LO1: Understand the essential LO1: Understand the essential

elements of a valid contract in elements of a valid contract in

a Business Context a Business Context
LO2: Apply Elements of LO2: Apply Elements of LO2: Apply Elements of LO2: Apply Elements of
Contract in Business Contract in Business
situations situations
By: Ananta Kar By: Ananta Kar
Email: anantakar@rocketmail.com Email: anantakar@rocketmail.com
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Essential Elements of a valid contract Essential Elements of a valid contract
Essential Essential elements elements:: Offer Offer and and acceptance acceptance;;
intention intention to to create create legal legal relations relations;;
consideration consideration;; capacity capacity;; privity privity of of contract contract
Types Types of of contract contract:: face face to to face face;; written written;; Types Types of of contract contract:: face face to to face face;; written written;;
distance distance selling selling;; impact impact
Types Types of of terms terms:: condition condition;; warranty warranty;;
innominate innominate term term;; express express;; implied implied;; exclusion exclusion
clauses clauses and and their their validity validity
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Outcomes and assessment criteria Outcomes and assessment criteria
Learning outcomes
On successful completion of
this unit a learner will:
Assessment criteria for pass
The learner can:
LO1: Understand the essential
elements of a valid contract
in a business context
1.1 explain the importance of the
essential elements required for the
formation of a valid contract
in a business context
1.2 discuss the impact of different
types of contract
1.3 analyse terms in contracts with
reference to their meaning and
effect
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What is a What is a contract contract
A contract may be defined as an agreement A contract may be defined as an agreement
which legally binds the parties which legally binds the parties
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Essential Elements of a valid contract Essential Elements of a valid contract
Agreement Agreement::
The The first first essential essential feature feature of of aa contract contract is is
that that the the parties parties have have made made an an agreement agreement..
This This usually usually determined determined by by the the rules rules of of
Offe Offer r and and acceptance acceptance.. Offe Offer r and and acceptance acceptance..
Consideration Consideration
The The second second essential essential element element is is the the
agreement, agreement, or or the the obligations obligations assumed assumed by by
each each party, party, must must be be supported supported by by
consideration consideration from from the the other other party party
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Essential Elements of a valid contract Essential Elements of a valid contract continued.. continued..
The The principle principle is is that that the the parties parties to to aa contract contract
must must each each provide provide something, something, whether whether
money, money, the the provision provision of of aa service service or or some some
other other form form of of contribution contribution to to the the contract contract
Intention to create legal relations: Intention to create legal relations:
The last essential element is that the parties The last essential element is that the parties
to the agreement intend that their promises to the agreement intend that their promises
be legally binding be legally binding
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Void Contract Void Contract
An An agreement agreement to to carry carry out out an an illegal illegal act act is is an an
example example of of aa void void contract contract or or void void
agreement agreement..
For For example, example, aa contract contract between between drug drug
dealers dealers and and buyers buyers is is aa void void contract contract simply simply dealers dealers and and buyers buyers is is aa void void contract contract simply simply
because because the the terms terms of of the the contract contract are are illegal illegal..
In In such such aa case, case, neither neither party party can can go go to to court court
to to enforce enforce the the contract contract..
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Validity Factors Validity Factors
Form Form:: Written Written or or Oral Oral
Genuine Genuine Consent Consent:: Misled Misled into into aa contract contract
Capacity Capacity:: Limited Limited capacity capacity to to enter enter into into the the
contract contract ii..e e.. minors minors
Content Content:: Contract Contract must must be be complete complete and and Content Content:: Contract Contract must must be be complete complete and and
precise precise in in its its term term
Legality Legality:: The The courts courts will will not not enforce enforce aa
contract contract which which is is deemed deemed to to be be illelgal illelgal or or
contrary contrary to to public public policy policy
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Privity of Contract Privity of Contract
If you dont provide consideration, you If you dont provide consideration, you
cannot sue on the contract. This is the cannot sue on the contract. This is the
critical rule in contract law, and reflects the critical rule in contract law, and reflects the
fact that consideration is essential fact that consideration is essential
Case Study Case Study- - Page 90 Page 90 Case Study Case Study- - Page 90 Page 90
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Conditions, warranties & Innominate terms Conditions, warranties & Innominate terms--
Application Scenario Application Scenario
http://www.e http://www.e- -
lawresources.co.uk/Conditions, lawresources.co.uk/Conditions,- -warranties warranties- -
and and- -innominate innominate- -terms.php terms.php
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3. Validity factor 3. Validity factor
33..11 Invalid Invalid contracts contracts
Void Void Contract Contract
The The life life of of aa contract contract
33..22 Form Form of of aa contract contract
It It may may be be written, written, oral oral or or inferred inferred from from
the the conduct conduct of of the the parties parties
Contracts Contracts by by deed deed- - Must Must be be in in writing writing and and
signed signed
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These These contracts contracts must must be be by by deed deed::
Leases Leases for for three three years years or or more more
AA promise promise not not supported supported by by consideration consideration
(example (example- - promise promise to to pay pay aa regular regular sum sum to to aa
charity) charity)
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Contract by deed Contract by deed
AA contract contract by by deed deed is is sometimes sometimes referred referred
to to as as aa speciality speciality contract contract.. Any Any other other type type
of of contract contract may may be be referred referred to to as as aa simple simple
contract contract.. contract contract..
