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ICAEW LAW - STUDY MANUAL QUESTIONS &
ANSWERS
Contract - An agreement which legally binds the parties What are the essential elements of a contract - Offer and acceptance, agreement. Intention to create legal relationship consideration. Standard form contract - A standard document prepared by many large organisations and setting out the terms on which they contract with their customers. Prepared by the dominant party which the other party has no choice but to take or leave. Freedom of contract - Principles that parties may contract on the terms which they choose. The law will not want to interfere with this. Void contract - Not a contract at all. Parties are not bound by it and if they transfer property under it they can generally recover their goods even from a third party. Voidable contract - A contract which one party may set aside. Property transferred before avoidance is usually irrecoverable from a third party Examples of void contracts - A contract which is illegal or offends public policy. Examples of voidable contracts - Minors or people not in sound mind being a party. One party being made to enter into a contract other than by their own free will, not by duress or undue influence. If a pre-contractual statement causes a party to enter into the contact but turns out to be untrue, misrepresentation, the other party may choose to avoid the contract. Misrepresentation - False statement made with the object of inducing the other party to enter into a contract. Unenforceable contract - A contract that will not be enforced by the court in the event of its breach Why does an unenforceable contract occur? - Contract is not in the correct form. What types of contract must be in writing - Agreements for transfer of land. Consumer credit agreements. Guarantee. Guarantee - Guarantor promises to pay a creditor the sum of the debtors debts in the event the debtor fails to pay them. The terms must be evidenced in writing and should be signed or acknowledged by the guarantor.
Offer - A definite promise to be bound on specific terms. What does not compromise an offer. - Vague statements. Possible terms of contract. Supply of information. Statement of intention. Invitation to treat. Invitation to treat - Indication that someone is prepared to receive offers without a view to forming a binding contract. Give examples of invitations to treat - Advertisements, goods displayed for sale in a shop window or self service shelves. Circulation of a price list. Does an offer have to be made to a particular person? - No it can be made to a class of persons or the world at large. In absence of acceptance how can an offer be terminated? - Rejection. Counter-offer. Lapse of time. Revocation by the offeror. Failure of a precondition. What is not a counter-offer - A request for information, which will not terminate the original offer. If a specific time is not specified when does an offer expire - After a reasonable time Describe revocation - Can take place at any time before acceptance either expressly or by implication even if it is said the offer will remain open they can still revoke it. Unless they have bound themselves to keep it open by a separate contract. Revocation takes place when communicated to or received by the offerree, the postal rule does not apply to revocation. Revocation can be communicated by a reliable 3rd party. Valid Acceptance - An unqualified agreement to all terms of the offer. Made by express words to offeree or agent or inferred from conduct. Silence cannot indicate acceptance. Acceptance must be communicated. May be specified by some prescribed method by the offeror. Postal rule - Communication will be effective the moment the acceptance is posted even if it is delayed or lost altogether in the post (revocation is on receipt) What are the exceptions to the postal rule? - If delay is the offerees fault e.g. Incorrect address. If there is postal strike. If postal is not within contemplation of the parties. If the offeror requires acceptance otherwise e.g 'by notice in writing' meaning the notice must be received. The postal rule does not apple to instantaneous methods of communication. Because there is legal uncertainty as to the time of acceptance by email (online offers) - It is advisable for the terms of an offer made online to make express provision as to the means and timing of acceptance.
