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CII IF1 practice questions

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Question 1Legal principles and the law of contract

In the law of contract, which statement best describes an offer?

  1. A request for further information about the terms another party proposes
  2. A statement of the price at which goods might be sold, without more
  3. An invitation to another party to begin negotiations on possible terms
  4. A definite promise to be bound on stated terms, intended to be binding Correct answer.

Explanation

An offer is a definite promise to be bound on specified terms, made with the intention that acceptance will create a binding contract. Whether a statement is an offer is judged objectively, by how a reasonable person in the offeree's position would understand it. A statement that merely invites negotiation or supplies information is not an offer.

Question 2Legal principles and the law of contract

A shop displays a jacket in its window with a price ticket. In law, the display is:

  1. a binding quotation that the shop must honour at the marked price
  2. an invitation to treat, so the customer makes the offer at the till Correct answer.
  3. an offer that cannot be revoked once the shop is open
  4. an offer that the customer accepts by taking the jacket to the till

Explanation

The display of goods in a shop window or on a shelf is generally an invitation to treat rather than an offer. The customer makes the offer at the till and the retailer is free to accept or reject it. This protects retailers from being forced to sell at a mispriced figure.

Question 3Legal principles and the law of contract

When the postal rule applies to acceptance of an offer, the contract is generally formed:

  1. when the offeree writes the letter of acceptance
  2. when the offeror reads the letter of acceptance
  3. when the letter of acceptance is delivered to the offeror's address
  4. when the letter of acceptance is properly posted Correct answer.

Explanation

Where the postal rule applies, acceptance is complete as soon as a properly addressed and stamped letter is posted. The contract is therefore formed at that moment, not when the letter arrives or is read. The rule can be excluded by the offeror, for instance by requiring actual receipt of acceptance.

Question 4Legal principles and the law of contract

Which statement states the requirement of consideration in English contract law?

  1. Consideration must be something of value given in exchange for the promise Correct answer.
  2. Consideration must be of adequate economic value measured against the promise received
  3. Consideration must always be money, since services cannot support a contract
  4. Consideration must be given at the same time as the contract is signed

Explanation

Consideration is the price for which the promise of the other party is bought, such as a benefit to the promisor or a detriment to the promisee. It must be sufficient in law but need not be adequate in value. Past consideration and a promise to do an existing duty generally do not count.

Question 5Legal principles and the law of contract

Two businesses sign a written supply agreement that states it is legally binding. Which presumption applies to intention to create legal relations?

  1. No presumption applies, so the agreement is unenforceable until performed
  2. There is a presumption that legal relations are intended in commercial agreements Correct answer.
  3. There is a presumption that legal relations are not intended between businesses
  4. Intention is irrelevant where the parties have signed a written document

Explanation

In commercial agreements there is a strong presumption that the parties intend to create legal relations. The presumption can be rebutted by clear wording, such as an express honour clause or an agreement stated to be 'subject to contract'. The position is reversed for social and domestic arrangements.

Question 6Legal principles and the law of contract

A 17-year-old buys a bicycle on credit terms for everyday transport. Which statement reflects the general legal position?

  1. The contract is void because a minor can never make a binding contract
  2. The contract is voidable at the minor's option at any time before turning 18
  3. The contract is generally enforceable against the minor as a contract for necessaries Correct answer.
  4. The contract binds the minor only if a parent co-signs the agreement

Explanation

A minor is bound by a contract for necessaries, meaning goods or services suitable to the minor's condition in life and required at the time of sale. Examples include food, clothing, accommodation and transport. Other contracts made by a minor are generally voidable at the minor's option.

Question 7Legal principles and the law of contract

Which statement best reflects the common law doctrine of privity of contract?

  1. A person who benefits from a contract may always enforce it, even without providing consideration
  2. Only the party who drafted the contract may enforce its terms
  3. Only a party to the contract can generally enforce its terms Correct answer.
  4. Any person named in a contract automatically becomes a party to it

Explanation

The privity doctrine provides that only a person who is a party to a contract can enforce rights under it, and consideration must move from the promisee. The rule is modified by statutory exceptions, notably the Contracts (Rights of Third Parties) Act 1999. Agency and trusts provide further routes for non-parties.