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Contracts which must be in writing Contracts which must be in writing
Written document and usually signed by Written document and usually signed by
at least one of the parties at least one of the parties
A transfer of share in a limited company A transfer of share in a limited company
Consumer credit contracts Consumer credit contracts Consumer credit contracts Consumer credit contracts
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4. Offer & Its Application 4. Offer & Its Application
4.1 An offer is a definite promise to be bound 4.1 An offer is a definite promise to be bound
on specific terms on specific terms
Certainty of the offer Certainty of the offer
Case Study discussion Case Study discussion- - Gunthing Gunthing v Lynn 1831 v Lynn 1831
Hillas Hillas & Co Ltd v Arcos Ltd 1932 & Co Ltd v Arcos Ltd 1932 Hillas Hillas & Co Ltd v Arcos Ltd 1932 & Co Ltd v Arcos Ltd 1932
A definite offer may be made to a class of A definite offer may be made to a class of
persons or to the world at a large persons or to the world at a large
Case study Case study- - Carlill Carlill v Carbolic Smoke Ball Co 1893 v Carbolic Smoke Ball Co 1893
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4.2 Supply of Information and Statement of 4.2 Supply of Information and Statement of
Intent Intent
Only the supply in the proper sense may be Only the supply in the proper sense may be
accepted so as to form a binding contract. accepted so as to form a binding contract.
The supply of information will not be The supply of information will not be
considered to be offer. considered to be offer. considered to be offer. considered to be offer.
Case Study Case Study- - Harvey v Harvey v Facey Facey 1893 1893
Case Study Case Study- - Bigg Bigg v Boyd Gibbons 1971 v Boyd Gibbons 1971
A statement of intention A statement of intention
Advertising that an event such as an auction will Advertising that an event such as an auction will
take place is not an offer to sell take place is not an offer to sell
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4.3 An Invitation to treat 4.3 An Invitation to treat
An invitation to treat is an indication that An invitation to treat is an indication that
someone is prepared to receive offers with someone is prepared to receive offers with
the view to forming a binding contract. It the view to forming a binding contract. It
is not an offer in itself is not an offer in itself
There are four types of invitation to treat There are four types of invitation to treat There are four types of invitation to treat There are four types of invitation to treat
Auction sales Auction sales
Advertisements Advertisements
Exhibition of goods for sale Exhibition of goods for sale
An invitation for tenders An invitation for tenders
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Cases and Activities: Cases and Activities:
Advertisements Advertisements- -
Partridge v Crittenden 1968 Partridge v Crittenden 1968- - Page 61 Page 61
Activity 1 Activity 1- - Page 62 Page 62
Exhibition of goods for sale Exhibition of goods for sale Exhibition of goods for sale Exhibition of goods for sale
Fisher v Bell 1961 Fisher v Bell 1961- - Page 62 Page 62
Invitation for tenders Invitation for tenders
A tender is an estimate submitted in response to a prior A tender is an estimate submitted in response to a prior
request. request.
Activity 2 Activity 2
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4.4 Termination of the offer 4.4 Termination of the offer
An offer is terminated so that it may no An offer is terminated so that it may no
longer be accepted in any of the following longer be accepted in any of the following
circumstances circumstances
Rejection Rejection
Lapse of time Lapse of time Lapse of time Lapse of time
Revocation (Cancelled) by the offeror Revocation (Cancelled) by the offeror
Failure of a condition to which the offer was Failure of a condition to which the offer was
subjected subjected
Death of one of the parties Death of one of the parties
Case Study Case Study- - Hyde v Wrench Hyde v Wrench- - Page 63 Page 63
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Counter Counter Offer Offer- - AA counter counter offer offer is is aa final final
rejection rejection of of the the original original offer offer.. If If aa counter counter
offer offer is is made, made, the the original original offeror offeror may may
accept accept it, it, but but if if he he rejects rejects it it his his original original
offer offer is is no no longer longer available available for for the the
acceptance acceptance
Request Request for for Information Information- - It It is is possible possible to to
respond respond to to an an offer offer by by making making aa request request
for for information information
Lapse Lapse of of time time- - An An offer offer may may be be expressed expressed
to to last last for for aa specified specified time time
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Revocation Revocation by by the the Offeror Offeror- - An An offeror offeror may may
cancelled cancelled his his offer offer anytime anytime before before
acceptance acceptance..
Case Case study study- - Routledge Routledge v v Grant Grant 1828 1828- - Page Page 65 65
Failure Failure of of aa condition condition- - AA offer offer may may be be
conditional conditional in in that that it it is is dependant dependant on on some some conditional conditional in in that that it it is is dependant dependant on on some some
event event occurring occurring or or there there being being aa change change of of
circumstances circumstances
Case Case Study Study- - Financings Financings Ltd Ltd v v Stimson Stimson 1962 1962- - Page Page 66 66
Termination Termination by by death death- - The The death death of of the the
offeree offeree terminates terminates the the offer offer
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Acceptance & Its Case Application Acceptance & Its Case Application
55..11 Definition Definition::
Acceptance Acceptance is is the the unqualified unqualified (unconditional) (unconditional)
agreement agreement to to the the terms terms of of the the offer offer
Case Case Study Study- - Brogden Brogden v v Metropolitan Metropolitan Tailway Tailway Co Co 1877 1877- - Page Page 67 67
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5.2 Acceptance Subject to Contract 5.2 Acceptance Subject to Contract- - Means Means
the offeree is agreeable to the terms of the the offeree is agreeable to the terms of the
offer but proposes that the parties should offer but proposes that the parties should
negotiate a formal contract. Neither party is negotiate a formal contract. Neither party is
bound until the formal contract is signed. bound until the formal contract is signed.
