Contract law is one of the highest-weighted subjects in FLK1, and for good reason — it underpins virtually every area of commercial legal practice. For SQE1 candidates, contract law questions test the ability to identify whether a valid contract exists, what its terms are, whether it has been breached, and what remedies follow. This guide covers the essential rules you must know cold before sitting FLK1.
Contract Formation: The Four Essentials
A binding contract requires four elements. Miss any one of them and there is no contract, regardless of how much the parties intended to be bound.
- Offer: A definite proposal to be bound on specific terms. Distinguish from an invitation to treat (shop displays, advertisements, website listings).
- Acceptance: Unconditional agreement to the offer’s exact terms. A counter-offer destroys the original offer (Hyde v Wrench). The postal rule applies to acceptance by post — effective on posting, not on receipt.
- Consideration: Something of value moving from the promisee. Must be sufficient but need not be adequate. Past consideration is not good consideration (Re McArdle). Performance of an existing public duty is not consideration unless something extra is done.
- Intention to create legal relations: Presumed in commercial contexts; rebutted in domestic and social arrangements.
Terms of the Contract
Once a contract exists, you need to identify its terms. SQE1 questions frequently test the distinction between conditions, warranties, and innominate terms — because the classification determines what remedy is available for breach.
- Condition: A term going to the root of the contract. Breach entitles the innocent party to treat the contract as discharged and claim damages.
- Warranty: A lesser term. Breach gives rise only to damages — the innocent party cannot terminate.
- Innominate term: Classification depends on the consequences of breach. If the consequences deprive the innocent party of substantially the whole benefit, the party can terminate (Hong Kong Fir Shipping).
Exclusion clauses require particular attention. They must be incorporated (by signature, notice, or course of dealing) and must on their true construction cover the breach. Under the Unfair Contract Terms Act 1977, business-to-business exclusions of negligence liability must satisfy a reasonableness test.
Implied Terms
Terms can be implied by statute (notably the Sale of Goods Act 1979 / Consumer Rights Act 2015 for goods), by custom, or by the courts (terms implied in fact under the business efficacy or obvious inference tests, and terms implied in law). The Supreme Court confirmed in Marks & Spencer v BNP Paribas that business efficacy and obvious inference are alternative routes, not cumulative requirements.
In SQE1 scenarios, always read the question facts carefully for whether a term has been incorporated before analysing whether it has been breached. Examiners frequently include facts that suggest the clause was never properly incorporated.
Vitiating Factors
A contract that appears valid on its face may be voidable or void due to a vitiating factor. The key vitiating factors tested in SQE1 are:
- Misrepresentation: A false statement of fact (not opinion, not future intention) that induces the contract. Fraudulent, negligent (s.2(1) Misrepresentation Act 1967), or wholly innocent. Remedy: rescission (all types) and damages (for fraudulent and s.2(1)).
- Mistake: Common mistake (both parties wrong about the same thing — difficult to establish); mutual mistake (parties at cross-purposes); unilateral mistake (one party wrong, other knows or ought to know).
- Duress and undue influence: Duress includes economic duress (unlawful threat leaving no reasonable alternative). Undue influence may be presumed in certain relationships.
Breach and Remedies
The standard remedy for breach of contract is damages — the aim is to put the claimant in the position they would have been in had the contract been performed (expectation loss). Reliance loss (wasted expenditure) is an alternative measure. Damages must not be too remote: the defendant is liable for losses arising naturally from the breach and for losses within the reasonable contemplation of both parties at the time of contracting (Hadley v Baxendale).
The claimant has a duty to mitigate their loss. Agreed damages clauses (liquidated damages) are enforceable if they are a genuine pre-estimate of loss; they are unenforceable penalty clauses if they are extravagant and unconscionable relative to legitimate interests (Cavendish Square v Makdessi).
Specific performance and injunctions are equitable remedies, available only where damages are inadequate.
Practise This Topic on Sqewise
Contract law questions appear frequently throughout FLK1. The best way to consolidate your understanding is through applied practice — testing yourself on real-style scenarios rather than re-reading notes. Start practising contract law questions on Sqewise, or review the full list of FLK1 and FLK2 topics we cover.
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