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FE-1 Law of Contract study materials
FE-1 Law of Contract study resources

FE-1 Law of Contract practice questions

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Question 1Law of Contract

In the law of contract, which element is constituted by each party giving something of value in exchange for the other party's promise?

  1. Consideration Correct answer.
  2. Capacity
  3. Intention to create legal relations
  4. Offer

Explanation

Consideration is the price paid for a promise; each party must provide something of value, whether a benefit to the promisor or a detriment to the promisee. Offer, intention and capacity are separate formation requirements and do not describe the exchange itself.

Question 2Law of Contract

A written promise to pay £500 to a named charity 'because I admire your work' is made without any request from the charity. Which characteristic of consideration does this promise most directly lack?

  1. Performance of an existing duty cannot be consideration
  2. Past consideration is not good consideration
  3. Consideration must be sufficient but need not be adequate
  4. Consideration must move from the promisee Correct answer.

Explanation

Consideration must be supplied by the person to whom the promise is made; a stranger to the bargain cannot enforce it. Here the charity gave nothing in return for the promise, so the promisee furnished no consideration. The other listed rules address value, timing or pre-existing duties rather than the identity of the provider.

Question 3Law of Contract

Which statement correctly describes the postal rule for acceptance?

  1. Acceptance is complete when the letter is delivered to the offeror's address
  2. Acceptance is complete when the letter is posted, provided it is properly addressed and the parties contemplate post as a means of acceptance Correct answer.
  3. The postal rule applies to all acceptances regardless of the means of communication used
  4. Acceptance is complete only when the offeror actually reads the letter

Explanation

Under the postal rule, acceptance takes effect on posting rather than on receipt, but only where post is a contemplated and reasonable method and the letter is properly addressed. The rule is an exception to the general receipt principle and does not extend to instantaneous communications such as telephone or email.

Question 4Law of Contract

An offeror states that an offer will remain open for seven days. Before that period expires, the offeror dies and the offeree, unaware of the death, posts an acceptance. Which statement best reflects the position at common law?

  1. The offer remains fully enforceable because the seven-day period has not expired
  2. The offer lapses on death only if the offeree knows of the death, and a personal offer generally lapses regardless Correct answer.
  3. The offer is automatically revoked at the moment of death in every case
  4. The acceptance is void because a dead person cannot be an offeror

Explanation

Death does not automatically terminate an offer; the offeree's knowledge matters, and offers involving personal performance lapse on death because the deceased can no longer perform. Where the offeree accepts in ignorance of the death, the outcome depends on whether the contract was of a personal nature.

Question 5Law of Contract

Which of the following is generally treated as an invitation to treat rather than an offer?

  1. A display of goods on a supermarket shelf with a price tag Correct answer.
  2. A statement that the seller will sell to the first person to accept by a stated deadline
  3. A tender submitted in response to a request for tenders
  4. A signed written promise to sell a named car for a stated sum

Explanation

Goods displayed in a shop are ordinarily an invitation to treat; the customer makes the offer at the till and the retailer accepts it. A definite promise to sell on stated terms, a time-limited promise and a submitted tender are all capable of being offers.

Question 6Law of Contract

A company advertises that it will pay £100 to anyone who uses its product as directed and still catches influenza. A customer does so and catches influenza. Which analysis best explains the company's liability?

  1. The customer's performance is past consideration and cannot support the promise
  2. The advertisement is a mere puff and creates no legal obligation
  3. The advertisement is a unilateral offer accepted by performance of the stated conditions Correct answer.
  4. The advertisement is an invitation to treat and the customer's use is an offer

Explanation

An advertisement promising a reward for performance of specified conditions can be a unilateral offer, accepted by full performance of those conditions. The company's promise becomes binding once the customer completes the stipulated act, without any prior notification of acceptance being required.

Question 7Law of Contract

Which statement accurately states the requirement of intention to create legal relations in domestic and social arrangements?