Question 8Legal principles and the law of contract

Which statement describes an actionable misrepresentation?

  1. A promise about future conduct that is not fulfilled
  2. A statement of opinion that later proves to be incorrect
  3. A failure to disclose a fact, in every type of contract
  4. A false statement of existing fact that induces the other party to enter the contract Correct answer.

Explanation

A misrepresentation is a false statement of past or present fact, made by one party to the other, which induces the contract. Statements of opinion, future promises and, generally, silence do not amount to misrepresentation. A duty of disclosure may arise in certain contracts, such as insurance.

Question 9Legal principles and the law of contract

A supplier threatens to stop deliveries unless the buyer agrees to a higher price, leaving the buyer with no practical alternative source. The buyer agrees. Which ground most strongly supports challenging the agreement?

  1. Common mistake, because both parties misunderstood the market price
  2. Economic duress, because illegitimate pressure left the buyer with no practical choice Correct answer.
  3. Unilateral mistake, because only the buyer misunderstood the delivery terms
  4. Frustration, because the original supply arrangement became impossible

Explanation

Economic duress arises where illegitimate pressure is applied and the victim has no practical alternative but to agree. The pressure must be a significant cause of the agreement, and the victim must not have affirmed the contract. A contract made under duress is voidable.

Question 10Legal principles and the law of contract

A contract fixes a charge of £50,000 for any one-day delay in completing a project worth £200,000. Which statement best reflects the modern approach to whether the charge is enforceable?

  1. It is void for uncertainty because delay losses cannot be estimated
  2. It is enforceable because the parties agreed the figure in advance of breach
  3. It is enforceable only if the actual loss suffered by the buyer exceeds £50,000
  4. It is unenforceable if it is a penalty out of proportion to the interest protected Correct answer.

Explanation

A clause fixing a sum for breach is enforceable as liquidated damages if it is a genuine pre-estimate of loss. It is an unenforceable penalty if it is extravagant or unconscionable and out of all proportion to the innocent party's legitimate interest. If the clause is a penalty, the innocent party may still claim actual damages.

Question 11Legal principles and the law of contract

A hall is hired for a concert, and before the event an unforeseen fire destroys the hall without fault of either party. Which doctrine is most relevant?

  1. Anticipatory breach, because the owner cannot now perform
  2. Frustration, because performance has become impossible through an unforeseen event Correct answer.
  3. Repudiation, because the hirer may treat the contract as at an end
  4. Rectification, because the written contract no longer reflects the parties' intentions

Explanation

Frustration discharges a contract where an unforeseen event, outside the parties' control and without fault, makes performance impossible or radically different. The parties are released from future obligations, subject to the Law Reform (Frustrated Contracts) Act 1943. It is not a remedy for breach.

Question 12Legal principles and the law of contract

Which statement states the usual aim of an award of damages for breach of contract?

  1. To punish the party in breach in proportion to the seriousness of the breach
  2. To restore the claimant to the position they would have occupied had no contract been made
  3. To place the claimant in the position as if the contract had been performed Correct answer.
  4. To provide the claimant with a profit greater than they would have made under the contract

Explanation

Damages for breach of contract are compensatory and aim to place the claimant in the position they would have occupied had the contract been performed. The claimant must prove loss, mitigate it, and the loss must not be too remote. Punitive damages are not generally available.

Question 13Legal principles and the law of contract

In which situation is an order for specific performance most likely to be available?

  1. A contract where the claimant seeks damages for defective building work
  2. A contract of personal employment where the employee has resigned
  3. A contract for the sale of a unique piece of land that the seller now refuses to convey Correct answer.
  4. A contract for the sale of ordinary consumer goods readily available elsewhere

Explanation

Specific performance is an equitable and discretionary remedy granted where damages would be inadequate. It is commonly ordered for contracts involving land, which is treated as unique. It is not ordered for personal services or where the claimant can readily buy substitute goods.

