UNIT 2 –

Suggested Answers – June 2009

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 2009 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.

ILEX is currently working with the Level 3 Chief Examiners to standardise the format and content of suggested answers and welcomes feedback from students and tutors with regard to the ‘helpfulness’ of the June 09 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 should have explained that only the parties to the contract are bound by it and these parties can benefit from it.

2. Candidates should explain that an invitation to treat is merely asking people to make an offer for that which is being advertised or displayed case example (e.g. ). A unilateral offer is an advertisement which contains some type of definite promise, which if certain conditions (the promise) are met by the person accepting the unilateral offer. The person making the unilateral offer will be bound as soon as that person starts acting upon that promise, e.g. Carlill v Carbolic Smoke Ball Co 1893.

3. Candidates should explain that a promise to pay for something that has already been carried out is not valid . (Simply stating it is something done before the promise is acceptable).

4(a) Candidates should explain that it is generally accepted by the courts that agreements between family, social and close friends are not intended to be a legal contract. (No legal intention) (e.g. Balfour v Balfour 1919).

4(b) Candidates should explain any two of the following if the parties to the agreement although family, are separated or divorced if one has been disadvantaged as a result of the agreement if the agreement involved some type of payment such as entry fees. Case examples could include Merritt v Merritt (1970), Parker v Clark (1960), Simpson v Pays (1955).

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5. Candidates should explain by Custom – As a result of local or trade usage.

(Candidates could include some or all of the following)

The criteria examined when considering whether to imply such a term include the following. This is most likely between parties in the same trade or with same bargaining power. Duration of use whether or not it is reasonable to imply such use whether or not the term is inconsistent with an express term. That such a term is actually used in practice the implication of such a term is acceptable to the court. By the courts – because case law has established that these terms always appear in these type of . By reference to the intentions of the parties. (i.e. the contract would be unworkable without that term) Case example ‘The Moorcock 1889’. Unlikely in consumer contracts.

6. Candidates should explain that the innocent party can repudiate the contract (treat it as being at an end) and claim damages for any loss. Case example Poussard v Spiers and Pond 1976.

7. Candidate should explain that traditionally the only remedy available was rescission. However under the Act 1967 s2(2) the courts may now award damages in lieu (in place) of rescission, but it is entirely at the courts discretion. Courts cannot award both rescission and damages.

8. Candidates should include by Performance, by Breach, by Agreement, by Frustration.

9. Candidates should explain any three of the following a court order compelling the performance of a contract would not be ordered where damages would be adequate. It would not be granted if constant supervision by the court would be needed to enforce it’. Not available for contract of personal services. Not available for agreement made by deed. Not granted to a minor. Case examples may be quoted e.g. Ryan v Mutual Tontine Westminster Chambers Association (1893), Ponser v Scott-Lewis (1986)

Page 2 of 8 Section B

Scenario 1

1(a)(i) Candidates should explain that a contract requires offer, acceptance, consideration and intention to create a legal agreement. Relate to the scenario by explaining there has been a valid offer by reliant builder. They could mention that the material costs are not fixed, but are set independently of the two parties and are not vague. There is intention to create a legal agreement. The offer was accepted by Simon Mallory so there is a valid contract. Case example Dunlop Pneumatic Tyre Co v Selfridges Co Ltd 1915.

1(a)(ii) Candidates should identify the contract had already been formed before there was a request to fix the tiles as well. Reliant Builders offered to fit them at no cost, therefore there was no consideration offered or agreed, therefore there could be no valid contract. (Promise to the future). Mention could be made that past consideration is not valid. e.g. (Roscorla v Thomas 1842).

1(b) Candidates should explain that the contract was between Brandon Mallory and the tile shop and the relevant act would be s14 (2).

2(a) Candidates should explain supply of Goods and Services Act 1982, s13 Reasonable care and skill, s14 performed in a reasonable time, s15 Reasonable charge.

2(b) Candidate should relate the following to the scenario SGSA 1982 s13 applies insufficient care, SGSA 1982 s14 reasonable time. Unlike in the SGA 1979 these are just called ‘terms’ and rules apply - if service performed badly contract will be treated as at an end. e.g. Davey v Cosmos Air holidays (1989).