Consideration need not be - Adequate. It does not need to be equal in value to the consideration received in return. There is no remedy in law for a poor bargain. The courts will not weigh up the comparative value of the promises or acts exchanged. What happens if the consideration offered is something the promisee was bound to do anyway - There is unlikely to be sufficient consideration. If consideration is the performance of existing statutory duty - This is not consideration unless it can be shown that some extra service over and above the scope of the statutory duty is also being offered. If consideration is performance of existing contractual duty owed to the promisor. - Not consideration unless it can be shown that the promisee is actually giving or doing something over and above the scope of the contractual obligation. It may be enough where the promisor obtains some extra practical benefit. If consideration is performance of existing contractual duty owed to a third party. - This can amount to valid consideration. Give an example of performance of existing contractual duty owed to a third party - C contracted with x to deliver cargo as x directed. X directed c to deliver it to d. D contracted with c to unload the cargo of c delivered it to d. Which was already bound under his contract with x. It was held that c's obligation owed to x to deliver the cargo to d was sufficient consideration for d's promise. If consideration is forbearance or waiver of existing rights. - May be sufficient consideration if it has some value or amounts to giving up something of value. In what cases can the waiver of existing debt be binding - Alternative consideration. Bargain between the creditors. Third party part payment. Alternative consideration - If x offers and y accepts anything to which y is not already entitled, the extra thing is sufficient consideration for the waiver, for example goods instead of cash or payment in advance of the due date. Bargain between the creditors - If x arranges with creditors that they will each accept part payment in full entitlement. Third party payment. - If a third party z offers part payment and y agrees to release x from y's claim to the balance, y has received consideration in the form of the offer from z against whom they had no previous claim and that is sufficient. Freedom of contract - Principles that parties may contract on the terms they chose. In an oral contract what must court ascertain - What was expressly agreed by the parties.
What should be taken into account with a written contract - Terms must be substantially complete. A statement of fact made before the contract inducing a party to enter into the contract may become a term of the contract. Oral evidence rules. Explain terms being substantially complete - Terms must be substantially complete or be capable of being clarified. If there is a term left outstanding and there is no provision for its clarification there will be no contract. If a term is vague and meaningless and unnecessary it can be disregarded. Explain a statement of fact made before the contract which induces a party to enter into a contract. - This may become a term of the contract. The court will consider whether this became a term or was a simple representation. Explain oral evidence - It will not be admitted to add to, vary or contradict written terms unless it can be shown that the document was not intended to compromise all the agreed terms. Implied term - Term deemed to form part of a contract even though not expressly mentioned by the parties. Either by adding to terms or overriding terms. Name 5 ways terms can be implied - By reference to custom. By statute. By the courts necessary to give business efficacy or by the courts implicit in the nature of the contract itself. How can terms be implied by statute - For example in the supply of goods and services act 1982 which implies that work and materials should be of satisfactory quality. Such implied terms often override any express terms that do not offer as much protection to the weaker party. Can terms implied by reference to custom produce an inconsistency with the express terms - No Explain the terms implied to give business efficacy - If the court concludes that the parties must have intended those terms to apply to the contract in order to give business efficacy to the contract. E.g if a mooring ship is damaged in low tide and both parties knew the ship must rest on the ground it would be an implied term that the ground was safe and the ship would not be damaged. Explain the terms implied implicit in the nature of the contract itself. - The term is considered to be implicitly required by the nature of the contract used. Such an implied term may form a precedent for future contracts of the same type and parties will be advised to express clear wording if such an implied term is not required.
them to pay all of part of that value to the other party, UNDER DISCRETION OF THE COURT. Breach of contract - Where a party does not perform their contractual obligation sufficiently. Name 3 lawful excuses for breach of contract: - They have tendered performance but this has been rejected. The other party has made it impossible for them to perform. The parties have by agreement permitted non performance. Repudiatory breach - When breach of contact is very serious the injured party can seek damages and treat the contract as at an end or affirm the contract. When does a repudiatory breach arise: - Where the breach is of a term which the parties regard as a fundamentally important term or where the breach has the effect of depriving the injured party of substantially the whole benefit of the contract. Sometimes the test applied is whether the breach can be said to go to the root of the contract. What is an anticipatory breach (a type of repudiatory breach) - Where one party renounces their contractual obligations explicitly or implicitly in advance by showing that they have no intention of performing them. Beach before performance. Where the breach is sufficiently serious what may the injured party chose to do? - Treat the contract as discharged immediately and sue for damages. Allow the contract to continue until there is an actual breach and take action at that time. If the innocent party treats a contract as discharged after being breached they must notify the other party of their decision and the following applies - They are not discharged of contractual duty at time of termination but are of future or continuing obligations and cannot be sued on them. They need not accept nor pay for further performance. They may refuse to pay for partial or defective performance already received unless severable contract. They can reclaim money paid in respect of defective performance. They can claim damages from the defaulter. What are the alternative dispute resolutions of contractual disputes - Where disputes will not reach courts and are resolved by negotiation, arbitration, mediation, adjudication or expert determination. What is the main remedy for breach of contract and what is in designed to do - Damages designed to compensate the claimant by putting them in a position they would have been in if the contract had been performed. Remoteness of damages - Relationship between a wrongful act and the resulting damage which determines whether or not compensation may be recovered.
