IILEX Legal Executive practice questions

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Question 1Legal Systems, Sources of Law and Court Structure

Which court in England and Wales is the court of first instance for the most serious criminal cases, such as murder and manslaughter?

The Court of Appeal (Criminal Division)
The Magistrates' Court
The Crown Court Correct answer.
The High Court (King's Bench Division)

Explanation

The Crown Court is the senior first-instance criminal court, trying indictable-only offences such as murder, manslaughter and rape before a judge and jury. It also hears sentencing and appeals from magistrates. The other courts listed are appellate or lower courts.

Question 2Legal Systems, Sources of Law and Court Structure

Under the doctrine of precedent, which court's decisions bind the High Court in England and Wales?

The County Court
The Magistrates' Court
The Crown Court
The Court of Appeal Correct answer.

Explanation

Binding precedent flows downward in the hierarchy: decisions of the Court of Appeal bind the High Court, while lower courts such as the Crown Court and County Court do not create binding authority for the High Court.

Question 3Legal Systems, Sources of Law and Court Structure

Which source of law takes precedence where an Act of Parliament conflicts with a later decision of the courts?

The judicial decision, because of the doctrine of stare decisis
The judicial decision, because courts interpret statutes
The Act of Parliament, because of parliamentary sovereignty Correct answer.
The Act of Parliament, but only where it is a public general Act

Explanation

Parliamentary sovereignty means an Act of Parliament is the highest form of law and cannot be overridden by the courts. Courts interpret and apply statutes but cannot strike them down, and stare decisis governs precedent, not the ranking of statute against case law.

Question 4Legal Systems, Sources of Law and Court Structure

Which type of European Union instrument was directly applicable in UK law without further domestic implementation during the UK's membership?

An EU Directive
A recommendation
An opinion
An EU Regulation Correct answer.

Explanation

EU Regulations were directly applicable in member states and became part of UK law without implementing legislation. Directives, by contrast, required transposition into national law, and recommendations and opinions have no binding force.

Question 5Legal Systems, Sources of Law and Court Structure

The County Court in England and Wales has jurisdiction to hear which of the following?

Appeals from the Crown Court
Most civil claims, including contract and tort cases within financial limits Correct answer.
Indictable-only criminal offences
Applications for judicial review of public bodies

Explanation

The County Court is the principal civil first-instance court, dealing with contract, tort, housing and similar claims. Indictable crime belongs to the Crown Court, Crown Court appeals go to the Court of Appeal, and judicial review is a function of the Administrative Court.

Question 6Legal Systems, Sources of Law and Court Structure

Which of the following best describes the role of equity as a source of law in England and Wales?

A set of rules applied only in the criminal courts
A body of principles developed to mitigate the rigidity of the common law, now applied alongside it Correct answer.
A modern statute codifying all common law remedies
A system of local customary rules that override statute

Explanation

Equity developed historically through the Court of Chancery to provide remedies such as injunctions and specific performance where the common law was inflexible. Since the Judicature Acts, common law and equity are administered together, with equity prevailing in conflict.

Question 7Legal Systems, Sources of Law and Court Structure

A magistrates' court declines jurisdiction over an either-way offence and sends the defendant to the Crown Court. Which statement correctly describes the Crown Court's position?

It must refer the case to the Court of Appeal before trial
It may only sentence and cannot conduct a trial
It must remit the case back to the magistrates for trial
It may proceed to trial and may also sentence more severely than the magistrates' powers allow Correct answer.

Explanation

Where a case is sent to the Crown Court for trial, that court has full jurisdiction to try the offence and to impose a sentence up to the statutory maximum for the offence, exceeding magistrates' sentencing limits. Remittal is not mandatory and no appellate authorisation is required.

Question 8Legal Systems, Sources of Law and Court Structure

Which court has the power to quash a decision of a public body for error of law through judicial review in England and Wales?

The Administrative Court Correct answer.
The Crown Court
The Court of Appeal (Criminal Division)
The County Court

Explanation

Judicial review of public law decisions is heard by the Administrative Court, part of the King's Bench Division of the High Court. It can quash unlawful decisions, grant declarations and injunctions, and order mandatory relief.

