## Question 1 A service provider runs an online coffee subscription service, offering a monthly delivery of specialty coffees from around the world. Subscribers can sign up for a 6-month or 12-month plan with the option to cancel anytime before the next billing cycle. Two weeks into her 12-month plan, a subscriber emails the service provider to cancel her subscription citing financial difficulties. Despite this, the service provider processes another monthly shipment and charges the subscriber's account. Which argument would likely be the subscriber's strongest defence against the charge for the shipment processed after her cancellation request? - A. The subscriber had financial difficulties, making it unreasonable for the service provider to expect continued payments. - B. The subscriber's cancellation constituted a counter-offer that the service provider implicitly accepted by not disputing it immediately. - C. Since the subscriber subscribed to an online service, the terms do not apply as strictly as they would in a physical contract. - D. The cancellation request constituted a revocation of her acceptance of the contract terms, effective before the next billing cycle. - E. The subscription service terms allow the service provider to reject cancellations at his discretion.

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The correct answer is D. The subscriber's cancellation request effectively revoked her ongoing acceptance of the contract terms, specifically before the commencement of the next billing cycle. This action demonstrates her intention to withdraw from the contractual agreement according to the option provided by the subscription service to cancel before the next billing cycle. Option A is incorrect because financial difficulties, while unfortunate, do not legally absolve the subscriber from the contract unless specific financial hardship clauses are included in the contract, which was not mentioned. Option B is incorrect because although the subscriber did communicate her desire to end the contract, this does not constitute a counter-offer but rather a cancellation following the terms of the agreement that allows for cancellation before the next billing cycle. Option C is incorrect because the method of contracting (online) does not diminish the applicability or enforceability of the contract terms agreed upon by both parties. Option E is incorrect because the scenario described does not specify that the subscription terms grant the service provider the discretion to reject cancellations. Moreover, the subscriber's defence relies on her use of the cancellation policy as stated, not on the service provider's acceptance of her cancellation.

## Question 2 A small software development company enters into a contract with a larger, multinational corporation for the creation of a bespoke software solution. Part way through the development process, the larger corporation seeks to impose additional features not originally agreed upon. Despite this causing a significant increase in workload, the software company proceeds without formal amendment to the contract or additional compensation agreed upon. In line with contractual obligations and the duty to mitigate losses, what should the software development company have done upon the request for additional features? - A. Continued with the development of additional features to maintain a good business relationship. - B. Immediately ceased work until a formal contract amendment was negotiated and agreed upon. - C. Sought indemnity against any potential losses or damages incurred by the additional work. - D. Issued a guarantee for the original scope of work, excluding the additional features requested. - E. Negotiated a compromise that includes some of the additional features within the original quote to mitigate potential losses.

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The correct answer is C. Sought indemnity against any potential losses or damages incurred by the additional work is the most prudent action. This action aligns with the duty of the party to protect itself from unforeseen losses or additional burden not originally agreed upon within the contractual framework. Option A is incorrect because continuing with additional work without formal agreement does not align with best contractual practices and fails to mitigate potential losses. Option B is incorrect because ceasing work could also result in breach of contract allegations, thus not effectively mitigating losses or protecting interests. Option D is incorrect because issuing a guarantee for the original scope does not address the issue of additional features and potential losses arising from them. Option E is incorrect because, while negotiation is key in contract management, specifically seeking indemnity is the most direct way to mitigate possible future losses related to the additional work.

## Question 3 A freelance graphic designer sends a proposal via email to a potential client, detailing a complete branding package for £3000, and requests a response by the upcoming Friday. On Wednesday, the client replies with an email accepting the offer but also attaches a document with additional conditions regarding copyright transfer and requests a revised quote. Assuming the graphic designer did not respond to the additional conditions and revised quote request but later decides to pursue payment for the work outlined in the original proposal, which statement most accurately predicts the outcome? - A. The graphic designer can enforce the original contract as the client's acceptance was communicated within the specified timeframe. - B. The client's reply with additional conditions constitutes a counter-offer, thus negating the original offer. - C. The graphic designer is entitled to payment as the client's email indicated acceptance of the services. - D. The copyright transfer request nullifies the original contract, releasing the graphic designer from obligations. - E. No contract was formed due to lack of agreement on the contract terms.