Case Study Case Study- - Branca Branca v v Cobarro Cobarro 1947 1947- - Page 68 Page 68 Case Study Case Study- - Branca Branca v v Cobarro Cobarro 1947 1947- - Page 68 Page 68
55..33 Letter Letter of of Intent Intent- - AA letter letter of of intent intent is is aa
means means by by which which one one party party gives gives aa strong strong
indication indication to to another another that that he he is is likely likely to to
place place aa contract contract with with him him
Case Case Study Study- - British British Steel Steel Corpn Corpn v v Cleveland Cleveland Bridge Bridge and and
Engineering Engineering Co Co Ltd Ltd 1984 1984- - Page Page 68 68
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55..44 Acceptance Acceptance of of tender tender- - An An invitation invitation for for
tenders tenders is is an an invitation invitation to to treat treat.. There There are are
two two types types of of tender tender::
AA tender tender to to perform perform one one task task such such as as building building aa
new new hospital hospital
AA tender tender to to supply supply or or perform perform series series of of things things (It (It is is
aa standing standing offer) offer) aa standing standing offer) offer)
55..55 Counter Counter Offer Offer and and request request for for Information Information
AA counter counter offer offer doesnt doesnt constitute constitute
acceptance acceptance;; it it is is the the making making of of aa new new offer offer
which which may may in in turn turn be be accepted accepted or or rejected rejected..
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55..77 Postal Postal Rule Rule && Its Its Application Application- - The The portal portal
rule rule states states that, that,
whether whether the the use use of of the the post post is is within within the the
consideration consideration of of both both the the parties, parties, the the
acceptance acceptance is is complete complete and and effective effective as as soon soon
as as aa letter letter is is posted, posted, even even though though it it may may be be as as aa letter letter is is posted, posted, even even though though it it may may be be
delayed delayed or or even even lost lost altogether altogether in in the the post post..
Activity 3 Activity 3- - Discussion Discussion- - Page 69 Page 69
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5.6 Communication for acceptance 5.6 Communication for acceptance- - The The
general rule is that acceptance must be general rule is that acceptance must be
communicated to the offeror and is not communicated to the offeror and is not
effective until this has been done. effective until this has been done.
Waiver (Released) of communication Waiver (Released) of communication- - If the If the Waiver (Released) of communication Waiver (Released) of communication- - If the If the
contract is unilateral contract contract is unilateral contract- - Refer to the Refer to the
Smoke Ball Co. Case study Smoke Ball Co. Case study
Prescribed mode of communication Prescribed mode of communication- - Fax or email Fax or email
or post or post
No mode of communication prescribed No mode of communication prescribed- - You can You can
choose any mode for communication choose any mode for communication
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Electronic Contracts Electronic Contracts
In In writing writing- - For For evidence evidence and and think think twice twice
before before entering entering into into the the contract contract
Signed Signed- - Digital Digital signatures signatures
Timing Timing of of acceptance acceptance Timing Timing of of acceptance acceptance
Consideration Consideration- - Difficult Difficult in in credit credit card card
payments payments.. Internet Internet insecurity insecurity
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Chapter Roundup Discussion Chapter Roundup Discussion
Three essential elements of contract Three essential elements of contract
A void contract A void contract
An unenforceable contract An unenforceable contract
An Information to treat An Information to treat- - What are the 4 types What are the 4 types
What is an offer What is an offer What is an offer What is an offer
Termination of an offer Termination of an offer
Acceptance Acceptance- - What is acceptance subject to What is acceptance subject to
contract contract
A counter offer A counter offer
Postal rule Postal rule
Electronic contract Electronic contract
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Chapter 5: Consideration Chapter 5: Consideration
Definition
Privity of
Contract
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Consideration
Waiver of
existing rights
Adequacy and
sufficiency
Chapter 5: Consideration & Its Chapter 5: Consideration & Its
case Applications case Applications case Applications case Applications
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Introduction Introduction
Consideration Consideration is is also also one one of of the the three three
essential essential elements elements of of aa binding binding contract contract..
The The principle principle is is that that the the parties parties to to the the
contract contract must must each each provide provide something, something,
whether whether money, money, the the provision provision of of aa service service whether whether money, money, the the provision provision of of aa service service
or or some some other other form form of of contribution contribution to to the the
contract contract..
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1. Consideration 1. Consideration
It It could could be be said said that that one one party party must must know know
that that he he has has bought bought the the other other partys partys
promises promises either either by by performing performing some some act act of of
his his own own or or by by offering offering aa promise promise of of his his
own own.. own own..
Consideration Consideration has has also also been been described described as as
the the price price of of the the other other persons persons promise promise..
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Valid Valid consideration consideration may may be be executed executed or or
executory, executory, but but it it can can not not be be past past
Executed Executed Consideration Consideration:: Is Is performed, performed, or or
executed, executed, act act in in return return for for aa promise promise..
