ACCA LW · Chapter 3
Contract terms MCQs with Answers
10 multiple-choice questions on Contract terms for ACCA LW Corporate and Business Law. Try each one before revealing the answer and explanation.
Practise this chapter interactivelyQuestion 1
What is the main legal consequence of breach of a condition, as opposed to breach of a warranty?
- A) The innocent party may claim damages only
- B) The innocent party may treat the contract as discharged and also claim damages
- C) The contract is automatically void from the beginning
- D) The innocent party may only claim an equitable remedy
Show answer & explanation
Answer: B) The innocent party may treat the contract as discharged and also claim damages
A condition is a term going to the root of the contract, so breach entitles the innocent party to terminate as well as claim damages (compare Poussard v Spiers). A warranty is a minor term whose breach gives a right to damages only (Bettini v Gye). Breach does not make the contract void ab initio.
Question 2
In Hong Kong Fir Shipping v Kawasaki Kisen Kaisha the court recognised 'innominate terms'. How is the remedy for breach of an innominate term determined?
- A) By whether the parties labelled the term a condition in the contract
- B) It is always treated as a warranty, giving rise to damages only
- C) By the seriousness of the consequences of the breach: termination is available only if the innocent party is deprived of substantially the whole benefit of the contract
- D) By whether the breach was deliberate or accidental
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Answer: C) By the seriousness of the consequences of the breach: termination is available only if the innocent party is deprived of substantially the whole benefit of the contract
An innominate (intermediate) term cannot be classified in advance as a condition or warranty. The court looks at the effect of the breach: if it deprives the innocent party of substantially the whole benefit, they may terminate; otherwise only damages are available. In Hong Kong Fir the ship's unseaworthiness caused delay that was not serious enough to justify termination.
Question 3
A court is asked to imply a term into a commercial contract on the basis of the facts. Which test did the court use in The Moorcock?
- A) Whether the term is necessary to give business efficacy to the contract
- B) Whether the term would make the contract fairer to the weaker party
- C) Whether the term was mentioned during negotiations
- D) Whether the term is implied by the Consumer Rights Act 2015
Show answer & explanation
Answer: A) Whether the term is necessary to give business efficacy to the contract
The Moorcock established the business efficacy test: a term will be implied if it is necessary to make the contract work as the parties must have intended. The related officious bystander test (Shirlaw v Southern Foundries) asks whether the term is so obvious that it goes without saying. Courts will not imply terms merely because they would be reasonable or fair.
Question 4
Under the Consumer Rights Act 2015, which of the following terms is implied into a contract for a trader to supply goods to a consumer?
- A) The goods will be delivered within 24 hours
- B) The goods will be the cheapest available on the market
- C) The goods will be of satisfactory quality
- D) The trader will provide a free replacement for any reason within 12 months
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Answer: C) The goods will be of satisfactory quality
The Consumer Rights Act 2015 treats goods supplied by a trader to a consumer as including terms that they are of satisfactory quality, fit for any particular purpose made known, and match their description, sample or model. There is no statutory term about price competitiveness, next-day delivery or replacement for any reason. Equivalent implied terms for business-to-business sales are found in the Sale of Goods Act 1979.
Question 5
Mrs Olley booked into a hotel and paid at reception. A notice in her bedroom excluded the hotel's liability for lost property. Her furs were stolen through the hotel's negligence. Why was the hotel unable to rely on the notice in Olley v Marlborough Court Hotel?
- A) The notice was not incorporated because it was seen only after the contract had been made
- B) Exclusion clauses are never valid in contracts with hotels
- C) The notice was in too small a print size
- D) The hotel had not signed the notice
Show answer & explanation
Answer: A) The notice was not incorporated because it was seen only after the contract had been made
To be incorporated, an exclusion clause must be brought to the other party's attention before or at the time the contract is made. The contract was concluded at the reception desk, so a notice in the bedroom came too late. Signature is a separate method of incorporation (L'Estrange v Graucob), and nothing in the case depended on print size.