Damages may be awarded in respect of those losses which may fairly and reasonably be considered as either - Arising naturally from such a breach or contract or which had been in contemplation of both parties at the time of making the contract as the probable result of the breach. If losses are exceptional or abnormal and not reasonably foreseeable, when will the defendant be liable - If they knew at the time of the contract of the special circumstances from which the abnormal consequence of breach could arise. Expectation interest of the claimant - The measure of damages to put the claimant in the position they would have achieved if the contract had been performed Reliance interest - The measure of damages to put the claimant in the position they would have been in had they not relied on the contract. I.e a claim for wasted expenditure for relying on an actor. What are damages usually awarded for - Actual financial loss In rare cases what are damages recovered for - Mental distress. What is it assumed about the claimant when assessing the amount of damages - They have taken all reasonable steps to reduce or mitigate their loss. ONLY REASONABLY STEPS NOT ALL STEPS. Liquidated Damages - Fixed sum agreed by parties to a contract and payable in the event of a breach. IN PROPORTION TO INTEREST OF INNOCENT PARTY AND NOT PENAL IN NATURE. If liquidated damages are penal in nature and do not protect the legitimate interest of the innocent party and are excessive they will be considered - Penalty clauses and will not be enforceable. Penalty clause - A term in a contract that fixes a specific sum to be payable to the injured party in the event of breach of contract. The objective is to penalise the party in breach rather than to recover actual losses. Like a parking fine. AMOUNT IS PENAL IN NATURE AND IS NOT IN PROPORTION TO THE LEGITIMATE INTEREST OF THE INNOCENT PARTY. Specific performance - An equitable remedy which orders the defendant to perform their part of the contract instead of letting them buy themselves out of it by paying damages for the breach. It will only be awarded where damages are not an adequate remedy. E.g with sale of land. It will not be granted if it would require supervision of the performance or if it is a contact for personal service. Injunction - An equitable remedy in which the court orders the other party to a contract to observe contractual terms
What is the main clause of the unfair contract terms act 1977 concerning loss or damage - Any clause that attempts to restrict liability for other loss or damage arising from negligence is void unless it can be shown to be reasonable. What is the main clause of the unfair contract terms act 1977 concerning sale or hire purchase - A clause that excludes or limits liability for breach of obligations regarding title of the seller or owner implied by the sale of goods act 1979 is void. Describe clauses of the term being fair and reasonable - Having regard to all circumstances which were or which ought to have been known to the parties when the contract was made. Parties relative bargaining strengths will be taken into account as well as if any ind event was offered and whether the innocent party knew or should have known of the term. The burden of proving reasonableness lies with those seeking to rely on the clause. Courts may consider if insurance was in place or available to the party relying on the clause as whether any misrepresentations were made. If parties are of equal bargaining strength the courts will be reluctant to hold the exclusion clause to be unfair or unreasonable and invalid. The consumer rights act 2015 - Provides statutory control in respect of consumer contracts and consumer notices. Aims to prove terms are fair before they are binding. What is considered unfair in a consumer contract - Contrary to the requirement of good faith, the contract causes a significant imbalance in the parties rights and obligations under the contract to the detriment of the consumer. Consider if the consumer is at disadvantage or there were relevant circumstances when the contract was signed. But an unfair term will not invalidate the whole contract. What does the consumer rights act require about terms - That they are set out in plain intelligible language and any relevant terms are prominent. An average consumer who is reasonably well informed, observant and circumspect must be aware of the term. Name two unusual rules about consumer rights act - If Contractual term is open to different meanings, the meaning given to it will be the one which is favourable to the consumer. If a business is engaging in activity which is not the primary activity of the business they will be treated as a consumer in the consumer rights act. Agency is a very important feature of modern commercial life, what does it describe - The relationship that exists where one party, the agent, acts on behalf of another, the principle What are the circumstances where an agency enters into a contract - The agent enters into a contract with a third party on behalf of the principle. When an agency relationship exists what are some of the rules - The agent establishes privity of contract between the principal and the third party. The agent has no rights or liabilities in respect of it provided they have acted within their authority.