Question 14Legal principles and the law of contract

A term excluding liability is printed on the back of a delivery note handed to the buyer after the contract was made. What is the likely effect?

  1. The term is not incorporated because it was introduced after the contract was formed Correct answer.
  2. The term is void automatically under the Unfair Contract Terms Act 1975
  3. The term is incorporated because delivery notes are customary in trade
  4. The term is incorporated because it is in writing

Explanation

A term must be incorporated into the contract before or at the time the contract is made. Incorporation may be by signature, by reasonable notice, or by a consistent course of dealing. A document first produced after formation is too late.

Question 15Legal principles and the law of contract

Under the Consumer Rights Act 2015, which statement reflects the treatment of a term in a consumer contract that excludes liability for death or personal injury caused by negligence?

  1. The term is enforceable but only up to the level of the consumer's insurance cover
  2. The term is enforceable if it is written in plain intelligible language
  3. The term is enforceable if the consumer signed the contract
  4. The term is not binding, because such liability cannot be excluded Correct answer.

Explanation

The Consumer Rights Act 2015 prohibits a trader from excluding or restricting liability for death or personal injury resulting from negligence. Such a term is not binding and cannot be justified by fairness or by being in plain language. Similar provision is made for business liability under the Unfair Contract Terms Act 1977.

Question 16Legal principles and the law of contract

A sales assistant employed in a shop sells goods to a customer in the ordinary course of business, although the manager had told staff not to sell that day. Which type of authority binds the shop?

  1. Apparent (ostensible) authority, because the assistant appeared to have authority Correct answer.
  2. No authority, because the assistant disobeyed an instruction
  3. Personal authority, because the assistant acted on their own initiative
  4. Statutory authority, because all employees can bind their employer

Explanation

Apparent or ostensible authority arises where the principal's words or conduct lead a third party to believe the agent has authority to act. The principal is then bound even if the agent's actual authority had been restricted. Undisclosed restrictions on an employee's authority do not generally protect the employer.

Question 17Legal principles and the law of contract

An agent contracts with a third party without disclosing that a principal exists. Which statement best reflects the general position?

  1. Only the principal can be sued, because the agent acted as a mere conduit
  2. The contract is void, because a principal must always be named at formation
  3. Only the agent can be sued, because the principal is not a party to the contract
  4. The third party may generally sue either the agent or the principal once the principal is discovered Correct answer.

Explanation

Where an agent does not disclose the principal, the third party may generally sue either the agent or the principal once the principal is discovered. The principal may also enforce the contract, subject to exceptions such as terms excluding this or contracts of a personal nature. The agent remains liable alongside the principal.

Question 18Legal principles and the law of contract

Both parties contract to sell a painting that, unknown to either, has already been destroyed by fire. What is the likely legal effect at common law?

  1. The contract may be void for common mistake, because the subject matter no longer existed Correct answer.
  2. The contract is frustrated, so the parties must complete on different terms
  3. The contract is voidable at the buyer's option, because only the buyer is mistaken
  4. The contract remains fully enforceable because the seller promised to deliver the painting

Explanation

A common mistake as to the existence of the subject matter at the time of contracting can make the contract void at common law. The rationale is that the parties contracted on a false premise about something fundamental. This differs from frustration, which concerns events occurring after formation.

Question 19Legal principles and the law of contract

Under the Consumer Insurance (Disclosure and Representations) Act 2012, what is the consumer's duty when proposing for insurance?

  1. To disclose every fact that could possibly be relevant to the insurer
  2. To warrant the accuracy of all information by signing a declaration
  3. To take reasonable care to answer the insurer's questions honestly and accurately Correct answer.
  4. To disclose only facts that the insurer asks about in the proposal form

Explanation

Under the Consumer Insurance (Disclosure and Representations) Act 2012, a consumer must take reasonable care to answer the insurer's questions honestly and accurately. There is no general duty to volunteer information the insurer has not requested. The insurer's remedy for a breach depends on whether the misrepresentation was deliberate, reckless or careless.