  1. Intention is irrelevant because consideration alone determines enforceability
  2. The presumption is that legal relations were intended unless the agreement is in writing
  3. There is a rebuttable presumption that the parties did not intend to create legal relations Correct answer.
  4. There is an irrebuttable presumption that such arrangements are legally binding

Explanation

Agreements between family members or friends are presumed not to be legally binding, but the presumption can be rebutted by evidence of contrary intention. Commercial agreements attract the opposite presumption, which is likewise rebuttable.

Question 8Law of Contract

A husband and wife agree that the husband will transfer the family home into joint names in return for the wife continuing to maintain the household. Later the husband refuses to transfer. Which approach best reflects the modern judicial treatment of such an arrangement?

  1. The domestic presumption is conclusive, so the agreement can never be enforced
  2. The agreement is enforceable only if it is executed as a deed
  3. The agreement is void because spouses cannot contract with each other
  4. The court examines the objective evidence and conduct to decide whether the parties intended legal consequences, the domestic presumption being rebuttable Correct answer.

Explanation

The domestic presumption against intention is rebuttable, and courts assess the parties' objective intentions in light of the subject matter and their conduct. Where the arrangement concerns significant property rights, the presumption may readily be displaced.

Question 9Law of Contract

Which of the following contracts must be evidenced in writing to be enforceable under the general statutory formalities rule for contracts of guarantee?

  1. A lease of land for three years
  2. A promise by one person to answer for the debt of another person Correct answer.
  3. An employment contract for an indefinite term
  4. A contract for the sale of goods worth more than a stated sum

Explanation

A contract of guarantee, by which one party agrees to answer for another's debt, must be evidenced in writing and signed by the guarantor. The other examples either require no writing or are governed by different formalities regimes.

Question 10Law of Contract

A clause states that a party is not liable for any loss however caused, including loss resulting from that party's own negligence. Which principle governs whether the clause covers negligence?

  1. Negligence can never be excluded by contract
  2. Clear words are required, and an express reference to negligence or a wide form of wording may suffice Correct answer.
  3. Ambiguity is resolved against the party relying on the clause only in consumer contracts
  4. A clause never covers negligence unless the word 'negligence' appears three times

Explanation

Exclusion of liability for negligence requires clear drafting; an express reference to negligence or wording wide enough to cover it will generally be effective. Ambiguity is construed against the party seeking to rely on the clause, and statutory controls may further restrict it.

Question 11Law of Contract

Under the unfair terms legislation applicable to consumer contracts, a term is unfair if, contrary to good faith, it causes a significant imbalance in the parties' rights to the consumer's detriment. Which factor is central to that assessment?

  1. The nature of the goods or services and the circumstances at the time of contracting Correct answer.
  2. The length of the document containing the term
  3. Whether the term was printed in a larger font than the rest
  4. The nationality of the parties

Explanation

Fairness is judged by the nature of the subject matter, the circumstances prevailing when the contract was made and the other terms of the contract. Presentation and party nationality are not the governing criteria.

Question 12Law of Contract

A party seeks to rely on a clause limiting liability to the contract price. The other party argues the clause was not incorporated. Which fact is most relevant to incorporation by notice?

  1. Whether the parties had met before
  2. Whether the clause was beneficial to the party relying on it
  3. Whether reasonable steps were taken to bring the clause to the other party's attention before the contract was made Correct answer.
  4. Whether the contract was performed in full

Explanation

A clause is incorporated by notice if the party relying on it took reasonable steps to draw it to the other party's attention before or at the time of contracting. Prior dealings may also incorporate terms, but the core test is notice at the right time.

Question 13Law of Contract

During negotiations, a party makes a statement about the quality of goods that induces the other party to contract, but the statement is not included as a term. Which claim is most appropriate?

  1. A claim for frustration of the contract
  2. A claim for rectification of the written agreement
  3. A claim for breach of contract based on the statement as a term
  4. A claim for misrepresentation, subject to establishing the statement was false, material and relied upon Correct answer.

Explanation

A false statement of fact that induces a contract but is not incorporated as a term is a representation, and its maker may be liable for misrepresentation. Whether a statement became a term depends on factors such as timing, importance and relative expertise.

Question 14Law of Contract

Which statement correctly distinguishes a condition from a warranty in the classification of contractual terms?

