ICAEW BL Civil law: contract, agency and negligence: practice questions with answers

Question 1

Fernhill Lighting, a shop in Bristol, displays a designer lamp in its window with a price ticket of £45. The ticket should have read £450. Meena Dhillon goes into the shop, takes the lamp to the counter and says she accepts the shop's offer to sell it for £45. The manager refuses to sell it for less than £450. What is the legal position?

1. A The display was an invitation to treat; Meena made an offer of £45, which the shop was free to reject.
2. B The window display was an offer, which Meena accepted, so the shop must sell the lamp for £45.
3. C The display was an offer, but the shop can avoid the contract because the price ticket was a mistake.
4. D A contract was formed at £450, because that is the price the shop always intended to charge.

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Answer: A. Goods displayed in a shop window or on shelves with a price attached are an invitation to treat, not an offer (Fisher v Bell; Pharmaceutical Society of GB v Boots Cash Chemists). The customer makes the offer when presenting the goods for purchase, and the shop is free to accept or reject it. As the shop rejected Meena's offer of £45, no contract was formed.

Question 2

Brigstock Logistics Ltd hired a refrigerated lorry from Tolsey Hire Ltd for 12 months. The contract states that the lorry 'shall be maintained in good working order' but does not say what follows if this term is broken. In the second month the refrigeration unit failed, and the lorry was off the road for four days while Tolsey repaired it. Brigstock wants to terminate the contract. What is the legal position?

1. A Brigstock may terminate, because any breach of a term about the condition of goods is a breach of condition.
2. B Brigstock may terminate, because the term was expressly written into the contract and so ranks as a condition.
3. C Brigstock has no remedy at all, because Tolsey repaired the lorry promptly and at its own cost.
4. D Brigstock may terminate only if the breach deprives it of substantially the whole benefit of the contract.

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Answer: D. Where a term is not classified as a condition or warranty by statute or by the parties, it is an innominate term (Hong Kong Fir Shipping v Kawasaki Kisen Kaisha). The innocent party may terminate only if the breach deprives it of substantially the whole benefit it was meant to receive; otherwise its remedy is damages. Four days off the road in a 12-month hire does not meet that test, so Brigstock may claim damages but must continue the contract.

Question 3

In February, Tamsin Rowe Ltd engaged Oakden & Partners, chartered accountants, to carry out a due diligence review starting on 1 July for a fee of £30,000. On 10 March Tamsin Rowe tells Oakden in writing that it will not go ahead with the review. Which of the following correctly states Oakden's position?

1. A Oakden must wait until 1 July before it can treat the contract as broken.
2. B Oakden may accept the repudiation and claim damages at once, or affirm the contract and wait for the date of performance.
3. C Oakden must accept the repudiation, because a contract cannot be kept alive once one party refuses to perform.
4. D Oakden may sue for the full £30,000 fee at once, whether or not it has suffered any loss.

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Answer: B. An anticipatory breach happens when a party indicates, before performance is due, that it will not perform. The innocent party may accept the repudiation, treat the contract as ended and sue for damages at once (Hochster v De la Tour), or affirm the contract and wait for the date of performance (White & Carter v McGregor). If it affirms, it takes the risk that a later event, such as frustration, discharges the contract (Avery v Bowden). Damages are assessed to compensate for the loss actually caused, after mitigation.

Question 4

Fallow Ltd entered into a simple written contract, not a deed, with Garrow Ltd. Garrow breached the contract on 14 May 2020, and Fallow suffered loss at once. Fallow knew of the breach at the time but did not issue a claim until 2 November 2026. What is the legal position under the Limitation Act 1980?

1. A The claim is time-barred, because a claim on a simple contract must be brought within 6 years of the breach.
2. B The claim is in time, because a written contract has a limitation period of 12 years.
3. C The claim is in time, because the period runs from the date the claimant discovers the full extent of its loss.
4. D The claim is time-barred, because every contract claim must be brought within 3 years of the breach.

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Answer: A. Under the Limitation Act 1980, a claim for breach of a simple contract must be brought within 6 years of the date the cause of action accrued, which in contract is the date of the breach (s 5). For a contract made by deed the period is 12 years (s 8). Time can be postponed for fraud, deliberate concealment or mistake (s 32), but none applies here. The breach occurred on 14 May 2020, so the period ended on 14 May 2026, and the claim issued on 2 November 2026 is time-barred.

Question 5

Anya Fisher, acting on the instructions of Wardle Antiques Ltd, buys a cabinet from Leo Grant for £9,000. She contracts in her own name and does not mention Wardle, and nothing in the contract excludes agency. Leo later discovers that Anya was buying for Wardle. The price has not been paid. Which of the following correctly states Leo's position?

1. A Leo can sue only Anya, because he contracted with her alone.
2. B Leo can sue only Wardle, because it is the true principal.
3. C Leo can sue either Anya or Wardle, but once he clearly elects to hold one of them liable he cannot later sue the other.
4. D Leo can rescind the contract, because a contract made for an undisclosed principal is voidable by the third party.

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Answer: C. Where an agent with actual authority contracts in its own name for an undisclosed principal, the agent is personally liable and entitled on the contract. The principal can also sue and be sued, unless the contract terms exclude this or the third party had a personal reason for dealing only with the agent (Said v Butt). Once the third party discovers the principal, it may choose to sue either the agent or the principal, but a clear election to pursue one releases the other (Clarkson Booker v Andjel).

Question 6

Ingrid Sato, an accountant at Rowan & Tey, prepares a report on the finances of her client Ostley Ltd. She knows that the report will be shown to Kendal Bank, which will rely on it to decide whether to lend £250,000 to Ostley. The report states: 'No responsibility is accepted to any party other than Ostley Ltd.' The report is negligently prepared, and the bank lends and loses money. What is the legal position?

1. A No duty of care can arise, because the bank had no contract with Rowan & Tey and did not pay for the report.
2. B A duty of care can arise, but the disclaimer protects Rowan & Tey only if it is reasonable under the Unfair Contract Terms Act 1977.
3. C A duty of care can arise, and the disclaimer is automatically void because it tries to exclude liability for negligence.
4. D The disclaimer automatically prevents any duty of care from arising, as it did in Hedley Byrne v Heller.

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Answer: B. A duty of care for negligent misstatement arises where there is a special relationship: the adviser possesses special skill, knows that the advice will be passed to an identified person for a particular purpose, and knows that person is likely to rely on it, and that person reasonably does rely on it (Hedley Byrne v Heller; Caparo v Dickman). Ingrid knew of the bank and the loan decision, so a duty can arise.

In Hedley Byrne (decided in 1963, before the Unfair Contract Terms Act 1977 existed) the disclaimer protected the defendant, but now a notice excluding liability for negligently caused loss other than death or personal injury is effective only if it is reasonable (Unfair Contract Terms Act 1977 ss 2(2), 11 and 13; Smith v Eric S Bush).