June 2016 Contract Law Exam Answers: Conditions, Warranties, Frustration, Lecture notes of Contract Law

Download June 2016 Contract Law Exam Answers: Conditions, Warranties, Frustration and more Lecture notes Contract Law in PDF only on Docsity! Page 1 of 7 LEVEL 4 - UNIT 1 – CONTRACT LAW SUGGESTED ANSWERS – JUNE 2016 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 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. A valid acceptance must constitute full and unqualified assent to the terms of the offer. Acceptance does not usually take place until it is communicated to the offeror. This was demonstrated in the case of Entores v Miles Far East Corporation (1955). 2. The presumption that a contract is not intended to be legally binding when formed in a social or domestic context may be rebutted where there is evidence of a degree of certainty, where it is recorded in writing, or where there is mutuality in the arrangement. This was demonstrated in the case of Merritt v Merritt (1970). 3. Consideration is the price paid for the performance or promise of performance. It can also be defined as either a benefit to the promisor or a detriment to the promisee, or both. A case which provides a definition of consideration is Dunlop v Selfridge (1915). 4. An exemption clause can be incorporated by three methods. Firstly, a party who signs a document is usually bound by the terms contained therein (L’Estrange v Graucob (1934)) unless fraud or misrepresentation are present. Secondly, a term can be incorporated by notice. The notice given to the party must be reasonable and must take place before or at the time of contracting. An example of where notice was provided too late is the case of Olley v Marlborough Court Hotel (1949). Finally, an exemption clause can be incorporated through a consistent course of dealings. This was demonstrated in the case of Spurling v Bradshaw (1956). 5. The courts have developed two tests to use when considering whether a term should be implied in fact. The first is the ‘business efficacy’ test from The Moorcock (1889). This test states that the court should imply a term if it is required for the contract to be commercially viable. Page 2 of 7 The case of Shirlaw v Southern Foundries (1926) Ltd (1939) established the ‘officious bystander’ test. In this test, a term would be implied if, had a hypothetical third party suggested the term to the parties when they were agreeing the contract, the parties would have said ‘oh, of course’. (You will have received credit for other relevant cases.) 6. In order to establish innocent misrepresentation under the Misrepresentation Act 1967 s.2 it must be proven that the representor believed that the relevant statement was true. The representor must also show reasonable grounds for that belief. 7. A contract may be found to have been entered into under duress where pressure has been exerted on one party, this pressure was illegitimate, the pressure induced the claimant to enter into the contract, the claimant had no real choice but to enter into the contract and the claimant protested at the time or shortly after the contract was made. 8. A counter offer changes the terms of and extinguishes the original offer, as demonstrated in the case of e.g. Hyde v Wrench (1840) A request for information simply seeks further detail; it does not extinguish the original offer (Stevenson v McLean (1880)). 9. A contract can come to an end through performance, breach, the agreement of the parties or frustration. 10. Specific performance is an equitable remedy, and as such will be awarded at the discretion of the court. It can only be awarded where the usual common law remedy of damages is not suitable, and where the contract is not one for personal services. A case which demonstrates the award of specific performance is Beswick v Beswick (1968). Page 5 of 7 3. 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. An example is where the subject matter of the contract is destroyed, as in Taylor v Caldwell (1863). When the frustrating event completely undermines the common foundation of the contract, it will constitute frustration. However, the courts have taken a restrictive view and will not find frustration if some benefit can be gained from the contract, or if the purpose undermined is that of only one party. These principles are clear from the ‘coronation cases’. In Krell v Henry (1903) a contract to hire rooms for a few hours to watch the (cancelled) coronation parade was held to be frustrated. However, in Herne Bay Steamboat Co v Hutton (1903) a contract for a boat tour was held not to be frustrated despite the Royal appearance being cancelled, as the party could still enjoy the boat trip and the purpose of the boat operator was unaffected. This more restrictive approach has generally been followed by the courts in more recent cases. Emily is able to stay in the flat for the weekend, and she can also still visit the classic car show. She has only missed out on the opportunity to watch the race. Furthermore, the landlord’s purpose in renting out the flat is unaffected. It is therefore likely that the court would