LEVEL 4 - UNIT 1 – CONTRACT LAW

SUGGESTED ANSWERS – JUNE 2015

Note to Candidates and Tutors:

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 2015 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. An offer is an expression of willingness to contract on the specified terms.

An invitation to treat is an invitation to others to make an offer. An
invitation to treat cannot be validly accepted. This was demonstrated in
the case of Partridge v Crittenden (1968).

2. The presumption that a contract is intended to be legally binding when

formed in a business context maybe rebutted by, for example, the use of
an honourable pledge clause or a letter of comfort as in Rose & Frank v
Crompton Bros (1925).

3. Consideration is the price paid for the performance or promise of

performance. A promise given after an act has been carried out is not
enforceable as it is 'past'. This was demonstrated in the case of Re
McArdle (1951).

4. Only those who are party to a contract are bound by it and may benefit
from it. This was demonstrated in the case of Tweddle v Atkinson (1861).

5. Terms of a contract are those things which become part of a contract while
representations (statements of fact or opinion) do not. When deciding if a
statement is intended to be a term of the contract, the court will take a
number of factors into account.

If the person to whom the statement is made has made it known that he
attaches particular importance to a certain fact and the other party then
states that fact is true, it is likely that the statement will be treated as a
contractual term. This was demonstrated in the case of Bannerman v
White (1861).

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 If the person making the statement suggests that the other party should
check it, the statement won’t be treated as a term of the contract. This
was demonstrated in the case of Ecay v Godfrey (1947).

If the maker of the statement does so in a way which implies that he has
special knowledge which will dissuade the other party from checking, the
statement will probably be held to be a contractual term. This was
demonstrated in the case of Schawel v Reade (1913).

It may also be held to be a term where the maker of the statement has
some special knowledge or skill compared with the other party. The
reverse also holds true, i.e. if the person to whom the statement is made
has greater knowledge or skill then it may not be a term. This was
demonstrated in the cases of Oscar Chess Ltd v Williams (1957) and Dick
Bentley Productions Ltd v Harold Smith (Motors) Ltd (1965).

6. This test was established in the case of The Moorcock (1889). The courts
will imply a term into the contract to give the contract what is referred to
as 'business efficacy', i.e. they will imply a term into the contract to make
it workable between the parties so as to reflect their intent.

7. Fraudulent misrepresentation involves the maker of the statement making

a false statement knowingly, without belief in its truth or recklessly,
careless as to whether it is true or false. The burden of proof is on the
claimant to prove that the defendant has acted fraudulently. Negligent
misrepresentation involves the maker of the statement making a false
statement careless as to whether it is true or false. In the case of
negligent misrepresentation, a claimant may bring an action under s.2(1)
of the Misrepresentation Act 1967 which has the effect of reversing the
burden of proof so that the defendant must prove that he had reasonable
grounds for believing that the statement was true.

8. The leading case on undue influence is RBS v Etridge (No. 2) (2001). In

order to establish that there has been no undue influence exerted on a
claimant, a financial institution must establish that there has been written
confirmation from a solicitor that appropriate advice has been given; the
advice given is independent; that solicitors have seen the client in a face-
to-face meeting without the other party being present; that the nature of
the documents have been explained; that the financial means of the
person being advised have been discussed; that the financial position of
the other party and the level of his indebtedness have been discussed; a
surety must be given the choice as to whether to proceed.

9. A contract may be frustrated when the subject matter is destroyed or

something essential to its performance is unavailable. A contract may also
be frustrated when a supervening event makes performance pointless
even though it is still technically possible, i.e. there has been such a
drastic change of circumstances that the contract has become essentially
different from what was agreed.

10. Non-pecuniary loss refers to those losses which are not easily quantifiable
in monetary terms. Examples of non-pecuniary losses include distress,
disappointment and physical inconvenience.

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 SECTION B
Scenario 1 Questions

1. An invitation to treat is an invitation to others to make an offer.

Advertisements are generally regarded as an invitation to treat. However,
in some cases an advertisement may be capable of being regarded as an
offer and is capable of being accepted by performance. These are referred
to as unilateral contracts. This was demonstrated in the leading case of
Carlill v Carbolic Smoke Ball Co (1893). Jemima's invitation is capable of
being accepted by performance and is therefore an offer rather than an
invitation to treat.