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The correct answer is B. The client's reply adding additional conditions to the offer constitutes a counter-offer, effectively negating the original offer made by the graphic designer. In contractual terms, this means that no agreement was reached on the basis of the original terms proposed by the graphic designer. Option A is incorrect because the addition of new terms by the client means that there was not a straightforward acceptance of the original offer, thus preventing the formation of a contract on those original terms. Option C is incorrect because, while the client indicated a willingness to accept the services, the introduction of additional conditions represents a counter-offer, not an acceptance of the original terms. Option D is incorrect because the request for copyright transfer and a revised quote does not nullify the original offer but rather indicates that the client was not accepting the original terms. This response from the client creates a new set of terms to be agreed upon rather than nullifying the original contract. Option E is incorrect because a counter-offer was made, which indicates that there were negotiations and potential for contract formation, but the statement that 'no contract was formed due to lack of agreement on the contract terms' alone does not fully address the dynamics of offer, counter-offer, and acceptance.

## Question 4 During a renovation project for a local café, a customer verbally agreed to purchase custom-made furniture from a furniture company after being impressed by their catalogue. The customer specified that the furniture must match the café's new aesthetic theme precisely. Relying on this agreement, the furniture company began the production of the furniture. However, when the time came for delivery, the customer refused the furniture, claiming that the agreement was never formally put into writing and thus, not binding. Is the furniture company entitled to payment for the custom-made furniture from the customer? - A. Yes, because reliance on a verbal agreement for custom goods implies a binding contract. - B. Yes, because custom-made goods automatically create a contract upon production. - C. No, because the agreement was not in writing, therefore does not meet the formalities of a contract. - D. No, because the customer explicitly stated her preferences, not her commitment to purchase. - E. Yes, because the production of custom-made furniture constitutes acceptance of the contract through conduct.

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The correct answer is E. The furniture company's commencement of the custom furniture production based on the customer's specifications and reliance on the verbal agreement can be viewed as acceptance through conduct, forming a contract that binds the customer to the purchase. Option A is incorrect because merely relying on a verbal agreement does not by itself imply a binding contract, especially for goods that require specific formalities under the law. Option B is incorrect because the automatic creation of a contract upon production is not a recognized principle without evidence of agreement or conduct indicating acceptance. Option C is incorrect because even though some contracts require formalities, the law recognizes contracts can be made orally, especially when there's evidence of reliance and act of performance. Option D is incorrect because stating specifications for goods to be manufactured specially indicates more than a casual conversation; it demonstrates intention and could be interpreted as suggestive of a contractual agreement.

## Question 5 Two seasoned entrepreneurs decide to collaborate on a new tech startup. They have a series of meetings and exchange emails outlining their respective responsibilities, capital contributions, and the equity split. One of the emails from one entrepreneur ends with a statement, 'Please note, this email and its contents are intended purely for discussion purposes and do not constitute a binding agreement between us.' Considering this statement in the email, if a dispute arises regarding the discussions mentioned in these emails, are they enforceable as a contract in court? - A. Yes, the discussions are enforceable because they relate to a business venture, which usually implies an intention to create legal relations. - B. No, the discussions are not enforceable owing to the explicit statement disclaiming any intention to create a legally binding agreement. - C. Yes, the discussions are enforceable as all exchanges between entrepreneurs regarding business ventures are intended to create legal relations. - D. No, the discussions are not enforceable because they were conducted via email, which cannot constitute a formal contract. - E. Yes, the discussions are enforceable because they involve a tech startup, and the tech industry assumes an intention to create legal relations.

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The correct answer is B. The explicit disclaimer in the email negates any presumption of intention to create legal relations that might ordinarily arise from discussions concerning a business venture. This is a clear expression that, despite discussing aspects typical of contractual agreements, these expressions were not meant to bind the parties legally. Option A is incorrect because the presumption of intention in business dealings can be overridden by an explicit statement to the contrary, as is the case here. Option C is incorrect as the nature of the discussions between entrepreneurs, without a clear intention to be legally bound, does not automatically result in a binding agreement. Option D is incorrect because electronic communications can form the basis of a contract if both parties intend to create legal relations, which they did not in this scenario. Option E is incorrect because, regardless of the industry, an explicit statement that negates the intention to create legal relations overrides any presumptions that might arise due to the context of the discussion.