Example Example- - AA offers offers aa reward reward for for the the return return of of
lost lost property, property, his his promise promise becomes becomes binding binding lost lost property, property, his his promise promise becomes becomes binding binding
when when B B performs performs the the act act of of returning returning As As
property property to to him him..
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Executory Executory Consideration Consideration:: Is Is aa promise promise given given
for for aa promise, promise, not not aa performed performed act act..
Example Example- - AA customer customer orders orders goods goods which which aa
shopkeepers shopkeepers undertakes undertakes to to obtain obtain from from the the
manufacturer, manufacturer, the the shopkeepers shopkeepers promises promises to to
supply supply the the goods goods and and the the customer customer promises promises
to to accept accept and and pay pay for for them them.. It It would would be be to to accept accept and and pay pay for for them them.. It It would would be be
breach breach of of contract contract if if either either withdrew withdrew without without
the the consent consent of of the the other other..
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Past Past Consideration Consideration:: Anything Anything which which has has
already already been been done done before before aa promise promise in in
return return is is given given is is past past consideration consideration which, which,
as as aa general general rule, rule, is is not not sufficient sufficient to to make make
the the promise promise binding binding..
Case Case Study Study Discussion Discussion- - Re Re McArdle McArdle 1951 1951- - Page Page 81 81
If If there there is is an an existing existing contract contract and and one one party party
makes makes aa further further promise, promise, no no contract contract will will arise arise
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Activity 1: Page No 83 Activity 1: Page No 83
Which Which of of the the following following is is valid valid consideration? consideration?
Try Try to to state state the the law law to to justify justify your your answer answer..
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2. Adequacy and sufficiency of consideration 2. Adequacy and sufficiency of consideration
The The law law says says consideration consideration need need not not to to be be
adequate adequate but but it it must must be be sufficient sufficient
This This means means consideration consideration need need not not to to be be
equal equal value value to to the the parties parties to to the the contract, contract,
but but it it must must be be of of some some value value to to the the parties parties but but it it must must be be of of some some value value to to the the parties parties
involved involved
In In basic basic contract contract for for the the sale sale of of goods, goods, one one
party party will will provide provide money money as as his his
consideration, consideration, and and the the other other party party will will
provides provides the the goods goods..
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Adequacy Adequacy:: The The court court has has already already made made it it clear clear that that
parties parties to to aa contract contract are are expected expected to to look look after after
themselves, themselves, and and the the court court will will not not protect protect them them if if
all all they they have have done done is is made made aa bad bad bargain bargain and and
accepted accepted inadequate inadequate consideration consideration..
Sufficiency Sufficiency (In (In context context to to existing existing contract) contract):: If If Sufficiency Sufficiency (In (In context context to to existing existing contract) contract):: If If
there there is is already already aa contract contract between between AA and and B, B, and and B B
promises promises additional additional reward reward to to AA if if he he (A) (A) will will
perform perform his his existing existing duties, duties, there there is is no no
consideration consideration from from AA to to make make that that promise promise binding binding..
AA assume assume no no extra extra obligation obligation and and B B obtains obtains no no
extra extra rights rights or or benefits benefits
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Activity 2: Which of the following is Activity 2: Which of the following is Activity 2: Which of the following is Activity 2: Which of the following is
true of consideration? true of consideration?-- Page 87 Page 87
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3. Privity of contract 3. Privity of contract
Privity Privity of of contract contract is is the the relation relation between between
the the two two parties parties to to aa contract contract.. Third Third parties parties
who who are are not not privy privy to to the the contract contract generally generally
have have no no right right of of action action.. This This is is true true even even if if have have no no right right of of action action.. This This is is true true even even if if
they they receive receive benefits benefits under under it it..
Case Case Study Study discussion discussion- - Tweddle Tweddle v v Atkinson Atkinson 1861 1861
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Chapter Roundup Chapter Roundup
Executed consideration Executed consideration
Executory Consideration Executory Consideration
Past Consideration Past Consideration
Adequacy and Sufficiency Adequacy and Sufficiency Adequacy and Sufficiency Adequacy and Sufficiency
Privity of Contract Privity of Contract
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Waiver of existing Rights Waiver of existing Rights
If If XX owes owes Y Y 100 100 euro euro but but Y Y agrees agrees to to accept accept
aa lesser lesser sum, sum, say say 80 80 euro, euro, in in full full statement statement
of of Ys Ys claim, claim, that that is is aa promise promise by by Y Y to to waive waive
his his entitlement entitlement to to the the balance balance of of 20 20 euro euro..
The The promise promise like like any any other, other, should should be be The The promise promise like like any any other, other, should should be be
supported supported by by consideration consideration.. If If it it is is not, not, it it is is
not not binding binding..
Promissory Promissory Estoppel Estoppel- - Operates Operates to to prevents prevents aa
person person rescinding rescinding (going (going back) back) his his promise promise
to to accept accept aa lesser lesser amount amount..
