Common Professional Examination (CPE) Contract Law Flashcards

24 sample cards from the Contract Law deck

Sampled from the end of the deck, so these are different cards from the ones shown on the syllabus page.

1. Distinguish common, mutual and unilateral mistake.

   Common mistake: both parties share the same mistaken belief (e.g. as to existence/quality of subject matter). Mutual mistake: parties are at cross-purposes, each mistaken about the other's intent. Unilateral mistake: only one party is mistaken and the other knows or ought to know of it.

2. When does a common mistake render a contract void (Bell v Lever Bros; Great Peace Shipping)?

   Only where the mistake is sufficiently fundamental: res extincta (subject matter does not exist, Couturier v Hastie), res sua (buyer already owns it), or a mistake as to quality rendering the subject matter essentially and radically different from what was contracted for (a very high threshold; Great Peace confirmed no equitable jurisdiction to rescind for mistake).

3. How does unilateral mistake as to identity affect a contract, and what is the key distinction?

   Where identity is material and the non-mistaken party knew of it, the contract is void for mistake. Key distinction: contracts made face-to-face carry a strong presumption of intent to deal with the person present, making them merely voidable for fraud (Phillips v Brooks; Lewis v Averay), whereas written/distance contracts can be void (Cundy v Lindsay; Shogun Finance v Hudson).

4. Define duress and the test for economic duress.

   Duress is illegitimate pressure that vitiates consent, rendering a contract voidable. Economic duress requires: (1) illegitimate pressure (e.g. a threatened breach of contract), (2) which was a significant cause inducing the contract, and (3) the victim had no reasonable practical alternative but to submit (Universe Tankships; Atlas Express v Kafco).

5. Distinguish actual undue influence from presumed undue influence.

   Actual undue influence (Class 1): the claimant proves overt pressure/coercion. Presumed undue influence (Class 2): arises from a relationship of trust and confidence plus a transaction calling for explanation; the presumption then shifts the burden to the dominant party to rebut it (Royal Bank of Scotland v Etridge).

6. What protective steps must a lender take where undue influence by a third party is possible (Etridge)?

   Where a transaction (e.g. a wife guaranteeing a husband's debts) is not on its face to the surety's advantage, the lender is put on inquiry and must ensure the surety receives independent legal advice, or the transaction may be set aside for constructive notice of the undue influence.

7. How does illegality affect a contract, and what are the main categories?

   A contract may be unenforceable if illegal as formed or as performed. Categories include contracts to commit a crime/tort/fraud, contracts contrary to public policy (e.g. ousting court jurisdiction, prejudicing marriage), and contracts in restraint of trade. Courts apply a flexible policy-based approach (Patel v Mirza).

8. State the rules governing the validity of a restraint of trade clause.

   A restraint of trade is prima facie void but enforceable if (1) it protects a legitimate proprietary interest (trade secrets, customer connection, goodwill), and (2) it is reasonable between the parties and in the public interest as to scope, geographical area and duration (Nordenfelt; Esso v Harper's Garage).

9. Distinguish discharge by performance and the entire obligations rule.

   Performance must be complete and precise to discharge obligations (Cutter v Powell; Re Moore & Landauer). Exceptions allowing partial recovery: substantial performance (Hoenig v Isaacs), severable/divisible obligations, acceptance of partial performance, wrongful prevention of completion (Planché v Colburn), and tender of performance.

10. Distinguish actual breach from anticipatory breach, and state the innocent party's options.

    Actual breach is failure to perform when performance is due. Anticipatory breach is a clear refusal/disablement before performance is due (Hochster v De La Tour). On anticipatory breach the innocent party may sue immediately, or affirm and wait for the time of performance (White & Carter v McGregor).

11. When does a breach entitle the innocent party to terminate (repudiatory breach)?

    Termination is justified for (1) breach of a condition, (2) a sufficiently serious breach of an innominate term depriving the party of substantially the whole benefit (Hong Kong Fir), or (3) a renunciation/repudiation showing intention no longer to be bound. Otherwise only damages are available.

12. Define frustration and state the test.

    Frustration discharges a contract automatically where, after formation and without fault of either party, an unforeseen event makes performance impossible, illegal, or radically different from what was undertaken — 'a thing radically different from that which was undertaken' (Davis Contractors v Fareham UDC).

