Note to Candidates and Tutors: LEVEL 3 - UNIT 2 CONTRACT LAW SUGGESTED ANSWERS JANUARY 2016 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 2016 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. Candidates could have identified any three of the following: offer; acceptance; (N.B. agreement would have been credited in lieu of offer and acceptance). consideration; intention to create a legal relationship. 2. A third party may be able to claim under the Contracts (Rights of Third Parties) Act 1999 if; The contract expressly states that he/she may; or The term purports to confer a benefit on him/her. 3. Candidates could have identified any two of the following: Withdrawal by the offeror (or revocation); Rejection by the offeree; Counter-offer; Failure of condition; Lapse of time; Acceptance; Death of offeror. An explanation or example of each way chosen should then have been given. 4. (a) when one party performs his part of the contract at the time the contract is made (or unilateral contract); (b) when parties exchange promises to do something in the future. Page 1 of 7
5. Candidates should have identified: Performance of an existing public duty; Performance of an existing contractual duty; Part payment of a debt where there is an existing duty to pay the debt (Pinnel s Case). 6. In business agreements there is a presumed intention to create a legal relationship which is rebuttable by evidence to the contrary. An honour clause, which states that the agreement is binding in honour only, provides such evidence and the contract would not then be enforceable. A relevant case in support might be Rose & Frank v Crompton Bros (1924). 7. An express term is one which is distinctly or overtly stated or agreed between the parties. 8. s.13 Sale of Goods Act 1979 implies a condition that where goods are sold by description they will correspond with that description. 9. An innominate term is one that cannot be classified as either a condition or warranty at the time that the contract is made. 10. The three types of misrepresentation are: Fraudulent; Negligent; Innocent. 11. Candidates should have identified any three of: Complete performance of the contract terms; Agreement of both/all parties not to enforce their rights under the contract; Frustration; Breach of a condition. Also credited were: Substantial performance; Acceptance of partial performance; Prevention of performance. 12. The remedy of specific performance is: An equitable remedy; Considered when damages are an inadequate remedy; An order compelling one party to perform his/her obligations under the contract. Page 2 of 7
Scenario 1 Questions SECTION B 1. Andy s advertisement is an invitation to treat. This is an invitation for others to make an offer or start negotiations. It incurs no liability. Advertisements such as the one in Partridge v Crittenden (1968) are usually invitations to treat. 2. (a) The four essential requirements for a valid contract are: Offer, a clear indication that the offeror intends to be bound; Acceptance, unconditional agreement to the terms of the offer; Consideration, a benefit to one party and a detriment to the other; Intention to create a legal relationship, presumed in a business context but not in a social one. Case law could have included Carlill Carbolic Smokeball Co (1892), Currie v Misa (1875) or any of many other relevant cases. (b) A methodical approach to this question would have been to work through the following list: Andy s advertisement is an invitation to treat; Balvinder makes the offer here when he says that he will buy the car for 7,300; Andy s agreement to the sale amounts to acceptance; There is valid consideration in the exchange of promises; 7,300 for the car; As this is a business transaction, the intention to create a legal relationship will be presumed; Conclusion: valid contract exists when Andy accepts Balvinder s offer. 3. The rule that consideration must not be past should have been identified and then explained. A suitable explanation would have been that a promise to pay after the event is not valid consideration. Initially, Balvinder only enquired about a tow-bar; he did not offer to pay until after the tow-bar had been fitted by Andy. As in the case of Re McArdle (1951) this would have been past consideration and no contract therefore exists between Andy and Balvinder as there is no valid consideration. 4. The general rule regarding acceptance of an offer is that it must be communicated to the offeror. However, there are exceptions such as the postal rule: Where post is a valid method of communicating acceptance; Acceptance takes place when the letter is posted, whether or not it even arrives; The letter must be posted in the normal course of post (properly stamped, addressed etc.); There is nothing here to suggest that the post has been excluded as a valid method of acceptance; Concluson: As in Adams v Lindsell (1818) acceptance took place when Ophelia posted her letter communication to Andy is not necessary. 5. (a) A misrepresentation is: An untrue statement of fact or law; Made by one party to another; Page 3 of 7
Which intended to and does induce the other to enter into a contract; There must also be actual and reasonable reliance on the statement. (b) As methodical approach to this question would have been to work through each statement in the advertisement in turn. Thus: Super performance goes like bullet: This is either a statement of opinion or trade puff? Conclusion: it is not a misrepresentation here. Economical 50 m.p.g: Untrue statement of fact; Conclusion: Misrepresentation here. One previous owner: True but only a half-truth/probably intended to give a misleading impression; Silence is not normally misrepresentation; Conclusion: Possible misrepresentation here. A full answer would also have included relevant discussions regarding inducement and reliance on the statements. Relevant case law could have included Bissett v Wilkinson (1927) or Nottingham Patent Brick & Tile Co v Butler (1886). Scenario 2 Questions 1. (a) A representation is a statement made outside the contract which may induce a party to enter into a contract, whereas a term is a statement incorporated into the contract. In deciding whether a statement is a representation or term a court will consider: The importance attached to the statement; Whether the statement has been reduced into writing; The timing of the statement; Whether the parties involved in the negotiations have special knowledge/skills; Reliance on the statement when Vendor said it could be relied on. (b) Applying the main factors identified in (a): the statement was made before the contract was entered into this would normally mean it is a representation; the statement would appear to be of importance to Carlos in view of the type of business he had, he specifically asked Don whether his bread was made with organic flour, and this would normally mean the statement was a contractual term; the statement was reduced into writing; this, too would normally mean that it is a term of the contract; the order was placed immediately Carlos received the written confirmation, which would also suggest that the statement is a term; Don, as manufacturer of bread, would appear to have specialist skills which would also suggest that the statement is a term; Conclusion: the statement is probably a term of the contract. Relevant case law here might include: Bannerman v White (1861), Birch v Paramount Estates Ltd (1956), Routledge v McKay (1954) and Oscar Chess v Williams (1957). Page 4 of 7
