LEVEL 3 - UNIT 2 CONTRACT LAW SUGGESTED ANSWERS - JANUARY 2013

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1 Note to Candidates and Tutors: LEVEL 3 - UNIT 2 CONTRACT LAW SUGGESTED ANSWERS - JANUARY 2013 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 2013 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 two of: Offer; Acceptance; Agreement*; Consideration; Intention to create legal relations. * If this option had been chosen no additional mark would have been awarded for either offer or acceptance. 2. An invitation to treat may be defined as either: An invitation for offers; or An invitation to open negotiations. 3. (a) An offer may be defined as an expression of willingness to contract on certain terms with the intention that it shall become binding on acceptance. Any two of the following methods of termination of an offer could have been identified: By counter-offer; By revocation; By passage of time; By acceptance; By rejection; or By failure of a condition. Page 1 of 7

2 4. (a) Consideration may be defined as either: A benefit to one party or a detriment to the other; or The price for which the other party s promise is bought. Any two of the following rules could have been identified, supported by relevant case law: Consideration must move from the promise. A suitable case would have been Dunlop v Selfridge (1915). Past consideration is not good consideration. A suitable case would have been Re McArdle (1951). Consideration need not be adequate. A suitable case would have been Chappell v Nestlé (1960). Consideration must be sufficient. A suitable case would have been Thomas v Thomas (1842). 5. (a) The general presumption which arises in social or domestic agreements is that there is no intention to contract. A suitable case would have been Balfour v Balfour (1919). Two circumstances in which the general presumption may be rebutted are: in the case of separated spouses as in the case of Merritt v Merritt (1970); and where a practical benefit has been obtained as in the case of Simpkins v Pays (1955). Reference could have been made here also to the other party being at a disadvantage or the mutuality of obligations. 6. (a) Any one of the following would have been a sufficient answer: s13(1) Sale of Goods Act 1979 sale by description; s14(2) SGA 1979 satisfactory quality; s14(3) SGA 1979 fitness for purpose; s3 Supply of Goods and Services Act 1982 sale by description; s4 SGSA 1982 satisfactory quality; s13 SGSA 1982 reasonable care and skill; s14 SGSA 1982 reasonable time; s15 SGSA 1982 reasonable charge. Any other relevant section together with the correct implied term would also have received credit. Either: By custom; or By the Courts. 7. The remedy for breach of a warranty is damages. 8. A misrepresentation consists of: An untrue statement; Of fact or law; Made by one party to the other; Page 2 of 7

3 Which is intended to or does induce the other party to enter into the contract; and Which is relied on by the representee. Here the misrepresentation would probably have been fraudulent. 9. Any three of the following ways in which a contract may be discharged could have been identified: By performance; By breach of a condition; By agreement (accord and satisfaction); By frustration. 10. The two equitable remedies which may be available to the injured party in the event of a breach of contract are an injunction and specific performance. Scenario 1 Questions SECTION B 1. An invitation to treat is an invitation to others to make an offer or to start negotiations. It incurs no liability. Advertisements for the sale of goods are usually invitations to treat and a relevant case could be Partridge v Crittenden (1968). Here, Ali s advertisement would be an invitation to treat and Ali is free either to accept or to reject any offers received. 2. (a) A good answer, here, would have identified the need for an offer, acceptance, consideration and an intention to create a legal relationship. It would have continued to give an explanation of each of these requirements. Thus, for example there must be a clear indication that the offeror intends to be legally bound, that there is an unconditional agreement to the terms of the offer, that there is a benefit to the promisor and a detriment to the promise and that a legal relationship is presumed in a business situation. Relevant case law could include Carlill v Carbolic Smoke Ball Co (1892); Currie v Misa (1875) and Esso Petroleum v Customs and Excise Commissioners (1976). A good answer here would have included all of the following: Bev s telephone call on 3 December amounts only to a request for information and not a counter-offer. Ali, in fact, subsequently offers to sell the car to Bev for 9,500. An offer can be withdrawn at any time before acceptance and any such withdrawal must be communicated to the offeree even if this is only through a reliable third party. Here, Charlie is a reliable third party and therefore Charlie telling Bev of the sale to him amounts to communication of the fact that Ali has withdrawn his offer. A suitable conclusion, therefore, would be that on 5 December, Ali is free to withdraw his offer, there is therefore no contract with Bev and therefore there can be no breach of any contract with her. Relevant case law could include Payne v Cave (1789) or Dickinson v Dodds (1876). (c) A good answer would have pointed out that an offer may not be withdrawn if it is subject to a separate contract to keep it open. Here the gift of car accessories could amount to consideration for such a Page 3 of 7

4 separate contract and therefore it would seem that any sale to Charlie would amount to a breach of this separate contract. 3. Candidates should have defined an offer as, for example, a willingness to contract on certain terms. Here, Don s conversation with Emma is not sufficiently certain to amount to an offer but Emma s letter would amount to an offer. Then, candidates should have gone on to explain that acceptance of an offer must be communicated and that silence does not amount to such communication. Here, Emma s statement that if she hears nothing by 8 January the painting is hers cannot bind Don as silence does not amount to acceptance by him. Candidates could therefore conclude that Don is free to sell to Farah and that there is no breach of any contract with Emma. A relevant case could be Felthouse v Bindley (1862). 4. A good answer here would have explained that an offer could be made to the world at large as in the case of a reward notice and that an offer can be accepted by conduct such as the return of the dog. Here, George s notice amounts to an offer to the world at large and Ian, having seen the notice, accepts the offer when he returns the dog. This amounts to a unilateral contract. The return of the dog also amounts to consideration by Ian and the notice appears to be intended to create a contract, presumed in a business situation. A suitable conclusion would therefore be that there is a contract with Ian who is entitled to claim the reward. Scenario 2 Questions 1. (a) Consideration must not be past; i.e: a promise to pay for something already done is not valid consideration. (c) A good answer would have identified the doctrine of implied assumpsit and explained that there is an exception to the basic rule that consideration must not be past where one party carries out work for another at that other s request for which payment would normally be made. Relevant case law could include Re McArdle (1951) and Lampleigh v Braithwait (1615). Candidates should have identified that Edina s offer to pay the additional 5 per hour was made after the work had been done. David s work therefore amounts to past consideration and he cannot therefore claim the additional sum. 2. (a) An express term may be incorporated into a contract by express agreement which may be oral or written (e.g: by signature). An implied term may be incorporated into a contract: By statute as in s15 Supply of Goods & Services Act 1982; By custom e.g: location or trade practice; By the courts e.g: the business efficacy test or case law such as The Moorcock (1889). By common understanding of the parties as in British Crane Hire Corp Ltd v Ipswich Plant Hire (1975). (c) David s statement could be implied into the contract either from the course of previous dealings or as a reasonable price under the Sale of Goods and Services Act Page 4 of 7