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CHAPTER 6: CHAPTER 6:
INTENTION AND CAPACITY INTENTION AND CAPACITY INTENTION AND CAPACITY INTENTION AND CAPACITY
Application in Business Scenario Application in Business Scenario
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Learning Objectives Learning Objectives
The rules governing when spouses enter a The rules governing when spouses enter a
contract with each other contract with each other
The rules governing commercial The rules governing commercial
agreements agreements
The rule governing capacity to contract The rule governing capacity to contract
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Intention and Capacity Intention and Capacity
Capacity to
Contract
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Intention and
Capacity
Intention to create
legal relation
Intention to create legal relation Intention to create legal relation
Legal Legal relations relations can can be be defined defined as as the the
willingness willingness to to bound bound by by the the terms terms of of the the
contract contract
Whether Whether there there is is no no express express statement statement as as to to Whether Whether there there is is no no express express statement statement as as to to
whether whether or or not not legal legal relation relation are are intended, intended,
the the court court apply apply one one of of the the two two presumptions presumptions
Social, Social, domestic domestic and and family family arrangements arrangements are are not not usually usually
intended intended by by the the parties parties involved involved to to the the binding binding;;
Commercial Commercial agreements agreements are are usually usually intended intended to to be be legally legally
binding binding..
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1.1 Domestic Arrangements 1.1 Domestic Arrangements- - Case Studies Case Studies
Husband and Wife case Husband and Wife case- - Balfour v Balfour 1919 (Page Balfour v Balfour 1919 (Page
No. No.- - 98) 98)
Relatives Relatives- - Jones v Padavatton 1969 Jones v Padavatton 1969- - Page No. Page No.- - 99) 99)
1.2 Commercial Agreements 1.2 Commercial Agreements
When When business business people people enter enter into into the the When When business business people people enter enter into into the the
commercial commercial agreements agreements it it is is presumes presumes that that
there there is is an an intention intention to to enter enter into into legal legal
relations relations..
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1.3 Statutory Provisions 1.3 Statutory Provisions- -
Procedural Procedural agreements agreements between between employer employer
and and trade trade unions unions for for the the settlement settlement of of
disputes disputes are are not not intended intended to to give give rise rise to to
legal legal relations relations in in spite spite of of their their elaborate elaborate
content content:: s s 179 179 Trade Trade Union Union and and Labour Labour content content:: s s 179 179 Trade Trade Union Union and and Labour Labour
Relations Relations (Consolidation) (Consolidation) Act Act 1992 1992
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11..44 Letters Letters of of Comfort Comfort
For For many many years, years, holding holding companies companies have have
given given letters letters of of comfort comfort to to creditors creditors of of
subsidiaries subsidiaries which which support support to to give give some some
comfort comfort as as to to the the ability ability of of the the subsidiary subsidiary to to
pay pay its its debts debts.. Such Such letters letters are are presumed presumed not not pay pay its its debts debts.. Such Such letters letters are are presumed presumed not not
to to be be legally legally binding, binding, although although great great care care
need need to to be be taken taken in in their their drafting drafting if if they they are are
not not to to be be interpreted interpreted as as conferring conferring legal legal
rights rights or or guarantee guarantee obligations obligations
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1.5 Transaction binding in honour only 1.5 Transaction binding in honour only
If If the the parties parties state state that that an an agreement agreement
is is binding binding in in honour honour only, only, this this
amounts amounts to to an an express express denial denial of of
intention intention to to create create legal legal relation relation intention intention to to create create legal legal relation relation
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Activity 1 Activity 1- - Page 101 Page 101
Activity 2 Activity 2- - Page 101 Page 101
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2. Capacity to Contract 2. Capacity to Contract
Capacity Capacity refers refers to to the the fact fact that that the the new new
law law regards regards some some groups groups as as being being unable unable
to to enter enter into into binding binding contractual contractual
agreements, agreements, because because they they might might not not be be in in agreements, agreements, because because they they might might not not be be in in
aa position position to to fully fully understand understand the the
agreement agreement they they have have entered entered into into..
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Capacity to Contract Capacity to Contract
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Companies Capacity Minors
22..11 Minors Minors- - The The legal legal capacity capacity of of minors minors
(person (person under under the the age age of of eighteen) eighteen) is is
determined determined by by the the Minors Minors contract contract Act Act
1987 1987
22..22 Companies Companies- - AA company company has, has, since since the the 22..22 Companies Companies- - AA company company has, has, since since the the
Companies Companies Act Act 2006 2006,, the the option option of of having having
unlimited unlimited contractual contractual capability capability unless unless it it
chooses chooses to to include include aa statement statement of of
objectives objectives (defined (defined its its capacity) capacity) or or other other
wise wise to to restricts restricts its its capacity capacity in in its its
constitution constitution..
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Void Contract Void Contract- - Not an contract Not an contract
Voidable Contract Voidable Contract- - One party may avoid, One party may avoid,
that is terminate that is terminate
Unenforceable Contract Unenforceable Contract- - which the court which the court
will not enforce will not enforce
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Types of Contract & Its Application in Types of Contract & Its Application in
Business Scenario Business Scenario
Face to Face Contract (Verbal Contract) Face to Face Contract (Verbal Contract)
Written Contract Written Contract
Distance Selling Contract Distance Selling Contract
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Face to Face Contract (Verbal Contract) Face to Face Contract (Verbal Contract)
Verbal Verbal contract contract is is agreed agreed upon upon by by face face to to face face or or it it can can even even be be through through
telephone telephone conversation conversation but but it it is is not not well well documented documented.. I I..e e.. there there is is no no
record record for for verbal verbal contract contract..