Question 6
Lia signs a written contract to buy equipment without reading it. The contract contains an exclusion clause. There is no misrepresentation about its contents. Applying L'Estrange v Graucob, what is the position?
- A) Lia is bound by the clause because she signed the document
- B) Lia is not bound because she did not read the clause
- C) Lia is bound only if the clause was printed in red ink
- D) Lia is not bound because exclusion clauses must be separately initialled
Show answer & explanation
Answer: A) Lia is bound by the clause because she signed the document
Where a person signs a contractual document they are generally bound by its terms whether or not they read them. The position differs if the effect of the clause was misrepresented (Curtis v Chemical Cleaning and Dyeing Co). Whether the clause is ultimately effective may still depend on statutory controls such as the Unfair Contract Terms Act 1977.
Question 7
In a business-to-business contract, a supplier includes a clause excluding liability for death or personal injury resulting from its negligence. Under the Unfair Contract Terms Act 1977, what is the effect of this clause?
- A) It is valid if it satisfies the requirement of reasonableness
- B) It is valid because UCTA 1977 applies only to consumer contracts
- C) It is void and of no effect
- D) It is valid if the customer signed the contract
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Answer: C) It is void and of no effect
Section 2(1) of UCTA 1977 provides that a person cannot, by any contract term or notice, exclude or restrict liability for death or personal injury resulting from negligence. Exclusion of liability for other loss caused by negligence is subject to the reasonableness test. UCTA continues to govern business-to-business contracts, while consumer contracts are now covered by the Consumer Rights Act 2015.
Question 8
An exclusion clause is ambiguous and could be read in two ways, one of which favours the party seeking to rely on it. Which rule of interpretation will the court apply?
- A) The contra proferentem rule, construing the ambiguity against the party relying on the clause
- B) The literal rule, applying the meaning most favourable to the supplier
- C) The ejusdem generis rule, limiting the clause to similar types of loss
- D) The postal rule, treating the clause as effective when sent
Show answer & explanation
Answer: A) The contra proferentem rule, construing the ambiguity against the party relying on the clause
Under the contra proferentem rule any ambiguity in an exclusion clause is resolved against the party who inserted it and seeks to rely on it. This reflects the courts' traditionally strict approach to exclusion clauses. The other rules listed relate to statutory interpretation or contract formation rather than the construction of exclusion clauses.
Question 9
Under the Consumer Rights Act 2015, when is a term in a consumer contract regarded as unfair?
- A) When it is not printed in bold type
- B) When it sets a price higher than the market rate, even if the price is transparent and prominent
- C) When, contrary to the requirement of good faith, it causes a significant imbalance in the parties' rights and obligations to the detriment of the consumer
- D) When the consumer did not read it before entering the contract
Show answer & explanation
Answer: C) When, contrary to the requirement of good faith, it causes a significant imbalance in the parties' rights and obligations to the detriment of the consumer
Section 62 of the Consumer Rights Act 2015 provides that a term is unfair if, contrary to good faith, it causes a significant imbalance to the consumer's detriment, and an unfair term is not binding on the consumer. Terms specifying the main subject matter or the price are not assessed for fairness if they are transparent and prominent. Failure to read a term or its typeface does not by itself make it unfair.
Question 10
A statement made during negotiations is classified as a representation rather than a term. Which factor would most strongly suggest that a statement is instead a term of the contract?
- A) There was a long interval between the statement and the conclusion of the contract
- B) The statement was later omitted from a written contract
- C) The maker of the statement had special knowledge or skill compared with the other party
- D) The maker asked the other party to check the statement independently
Show answer & explanation
Answer: C) The maker of the statement had special knowledge or skill compared with the other party
Courts consider the importance of the statement, the timing, whether it was later reduced to writing and the relative knowledge of the parties. In Dick Bentley Productions v Harold Smith Motors a dealer with special knowledge was held to have given a term, whereas in Oscar Chess v Williams a private seller's statement was a mere representation. A long interval, omission from the written contract and an invitation to verify all point towards a representation.