SQE1 - Solicitors Qualifying Examination Part 1 Contract Law Principles Questions and Answers

Question 1

A brother and sister agree that if the sister lends the brother £5,000 to start a new business, he will give her a 10% stake in the company. They write down the terms on a piece of paper and both sign it. Six months later, the business is successful, but the brother refuses to transfer the shares. Which legal principle will be most relevant in determining if a binding contract exists?

Accepted Answer

The presumption regarding the intention to create legal relations in social and domestic agreements.

Answer

In English law, there is a rebuttable presumption that agreements made in a social or domestic context, such as between family members, are not intended to be legally binding. While the agreement involves business matters, the core relationship is domestic. The court would need to determine if the presumption has been rebutted by the evidence, such as the written and signed document, which suggests a more formal, commercial intent. The case of Balfour v Balfour established this presumption, while cases like Merritt v Merritt show it can be rebutted.

Question 2

A construction company contracts with a supplier for the delivery of 10 tonnes of steel on a specific date. The contract includes a clause stating that for every day the delivery is late, the supplier must pay the construction company £1,000. The steel is delivered five days late. This clause is most likely to be interpreted by a court as:

Accepted Answer

A liquidated damages clause, and therefore enforceable if it is a genuine pre-estimate of loss.

Answer

This clause specifies a sum payable upon a breach of contract. The key legal question is whether it is a valid liquidated damages clause or an unenforceable penalty clause. A liquidated damages clause is an agreement where the parties have made a genuine pre-estimate of the likely loss that would be caused by the breach. A penalty clause, by contrast, is designed to deter a breach by imposing a liability that is extravagant and unconscionable in comparison with the greatest loss that could conceivably be proved to have followed from the breach. If the £1,000 per day is a genuine pre-estimate of the construction company's losses (e.g., costs of project delay), it will be upheld.

Question 3

Which of the following statements concerning the legal principle of consideration in English contract law is correct?

Accepted Answer

Consideration must move from the promisee.

Answer

A fundamental rule of consideration is that it must move from the promisee. This means that the person who is receiving the promise must be the one who provides the consideration. The other options are incorrect: consideration must be sufficient (have some value in the eyes of the law) but need not be adequate (a fair price); past consideration is generally not good consideration; and performing an existing public duty is not good consideration, as established in Collins v Godefroy.

Question 4

A company director is negotiating the sale of her business. During negotiations, she tells the potential buyer that the company's profits for the last financial year were 'in excess of £500,000'. The buyer relies on this statement and buys the business. It later transpires the profits were only £300,000. The statement about the profits is most likely to be classified as:

Accepted Answer

A representation.

Answer

A representation is a statement of fact made by one party to another before or at the time of contracting, which induces the other party to enter into the contract but does not form part of the contract itself. If it is untrue, it can give rise to a claim for misrepresentation. A warranty is a contractual promise that a statement is true, and its breach gives rise to a claim for damages but not usually termination. A condition is a fundamental term, the breach of which allows the innocent party to terminate the contract. Given the statement was made pre-contract to induce the sale, it is most accurately classified as a representation.

Question 5

A homeowner emails a local builder, 'I will pay you £20,000 to build a single-storey extension to my kitchen according to the attached plans. I need it finished by 1st October.' The builder replies by email, 'I accept your offer to build the extension for £20,000 based on the plans. My team can start in two weeks.' A binding contract is formed at which point?

Accepted Answer

When the builder's acceptance email is received by the homeowner.

Answer

For instantaneous methods of communication like email, the general rule of acceptance (the 'receipt rule') applies. The contract is formed when the acceptance is communicated to the offeror, which means when the acceptance email is received by the homeowner. The postal rule, where acceptance is effective on posting, does not apply to instantaneous communications (Entores Ltd v Miles Far East Corporation). Sending the initial email is just an offer, and starting the work would be conduct indicating acceptance, but the communicated acceptance via email forms the contract at the point of receipt.

SQE1 Practice Test

SQE1 Practice Test

SQE1 - Solicitors Qualifying Examination Part 1 Contract Law Principles Questions and Answers