Contract Law Exam 2010

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Bernie ran a small but successful shop, Bernie’s Veg, selling locally grown fruit and vegetables. He decided to expand his business to include deliveries of an “organic box” scheme to customers in the local area. He needed to buy a van to make these deliveries, and wanted some leaflets printed to advertise “Veg in a Van,” his new service. On Wednesday 28 April, at 11. 00 am, Bernie sent a text to his uncle Ron, who needed to upgrade his own business van, “Need to buy a van. Have you got one for a few thousand? ” An exchange of emails followed as set out in Documents A and B.

On Friday 14 May, Ron sent a letter to Bernie, set out as Document C. The letter arrived on Monday 17 May. Also on 14 May, Bernie read in the Blankford Gazette about a local van auction at Frank’s Auction House the next day (Document D). On the morning of the auction, Saturday 15 May, Bernie left a message on Ron’s business telephone voicemail, stating that he no longer wanted the van. Ron did not pick this up until 9. 00 am on Monday 17 May and immediately sold the van to Max. Bernie attended the auction, and he eventually made the highest bid for the VDL Supercarry, at ? 2,500.

The auctioneer refused to accept Bernie’s bid as he knew that the owner had hoped to achieve a significantly higher price. Bernie was furious. On his way to Frank’s Auction House, Bernie had popped into “Speedyprint” to enquire about the cost of their producing some leaflets to advertise his new enterprise. He was surprised at Speedyprint’s fee of ? 400 + VAT for 5000 small leaflets and told the sales assistant that he would have to look elsewhere unless he could negotiate a discount. The sales assistant, Stefano, was doing some work experience at Speedyprint during his gap year. Eager to impress his manager, Luca, he agreed a reduced fee of ? 200 + VAT to secure the order.

When Luca returned, he was annoyed – he had already told Stefano not to change the prices. Luca telephoned Bernie to tell him that the standard rate still applied. Ron’s letter (Document C) arrived in the 10. 00 am post delivery on Monday 17 May. When he read Ron’s letter, Bernie was relieved that he could buy a cheap van after all. When he phoned Ron, Bernie was angry to hear that Ron had sold the van to Max within the last hour – and before the 21 May deadline. ADVISE BERNIE, EXPLAINING HIS LEGAL POSITION. THIS IS FOR ROUGH NOTES © The College of Law 2010 4 OA6544 Graduate Diploma in Law 1 CONTINUED OVERLEAF OA6544 5 © The College of Law 2010.

DOCUMENT A DOCUMENT B DOCUMENT C EMAIL – THURSDAY 13 MAY, 17:00 From: Bernie To: Ron I’ll take the van off your hands for ? 4,500. EMAIL – W EDNESDAY 28 APRIL, 13:02 From: Ron To: Bernie Thanks for your text. I have a nice 2-year old white Vauxford Transano, one previous owner, for ? 5,000. Would you be interested? LETTER FROM RON TO BERNIE, FRIDAY 14 MAY Dear Bernie, You can have the van for ? 4,500. Would you be able to pay cash? Max is interested in buying the van so can you tell me by Friday 21? Regards, Ron THIS IS FOR ROUGH NOTES © The College of Law 2010 6 OA6544 Graduate Diploma in Law 1 CONTINUED OVERLEAF.

OA6544 7 © The College of Law 2010 DOCUMENT D EXTRACT FROM BLANKFORD GAZETTE, FRIDAY 14 MAY FRANK’S AUCTION HOUSE Auto Auction Saturday 15 May, Noon. Lot 22 VDL Supercarry van, 2 years old, white, 2 litre. To be sold without reserve. THIS IS FOR ROUGH NOTES © The College of Law 2010 8 OA6544 Graduate Diploma in Law 1 CONTINUED OVERLEAF OA6544 9 © The College of Law 2010 QUESTION 2 Elias runs a restaurant. He has decided to start hosting gourmet dinners. The first evening was arranged for 23 May as a Mexican dinner. Elias agreed to buy some special Mexican food from a specialist shop called Mexicana Ltd (“Mexicana”).

