5 single best answer questions on Contract Law, written to the SRA specification. Pick an answer, then open the explanation: the correct option, why each of the others fails, and the authority behind it. No sign-up.
Formation — offer, acceptance, consideration, intention and certainty; who can enforce a contract, including third parties; express and implied terms, incorporation and exclusion clauses under the Unfair Contract Terms Act 1977 and the Consumer Rights Act 2015; misrepresentation, mistake, duress and undue influence; discharge by performance, breach and frustration; and remedies, including the limits on damages.
Questions give a commercial or consumer dispute and five plausible legal consequences. The mark usually turns on classifying the problem correctly — which term, which vitiating factor, which loss the law compensates.
Question 1
CertaintyEasier
Over lunch, the owner of a restaurant orally agreed with a wine merchant to buy 'a quantity of the 2019 vintage of a named Rioja, at the trade price applicable on delivery, on the usual terms'. The two businesses had never dealt with each other before, and there is no established trade practice as to what 'the usual terms' means. Nothing was written down and no wine has been delivered. The merchant wishes to sue the restaurant owner.
Which of the following best describes whether a contract has been formed?
Show the answer and explanationAnswer C+
C
Correct answer
There is no contract, because the quantity and the 'usual terms' are not ascertainable from the agreement or trade practice.
With no ascertainable quantity and no means of giving content to 'the usual terms', the agreement is too uncertain to be a contract.
There were no previous dealings and no trade practice to define 'the usual terms', and the quantity was left wholly open. The court cannot determine what the parties bound themselves to, so no contract was formed. While an objective price benchmark such as the trade price on delivery is sufficiently certain, the failure to identify any quantity or terms of dealing prevents contract formation.
No quantity was fixed and there was no prior dealing or trade practice by which 'the usual terms' could be given content, so the court cannot identify what was agreed and the agreement fails for uncertainty.
Scammell & Nephew Ltd v Ouston — Language too vague to be given a definite meaning prevents the formation of a contract.
Hillas & Co Ltd v Arcos Ltd — The court will uphold an informal commercial bargain where its terms can be ascertained.
Rule card
An agreement fails for uncertainty where its essential terms cannot be given a definite meaning. Prior dealings, trade custom, a standard of reasonableness or part performance may cure vagueness; a meaningless but severable phrase may be struck out.
Why the other options fail
A
Adjacent rule
There is a binding contract, because the Sale of Goods Act 1979 provides that the buyer must pay a reasonable price.
Section 8(2) of the Sale of Goods Act 1979 provides that where the price is not determined, the buyer must pay a reasonable price. However, this statutory gap-filler applies only where a valid contract has otherwise been concluded; it cannot cure the fatal uncertainty of an unascertainable quantity and terms.
Sale of Goods Act 1979, s 8 — A buyer must pay a reasonable price where price is not determined, but this applies only where a contract has otherwise formed.
May and Butcher Ltd v The King — Statutory implication of a reasonable price cannot cure an agreement that is void for uncertainty on essential terms.
B
Adjacent rule
There is a binding contract, because the court will imply whatever quantity, delivery and payment terms are reasonable in the circumstances.
The court will strive to uphold a bargain the parties have acted on, but it will not write the contract for them where the quantity and terms cannot be ascertained at all.
Scammell & Nephew Ltd v Ouston — Where the language used is so vague that no definite meaning can be given, there is no contract.
D
Adjacent rule
There is no contract, because fixing the price by reference to the trade price on delivery leaves the price uncertain.
An agreement to purchase goods at the trade price applicable on delivery provides an objective benchmark by which the price can be determined, so the pricing term is not uncertain. The agreement fails instead because no quantity was agreed and the 'usual terms' cannot be identified.
Foley v Classique Coaches Ltd — An agreement to supply goods at an ascertainable market or trade price is sufficiently certain to be binding.
E
Adjacent ruleClosest alternative
There is a binding contract, because the vague phrase can be severed and the remainder enforced.
Severance is possible only where the meaningless phrase is self-contained and the rest of the bargain is complete; here the quantity itself is unascertainable.
Ruled out by: Severance cannot save the agreement because the quantity is also unfixed, so even without the vague phrase nothing definite remains.
