answer would have identified any three of: Offer; Acceptance; Consideration; Intention to create a legal relationship. Credit would have been given for agreement instead of both offer and acceptance or for any other requirements. 2. A good answer would have identified and explained any two of: Withdrawal by offeror - revocation Rejection by offeree or counter-offer Lapse of time Acceptance 3. Acceptance of an offer in a unilateral contract is effected by action on the part of the offeree as in Carlill v Carbolic Smoke Ball Co (1893) where the use of the smoke ball constituted acceptance. 4. Any exception to the rule in Pinnel s Case (1602) could have been given. These include: Part payment before the due date; Part payment at some place other than that where the payment is due; Part payment made using something different as payment such as goods instead of money; or Part payment by a third party. Page 1 of 6

2 5. There are two rebuttable presumptions used by the court in deciding whether or not there is an intention to create a legal relationship between the parties: Family or social agreements: there is a presumption against such a relationship. A relevant case could be Jones v Padavatton (1969). Commercial or business agreements: there is a presumption in favour. A relevant case could be Esso Petroleum Ltd v Customs and Excise Commissioners (1976). 6. Any two of the following examples could have been given: s13: implied term to use reasonable care and skill s14: implied promise to perform services within a reasonable time s15: implied term to pay a reasonable charge for the services 7. A condition is a more important term going to the root of the contract, a breach of which permits repudiation. A relevant case could be Poussard v Spiers (1876). A warranty is a less fundamental term and, despite any breach, the injured party must go on with contract. A relevant case could be Bettini v Gye (1876). 8. A good answer would have identified that the traditional remedy for innocent misrepresentation is rescission. It would also have identified that under s.2(2) Misrepresentation Act damages may be awarded in lieu of rescission. 9. A good answer would have identified any two of the following ways in which a contract may be discharged: Performance; Breach; Frustration; or Agreement. It would then have continued to explain the two chosen ways. 10. The rule in Hadley v Baxendale (1854) provides that a person in breach of a contract will be liable only for: losses which a reasonable person would have anticipated as being a reasonably foreseeable result of the breach or those which the defendant had been specifically warned about by the claimant. All other losses will be too remote. Page 2 of 6

3 Scenario 1 Questions SECTION B 1(a) A good answer would have identified that consideration must move from the promise i.e. that to enforce a promise a claimant must show that he supplied the consideration. It would then have identified that consideration must not be past i.e. that a promise to pay for something which has already been done is not valid consideration. Next, it would have identified that consideration must be sufficient but need not be adequate. An explanation could have been that what is given in return for the promise must be recognised by the law as being of some benefit to the promisor or detriment to the promise. 1(b) A good answer would have explained that the contract to pay 10,000 is between Charles and Ian. Bev and Andy are not a party to that contract and consideration has not therefore moved from the promise. The appropriate conclusion would be that Bev and Andy cannot therefore bring a successful action. A relevant case could have been Tweddle v Atkinson (1861). Mention could also have been made of the possibility of Bev and Andy having rights under Contracts (Rights of 3 rd Parties) Act (c) Bev s promise to pay 50 was made after the work had been done and therefore amounts to past consideration. Unless the doctrine of applied assumpsit applies, a suitable conclusion, therefore, would be that Jane cannot bring a successful action. A relevant case could have been Re McArdle (1951). 1(d) A promise to perform an existing public duty is not normally sufficient consideration. A good answer would then have identified that Andy had received a witness summons and therefore had a legal duty to appear in court. As a result Andy could not therefore bring a successful action. A relevant case would be Collins v Godefroy (1831). 2(a) A good answer would first have identified fraudulent misrepresentation which arises where: a knowingly false statement is made; or the statement is made without belief in its truth; or the statement is made with reckless carelessness as to its truth. It would then have identified negligent misrepresentation which usually arises under s2(1) Misrepresentation Act To avoid negligent misrepresentation, the person making the statement must prove that he has reasonable grounds to believe the statement was true and that he did believe it was true. A relevant case would be Howard Marine & Dredging Co v Ogden (1978). Thirdly, it would have identified innocent misrepresentation which is neither fraudulent or negligent. It usually arises where the representor had reasonable grounds for believing the statement to be true. 2(b) A good answer would have identified that Ian has made an untrue statement which appears to have induced Gorky to enter into contract. It would then have discussed whether the statement was one of fact or opinion. A relevant case would be Cherrilow v Butler-Creagh (2011). As Ian Page 3 of 6