Mexicana had agreed to deliver the food by 21 May. On 20 May, the manager of Mexicana, Pedro Morales, called to say that he would not be able to make the delivery unless Elias agreed to pay 20% more than the price originally agreed. Pedro said that this was because his main supplier in Mexico had gone insolvent and he had had to source the food from a more expensive supplier. Before contracting with Mexicana, Elias had researched other suppliers of specialist foods. The only other supplier who delivered in that area was much more expensive than Mexicana.

Elias had already priced the tickets which had been pre-sold for the event on the basis of the prices originally quoted by Mexicana. He realised he would make a much smaller profit if he had to pay 20% extra, but would not be able to source the food items at less cost or at such short notice from the other supplier. He had already advertised the menu for the evening. Elias reluctantly agreed to pay the 20% addition to the original contract price. Mexicana supplied the foods on 21 May. The food supplied was actually very good and perfect for the dishes Elias had planned. The rental which Elias is obliged to pay under his lease of the restaurant is ?6,000 per month.

The number of patrons regularly eating at the restaurant has however declined over the past two years and in January this year, after discussing the matter with the Landlord, Mr Oliver Browne, Elias persuaded him to agree to accept ? 5,000 per month from 1 January until business picked up. On 1 June this year, however, Elias received a letter from Oliver saying that he was no longer able to accept a reduced rate, as he was also suffering due to the recession. The monthly rent would revert to ? 6,000 per month as of 1 July this year. Elias’ regular restaurant business is still well below the levels it was two

years ago, although the Mexican evening was very popular. Elias wants to know: • if he can just pay Mexicana the original amount agreed; • if he has to pay the full ? 6,000 monthly rent from 1 July or whether he can continue to pay just ? 5,000 a month for the time being; and • whether Oliver could claim the ? 1,000 a month by which the rent had been reduced for the months of January – June. ADVISE ELIAS, EXPLAINING HIS LEGAL POSITION. THIS IS FOR ROUGH NOTES © The College of Law 2010 10 OA6544 Graduate Diploma in Law 1 CONTINUED OVERLEAF OA6544 11 © The College of Law 2010 QUESTION 3.

Electra Ltd (“Electra”) is a large company selling cookers and other electrical equipment to commercial caterers. Paul, the Managing Director of Electra, would like advice on two contracts. CONTRACT 1 Four months ago, after suffering a number of break-ins at its main storage depot, Electra entered into a contract with a small local company, Securit, to provide security services at the depot. Both parties signed the contract which was to run for one year. Brief extracts of the contract are included in Document E. A week ago the depot was broken into and goods to the value of ? 150,000 were stolen. The thieves also caused ?

5,000 worth of damage to the building which is owned by Electra. After making enquiries Paul found that Securit had not supplied a security guard on the evening of the theft and that the company had failed to supply a guard on several other occasions. Securit has offered to pay ? 30,000 but is refusing to pay any further compensation relying on Clause 8 of the contract, which is set out in Document E. Paul provides you with the following information: • Both parties signed the contract. • During negotiations Paul tried to persuade Securit to remove or alter Clause 8 but Securit made it clear that the clause was part of their standard terms and conditions and as such was not negotiable.

• Electra obtained a quotation from another, larger, security firm and found that although this firm also had a limitation of liability clause as part of its standard terms and conditions, the amount specified in the clause was more favourable. However Securit’s charges were much lower and due to the present economic climate this was a major factor influencing Electra to contract with Securit. • Electra has insurance but a claim would seriously affect the premium and Paul does not see why his company should have to claim when Securit was not complying with the contract.

