SQE1 Contract Law

Contract Law · Offer and acceptance

Brightpath Training Ltd publishes an advertisement promising to pay £2,000 to any student who completes its 12-week software course and then fails to obtain a job within three months. The advertisement says the company has deposited £50,000 with its bank to meet such claims. Priya completes the course, does not find work in three months, and claims £2,000. Brightpath says the advertisement was only a marketing statement and that Priya never told it she was relying on the offer. Which of the following best describes the legal position?

1. The advertisement is an invitation to treat, so Brightpath made no offer that Priya could accept.
2. The advertisement is a mere puff, because adverts are never intended to create legal relations.
3. There is a binding unilateral offer, accepted by Priya completing the course, and she did not need to notify acceptance first.
4. There is an offer, but Priya must show she told Brightpath of her acceptance before starting the course.
5. There is no consideration, because Priya's course fees benefited only Brightpath and not Priya.

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Answer: C. An advertisement can be an offer to the world if it is clear and shows an intention to be bound. Carlill v Carbolic Smoke Ball Co is the classic authority. The deposit of £50,000 shows serious intention, which defeats the 'mere puff' argument. The offer is unilateral: it is accepted by performing the stated conditions, and the offeror is taken to have waived the need for notice of acceptance. Priya gave consideration by completing the course in reliance on the promise. The tempting answer is that the advert is an invitation to treat. That rule applies to ordinary displays and adverts that are vague or invite offers, but not to a clear promise such as this one.

Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256

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Contract Law · Consideration

While Ravi was abroad for a month, his neighbour Dev, without being asked, repaired storm damage to Ravi's garden fence at a cost of £800. When Ravi returned and saw the work, he said, 'That was kind of you. I will pay you £800 on the first of next month.' He did not pay. Dev asks you whether he can enforce the promise. Which of the following is the best advice?

1. The promise is enforceable, because Dev's work is good consideration provided it benefited Ravi.
2. The promise is probably unenforceable, because Dev's work was done before the promise and not at Ravi's request.
3. The promise is enforceable, because past consideration is valid if the work was of value to the promisor.
4. The promise is enforceable under the Pao On exception, because the work was later acknowledged by Ravi.
5. The promise is enforceable under promissory estoppel, because Dev relied on it by repairing the fence.

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Answer: B. Consideration must move from the promisee and must not be past. An act done before and independently of the promise is past consideration (Re McArdle). Pao On v Lau Yiu Long allows an exception where the act was done at the promisor's request, both parties understood it would be paid for, and the later promise would have been legally enforceable. Dev acted without any request, so the exception fails. The tempting answer is Pao On: Ravi's later acknowledgement does not supply the missing prior request. Dev's remedy is limited, perhaps to a restitution claim, which is difficult for unrequested work.

Re McArdle [1951] Ch 669; Pao On v Lau Yiu Long [1980] AC 614

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Contract Law · Intention to create legal relations

Anita and her husband Kofi separated. Kofi signed a short written note promising to pay Anita £300 a month towards the children's costs if she took over the repayments on their joint car loan. Anita made the car loan repayments for the next two years. Kofi has now stopped paying, saying that the note was only a private family arrangement. Which of the following is the best analysis?

1. The note is unenforceable, because spouses are conclusively presumed not to intend legal relations.
2. The note is unenforceable, because Anita's car loan repayments were past consideration.
3. The note is enforceable only if it was signed in the presence of a witness.
4. The presumption against legal intention in domestic arrangements does not apply in the same way to separated spouses, so the note is likely enforceable.
5. The note is unenforceable, because agreements between spouses need an express statement that the parties intend to be bound.

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Answer: D. Domestic and social agreements are presumed not to create legal relations (Balfour v Balfour), but the presumption is rebuttable. It is weak or absent where the spouses have separated and record their arrangement in clear terms. In Merritt v Merritt, a husband who had left the home signed a note making promises to his wife in return for her paying off the mortgage, and the promise was enforced. Here the note was written, signed, specific and made on separation, and Anita performed her side by making the loan repayments. The tempting answer is that spouses are always presumed not to intend legal relations. That presumption is rebuttable, and the separation and written terms rebut it.

