CILEx L3 Contract Law 2 — Questions and Answers
Question 1: In Balfour v Balfour [1919], why was the wife's claim for maintenance payments unsuccessful?
- There was no consideration provided by the wife
- There was no intention to create legal relations between spouses (Correct answer)
- The agreement was too uncertain to enforce
- The husband had revoked the offer before acceptance
Correct answer: There was no intention to create legal relations between spouses
The Court of Appeal held that agreements between spouses living in amity are presumed not to be intended to create legal relations. The husband's promise to pay his wife £30 per month while she remained in England for health reasons was a domestic arrangement, not a legally binding contract. This presumption can be rebutted, as shown in Merritt v Merritt [1970] where separated spouses were held to have intended legal relations.
Question 2: What principle was established in Hadley v Baxendale (1854) regarding contractual damages?
- Damages must be punitive to deter breach
- Damages are limited to losses arising naturally from the breach or within the contemplation of both parties (Correct answer)
- The innocent party can always claim for all losses suffered
- Damages are limited to the contract price
Correct answer: Damages are limited to losses arising naturally from the breach or within the contemplation of both parties
Hadley v Baxendale established the two-limb test for remoteness of damage in contract: (1) losses arising naturally from the breach in the usual course of things, and (2) losses that were within the reasonable contemplation of both parties at the time the contract was made, based on special knowledge communicated. This remains the foundational rule for contractual damages.
Question 3: What is the effect of an exclusion clause that is found to be unreasonable under the Unfair Contract Terms Act 1977?
- It is valid but must be renegotiated
- It is void and unenforceable (Correct answer)
- It is reduced to a reasonable level by the court
- It is valid only between businesses
Correct answer: It is void and unenforceable
Under UCTA 1977, an exclusion clause that fails the reasonableness test (s.11) is rendered void and completely unenforceable. The clause cannot be given partial effect. Section 2(2) subjects clauses excluding liability for negligence (other than death/personal injury) to the reasonableness test, while s.2(1) renders clauses excluding liability for death or personal injury caused by negligence automatically void.
Question 4: Which of the following is an equitable remedy for breach of contract?
- Damages
- Specific performance (Correct answer)
- Debt action
- Quantum meruit
Correct answer: Specific performance
Specific performance is an equitable remedy where the court orders the party in breach to perform their contractual obligations. It is a discretionary remedy, typically granted where damages would be inadequate (e.g., contracts for the sale of unique goods or land). It will not be granted where constant supervision would be required or for contracts of personal service.
Question 5: What did the court decide in Williams v Roffey Bros [1991] about practical benefit as consideration?
- Practical benefit can never constitute good consideration
- A practical benefit gained by the promisor can constitute good consideration for a promise of extra payment (Correct answer)
- Only financial benefit counts as consideration
- The rule in Stilk v Myrick was completely overruled
Correct answer: A practical benefit gained by the promisor can constitute good consideration for a promise of extra payment
In Williams v Roffey Bros, the Court of Appeal held that where a party to a contract promises extra payment in return for the other party performing existing contractual duties, and the promisor obtains a practical benefit (here, avoiding a penalty clause in a head contract), this can constitute good consideration. The case refined rather than overruled Stilk v Myrick (1809).
Question 6: Under the doctrine of privity of contract, who can enforce the terms of a contract?
- Any person who benefits from the contract
- Only the parties to the contract, unless an exception applies (Correct answer)
- Any person named in the contract
- Only the party who provided the greater consideration
Correct answer: Only the parties to the contract, unless an exception applies
The doctrine of privity means that only parties to a contract can enforce its terms or be bound by them. However, the Contracts (Rights of Third Parties) Act 1999 created a statutory exception allowing a third party to enforce a contractual term if the contract expressly provides for this or if the term purports to confer a benefit on them (unless the parties did not intend the term to be enforceable by the third party).
CILEx L3 Contract Law 2
In Balfour v Balfour [1919], why was the wife's claim for maintenance payments unsuccessful?