An offer may be revoked at any time, up until acceptance. However, it

may not be revoked once performance has started. This was demonstrated
in the case of Errington v Errington Woods (1952), in which a father
promised to pass ownership of a house to relatives if they paid the
mortgage. It was held that this promise could not be revoked as long as
the relatives continued to pay the mortgage instalments. Katy commenced
performance as soon as she saw the invitation, therefore Jemima's
revocation is too late and Katy may claim her £5 voucher.

2. (a) The Sale of Goods Act 1979, as amended by the Sale and Supply of
Goods Act 1994, implies certain terms into all contracts for the sale of
goods.

Section 13 of the Sale of Goods Act 1979, implies a term that states
when goods are sold by description they will correspond with any
description by which they have been sold. This was demonstrated in
the case of Beale v Taylor (1967), which concerned a car sold under a
false description.

Jake specifically asked for yellow roses to be delivered. The roses that
were delivered were red. This is a breach of s.13 of the Sale of Goods
Act 1979 and Jake can reject the contract and/or claim damages for
breach of an implied term.

Only those people who are a party to a contract are bound by it. This
is known as privity of contract and was demonstrated in the case of
Tweddle v Atkinson (1861).

Lorna's roses were purchased for her as a gift by her brother Jake;
therefore she is not a party to the contract. At common law, Lorna
has no right of action under the contract. However, the Contracts
(Rights of Third Parties) Act 1999 provides that a person who is not a
party to a contract may enforce rights under it if certain conditions
are met. Under s.1(1)(a), a third party may enforce contractual terms
if the contract expressly states that the third party is to have a right
to enforce or, alternatively, under s.1(1)(b), where the third party is
identified in the contract and the term purports to confer a benefit on
the third party.

Jake has ordered the flowers to be delivered to his sister, so clearly

she is identified and acquires rights under the contract.

(b) Section 14(2) of the Sale of Goods Act implies a term that goods sold
in the course of a business will be of satisfactory quality. Satisfactory
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 quality is determined by a number of factors including, e.g.,
durability, freedom from minor defects, etc. This was demonstrated
in the case of Grant v Australian Knitting Mills (1936), in which a
garment contained a chemical that caused skin irritation.

The mixed display ordered by Maisie was not of satisfactory quality as

half the flowers had wilted. Maisie can claim damages under s.14(2)
of the Sale of Goods Act 1979.

3. A contract will only be binding on the parties if agreement is given freely.

If a person is put under illegitimate pressure and driven to enter a contract
under duress then the contract is voidable and may be set aside by the
court.

In order for there to be a finding of economic duress, five conditions

should be satisfied. It must be established that pressure was exerted on
the contracting party; the pressure was illegitimate; the pressure induced
the claimant to enter into the contract; the claimant had no real choice but
to enter the contract; the claimant protested at the time or shortly after
the contract was made.

Jemima was under pressure because the wedding, for which she was
contracted to arrange the flowers, was due to take place the next day. She
did attempt to find another supplier but was unable to do so at such short
notice. She had no real choice but to pay the additional sum demanded.

Jemima will be entitled to reclaim the additional £700 which she paid to
PL.

4. A person in breach of contract will only normally be liable for losses which
would arise naturally 'according to the usual course of things' from the
breach or loss 'as may reasonably be supposed to have been in the
contemplation' of the parties at the time when the contract was made.
Other losses will be considered to be too remote. This was established in
the case of Hadley v Baxendale (1854), in which the delay in delivery of a
crankshaft led to a loss of profits. The consequence of the delay was
unknown to the defendants.

Jemima may claim for the delay in delivery but not any additional loss
unless the contract with Nerys had been in the contemplation of Special
Blooms Ltd in which case they would be liable for special damages.

Scenario 2 Questions

1. (a) In order for there to be a valid contract, the parties to it must intend
that the agreement will be legally binding. When considering the
question of intention, the courts use presumptions which may be
rebutted by evidence to the contrary.

In business and commercial relationships the presumption is that

there is an intention to be legally bound. If the agreement is made in
a social or domestic setting, then the presumption will be that there
is no intention to be legally bound. This was demonstrated in the case
of Balfour v Balfour (1919), in which an agreement between husband
and wife was not upheld. This presumption can be rebutted by
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 evidence to the contrary. This was demonstrated in the case of
Merritt v Merritt (1970), where although the parties to the contract
were married, their agreement was in written form and they had
separated.

Myrtle is Niall's cousin, i.e. a family member, and the initial

presumption is that there is no intention to create legal relations.
However, Myrtle could rebut this presumption as the agreement was
made in a business context with a fee being agreed. The case of
Simpkins v Pays (1955) demonstrated that even though an
agreement is made in a social or domestic context, the presumption
that it is not legally enforceable can be rebutted.