In In verbal verbal contract contract the the parties parties involved involved did did not not have have any any evidence evidence to to
show show that that there there was was aa contract contract between between the the two two parties parties.. Verbal Verbal contract contract
is is aa contract contract where where two two people people make make agreement agreement that that is is not not formalized formalized
with with aa written written contract contract.. with with aa written written contract contract..
Verbal Verbal contract contract is is also also express express in in words words between between two two people people that that are are
going going into into aa contract contract.. There There is is no no clear clear evidence evidence in in aa verbal verbal contract contract
since since the the agreement agreement is is done done by by words words of of mouth, mouth, when when breach breach of of
contract contract occurs occurs between between the the parties parties..
People People agreed agreed to to enter enter into into aa contract contract in in verbal verbal contract contract without without signing signing
any any paper paper document document as as evidence evidence therefore therefore they they are are difficult difficult to to prove prove and and
can can create create dispute dispute since since there there is is no no clear clear evidence evidence..
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Written Contract Written Contract
AA written written contract contract is is document document showing showing all all the the terms terms and and
conditions conditions that that both both parties parties to to aa contract contract have have enter enter into into in in
details details and and it it is is full full signed signed the the both both parties parties..
AA written written contract contract is is prepared prepared and and submitted submitted by by aa licence licence
lawyer lawyer or or attorney attorney who who makes makes sure sure that that the the terms terms and and
conditions conditions are are made made clear clear to to both both parties parties before before signing signing the the
document document.. document document..
AA written written agreement agreement must must be be hold hold in in the the law law court, court, and and the the
purpose purpose of of written written agreement agreement is is to to ensure ensure that that both both parties parties
understand understand it it and and comply comply with with its its stipulations stipulations.. Both Both parties parties
in in aa written written contract contract must must understand understand and and recognise recognise the the
responsibilities responsibilities involved involved.. AA written written contract contract protect protect both both
parties parties involved involved from from breach breach of of contract contract
1/13/2014 58
For For example example if if Mr Mr.. john john and and his his employer employer are are
into into employment employment contract contract and and the the company company fails fails
to to pay pay Mr Mr.. john john his his monthly monthly salary salary after after aa
stipulated stipulated time time frame, frame, Mr Mr.. John John can can filed filed aa
lawsuit lawsuit against against his his employee employee for for breach breach of of
contract contract to to claim claim his his salary salary..
AA written written contract contract is is used used as as aa evidence evidence of of an an AA written written contract contract is is used used as as aa evidence evidence of of an an
agreement agreement between between two two parties parties and and to to show show
that that they they have have both both agreed agreed to to the the contract contract..
1/13/2014 59
Distance Selling Contract Distance Selling Contract
Distance selling is when you Distance selling is when you don't see your don't see your
client face client face- -to to- -face face when, for example, when, for example,
selling or receiving orders: selling or receiving orders:
on the on the internet internet
on the on the phone, with or without human phone, with or without human on the on the phone, with or without human phone, with or without human
interaction interaction
via via email email
via via fax fax
via via standard letter standard letter
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The rules for distance selling do not apply to: The rules for distance selling do not apply to:
products products sold sold in in automatic automatic vending vending machines machines or or
at at auctions auctions
Food Food and and drink drink for for everyday everyday consumption consumption
accommodation, accommodation, transport, transport, catering catering and and leisure leisure
services services (provided (provided you you commit commit to to delivering delivering these these services services (provided (provided you you commit commit to to delivering delivering these these
services services on on aa specific specific date date or or within within aa specific specific
period) period)..
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Shopping Shopping online, online, by by mail mail order, order, over over the the phone phone
or or through through aa TV TV shopping shopping channel channel can can be be more more
convenient convenient and and cheaper cheaper than than the the high high street street..
But But there there are are drawbacks drawbacks to to not not being being able able to to see see
and and touch touch items items..
That's That's why why the the Distance Distance Selling Selling Regulations Regulations give give That's That's why why the the Distance Distance Selling Selling Regulations Regulations give give
you you extra extra protection protection..
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What are your obligations? What are your obligations?
Giving Giving information information to to your your customers customers before before
concluding concluding the the contract contract
Sending Sending aa written written confirmation confirmation to to your your customers customers
Allowing Allowing your your customers customers to to withdraw withdraw from from the the
contract contract contract contract
Delivering Delivering your your product/service product/service and and providing providing
after after- -sales sales services services if if appropriate appropriate..
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What information should you give? What information should you give?
price price of your product/service of your product/service including all taxes including all taxes and the and the
period of validity of the price period of validity of the price
Any Any delivery costs delivery costs
payment possibilities payment possibilities
Main Main features features of your product or service of your product or service
How much it costs the customer to How much it costs the customer to communicate with communicate with How much it costs the customer to How much it costs the customer to communicate with communicate with
you you (if not calculated at a basic rate (if not calculated at a basic rate - - e.g. phone calls e.g. phone calls
charged at higher rates than local calls) charged at higher rates than local calls)
the conditions governing the customer's the conditions governing the customer's right of right of
withdrawal withdrawal..
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How can you confirm the contract? How can you confirm the contract?
You should confirm the main points of the contract You should confirm the main points of the contract - - in a in a
letter or email (or via other durable medium). letter or email (or via other durable medium).
