Examiner’s report 2009

Examiner’s report 2009

2650040 Elements of the law of contract – Zone A

Introduction
This document sets out the Chief Examiner’s report for the examination
paper in Elements of the law of contract Zone A. It begins with
General remarks pertaining to the examination scripts as a whole before
each examination question is considered. The guidance for each question
concludes with an indication of where candidates can find the material
necessary to attempt the question in the subject guide and, where relevant,
newsletters on the Contract section of the VLE.

General remarks
Most candidates answered the questions well and displayed a knowledge
of the materials placed on the Contract section of the VLE and used these
materials well in answering their questions.
However, at times, many candidates struggled to identify the particular
issue within the area of law the question focused on. Three common
difficulties were exhibited. One was a very fundamental one: an inability to
recognise that certain areas of law were involved in resolving the
hypothetical problem. Some candidates, for example, failed to recognise
that, in a contract between A and B for the possible benefit of C, C was not
a party to the contract. By failing to recognise this issue, they could not
consider the problems presented by privity of contract. A second difficulty
occurred when candidates did not carefully consider the facts presented in
a problem question; the resulting legal reasoning was often not directed at
the issues presented by the facts. A third, somewhat less fundamental
difficulty, was an inability to recognise the particular and specific issues
involved in a broad area of law, which the candidate had identified as
relevant. Candidates might, for example, have identified that the area of
law involved was one of contractual formation – was there an offer made
to which an acceptance had been given? – without identifying that there
were problems surrounding the communication of the offer by the offeror
to the offeree. At times, this problem seemed to arise because candidates
appeared to be covering legal issues that had formed part of examination
questions that had been set in previous years. Some candidates, in other
words, appeared to be reproducing answers to past examination questions.
It must be emphasised that a purpose of the Examiners’ reports is to give an
indication of a method by which particular questions can be answered and

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some indication of the law necessary to answer these questions. The

Examiners’ reports are not intended to form the basis of specific knowledge
that is to be used when answering future examination questions.
It is extremely important that candidates apply the law to the issues
presented in a question. Candidates should consider the principles
developed within the relevant cases and the reasons behind these
particular principles. These must then be applied to the problem to resolve
it. However, many candidates’ answers to a problem question resembled a
‘shopping list’ of cases dutifully recorded in the examination booklet. The
reason for this is likely twofold: first, it is often hard for intermediate
candidates to discern the relevant from the irrelevant and caution
encourages them to compile a complete list of cases to ensure that none
are omitted; secondly, it is tempting to produce a lengthy answer in the
hope that the Examiner will be impressed by the breadth of knowledge
acquired by the candidate. However, a successful answer identifies the
issues and applies the relevant law to them. Such an answer displays not
only knowledge, but also understanding of the subject being examined.
The recitation and discussion of cases that are irrelevant to the question
serve to highlight a candidate’s uncertainty as to which issues are relevant
to the question.
In other instances, answers appeared chaotic, as if the candidate had
hurried into an issue without fully considering the question as a whole.
Candidates who prepare a careful plan of their answer before writing it in
full will find that the time they spend in making such a plan is repaid by
the clarity of their final answer. Among other things, a plan allows
candidates to see the interaction of issues before they have committed
themselves to one course or another. It should also prevent candidates
from omitting points they had intended to discuss.
Many candidates struggled to answer essay questions thoroughly. Their
attempts were often – and unfortunately – confined to reciting everything
they knew about a particular subject. In so doing, such candidates often
presented a great deal of material; this presentation was marred by an
apparent inability to discern the relevant from the irrelevant and a lack of
analysis as to the underlying nature of the question. Candidates must
consider whether or not they are addressing their answer to the question
that has been asked. A part of this answer will, necessarily, involve legal
analysis.
In other instances, candidates were unable to answer the question asked in
an essay question. They chose, instead, to adapt the question to a topic
that they did know something about. Such attempts do not, however,
answer the question that has been asked. It also leaves the Examiners with
the impression that the candidates are unable to find four questions in the
examination paper that they are able to answer.
Finally, many candidates suffered from an inability to manage their time.
In these instances two or three good answers would be followed by a weak
(and, in some cases, non-existent) effort to answer the remaining
question(s). It goes without saying that it is difficult to for candidates to
succeed if all their efforts are concentrated on only two or three answers

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when the examination paper requires four questions to be answered. A

number of candidates did not appear to have sufficient knowledge of
contract law to attempt four questions.
Lastly, the Examiners in Contract wish to emphasise the importance of
candidates writing the answers clearly. It is difficult, and sometimes
impossible, to assess illegible answers.

