Professional Documents
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Aspects of Contract and Negligence For Business
Aspects of Contract and Negligence For Business
FOR BUSINESS
vimukthi Adithya
BM 53/11
Acknowledgment
I would like to thank Mr. Pulasthi for sharing his valuable ideas with us regarding Aspects of
Contract and Negligence for Business. His lecture gave me some valuable points and the
hand-outs that were given came in handy while doing the report. My friends at ICBT who
helped at various situations and the books at the library helped me to gain a good knowledge.
Executive summary
A contract is an exchange of promises between two or more parties to do, or refrain from
doing, an act which in enforceable in a court law. Simply a contract is a legal binding
between two or more parties. The basic elements of a contract are: Offer and Acceptance or
agreement, Intentions to create legal relations and Considerations. There are mainly three
main requisites for an offer to be considered an offer in law, they are: Should Consist of a
statement of present intent to enter a contract; should be A definite proposal that is certain in
its terms; and Communication of the offer to the identified, prospective offeree.
In talking about Invitation to treat, it lacks an intention to be legally bound, the case Fisher v
Bell (1961) is a prime example of an Invitation to treat.
There are several occasions where agreements in social or domestic context are binding and
courts take several approaches, cases like Merritt v Merritt are examples for this. In talking
about consideration there are four main principles governing the sufficiency and nature of it.
They are: Consideration must move from the promisee, Consideration need not to move from
the promisor, Past consideration is not good consideration, Consideration must be sufficient
but need not be adequate.
Even though past consideration is not good considerations cases like Lampleigh v
Braithwaite proves that past consideration is sufficient at times.
Terms and representations also play a major role in contracts, where the terms are contractual
and are obligations of the contract, where the representations are not. One should also
understand that going beyond an existing contractual duty can also going g beyond a public
duty can be a valid consideration at times.
Warranties and conditions are also very important aspects of a contract, but there is a huge
difference between them .A condition is a major term of the contract which goes to the root of
the contract. If a condition is breached the innocent party is entitled to repudiate (end) the
contract and claim damages but not when a warranty is breached.
Torts are civil wrongs recognized by law as grounds for a lawsuit. The case between
Donoghue and Stevenson is a very important and a major case which talks about duty of care,
the neighbour principle and about breach of duty. It is after this case the Neighbour principle
was introduced by Lord Atkins.
Table of Contents
1. Introduction
P1
a)
b)
c)
d)
e)
2
Contract
2
Requisites for an offer to be considered an offer in law
2
Invitation to treat
2-3
Postal Rule 3
The approach court takes in examining and determining whether agreements in a
I.
II.
Facts and reasoning of a case going beyond an existing contractual duty can be
a valid consideration 6
Facts and reasoning of a case going beyond a public duty can be a valid
consideration 7
P2 7
a) Difference between a warranty and a condition
7
b) Effect of the phrase it is warranted that you will be present at the criterion theatre 16
weeks prior to commencement of the opera?
7
c) Effect of Mrs. Poussard not attending the opera 16 weeks prior to the commencement
of the opera? 8
d) Effect of Mrs. Poussard missing 10 days of practices?
8
e) Effect of Mrs. Poussard not being able to perform during the opening week
P 3.1
10
a) Duty of care
10
b) Neighbour Principle 11
c) Breach of duty 11
11
14
16
15
13
1. Introduction
Law is one of the main and most important aspects a business should consider and follow. It
is really important for a business to know and have some knowledge about legality and
mainly should have an idea about contracts.
This report mainly looks into concepts such as contracts, contents of contracts, Torts and
specific tort of negligence. This report also looks into various case laws which are used to
prove certain scenarios, such instances are where past consideration can be sufficient, going
beyond an existing contractual duty can be a valid consideration, and going beyond a public
duty is a valid consideration.
This report also looks into the differences between terms and representation and also
differences between a warranty and a condition.
Finally this report also looks into the case between Donoghue v Stevenson and talks about
duty of care, neighbour principle and breach of duty and at the same time this also looks into
the arguments put forward by both the claimant and the defendant in the Donoghue v
Stevenson case.
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P. 1
a) Contract
A contract is an exchange of promises between two or more parties to do, or refrain from
doing, an act which in enforceable in a court law. Simply a contract is a legal binding
between two or more parties. The basic elements of a contract are:
Invitation to treat
Many would describe invitation to treat in a number of ways, but simply this means an offer
to receive an offer. As the name invitation suggests, it is just an invitation for the customers
or the general public to submit an offer and it lacks an intention to be legally bound.