Paul wishes to know whether Electra can claim the full amount for the value of the goods and damage to property from Securit. Also Paul would like to end the contract with Securit and wonders whether this is possible. THIS IS FOR ROUGH NOTES © The College of Law 2010 12 OA6544 Graduate Diploma in Law 1 CONTINUED OVERLEAF OA6544 13 © The College of Law 2010 CONTRACT 2 In February Electra provided a quotation to Francesca for a new oven to be used in her small bakery business, Homebake Ltd (“Homebake”). The quotation is attached as Document F. Francesca accepted the quotation and Electra delivered the oven on 15 March.

Francesca made her own arrangements for installation. On 14 April the oven broke down and Francesca immediately informed Electra. Upon investigation it was found to be a manufacturing fault and Electra eventually replaced the oven. However Homebake was without an oven for several weeks and is claiming from Electra net loss of profit amounting to ? 4,000. Paul wants to know whether Electra can refuse to pay relying on the exemption clause in the quotation (Document F). Francesca told Paul that she did not notice the clause when she read the quotation. ADVISE ELECTRA, EXPLAINING ITS LEGAL POSITION IN RELATION TO SECURIT AND HOMEBAKE.

DOCUMENT E – EXTRACTS FROM CONTRACT BETWEEN ELECTRA AND SECURIT 2 It is a condition of the contract that Securit provide a security guard at Electra Ltd’s premises in Moorcroft Business Park, Oxton, every day from 7pm until 6am for the duration of the contract. ………….. 8 The maximum liability which Securit assumes for loss caused by breach of any term of this agreement, whether express or implied, is limited to ?30,000, unless such breach results in death or personal injury caused by Securit’s negligence. …………………. THIS IS FOR ROUGH NOTES © The College of Law 2010 14 OA6544 Graduate Diploma in Law 1 CONTINUED OVERLEAF.

OA6544 15 © The College of Law 2010 DOCUMENT F Electra Ltd Suppliers of Equipment to the Catering Industry VAT No: 984217300 Electra Ltd Moorcroft Business Park Oxton GO13 1PK Tel: 01478 5644934 Fax: 01478 568103 Website: www. electra. co. uk Date: 17/02/10 To: Ms Francesca Button Homebake Ltd Mead House Grange Road Lincoln QUOTATION ? Hudson 45 commercial oven 2,000 VAT 350 ______ Total 2,350 The Seller excludes all liability for loss of profits suffered as a result of any defect in goods supplied, unless the Buyer notifies the Seller of any defect within fourteen (14) days of delivery of the goods to the Buyer’s premises.

This clause does not affect the Buyer’s rights in respect of death or injury caused by negligence. THIS IS FOR ROUGH NOTES © The College of Law 2010 16 OA6544 Graduate Diploma in Law 1 CONTINUED OVERLEAF OA6544 17 © The College of Law 2010 QUESTION 4 “ …. the basic aim of contractual damages is to compensate the claimant for the loss the claimant has suffered as a result of the breach of contract. Therefore, in calculating these damages the focus should be placed on the claimant’s loss. The compensatory principle also means that……… the claimant cannot, as a general rule, recover any profit made by the defendant even if that profit resulted from a deliberate breach of contract by the defendant ……”.

Jill Poole, Textbook on Contract Law EXPLAIN AND DISCUSS THESE STATEMENTS WITH REFERENCE TO DECIDED CASES. IN YOUR ANSWER YOU SHOULD CONSIDER HOW THE COURT GENERALLY COMPENSATES THE CLAIMANT; AND ALSO THE CIRCUMSTANCES IN WHICH THE COURT MAY AWARD EITHER AN ACCOUNT OF PROFIT, OR SO-CALLED “RESTITUTIONARY DAMAGES”, WHERE THE CLAIMANT HAS SUFFERED NO FINANCIAL LOSS. THIS IS FOR ROUGH NOTES © The College of Law 2010 18 OA6544 Graduate Diploma in Law 1 CONTINUED OVERLEAF OA6544 19 © The College of Law 2010 QUESTION 5.