  1. A condition is a term so essential that breach permits termination and damages, whereas a warranty is collateral and breach gives damages only Correct answer.
  2. A warranty entitles the innocent party to terminate, whereas a condition gives damages only
  3. Conditions and warranties are identical in their remedial consequences
  4. A condition is always written and a warranty is always oral

Explanation

A condition goes to the root of the contract, so its breach allows the innocent party to terminate and claim damages. A warranty is a lesser term whose breach sounds in damages alone.

Question 15Law of Contract

A term is described as an innominate or intermediate term. Which approach applies when it is breached?

  1. The term is treated as void and unenforceable
  2. Only damages are ever available for breach of such a term
  3. The court considers the nature and consequences of the breach to decide whether termination is available Correct answer.
  4. Termination is automatically available for any breach of the term

Explanation

Innominate terms are neither conditions nor warranties, so the remedy depends on the seriousness of the breach and its consequences. If the breach deprives the innocent party of substantially the whole benefit of the contract, termination may be permitted.

Question 16Law of Contract

Which statement best describes the rule on privity of contract?

  1. Only a party to a contract may enforce rights arising under it, subject to statutory exceptions Correct answer.
  2. Privity applies only to contracts made by deed
  3. Any third party who benefits from a contract may sue on it as of right
  4. A third party may enforce a contract if the parties intended to benefit it, without any statutory provision

Explanation

At common law, only parties to a contract can enforce it, although legislation now allows certain third parties to enforce terms intended to benefit them. The privity rule is not confined to deeds and is not displaced merely by an intention to benefit a third party.

Question 17Law of Contract

A contract contains a clause stating that no variation is effective unless made in writing and signed by both parties. The parties later orally agree to vary the price. Which statement best reflects the likely legal position?

  1. The oral variation may be effective because a clause requiring written variation can itself be varied orally, although the position depends on the wording Correct answer.
  2. The oral variation is effective only if witnessed
  3. The oral variation is automatically void in all circumstances
  4. The clause converts the contract into a deed

Explanation

A no-oral-modification clause is itself a contractual term and may be varied by the same informal means, unless the wording or statute provides otherwise. The outcome therefore turns on the precise drafting and any applicable statutory rule.

Question 18Law of Contract

Which of the following best describes the effect of a force majeure clause in a commercial contract?

  1. It replaces the doctrine of frustration in all cases
  2. It allocates risk for specified events beyond the parties' control according to its terms Correct answer.
  3. It automatically discharges the contract whenever performance becomes more expensive
  4. It requires the parties to submit disputes to arbitration

Explanation

A force majeure clause is a contractual allocation of risk for defined events outside a party's control, and its precise effect depends on its wording. It operates alongside, rather than replacing, the common law doctrine of frustration.

Question 19Law of Contract

A contract becomes impossible to perform because the subject matter is destroyed by an event outside either party's control. Which doctrine may discharge the parties from further performance?

  1. Specific performance
  2. Anticipatory breach
  3. Frustration Correct answer.
  4. Repudiation

Explanation

Frustration discharges a contract when a supervening event, not caused by either party, makes performance impossible or radically different. Anticipatory breach and repudiation concern a party's refusal or inability to perform, and specific performance is an equitable remedy.

Question 20Law of Contract

A party breaches a contract by delivering goods that are defective but usable, and the innocent party affirms the contract and continues to accept deliveries. Which statement best reflects the consequence of affirmation?

  1. The breaching party may terminate the contract instead
  2. The innocent party loses the right to terminate for that breach but may still claim damages Correct answer.
  3. The innocent party loses both the right to terminate and the right to damages
  4. The contract is automatically rescinded from the outset

Explanation

Affirmation occurs when the innocent party, with knowledge of the breach, elects to continue with the contract; the right to terminate for that breach is then lost. The right to damages for the breach survives affirmation.

Question 21Law of Contract

Which statement correctly describes the measure of damages for breach of contract established in Hadley v Baxendale?