hold that the contract will not be frustrated. Scenario 2 Questions 1. An invitation to treat is an invitation to others to make an offer. Advertisements are generally regarded as an invitation to treat, as demonstrated in the case of Partridge v Crittenden (1968). However, in some cases an advertisement can be capable of being regarded as an offer; namely where an offer is made to the world at large which is capable of being accepted by performance: Carlill v Carbolic Smoke Ball Co (1893). A contract formed from such an offer is known as unilateral, as only the party making the offer is bound. A unilateral offer is accepted by performance. Marko’s advertisement may be regarded as a unilateral offer which is capable of being accepted by performance. Navina has performed as specified, as she has used the cream for more than 60 days. She is likely to be able to recover both the refund and reward. 2. The doctrine of privity of contract provides that a person who is not a party to a contract cannot acquire any rights under that contract or be subject to any of its burdens. This doctrine is demonstrated in the case of Tweddle v Atkinson (1861). However, an exception arises under the Contracts (Rights of Third Parties) Act 1999 where the person benefiting under the contract is expressly identified either by name, as a member of a class, or as answering to a particular description; and the contract expressly provides that the third party may enforce the contract or it purports to confer a benefit on the third party. Oliver is a third party to the contract and the common law doctrine of privity would appear to prevent a claim. However, as the cream was bought specifically for Oliver and should have been delivered to him, he Page 6 of 7 has been expressly identified and as the contract is for his benefit he is likely to have acquired rights under the Act and can sue Marko. 3. Undue influence is an equitable doctrine which provides relief from contracts entered into under improper pressure not amounting to duress. Where this occurs the court may set aside the contract. Undue influence may be actual - this is established where there is proof that one party has actually unduly influenced another, as seen in cases such as BCCI v Aboody (1992). Where a relationship of trust and confidence exists an evidentiary presumption of undue influence can arise. If the claimant can demonstrate such a relationship, along with a transaction that ‘calls for explanation’, the burden of proof shifts to the defendant to disprove undue influence (Royal Bank of Scotland plc v Etridge (No 2) (2001)). Paulina may have been the subject of actual undue influence resulting from Marko's behaviour which could render the contract voidable. Paulina’s relationship with Marko is a recognised relationship of trust and confidence (doctor/patient) and the transaction is unusual enough that it is likely the evidential presumption of undue influence applies. Considering the circumstances a claim by Paulina to have the contract with Marko set aside is likely to be successful. 4. (a) Not all terms of a contract will be of equal importance. Those terms that are more important are said to go the root of the contract and are known as conditions. A breach of condition enables the injured party to treat the contract as repudiated and claim damages. Less important terms of a contract are known as warranties and will entitle the injured party to damages only. The difference between conditions and warranties was demonstrated in the cases of Poussard v Spiers (1875) and Bettini v Gye (1875). In the former case, a singer failed to perform on the opening night of a concert. It was held that this was a breach of condition and the producers of the concert could treat the contract as ended. By contrast, in the case of Bettini v Gye the failure was to attend rehearsals. It was held that this failure was a breach of warranty which gave rise to a claim in damages only. If there is difficulty or uncertainty in assessing the importance of a term at the time that the contract was formed, then the court may classify it as an innominate term and allocate a remedy according to the seriousness of the breach. This approach was taken in the leading case of Hong Kong Fir Shipping v Kawasaki Kisen Kaisha (1962). The use of Jointapam is crucial to the cream and goes to the root of the contract, therefore the term is likely to be viewed as a condition. Marko may repudiate the contract and may also be entitled to damages. (b) A person in breach of contract will only 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 Page 7 of 7 made’. All other losses will be considered to be too remote. This test was established in the case of Hadley v Baxendale (1854). Losses due to the breach of contract, for example offering refunds to unhappy customers, are likely to be in the ordinary course of things and not too remote. However, as there is no evidence of Marko telling QuickMed about his £500 reward promotion, this is not likely to be seen to be in the parties’ reasonable contemplation and is probably too remote. Marko cannot recover these losses.