Question 20Legal principles and the law of contract

Which statement correctly distinguishes a void contract from a voidable contract?

  1. A void contract is valid until one party chooses to end it; a voidable contract never existed
  2. A voidable contract has no legal effect from the outset; a void contract can be set aside
  3. Both void and voidable contracts remain fully enforceable against both parties
  4. A void contract is treated as never having existed; a voidable contract is valid until avoided Correct answer.

Explanation

A void contract has no legal effect and is treated as never having existed. A voidable contract remains valid unless and until the party with the right to rescind elects to do so. Rescission restores the parties broadly to their pre-contract positions.

Question 21Legal principles and the law of contract

Which statement reflects the requirement of insurable interest in a contract of insurance?

  1. The insured must own the subject matter outright at the time of the loss
  2. The insured must have a financial interest equal to the full value of the subject matter
  3. The insured must have a legal or equitable relationship to the subject matter that may be lost Correct answer.
  4. The insured must be named as beneficiary under a trust before cover begins

Explanation

Insurable interest requires a legal or equitable relationship between the insured and the subject matter, such that the insured benefits from its preservation or is prejudiced by its loss. Ownership is not essential; a pecuniary interest can suffice. The interest must generally exist at the time of the loss for indemnity insurance.

Question 22Legal principles and the law of contract

Under the Contracts (Rights of Third Parties) Act 1999, when may a third party enforce a term of a contract?

  1. Only where the third party is a company rather than an individual
  2. Whenever the third party has suffered a loss as a result of the contract
  3. Only where the third party has provided consideration to the promisor
  4. Where the contract expressly allows it or the term purports to benefit them Correct answer.

Explanation

Section 1 of the Contracts (Rights of Third Parties) Act 1999 allows a third party to enforce a term where the contract expressly so provides or the term purports to confer a benefit on them. The third party must be identified by name, description or as a member of a class. The parties may exclude the Act's effect.

Question 23Legal principles and the law of contract

Which statement about the form of a simple contract in England and Wales is correct?

  1. All contracts must be signed by both parties and witnessed
  2. All contracts must be made in writing to be enforceable
  3. Most contracts may be made orally, in writing or by conduct Correct answer.
  4. A contract made by conduct is never legally binding

Explanation

Simple contracts generally require no particular form and may be made orally, in writing or by conduct. Certain contracts must be in writing or evidenced in writing, including contracts for the sale or disposition of land and contracts of guarantee. The requirement is statutory, not a general rule.

Question 24Legal principles and the law of contract

A term in a standard-form business contract allows one party to vary prices unilaterally without notice. Under the Unfair Contract Terms Act 1977, how is the term likely to be assessed in a business-to-business contract?

  1. It is valid because the parties are businesses of equal bargaining power
  2. It is valid because price variation is a core term of the contract
  3. It is subject to the reasonableness test, which may make it unenforceable Correct answer.
  4. It is automatically void because price variation clauses are prohibited

Explanation

The Unfair Contract Terms Act 1977 subjects exclusion and limitation clauses in business contracts to a reasonableness test. Terms that seek to vary obligations, such as unilateral price variation, may also be scrutinised where they form part of standard written terms. The court considers the parties' bargaining positions and whether the term was fair and reasonable.

Question 25Legal principles and the law of contract

A senior employee's contract contains a clause preventing them from working in the same industry anywhere in the world for ten years. What is the likely legal position?

  1. The clause is enforceable because employers may protect their business absolutely
  2. The clause is likely void as an unreasonable restraint of trade Correct answer.
  3. The clause is enforceable because both parties signed the contract freely
  4. The clause is void because all post-employment restrictions are illegal

Explanation

A restraint of trade clause is prima facie void unless it is reasonable in the interests of the parties and the public. Courts consider the legitimate interest protected, the duration and the geographical scope of the restriction. A worldwide ten-year restriction is likely to be unreasonable and therefore unenforceable.