5 3. (a) A person who is not a party to a contract may not be sued on it; in order to enforce a promise, a claimant must generally show that he supplied consideration for it. Relevant cases could include Tweddle v Atkinson (1861) or Dunlop v Selfridge (1915). The main exception to the doctrine of privity of contract is The Contracts (Rights of Third Parties) Act An explanation would be that a third party may enforce a contract term if the contract expressly says that he can or impliedly confers a benefit on him, although the parties to a contract may exclude the right. Other exceptions are: s11 Married Women s Property Act 1882; and Jackson v Horizon Holidays (1975). (c) Gianni is not a party to the original contract and in accordance with the doctrine of privity of contract may not be able to sue David unless the contract expressly says that he can or impliedly confers a benefit on him in accordance with s1 The Contracts (Rights of Third Parties) Act (a) For consideration to be sufficient it must be: Something of value; and Sufficient but not necessarily adequate. It must not be: An existing public duty; An existing contractual duty; or A duty to repay a debt. Relevant case law could be Thomas v Thomas (1842) or Chappell v Nestle (1960). The promise to perform an existing contractual duty is not good consideration. Relevant case law could be Stilk v Myrick (1809). Here, David has not apparently done anything extra and may not therefore be able to claim the additional 500. However, he might be able to make a claim if he had done something extra as in Hartley v Ponsonby (1857) or if Francesca had obtained a practical benefit (having the house painted before the wedding) as in the case of Williams v Roffey Bros (1990). Scenario 3 Questions 1. (a) A good answer would have identified fraudulent misrepresentation and explained that this occurs when the representor: makes a knowingly false statement; or makes a statement without believing in its truth; or is reckless as to whether his statement is true or false. A relevant case could be Derry v Peek (1889). It would then have gone on to identify negligent misrepresentation which occurs under s2(1) Misrepresentation Act 1967 when the representor cannot prove that he had reasonable grounds for believing, and did believe, that the statement was true, when made. A suitable case here might be Page 5 of 7

6 Howard Marine Dredging Co Ltd v A Ogden & Sons (Excavations) Ltd (1978). It would also have identified innocent misrepresentation which occurs under s2(2) Misrepresentation Act 1967 when the representor makes a false statement which is neither fraudulent or negligent because, for example, the representor had reasonable grounds for believing it to be true. Candidates should have identified that Harry has provided accounts with errors and discussed whether this amounts to fraudulent or negligent misrepresentation. Silence does not normally amount to misrepresentation but failure to disclose the bankruptcy of a debtor appears to be fraudulent as circumstances had changed before signature of the contract. A suitable case here could be With v O Flanagan (1936). The accounts appear to have induced Imran to enter into the contract; he did not take them to his accountant until after the contract was completed. A relevant case could be Redgrave v Hurd (1881). 2. (a) The remedies for fraudulent misrepresentation are: Rescission; And/or damages based on the tort of deceit. The remedies for negligent misrepresentation are: Rescission (subject to the court s discretion); Damages based on deceit. The remedies for innocent misrepresentation are: Rescission; Damages in lieu of rescission. As Harry is probably guilty of fraudulent misrepresentation, Imran can claim rescission of the contract and/or damages based on the tort of deceit (to put him back in the position he would have been in but for the misrepresentation). A relevant case might be Smith & New Court Securities Ltd v Scrimgeour Vickers (Asset Management) Ltd (1966). A relevant argument based on negligent misrepresentation would also have been awarded credit. 3. (a) A contract is frustrated when unforeseen circumstances arise preventing the contract from being carried out. It is not sufficient merely to make performance more difficult or more expensive. In the case of a contract for personal services, death or illness making the performance of the contract impossible would suffice. Another example of frustration would be destruction of the subject matter, such as the burning down of a concert hall. The failure to take place of an event which is the sole reason for the contract would also frustrate the contract e.g: the cancellation of the king s coronation. Government interference (e.g: requisitioning plant or materials) or a supervening illegality (e.g: the outbreak of war which would mean trading with the enemy) would also frustrate a contract. Relevant cases might be: Condor v The Barron Knights (1966), Taylor v Caldwell (1863) and Krell v Henry (1903). Page 6 of 7

7 Here, neither party is at fault and there is a syupervening illegality in that trade with the country concerned has become illegal due to the new law. A relevant case could be Fibrosa (1943). A suitable conclusion would be that the contract is frustrated. 4. The situation here is regulated by the Law Reform (Frustrated Contracts) Act Money already paid is recoverable by the payer but the court may allow Imran to retain some or all of the 250,000 if he has already incurred expenses in the performance of the contract. A relevant case might be Gamerco SA v ICM (1995). Page 7 of 7