## Question 6 A small business owner posts a request for legal services on a professional networking site, specifying a fixed budget and requesting solicitors to submit proposals. A solicitor responds with a detailed proposal, outlining their services and fees, which includes a clause stating that any disputes arising from the service will be resolved through arbitration. The business owner replies, expressing satisfaction with the proposal and suggests a meeting to discuss the services further without directly addressing the arbitration clause. Which of the following statements best describes the legal position? - A. The business owner's post on the networking site constituted an offer which the solicitor accepted by submitting their proposal. - B. The solicitor's proposal constituted a counter offer which the business owner implicitly accepted by agreeing to discuss the services further. - C. The solicitor's proposal constituted a counter offer which remains open for acceptance by the business owner. - D. The business owner's reply constituted a rejection of the original proposal, inviting the solicitor to make a new offer. - E. The discussion of the services further constitutes acceptance of all terms outlined in the solicitor's proposal, including the arbitration clause.

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The correct answer is C. The solicitor's proposal constituted a counter offer, and the business owner's reply expressing satisfaction and suggesting a meeting to discuss further does not constitute explicit acceptance of the solicitor's terms, particularly the arbitration clause. Acceptance must be clear and unequivocal for a contract to be formed. Thus, the counter offer remains open for acceptance by the business owner. Option A is incorrect because the initial post by the business owner was an invitation to treat, inviting solicitors to make offers through their proposals, not an offer itself. Option B is incorrect because the business owner's willingness to discuss the services further does not imply implicit acceptance of all the terms in the solicitor's proposal. Acceptance needs to be clear and unequivocal. Option D is incorrect because suggesting a meeting to discuss the services is not a clear rejection of the solicitor's proposal; it indicates a desire to negotiate further. Option E is incorrect because discussing the services further without explicitly agreeing to the terms, including the arbitration clause, does not constitute acceptance of the proposal.

## Question 7 A landscaping company enters into a contract with a homeowner to install a deluxe garden at a cost of £10,000, with completion due by the end of August. Unforeseen supply chain issues, however, result in the landscaping company being unable to source specific rare plants specified in the contract, leading to the company's inability to fulfill the agreement. The homeowner, eager to have the garden completed on time for an upcoming event in September, finds another company able to provide a similar, although not identical, garden installation with readily available plants for £12,000. What amount of damages is the homeowner most likely entitled to from the original landscaping company for the breach of contract? - A. £2,000, representing the additional amount paid to secure an alternative landscaping service. - B. £10,000, reflecting the original contract price with the first company. - C. £12,000, equivalent to the total cost paid to the alternative company. - D. £1,000, calculated as a convenience fee for the homeowner's troubles. - E. £20,000, combining both the original and alternative landscaping costs as punitive damages.

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The correct answer is A. The primary aim of compensatory damages in contract law is to place the injured party in the position they would have been in if the contract had been performed as agreed. Thus, the homeowner is entitled to the extra £2,000 paid over the original contract price to achieve a similar outcome with another company. Option B is incorrect because the damages should not merely reflect the original contract price but should also consider the actual loss suffered, which includes the additional expense of arranging an alternative service. Option C is incorrect because compensating the homeowner £12,000 would not reflect the loss accurately, as it includes the original budgeted amount for the garden installation. Compensation is meant to cover the loss suffered beyond what was initially agreed, not the entire cost of a substitute service. Option D is incorrect as damages are intended to compensate for actual losses incurred from the breach, not to serve as a token or convenience fee for the inconvenience caused. Option E is incorrect because punitive damages are generally not awarded in contract law scenarios like this, where the goal is to compensate the injured party rather than to punish the breaching party.

## Question 8 During the negotiation of a commercial lease, the solicitor for the lessee discovers that the lessor is in a dire financial situation which has not been disclosed, and this information could significantly impact the terms of the lease favourable to the lessee. The client advises the solicitor not to disclose this information to the lessor's solicitor. In accordance with the SRA Code of Conduct, how should the solicitor proceed? - A. Proceed as instructed by the client and not disclose the information to the lessor's solicitor. - B. Advise the client on the importance of fairness in negotiations and suggest disclosing the information to the lessor's solicitor. - C. Disclose the information to the lessor's solicitor without the client's consent to uphold fairness. - D. Withdraw from representing the client as they are suggesting an action that compromises ethical standards. - E. Report the client to the SRA for attempting to take advantage of the lessor's financial situation.