3(a) Candidates should explain that when it is considered a condition rather than a warranty, when contract expressly or impliedly says so, after the agreed due date for performance has been met (ultimatum), in circumstances which show that time is of an essence.

3(b) Candidates should explain that acceptance was on the basis of a finishing time, the actual finishing time not mentioned but implied as two weeks which could be construed as a fixed date. In this scenario it could be argued that it was a warranty rather than a condition. If it was a condition breach entitled contract to be repudiated. If it was a warranty, breach only allows damages to be claimed.

4(a) Candidates should explain frustration is an unforeseen circumstance which arises after a contract has been made which prevents if from being carried out. Fault lies with neither party. The non availability of workmen is an organisational problem not an unforeseeable occurrence, therefore these circumstances could not be seen as a frustrating event. Case examples and/or explanation of frustrating events if used could include e.g. Condor v Barron Knights (1966) Taylor v Caldwell (1863) Krell v Henry (1903).

Page 3 of 8 4(b) Candidates explanation should include the main remedy would be damages under common law if it was established that time was of the essence. Remedies under the SGSA 1982, could be considered under equitable remedies but would be unlikely. Alternatively, the fact that the original contract had not been met, if Simon Mallory notified reliant Builders that time was of the essence and gave them an ultimatum (a further contract) with a new deadline. If now Reliant Builders do not meet the new deadline Simon Mallory can cancel the contract and sue for damages.

Page 4 of 8 Scenario 2

1(a) Candidates should explain it is more than just an invitation to treat, it is a unilateral offer, made to the whole world. It is specific – if you do this I promise that, it is accepted as soon as the person starts to complete the offer AND before the deadline. Case example Carlill v Carbolic Smoke Ball Co (1893).

1(b) Candidates needed to explain, this was a universal offer. Based on the purchase of £15 worth of goods during the specified week. They embarked on the offer as soon as they made the first purchase, and completed it provided they purchased more than £15 worth of goods before the expiration date and time, therefore the customer could claim the free bottle of wine.

1(c) Candidates should explain, frustration means that if after a contract has been made, unforeseen circumstances arise which prevent it from being carried out through the fault of neither party, it is said to be frustrated. It is not frustrated simply because it turns out to be difficulties with staff, or because it will cost more to hire in more labour, or is self induced such as not ordering enough wine etc. Case examples e.g. Davis Contractors v Fareham UDC 1956, Taylor v Caldwell 1863.

2(a) Candidates should explain this is a unilateral offer therefore as soon as a person embarks on the terms of the unilateral offer, it is not possible for revocation of the offer to take place. Therefore anyone who has already started by visiting the shop and purchasing goods, cannot be refused the offer. It is possible to prevent further persons taking up the offer, but only if they can be informed that the offer is revoked. This would need the original offer being revoked by publicising it in a similar fashion to the original and to the same group of people. (Which can prove very difficult).

2(b)(i) Candidates should explain, once a customer goes to the shop and purchases goods to any value, they have embarked upon the contract and it cannot be revoked. Therefore they can complete the contract by purchasing £15 worth of groceries over the week and claim their free wine even after the offer has been withdrawn to others.

2(b)(ii) Candidates should explain that, provided the offer had been properly revoked and they had not embarked upon it before the revocation, they were not entitled to make any claim for the free wine as there would be no acceptance to a valid offer. Case example may be given e.g. ‘Payne v Cave 1789’, ‘Errington v Errington 1952’

3(a) Candidates should define a misrepresentation is a false statement of fact or law made by one party, intending to induce and actually inducing the other party to make a contract.

