SQE1 · Subject page 3 · 8 min read

SQE1 FLK1 subject notes: formation, consideration and intention, privity and third party rights, terms and exemption clauses, misrepresentation, mistake, duress, undue influence and illegality, termination and frustration, remedies, and unjust enrichment.

What this subject covers

The SRA specification covers the formation of a contract (offer and acceptance, consideration, intention to create legal relations, certainty, capacity); parties (privity and the rights of third parties); contract terms (express and implied terms, incorporation, exemption clauses, boilerplate, interpretation, variation); vitiating factors (misrepresentation, mistake, unfair terms, duress, undue influence, illegality); termination (breach and frustration); remedies (damages, causation and remoteness, mitigation, liquidated sums and penalties, specific performance, injunctions, indemnities and guarantees); and restitution and unjust enrichment on termination.

Key principles

Formation

• Offer and invitation to treat: goods on display and most advertisements invite offers (Fisher v Bell; Pharmaceutical Society v Boots; Partridge v Crittenden); a unilateral offer to the world can be accepted by performance (Carlill v Carbolic Smoke Ball Co).
• Acceptance must mirror the offer; a reply on different terms is a counter-offer that kills the original (Hyde v Wrench). In the battle of the forms the last counter-offer accepted, often by conduct, usually wins (Butler Machine Tool v Ex-Cell-O).
• Communication: acceptance must be communicated, but by post it takes effect on posting where post is reasonable and not excluded (Adams v Lindsell); instantaneous communications take effect on receipt (Entores v Miles Far East). Revocation is effective only on receipt (Byrne v Van Tienhoven).
• Consideration must move from the promisee and need not be adequate. Performing an existing contractual duty is not consideration (Stilk v Myrick), unless the promisor obtains a practical benefit without duress (Williams v Roffey Bros). Part payment of a debt does not discharge the whole (Foakes v Beer), but promissory estoppel may stop the creditor going back on a promise to accept less, at least for the past (Central London Property Trust v High Trees House). Estoppel is a shield, not a sword.
• Intention: presumed absent in domestic and social agreements (Balfour v Balfour), presumed present in commercial ones; both presumptions are rebuttable (Merritt v Merritt).
• Certainty: an essential term left "to be agreed" with no mechanism is too uncertain (May and Butcher v The King); courts try harder to uphold agreements that have been acted on (Hillas v Arcos; Foley v Classique Coaches).
• Capacity: minors are bound by contracts for necessaries, at a reasonable price (Sale of Goods Act 1979, s 3).

Parties

Only parties can sue on a contract (privity). Under the Contracts (Rights of Third Parties) Act 1999 a third party expressly identified may enforce a term that expressly allows it or purports to confer a benefit on it, unless the parties did not intend it to be enforceable by the third party (s 1).

Terms

• Express terms and incorporation: a signed document binds whether or not read (L'Estrange v Graucob); notices must be given before or at the time of contracting (Olley v Marlborough Court; Thornton v Shoe Lane Parking); onerous terms need more prominent notice (Interfoto v Stiletto); a consistent course of dealing can incorporate terms.
• Implied terms: by statute (for consumers, the Consumer Rights Act 2015: goods of satisfactory quality, fit for purpose and as described, ss 9 to 11; services with reasonable care and skill, s 49), by custom, or in fact where necessary for business efficacy or obvious (Marks and Spencer v BNP Paribas).
• Classification: a condition (breach allows termination), a warranty (damages only) or an innominate term, where the right to terminate depends on whether the breach deprives the innocent party of substantially the whole benefit (Hongkong Fir Shipping v Kawasaki).
• Interpretation: the meaning a reasonable person with the parties' background knowledge would give the words, in their documentary and commercial context (Arnold v Britton; Wood v Capita).
• Variation: needs consideration (or a deed); a no-oral-modification clause is effective (Rock Advertising v MWB).

Exemption clauses

1. Was the clause incorporated?
2. Does it, properly construed, cover the loss?
3. Is it effective under statute?

• Consumer contracts: the Consumer Rights Act 2015. A trader cannot exclude liability for death or personal injury caused by negligence (s 65), or for the statutory rights on goods and services (ss 31, 57). Other terms must be fair (s 62).
• Business contracts: the Unfair Contract Terms Act 1977. Liability for death or personal injury by negligence cannot be excluded (s 2(1)); other negligence liability (s 2(2)) and liability on written standard terms (s 3) must satisfy the reasonableness test, judged when the contract was made, with the burden on the party relying on the clause (s 11; Sch 2 guidelines).