Question 9Legal Systems, Sources of Law and Court Structure

Which of the following is an example of delegated (subordinate) legislation?

A Practice Direction issued by the courts
A decision of the Supreme Court
A statutory instrument made by a minister under powers in a parent Act Correct answer.
An Act of Parliament passed by both Houses

Explanation

Delegated legislation is law made by a body other than Parliament, typically a minister, local authority or other body, under authority granted by a parent Act. Statutory instruments are the most common form and are subject to parliamentary scrutiny procedures.

Question 10Legal Systems, Sources of Law and Court Structure

A lower court is faced with a Court of Appeal decision that is indistinguishable on the facts but which it considers wrongly decided. What is the lower court required to do?

Treat the decision as merely persuasive
Follow the Court of Appeal decision, as it is binding precedent Correct answer.
Decline to decide until the Supreme Court rules
Overrule the Court of Appeal decision

Explanation

Under stare decisis, a court lower in the hierarchy must follow decisions of a superior court on materially similar facts, even if it doubts their correctness. Only a higher court, or the same court in limited circumstances, can depart from precedent.

Question 11Legal Systems, Sources of Law and Court Structure

Which statement correctly distinguishes ratio decidendi from obiter dicta?

The ratio is the legal principle essential to the decision and binds lower courts; obiter remarks are not binding Correct answer.
The ratio is any comment made by the judge; obiter is the formal order of the court
Both are equally binding on lower courts
The ratio binds only the parties; obiter binds all courts

Explanation

The ratio decidendi is the reasoning on which the decision rests and forms binding precedent for lower courts. Obiter dicta are incidental remarks that may be persuasive but do not bind.

Question 12Legal Systems, Sources of Law and Court Structure

Which of the following describes the effect of section 3 of the Human Rights Act 1998 on statutory interpretation?

Courts must refer all incompatible legislation to the European Court of Human Rights
Courts may ignore statutes that conflict with Convention rights
Courts must strike down any Act incompatible with Convention rights
Courts must read and give effect to legislation compatibly with Convention rights so far as it is possible to do so Correct answer.

Explanation

Section 3 imposes a strong interpretive duty on courts to read legislation compatibly with Convention rights where possible. Where that is not possible, section 4 allows a declaration of incompatibility, but courts cannot strike down Acts.

Question 13Legal Systems, Sources of Law and Court Structure

Which rule of statutory interpretation permits a court to look beyond the plain meaning of words to avoid an absurd result?

The literal rule
The ejusdem generis rule
The mischief rule
The golden rule Correct answer.

Explanation

The golden rule starts from the ordinary meaning of words but allows modification where that meaning would produce an absurd or repugnant result. The literal rule adheres to the ordinary meaning regardless of outcome.

Question 14Legal Systems, Sources of Law and Court Structure

Which of the following best explains the status of the Supreme Court of the United Kingdom in relation to its own previous decisions?

It is bound absolutely by all its previous decisions
It may only depart from decisions made before 2009
It may depart from its own earlier decisions where it appears right to do so, following the practice of the Appellate Committee Correct answer.
It can only depart where Parliament authorises it

Explanation

The Supreme Court inherited the House of Lords' Practice Statement of 1966, which allows departure from its own precedents when it appears right to do so, while ordinarily maintaining certainty. This flexibility is exceptional rather than routine.

Question 15Legal Systems, Sources of Law and Court Structure

A company wishes to challenge a local authority's grant of planning permission on the ground that the authority failed to consider a mandatory statutory factor. Which court and procedure are appropriate?

An appeal to the Court of Appeal (Criminal Division)
Judicial review in the Administrative Court Correct answer.
A claim in the County Court for breach of contract
A criminal prosecution in the Crown Court

Explanation

An allegation that a public body failed to consider a mandatory relevant factor is a public law error reviewable by judicial review in the Administrative Court. The claim must be brought promptly and within the time limit in the Civil Procedure Rules.