(b) Niall and Myrtle have entered into a legally binding contract. Niall has
made an offer which Myrtle has accepted. Where one party makes it
known to the other that he does not intend to fulfil his obligations
under the terms of the contract, it is known as an anticipatory
breach. Where such a breach occurs, the other party can sue for
breach straight away. It is not necessary to wait until performance
falls due. This was demonstrated in the case of Hochester v de la
Tour (1853), in which a tour operator dispensed with the services of a
courier prior to the courier's agreed start date. The courier was able
to sue immediately and claim damages.

Niall has indicated that he does not intend to fulfil his obligations
under the terms of the contract. Myrtle need not wait until 1 July to
sue for breach.

2. A misrepresentation is an untrue statement of fact by one party to the

other, which is intended to induce, and which has induced the other to
enter into the contract.

A misrepresentation may be fraudulent, negligent or innocent. Fraudulent

misrepresentation occurs where the maker of the statement makes a
false statement that is made knowingly without belief in its truth or
recklessly, careless as to whether it is true or false. Negligent
misrepresentation occurs where the maker of the statement makes a false
statement, careless as to whether it is true or false. Innocent
misrepresentation occurs where the maker of the statement had
reasonable grounds for believing it to be true when he made it.

SelfWrite has made an untrue statement of fact by telling Niall that it has
assisted hundreds of writers, many of whom have gone on to become
best-selling authors. Niall was induced to enter the contract by this
statement.

SelfWrite is a new company and has published work by only ten authors. It
is aware that their statement to Niall is false. This amounts to fraudulent
misrepresentation. Niall is entitled to rescind the contract and claim
damages.

3. Consideration is the price paid for the performance or promise of

performance, as established in the case of Dunlop v Selfridge (1915). The
promise must be more than a pre-existing duty, i.e., the claimant cannot
claim for something that he was already legally obliged to do. This was
demonstrated in the case of Stilk v Myrick (1809), in which sailors could
not claim additional payment for bringing a ship home safely as they were
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 already legally obliged to do this. However, in situations in which a
claimant is required to undertake activities outside of the agreed
contractual duty, it may amount to fresh consideration. This was
demonstrated in the case of Hartley v Ponsonby (1857) which had similar
facts to those in Stilk v Myrick (1809) but the journey home was
particularly hazardous and there were fewer crew remaining. In these
circumstances, it was felt that the claimants had done more than their
existing duty.

An exception to the principle that the promise must be more than an

existing duty arose in the case of Williams v Roffey Bros & Nicholls
(Contractors) Ltd (1990). In this case, it was said that where one party to
a contract agrees to pay over and above the contract price in order to
secure the completion on time of the contract by that other, and by doing
so obtains a practical benefit, the obtaining of the benefit and amount to
consideration for the payment of the additional sum.

Oliver is under an existing duty to complete the manuscript by the agreed

date and as such is not entitled to the extra payment. However, it is
arguable under Williams v Roffey Bros & Nicholls (Contractors) Ltd (1990)
that Niall has potentially gained a benefit in that he is not put to the
trouble of finding another writer in the time scale and therefore may not
reclaim the additional £500 which he paid to Oliver.

4. If, after a contract is made, something happens which is not the fault of
either party but which makes the contract impossible to perform, it is said
to be frustrated. In the case of Taylor v Caldwell (1863) a contract for the
hire of a concert hall was frustrated when the hall burnt down, making it
impossible for the concerts to go ahead. A contract may also be frustrated
by a radical change of circumstances: Davis Contractors v Fareham UDC
(1956).

A contract may be frustrated if either party falls ill provided that the non-
availability substantially affects the performance. This was demonstrated
in the case of Condor v The Barron Knights (1966), in which a member of
band was unable to perform due to illness.

Once a court holds that a contract is frustrated, it is automatically

terminated from the point at which the frustrating event occurs. At
common law, any loss resulting from the frustration should lie where it
fell. The position has been altered to some extent by the Law Reform
(Frustrated Contracts) Act 1943. Section 1(2) of the Act provides that a
party who has paid money prior to a frustrating event may recover it.

Edmund has broken his wrist which renders him unable to perform at
Niall's book launch. Under s.1(2) of the Law Reform (Frustrated Contracts)
Act 1943, Niall can recover the £100 he paid in advance of Edmund's
performance.

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