Vitiating factors

• Misrepresentation: a false statement of fact (not opinion or future intention, unless dishonestly held) that induced the contract. It makes the contract voidable; rescission can be lost by affirmation, delay, third party rights or impossibility of restoring the parties. Damages: fraud (Derry v Peek); negligent misrepresentation under s 2(1) Misrepresentation Act 1967, where the representor must prove reasonable grounds for belief and damages are on the fraud measure (Royscot Trust v Rogerson); damages in lieu of rescission at the court's discretion (s 2(2)).
• Mistake: common mistake as to the existence of the subject matter makes the contract void (Couturier v Hastie; Sale of Goods Act 1979, s 6); mistake as to quality must make the thing essentially different (Bell v Lever Bros; Great Peace Shipping). In face-to-face dealings a fraud about identity usually makes the contract voidable, not void (Lewis v Averay), so an innocent buyer before rescission gets good title (s 23 Sale of Goods Act 1979); a written contract with an identified person may be void (Shogun Finance v Hudson).
• Duress: illegitimate pressure that was a significant cause of entering the contract, typically with no practical alternative (Pao On v Lau Yiu Long; Atlas Express v Kafco). The contract is voidable.
• Undue influence: actual, or presumed from a relationship of trust and a transaction calling for explanation. A lender is put on inquiry when a spouse stands surety for the other's debts and must ensure she receives independent advice (Royal Bank of Scotland v Etridge (No 2)).
• Illegality: the court weighs the purpose of the prohibition, other relevant policies and proportionality (Patel v Mirza).

Termination

• Breach: a breach of condition, a serious breach of an innominate term, or a repudiation allows the innocent party to terminate or affirm. Before performance is due, an anticipatory breach may be accepted at once (Hochster v De la Tour) or the contract affirmed (White and Carter v McGregor).
• Frustration: a supervening event, without fault, that makes performance impossible, illegal or radically different (Taylor v Caldwell; Krell v Henry; Davis Contractors v Fareham UDC). Under the Law Reform (Frustrated Contracts) Act 1943, money paid is recoverable and money payable ceases to be payable, subject to an allowance for the payee's expenses (s 1(2)); a valuable benefit received may be paid for (s 1(3)).
• Restitution: money paid for a consideration that has totally failed is recoverable (Fibrosa v Fairbairn Lawson).

Remedies

• Damages put the claimant in the position it would have been in had the contract been performed (expectation), or reimburse wasted expenditure (reliance).
• Remoteness: loss arising naturally, or within the parties' reasonable contemplation because of special knowledge (Hadley v Baxendale; Victoria Laundry v Newman; The Achilleas).
• Mitigation: no recovery for loss the claimant could reasonably have avoided (British Westinghouse v Underground Electric Railways).
• Agreed sums: a clause triggered by breach is an unenforceable penalty if it imposes a detriment out of all proportion to the innocent party's legitimate interest in performance (Cavendish v Makdessi).
• Equitable remedies: specific performance where damages are inadequate, as in sales of land, but not for personal services; injunctions to enforce negative obligations. Both are discretionary.
• Guarantees and indemnities: a guarantee (secondary liability) must be evidenced in signed writing (Statute of Frauds 1677, s 4); an indemnity (primary liability) need not be.

Worked example

Lark Ltd agrees to buy a packaging machine from Mott Ltd for 80,000 pounds on Mott's standard terms, which limit Mott's liability to the price of the machine and exclude "all losses of profit". Mott's salesman said before the contract that the machine "runs at 200 boxes a minute"; it manages 120. Lark Ltd loses ordinary profits and a special contract it never mentioned to Mott.

1. The salesman's statement is a statement of fact that induced the contract. Lark Ltd can claim under s 2(1) Misrepresentation Act 1967 unless Mott proves reasonable grounds for belief; it may also argue the statement became a term.
2. The machine is not as described or fit for the purpose made known: implied terms under the Sale of Goods Act 1979 apply in this business sale.
3. The exclusion is on Mott's written standard terms and restricts liability for the implied terms, so under ss 3 and 6 UCTA it is effective only if Mott proves it reasonable. Under s 3 Misrepresentation Act 1967 a clause excluding liability for misrepresentation also needs to be reasonable.
4. Lark Ltd's ordinary lost profits fall within the first limb of Hadley v Baxendale; the special contract it never mentioned does not.

Scope follows the SRA's SQE1 Functioning Legal Knowledge Assessment Specification (FLK1, Contract). The notes are our own summary, not SRA material. Law of England and Wales as at 1 September 2026 (the SRA assesses the law as it stands four calendar months before the first assessment in a window).