13. Give examples of frustrating events and factors that PREVENT frustration.

    Frustrating: destruction of subject matter (Taylor v Caldwell), supervening illegality, non-occurrence of the contract's foundation (Krell v Henry), unavailability/incapacity. NOT frustrating: mere increased difficulty or expense (Davis Contractors), self-induced frustration (Maritime National Fish v Ocean Trawlers), foreseen events, or an event provided for in a force majeure clause.

14. Summarise the effects of frustration under the Law Reform (Frustrated Contracts) Act 1943.

    Money paid before frustration is recoverable and money payable ceases to be due (s.1(2)), subject to the court allowing the payee to retain/recover expenses incurred. Where one party gained a valuable non-money benefit before discharge, the court may award a just sum for it (s.1(3)).

15. State the compensatory aim of damages and the two measures of loss.

    Damages aim to put the claimant in the position they would have been in had the contract been performed (Robinson v Harman). The two measures: expectation loss (loss of bargain/benefit expected) and reliance loss (wasted expenditure incurred in reliance on the contract).

16. State the two limbs of the remoteness rule in Hadley v Baxendale (1854).

    Damages are recoverable for losses that are either (1) arising naturally, in the ordinary course of things, from the breach; or (2) such as may reasonably be supposed to have been in the contemplation of both parties at the time of contracting as the probable result of breach (special losses requiring communicated knowledge).

17. Explain the claimant's duty to mitigate and the principle on causation in damages.

    The claimant cannot recover for losses they could reasonably have avoided; they must take reasonable steps to mitigate (British Westinghouse v Underground Electric) but need not take unreasonable risks. Damages are also limited to losses caused by the breach, breaking where a new intervening act supersedes it.

18. How are damages for non-pecuniary loss (distress) and loss of amenity treated?

    Generally no damages for mental distress in commercial contracts, but exceptionally available where a major object of the contract was to provide pleasure, relaxation or peace of mind (Jarvis v Swans Tours; Farley v Skinner). Loss of amenity may be recoverable (Ruxley v Forsyth).

19. Distinguish a liquidated damages clause from a penalty clause, and state the modern test.

    A liquidated damages clause is a genuine pre-estimate of loss and is enforceable; a penalty clause is designed to deter/punish breach and is unenforceable. Modern test (Cavendish Square v Makdessi): a clause is penal if it imposes a detriment out of all proportion to the innocent party's legitimate interest in performance.

20. State the nature and key bars to the equitable remedy of specific performance.

    Specific performance is a discretionary equitable order compelling performance, granted only where damages are inadequate (e.g. sale of land or unique goods). It is refused where: damages are adequate, the contract is for personal services, constant supervision is needed, there is mutuality problem, delay (laches), or the claimant lacks clean hands.

21. Describe the equitable remedies of injunction, rectification and rescission.

    Injunction: a discretionary order restraining a breach (prohibitory) — not used to indirectly compel personal service (Page One Records; Warner Bros v Nelson). Rectification: corrects a written document to reflect the true common intention. Rescission: unwinds the contract, restoring parties to their pre-contractual position (subject to bars).

22. State the doctrine of privity of contract at common law.

    Only a party to a contract can sue or be sued upon it; a third party cannot enforce it even if made for their benefit (Tweddle v Atkinson; Dunlop Pneumatic Tyre v Selfridge), and a third party generally cannot have contractual burdens imposed on them.

23. How does the Contracts (Rights of Third Parties) Act 1999 modify privity?

    A third party may enforce a contract term if either (a) the contract expressly provides that they may (s.1(1)(a)), or (b) the term purports to confer a benefit on them and the contract does not show the parties did not intend it to be enforceable (s.1(1)(b)). The third party must be identified by name, class or description (s.1(3)).

24. List the common law exceptions/devices that circumvent privity.

    Agency, assignment of contractual rights, trusts of a promise, collateral contracts (Shanklin Pier v Detel), restrictive covenants running with land (Tulk v Moxhay), and a narrow recognition of damages recovered on behalf of a third party (Linden Gardens; the 'broad ground' in Panatown).

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