Specific comments on questions

Question 1
On Monday, Albert inspected Betty’s car at her house in Woking and offered to
pay £10,000 for it. Betty wanted £12,000. Later in the day, Betty wrote to Albert
and stated that she would take £11,000. The letter was received by Albert at his
home on Tuesday morning. At 4.00 pm on Tuesday afternoon, Albert at his office
in London wrote a letter to Betty accepting her offer. On his way to post the
letter Albert met Cuthbert who told him, ‘I gather that Betty has finally sold her
car.’ Betty had, indeed, sold the car. Albert posted his letter and, upon arriving
home at Woking, discovered a message on his answer phone from Betty. The
message had been left at 3.00 pm; Betty had stated, ‘I withdraw my offer.’ Albert
bought a similar car for £12,500.
Advise Albert.
This problem style question is concerned with issues of contractual
formation, notably offer and acceptance. The question to be addressed is
whether or not Albert and Betty have a contract for the purchase of Betty’s
car and, if so, at what price. To answer this question candidates were
required to analyse the given fact pattern, isolate the issues to be resolved
and apply the relevant cases to resolve these issues.
A good answer would begin by considering the nature of an offer in
relation to the case law (e.g. Storer v Manchester City Council (1974) and
Gibson v Manchester City Council (1979)). The first issue to be resolved is
the effect of Albert’s offer to purchase Betty’s car after his inspection. It
would appear that this would be recognised in law as an offer. However,
Betty replies telling him that she wants £12,000. Is this a counter-offer
within the meaning of Hyde v Wrench? Or is it a statement of information?
If it is an offer, it must either lapse or be revoked when Betty writes to
Albert to tell him that she would take £11,000. Betty’s letter appears to
meet the necessary criteria for an offer, which is good upon
communication. What is the effect of Albert’s letter informing her that he
accepts her offer? Generally, an acceptance, to be good, must be
communicated, but this case may fall within a recognised exception – the
postal acceptance rules. A good answer would consider whether or not
these rules were applicable here by an examination of the relevant case
law (e.g. Household Fire Insurance v Grant (1879), Henthorn v Fraser
(1892), Holwell Securities v Hughes (1974)). A very good answer would
consider whether the rules were displaced by the fact that Albert is
informed by Cuthbert before Albert posts the letter that Betty has sold her
car. Is there a role for Dickinson v Dodds here? If there is, what effect does
it have? The final issue for resolution is the effect of Betty’s telephone

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message. If postal acceptance applies in this case, the contract is good