Question 26Legal principles and the law of contract

A shop displays a jacket in its window with a price ticket of £80. A customer asks to buy it at that price. Which statement reflects the legal position?

  1. The display is an invitation to treat, not an offer. Correct answer.
  2. The display is a binding offer that the customer accepts by asking to buy.
  3. The customer's request is an acceptance that forms a contract immediately.
  4. The price ticket creates a unilateral contract with any customer who enters.

Explanation

Goods displayed in a shop are generally treated as an invitation to treat rather than an offer. The customer makes the offer, which the shop is free to accept or refuse. A price ticket does not by itself create a binding contract.

Question 27Legal principles and the law of contract

An offeror states that the offeree's silence will be treated as acceptance if no reply is received within seven days. Which statement is correct at common law?

  1. Silence is acceptance if the offeror says so clearly.
  2. Silence alone cannot normally amount to acceptance. Correct answer.
  3. The offeree must reject the offer to avoid a contract.
  4. Acceptance occurs once seven days pass without objection.

Explanation

Acceptance must generally be communicated to the offeror. Silence does not normally constitute communication of acceptance, even where the offeror states that it will. The offeree is not obliged to reject an offer to prevent a contract arising.

Question 28Legal principles and the law of contract

A contractor completes work and is later promised an extra payment for that same work. Which statement reflects the general rule on consideration?

  1. The later promise is generally unenforceable because the work was past consideration. Correct answer.
  2. The promise is enforceable because the work benefited the promisor.
  3. The promise is enforceable if the extra sum is reasonable.
  4. The later promise creates a new contract automatically.

Explanation

Consideration must generally be given in return for the promise. Work already completed before the promise is made is treated as past consideration and is not sufficient. A later promise to pay for that work is therefore usually unenforceable.

Question 29Legal principles and the law of contract

Two friends agree that one will pay the other £200 if the other stops smoking for a year. Which statement best reflects the usual presumption?

  1. The agreement is binding once one friend begins to perform.
  2. The agreement becomes binding only if written and signed.
  3. The agreement is a binding contract because money is involved.
  4. The agreement is presumed not to be legally binding because it is social. Correct answer.

Explanation

Agreements between friends or family are presumed not to have been intended to create legal relations. The presence of a monetary promise does not by itself remove that presumption. The presumption can be rebutted by evidence of a contrary intention.

Question 30Legal principles and the law of contract

Which statement correctly distinguishes a condition from a warranty in a contract?

  1. A condition is a minor term, while a warranty is a major term.
  2. Only a warranty can be enforced by an order for specific performance.
  3. Breach of a condition allows termination and damages; breach of a warranty allows damages only. Correct answer.
  4. A condition is always implied by statute, while a warranty must be express.

Explanation

A condition is a major term going to the root of the contract, so breach may entitle the innocent party to terminate and claim damages. A warranty is a lesser term, breach of which gives a right to damages but not termination. These labels describe importance, not whether a term is express or implied.

Question 31Legal principles and the law of contract

A business buys a new delivery van from a dealer. Which implied term normally applies under the Sale of Goods Act 1979?

  1. The van must be fit for any purpose the buyer later chooses.
  2. The van must never need repair during its working life.
  3. The van must be of satisfactory quality. Correct answer.
  4. The van must be the best available model of its type.

Explanation

The Sale of Goods Act 1979 implies a term that goods supplied by a business are of satisfactory quality. This concerns durability, safety and freedom from defects, judged by the description, price and relevant circumstances. It does not require the best model or a life free from any repair.

Question 32Legal principles and the law of contract

After a supplier breaches a contract, the buyer can take reasonable steps to reduce the loss. Which principle applies?