Balfour v Balfour [1919] 2 KB 571; Merritt v Merritt [1970] 1 WLR 1211

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Contract Law · Terms and exclusion clauses

Norgate Print Ltd, a small printing firm, signed a supplier's standard-form contract for a new press without reading it. A clause in small print limited the supplier's liability for any defect to £5,000. The press fails and Norgate suffers £80,000 of loss. Norgate says it never saw the clause and that the supplier did nothing to draw it to its attention. Both parties are businesses and the contract is on the supplier's written standard terms. Which of the following is the best statement of the position?

1. Norgate is not bound, because the supplier failed to give reasonable notice of the clause.
2. Norgate is bound, and the clause is valid because the Consumer Rights Act 2015 does not apply between businesses.
3. Norgate is not bound, because limitation clauses in small print are void unless explained orally.
4. Norgate is bound by the clause because it signed, but the clause must satisfy the UCTA 1977 reasonableness test.
5. Norgate is bound, because no statute controls limitation clauses between businesses that deal on written standard terms.

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Answer: D. A person who signs a contractual document is bound by its terms, whether or not they have read them (L'Estrange v Graucob), unless there is misrepresentation or similar vitiating factor. Notice rules apply to unsigned documents. However, because the contract is on the supplier's written standard terms, section 3 of the Unfair Contract Terms Act 1977 applies. A clause limiting liability for breach of contract is effective only if it satisfies the reasonableness test in section 11 and Schedule 2. The tempting answer is that lack of notice frees Norgate. Notice matters for unsigned documents, but here the signature binds and the real challenge is reasonableness.

L'Estrange v Graucob [1934] 2 KB 394; Unfair Contract Terms Act 1977, ss 3, 11

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Contract Law · Terms and representations

Gareth, a buyer with no knowledge of classic cars, visits Hartwell Classics, a specialist dealer. The dealer's owner says, 'This Jaguar has done only 40,000 miles since its engine rebuild; I checked the rebuild records myself.' Gareth buys it for £28,000 without asking for anything in writing. The written invoice is silent on mileage. He later learns the car has done 95,000 miles since the rebuild. Which of the following is the best analysis of the statement?

1. It is likely a term of the contract, because the dealer had special knowledge and Gareth relied on it.
2. It is a mere representation, because it was oral and the invoice does not mention it.
3. It is a mere representation, because the dealer did not promise that the statement was true.
4. It is a term only if Gareth asked for it to be put in writing before buying.
5. It is a term, but only a warranty, because the statement concerned mileage rather than ownership.

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Answer: A. Whether a pre-contract statement is a term or a mere representation depends on the parties' objective intention. Relevant factors are the importance of the statement, any lapse of time, whether the contract was put in writing, and the relative knowledge of the parties. Where the maker has special knowledge and the other does not, the statement is more likely a term (Dick Bentley Productions v Harold Smith (Motors); contrast Oscar Chess v Williams). The dealer claimed to have checked the records and Gareth relied on that. The tempting answer is that a silent invoice makes it a mere representation. Absent an entire agreement clause, that is not decisive. Gareth can sue for breach of contract and may also have a misrepresentation claim.

Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd [1965] 1 WLR 623; Oscar Chess Ltd v Williams [1957] 1 WLR 370

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Contract Law · Implied terms and consumer rights

Lena buys a washing machine from an online retailer for £540 for use at home. It is delivered on 3 May. On 24 May it stops working because of an inherent manufacturing fault. The retailer offers to send an engineer to repair it. Lena wants her money back. Which of the following best states Lena's rights under the Consumer Rights Act 2015?

1. She must accept the repair offer first, because the right to reject exists only after a failed repair.
2. She may claim only a price reduction, because the fault is not serious enough to justify rejection.
3. She may reject only if the retailer is given 30 days to attempt a repair.
4. She has no statutory right, because the contract was made at a distance and not in a shop.
5. She may exercise the short-term right to reject and claim a full refund, because the fault appeared within 30 days.

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Answer: E. Goods in a consumer contract must be of satisfactory quality (Consumer Rights Act 2015, s 9). If they are not, the consumer has a short-term right to reject, which normally lasts 30 days from delivery (s 22). On rejection the consumer is entitled to a refund (s 20), and no deduction for use can be made on a short-term rejection. After that period, or if the consumer chooses not to reject, the right to require repair or replacement (s 23) applies, with price reduction or the final right to reject only if those fail. Lena's machine failed on day 21. She may therefore reject outright. The tempting answer is that the trader may insist on repair first. That is true only outside the 30-day window or if the consumer elects repair.