when the letter is posted. Betty’s later revocation is of no effect: see Byrne
v Van Tienhoven. A very good answer might observe that this result is
achieved only by straining the application of the authorities as much as
possible. It also seems, practically, unlikely that Albert will want Betty’s car
since he has bought his own. If neither party wants a contract to have been
formed in such an instance, is it likely that a court will find one?
Material necessary to answer this question is set out in Chapter 2 of the
subject guide.
Question 2
Alexandra purchases a hotel in Devon. It requires renovation and she employs
Bertram to install a new kitchen for £50,000. She plans to reopen the hotel in
time for the summer trade and so stipulates in the contract that the kitchen must
be completed by the end of March. By the end of January, it becomes clear that
the work will not be completed on time. Alexandra promises to pay Bertram a
further £6,000 which will enable him to hire extra staff to ensure completion on
the due date. Her husband, Charles, concerned at the pressure being placed on
his wife, promises Bertram a further £1,000 ‘bonus’ if he completes on time.
Meanwhile, Alexandra owes money to the decorators, Décor Ltd. She speaks to
their managing director in January and promises to pay a further £700 of the
£1,000 due immediately (the money is due at the end of March), provided that
this extinguishes the debt. The managing director agrees and Alexandra pays the
£700.
Bertram completes the work at the end of March, but Alexandra and Charles now
refuse to pay him more than the £50,000 due under the contract. Alexandra also
receives a demand for £300 from Décor Ltd at the end of March.
Advise the parties.
This problem question required candidates to consider: (1) whether or not
promises to pay additional amounts for the same work are binding; and
(2) whether promises to pay for work when the promisee is already
contractually obliged to another to perform the work are binding. To
answer these questions, candidates needed to analyse the facts given,
ascertain the relevant issues and apply the law to resolve these issues.
Alexandra makes two promises: first to pay Bertram a further £6,000 to
complete the work on time; and second, to pay Décor Ltd a lesser sum to
discharge a greater debt. The first promise involves the issue of
consideration; namely, is there sufficient consideration to support a
variation of the original contract? Stilk v Myrick would indicate not, but
perhaps the situation falls within Williams v Roffey Bros? Candidates
needed to apply the criteria of that case to the facts at hand. A good
candidate would consider the extent to which Williams v Roffey Bros can be
considered good law, given later cases such as Re Selectmove and South
Caribbean Trading Ltd (‘SCT’) v Trafigura Beeher BV [2004]. What effect do
such considerations have upon potential advice to Alexandra?

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The second promise, to Décor Ltd, gives rise to the question of whether
part payment of the debt can be satisfaction of the whole. To resolve this
question, candidates needed to consider and apply the decisions in Foakes
v Beer (1884) and Pinnel’s Case (1602).
Charles’s promise to Bertram raises the issue of whether or not there is
sufficient consideration to support the promise as a contract. To resolve
this issue, candidates needed to consider the circumstances in which the
promise to perform under a contract with another party can constitute
good consideration (Pao On v Lau Yiu Long (1979).
Material necessary to answer this question is set out in Chapter 3 of the
subject guide.
Question 3
‘While the common law doctrine of privity prevented a third party to a contract
from ever receiving an enforceable benefit, the Contracts (Rights of Third Parties)
Act 1999 and the cases which interpret the Act ensure that a third party will
always have an enforceable benefit.’
Discuss.
This question required candidates to discuss the nature of the common law
doctrine of privity and critically examine the proposition that it always
denied a third party from receiving an enforceable benefit. A good answer
would analyse and discuss the relevant cases which set out how, at
common law, a third party could receive a benefit – either by an
enforcement action by the promise (although there could be a problem
with the remedy available) or by one of the mechanisms which allowed a
third party to enforce a benefit in their own right (e.g. a Himalaya clause, a
restrictive covenant or bailment). It is unlikely that the proposition as
stated can be supported when such an examination is undertaken.
Candidates then needed to consider the nature and purpose of the 1999
Act. Integral to this answer was a consideration of those cases in which
courts have interpreted the 1999 Act. This critical consideration of the
cases needs to be directed to answering the question of whether or not the
interpretation of the Act always ensures that a third party will have an
enforceable benefit. It appears, from the very provisions of the 1999 Act
and cases such as Avraamides v Colwill [2006], that this proposition, as
stated, cannot be sustained.
The most common difficulty encountered by those candidates who
struggled to answer the question was that they did not address the
question asked. This could occur by avoiding discussion of the common
law cases or avoiding the 1999 Act or, more commonly, by omitting any
mention of the cases which had been decided under the 1999 Act.
Materials covering the relevant subject matter of this question can be
found in Chapter 11 of the subject guide. Useful material can also be found
in previous VLE newsletters, notably ‘Offer-Hoar v Larkstore Ltd [2006]’
concerned with Offer-Hoar v Larkstore Ltd [2006]; ‘The rights of third
parties to enforce a contract’ concerned with Aavramides v Colwill [2006];
and ‘Privity of contract and the rights of third parties’ concerned with
Prudential Assurance Co Ltd v Ayres [2007].