  1. The buyer must wait for the supplier to remedy the breach first.
  2. The buyer cannot recover loss that could reasonably have been avoided. Correct answer.
  3. The buyer loses all rights to damages if any steps are taken.
  4. The buyer may recover all losses however avoidable.

Explanation

An innocent party has a duty to mitigate its loss by taking reasonable steps to reduce the consequences of the breach. Loss that could reasonably have been avoided is not recoverable. Taking reasonable steps does not remove the right to damages for unavoidable loss.

Question 33Legal principles and the law of contract

Which statement reflects the principle of indemnity in insurance?

  1. The insured may recover more than the loss if the premium was high.
  2. The insured is restored to the financial position held before the loss. Correct answer.
  3. The insured must always receive a fixed sum on the happening of the event.
  4. The insurer must pay all claims without checking the loss.

Explanation

Indemnity insurance aims to restore the insured to the financial position held immediately before the loss, no better and no worse. It prevents the insured from making a profit from the insured event. The principle applies to indemnity policies rather than to all fixed-sum policies.

Question 34Legal principles and the law of contract

An offer is made by post and states that acceptance must be posted. The offeree posts acceptance, but it is delayed and arrives after the offeror has withdrawn the offer. Which statement is correct?

  1. The contract is formed when the acceptance is posted. Correct answer.
  2. The contract is not formed because the withdrawal came first.
  3. The contract is formed only when the offeror reads the letter.
  4. The contract is formed when the letter is delivered to the offeror.

Explanation

Where post is contemplated as the method of acceptance, the postal rule generally treats acceptance as communicated when the letter is posted. A later withdrawal by the offeror cannot undo an acceptance that has already taken effect. Actual delivery to the offeror is not required under that rule.

Question 35Legal principles and the law of contract

A seller offers to sell a machine for £10,000. The buyer replies that it will buy only if the price is £9,000. The seller refuses. Which statement is correct?

  1. The buyer's reply was a counter-offer that ended the original offer. Correct answer.
  2. The original offer remains open until the buyer accepts it at £10,000.
  3. The buyer's reply was a request for information, so the original offer remains open.
  4. The buyer's reply was an acceptance, so a contract exists at £9,000.

Explanation

A response that seeks to vary the terms of an offer is generally a counter-offer. A counter-offer destroys the original offer, so it cannot later be accepted unless the original offeror renews it. The seller's refusal confirms that no contract was formed.

Question 36Legal principles and the law of contract

A contract states that the price for future deliveries will be 'such price as the parties may later agree'. Which statement best reflects the usual legal position?

  1. The clause is enforceable because the parties intended to be bound.
  2. The clause is enforceable if the parties have traded together before.
  3. The agreement is generally too uncertain to be enforceable on price. Correct answer.
  4. The agreement is enforceable because price is not an essential term.

Explanation

An agreement to agree on a future price is generally too uncertain to be enforced. The law requires sufficient certainty on essential terms, and price is normally essential in a sale contract. Prior dealings do not necessarily cure that uncertainty.

Question 37Legal principles and the law of contract

A buyer signs a written order form containing standard terms on the front, including an exclusion clause. The buyer does not read the terms. Which statement is correct?

  1. The terms are normally incorporated because the buyer signed the document. Correct answer.
  2. The exclusion clause applies only if it was separately initialled.
  3. The exclusion clause is a representation, not a contract term.
  4. The exclusion clause is ineffective because the buyer did not read it.

Explanation

A party who signs a contractual document is generally bound by its terms, whether or not they read or understood them. The signature incorporates the terms into the contract. There is no general requirement for separate initials beside each clause.

Question 38Legal principles and the law of contract

Two businesses have contracted regularly over several years on the same written terms, including a limitation clause. A new order is placed without referring to those terms. Which statement best reflects incorporation by course of dealing?

  1. The terms can never be incorporated unless repeated in the new order.
  2. The terms are incorporated only if a court approves them as fair.
  3. The terms may be incorporated because of the consistent previous dealings. Correct answer.
  4. The terms are incorporated only if the new order is signed by both parties.