Nicolene Ltd v Simmonds — A meaningless and severable clause may be disregarded without destroying an otherwise complete contract.
Question 2
Privity of contractMedium
A carrier contracted with the owner of a cargo of machinery to carry it by sea. Clause 7 of the bill of lading provided that every servant, agent and independent contractor employed by the carrier should have the benefit of the clause limiting liability for damage to cargo to £1,000 per package. Stevedores engaged by the carrier to unload the cargo dropped a crate, destroying machinery worth £40,000. The owner sues the stevedores in negligence for £40,000.
Which of the following best describes the stevedores' position?
Show the answer and explanationAnswer C+
C
Correct answer
The stevedores may rely on the limitation clause under the 1999 Act, since the term expressly confers its benefit on independent contractors.
A limitation clause expressed to benefit a described class of third parties may be relied on by a member of that class under s.1(6).
Clause 7 purports to confer the benefit of the £1,000 limitation on independent contractors employed by the carrier, a description satisfying s.1(3); s.1(6) allows the stevedores to avail themselves of that limitation without proving agency or consideration.
The clause purports to confer a benefit on a class answering a particular description, so the stevedores may avail themselves of the limitation.
Contracts (Rights of Third Parties) Act 1999, s.1(6) — Third parties may avail themselves of exclusion and limitation clauses.
Rule card
s.1(6): where a term excludes or limits liability, a third party identified by name, class or description may avail himself of it, replacing the need for the agency devices used before 1999.
Why the other options fail
A
Adjacent rule
The stevedores cannot rely on the clause because they are not named in the contract.
Identification as a member of a class or by description is sufficient; 'independent contractor employed by the carrier' is such a description.
Contracts (Rights of Third Parties) Act 1999, s.1(3) — Identification by class or description suffices.
B
Outdated lawClosest alternative
The stevedores cannot rely on the clause unless they can show an agency relationship with the carrier.
That was the route the common law required before the 1999 Act; the statutory right now allows the third party to avail itself of the clause directly.
Ruled out by: Clause 7 expressly extends the limitation to independent contractors employed by the carrier, so the statutory route applies and no agency analysis is needed.
New Zealand Shipping Co Ltd v A M Satterthwaite & Co Ltd (The Eurymedon) — Before the 1999 Act a stevedore could take the benefit of an exclusion clause only by establishing a collateral contract made through the carrier as agent.
D
Surface reading
The stevedores cannot rely on the clause because the owner's claim against them is framed in negligence rather than contract.
The Act allows the third party to avail itself of an exclusion or limitation in relation to the matter covered, including a claim in negligence for cargo damage.
Contracts (Rights of Third Parties) Act 1999, s.1(6) — A third party may avail himself of a term excluding or limiting liability in relation to the matter concerned.
E
Outdated law
The stevedores cannot rely on the clause because they gave no consideration to the goods' owner.
Consideration from the third party is not required for the statutory right to avail itself of an exclusion or limitation.
Scruttons Ltd v Midland Silicones Ltd — At common law a stranger to the contract who gave no consideration could not rely on its limitation clause.
Question 3
Incorporation of termsMedium
A man telephones a sports club and books a squash court for the following evening, agreeing the £12 fee on the call. He has played at the club four times over the past year. When he arrives he pays at reception and changes in the locker room, where a notice in small print above the lockers states: 'The club accepts no responsibility for loss of or damage to members' property.' While he plays, another user forces his locker and steals his watch.
Can the club rely on the notice to defeat the man's claim for the value of the watch?
Show the answer and explanationAnswer B+
B
Correct answer
No, because the contract was concluded on the telephone, before the notice could be seen.
The notice came too late: the contract was made on the telephone before the man could see it.
Incorporation by notice requires the notice to be given at or before the time the contract is made. The court booking and the fee were agreed during the call, so the locker-room notice, seen only on arrival, is not a term.
The booking and fee were agreed on the call, so the contract was complete before the man ever entered the locker room; a notice seen afterwards cannot become a term.
Olley v Marlborough Court Ltd — Notice given after the contract has been made does not incorporate the term.
Rule card
Notice cases: identify the moment of contracting; a notice given later cannot be incorporated, however prominent or clear.