2. (a) Any two of the following ways an exclusion clause might be incorporated into a contract should have been identified: By signature; By notice; By previous course of dealings; By common understanding of the parties. An explanation should then have been given of the two chosen methods. Any explanation may have made use of relevant case law. Thus: If the clause is incorporated in a signed contract it is immaterial whether or not the signatory has read the contract or seen the clause as in L Estrange v Graucob (1934); Notice of the clause must be given on or before entry into the contract as in Olley v Marlborough Court Hotel (1949) and the more onerous the clause the greater the degree of notice required; If the clause has been incorporated into previous contracts between the parties it may be incorporated into the present contract also as in Hollier v Rambler Motors (1972); An exclusion clause may also be incorporated into a contract where there must have been a common understanding between the parties that this would be so as in British Crane Hire Corporation v Ipswich Plant Hire (1975). (b) This part of the question required application of the first point set out in (a) above. Thus: Carlos has signed the contract so the clause may well be incorporated by signature. However, no specific notice of the term has been given, there has been no previous course of dealings so far as we know and it does not appear that there would be a common understanding between the parties that the clause should be incorporated so discussion of these remaining points would seem superfluous; The term appears to be rather onerous so a greater degree of notice than usual would be required to incorporate it; The term does not appear to have been brought to Carlos notice; As the parties are dealing in course of business the Unfair Contract Terms Act 1977 would not apply. A reasoned conclusion should then have been reached. A suitable case to have used in support might have been Interfoto Picture Library v Stiletto Visual Productions Ltd (1988). 3. s.14(2) Sale of Goods Act 1979 applied to sales in the course of business and implied into such a contract for the sale of goods a condition that the goods were of satisfactory quality. Application of the section to the given scenario might have led to the following: Satisfactory quality includes fitness for purpose the yoghurts were not fit for their purpose as food; It also includes safety the yoghurts were not safe to eat; Carlos was selling the yoghurts to Fran in the course of business; Conclusion: Fran could rely on the section. A suitable case to have used in support might have been Grant v Australian Knitting Mills (1936). Page 5 of 7
. 4. (a) If a contract is to be discharged by breach, the breach must be a breach of condition, not just a warranty. A condition is a term going to the root of the contract and safety of the yoghurt is a fundamental term as well as which it is stated in the Act that a breach of s.14(2) is a breach of condition. The contract here, therefore, will have been discharged by breach. A suitable case to be used in support may have been Poussard v Spiers & Pond (1876). (b) As Carlos is in breach of a condition the main remedy open to Fran would be repudiation, where she could choose not to continue with the contract. She can, of course, also claim damages. Scenario 3 Questions 1. (a) The 3 classifications for terms of a contract are: Conditions; Warranties; and Innominate terms. A condition is a fundamental term of the contract, going to its very root whereas a warranty is a less important term. An innominate term is a term which cannot be classified as either a condition or a warranty at the time the contract is made. Instead its status will only be decided by a court following a breach. If the effect of the breach is serious it will be treated as if it were a condition. However, if the effect of the breach is less serious then it will be treated as if it were a warranty. (b) The term here will be an innominate term as in the case of Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd (1962) as its importance cannot be immediately quantified. The court will consider the effect of Great Van Hire s breach once it has occurred and as the lorry is available for 10 of the 12 months of the contract period, the breach would probably be treated as a breach of warranty. Harry could be compensated by damages, the cost of hiring another vehicle for the 2 months when the lorry he had contracted to hire was unavailable. (c) Indy was engaged to act in the show; she has missed only three days of rehearsals but was available for opening of show. Term does not go to the root of the contract; It is therefore a warranty and Harry must continue with the contract; Harry could be compensated by damages (or non-payment of fees to Indy); Damages here would be the cost of hire of Kali (less, perhaps, fees not paid to Indy); Relevant case law would be Bettini v Gye (1876). (d) Jack has missed both rehearsals and the opening of show. Term goes to root of contract and is therefore a condition; Harry could not be compensated by damages; Harry can repudiate the contract if he wishes; Harry could also claim damages for the additional cost of hire of Leo; Page 6 of 7
Relevant case law would be Poussard v Spiers & Pond (1876) 2. In social/domestic there is a rebuttable presumption against legal relations which may be rebutted here as Nat and Harry s employer/employee relationship would appear to be a business/commercial one. In business/commercial contracts there is a rebuttable presumption in favour of legal relations which may be rebutted here as the father/daughter relationship is a social/domestic one. A factor in favour of a social/domestic contract is that Nat is helping out Harry. A factor in favour of a business/commercial contract is that Nat is replacing Mike in a business/commercial situation. A reasoned conclusion might be that the contract here is business/commercial one and that there is, therefore, a legal relationship. Relevant case law regarding social/domestic contracts could be Jones v Paddavatton (1969), Merritt v Merritt (1970) or Simpkins v Pays (1955) and regarding business/commercial contracts might be Edmonds v Lawson (2000) or Rose & Frank v Crompton (1925). 3. (a) As the burning down of the theatre (the destruction of the subject matter) makes the contract impossible to perform through no fault of either party as in the case of Taylor v Caldwell (1863), the contract will be discharged by frustration. (b) Under the Law Reform (Frustrated Contracts) Act 1943: Payments made are refundable (less expenses incurred by the payee); Harry would therefore be entitled to his money back (less any expenses reasonably incurred by Ken. Page 7 of 7