3(b) Candidates should explain that the chicken was labelled free range on the packing (false) (more than just an extravagant advertisement). Advert in the shop stated all chickens were free range (false). This is a fraudulent misrepresentation (false representation knowing it to be false, or not believing it to be true, or not caring whether it was true or not. Case example Derry v Peek Page 5 of 8 1889 (Candidates may mention negligent misrepresentation, a statement made by someone with no reasonable grounds for believing it to be true, but the case example clearly goes further than this)

3(c) Candidates should explain that if fraudulent (or negligent) the two remedies available, damages (money compensation) rescission (cancelling contract). In this case rescission would not be effective as the chicken could probably not be returned, so damages would be the effective remedy. (parties put back in the position they would have been but for the misrepresentation).

4 Candidates should explain Sale of Goods Act 1979. Terms implied in consumer contracts. SS12 right to sell the goods. Ss13 description. Ss14(2) Satisfactory quality. Ss14(3) Fitness for purpose. Ss15 Sale by description. Description of goods (free range) – false. Satisfactory quality (Goods were not fit to be cooked when opened). Fit for purpose (could argue they were not fit for eating).

Page 6 of 8 Scenario 3

1(a)(i) Candidates should state, Mere puffs are extravagant claims of no legal effect. (No intention to be binding). (ii) Representations are pre-contractual statements intended to persuade another to accept a contract. If it is untrue it is a misrepresentation. (iii) Terms are statements incorporated into a contract.

1(b) Candidates need to explain some of the following points that silence does not normally amount to a misrepresentation. The saying goes, let the buyer beware (caveat emptor). Therefore would not affect the contract in this scenario. Candidates could also comment that remedies can exist under the Sale of Goods Act 1979 if proven it was a business operation. Case example Sykes v Taylor (2004). Remedies can exist under the SGA 1979 if proved to be a business.

2(a) Candidates should explain, there was a valid offer, valid acceptance of the offer, communication of the offer. Here there was a counter offer of £2,100 which was accepted by Brown by him saying I’ll accept cash, against a previous counter offer of £2,300.

2(b) Candidates should explain that terms are express statements in a contract and can be ‘actioned’ for . Representations which are pre-contractual statements intended to persuade the other party to contract can only be ‘actioned’ if a misrepresentation. Factors regarding representations taken into consideration by the court are ‘importance attached to statement’, whether ‘reduced to writing’, the ‘timing of statement’, or whether either part had special skills or knowledge. Cases examples e.g. Bannerman v White (1861), Birch v Paramount Estates Ltd (1956), Routledge v McKay (1954), Oscar Chess v Williams (1957).

2(c) Candidates should explain three of the following rights to damages within s2(1) Misrepresentation Act 1967, can be awarded on a contractual or tortuous basis which will include consequential loss. e.g. (Royscot Trust Ltd v Rogerson 1991), confirmed same measure of damages apply to both fraudulent and negligent mis- representation. Rescission (is subject to court’s direction).

3(a) Candidates should explain, taking each representation in turn: ‘It’s a good little runner’ – Mere puff - no effect. ‘It’s been regularly serviced you should have no trouble’ – it is within his knowledge but could depend on what ‘regularly’ means. It is a representation, but could be false – if false will affect validity. ‘Low mileage’ – if true a representation, if not could be an inducement to buy. ‘My wife is expecting a baby and we need a bigger car’. He was not married. Clearly a false statement within his knowledge but only relevant if it was an inducement to buy. Alternatively a good argument that the ‘representation’ are terms within the contract will be credited.

3(b) Candidate should include that where a party sustains damage or loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation with respect to damages as if the contract had been performed. Case example Robinson v Harman 1848. (Explanation that parties restored to original position instead of stating damages amounts to same and credited). Page 7 of 8

3(c) Candidates should explain that there could be a claim for damages amounting to the costs of putting the car in the state represented, or Rescission provided there is no loss and they can be restored to their original positions.

4(a) The candidate should explain, Sale of Goods Act 1979. Ss(12) right to sell vehicle, Ss(13) vehicle matches the description, ss14(2) must be of satisfactory quality, ss14(3) must be fit for purpose.

4(b) The candidate should explain, rescission is equitable in nature and could be lost if the contract has been affirmed (decide to continue). If innocent or negligent misstatement, by lapse of time. Where the parties cannot be returned to their original positions. Where an innocent third party has acquired rights in the subject matter.

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