Consumer Rights Act 2015, ss 9, 19, 20, 22, 23

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Contract Law · Exclusion clauses

Vikram joins Peak Fitness Ltd, a gym. The membership form he signs says: 'The gym accepts no liability for any injury to members, however caused.' Vikram is injured when a treadmill collapses. An inspection finds the gym negligently failed to maintain the machine. The gym relies on the clause and says Vikram signed the form. Which of the following is correct?

1. The clause is valid, because Vikram signed it and so cannot say he did not know of it.
2. The clause is valid, if the gym shows it was reasonable in all the circumstances.
3. The clause cannot exclude or restrict liability for personal injury caused by negligence, so it is not binding on that point.
4. The clause is void only if the gym's conduct amounted to gross negligence.
5. The clause is effective, because a consumer can accept a risk of injury by contract.

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Answer: C. For consumer contracts and notices, section 65 of the Consumer Rights Act 2015 provides that a trader cannot by a term or notice exclude or restrict liability for death or personal injury resulting from negligence. The same principle applies between businesses under section 2(1) of UCTA 1977. Vikram is a consumer and the gym negligently maintained the treadmill. The clause is therefore of no effect on the injury claim, whether or not Vikram signed. The tempting answer is that the clause survives if reasonable. Reasonableness applies to other losses only, such as property damage or economic loss, and not to death or personal injury caused by negligence.

Consumer Rights Act 2015, s 65; Unfair Contract Terms Act 1977, s 2(1)

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Contract Law · Misrepresentation

Selina bought a small bakery business from Owen for £180,000. Before exchange Owen told her, truthfully as he believed, that annual turnover was £400,000. He had taken that figure from a spreadsheet prepared by the previous owner, which he had not checked. The true turnover was £250,000. Selina wants damages. Which of the following is the best advice?

1. Selina can claim damages only if she proves that Owen made the statement fraudulently.
2. Selina can claim damages under the Misrepresentation Act 1967, s 2(1), unless Owen proves reasonable ground to believe the statement was true.
3. Selina can claim damages only if Owen owed her a duty of care that he breached.
4. Selina has no damages claim, because an innocent misrepresentation can lead only to rescission.
5. Selina can claim damages under s 2(1), and the burden is on her to show that Owen's belief was unreasonable.

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Answer: B. A false statement of fact that induces a contract is an actionable misrepresentation. Under section 2(1) of the Misrepresentation Act 1967, the representee who has suffered loss may claim damages from the other contracting party unless the representor proves that they had reasonable ground to believe, and did believe up to the time of contract, that the facts were true. The burden is on Owen. He did not check the figure, so he will find it hard to prove reasonable ground. Damages follow the tort measure and can include all direct loss (Royscot Trust v Rogerson). The tempting answer is that Selina must prove fraud. Fraud is needed only for deceit, not for s 2(1).

Misrepresentation Act 1967, s 2(1); Royscot Trust Ltd v Rogerson [1991] 2 QB 297

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Contract Law · Professional conduct in contract matters

You act for Brookside Ltd, which wants to sell its warehouse to Calder Ltd. Brookside's director tells you to include in the draft contract a statement that the roof 'has no known defects'. You know from the surveyor's report on your file that the roof leaks. Calder is represented by another firm. Brookside's director says, 'It is for Calder to investigate.' What should you do?

1. Include the statement, because Calder is separately represented and can protect its own position.
2. Include the statement but add a note on file that you acted on instructions.
3. Refuse to include the statement, as you must not mislead the other side, and advise the client on the risks of misrepresentation.
4. Include the statement, if you tell Calder's solicitors that Brookside does not warrant the roof.
5. Include the statement and disclose the surveyor's report only if Calder's solicitors ask for it.

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Answer: C. A solicitor must not mislead or attempt to mislead clients, the court or others, either by their own acts or omissions or allowing or being complicit in the acts of others, including clients (SRA Code of Conduct for Solicitors, para 1.4). Putting forward a statement you know is false in a draft contract would breach this duty and Principle 5 (integrity), even though the other side has separate advisers. You should decline to include it, explain to the client that a false statement risks a claim under the Misrepresentation Act 1967 and rescission, and suggest a truthful disclosure instead. The tempting answer is that caveat emptor and separate representation excuse the statement. They do not.