When can your customer withdraw? When can your customer withdraw?
Your Your customer customer has has at at least least 77 working working days days to to withdraw withdraw
from from the the contract contract without without any any penalty penalty and and without without giving giving
any any reason reason.. The The only only costs costs for for which which the the customer customer is is any any reason reason.. The The only only costs costs for for which which the the customer customer is is
liable liable are are the the costs costs of of returning returning the the goods goods delivered delivered..
What to do if your customer withdraws from the What to do if your customer withdraws from the
contract? contract?
You You must must reimburse reimburse the the money money received received from from the the
customer customer within within 30 30 days days.. If If the the customer customer paid paid with with aa credit credit card card,,
you you must must cancel cancel the the transaction transaction..
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Chapter 7 Chapter 7
Terms and Exclusion Clauses & Terms and Exclusion Clauses &
Its Application in Business Its Application in Business Its Application in Business Its Application in Business
situations situations
1/13/2014 66
Types of Terms Types of Terms
Conditions Conditions
Warranty Warranty
Innominate term Innominate term
Implied terms Implied terms Implied terms Implied terms
Express terms Express terms
Exclusion clauses and their validity Exclusion clauses and their validity
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Conditions Conditions
AA condition condition is is aa major major term term of of the the contract contract
which which goes goes to to the the root root of of the the contract contract.. If If aa
condition condition is is breached breached the the innocent innocent party party is is
entitled entitled to to repudiate repudiate (end) (end) the the contract contract
and and claim claim damages damages:: and and claim claim damages damages::
Case Case Study Study- - Poussard Poussard v v Spiers Spiers 1876 1876- - Page Page No No.. 111 111
http http:://www //www..e e- -lawresources lawresources..co co..uk/Poussard uk/Poussard- -v v- -Spiers Spiers..php php
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Warranty Warranty
Warranties Warranties are are minor minor terms terms of of aa contract contract
which which are are not not central central to to the the existence existence of of the the
contract contract.. If If aa warranty warranty is is breached breached the the
innocent innocent party party may may claim claim damages damages but but can can
not not end end the the contract contract:: not not end end the the contract contract::
Case Case Study Study Discussion Discussion- - Bettini Bettini v v Gye Gye 1876 1876- - Page Page No No..- - 112 112
http http:://www //www..e e- -lawresources lawresources..co co..uk/Bettini uk/Bettini- -v v- -Gye Gye..php php
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Innominate term Innominate term
The consequence of a term being classified as innominate The consequence of a term being classified as innominate
is that the court must decide which is the actual effect of its is that the court must decide which is the actual effect of its
breach. breach.
So it does not fall neatly into the classification of either So it does not fall neatly into the classification of either
condition or warranty and therefore can not fallow the rules condition or warranty and therefore can not fallow the rules
for those. for those. for those. for those.
If If the the nature nature and and effect effect of of the the breach breach is is such such as as to to take take
away away the the injured injured party party of of substantially substantially the the whole whole benefit benefit
he he should should obtain obtain under under the the contract, contract, then then it it would would be be
treated treated as as aa breached breached contract, contract, so so that that the the injured injured party party
may may terminate terminate the the contract contract and and claim claim the the damages damages..
Case Study Case Study- - Hong Kong Fir Shipping v Kawasaki Kisen Kaisha Hong Kong Fir Shipping v Kawasaki Kisen Kaisha [1962] [1962]- -
Page 113 Page 113
http://www.e http://www.e- -lawresources.co.uk/Hong lawresources.co.uk/Hong- -Kong Kong- -Fir Fir- -Shipping Shipping- -v v- -Kawasaki Kawasaki- -Kisen Kisen- -Kaisha.php Kaisha.php
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Implied terms Implied terms
A termed deemed to form part of a contract A termed deemed to form part of a contract
even though not expressively mentioned. even though not expressively mentioned.
Terms Terms Implied Implied by by Custom Custom- - The The parties parties may may enter enter
into into the the contract contract subject subject to to customs customs of of their their trade trade.. Any Any into into the the contract contract subject subject to to customs customs of of their their trade trade.. Any Any
express express terms terms overrides overrides aa term term which which might might be be implied implied by by
custom custom..
Case Case Study Study- - Hutton Hutton v v Warren Warren 1836 1836- - Page Page 114 114
http http:://www //www..e e- -lawresources lawresources..co co..uk/Hutton uk/Hutton- -v v- -Warren Warren..php php
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Terms Implied by statute Terms Implied by statute- -
The Sale of Goods Act 1979 provides four main The Sale of Goods Act 1979 provides four main
protections for buyers: protections for buyers:
The The seller seller must must have have the the right right to to sell sell the the goods goods
Goods Goods sold sold by by description description must must correspond correspond to to the the description description
Goods Goods must must be be of of satisfactory satisfactory quality quality
Goods Goods sold sold by by sample, sample, the the goods goods must must correspond correspond to to the the sample sample in in Goods Goods sold sold by by sample, sample, the the goods goods must must correspond correspond to to the the sample sample in in
quality quality
These These protections protections are are in in the the form form of of statutory statutory implied implied terms terms.. This This means means
that that the the Sale Sale of of Goods Goods Act Act will will put put these these terms terms into into all all contracts contracts for for the the
sale sale of of goods goods no no matter matter what what the the parties parties themselves themselves have have agreed agreed in in the the
terms terms and and conditions conditions of of sale sale.. AA contract contract is is for for the the sale sale of of goods goods provided provided
it it is is aa contract contract to to transfer transfer ownership ownership of of goods goods (as (as opposed opposed to to aa hire hire
agreement) agreement) and and the the goods goods are are exchanged exchanged for for money money..