4 appears to have had no belief in the truth of the statement, it is likely that the type of misrepresentation here is fraudulent. A relevant case would be Derry v Peek (1889). 2(c) Silence does not normally amount to a misrepresentation, however, if circumstances change between the time of the making of the representation and the making of the contract, the changed circumstances must be disclosed as in the case of With v O Flanagan (1936). A good answer would have pointed out that, here, the gross income of the practice has dropped since the statement was made and that Ian is therefore required to disclose the change in circumstances. The statement appears to have induced Harry to enter into contract and the type of misrepresentation here is, again, probably fraudulent. Scenario 2 Questions 1(a)(i) A good answer here would have defined an offer i.e: a statement of terms by which the offeror is prepared to be legally bound. It would have continued to say that an offer may be made orally, in writing or by conduct and that any offer must be communicated to the offeree. A relevant case could be either Taylor v Laird (1856) or Carlill v Carbolic Smoke Ball Co (1893). (ii) An offer can be made to a single person, a group or to the world at large. (iii) An offer must be sufficiently definite for the offeree to be sure what he is agreeing to. A relevant case could be Scammell & Nephew Ltd v Ouston (1941). 1(b) A good answer here would have defined an invitation to treat i.e: an invitation to make an offer. An invitation to treat does not incur any liability. Examples of invitations to treat include: advertisements as in the case of Partridge v Crittenden (1968); and the display of goods for sale as in the case of Fisher v Bell (1960). 1(c) This part of the question was seeking application of the law to the scenario. Candidates should have identified that the advertisement amounted to an invitation to treat. They should also have identified that Graham s questions about the situation of the hotel and the price amounted to a request for information and that Imran s statement that the cost was 5,000 per person was a statement of price. Candidates should then have identified that Graham made an offer to pay 4,500 per person which was communicated to Imran and that Imran accepted this offer when he agreed to the lower price. Relevant case law could have included Clifton v Palumbo (1944). 2(a) A good answer would have begun with a definition of a representation i.e: a pre-contractual statement intended to persuade the other party to contract. It may also have referred to mere puffs e.g: extravagant advertising claims. It would have continued by discussing the following factors considered in determining whether a representation amounts to a term: the importance of the statement as in the case of Bannerman v White (1861); the reduction of the statement into writing as in the case of Birch v Paramount Estates (1956); Page 4 of 6

5 the timing of the statement as in Routledge v Mckay (1954); and the significance of specialist knowledge/skills as in Oscar Chess v Williams (1957). 2(b) This part of the question required application of the law identified in question 2(a) to the facts of the scenario. A good answer would have identified that the contents of the advertisement are definitely precontractual statements. However, the contents of the telephone conversation may well be considered to be oral terms; the statements were of importance and are therefore likely to have been incorporated into the contract; they were reduced into writing when Imran confirmed the agreement by letter and are also therefore likely to have been incorporated. Other factors that point to the likelihood of them being incorporated into the contract are that they were made at the time the contract was made and that Imran is a specialist in organising Party Weekends. 3 This question, too, required application of the law to the facts of the scenario. Here, Jen s statement that she will sell for 1000 was a statement of price only and an offer was made by Fiona when she said she would buy the dress for 800. Jen s statement that she would accept 900 was a counter-offer which amounted to a fresh offer and a rejection of the original offer. This fresh offer would have had to be accepted if a valid agreement were to exist between Jen and Fiona. A good answer would then have identified that Kate made a fresh offer of 950 and that a valid agreement came into existence when Jen accepted it. A relevant case could have been Hyde v Wrench (1840). Scenario 3 Questions 1(a) Candidates could have identified and explained the following exceptions to the entire performance rule: the acceptance of part performance when the party who accepts part performance must pay for work done so far as in the case of Sumpter v Hedges (1898); substantial performance i.e: where part performance is sufficiently substantial the value of the work done should be paid for as in Hoenig v Isaacs (1952); the prevention of performance when the person prevented from completing can sue for work done as in the case of Planché v Colburn (1831); and severable contracts i.e: where a contract can be divided into parts, one party may claim payment when he has completed any part of his obligation. 1(b) Here, a good candidate would have identified the issue of substantial performance. Performance of the contract (minus floor tiles) is probably substantial and a suitable conclusion might therefore have been that payment of the full 40,000 is due less the 750 cost of replacing the floor tiles. 1(c) In this part of the question, the issue of prevention of performance should have been identified. A good answer would have continued by saying that Pam has prevented Narinder from completing the contract and that Narinder would therefore be able to claim for the work done to the bathroom. Page 5 of 6

6 2(a) Here, a good answer would have identified that an innocent party may repudiate the contract for the breach of a condition and explained that repudiation amounts to a refusal to continue with the contract. It would also have identified that he can claim damages for losses suffered and explained that damages are intended to put him in the same position as if the contract had been performed. A relevant case could be Robinson v Harman (1848). 2(b) A good answer should have identified that, by contrast, an innocent party is only entitled to damages where there has been the breach of a warranty. Repudiation is not available. 2(c) A good candidate should have identified that Raj s failure to attend two days rehearsals is likely to be a breach of warranty, as he was available for the show itself. A relevant case could be Bettini v Gye (1876). As there has only been a breach of warranty, Queenie cannot repudiate the contract. She can, however, claim damages for any losses she has suffered/for putting her back in the position she would have been in had the contract been performed. She can claim for the extra cost of hiring a replacement act. 3(a) Frustration of a contract amounts to discharge of the contract. At common law: the loss lay where it fell; where there has been a total failure of consideration, money paid could be recovered; and a relevant case could be Appleby v Myers (1867). 3(b) The destruction of the theatre by fire discharges the contract here as in the case of Taylor v Caldwell (1863). 3(c) Under the Law Reform (Frustrated Contracts) Act 1943: money paid before the event is recoverable by the payer the payer does not need to pay sums due but not paid before the event the payee may retain/recover some or all of the money paid or owed to him if he has incurred expenses and if the court considers it just to allow this a relevant case law could be Gamerco SA v ICM (1995). The 5,000 advance is therefore recoverable by Queenie but the court may allow Sadia to retain the 500 spent on accommodation. Page 6 of 6