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The correct answer is B. Advising the client on the importance of fairness in negotiations and suggesting disclosing the information to the lessor's solicitor is the most ethically sound action. This approach aligns with the SRA Principles of acting with integrity and upholding public trust and confidence in the solicitors' profession. It also involves communicating effectively with the client about the potential implications of their actions on the negotiation process and their duty to act fairly. Option A is incorrect because proceeding as instructed without considering the ethical implications compromises the solicitor's duty to act with integrity and fairness. While client confidentiality is important, solicitors are also expected to ensure that their actions do not contribute to unfair practices. Option C is incorrect because disclosing the information without the client's consent could violate client confidentiality, which is another core principle under the SRA Code of Conduct. The solicitor's first duty is to advise the client and seek to persuade them to authorize disclosure. Option D is incorrect because withdrawal from representation should be a last resort, following efforts to guide the client toward ethical conduct. It is preferable to attempt to rectify the situation through advice and persuasion first. Option E is incorrect because reporting the client to the SRA without first attempting to address the issue with the client does not align with the solicitor's duties to provide a proper standard of service to their client and to resolve issues of professional conduct internally where possible.

## Question 9 A small tech startup hires a web development agency to create a new e-commerce platform with specific custom functionalities, with project completion expected in six months. The contract price is £40,000, with £20,000 payable upfront and the remaining £20,000 upon completion. Four months into the project, the startup discovers that the agency has failed to implement a critical payment gateway as promised. The agency refuses to remedy the defect. The startup estimates the cost to hire another agency for this specific task at £15,000. Assuming the startup keeps the partially completed platform and withholds the final £20,000 payment, what amount of damages can the startup claim from the web development agency? - A. They can claim £15,000, representing the cost to complete the missing functionality. - B. They can claim £35,000, the sum of the initial payment and the cost to implement the missing functionality. - C. They can claim £20,000, representing the initial payment made. - D. They cannot claim any amount as the failure to implement the payment gateway does not constitute a breach of contract. - E. They can claim £40,000, reflecting the full contract value.

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The correct answer is A. The startup can claim £15,000 as cost of cure damages. Under the principle of putting the innocent party in the position they would have been in if the contract had been performed, the startup is entitled to the cost of rectifying the defective performance. Since the startup is keeping the partially completed platform and withholding the final £20,000 payment, the appropriate measure of damages is the £15,000 cost to complete the missing functionality. This ensures the startup ends up paying £35,000 total (£20,000 already paid plus £15,000 to complete) for a complete platform, which is actually less than the original £40,000 contract price. Option B is incorrect because claiming both the initial payment of £20,000 and the £15,000 cost to complete would result in unjust enrichment. The startup would effectively receive the platform for free while also receiving money. Damages are compensatory, not punitive. Option C is incorrect because claiming only the initial payment would mean treating this as a total failure of consideration, which is not appropriate where the startup is keeping and using the partially completed work. Option D is incorrect as the agency's failure to implement a critical component of the project as specified in the contract does constitute a breach of contract. Option E is incorrect because the startup cannot claim the full contract value when they are retaining the benefit of the work performed by the agency.

## Question 10 A graphic design company entered into a contract with a client to create a branding package, including a logo and website design, to be completed by the 1st of June. The client planned to launch their new business on the 5th of June and had invested £4,000 in advertising for the launch date. Due to the design company's delay, the project was not completed until the 20th of June, resulting in the client having to postpone their business launch and waste the initial advertising expenditure. Given the design company's breach of contract, which damages is the client entitled to claim? - A. The client can claim the £4,000 spent on advertising and an additional amount for loss of opportunity. - B. The client can only claim for the £4,000 advertising expense as direct losses from the breach. - C. The client is entitled to a full refund of any fees paid to the design company due to the delay. - D. The client can recover damages for the £4,000 advertising cost, plus damages for distress and inconvenience caused by the delay. - E. The client is entitled to nominal damages, as the service was eventually completed.

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The correct answer is B. The client can claim for the £4,000 advertising expense as these are direct losses that resulted from the breach of contract by the design company, being expenses wasted due to reliance on the contract being performed on time. Option A is incorrect because claims for loss of opportunity are generally speculative and not recoverable unless they can be shown to directly flow from the breach and are not too remote. Option C is incorrect because a full refund of fees paid would only be applicable if the service had not been provided at all or if such a remedy was specified in the contract for such a breach. Option D is incorrect because, under contract law, damages for distress and inconvenience are not usually recoverable unless the contract is of such a kind that distress and inconvenience damages were a foreseeable result of the breach at the time the contract was made. Option E is incorrect because the client incurred specific quantifiable losses beyond nominal damages due to the design company’s delay.

SQE1 FLK1 Contract Sample Questions July 2024