Question 16Legal Systems, Sources of Law and Court Structure

In the hierarchy of the courts of England and Wales, which court ranks immediately below the Supreme Court?

The Crown Court
The Court of Appeal Correct answer.
The High Court
The County Court

Explanation

The Court of Appeal sits directly beneath the Supreme Court, hearing appeals from the High Court and Crown Court. The High Court is below the Court of Appeal, followed by the Crown Court and County Court.

Question 17Legal Systems, Sources of Law and Court Structure

A statute uses the general phrase 'and other animals' after listing 'dogs, cats and horses'. Which interpretive maxim would confine 'other animals' to domestic animals of the same class?

Ejusdem generis Correct answer.
Contra proferentem
Noscitur a sociis
Expressio unius est exclusio alterius

Explanation

Ejusdem generis confines general words following a list of specific items to things of the same kind or class. Here the specific examples of domestic animals would limit the general phrase to similar animals.

Question 18Legal Systems, Sources of Law and Court Structure

Which statement correctly describes the effect of a declaration of incompatibility under section 4 of the Human Rights Act 1998?

It automatically invalidates the incompatible provision
It requires the courts to refuse to apply the provision
It obliges the government to legislate within a fixed statutory deadline
It does not affect the validity of the legislation, but it may prompt Parliament to amend the law Correct answer.

Explanation

A declaration of incompatibility signals that primary legislation conflicts with a Convention right but leaves the statute valid and enforceable. It is addressed to Parliament, which may choose to amend the law; there is no automatic invalidity or fixed timetable.

Question 19Legal Systems, Sources of Law and Court Structure

Which of the following is the principal distinction between primary and delegated legislation in the UK constitution?

Primary legislation is enacted by Parliament under its sovereign authority, while delegated legislation derives its force from powers conferred by a parent Act Correct answer.
Primary legislation is subject to judicial review for ultra vires, while delegated legislation is not
Primary legislation is made by ministers, while delegated legislation is made by Parliament
Primary legislation is always subordinate to delegated legislation made under it

Explanation

Primary legislation is enacted by Parliament and enjoys sovereign status, whereas delegated legislation is made under authority granted by a parent Act and can be challenged as ultra vires if it exceeds those powers. Delegated legislation is subordinate, not superior, to its parent Act.

Question 20Legal Systems, Sources of Law and Court Structure

A court is considering whether a decision of the Grand Chamber of the European Court of Human Rights binds it under the Human Rights Act 1998. Which statement is correct?

Strasbourg jurisprudence has no relevance to UK statutory interpretation
Grand Chamber judgments are directly binding on all UK courts as precedent
Only judgments against the United Kingdom must be taken into account
Section 2 requires courts to take into account relevant Strasbourg jurisprudence, but they are not strictly bound by it Correct answer.

Explanation

Section 2 of the Human Rights Act 1998 requires courts to take into account relevant judgments, decisions, declarations and advisory opinions of the Strasbourg institutions when determining Convention questions, but they are not formally bound. UK courts may decline to follow Strasbourg where they consider it clearly wrong.

Question 21Contract Law and Commercial Transactions

Under common law, which element is required for a contract to be legally binding but is generally absent from a mere gratuitous promise?

Writing
Capacity
Consideration Correct answer.
Offer

Explanation

A gratuitous promise lacks consideration, which is the bargained-for exchange that makes a promise enforceable at common law. Offer, capacity, and form may be present, but without consideration an informal gratuitous promise is generally unenforceable.

Question 22Contract Law and Commercial Transactions

A company emails a supplier: 'We will buy 500 units at $20 each, delivery by 1 June.' The supplier replies: 'Accepted, but delivery will be 15 June.' Under the mirror image rule, what is the legal effect of the supplier's reply?

It is an acceptance because the price and quantity are unchanged.
It operates as a counter-offer that rejects the original offer. Correct answer.
It is a mere request for information with no legal effect.
It forms a binding contract on the original delivery date.

Explanation

The mirror image rule requires acceptance to match the offer exactly; a purported acceptance that varies a term is a counter-offer. Because a counter-offer rejects the original offer, no contract forms on the original terms unless the buyer accepts the new delivery date.