When we take the British law into consideration any type of advertisement over public media
or a price tag on a certain item is just an invitation to treat and is not an offer for sale.
(businessdictionary).
E.g. The case Fisher v Bell (1961) is a prime example of an Invitation to treat. The
defendant, Bell displayed a flick knife in the window of his shop. On 14th of December 1959,
the claimant, Fisher who is a chief inspector of police force, brought forward information
against the Defendant alleging the Defendant has contravened section 1(1) by offering the
flick knife for sale.
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d) Postal Rule
The postal rule is an exception to the general rule that an acceptance is only created when
communicated directly to the offeror. An acceptance is binding and the contract is said to be
perfected when the acceptor places his acceptance in the mailbox for return mail even if, in
fact it never reaches the offeror. (duhaime). The postal rule doesnt apply to any instantaneous
methods of communication such as fax, telephone, telex, etc.
e) The approach court takes in examining and determining whether agreements in a
domestic or social context are binding.
Social and domestic agreements play a major role in taking about intention to create legal
relations. There is a presumption that the parties do not intend to create legal relations, but
this is not the case always. At times these social and domestic agreements can be legally
binding.
Lets take the cases Balfour v Balfour (1919) KB 571 and Merritt v Merritt (1970) 1 WLR
1211 as an example to this.
In the case Balfour v Balfour, Mr. Balfour was employed in Ceylon. He and his wife
returned to UK on leave, but it was agreed that for health reasons she would not return
to Ceylon with him. He promised to pay her 30 per month as maintenance. Later the
marriage ended in divorce and the wife sued for the monthly allowance, which the
husband no longer paid.
Held This agreement purely a social and a domestic agreement, which was an informal
agreement, made between the husband and wife and this was not intended to be legally
binding.
In the case Merritt v Merritt, Mr. Merritt had left the matrimonial home, which was
owned by him to live with another woman. Mr. Merritt and Mrs. Merritt met and held
a discussion in Mr. Merritts car, at that time he agreed to pay her 40 per month out of
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So, when going through these cases we can clearly see that the courts would consider some
cases as legally binding even though they are social and domestic agreements, if there is
reasonable evidence such as the signed note in Merritt v Merritt to prove that the agreement
was indented to create a legal binding.
f) Main principles governing the sufficiency and nature of consideration
Consideration is a legal detriment that is suffered by the promisee and that is requested by the
promisor in exchange for his or her promise. A valid contract requires some exchange of
consideration. As a general rule, in a bilateral contract, one promise is valid consideration for
the other. In a unilateral contract, the agreed performance by the offeree furnishes the
necessary consideration and also operates as an acceptance of the offer. (law.jrank)
The main principles of consideration are:
g)
Yes, performance of duties owned to third parties, for a promise can also be considered as a
consideration.
In order to prove this we can take the case Scotson v Pegg (1861) EWHC Exch J2 as an
example.
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A purchaser of some coal paid Pegg to carry and to unload the coal. The claimant was
the supplier of the coal who had also paid the defendant to carry and unload the coal.
The claimant brought an action to recover the money paid arguing the defendant was
already under an existing duty to carry and unload the coal and thus provided no
consideration. (e-lawresources)
Held - An existing contractual duty owed to a 3rd party to the contract can amount to valid
consideration for a new promise. Consequently the claimant could not recover the sums paid
and the defendant was entitled to get paid twice for doing the same thing. (e-lawresources)
h) Instances where past consideration can be sufficient
Its usually said that past consideration is not good consideration, but there are instances
where past consideration has been valid. Past consideration can be valid if it was produced by
a request.
Lets take our memories way back into 1615, to the case of Lampleigh v Braithwaite which
proves us that past consideration can be sufficient or valid.
Braithwaite had killed a man and was due to be hung for murder. He asked the
claimant to do everything in his power to obtain a pardon from the King. Lampleigh
went to great efforts and managed to get the pardon requested. The defendant then
promised to pay him 100 for his efforts but never paid up. (e-lawresources).
Held - Whilst the promise to make payment came after the performance and was thus past
consideration, the consideration was proceeded by a request from the defendant which meant
the consideration was valid. The defendant was obliged to pay the claimant 100. (elawresources.com). We can also understand that it is not an easy task to travel a very long
distance and then get the pardon from the king.
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Representations
These are non contractual
These are statements of fact or opinion
These do not become a part of the contract, but it
induce the contract only
j)
I.