Name two issues about classifying agency relationships - Whether the agent is acting as an agent or an independent contractor. Which party is the principal e.g. someone employed by an insurance company is an agent for the insurance company or the insured? For the purpose of the course which two types of agency should you be aware of - How a director may be held an agent of the company and bind the company by their acts. How a partner is an agent of the partnership and may bind the firm by their acts. Name the three ways agency can be created - By mutual consent. By operation of law or by ratification. Name the two types of agency - Express agency when the principal expressly appoints someone as their agent. Implied agency implied by the conduct of the parties. What are the two types of agency creation by operation of law - Agency by estoppel or holding out and agency of necessity When will an ostensible or apparent agency relationship be created - If the principal holds out to a third party that an agents authority is greater than it actually is. How can an agency be created retrospectively - Through ratification of the contract. Does an agent have to name the principle when entering a contract if they state they are an agent - No they are more likely to be personally liable but this is subject to the intention of the parties Is the contract enforceable if the principal is not named - Yes Must the agent have full contractual capacity - No since they do not form contracts with third parties in their own behalf Must the principal have full contractual capacity - Yes What are the two ways agency by consent can be created - Consent may be express or implied. Express appointment How can an agency by consent be expressly created - Orally or in writing What is the one exception where agency by consent must be by deed - If the agent is to execute a deed on the principals behalf like a conveyance of land or a lease exceeding three years then the agency must be created by deed. Essentially agent is given a power of attorney.
capacity to make the contract themselves both at the time the act was carried out and at the time of the purported ratification. The agent must at the time of making the contract either name or sufficiently identify the principal on whose behalf they are making the contract. What are 3 rules about ratification - The principle must ratify the contract within a reasonable time. a ratification of part of the contract will operate as a ratification of the entire contract. The principal must communicate a sufficiently clear intention of ratifying either by express words or by conduct, passive inactivity will not amount to ratification. Ratification needs more than passive inactivity but can it be inferred from words or conduct - Yes Why does the law imply duties on the agent - The courts have always sought to ensure that a person does not abuse the confidence of another for whom they are acting. Agency position is confidential and it readily lends itself to abuse. A strict and salutary rule is required to meet the special situation. What duties does the law imply into contract of agency - Accountability. No conflict of interest. Performance. Obedience. Skill. Personal performance. Confidence. What rights or duties owed by the principal is the agent entitled to - Indemnity. Remuneration. Lien. Explain the accountability duty of an agent - An agent must provide full information to their principal of their agency transactions and account for all monies arising from them. If they accept from the other party any commission or reward as an inducement to make the contract with them it is considered to be a bribe and the contract is fraudulent. The principal who discovers that their agent has accepted a bribe may dismiss the agent and recover the amount of the bribe from them. Explain no conflict of interest duty of an agent. - Agent owes principal a duty not to put themselves in a situation where their own interests conflict with those of principal. Explain performance duty of an agent - Agent who agrees to act as an agent for reward has a contractual obligation to perform their agreed task. Unpaid agent is not bound to carry out their duties unless there is other consideration. Any agent may refuse to perform an illegal act. Explain obedience duty of an agent - The agent must strictly act in accordance with their principals instructions in so far as these are lawful and reasonable. Even if they believe disobedience is in the principals best interests they may not disobey instructions unless they were asked to commit an illegal or unreasonable act. Explain skill duty of the agent - An agent undertakes to maintain the standard of skill and care to be expected of a person in their profession.