Question 23Contract Law and Commercial Transactions

Which statutory provision generally requires certain contracts for the sale of goods over a stated value to be evidenced in writing?

The Statute of Frauds Correct answer.
The doctrine of promissory estoppel
The parol evidence rule
The doctrine of frustration

Explanation

The Statute of Frauds, in its various forms, requires specified contracts, including many sales of goods above a threshold value, to be evidenced in writing and signed. Estoppel, the parol evidence rule, and frustration address different issues and do not impose a writing requirement.

Question 24Contract Law and Commercial Transactions

A buyer and seller sign a written supply agreement containing an integration clause. Before signing, the seller orally promised free installation. The buyer now claims free installation. Under the parol evidence rule, what is the likely result?

The oral promise is admissible because it induced the contract.
The oral promise is admissible only if the buyer can prove it in writing.
The oral promise overrides the written terms as a prior agreement.
The oral promise is inadmissible to vary the integrated written agreement. Correct answer.

Explanation

An integration or merger clause indicates the writing is the complete agreement, so prior or contemporaneous oral terms cannot be used to add to or contradict it. The parol evidence rule therefore generally excludes the earlier installation promise.

Question 25Contract Law and Commercial Transactions

Which remedy places the innocent party in the position it would have occupied had the contract been performed, rather than restoring its pre-contract position?

Specific performance
Rescission
Expectation damages Correct answer.
Restitution

Explanation

Expectation damages aim to put the claimant in the position it would have been in had the contract been performed. Rescission and restitution focus on restoring the pre-contract position, while specific performance compels performance rather than awarding a monetary equivalent.

Question 26Contract Law and Commercial Transactions

A seller agrees to deliver goods by 1 May but delivers on 1 July, causing the buyer to lose a resale profit. Which type of loss does the lost resale profit represent?

Consequential loss Correct answer.
Direct loss
Reliance loss
Restitutionary loss

Explanation

Consequential loss is loss beyond the immediate difference in value, arising from the claimant's particular circumstances, such as a lost sub-sale. Direct loss is the ordinary difference in value, while reliance and restitutionary measures address expenditure and benefits conferred.

Question 27Contract Law and Commercial Transactions

Which principle limits recovery of damages to losses that were reasonably foreseeable at the time the contract was made?

The rule in Hadley v Baxendale Correct answer.
The contra proferentem rule
The doctrine of promissory estoppel
The nemo dat rule

Explanation

Hadley v Baxendale establishes that damages are recoverable for losses arising naturally from the breach or for losses within the contemplation of both parties when contracting. This foreseeability principle limits remote losses.

Question 28Contract Law and Commercial Transactions

A buyer agrees to pay $10,000 on delivery. The buyer pays $2,000 and refuses to pay the balance. Which term describes the buyer's failure to perform?

Minor breach
Frustration
Material breach Correct answer.
Anticipatory repudiation

Explanation

A material breach is a substantial failure to perform that defeats the purpose of the contract and entitles the innocent party to damages and possibly termination. Here the buyer's refusal to pay most of the price is a substantial failure.

Question 29Contract Law and Commercial Transactions

Which of the following is an exclusion clause that a court may refuse to enforce if it is unreasonable under applicable unfair contract terms legislation?

A clause selecting the governing law
A clause requiring written notice of claims
A clause specifying the delivery address
A clause limiting liability to the contract price Correct answer.

Explanation

Limitation and exclusion clauses are subject to statutory controls on unfair terms and may be unenforceable if unreasonable. The other options are ordinary operational or choice-of-law provisions not typically treated as exclusion clauses.

Question 30Contract Law and Commercial Transactions

A party seeks to rely on a force majeure clause to excuse non-performance. Which factor is most important in determining whether the clause applies?

Whether the event was foreseeable at the time of contracting
Whether the event falls within the clause's defined events and prevents performance Correct answer.
Whether the other party suffered any loss
Whether the contract was in writing

Explanation

A force majeure clause applies only if the event falls within the events defined in the clause and has the required effect on performance, such as prevention or delay. Foreseeability, loss, and form are not the primary tests under the clause.

