SQE1 Contract practice questions

Contract is assessed in FLK1. It covers how contracts are formed (offer, acceptance, consideration and intention), their terms and exclusion clauses, misrepresentation, mistake, duress and undue influence, third-party rights, discharge (including frustration and breach) and remedies. Much of contract law is case law, alongside statutes such as the Misrepresentation Act 1967, the Unfair Contract Terms Act 1977, the Contracts (Rights of Third Parties) Act 1999 and the Consumer Rights Act 2015. Every question below links to the source behind its answer.

Rules to remember

A counter-offer rejects and destroys the original offer, which cannot then be accepted. Question 03

Where a lump sum contract is substantially performed, the contractor recovers the price less the cost of remedying defects; only a breach going to the root of the contract defeats the claim. Question L051

A guarantee (a promise to answer for another's debt, default or miscarriage) is unenforceable unless it, or a note of it, is in writing signed by the guarantor or his authorised agent (Statute of Frauds 1677 s.4). Question L050

Courts will not, save in exceptional circumstances, order specific performance of an obligation to carry on a business; the innocent party is normally left to damages. Question L049

A clause triggered by breach is a penalty if it imposes a detriment out of all proportion to the innocent party's legitimate interest in performance; a penalty is unenforceable and ordinary damages apply. Question L048

Contract damages cover losses arising naturally from the breach, or within both parties' reasonable contemplation when contracting; losses from special circumstances not communicated are too remote. Question L047

On frustration, money paid is recoverable and money payable ceases to be payable, but the court may let the payee keep or recover up to its pre-discharge expenses if just (LR(FC)A 1943 s.1(2)). Question L046

Illegality bars a claim only where enforcing it would harm the integrity of the legal system, judged by the prohibition's purpose, other policies and proportionality; restitution of money paid for an unlawful purpose is normally allowed. Question L045

A lender is affected by a spouse's undue influence only through agency or notice; a joint loan apparently for both spouses' joint benefit does not by itself put the lender on inquiry. Question L044

Economic duress requires an illegitimate threat or pressure that caused the claimant to contract, and that the claimant had no reasonable alternative to giving in; the contract is then voidable. Question L043

A contract for the sale of specific goods is void if, without the seller's knowledge, the goods had already perished when the contract was made (SGA 1979 s.6). Question L042

For a non-fraudulent misrepresentation, the court may declare the contract subsisting and award damages in lieu of rescission where equitable, weighing the misrepresentation and each side's losses (MA 1967 s.2(2)). Question L041

A No Oral Modification clause is effective: a variation not made in the form the contract requires is invalid, subject only to a possible estoppel. Question L040

A trader cannot exclude or restrict liability to a consumer for the statutory term that goods are of satisfactory quality; such a term is not binding on the consumer (CRA 2015 ss.9 and 31). Question L039

In a non-consumer sale, a breach of the conditions implied by SGA 1979 ss.13-15 that is so slight that rejection would be unreasonable is treated as a breach of warranty; the seller must prove this. Question L038

Clear contractual words are given their natural meaning; commercial common sense is assessed at the contract date and cannot be used to rescue a party from a term that has turned out badly. Question L037

A term is implied in fact only if necessary for business efficacy or so obvious it goes without saying; that it is fair, or that the parties would have agreed it if asked, is insufficient. Question L036

Terms are incorporated by notice only if reasonable notice is given before or when the contract is made; terms first notified after the customer is irrevocably committed are not part of the contract. Question L035

Once a third party with rights under s.1 has communicated assent to the promisor, or the promisor knows of or should foresee reliance, the parties cannot vary or rescind to affect those rights without consent. Question L034

A named or identified third party may enforce a contract term that purports to confer a benefit on him unless the contract, properly construed, shows the parties did not intend this (C(RTP)A 1999 s.1). Question L033

A minor must pay a reasonable price for necessaries sold and delivered to him, meaning goods suitable to his condition in life and actual requirements at the time (SGA 1979 s.3). Question L032

Where the price of goods is not fixed by the contract, by an agreed mechanism or by a course of dealing, the buyer must pay a reasonable price (SGA 1979 s.8(2)). Question L031

The presumption that domestic agreements are not intended to be binding does not apply where spouses are separated or separating; their arm's-length agreements are presumed to be intended to create legal relations. Question L030

A promise of extra payment for performing an existing contractual duty to the promisor is binding if the promisor obtains a practical benefit and the promise was not procured by economic duress or fraud. Question L029

Where acceptance by post is requested or reasonably contemplated, the acceptance is complete when the letter is properly posted, even if the offeror deals with the subject matter before it arrives. Question L028

Goods displayed with prices in a shop are an invitation to treat; the customer offers to buy at the till and the shop may accept or reject that offer. Question L027

Payment of a smaller sum on the due date is no consideration for a promise to forgo the balance, and equity will not bar the creditor where the settlement was extracted by pressure rather than by a true accord. Question 17

Under UCTA 1977 s.2, liability for negligently caused death or personal injury can never be excluded, and liability for other negligently caused loss can be excluded only if the term is reasonable. Question 31

Under MA 1967 s.2(1) a contracting party who made a misrepresentation is liable in damages as if it were fraudulent unless they prove reasonable grounds to believe, and actual belief up to contract, that the facts were true. Question 45