SRA Code of Conduct for Solicitors, RELs, RFLs and RSLs, para 1.4; SRA Principles 2019, Principle 5

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Contract Law · Operative mistake

On 14 June, Dunmore Foods Ltd agreed to buy from Seaway Traders a specific shipment of 20 tonnes of cocoa beans held in a named warehouse, at £62,000. Unknown to both parties, a fire on 13 June had destroyed the whole shipment. Neither party was careless and the contract said nothing about this risk. Dunmore has already paid a 10% deposit and asks whether it is bound to pay the balance. Which of the following is the best advice?

1. The contract is voidable in equity, because both parties made a common mistake as to the quality of the goods.
2. The contract is frustrated from 13 June, and the Law Reform (Frustrated Contracts) Act 1943 applies.
3. The contract is valid, and Dunmore bears the risk because risk passes on the date of contract.
4. The contract is void only if Seaway Traders can show that it was not at fault for the fire.
5. The contract is void under section 6 of the Sale of Goods Act 1979, because the specific goods had perished before the contract was made.

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Answer: E. Section 6 of the Sale of Goods Act 1979 provides that where there is a contract for the sale of specific goods and the goods, without the seller's knowledge, have perished at the time the contract is made, the contract is void. This codifies the common law rule in Couturier v Hastie. Here the cocoa beans were destroyed the day before contracting and Seaway did not know. The contract is void and Dunmore need not pay the balance, and it can recover its deposit on the basis of total failure of consideration. The tempting answer is frustration. Frustration applies only to events occurring after the contract is made.

Sale of Goods Act 1979, s 6; Couturier v Hastie (1856) 5 HL Cas 673

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Contract Law · Mistake and misrepresentation

A man called at Willow Antiques and, face to face, agreed to buy a watch for £9,000. He said he was Mr Peter Grant, a well-known musician, and gave a cheque signed in that name. The shop owner let him take the watch. The cheque was later dishonoured. The man was a fraudster using a false identity, and he sold the watch for cash to Imran, who bought in good faith and without notice of the fraud. Willow Antiques asks whether it can recover the watch from Imran. Which of the following is the best analysis?

1. The contract was void for mistake as to identity, so the fraudster had no title to pass to Imran.
2. The contract was only voidable for misrepresentation and was not avoided before the sale, so Imran obtained good title.
3. The contract was void because the shop never intended to deal with a fraudster, so Imran must return the watch.
4. Imran obtained good title only if he paid full market value for the watch.
5. Imran obtained no title, because the shop was deceived and the fraud makes every sale void.

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Answer: B. In face-to-face dealings there is a strong presumption that the seller intends to contract with the person physically present, whatever that person's identity claim. The mistake is then about attributes and the contract is voidable for misrepresentation, not void (Lewis v Averay). A voidable contract gives title until avoided. Under section 23 of the Sale of Goods Act 1979, a buyer who acquires goods in good faith and without notice of the seller's defective title, before the contract is avoided, obtains good title. The shop had not avoided the contract before the sale to Imran. The tempting answer is that the identity mistake makes the contract void, which would defeat Imran's title.

Lewis v Averay [1972] 1 QB 198; Sale of Goods Act 1979, s 23

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Contract Law · Economic duress

Ashdown Builders agreed to supply and fit windows for Kemal's new office for a fixed price of £40,000. Halfway through, Ashdown's owner said it would stop work unless Kemal paid a further £12,000. There was no genuine reason for the increase. Kemal had a tenant due to move in within two weeks and could not find another builder in time. He agreed in writing, paid, and then took legal advice a month later. Which of the following is the best statement of Kemal's position?

1. He may be able to avoid the variation for economic duress, as the threat to breach was illegitimate and was a significant cause of his agreement.
2. He cannot avoid the variation, because economic pressure is never duress in English law.
3. He cannot avoid the variation, because he received consideration in the form of Ashdown completing the work.
4. He may avoid the variation only if Ashdown threatened physical harm.
5. He may treat the variation as automatically void, and recover the £12,000 at any time.

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Answer: A. Economic duress makes a contract voidable. The claimant must show illegitimate pressure, and that the pressure was a significant cause inducing the agreement (Pao On v Lau Yiu Long; DSND Subsea v Petroleum Geo-Services). A threat to breach a contract in bad faith, to extract more money, is capable of being illegitimate, especially where the victim had no practical alternative and protested or took advice soon after. Kemal had no alternative supplier in time. He must avoid the agreement promptly. Delay and affirmation can bar rescission, so the month before advice is a risk. The tempting answer is that economic pressure is never duress. That is wrong, though courts apply the doctrine with care.

