FE1 Exam Thread (Read 1st post!) No trading

Contract March 2022 paper, if anyone needs it:

QUESTION ONE

Ken is a dairy farmer with a 5 year lease on a 20 acre piece of farm land, consisting of fields and animal sheds with machines to milk the cows. When he entered into the lease he explained to the landlord, Mary, that he had chosen this land as it was “so close to the local dairy” that it would be perfect for his dairy business and would greatly reduce his transport costs. However, one year into the lease there was an unprecedented outbreak of disease in livestock in the local area. This was declared an animal health crisis, and all farms in the area, including Ken’s, were closed down for a period of 6 months by the local health authority. During this time, Ken had no income from his cow herd and, although a small amount of compensation was paid by the local health authority, he was unable to pay the rent on the lease. Mary is threatening to sue Ken for the rent owed for the 6 months his farm was closed, and Ken wants to know if he has any defence to her claim for rent.

In addition, the public health crisis meant that the local dairy was forced to close. This means that Ken now has to travel a much farther distance to sell the milk, making his business economically unviable for the future. Although there are no clauses in the contract dealing with the possibility of early termination of the lease, Ken is considering terminating his lease early, and wants to know if he might have any grounds for doing so.

Advise Ken.

QUESTON TWO

Dervla is a freelance graphic designer. She enters into a contract with a national newspaper to design the advertisements for the weekend edition of its newspaper, for a period of 2 years. During negotiations, she states that the nature of the job means that she will be able to do it from home. The newspaper editor says “Of course! We wouldn’t expect you to come into the office!” However, six months into the contract, the newspaper editor changes. The new editor says that he wants Dervla to come into the newspaper offices every Thursday to do the design work, instead of working from home. When Dervla says that she cannot do so, he terminates the contract “for breach of contract”. Dervla is furious, as she is losing out on a major source of income. She wants to know if she has any cause of action in contract law.

Advise Dervla.

QUESTION THREE

Coldstore Ltd is a transporter of frozen food and pharmaceuticals to businesses across Ireland, with its own fleet of refrigerated trucks to make deliveries.

In January 2021, Coldstore Ltd agreed to be a transporter for a large pharmaceutical company, Xyn Ltd. Tom, the manager of Coldstore Ltd, signed the pharmaceutical company’s standard form contract. In December 2021, one of the deliveries was two days late due to a shortage of drivers. Xyn Ltd claims that, as a result of this delay, one of their most profitable production lines, producing Covid vaccines for the Government, was held up, losing them profits of €1 million. Xyn Ltd is seeking damages for lost profits, based on the following clause of its contract with Coldstore Ltd:

“In the event that any delivery is more than 24 hours late, the transporter shall be responsible for the costs of all and any delays in production, including all lost profits, and an additional payment of 150% of the cost of the material transported shall be immediately due.”

Coldstore Ltd believes that this is a penalty clause and should not be enforceable. In addition, Coldstore Ltd says that they had no way of knowing that that particular delivery was so important and would result in this extent of lost profits if delayed.

Advise Coldstore Ltd.

QUESTION FOUR

Carla is a dance teacher who has recently set up a dance school, StarShine. She also has a website on which she provides information about her classes and sells merchandise such as dance clothes, ballet shoes and equipment. Before her students take their first class she asks them (or their parents) to provide their details and sign a document that she wrote using a template she found on the internet. The document contains the following clauses:

“1. All classes are taken at students’ own risk. Starshine is not liable for any personal injury which is caused during our classes, even if caused by negligence of Starshine instructors or employees. All statutory warranties and conditions are excluded.

2. The class fee for the term, specified overleaf, must be paid in full before term begins, and is non-refundable, including in the event that a class is cancelled for any reason. An administrative fee of €30 is payable if payment is not made on time.”

She is now worried about the validity of these clauses and seeks your advice.

In addition, a pair of ballet shoes purchased on her website was recently returned by a customer who claimed that “they didn’t fit”, even though the shoes were the size stated on the website. She says that on her website it is clearly stated that she has a “no returns unless faulty” policy, and wants to know if she has to refund this customer, who returned the goods one week after purchase.

Advise Carla.