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Question 4
Dr Anson decides to sell his private medical practice. In May, Dr Chitty expresses
an interest in purchasing the business and negotiations begin. Dr Anson, in the
course of the negotiations, tells Dr Chitty that ‘everything is splendid at the
moment. I have more work than I could possibly want’ and that his practice
would be ‘an excellent opportunity for a young doctor such as yourself’. Dr Anson
offers to show Dr Chitty the accounts, which show a profit of £80,000 per annum,
but Dr Chitty is so impressed that he decides not to bother. He is relieved to hear
that Dr Anson is planning to retire, as he knows him to be popular with his
patients. He asks, however, for more time to consider his position. Dr Anson
(falsely) tells him that he has two more doctors coming to visit the practice the
next day and he fully expects one of them to make him an offer. This prompts Dr
Chitty to offer the full asking price immediately, which Dr Anson accepts.
Having operated the practice for six months, it becomes clear to Dr Chitty that
there is no way the practice could possibly have shown a profit of £80,000 per
annum. His own accountant examines the accounts and informs him that the sum
was greatly exaggerated. He has also found out that, having taken a round-the–
world cruise, Dr Anson plans to set up a private medical practice nearby and has
already been contacting his former patients to inform them of this fact. Dr Chitty
fully expects many of his patients to move to Dr Anson’s practice and, if this
occurs, his accountant informs him that the practice will no longer be financially
viable.
Advise Dr Chitty.
The facts of this question give rise to problems concerned with
misrepresentation. To answer this question required candidates to analyse
the given fact pattern, isolate the issues to be resolved and apply the
relevant cases to resolve these issues.
A good answer would begin by considering the requirements necessary to
make a statement actionable as a misrepresentation. These considerations,
and the relevant case law from which they are derived, needed to be
applied to each of Dr Anson’s statements to Dr Chitty. Are Dr Anson’s
statements about the nature of his practice mere puff? If they are, they do
not form misrepresentations. Dr Anson appears to tell Dr Chitty that the
practice shows a profit of £80,000. Can he still rely on this as an actionable
misrepresentation? Does it induce the contract? It appears unlikely that he
can rely on the accounts themselves being poorly prepared since he does
not look at them before he purchases the property. If Dr Anson has stated
that he intends to retire, is this actionable as a misrepresentation or is it a
statement of intention? Dr Anson does tell Dr Chitty that he has two other
prospective purchasers coming when he does not. Does this statement
induce the contract? A good answer should display a strong grasp of the
law regarding what is actionable as a misrepresentation and what is not. A
common error encountered in answers was to immediately launch into a
consideration of the different forms of misrepresentations and the
remedies available for them. If there is no actionable misrepresentation, or
it is doubtful, such a discussion of relief is misplaced.
Having established that an actionable misrepresentation exists, candidates
then needed to consider what form of action to take and what remedies
might be available. A common error that was made was to jump to the
immediate assumption that there was clearly a fraudulent

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misrepresentation, actionable as the tort of deceit, without any

