FE-1 Contract Law 2 — Questions and Answers
Question 1: What is the test for remoteness of damage in contract law following Hadley v Baxendale (1854)?
- Damages are recoverable only for losses that arise naturally from the breach or that were within the reasonable contemplation of both parties at the time of contracting as probable consequences (Correct answer)
- All losses caused by the breach are recoverable regardless of foreseeability
- Consequential losses are never recoverable in contract
- Remoteness is determined at the time of the breach, not at contracting
Correct answer: Damages are recoverable only for losses that arise naturally from the breach or that were within the reasonable contemplation of both parties at the time of contracting as probable consequences
The two limbs of Hadley v Baxendale: damages for losses arising naturally from the breach in the ordinary course of things; and damages for special losses within the reasonable contemplation of both parties at contract formation time.
Question 2: What is the doctrine of frustration in Irish contract law?
- A contract is frustrated when, after formation, an event occurs without the fault of either party that renders performance radically different from what was undertaken — the contract is automatically discharged (Correct answer)
- Frustration occurs whenever performance becomes more expensive or difficult
- Only the party who cannot perform can claim frustration
- Frustration discharges future obligations but past payments cannot be recovered
Correct answer: A contract is frustrated when, after formation, an event occurs without the fault of either party that renders performance radically different from what was undertaken — the contract is automatically discharged
Frustration (following Davis Contractors v Fareham UDC and the Irish Fibreboard case) requires a supervening event, not caused by either party, that makes performance fundamentally different in nature from what was agreed. Increased expense alone is insufficient.
Question 3: Under Irish contract law, what is the distinction between a condition and a warranty?
- A condition is a term that goes to the root of the contract — breach entitles the innocent party to terminate and claim damages. A warranty is a less important term — breach gives a right to damages only (Correct answer)
- Conditions and warranties both give the same remedies upon breach
- Warranties are more important than conditions in commercial contracts
- The distinction was abolished by the Sale of Goods and Supply of Services Act 1980
Correct answer: A condition is a term that goes to the root of the contract — breach entitles the innocent party to terminate and claim damages. A warranty is a less important term — breach gives a right to damages only
The classification determines remedies: breach of condition entitles the innocent party to treat the contract as repudiated (terminated) and claim damages. Breach of warranty sounds in damages only — the innocent party must continue performance.
Question 4: What is the rule in Pinnel's Case (1602) and how does it relate to part payment of debt in Irish law?
- Payment of a lesser sum cannot be satisfaction for the whole debt — part payment of an existing debt is not good consideration for a promise to forgo the balance, though estoppel may intervene (Correct answer)
- Part payment of a debt always discharges the full debt if accepted
- A creditor can never refuse part payment in Ireland
- The rule in Pinnel's Case was reversed by the Statute of Limitations 1957
Correct answer: Payment of a lesser sum cannot be satisfaction for the whole debt — part payment of an existing debt is not good consideration for a promise to forgo the balance, though estoppel may intervene
Pinnel's Case (confirmed in Foakes v Beer) holds that a creditor's promise to accept less than is owed is unenforceable for lack of consideration. However, promissory estoppel (High Trees) may prevent the creditor from suing for the balance if the debtor relied on the promise.
Question 5: What are the requirements for the remedy of specific performance in Irish equity?
- The contract must be for something unique (e.g. land), damages must be inadequate, the contract must be certain, the plaintiff must have acted equitably (clean hands), and the remedy must be fair (Correct answer)
- Specific performance is available for all contract breaches as of right
- Specific performance is only available in the Commercial Court
- The remedy requires proof of fraudulent breach
Correct answer: The contract must be for something unique (e.g. land), damages must be inadequate, the contract must be certain, the plaintiff must have acted equitably (clean hands), and the remedy must be fair
Specific performance is a discretionary equitable remedy ordered where damages would be inadequate, typically for unique property (land), where the contract is sufficiently certain, the plaintiff has clean hands, and the court considers it just to grant the remedy.
Question 6: What is the contra proferentem rule in the interpretation of contractual exclusion clauses?
- Where an exclusion clause is ambiguous, it is construed against the party who drafted it and seeks to rely upon it (Correct answer)
- Exclusion clauses are always construed in favour of the party relying on them
- The rule only applies to consumer contracts, not commercial agreements
- Contra proferentem requires the court to imply terms to fill gaps in exclusion clauses
Correct answer: Where an exclusion clause is ambiguous, it is construed against the party who drafted it and seeks to rely upon it
Contra proferentem (against the proferens/drafter) requires that any ambiguity in an exclusion clause be resolved against the party seeking to rely on it. This is because exclusion clauses restrict rights and should be clearly expressed.
FE-1 Contract Law 2
What is the test for remoteness of damage in contract law following Hadley v Baxendale (1854)?