Pao On v Lau Yiu Long [1980] AC 614; DSND Subsea Ltd v Petroleum Geo-Services ASA [2000] BLR 530

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Contract Law · Frustration

Sara booked the ballroom of Rosemount Hall for her wedding reception on 20 September and paid a £5,000 deposit. The contract price was £14,000 and the hall had already spent £600 on preparatory work for her. On 12 September a fire destroyed the ballroom without fault of either party. The contract has no clause dealing with this. Sara asks for her deposit back. Which of the following is the best advice?

1. The contract is frustrated, but Sara cannot recover the deposit because the loss lies where it falls.
2. The contract is not frustrated, because the hall could provide an alternative room and the destruction was foreseeable.
3. The contract is frustrated, but only if Sara elects to treat it as ended.
4. The contract is frustrated and ended automatically, and Sara can recover the deposit under the Law Reform (Frustrated Contracts) Act 1943, s 1(2), subject to the court allowing the hall to retain reasonable expenses.
5. The contract is frustrated, and the hall must repay the deposit in full whatever its expenses.

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Answer: D. Where the subject matter of a contract is destroyed without fault, the contract is frustrated and ends automatically at the time of the event (Taylor v Caldwell). The Law Reform (Frustrated Contracts) Act 1943, s 1(2), makes money paid before the event recoverable, and the court may allow the payee to keep or recover a sum for expenses incurred, if it considers it just. Sara can therefore claim back the £5,000, subject to a possible deduction for the £600. The tempting answer is that the loss lies where it falls. That was the old common law rule, reversed by Fibrosa v Fairbairn and then by the 1943 Act.

Clough v London and North Western Railway Co (1871) LR 7 Ex 26; Law Reform (Frustrated Contracts) Act 1943, s 1(2)

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Contract Law · Breach and termination

Metro Fabrics Ltd agreed to buy 500 rolls of cloth from Yorkshire Mills on terms that delivery would be on 1 March, 'time being of the essence'. Yorkshire Mills delivered 250 rolls on 15 March. Metro Fabrics accepted them without protest and also took a further delivery of 250 rolls on 29 March, again without objection. On 10 April, after the market price fell, Metro Fabrics wrote to terminate the contract for late delivery and refuse payment. Which of the following is the best analysis?

1. Metro Fabrics has probably affirmed the contract by its conduct, so it loses the right to terminate but may still claim damages for the delay.
2. Metro Fabrics may terminate, because breach of a condition always gives an immediate and continuing right to terminate.
3. Metro Fabrics cannot recover damages, because by accepting delivery it waived every remedy.
4. Metro Fabrics may terminate, because the delay is a breach of an innominate term that deprived it of the benefit.
5. Metro Fabrics may terminate, because a right to terminate lasts until the seller completes delivery.

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Answer: A. A stipulation that delivery time is of the essence is a condition, so late delivery gave Metro Fabrics a right to terminate. But the innocent party must elect. If, knowing of the breach, it acts in a way consistent only with continuing the contract, such as accepting deliveries without protest, it affirms and loses the right to terminate. In a sale of goods the same result follows from statute: once the buyer has accepted the goods (Sale of Goods Act 1979, s 35), a breach of condition can be treated only as a breach of warranty (s 11(4)). Metro Fabrics took both late deliveries without objection and kept them for weeks. It cannot now terminate, but it can still claim damages for the delay. The tempting answer is that a breach of condition always allows later termination. The right can be lost by election and acceptance.

Sale of Goods Act 1979, ss 11(4), 35

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Contract Law · Remedies: damages

Cobalt Press Ltd hired a large printing press from Techno Hire Ltd for £3,000 a month. Techno Hire knew only that the press was for general commercial printing. It delivered the press three weeks late. During that time Cobalt could not take up a very lucrative one-off government printing job that it had not told Techno Hire about, losing £90,000 profit. It also lost £6,000 of ordinary profit it would normally have made from regular work in those weeks. Which of the following best states what Cobalt can recover?

1. Both the £6,000 and the £90,000, because all losses caused by the late delivery are recoverable.
2. Neither amount, because loss of profit is too remote in a hire contract.
3. The £90,000 only, because the special loss is the one that actually occurred.
4. Both amounts, provided Cobalt shows that the late delivery was a repudiatory breach.
5. The £6,000 of ordinary lost profit, but not the £90,000, because the latter was not within Techno Hire's reasonable contemplation.