QUESTION FIVE

Fiona is a landscape gardener, who specialises in designing, building and maintaining gardens and outdoor areas for businesses such as hotels.

Fiona receives a phone call from a local mushroom grower, Mark, asking if Fiona would be interested in taking a truck full of mushroom compost for use in her business, as otherwise he “would just be throwing it out”. Fiona is delighted and immediately agrees to take the compost. When she collects the compost the next day Fiona is so happy with it that she promises she will pay Mark €200. Mark is delighted by this; however, Fiona never pays him the money. Mark is now insisting that she owes him the €200.

During the Covid pandemic, Fiona realises that she needs additional financial support if the business is to succeed. She enters into an agreement with Thomas, a local entrepreneur who sells plants, bushes and gardening equipment. Thomas agrees to invest €30,000 in Fiona’s business in return for a promise that Fiona will enter into a contract with him for the supply of plants and gardening equipment to her business for the next two years. However, after two weeks of discussions, they fail to agree on important terms of the supply contract, including the price and delivery arrangements. Fiona wants to end negotiations, but Thomas is insisting that she is under a contractual duty to negotiate the contract and/or has a duty of good faith to negotiate.

Advise Fiona.

QUESTION SIX

Ross is the manager of a construction site. He needs to hire a large excavator for the site. On Monday he emails Trina, the owner of “Exc Hire Ltd” to enquire about the price of hiring an “XL Excavator” for six months. That afternoon, Trina responds as follows:

“Thank you for your enquiry. We have one XL Excavator in stock, at a price of €3,000 per month plus delivery charges. If interested, please fill out the attached order form and return within 3 working days.”

On Wednesday Ross replies, saying “That’s great, I’ll take it!” However, he does not include the order form with his email. Trina replies to tell him that she hired out the XL Excavator to somebody else on Tuesday and so she cannot hire it to Ross. Ross is angry because he cannot find the XL Excavator for hire at this price anywhere else, and he believes he has a binding contract with Trina.

Advise Ross. Would your answer be different if Ross had filled in and returned the order form as requested?

QUESTION SEVEN

Shady Ltd operates a large manufacturing plant producing a range of popular breakfast cereals. Shady Ltd was recently invoiced by its accountants, Audit Ltd, for €14,000 for audit services provided. Shady Ltd’s managing director, Tom, has seen a rumour on social media that Audit Ltd is in a tough financial situation and is at risk of becoming insolvent. Deciding to take advantage of this, he tells Audit Ltd that unless the quoted figure of €14,000 is substantially reduced, he “won’t pay them a penny” and he will personally see to it that no company in the country will ever hire them again. Audit Ltd agrees to a payment of €10,000 but subsequently sends a letter seeking the full €14,000 due, arguing that the agreement to pay €10,000 is void for duress.

Advise Shady Ltd. Are there any other legal doctrines that Audit Ltd could potentially rely on, in addition to duress?

QUESTION EIGHT

Charm Ltd is a firm of computer software engineers, which specialises in providing protection to businesses against cyber attacks, malicious software and online viruses and scams.

In September 2021, Charm Ltd entered into a 5 year contract with Dart Ltd, to provide computer protection and maintenance services for a monthly fee of €10,000. The contract states (amongst other things):

“Term 5: Charm Ltd will use its best endeavours to provide and ensure continuous supply of protection against cyber attacks and malicious software for the duration of the agreement.”

However, on three separate occasions in December 2021 Dart Ltd was the victim of small scale cyber attacks. On each occasion the harm was quickly discovered and rectified, but Dart Ltd is now concerned that Charm Ltd may not be able to keep them safe. Dart Ltd has said that it wants to terminate its contract with Charm Ltd based on a breach of Term 5.

In addition, in January 2022 Charm Ltd entered into a 2 year contract with another company, Arrow Ltd, to provide a similar range of services. The contract with Arrow Ltd was to begin in May 2022, with the first monthly payment due that month. However, in February 2022 Arrow Ltd purported to cancel the contract, saying that they were entitled to do so as performance had not begun and they had given “reasonable notice” approximately two months before the first payment was due.

Advise Charm Ltd on both contracts.