SQE1 Contract Law 1 — Questions and Answers
Question 1: Which case established that an advertisement for a product (such as the Carbolic Smoke Ball) could constitute a binding unilateral offer?
- Carlill v Carbolic Smoke Ball Co [1893] (Correct answer)
- Hyde v Wrench [1840]
- Fisher v Bell [1961]
- Partridge v Crittenden [1968]
Correct answer: Carlill v Carbolic Smoke Ball Co [1893]
Carlill v Carbolic Smoke Ball Co [1893] established that an advertisement can be a unilateral offer to the world capable of acceptance by performance, making the company bound to pay the reward.
Question 2: What is the legal effect of a counter-offer on the original offer?
- It suspends but does not terminate the original offer
- It terminates the original offer, which cannot then be accepted (Correct answer)
- It automatically becomes the binding contract
- It requires the original offeror to accept or reject in writing
Correct answer: It terminates the original offer, which cannot then be accepted
A counter-offer terminates the original offer (Hyde v Wrench [1840]). The original offer cannot subsequently be accepted; the counter-offer itself becomes the new offer which the original offeror may accept or reject.
Question 3: In contract law, what does 'consideration' mean?
- The parties' intention to create legal relations
- Something of value given by each party in exchange for the other's promise (Correct answer)
- The formal writing and signature of the contract
- The time allowed for acceptance of an offer
Correct answer: Something of value given by each party in exchange for the other's promise
Consideration is something of value (money, goods, services, or a promise) provided by each contracting party in exchange for the other's promise. It must be sufficient (legally recognised) but need not be adequate (equal in value).
Question 4: Under the Misrepresentation Act 1967, which type of misrepresentation allows the innocent party to claim both rescission and damages?
- Innocent misrepresentation
- Negligent misrepresentation under s.2(1)
- Fraudulent misrepresentation
- Both fraudulent and negligent misrepresentation under s.2(1) (Correct answer)
Correct answer: Both fraudulent and negligent misrepresentation under s.2(1)
Rescission is available for all types of misrepresentation. Damages can be claimed for fraudulent misrepresentation (under the tort of deceit) and under s.2(1) of the Misrepresentation Act 1967 for negligent misrepresentation. Innocent misrepresentation may only result in rescission or damages in lieu.
Question 5: What principle was established in Hadley v Baxendale (1854) regarding damages for breach of contract?
- The innocent party can always recover all losses caused by the breach
- Damages are limited to losses that were reasonably foreseeable at the time of contract formation (Correct answer)
- Only the value of the contract price can be recovered
- Consequential losses can never be recovered
Correct answer: Damages are limited to losses that were reasonably foreseeable at the time of contract formation
Hadley v Baxendale established the remoteness principle: damages for breach of contract are recoverable only if they arise naturally from the breach (limb 1) or were within the reasonable contemplation of both parties at contract formation (limb 2).
Question 6: Which doctrine allows a court to imply a term into a contract on the basis that it is so obvious it goes without saying?
- The officious bystander test (Correct answer)
- The business efficacy test
- Both the officious bystander and business efficacy tests
- The contra proferentem rule
Correct answer: The officious bystander test
The 'officious bystander' test (from Shirlaw v Southern Foundries [1939]) implies terms that are so obvious that a bystander suggesting them would be told 'of course'. The business efficacy test is the other main implied term test. Both tests must be satisfied to imply a term in fact.
SQE1 Contract Law 1
Which case established that an advertisement for a product (such as the Carbolic Smoke Ball) could constitute a binding unilateral offer?