  1. Damages cover losses arising naturally from the breach and losses within the parties' reasonable contemplation at the time of contracting Correct answer.
  2. Damages are limited to the contract price in every case
  3. Damages are punitive and designed to deter breach
  4. Damages cover all losses suffered by the claimant regardless of foreseeability

Explanation

The rule in Hadley v Baxendale limits recoverable loss to that arising naturally from the breach or that which both parties reasonably contemplated when contracting. Damages aim to compensate, not punish, and are not capped at the contract price.

Question 22Law of Contract

A claimant suffers a loss of profit that was foreseeable, but fails to take reasonable steps to mitigate the loss after the breach. Which statement best reflects the effect on damages?

  1. The claimant recovers the full loss regardless of mitigation
  2. The claimant loses all damages, including losses already incurred
  3. The claimant must accept the breaching party's settlement offer
  4. The claimant cannot recover the loss that reasonable mitigation would have avoided Correct answer.

Explanation

The innocent party has a duty to take reasonable steps to mitigate loss, and damages are reduced by the amount of loss that could reasonably have been avoided. Losses already incurred and unavoidable remain recoverable.

Question 23Law of Contract

Which of the following best describes the equitable remedy of specific performance?

  1. A remedy that rescinds the contract and restores the parties to their original positions
  2. A remedy that awards punitive damages for breach
  3. A discretionary order compelling a party to perform its contractual obligations, generally refused where damages would be adequate Correct answer.
  4. An automatic right to compel performance in every contract

Explanation

Specific performance is an equitable and discretionary remedy requiring a party to perform its promise, and it is generally refused where damages are an adequate remedy. It is not available as of right and is distinct from rescission and damages.

Question 24Law of Contract

A party enters a contract under duress exerted by the other party. Which statement best describes the effect of duress on the contract?

  1. The contract remains fully enforceable because the victim signed it
  2. The contract is automatically void from the outset
  3. The contract is voidable at the instance of the victim, who may rescind it subject to bars such as affirmation Correct answer.
  4. The contract is enforceable only if ratified by a court

Explanation

Duress renders a contract voidable rather than void, so the victim may elect to rescind unless a bar such as affirmation, lapse of time or third-party rights applies. The contract is not automatically void, and no court ratification is required.

Question 25Law of Contract

A party makes a statement of opinion rather than fact during negotiations, and the other party relies on it. Which statement best reflects the position on misrepresentation?

  1. Opinions are always treated as terms of the contract
  2. Any statement of opinion is automatically a misrepresentation
  3. A statement of opinion is a misrepresentation only if it is in writing
  4. A statement of opinion is generally not a false statement of fact, so misrepresentation is not established unless the opinion was not honestly held or the maker had superior knowledge Correct answer.

Explanation

Misrepresentation requires a false statement of fact, and a genuinely held opinion is not treated as such. However, an opinion may be actionable where it is not honestly held or where the maker possesses knowledge the other party lacks, so the distinction is fact-sensitive.

Question 26Law of Contract

A customer enters a supermarket and places groceries in a basket. At which point is a contract of sale most likely formed?

  1. When the cashier accepts payment and hands over the receipt Correct answer.
  2. When the customer enters the store
  3. When the customer picks up the goods from the shelf
  4. When the customer presents the goods at the checkout till

Explanation

In a self-service store, the display of goods is generally an invitation to treat, not an offer. The customer makes an offer by presenting the goods at the till, and the contract is formed when the cashier accepts that offer, typically by accepting payment.

Question 27Law of Contract

Which statement best describes the role of consideration in English contract law?

  1. Consideration must be past, meaning it must have been given before the promise.
  2. Consideration must be adequate in value to the promisor's promise.
  3. Consideration must move from the promisee and be of some value, but need not be adequate. Correct answer.
  4. Consideration is unnecessary if the agreement is in writing.

Explanation

Consideration requires an exchange of value; it must be sufficient in law but need not be adequate in economic terms. It must also move from the promisee, though past consideration is generally not valid.

Question 28Law of Contract

A landlord agrees with a tenant to accept a lower rent for the remainder of the lease because the tenant is in financial difficulty. The tenant pays the reduced rent. Which principle is most relevant to whether the landlord can later claim the difference?