Question 31Contract Law and Commercial Transactions

A contract states that time is 'of the essence' for delivery. The seller delivers three days late. What is the buyer's most likely right?

The buyer may only claim nominal damages.
The buyer may terminate the contract for the late delivery. Correct answer.
The buyer must accept the goods and cannot claim damages.
The buyer must extend the delivery date automatically.

Explanation

Where time is of the essence, failure to deliver on time is a breach that entitles the innocent party to terminate and claim damages. The buyer is not obliged to accept late performance or extend time.

Question 32Contract Law and Commercial Transactions

Which doctrine may prevent a party from enforcing its strict legal rights where it has made a clear promise not to do so and the other party has relied on that promise?

Promissory estoppel Correct answer.
Frustration
Set-off
Novation

Explanation

Promissory estoppel can prevent a party from going back on a clear promise where the other party relied on it, often used as a defence. Frustration discharges contracts, novation replaces a party, and set-off nets mutual debts.

Question 33Contract Law and Commercial Transactions

A contract contains a clause: 'The seller shall not be liable for any loss arising from late delivery.' The buyer suffers a large loss from late delivery. Which approach will a court take first?

It will interpret the clause strictly and consider statutory controls on unfair terms. Correct answer.
It will automatically strike out the clause as void.
It will rewrite the clause to make it fair.
It will ignore the clause because late delivery is a breach.

Explanation

Courts first construe exclusion clauses strictly, often against the drafter, and then apply statutory controls on unfair or unreasonable terms. They do not automatically void such clauses or rewrite them.

Question 34Contract Law and Commercial Transactions

Which of the following best describes the effect of a condition precedent in a commercial contract?

It postpones the parties' obligations until a specified event occurs. Correct answer.
It discharges the contract automatically on breach.
It requires all disputes to be arbitrated.
It transfers risk of loss to the buyer.

Explanation

A condition precedent makes the coming into force of obligations depend on the occurrence of a specified event. It does not automatically discharge for breach, allocate risk of loss, or mandate arbitration.

Question 35Contract Law and Commercial Transactions

A seller agrees to sell 'all the oil we produce from our field' to a buyer. Which term describes this type of agreement?

A sale on approval
An output contract Correct answer.
A requirements contract
A consignment

Explanation

An output contract obliges the seller to sell all of a particular output to the buyer. A requirements contract is the mirror image, where the buyer agrees to buy all it requires from the seller.

Question 36Contract Law and Commercial Transactions

Under a requirements contract, which obligation limits the buyer's freedom to reduce its orders?

The buyer must order the seller's entire output.
The buyer must order in good faith and not demand less than a reasonably anticipated amount. Correct answer.
The buyer may order any amount at any time.
The buyer must pay a penalty for every reduced order.

Explanation

Requirements contracts imply a good faith limitation: the buyer cannot suddenly reduce requirements to an unreasonably small amount or demand an unreasonable increase. The buyer is not free to order arbitrarily, and no automatic penalty applies.

Question 37Contract Law and Commercial Transactions

Which of the following is a key difference between a contract of sale and a contract for work and materials?

A sale is always governed by consumer law, while work and materials is not.
A sale cannot include services, while work and materials can.
A sale transfers ownership of goods, while work and materials involves labour with incidental goods. Correct answer.
A sale requires writing, while work and materials does not.

Explanation

The distinction turns on the substance of the transaction: a sale transfers property in goods, whereas a work and materials contract is predominantly for labour or services with goods supplied incidentally. Writing and consumer law do not define the distinction.

Question 38Contract Law and Commercial Transactions

A buyer discovers that goods delivered are defective. Which implied term is most directly engaged where the seller sells goods in the course of business?

That the contract is governed by the seller's law
That the goods are of satisfactory quality Correct answer.
That the buyer has good title
That the price is reasonable

Explanation

In a business sale, goods must be of satisfactory quality, taking account of description, price, and relevant circumstances. Good title is a separate implied term, and governing law and price reasonableness are not the applicable implied quality terms.