On 1 April, JJ Farms Ltd (“Farms”) agreed to lease 5 acres of wooded land to Mark for a period of eight months at a total cost of ? 10,000, for use as an exclusive campsite. Mark paid ? 500 on entering into the contract, and agreed to pay a further ? 500 on 1 May and the balance of ? 9,000 on 1 August. Farms agreed to re-surface the only access road leading to the land to make it suitable for vehicles. Mark advertised the site (paying ? 1,000 in advertising fees) and bought luxury tents in varying styles which would be pre-erected on different parts of the woodland. The tents cost Mark ? 10,000.

Farms entered into a contract with Barry for the resurfacing of the access road. Barry agreed to complete the work by 4 April for the sum of ? 1,200, payable on completion. Barry finished the road by 4 April but, although the road was fine for vehicles, Farms discovered two cracks in the surface and refused to pay Barry the ? 1,200. Barry told Farms that he was too busy to re-surface the cracks and as they were only minor Farms should pay up. Mark’s first customers arrived on 5 April and all went well until 2 May when there was an unusually violent storm. Many trees were uprooted and a nearby river broke its banks, flooding the campsite.

There were no campers on the site at the time. The next day it became obvious that the storm damage was so severe that the site would not be able to be used for camping for the remainder of the lease. Farms tells you that Mark has not yet paid the ? 500 which was due on 1 May. Farms feels that Mark should pay this and also pay the balance of ? 9,000 when it becomes due on 1 August. However Mark is refusing to pay any more money. Farms also wants advice about the contract with Barry as he is threatening to sue Farms for the ? 1,200 in respect of the re-surfacing. ADVISE FARMS, EXPLAINING ITS LEGAL POSITION IN RELATION TO MARK AND BARRY.

THIS IS FOR ROUGH NOTES © The College of Law 2010 20 OA6544 Graduate Diploma in Law 1 END OA6544 21 © The College of Law 2010 QUESTION 6 Stefan is an art dealer who runs a gallery specialising in Russian art and antiques. A month ago, he was contacted by Olga who had inherited an enamelled clock in a wooden case. She was interested in selling the clock (as she was short of money) if Stefan offered her enough money. The wooden case was slightly damaged. The clock had been made by Carl Faberge, jeweller to the Russian Tsars.

Stefan told Olga that, in this condition with the case slightly damaged, a clock of this sort would be worth about ? 30,000 on the open market. He offered to buy the clock for ? 30,000. He volunteered that two or three years ago, he could have got ? 200,000 for a clock in this condition. Russian billionaires had been keen to buy Russian art and artefacts, but the global economic crisis had had a serious impact on this end of the market. He told her that she could check the clock’s value by consulting Molski’s, the leading UK specialists in Russian art and artefacts.

Stefan does not know whether Olga has consulted Molski’s. Olga told him that she was very grateful for his advice, as she had no idea that the clock would be worth so much. Two weeks later, Stefan bought the clock from Olga for ? 30,000. Stefan did feel a little uneasy about the sale at the time. He was worried that, as he put it, he had been a little ‘economical with the truth’. Although it is true that his rich Russian clients have turned their attention from the Russian art market, there is still a great deal of interest from entrepreneurs in the former Soviet states, particularly the Ukraine. In fact, the market value for such a clock in this condition with case damaged is ? 100,000. Also, he immediately re-sold the clock for ?

150,000 to one of his Ukrainian clients, Igor. Stefan knew Igor has wanted to buy a Faberge clock, in any condition, since 2006 and had asked Stefan to let him know as soon as one came on the market. Stefan did not tell Igor where he had got the clock. Olga found out from a friend that Stefan had sold the clock on. She immediately telephoned him to say that she is very upset that he should have made such a huge profit and furious that Stefan did not tell her about Igor. She said she will sue him for every penny of the profit that he has made and slammed down the phone. ADVISE STEFAN AS TO HIS LEGAL POSITION.

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