Why the other options fail
A
Adjacent rule
No, because the wording does not clearly cover theft by another user.
Construction only arises once the term is part of the contract, and 'loss of or damage to members' property' would in any event naturally extend to theft.
Hollier v Rambler Motors (AMC) Ltd — Ambiguity in an exemption clause is construed against the party relying on it.
C
Surface readingClosest alternative
Yes, because the notice was displayed in the locker room where users would reasonably be expected to see it.
Reasonable notice must be given before or at the time of contracting; a notice first encountered after the booking was made on the telephone comes too late.
Ruled out by: The man agreed the booking and the £12 fee on the telephone the previous day, so the contract was already complete before he reached the locker room.
Parker v South Eastern Railway Co — A term is incorporated by notice if reasonable steps were taken to bring it to the other party's attention at the time of contracting.
D
Adjacent rule
No, because a clause as onerous as this printed in small print had to be specifically drawn to his attention.
The special notice rule applies to unusual or extortionate clauses where notice is given in time; here the notice was given after the contract, so the timing rule disposes of it.
Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd — An unusually onerous clause must be specifically drawn to the other party's attention if it is to be incorporated by notice.
E
Adjacent rule
Yes, because his four previous visits over the past year established a course of dealing incorporating the notice.
Four occasional visits over the course of a year fall well short of the regular and consistent dealing required to incorporate an exclusion clause into a consumer contract by course of dealing.
Hollier v Rambler Motors (AMC) Ltd — A small number of transactions over an extended period does not establish a course of dealing sufficient to incorporate terms into a consumer contract.
Question 4
Unfair contract termsEasier
A man joins an indoor climbing centre, which is run as a business. At reception he signs a notice, printed in large plain type, stating that the centre accepts no liability for injury however caused. He does not read it. During a session an anchor negligently installed by the centre's staff fails and he breaks his wrist. The centre says the term is reasonable, and that climbers voluntarily accept the risks of the sport.
Which of the following best describes the effect of the exclusion term?
Show the answer and explanationAnswer A+
A
Correct answer
The term is not binding on the man.
An exclusion of liability for personal injury caused by negligence is prohibited outright in a consumer contract.
The climbing centre is a trader and the man a consumer. Section 65 of the Consumer Rights Act 2015 prevents a trader excluding or restricting liability for personal injury resulting from negligence, so the notice has no effect on his claim for the broken wrist.
In a consumer contract a trader cannot by a term or notice exclude or restrict liability for personal injury resulting from negligence; the term has no effect at all.
Consumer Rights Act 2015, s 65 — A trader cannot by a term or notice exclude or restrict liability for death or personal injury resulting from negligence.
Rule card
Consumer contracts: personal injury caused by negligence can never be excluded; other terms are tested for fairness.
Why the other options fail
B
Adjacent rule
The term binds the man because he signed the notice without reading it.
Signature does bind a party to terms at common law, but that rule operates subject to statutory controls, and the statutory ban on excluding personal injury liability applies whatever the consumer signed.
L'Estrange v F Graucob Ltd [1934] 2 KB 394 — A party who signs a contractual document is bound by its terms whether or not she has read them, subject to statutory control.
C
Civil-law intuition
The term binds the man because he voluntarily accepted the obvious risks of climbing.
A consumer's awareness of a term or notice is not of itself to be taken as voluntary acceptance of the risk, and the exclusion remains ineffective.
Consumer Rights Act 2015, s 65 — A person is not to be taken to have voluntarily accepted a risk merely because he agreed to or knew about a term or notice excluding liability for negligence.
D
Adjacent ruleClosest alternative
The term binds the man if the centre shows it is fair and transparent.
The fairness assessment governs most consumer terms, but an exclusion of liability for negligently caused personal injury is prohibited outright and never binds, however fairly expressed.
Ruled out by: The injury is personal injury caused by the staff's negligent installation, which falls under the outright ban rather than the fairness assessment; the term's plain type and apparent reasonableness are irrelevant.
Consumer Rights Act 2015, s 62 — An unfair term in a consumer contract is not binding on the consumer; fairness turns on significant imbalance contrary to good faith.
E
Outdated law
The term binds the man to the extent that it satisfies the reasonableness test in UCTA 1977.