Question 39Contract Law and Commercial Transactions

A buyer agrees to purchase goods 'subject to satisfactory inspection'. The buyer inspects and rejects the goods in good faith. What is the legal position?

The buyer's rejection is valid because the condition was not satisfied. Correct answer.
The seller may compel the buyer to accept the goods.
The buyer has breached the contract by rejecting the goods.
The contract never existed and no obligations arose.

Explanation

Where acceptance depends on a condition such as satisfactory inspection, the buyer may reject in good faith if the condition is not met. The buyer is not in breach, and the seller cannot compel acceptance contrary to the condition.

Question 40Contract Law and Commercial Transactions

Which type of contract term is essential to the contract's existence, so that breach entitles the innocent party to terminate?

A warranty
An innominate term
A condition Correct answer.
A representation

Explanation

A condition is an essential term; its breach gives the innocent party the right to terminate and claim damages. A warranty is a lesser term, and an innominate term's effect depends on the seriousness of the breach.

Question 41Contract Law and Commercial Transactions

A supplier includes a clause stating: 'Our liability for any breach is limited to the price paid.' The buyer suffers a loss greater than the price. What is the effect if the clause is valid?

The supplier is liable for the full loss suffered.
The clause is automatically void for limiting liability.
The supplier has no liability at all.
The supplier's liability is capped at the price paid. Correct answer.

Explanation

A valid limitation clause caps the supplier's liability at the stated amount, here the price paid. It does not eliminate liability entirely, and it is not automatically void; validity depends on interpretation and statutory controls.

Question 42Contract Law and Commercial Transactions

Which of the following events is most likely to amount to frustration of a contract?

A party's supplier increases its prices unexpectedly.
A party decides it no longer wishes to perform.
The subject matter of the contract is destroyed by an unforeseen fire. Correct answer.
A change in market conditions makes performance less profitable.

Explanation

Frustration occurs where an unforeseen event, outside the parties' control, makes performance impossible or radically different. Destruction of the subject matter is a classic example, whereas changed intentions, market conditions, or supplier prices do not generally frustrate a contract.

Question 43Contract Law and Commercial Transactions

A contract contains an arbitration clause. One party sues in court instead. What is the usual effect of the arbitration clause?

The court will transfer the case to the other party's chosen arbitrator.
The arbitration clause is void because litigation is a fundamental right.
The court will generally stay the proceedings in favour of arbitration. Correct answer.
The court will automatically hear the case.

Explanation

A valid arbitration clause is binding, and courts will generally stay or dismiss court proceedings brought in breach of it. The clause is not void, and the court does not automatically hear the case or select an arbitrator.

Question 44Contract Law and Commercial Transactions

A buyer and seller agree that the buyer will pay a deposit of 10% and the balance on delivery. The buyer pays the deposit but fails to pay the balance. Which statement best describes the seller's position regarding the deposit?

The seller may retain the deposit as agreed or claim damages, subject to the terms. Correct answer.
The seller must return the deposit and sue for the full price only.
The seller must always refund the deposit in full.
The seller may retain the deposit and also claim a penalty.

Explanation

A deposit is generally forfeitable on the buyer's default, subject to the contract terms and any statutory control. The seller may retain it or claim damages but cannot also recover a penalty, which is unenforceable.

Question 45Contract Law and Commercial Transactions

Which of the following best describes a 'liquidated damages' clause?

A clause excluding all liability for breach.
A clause allowing either party to terminate at will.
A clause specifying a genuine pre-estimate of loss for breach. Correct answer.
A clause imposing a punishment for breach.

Explanation

Liquidated damages clauses specify a genuine pre-estimate of loss and are enforceable, unlike penalties that punish breach. They do not exclude liability entirely or create a right to terminate at will.

Question 46Contract Law and Commercial Transactions

In a commercial supply agreement, the parties include a clause providing that no variation of the contract is effective unless recorded in a written instrument signed by both parties. Which statement best describes the legal effect of this clause?