Explain personal performance duty of an agent - The agent is usually selected because of their personal qualities and owes a duty to perform their tasks themselves and not to delegate it to another. They may delegate in certain circumstances like a solicitor instructing a stockbroker to buy or sell listed securities on stock exchange on behalf of a principal. Explain confidence duty of an agent - The agent must keel in confidence what they know of their principals affairs even after the agency relationship has ceased. Define indemnify - To compensate someone for harm or loss or secure someone against legal responsibility for their actions. Explain the indemnity right of the agent owed by the principal - Agent is entitled to be repaid their expenses and to be indemnified by their principal against losses and liabilities provided their acts are done properly within the limits of their authority. They may recover expenses even if they were not legally bound to pay like counsel fees. Explain remuneration rights of the agent owed by the principal - The agent is entitled to be paid any agreed remuneration for their services by their principal. Expressly agreed or inferred from circumstances by reference to trade or professional practice. Agent entitled to reasonable amount if no amount fixed. Define lien - A right to keep possession of property belonging to another person until a debt owed by that person is discharged. Explain lien right of an agent owed by the principal - The agent has the right to exercise a lien over property owned by the principal. In other words a right to retain and hold goods pending payment of sums owed to them. When is a contract made by the agent binding on the principal and the third party - If the agent was acting within the limits of their authority from their principal What are the three ways agents authority may be given - Actual express authority. Actual implied authority. Ostensible or apparent authority. Describe actual express authority - Authority explicitly given by the principal to the agent to make a particular contract. Extent of authority depends on words of appointment or if oral it is matter of evidence. Describe actual implied authority - Authority is implied from the nature of the agents activities or from what is usual in the circumstances. Authority is implied because not expressly states but is still agents actual authority.
believed they had authority but were mistaken they may be liable for breach of warranty of authority. Tort - A wrongful but not necessarily criminal act by one person to another. No contractual relationship is needed between the parties for a liability to be created. If parties are in contractual relationships and there is breach of contract and tort committed what would the claimant proceed with - Either contract or tort depending on damages or limitation periods Explain the difference between contract liability and tortious liability - Contractual liability may arise where advice is given in performance of a contract. Tortious liability may arise even where there is no contractual or fiduciary relationship between the parties. If a owes b a contractual duty does it follow that a duty of care is also owed in tort - No it depends on the facts and relationships between the parties. Measure of damages in contract - Amount to put the claimant in the position they would be in had the contract been performed Measure of damages in tort - Amount to put the claimant in the position they would be in had the tortious act not taken place Limitation period for breach of contract or tortious act - Six years Limitation period in tortious act case of personal injury - Three years. What are the elements of a tort - An act or omission by the defendant which is responsible for causing injury or damage to the claimant. It is a fault of the defendant. It must be an interest of the claimant the law seeks to protect, a type of harm giving rise to a legal liability. The damage or loss cannot be too remote. What is the general meaning of the term negligence - The careless way in which an act is carried out What is the meaning of the term negligence with reference to tort - The tort which arises when a person is in breach of a legal duty of care that they owe to another, thereby causing that person harm or loss. What is the standard of proof needed in respect of a successful action in the tort of negligence - Balance of probabilities How can you succeed in an action for negligence by proving on a balance of probabilities that - The claimant must prove that the defendant owed a duty of care to the claimant to avoid causing injury, damage or loss. There was a breach of duty by the defendant. Consequently the claimant suffered injury, damage or loss.
What was the landmark case where the neighbour principle was developed - The ginger beer, snail case. Before this it was felt that privity of contract would be breached. What is the neighbour principle - Every person owes a duty of care to his neighbour, to persons so closely and directly affected by my act that I ought reasonably to have them in contemplation as being so affected. Unless the loss is pure economic loss from negligent misstatement then a special relationship is required. What are the four tests for duty of care - Damage is reasonably foreseeable at the time of the negligent act of omission. sufficient proximity to neighbourhood between parties. It is fair, just and reasonable that the law should impose a duty on the defendant on the facts of the case. no matter of public policy requiring no duty of care should exist. Breach of duty of care is a question of fact. What is the standard of care needed to satisfy the duty of care. - The standard of a reasonable man guided upon those considerations which ordinarily regulate the conduct of human affairs. What happens if the reason for damage is not known but it can fairly be said that it would not have occurred without the defendants lack of care - The claimant can argue res ipsa loquitor What does res ipsa loquitor mean - The facts speak for themselves What does res ipsa loquitor mean will happen - The court will infer that the defendant was in breach of duty of care. The claimant will show the thing which caused damage was under the management and control of the defendant and it is then the burden of Prius for the defendant to prove that the cause of the injury was not their negligence. When is there no liability on the defendant. When is there reduced liability on the defendant - When it can be shown that actually the damage was caused by something or someone else. if something happened after the breach that caused or contributed to damage the defendants liability will cease at that point. What must loss be cause by - The breach. Standard of care, principle of particular skill - If the defendant professes a particular skill the standard is that of a reasonable person with that skill Standard of care, principle of lack of skill - Peculiarities of disabilities of the defendant are not relevant, the standard of a learner driver is that of a driver, standard of a trainee accountant is that of an accountant. Standard of care, principle of no hindsight - Test of knowledge and general practice existing at the time not of hindsight and subsequent change of practice.