  1. The doctrine of frustration
  2. The doctrine of promissory estoppel Correct answer.
  3. The rule in Pinnel's Case
  4. The principle of quantum meruit

Explanation

Promissory estoppel may prevent a party from going back on a clear promise intended to be binding, where the other party has relied on it, even without consideration. Here the landlord's promise to accept less may be enforceable in equity if the tenant relied on it.

Question 29Law of Contract

Which of the following agreements is most likely to be considered binding without any intention to create legal relations?

  1. A commercial contract for the sale of goods signed by two companies
  2. A written agreement between two businesses for the supply of services
  3. A signed lease agreement between a landlord and a tenant
  4. An informal agreement between friends to share the cost of a holiday Correct answer.

Explanation

Social and domestic arrangements are presumed not to give rise to legal relations unless there is clear evidence of an intention to be bound. Commercial agreements, by contrast, are presumed to be legally binding.

Question 30Law of Contract

A clause in a contract states that the parties agree that a particular statement of fact is true. Which type of contractual term does this clause represent?

  1. A warranty
  2. A representation
  3. A condition Correct answer.
  4. A term implied by statute

Explanation

A condition is a term that is fundamental to the contract, and a breach may entitle the innocent party to terminate. A clause that states a fact is true can operate as a condition if it is essential to the contract's purpose.

Question 31Law of Contract

A contract contains a clause that excludes liability for 'any loss arising from negligence'. The parties are businesses of equal bargaining power. Which statement best reflects the likely effect of the clause?

  1. The clause is automatically void because it excludes liability for negligence.
  2. The clause will be subject to the reasonableness requirement under the Unfair Contract Terms Act 1977. Correct answer.
  3. The clause is unenforceable because it does not specifically mention 'negligence'.
  4. The clause is valid without any further test because the parties are businesses.

Explanation

Under the Unfair Contract Terms Act 1977, a clause excluding liability for negligence in a business-to-business contract is subject to the requirement of reasonableness. The clause must satisfy that test to be enforceable.

Question 32Law of Contract

Which of the following statements about the incorporation of terms into a contract is correct?

  1. Terms are incorporated if they are displayed on a notice board after the contract is formed.
  2. Terms are incorporated if they are referred to in a previous contract between the parties.
  3. Terms contained in a document are incorporated if the document is signed, regardless of whether the party read it. Correct answer.
  4. Terms are incorporated only if the party signing the document has actually read and understood them.

Explanation

A party who signs a contractual document is generally bound by its terms, even if they have not read them, subject to exceptions such as misrepresentation. This is known as the rule in L'Estrange v Graucob.

Question 33Law of Contract

A statement is made during negotiations that induces the contract but is not incorporated as a term. Which remedy is available if the statement is found to be a misrepresentation?

  1. An action for debt
  2. Rescission and/or damages for misrepresentation Correct answer.
  3. Damages for breach of contract
  4. Specific performance

Explanation

A misrepresentation is a false statement of fact that induces the contract. The remedies may include rescission and, depending on the type of misrepresentation, damages under the Misrepresentation Act 1967 or at common law.

Question 34Law of Contract

A contract is frustrated by an event outside the parties' control. Which statement best describes the effect of frustration on the parties' obligations?

  1. The contract is discharged automatically and future obligations are excused, subject to statutory adjustment of accrued rights. Correct answer.
  2. The contract is void ab initio and all obligations are retrospectively discharged.
  3. The contract is breached by the party unable to perform, who must pay damages.
  4. The contract remains in force but the parties may renegotiate the terms.

Explanation

Frustration discharges the contract automatically for the future, excusing further performance. The Law Reform (Frustrated Contracts) Act 1943 allows for adjustment of sums paid or payable and benefits conferred before the frustrating event.

Question 35Law of Contract

An innocent party terminates a contract for repudiatory breach. Which statement best describes the effect of termination on the parties' obligations?

  1. Termination discharges future obligations, but accrued rights and remedies survive. Correct answer.
  2. Termination requires a court order to be effective.
  3. Termination prevents the innocent party from claiming damages for the breach.
  4. Termination discharges all obligations from the beginning of the contract.

Explanation

Termination for breach discharges the parties from future performance but does not affect rights and obligations that have already accrued. The innocent party may also claim damages for the breach.