It automatically renders void any later oral agreement, because written-form clauses cannot be waived once signed.
It converts the contract into a deed, so that consideration is no longer required for any future variation.
It is generally effective between the parties as a contractual requirement, though it may be overridden by a later oral agreement or by estoppel in appropriate circumstances. Correct answer.
It has no legal effect at all, since parties can always vary a contract orally regardless of what they have agreed.

Explanation

A no-oral-modification clause is itself a contract term and is generally upheld between commercial parties, but it is not absolute: a later oral agreement, or a representation or course of dealing giving rise to estoppel, can defeat reliance on it. It does not void the original contract or change its formal status as a simple contract.

Question 47Contract Law and Commercial Transactions

A commercial tenant pays rent monthly for two years while the landlord accepts a lower sum than the lease requires, without any reservation of rights. The landlord later demands the full arrears for the past period. Which doctrine is most directly relevant to the tenant's position?

Restraint of trade, because the reduced rent operates as an unlawful price-fixing arrangement.
Waiver by estoppel, because the landlord's consistent acceptance of the lesser sum may have led the tenant to believe the strict right would not be enforced. Correct answer.
Frustration, because the change in payment amount made performance of the original lease impossible.
Privity of contract, because only the original parties to the lease can ever enforce its terms.

Explanation

Where one party clearly leads the other to believe strict contractual rights will not be enforced, and the other acts on that belief, the first party may be prevented from later insisting on those rights. Mere acceptance of a lesser sum does not automatically extinguish the debt, but the estoppel analysis governs whether the arrears can be recovered.

Question 48Contract Law and Commercial Transactions

A buyer and seller sign a contract for the supply of machine parts. Before delivery, the seller transfers its entire business, including the contract, to a new company, which then delivers conforming parts. The buyer refuses to pay the new company. Which statement is the strongest basis for the buyer's refusal?

The buyer may refuse because only a court can approve the transfer of a commercial contract to another business.
The new company is automatically bound because a transfer of business assets transfers all contractual rights and duties by operation of law.
A party cannot assign its obligations under a contract without the other party's consent, so the new company cannot compel payment unless the buyer agreed to the substitution. Correct answer.
The buyer may refuse because the parts were delivered late, regardless of whether the delay caused any loss.

Explanation

Rights under a contract can generally be assigned, but obligations cannot be delegated without the other party's consent, because the identity and credit of the performing party matter. A purported transfer of duties therefore does not bind the buyer unless it agrees, though the original seller remains liable.

Question 49Contract Law and Commercial Transactions

Which statement best describes the role of consideration in a commercial contract?

Consideration must always be adequate, meaning it must reflect the full market value of what is received.
Past consideration is generally sufficient to support a fresh promise to pay for earlier services.
Each party must provide something of value that is bargained for in exchange for the other's promise. Correct answer.
Consideration is unnecessary whenever the agreement is recorded in writing and signed by both parties.

Explanation

Consideration is the price of a promise: something of value, whether a benefit to the promisor or a detriment to the promisee, that is given in exchange for the other side's undertaking. The law requires consideration to be sufficient but not adequate, so the parties are free to strike their own bargain.

Question 50Contract Law and Commercial Transactions

A clause in a commercial contract states: 'The parties agree that the sum of $50,000 payable on late completion represents a genuine pre-estimate of the loss likely to be suffered.' Which factor is most important in deciding whether the clause is enforceable as liquidated damages?

Whether the contract was negotiated between two commercial parties of unequal bargaining power.
Whether the parties expressly labelled the sum as a pre-estimate of loss in the contract.
Whether the actual loss ultimately suffered by the innocent party exceeds the stated sum.
Whether the sum is a genuine attempt to estimate probable loss at the time of contracting, rather than a penalty designed to deter breach. Correct answer.

Explanation

The enforceability of a liquidated damages clause turns on whether the sum is a genuine attempt to estimate probable loss at the time the contract was made, not on the label the parties attached to it. A sum that is extravagant or unconscionable compared with the greatest conceivable loss may be struck down as a penalty.