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Answer: E. Damages for breach are limited by remoteness. Under Hadley v Baxendale, a claimant may recover loss arising naturally from the breach, or loss that was in the reasonable contemplation of both parties at the time of contract as a probable result of breach. Victoria Laundry v Newman Industries applied this to loss of ordinary profits but refused exceptional profits from an unusual contract that the defendant did not know about. Techno Hire knew the press was for commercial printing, so ordinary lost profit is recoverable. The one-off government job was not disclosed. The tempting answer is that all loss caused by the breach is recoverable. Factual causation is necessary but not sufficient.

Hadley v Baxendale (1854) 9 Exch 341; Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949] 2 KB 528

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Contract Law · Remedies: specific performance

Elm Estates Ltd contracted to sell a commercial unit to Farid for £450,000. Before completion, Elm Estates received a higher offer from another buyer and told Farid it would not complete. Farid has no wish to claim damages. He wants the specific unit, which is next to his existing business. Which of the following is the best advice?

1. Farid can claim specific performance as of right, because Elm Estates has repudiated.
2. Farid can seek specific performance, which is available at the court's discretion and is normally granted for contracts for the sale of land.
3. Farid cannot obtain specific performance, because damages for loss of the bargain are always an adequate remedy for a contract of sale.
4. Farid can seek specific performance, but only if the contract is for goods and not land.
5. Farid cannot obtain specific performance, because equity will not assist a buyer who has not yet paid the price.

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Answer: B. Specific performance is an equitable remedy, available at the court's discretion. It is not granted where damages are an adequate remedy, but each piece of land is treated as unique, so it is normally available to enforce a contract for sale of land. Ordinary goods are easily replaced, so damages are usually adequate (Sale of Goods Act 1979, s 52 allows specific performance of contracts for specific or ascertained goods). Farid must show he is ready, willing and able to complete and that he has acted without delay. The tempting answer is that specific performance is available as of right. It is not, as the court may refuse it, for example where there is hardship or delay.

Sale of Goods Act 1979, s 52; Co-operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd [1998] AC 1

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Contract Law · Privity and third parties

Hugo owns an office building and contracts with Delta Cleaning Ltd for a cleaning service. Clause 9 states: 'Delta will pay compensation for any damage it causes to the belongings of the tenants of the building.' Delta's employee negligently spills solvent over a rug belonging to Mira, a tenant. There is nothing in the contract preventing third parties from enforcing it. Hugo has no loss himself. Which of the following is the best analysis?

1. Mira cannot enforce clause 9, because she is a stranger to the contract and has given no consideration.
2. Mira can enforce clause 9 only if she was named individually in the contract.
3. Mira may be able to enforce clause 9 directly under the Contracts (Rights of Third Parties) Act 1999, as she is a member of an expressly identified class.
4. Mira can only sue in negligence, because the 1999 Act applies to benefit clauses only if the third party exists when the contract is made and pays a premium.
5. Mira can enforce clause 9 only if Hugo first sues Delta Cleaning and joins her to the proceedings.

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Answer: C. At common law, only parties to a contract can enforce it (privity). The Contracts (Rights of Third Parties) Act 1999, s 1(1)(b), lets a non-party enforce a term if it purports to confer a benefit on them, unless on its proper construction the parties did not intend it to be enforceable by the third party (s 1(2)). Under s 1(3) the third party must be expressly identified by name, as a member of a class, or as answering a description. Tenants of the building are such a class. Section 1(5) gives Mira the remedies she would have as a party. The tempting answer is that she has no right as a stranger to the contract, which is the old common law position that the Act reformed.

Contracts (Rights of Third Parties) Act 1999, s 1(1)(b), (2), (3), (5)

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Contract Law · Professional conduct: offers and mistake

You act for Quinn, who is selling a boat. Quinn advertised it at £82,000 and has had offers close to that figure. You receive an email from a buyer's solicitor stating, 'Our client offers £28,000 for the boat, open for acceptance until Friday.' You strongly suspect it is a typing error for £82,000. Quinn wants you to accept at once before anyone notices. What is the correct approach?