consideration of the application of the Misrepresentation Act 1967.
Material necessary to answer this question is set out in Chapter 9 of the
subject guide. Candidates might also find the newsletter on the VLE
entitled ‘Misrepresentation and negligent misstatement’ concerned with IFE
Fund SA v GSI International [2007] useful.
Question 5
Cyril Hedge, a financier and well known customer of Nichollod’s Stores, needs to
leave London for a period of time to tend to his business. He hires Peter
Dastardly, on the recommendation of a local employment agency, as a caretaker
at his Chelsea home whilst he is abroad.
Dastardly uses Hedge’s email account to send a message to Nichollod’s and,
describing himself as Hedge, arranges to have a home entertainment system
priced at £5,000, delivered to Hedge’s Chelsea address. When the system is
delivered, Dastardly takes it in and then sells it to Shady, a second-hand
electronics dealer near Oxford Street. Shady is unaware of how Dastardly
obtained the system and displays it in his window. A Nichollod’s employee
notices the system and Nichollod’s seeks the return of the system from Shady.
Advise Shady.
To what extent, if any, would your answer differ if Dastardly had visited
Nichollod’s Stores to arrange the purchase of the home entertainment system?
This question is concerned with the effect of a mistake of identity upon the
formation of a contract. To answer this question candidates were required
to analyse the given fact pattern, isolate the issues to be resolved and apply
the relevant cases to resolve these issues.
The first issue is the effect of Dastardly’s use of Hedge’s email account to
portray himself as Hedge and have the home entertainment system
delivered. The difficulty in resolving this issue is that the authorities are by
no means agreed as to the best resolution of such a problem. To some
extent, the House of Lords’ decision in Shogun Finance v Hudson resolves
these problems, but many of the outstanding difficulties are presented by
the apparently irreconcilable decisions of Cundy v Lindsay and Phillips v
Brooks. A good answer would consider the extent to which the dissenting
judgments in Shogun Finance v Hudson could be applied to this
circumstance. In particular, does it make sense that the form of
communication employed by a rogue to work his deception should
determine whether or not the contract is void or voidable? If Dastardly’s
deception renders the contract void ab initio, Shady cannot obtain any title
to the goods. If, however, the contract is voidable and Shady purchases
these goods without notice of these matters, Nichollod’s right to set aside
the contract is likely lost upon Shady’s purchase and Shady obtains title to
the goods.
The problem also posed a variant factual situation in which Dastardly
visited Nichollods to purchase the goods. Candidates needed to consider
the application of Phillips v Brooks to such actions. Does the face-to-face
presumption arise? It would appear that the effect of the visit is to render
the contract voidable. A very good answer would take a critical view of the

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law of mistake as to identity – it is difficult to predict how a future court

might resolve such a case.
A common error made by many candidates was to consider the problem
solely as a fraudulent misrepresentation. It may be that such cases more
properly fit within this body of law than mistake; not to consider the latter,
however, was to leave the impression that the candidate was unaware of
the law in this area.
Material necessary to answer this question is set out in Chapter 8 of the
subject guide.
Question 6
Duff was a supplier of radio equipment who was registered as required by the
(fictitious) Radio and Wireless Dealers Act 1969. Duff supplied a Zelco radio to
Yvette, without providing the statutory invoice describing the radio as required
by the Act, after Yvette had said that as far as she was concerned none was
necessary. The agreed price was £500, but Yvette subsequently refused to pay
for the radio.
Duff delivered to Xanthea an Accro radio for £250. Again, Duff failed to provide a
statutory invoice. Two weeks later the radio suffered an electrical short, stopped
working and cost £50 to repair.
Duff supplied a Betco radio to Winifred for £300. Winifred ran a brothel,
although Duff did not know this. Winifred refused to pay for the radio, which she
put in the room used to greet clients.
Advise Duff.
What difference, if any, would it make to your advice if Duff’s licence had expired
before the above transactions were entered into though Duff was unaware of
this?
Duff requires advice as to the effect of illegality upon a contract. To answer
this question candidates were required to analyse the given fact pattern,
isolate the issues to be resolved and apply the relevant cases to resolve
these issues.
This question deals with various issues of illegality in the formation and
performance of contracts. The question calls for a determination of the
extent to which courts will enforce a contract despite the taint of illegality.
Here the illegality is created by statute. Most candidates realised that the
initial starting point in such an answer was to consider the purpose behind
the statutory requirements. Following St John Shipping v Rank, the issue to
be considered in each of the parts is the purpose behind the statute. Is the
statute intended to penalise conduct or to prohibit contracts? The
requirement to provide an invoice appears to regulate the conduct of the
business rather than the legality of the business. This would indicate that
contracts which do not comply with this requirement are illegal as
performed rather than as formed. On the other hand, the requirement that
the supplier must be licensed indicates that the purpose of the requirement
is to make unlicensed agreements illegal as formed. A good answer would
also consider the effect of Yvette’s statement that no invoice was necessary.
It may be that both are assenting to a performance they know is illegal. If
the parties are in pari delicto neither can sue on the contract.