Question 36Law of Contract

Which of the following best describes the test for remoteness of damage in contract law?

  1. The loss must be within the reasonable contemplation of the parties at the time of the breach.
  2. The loss must be proven with absolute certainty.
  3. The loss must be a direct result of the breach, regardless of foreseeability.
  4. The loss must be reasonably foreseeable as a probable result of the breach at the time of contracting. Correct answer.

Explanation

The rule in Hadley v Baxendale limits recoverable damages to losses that arise naturally from the breach or were in the reasonable contemplation of both parties at the time of contracting. Foreseeability at the time of contract is key.

Question 37Law of Contract

A claimant fails to take reasonable steps to mitigate their loss after a breach of contract. Which statement best describes the effect on damages?

  1. The claimant cannot recover any damages. Correct answer.
  2. The claimant can recover the full loss because the breach caused it.
  3. The claimant can recover only the loss that would have been avoided by reasonable mitigation.
  4. The claimant can recover damages only if the defendant also failed to mitigate.

Explanation

The claimant has a duty to mitigate their loss. If they fail to take reasonable steps, any loss that could have been avoided will not be recoverable, reducing the damages accordingly.

Question 38Law of Contract

Which of the following is a key feature of the equitable remedy of specific performance?

  1. It is available for contracts of personal service.
  2. It is a discretionary remedy granted where damages would be inadequate. Correct answer.
  3. It is available as of right for any breach of contract.
  4. It is awarded to punish the party in breach.

Explanation

Specific performance is an equitable remedy that is discretionary. It is typically granted where damages are inadequate, such as for contracts involving unique goods or land, and is not available for personal service contracts.

Question 39Law of Contract

Which statement best describes the requirement of certainty of terms for a contract to be enforceable?

  1. The essential terms must be sufficiently certain, or capable of being made certain. Correct answer.
  2. The contract must be in writing.
  3. The contract must specify a fixed price.
  4. All terms must be agreed with absolute precision.

Explanation

For a contract to be enforceable, its essential terms must be sufficiently certain. Courts may uphold agreements where terms are capable of being made certain, for example by reference to a formula or trade usage.

Question 40Law of Contract

A contract contains a clause that states: 'This agreement constitutes the entire agreement between the parties.' Which of the following is the most likely effect of this clause?

  1. It excludes liability for fraud.
  2. It prevents the parties from relying on pre-contractual representations. Correct answer.
  3. It has no legal effect because it is not signed.
  4. It automatically incorporates all prior negotiations into the contract.

Explanation

An entire agreement clause seeks to prevent a party from relying on pre-contractual statements or representations that are not included in the written contract. However, it cannot exclude liability for fraud.

Question 41Law of Contract

Which of the following best describes the doctrine of privity of contract?

  1. A third party can enforce a contract made for their benefit.
  2. Only parties to a contract can enforce it or be bound by it. Correct answer.
  3. A contract is enforceable by anyone who relies on it.
  4. A third party can be bound by a contract if they benefit from it.

Explanation

The doctrine of privity provides that only the parties to a contract can enforce it or be bound by its terms. Exceptions exist, such as the Contracts (Rights of Third Parties) Act 1999, but the general rule remains.

Question 42Law of Contract

A contract contains a clause stating that no variation is effective unless made in writing and signed by both parties. The parties later agree orally to vary the contract. Which statement best describes the legal position?

  1. The oral variation is effective only if supported by consideration.
  2. The oral variation is effective because the clause is invalid.
  3. The oral variation is ineffective because the clause requires written form.
  4. The oral variation may be effective if the parties clearly intended to vary despite the clause. Correct answer.

Explanation

A no-oral-modification clause is generally effective, but the parties may waive it by agreement. If they clearly intend to vary the contract orally despite the clause, the variation may be upheld, especially if one party has relied on it.

Question 43Law of Contract

Which of the following statements about the interpretation of exemption clauses is correct under the contra proferentem rule?

  1. Ambiguities in an exemption clause are interpreted in favour of the party relying on it.
  2. Ambiguities in an exemption clause are interpreted against the party relying on it. Correct answer.
  3. Exemption clauses are always interpreted literally.
  4. Exemption clauses are void if they are ambiguous.