Facts and reasoning of a case going beyond an existing contractual duty can be
a valid consideration
The case of Hartley v Ponsonby (1857) 7 EB 872 proves us that going beyond an existing
contractual duty can be a valid consideration.
Half of a ship's crew deserted on a voyage. The captain promised the remaining crew
members extra money if they worked the ship and completed the voyage. The captain
then refused to pay up. (e-lawresources)
Held - The crew were entitled to the extra payment promised on the grounds that either they
had gone beyond their existing contractual duty or that the voyage had become too dangerous
frustrating the original contract and leaving the crew free to negotiate a new contract. (elawresources)
II.
Facts and reasoning of a case going beyond a public duty can be a valid
consideration
The case of Glasbrook Bros v Glamorgan County Council (1925) AC 270 proves us that
going beyond a public duty can be a valid consideration.
The defendant owners of a colliery asked the police to provide protection during
a miner's strike. The police provided the protection as requested and provided the
man power as directed by the defendants although they disputed the level of
protection required to keep the peace. At the end of the strike the police
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P2
a) Difference between a warranty and a condition
A condition is a major term of the contract which goes to the root of the contract. If a
condition is breached the innocent party is entitled to repudiate (end) the contract and claim
damages: But on the other hand Warranties are minor terms of a contract which are not
central to the existence of the contract. If a warranty is breached the innocent party may claim
damages but cannot end the contract. (e-lawresources)
b) Effect of the phrase it is warranted that you will be present at the criterion theatre
16 weeks prior to commencement of the opera?
Using the word Warranted will not have much of an effect on the actual contract. Saying it
is warranted that you will present, is just like anticipating or expecting her to come before 16
weeks, so even if this phrase is breached Spiers & Pond cannot repudiate the contract but
they can only claim damages.
c) Effect of Mrs. Poussard not attending the opera 16 weeks prior to the
commencement of the opera?
Even though she has breached the contract by not attending the opera 16 weeks prior to the
commencement of the opera Spiers & Pond cannot terminate this contract since she has only
breached a warranty of the contract not a condition. Warranties are minor terms of a contract
and they are not central to the existence on the contract, so since Mrs. Poussard has breached
a warranty of the contract Spiers & Pond could only claim damages for their loss rather than
repudiating the entire contract.
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e) Effect of Mrs. Poussard not being able to perform during the opening week
Mrs. Poussard being unable to sing during the opening week is a breach of a condition which
means breaching a condition goes to the root of the contract and since a condition was
breached Spiers & Pond could terminate the contract.
P 3.1
a) Incorporation of Exclusion clauses into a contract
The most common type of unfair terms are exclusion clauses whereby one party seeks to
exclude their liability arising under the contract. There are two ways how an exclusion clause
can be incorporated into a Contract. They are:
I.
By advance notice to the other party that the exclusion clause is to be a term of the
contract
Notice by display
Notice in a document
Notice by a course of dealing
By signature of the party agreeing to be bound by the exclusion clause
II.
b) The approach court takes in examining and determining whether contracts entered
into by minors are binding
According to the general common law rule minors are not bound by contracts they entered
unless they ratified them after reaching majority. There are special instances where a court
might determine that a contract entered into by minors is binding. They are:
A minor is bound by a contract for necessaries only if it is on the whole for his
benefit.
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c) What is Tort?
Torts are civil wrongs recognized by law as grounds for a lawsuit. These wrongs result in an
injury or harm constituting the basis for a claim by the injured party. While some torts are
also crimes punishable with imprisonment, the primary aim of tort law is to provide relief for
the damages incurred and deter others from committing the same harms. The injured person
may sue for an injunction to prevent the continuation of the tortious conduct or for monetary
damages. (Cornell university)
d) Concept of substantial performance
Substantial performance is a partial performance that satisfies the essential or primary
requirements of a contract. It may be accepted under certain circumstances on a pro rata basis
or upon payment of damages for the unfinished or defective execution. (businessdictionary)
We can take the case of Dakin & Co. V Lee (1916) as an example to substantial
performance.
Builders promised to build a house according to specification and failed to carry out
exactly all the specifications.
Held The CA held that the builders were entitled to recover the contract price, less so much
as ought to be allowed in respect of the items found to be defective.
In taking about any exceptions to this concept, there are few exceptions to the doctrine of
substantial performance. They are;
If the contract explicitly states that specific and complete performance is required.
If performance can be completed by a minor alteration, then the party must correct the
mistake.
In order to prove exceptions to this concept we can use the case Bolton v Mahadeva (1972)
1 WLR 1009
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The claimant installed central heating in the defendant's home. The agreed contract
price was 560. The defendant was not happy with the work and refused to pay.