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Similar issues arise with respect to Xanthea – is the contract illegal as

formed or illegal as performed? If the latter, Xanthea should be able to
seek redress for the electrical fault.
The sale to Winifred raises a slightly different aspect of illegality and
candidates need to consider the application of Pearce v Brooks (1866).
Material necessary to answer this question is set out in Chapter 12 of the
subject guide.
Question 7
Norman operates his own window cleaning business. He purchases a new ladder
from LADUP, a cut-market retail outlet. The ladder is considerably cheaper than
the prices offered by other suppliers. Before purchasing the ladder, Norman tests
it and the sales assistant hands him a piece of paper which he is told to read.
The paper states: ‘Please read carefully and do not sign unless you are entirely
happy with our terms.’ LADUP offer the cheapest prices in the market, but, to do
so, our customers agree that:
i LADUP are not liable for any damage caused by any defects in our equipment.
Customers are advised to examine the equipment carefully prior to purchase.
ii LADUP agree to repair the equipment free of charge within six months of
purchase on production of a valid receipt. NO responsibility is taken,
however, for the quality of the repair service by our employees, servants or
agents.
Norman does not read the piece of paper as he has not brought his reading
glasses, but when asked to sign it by the assistant, does so. He takes the ladder
home, but, when using it the next day to clean Mr Grimsdale’s windows, one of
the rungs of the ladder breaks under his weight. Norman falls off the ladder on
to Mr Grimsdale’s prized orchids, worth over £1,000, and smashes his watch,
worth £50.
Fortunately Norman is not badly hurt and takes the ladder back to LADUP for
repairs. Their employee, Pitkin, is busy and simply glues on a new rung. The
ladder is returned to Norman. Because of the poor quality of the repair work, the
rung gives way one day later and Norman falls, this time suffering serious
personal injuries.
Advise Norman.
This question was concerned with the extent of the terms incorporated in
Norman’s contract with LADUP and the extent to which they are regulated
under the Unfair Contract Terms Act 1977. To answer this question
candidates were required to analyse the given fact pattern, isolate the
issues to be resolved and apply the relevant cases to resolve these issues.
The first issue to be resolved is whether or not terms (i) and (ii) are
incorporated into the contract by reason of Norman’s signature. L’Estrange
v Graucob indicates that a signature incorporates all terms. A good answer
would consider the effect of Norman’s visual problems – has he brought
these to the attention of the clerk? Assuming that the terms are
incorporated into the contract, candidates needed to consider whether the
Unfair Contract Terms Act 1977 applied to the contract – and to what
effect. Candidates also needed to consider the effect of the Sale of Goods
Act 1979 upon the contract.

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Material necessary to answer this question is set out in Chapter 6 of the

subject guide.
Question 8
‘It is well settled that the governing purpose of damages is to put the party
whose rights have been violated in the same position, so far as money can do so,
as if his rights had been observed... This purpose, if relentlessly pursued, would
provide him with a complete indemnity for all loss de facto resulting from a
particular breach, however improbable, however unpredictable. This, in contract
at least, is recognized as too harsh a rule.’ (Asquith LJ in Victoria Laundry
(Windsor) Ltd v Newman Industries (1949))
Critically evaluate this statement.
This question required candidates to consider and critically analyse the
purpose behind an award of damages (e.g. Robinson v Harman (1848))
with reference to those devices that are used to limit an award of damages.
In Victoria Laundry v Newman Industries the court was particularly
concerned with remoteness in relation to what was within the ‘reasonable
contemplation’ of the parties in the ‘two limb’ test established in Hadley v
Baxendale (1854). The question gave candidates the possibility of
exploring remoteness as a means by which courts limit awards of damages
more generally and beyond these two cases. A good answer would
consider the House of Lords’ recent decision in Transfield Shipping Inc v
Mercator Shipping Inc (The ‘Achilleas’) [2008] in the context of the previous
case law in the area.
The most common error committed by candidates who fared poorly in this
question was to recite everything they knew about damages, with little
consideration of the particular issues raised by the question.
The material necessary to answer this question is set out in Chapter 16 of
the subject guide. Candidates might also have found material in the VLE
newsletters of use, notably ‘Damages – a new approach to Hadley v
Baxendale?’ which reviews the decision in Transfield Shipping Inc v
Mercator Shipping Inc (The ‘Achilleas’) [2008].

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