Explanation

The contra proferentem rule provides that any ambiguity in an exemption clause is construed against the party who drafted it and seeks to rely on it. This is a protective rule for the other party.

Question 44Law of Contract

A consumer contracts with a trader on the trader's standard terms. A term allows the trader to vary the price without notice. Which statement best reflects the likely position under the Consumer Rights Act 2015?

  1. The term is valid if it is in plain English.
  2. The term is automatically void because it concerns price.
  3. The term is valid because the consumer agreed to it.
  4. The term is likely unfair because it allows the trader to vary the price without notice. Correct answer.

Explanation

Under the Consumer Rights Act 2015, a term is unfair if it causes a significant imbalance in the parties' rights to the consumer's detriment. A term allowing unilateral price variation without notice is likely to be unfair.

Question 45Law of Contract

Which of the following best describes the remedy of rescission for misrepresentation?

  1. It is a discretionary remedy that may be barred by affirmation or lapse of time. Correct answer.
  2. It is available as of right in all cases of misrepresentation.
  3. It is available only for fraudulent misrepresentation.
  4. It requires the court to award damages instead.

Explanation

Rescission is an equitable remedy and is discretionary. It may be lost if the innocent party affirms the contract, if third-party rights intervene, or if restitution is impossible.

Question 46Law of Contract

Which of the following statements about the doctrine of consideration is correct?

  1. Consideration must be sufficient but need not be adequate. Correct answer.
  2. Consideration must be past.
  3. Consideration is not required if the contract is in writing.
  4. Consideration must be adequate in value.

Explanation

Consideration must be sufficient in law, meaning it must have some value, but it need not be adequate in economic terms. The courts do not inquire into the fairness of the bargain.

Question 47Law of Contract

A contract is made between two companies. One company later argues that the contract is not binding because the parties did not intend to create legal relations. Which statement best reflects the legal position?

  1. Intention to create legal relations is irrelevant in commercial contracts.
  2. The argument will succeed if the contract is not in writing.
  3. Commercial agreements are presumed not to be legally binding, so the argument is likely to succeed.
  4. Commercial agreements are presumed to be legally binding, so the argument is likely to fail. Correct answer.

Explanation

In commercial agreements, there is a strong presumption that the parties intended to create legal relations. The burden is on the party denying it to rebut this presumption.

Question 48Law of Contract

A party breaches a contract by delivering goods that are defective but usable. The innocent party affirms the contract and keeps the goods. Which remedy is most appropriate?

  1. Specific performance
  2. Damages for the difference in value Correct answer.
  3. Rescission for misrepresentation
  4. Termination and restitution

Explanation

If the innocent party affirms the contract, they lose the right to terminate but can still claim damages for the breach. The measure is typically the difference between the value of the goods as delivered and their value if they had conformed to the contract.

Question 49Law of Contract

Which of the following best describes the effect of an offer being accepted by post under the postal rule?

  1. The contract is formed when the acceptance letter is delivered to the offeror's address.
  2. The contract is formed when the offeror communicates receipt of the letter to the acceptor.
  3. The contract is formed when the acceptance letter is posted, provided post is a reasonable means of acceptance. Correct answer.
  4. The contract is formed only when the offeror actually reads the acceptance letter.

Explanation

The postal rule treats acceptance as effective at the moment a properly addressed letter is posted, not on receipt. It applies only where post is contemplated or reasonable as a means of acceptance, and it can be excluded by the offeror's terms.

Question 50Law of Contract

A shop displays goods on its shelves with price tags. A customer takes an item to the till. Which statement best describes the legal position?

  1. The display is an invitation to treat and the customer makes the offer at the till. Correct answer.
  2. The display is an offer that the customer accepts by taking the item from the shelf.
  3. The display is an offer that the customer accepts by paying the marked price.
  4. The display is a unilateral offer that binds the shopkeeper to sell at the marked price.

Explanation

Goods displayed in a shop are generally treated as an invitation to treat, inviting customers to make offers. The contract forms only when the shopkeeper accepts the customer's offer at the till, so the marked price is not binding.