UCTA's reasonableness control now governs non-consumer contracts; consumer contracts are governed by the 2015 Act, under which this exclusion is simply of no effect.
Unfair Contract Terms Act 1977, s 2 — Business liability for negligence cannot be excluded for death or personal injury, and other loss only so far as the term is reasonable.
Question 5
Liquidated sums and penaltiesMedium
A farmer engaged a contractor to build a grain store on land the farmer holds as tenant of an agricultural holding. The contract provided that the contractor would pay the farmer £2,000 for each day of delay in completion. When the contract was made, £2,000 a day was a reasonable forecast of the farmer's likely loss. Completion was 10 days late. The farmer's actual loss from the delay was about £6,000, and he made no attempt to hire temporary storage.
What is the farmer entitled to recover from the contractor for the delay?
Show the answer and explanationAnswer C+
C
Correct answer
The farmer may recover £20,000 under the clause, because a valid liquidated damages clause fixes the sum recoverable irrespective of the loss actually suffered.
A valid liquidated damages clause is enforced as agreed: the farmer recovers £2,000 for each of the 10 days, not the smaller loss he actually suffered.
£2,000 a day was a reasonable forecast of loss when the contract was made, so the clause is not penal. The agreed sum is then recoverable without proof of loss and without regard to mitigation, giving £20,000.
£2,000 a day was a reasonable forecast when the contract was made, so the clause is a valid liquidated damages provision and the agreed sum is payable for the 10 days' delay.
Cellulose Acetate Silk Co Ltd v Widnes Foundry (1925) Ltd [1933] AC 20 — The agreed sum under a valid clause is recoverable, neither more nor less.
Rule card
Valid liquidated damages clause: the stipulated sum is payable, neither more nor less, without proof of actual loss. Penalty is judged at formation by proportionality to the legitimate interest, not by hindsight comparison with the loss suffered.
Why the other options fail
A
Adjacent rule
The farmer's recovery is limited to the loss actually suffered, because the grain store is on an agricultural holding he holds as tenant.
That restriction applies to a landlord recovering liquidated damages from his tenant under a contract of tenancy of an agricultural holding. Here the claimant is the tenant and the contract is a building contract.
Agricultural Holdings Act 1986, s.24 — A landlord may not recover, in consequence of a breach of a term of a contract of tenancy of an agricultural holding, any sum in excess of the damage actually suffered.
B
Surface readingClosest alternative
The farmer may recover nothing under the clause, because £20,000 is more than three times his actual loss.
The clause is tested as at the date of contracting against the legitimate interest protected; a reasonable forecast at that date is not made penal by a smaller loss in the event.
Ruled out by: When the contract was made £2,000 a day was a reasonable forecast of the farmer's likely loss, so the clause was not out of all proportion at formation.
The farmer may recover £20,000 only if he shows he tried to reduce his loss by hiring temporary storage.
A claim for an agreed sum is a liquidated claim in which the claimant need prove no loss; mitigation is irrelevant to it.
British Westinghouse Electric and Manufacturing Co Ltd v Underground Electric Railways Co of London Ltd [1912] AC 673 — A claimant seeking damages must take reasonable steps to mitigate its loss.
E
Right outcome, wrong reason
The farmer may recover only £6,000, because damages for breach of contract are compensatory.
The compensatory principle governs unliquidated damages. Where the parties have validly agreed the sum payable on breach, that sum is recoverable without proof of loss.
Robinson v Harman (1848) 1 Exch 850 — Damages place the claimant in the position performance would have produced.
Where candidates lose marks in Contract Law
Paying part of a debt is not consideration for a promise to forgive the rest (Foakes v Beer), even though a promise to pay more for the same work can be (Williams v Roffey Bros); the practical-benefit exception does not reach part payment (Re Selectmove).
Test an exclusion clause in order: was it incorporated, does it cover the loss on its wording, and does statute allow it — the 1977 Act between businesses, the 2015 Act between a trader and a consumer.
A clause fixing the sum payable on breach is a penalty only if it is out of all proportion to the innocent party's legitimate interest in performance (Cavendish Square Holding v Makdessi [2015] UKSC 67) — not simply because it is not a pre-estimate of loss.