Defects in the work amounted to 174.
Held - The action by the claimant to enforce the payment failed since the court held there was
no substantial performance. (e-lawresources)
P 3.2
a) Duty of care
Duty of care refers to the circumstances and relationships which the law recognises as giving
rise to a legal duty to take care. A failure to take such care can result in the defendant being
liable to pay damages to a party who is injured or suffers loss as a result of their breach
of duty of care. Therefore it is necessary for the claimant to establish that the defendant owed
them a duty of care. (e-lawresources)
When talking about the case Donoghue v Stevenson, the manufactures should have some
reasonability towards the customers, in other words a duty of care towards the customers and
they are expected to produce goods in a way, that it will not harm their customers or the
public. In this case Even though the two parties did not have direct contract the defendant has
caused harm and breached his duty of care.
b) Neighbour Principle
The Neighbour principle was first brought up Lord Atkin in the case Donoghue v Stevenson.
In Donoghues case she had not purchased the ginger beer but had received it as a gift; she
was a neighbour rather than a party to the contract. Atkin said of the principle. You must
take reasonable care to avoid acts or omissions which you can reasonably foresee would be
likely to injure your neighbour. Who, then, in law is my neighbour? The answer seems to be
persons who are closely and directly affected by my act that I ought to have them in [mind]
when I am [considering these] acts or omissions. (lawgovpol)
c) Breach of duty
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P 3.3
a) Situations where a person is liable in tort, in instances where harm is caused to
another without intent/negligence
Yes, in some torts the defendant is liable even though the harm to the claimant occurred
without intention or negligence on the defendants part.
This can be further understood clearly by the case Rylands v Fletcher (1868)
The defendant owned a mill and constructed a reservoir on their land. The reservoir
was placed over a disused mine. Water from the reservoir filtered through to the
disused mine shafts and then spread to a working mine owned by the claimant causing
extensive damage. (e-lawresources)
Held - The defendants were strictly liable for the damage caused by a non- natural use of
land.
The claimant was a fireman. A woman had been involved in a traffic accident and was
trapped underneath a lorry. This was 200-300 yards away from the fire station. The
fire services were called to release the woman. They needed to transport a heavy lorry
jack to the scene of the accident. The jack could not go on the fire engine and the
normal vehicle for carrying the jack was not available. The fire chief ordered the
claimant and other firemen to lift the jack on to the back of a truck. There was no
means for securing the jack on the truck and the firemen were instructed to hold it on
the short journey. In the event the truck braked and the jack fell onto the claimant's leg
causing severe injuries. (e-lawresources)
Held - There was no breach of duty. The emergency of the situation and utility of the
defendant's conduct in saving a life outweighed the need to take precautions.
P4
P 4.1 Arguments put forward by both the parties in Donoghue v Stevenson case
The case between Donoghue v Stevenson [1932] AC 572 is one of the main and most
important cases in the history which brought up new theories such as the neighbour principle.
When talking about the arguments put forward by the two parties we can come to a
conclusion that both parties never knew and had an idea about the neighbour principle before
this.
Lets now briefly discuss about the arguments put forward by the two parties.
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In the other hand the defendant Stevenson might have argued stating that:
The claimant doesnt have any contract with him and that he cannot owe the claimant Mrs.
Donoghue a duty of care since they did not have a contract. He further would have argued
stating that this bottle was purchase by Mrs Donoghue friend and the contract was only then
formed with her even though Mrs Donoghue drank and it and got sick.
So after all the arguments were put forward, next was where this so called Neighbour
Principle came into the scene. Lord Atkins brought this up stating that in law neighbours are
Persons who are closely and directly affected by my act that I ought reasonably to have them
in contemplation as being so affected when I am directing my mind to the acts or omissions
which are called in question.
Comparative negligence - This defense only bars the plaintiff from recovering
damages by the percent he is deemed to be at fault. For example, if a plaintiff were
deemed two percent at fault and the defendant 98 percent at fault, his damages would
be reduced by two percent rather than the entire amount.
Assumption of the risk this is one of the negligence defenses used when people are
hurt while participating in dangerous activity. This is typically when they reasonably
should have known they might be injured. Some examples of this could be sky diving
or bungee jumping. It could also be applicable whenever someone knowingly uses
faulty equipment to do a job, such as climbing on an unsafe ladder. This defense may
be used in many jurisdictions whether or not a waiver has been signed. (wisegeek)
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References
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