Explanation

Terms may be incorporated into a contract by a consistent course of dealing between the parties. The previous dealings must be regular and sufficiently consistent to show that both parties understood the terms to apply. Repeating the terms in every new order is not essential.

Question 39Legal principles and the law of contract

A business contract contains a clause excluding the supplier's liability for death or personal injury caused by its negligence. Which statement reflects the effect of the Unfair Contract Terms Act 1977?

  1. The clause is valid if the contract price reflects the risk.
  2. The clause is void and cannot exclude that liability. Correct answer.
  3. The clause is valid if the supplier gives separate notice of it.
  4. The clause is valid if both parties are businesses of equal bargaining power.

Explanation

The Unfair Contract Terms Act 1977 prohibits a business from excluding liability for death or personal injury caused by negligence. Such a clause is void, not merely subject to a reasonableness test. Equal bargaining power, notice or pricing cannot make it valid.

Question 40Legal principles and the law of contract

An exclusion clause is drafted ambiguously by the party seeking to rely on it. Which rule of interpretation normally applies?

  1. The clause is ignored completely if any ambiguity exists.
  2. The clause is read in favour of the party who drafted it.
  3. The clause is interpreted according to the parties' subjective beliefs.
  4. The ambiguity is resolved against the party relying on the clause. Correct answer.

Explanation

The contra proferentem rule resolves ambiguity in an exclusion clause against the party who drafted it and seeks to rely on it. The clause is not automatically ignored merely because it is ambiguous. Interpretation is based on the natural meaning of the words in context.

Question 41Legal principles and the law of contract

A builder completes a house but leaves some minor defects that can be repaired at modest cost. The owner refuses to pay anything. Which doctrine is relevant?

  1. Substantial performance, so the contract price may be recoverable less repair cost. Correct answer.
  2. Frustration, so the contract is discharged automatically.
  3. Entire performance, so the builder receives nothing until all defects are fixed.
  4. Quantum meruit, so the builder recovers only his actual costs.

Explanation

Where a contract has been substantially performed, the party who performed may recover the contract price subject to a deduction for the cost of remedying minor defects. The doctrine prevents the other party from avoiding payment altogether for trivial shortcomings. It does not apply where performance is incomplete in a substantial way.

Question 42Legal principles and the law of contract

A party states clearly before the performance date that it will not perform its main obligation. Which statement best reflects the innocent party's position?

  1. It must continue performing its own obligations in full.
  2. It can only claim specific performance, not damages.
  3. It may treat the contract as at an end and claim damages. Correct answer.
  4. It must wait until the performance date before taking any action.

Explanation

A clear refusal to perform a main obligation before the performance date can amount to an anticipatory repudiatory breach. The innocent party may accept the breach, treat the contract as at an end and claim damages. It is not generally forced to wait until the performance date.

Question 43Legal principles and the law of contract

A carrier delays delivering a machine part, and the buyer loses profits from a contract that the carrier did not know about. Which test normally limits recovery of the lost profits?

  1. The loss is recoverable if the carrier was paid enough.
  2. The loss is recoverable only if the buyer proves the carrier intended harm.
  3. The loss must be reasonably foreseeable or within the parties' contemplation. Correct answer.
  4. The loss is recoverable if it actually happened.

Explanation

Damages for breach of contract are limited to losses that were reasonably foreseeable at the time of contracting or within the parties' contemplation. Losses outside that scope are too remote. The fact that a loss actually occurred does not by itself make it recoverable.

Question 44Legal principles and the law of contract

An elderly client transfers property to a solicitor who advises her on the transaction. Which statement best reflects the usual presumption of undue influence?

  1. No presumption arises because the client signed voluntarily.
  2. Undue influence is presumed unless the solicitor rebuts it. Correct answer.
  3. The transaction is automatically void whatever the solicitor proves.
  4. The client must prove actual physical coercion.