1. Accept the offer immediately, because you must act in the best interests of Quinn whatever the price.
2. Accept the offer immediately, because the buyer's own carelessness is a risk the buyer must bear.
3. Do nothing until Friday, so the buyer's mistake is not corrected before the offer closes.
4. Accept the offer but tell Quinn he may need to reduce his fee.
5. Raise the apparent error with the buyer's solicitor and not accept, because you must not take unfair advantage of the other side's obvious mistake.

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Answer: E. Under paragraph 1.2 of the SRA Code of Conduct for Solicitors, you do not unfairly take advantage of clients or others. At common law, where an offeree knows or must be taken to know that an offer does not express the offeror's true intention because of an obvious mistake, the offeree cannot accept it (Hartog v Colin & Shields; Smith v Hughes). The apparent figure of £28,000 against an £82,000 advertised price is the kind of mistake that is obvious. Accepting might not form a binding contract anyway. You should alert the buyer's solicitor and tell Quinn why. The tempting answer is to follow the client's wishes. Duty to the client (Principle 7) is subject to your duties to act with integrity and not to take unfair advantage.

SRA Code of Conduct for Solicitors, RELs, RFLs and RSLs, para 1.2; Hartog v Colin & Shields [1939] 3 All ER 566

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Contract Law · Variation of contracts

A services agreement between Orion Data Ltd and a client, Pelham Retail Ltd, states: 'This agreement may be varied only by a document in writing signed by both parties.' In a meeting, the two managing directors orally agreed that Pelham could pay on 60-day terms instead of 30 days. Nothing was signed. Pelham then paid on day 50. Orion now says the payment was late and claims interest. Pelham says the oral variation is binding. Which of the following is the most accurate analysis?

1. The oral variation is fully effective, because parties who can make a contract orally can always vary it orally.
2. The oral variation is effective, because Pelham gave consideration by agreeing to stay a customer.
3. The oral variation is void, and no estoppel argument can ever succeed against such a clause.
4. The oral variation is generally ineffective because of the no oral modification clause, although estoppel might apply on suitable facts.
5. The oral variation is effective because the clause is only a rule of evidence.

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Answer: D. In Rock Advertising Ltd v MWB Business Exchange Centres Ltd, the Supreme Court held that a clause requiring variations to be in writing and signed is valid and effective, so an oral variation that does not comply does not bind. Party autonomy supports this. The Court accepted that estoppel might in appropriate cases prevent a party from relying on the clause, but there must be some words or conduct beyond the informal promise and it must be unconscionable to insist on the clause. Pelham may argue estoppel, since Orion's director agreed and Pelham paid on day 50, but the variation itself is not effective. The tempting answer is that the parties can always vary orally.

Rock Advertising Ltd v MWB Business Exchange Centres Ltd [2018] UKSC 24

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Contract Law · Professional conduct: confidentiality

Your firm acts for Alpha Ltd, a supplier. In a confidential meeting Alpha told you it is close to insolvency and may stop trading within weeks. Separately, Beta Ltd, a long-standing client of the firm, asks you to advise on a contract under which it will pay Alpha £400,000 in advance for goods to be delivered in three months. Beta asks, 'Is there anything we should know about Alpha?' Alpha has not consented to disclosure. What should you do?

1. Tell Beta in confidence that it should be cautious about paying in advance, because you owe a duty to protect your clients.
2. Tell Beta that Alpha is insolvent, because your duty to Beta overrides your duty of confidentiality to Alpha.
3. Advise Beta to pay on delivery instead without giving a reason, because that does not disclose any confidential information.
4. Not disclose or use Alpha's confidential information, and decline to advise Beta on this contract unless Alpha gives informed consent.
5. Advise Beta as usual, and disclose Alpha's position if Beta signs a confidentiality undertaking.

Show answer and explanation

Answer: D. You keep the affairs of current clients confidential unless disclosure is required or permitted by law or the client consents (SRA Code of Conduct for Solicitors, para 6.3). You also owe Beta a duty to make it aware of all information material to its matter (para 6.4), and the two duties clash. Paragraph 6.5 resolves this: you must not act for a client in a matter where its interest is adverse to another client for whom you hold material confidential information, unless effective measures prevent any real risk of disclosure or that client gives informed consent. You personally hold the information, so no barrier can work. You cannot tell Beta, hint at the problem, or tailor your advice using what you know. You should decline to act on this contract. The tempting answer is a discreet warning. Even a hint discloses Alpha's information.

SRA Code of Conduct for Solicitors, RELs, RFLs and RSLs, paras 6.3, 6.4, 6.5

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