Chapter 8 Multiple-choice questions

. The primary obligations of a contract are main obligations undertaken by the parties; auxiliary obligations, such as an obligation by the seller to notify the buyer of shipment under a contract for the sale of goods, are not primary obligations.

True

False

. Where a contract is frustrated prior to the due date of performance, a party who has previously committed an anticipatory breach is not liable to pay damages for that breach, provided the breach has not been accepted before the frustration.

True

False

. Which one of the following statements concerning void and voidable contracts is false?

A voidable contract is a contract under which a party has a right to rescind it; it remains valid until the party exercises that right.

A void contract is automatically of no effect from the very beginning.

When a voidable contract is rescinded, it comes to an end only prospectively and a party may claim damages on the ground that the other party has committed a breach before the rescission.

Where a voidable contract is set aside, no right of action for damages can arise from the contract.

. Which of the following events will automatically discharge a contract? [Please select all that apply.]

The realisation of a condition subsequent.

A repudiatory breach of contract by one of the parties.

A release and replacement.

Due performance by both parties.

. Where one of the parties to the contract commits an anticipatory breach and the breach is a continuing one, the other party may terminate the contract even after it has affirmed the contract.

True

False

. A Ltd enters a contract with B Ltd, under which B Ltd is to develop a software product specifically tailored for A Ltd for a fixed price. Before B Ltd starts the development or incurs any expense under the contract, A Ltd cancels the contract, alleging a fundamental change of its business strategy. B Ltd ignores A Ltd's cancellation and continues to complete the development of the software. Supposing the performance of the contract will not enhance B Ltd's reputation, which of the following statements most accurately summarise the legal position between the parties? [Please select all that apply.]

B Ltd is entitled to the contract price because it may freely decide whether to terminate or to affirm the contract following A Ltd's anticipatory breach.

B Ltd is bound to terminate the contract following A Ltd's anticipatory breach because B Ltd has no legitimate interest in affirming the contract and continuing its performance.

B Ltd is not entitled to the contract price because it cannot complete its performance of the contract without the cooperation of A Ltd.

B Ltd is entitled to the contract price because its performance of the contract does not require the cooperation of A Ltd.

. Where one of the parties to the contract (B) affirms the contract following the other party's (A's) anticipatory breach and then B itself commits a breach of contract unconnected with A's anticipatory breach, which one of the following statements concerning the first party's (B's) rights is true?

The first party (B) can use the previous anticipatory breach as an excuse for its own subsequent breach.

The first party (B) has, by committing the subsequent breach, lost its right to accept A's previous anticipatory breach.

The first party (B) is liable to the other party if the latter (A) institutes a claim for damages on the ground of the subsequent breach.

The first party (B) will not be liable for the subsequent breach if, after having committed that breach, it accepts A's previous anticipatory breach as terminating the contract.

. On 1 June, A contracts to sell a quantity of goods to B to be delivered by 1 July. On 15 June, as A is still making arrangements for the shipment of the goods, he receives a fax message from B stating that the goods are no longer wanted. Which one of the following statements concerning A's rights is true?

A is not entitled to terminate the contract or to claim damages until 1 July.

A is entitled to claim damages immediately but is not entitled to terminate the contract until 1 July.

A is entitled to terminate the contract and claim damages immediately.

A is entitled to terminate the contract immediately but is not entitled to claim damages until 1 July.

. Which one of the following statements most accurately describes the legal effects of a repudiatory breach by one of the parties to the contract?

The breach will not affect the subsistence of any exemption or arbitration clauses in the contract.

If the non-breaching party elects to affirm the contract, the breach will cause the secondary obligation to pay damages as compensation to accrue.

The breach will terminate the primary obligations of the contract.

The breach will not cause the secondary obligation to pay damages as compensation to accrue until the non-breaching party elects to accept the breach.

. Where one of the parties to the contract commits a repudiatory breach, in which of the following situations is the non-breaching party's right to accept that breach lost? [Please select all that apply.]

The non-breaching party has so conducted itself as to lead the party in breach reasonably to believe that the non-breaching party has affirmed the contract and the party in breach has relied upon this belief to its detriment.

The non-breaching party remains silent during a short period following the breach.

In a commercial (B2B) contract, the non-breaching party immediately brings the breach to the attention of the party in breach and requests the latter to cure it.

Where the breach consists in the delivery of defective goods by a seller under a commercial (B2B) contract for the sale of goods, the buyer has failed to take a reasonable opportunity to inspect the goods and has accepted the goods without objection.

. The distinction between strict and qualified contractual obligations is that the former is an obligation to achieve a guaranteed result, while the latter is an obligation to exercise reasonable care and skill.

True

False

. Which one of the following statements most accurately summarises the decision in Vitol SA v Norelf Ltd, The Santa Clara [1996] QB 108?

The election to accept a repudiatory breach must be communicated to the party in breach.

Silence and inaction may, in particular circumstances, constitute an effective termination of the contract following a repudiatory breach.

The election to accept a repudiatory breach need not be clear and unequivocal in all cases.

Generally speaking, silence and inaction may constitute an effective affirmation of the contract following a repudiatory breach.

. Which of the following statements relating to the legal effect of a failure to perform a strict contractual obligation are true? [Please select all that apply.]

The general rule is that any departure from a strict performance obligation will constitute a breach of contract.

The general rule is that a departure from a strict performance obligation will constitute a breach of contract only when it prevents the purpose of the contract being fulfilled.

The general rule is that a departure from a strict performance obligation will not constitute a breach of contract unless it amounts to a failure to exercise reasonable care and skill.

Where the performance obligation is strict, a departure from it may not constitute a breach of contract if the departure falls within the de minimis rule.

. Which one of the following statements most accurately summarises the decision in L Schuler A-G v Wickman Machine Tools Sales Ltd [1974] AC 235?

Whether a right of termination arises from a breach of an innominate term depends on whether the effects of the breach will deprive the innocent party of substantially the whole of the benefit that it is intended that he should obtain from the contract.

The parties are free to classify any term as a condition so that any breach of the term will give rise to a right to terminate the contract.

A term may not be recognised as a condition if the parties could not have contemplated it as having the effect of a condition, even if the parties expressly used the word 'condition' to describe the term.

A time stipulation in a commercial contract is usually treated as a condition, even if the parties do not expressly classify it as such.

. Which one of the following statements relating to entire or severable obligations is true?

A breach of an entire obligation may not entitle the innocent party to terminate the contract, provided the party in breach has rendered substantial performance under the contract.

In a building contract under which the construction work is to be paid by a lump sum, it is usually the case that any breach by the constructor will entitle the other party to terminate the contract.

According to s. 31(2) of the SGA 1979, obligations under a contract for sale and delivery of goods in instalments are severable and breach of these obligations will not give rise to a right to terminate the contract.

Where a breach of an entire obligation occurs and the innocent party lawfully terminates the contract, the party in breach may still be entitled to reasonable payment for the value of its actual performance.

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