Explanation

Where there is a relationship of trust and confidence and a transaction calls for explanation, undue influence may be presumed. The burden then falls on the solicitor to rebut the presumption, for example by showing independent advice. The transaction is not automatically void regardless of the evidence.

Question 45Legal principles and the law of contract

An agent contracts with a third party without authority, but the principal later approves the contract. Which statement best reflects ratification?

  1. The principal's approval has no effect because authority was missing at the time.
  2. The agent remains solely liable and the principal cannot be bound.
  3. The third party must agree to release the agent before the principal is bound.
  4. The principal may ratify the contract and become bound as if authorised. Correct answer.

Explanation

Ratification occurs when a principal approves an act done without authority. The effect is to treat the contract as if the agent had been authorised from the outset. The principal can then enforce the contract and is bound by it.

Question 46Legal principles and the law of contract

A creditor agrees to accept part payment of a debt on the day it is due, with the balance to be paid later. The debtor pays the reduced sum. Which statement reflects the common law rule in Foakes v Beer?

  1. The agreement is binding because part payment is always good consideration.
  2. The agreement is binding because the debtor relied on it.
  3. The agreement is not supported by consideration, so the balance remains due. Correct answer.
  4. The agreement is binding if the creditor signs a receipt marked 'full settlement'.

Explanation

At common law, a promise to accept part payment of an existing debt is not supported by consideration because the debtor has done no more than it was already bound to do. The balance therefore remains due. A receipt marked full settlement does not by itself supply consideration.

Question 47Legal principles and the law of contract

A creditor tells a debtor that it will not enforce repayment for six months, intending the debtor to rely on that statement. The debtor relies on it. Which statement best reflects promissory estoppel?

  1. It may prevent the creditor from enforcing its strict rights during that period. Correct answer.
  2. It creates a new binding contract to vary the debt.
  3. It applies only if the debtor gave fresh consideration.
  4. It permanently extinguishes the debt.

Explanation

Promissory estoppel may prevent a party from going back on a clear promise or representation where the other party has relied on it. It generally suspends rather than extinguishes the creditor's rights. It can operate without fresh consideration.

Question 48Legal principles and the law of contract

A seller is tricked into selling goods to a rogue who pretends to be a different person. The rogue sells the goods to an innocent buyer. Which statement best reflects the usual position in a face-to-face sale?

  1. The innocent buyer always obtains good title because the rogue had possession.
  2. The seller can recover the goods from the innocent buyer in all cases.
  3. The contract with the rogue is automatically void for mistake.
  4. The contract with the rogue is generally voidable for fraud, not void for mistake. Correct answer.

Explanation

In a face-to-face sale, the law generally presumes that the seller intends to deal with the person physically present. A mistake about that person's identity usually makes the contract voidable for fraud rather than void for mistake. Because the contract is voidable, an innocent third party may acquire good title before it is avoided.

Question 49Legal principles and the law of contract

A party to a contract wants to assign its right to receive payment to a third party. Which statement reflects the general rule on assignment of contractual rights?

  1. All contractual rights can be assigned without any formalities.
  2. Rights can never be assigned because of privity of contract.
  3. An assignment is valid only if the other party consents.
  4. Rights may be assigned, but burdens generally cannot be assigned without consent. Correct answer.

Explanation

Contractual rights can generally be assigned to a third party, subject to statutory formalities and any contractual restriction. Contractual burdens, by contrast, cannot generally be transferred without the other party's consent. Privity does not prevent the assignment of benefits.

Question 50Legal principles and the law of contract

A simple contract claim is brought in England and Wales. What is the usual limitation period for breach of contract?

  1. Three years from the date of breach.
  2. One year from the date of breach.
  3. Twelve years from the date of breach.
  4. Six years from the date of breach. Correct answer.

Explanation

Under the Limitation Act 1980, the usual limitation period for a simple contract is six years from the date the cause of action arises. Twelve years generally applies to contracts made by deed. Shorter or longer periods may apply in special cases, but six years is the standard for simple contracts.