With regard to damages for negligence what must be considered reasonably foreseeable in order that the claimant can recover damages in respect of their loss. - The type of damage not the manner or the loss or the extent of the loss. What are the two ways a person may be liable in tort - Primarily and vicariously What is vicarious liability - A legal liability which may be imposed on a person even though they are free from blame and in addition to the personal liability of the other person who committed the tort. What is the advantage of the doctrine of vicarious liability - An innocent tort victim has recourse against a financially responsible defendant. What are the two requirements to establish vicarious liability - The wrongdoer must be an employee and not an independent contractor. The employee must have been acting in the course of their employment. an act may be closely connect with a business action e.g punching someone in audit does not give rise to vicarious liability. If an employer prohibits an action in their rules does this mean they are not vicariously liable for that action - No What is the key issue when deciding if a person is an employee - Whether the employer has control over what that person does and how they do it and whether the employee is integral to the business. But the courts willingly extend vicarious liability to those beyond employees What is the rule about vicarious liability and agency - a principal is vicariously liable for a tort committed by an agent acting within the limits of their authority and carrying out the acts for which he was appointed as agent. What is the rule about vicarious liability and partnership - A partnership is liable for any wrongful act or omission of any partner acting in the ordinary course of the business of the firm or with the authority of their co-partners which causes loss or injury to another person. What is negligent misstatement a type of but why is it considered separately? - Negligent misstatement is a type of the tort of negligence but it is considered separately because liability stems from words rather than acts and damage suffered is financial not physical. Why does an advisor have a potential liability in tort if their statement or advice turns out to be negligently made - They have made a statement in some professional or expert capacity where it is likely others would rely on what they said so they may owe a duty of care in addition to contractual commitments.
Usually a pure economic or financial loss is not recoverable unless there was a liability in contract or evidence of fraud or deceit. The neighbour principle is restricted to tortious acts or omissions that resulted in physical damage. In Hadley Byrne case a new decision was made. What was this - If someone possessed of a special skill undertakes to apply that skill for the assistance of another person who relies on that skill a duty of care will arise. If in a sphere in which a person is so placed that others could reasonably rely on his skill a person takes it in himself to give information or advice to another person who as he knows or should know will place reliance on it then a duty of care will arise. What is the important point about the duty of care with negligent misstatement - Liability can only arise where the defendant is in business of giving professional advice and the statement is made within that context. They will not be liable for advice given informally or on a social occasion. What is a specific scenario where there is unlikely to be proven duty of care when it comes to negligent misstatement - Where sophisticated What investors are looking to buy a company for which accounts are being audited/prepared. Unless the defendant is in knowledge or reasonable expectation that an identifiable bidder will rely on accounts no duty of care is owed to anyone except body of shareholders. If investors want to takeover company, rely on the accounts which are prepared negligently and are known to the accountant but don't then takeover the company is the accountant liable to pay damages - No since no loss has occurred since there was no takeover. When is a duty of care not owed to a shareholder - Accounts are intended to enable shareholders to exercise their rights regarding management of the company not making investment decisions or potentially lending the company money, in circumstances for decisions other than managing the company the duty of care is not owed to shareholders. Where an individual relies on annual audited accounts to invest in or lend to or bid for a company I know to the professional who prepared them - There is no cause of action because no duty of care exists. Preparing a statement for general circulation which could foreseeable be relied upon by persons unknown to the professional for a variety of different purposes - Was not sufficient to give rise to a duty of care. When can a third party be owed a duty of care by auditors - When their identity is known and the use to which the information would be put is known and the third party intends to rely on it. Bannerman paragraph - A paragraph used by auditors showing a disclaimer stating that they do no accept responsibility to anyone other than the addressee of their audit report.