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Terms Implied by the courts Terms Implied by the courts
The court may also imply terms because the court The court may also imply terms because the court
believes such a term to be a necessary incident of believes such a term to be a necessary incident of
this type of contract. this type of contract.
Case Study Case Study- - The Moorcock The Moorcock 1889 1889- - Page 115 Page 115
http://www.e http://www.e- -lawresources.co.uk/The lawresources.co.uk/The- -Moorcock Moorcock-- --1889 1889- -.php .php
http://www.e http://www.e- -lawresources.co.uk/Liverpool lawresources.co.uk/Liverpool- -City City- -Council Council- -v v- -Irwin.php Irwin.php
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Express terms Express terms
An An express express term term is is aa term term expressly expressly
agreed agreed by by the the parties parties to to aa contract contract to to be be aa
term term of of that that contract contract.. In In examining examining aa
contract, contract, the the court court will will look look first first at at the the
terms terms expressively expressively agreed agreed by by the the parties parties.. terms terms expressively expressively agreed agreed by by the the parties parties..
Case Case Study Study- - Scammell Scammell v v Ouston Ouston 1941 1941- - Page Page 109 109
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Exclusion clauses and their validity Exclusion clauses and their validity
Exclusion Exclusion clauses clauses sometimes sometimes referred referred to to as as
exemption exemption clauses clauses.. Exclusion Exclusion clauses clauses in in aa
contract contract which which supports supports to to exclude exclude liability liability
altogether altogether or or to to restrict restrict it it by by limiting limiting damages damages
Exclusion Exclusion clauses clauses must must be be incorporated incorporated in in to to aa
contract contract before before they they have have legal legal effect effect..
Exclusion Exclusion clauses clauses are are interpreted interpreted strictly strictly..
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Exclusion Clauses Case Studies Exclusion Clauses Case Studies
Case 1: Case 1: Chapelton Chapelton v Barry UDC v Barry UDC [1940] 1 [1940] 1
KB 532 KB 532- - Page 120 Page 120- - Contractual Documents Contractual Documents
http://e http://e- -lawresources.co.uk/cases/Chapelton lawresources.co.uk/cases/Chapelton- -v v- -
Barry.php Barry.php
Case 2: Case 2: L'Estrange L'Estrange v v Graucob Graucob [1934] 2 KB [1934] 2 KB Case 2: Case 2: L'Estrange L'Estrange v v Graucob Graucob [1934] 2 KB [1934] 2 KB
394 394 Court of Appeal Court of Appeal- - Page 121 Page 121- - Signed Contract Signed Contract
http://www.e http://www.e- -lawresources.co.uk/L'Estrange lawresources.co.uk/L'Estrange- -v v- -
Graucob.php Graucob.php
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Case 3: Case 3: Olley Olley v Marlborough v Marlborough
Court Court [1949] 1 KB 532 [1949] 1 KB 532- - Page 121 Page 121- - Unsigned Unsigned
contracts and notices contracts and notices
http://www.e http://www.e- -lawresources.co.uk/Olley lawresources.co.uk/Olley- -v v- -
Marlborough Marlborough- -Court.php Court.php
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Export mode of Contract Export mode of Contract
Name & Address details of the parties Name & Address details of the parties need to be mentioned clearly need to be mentioned clearly
Product name & specification details, sizes Product name & specification details, sizes
Quantities Quantities-- In figures and words In figures and words
Inspection Inspection
Total Value Total Value
Terms of Delivery Terms of Delivery-- Incoterms Incoterms
Taxes, duties and Charges Taxes, duties and Charges Taxes, duties and Charges Taxes, duties and Charges
Delivery Delivery-- Place of dispatch and delivery. Period of delivery Place of dispatch and delivery. Period of delivery
Part Part--shipment, trans shipment, trans--shipment and consolidation of cargo shipment and consolidation of cargo
Packaging details Packaging details
Terms of the payments Terms of the payments
Discounts and commissions if any Discounts and commissions if any
Licenses and Permits Licenses and Permits-- Export & import licenses Export & import licenses
Insurance Insurance
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Export mode of Contract... Export mode of Contract... Continued Continued
Documentary requirements (documents related to Documentary requirements (documents related to
international transactions, exports/Imports, delivery of international transactions, exports/Imports, delivery of
goods & payment) goods & payment)
Common export documents include the bill of exchange; Common export documents include the bill of exchange;
commercial invoice and other invoices; bill of lading or commercial invoice and other invoices; bill of lading or
airway bill; insurance policy; and letter of credit airway bill; insurance policy; and letter of credit airway bill; insurance policy; and letter of credit airway bill; insurance policy; and letter of credit
Force majeure or excuse for non Force majeure or excuse for non--performance of contract performance of contract
Remedial Action Remedial Action
Applicable law Applicable law
Arbitration Arbitration
Signature of the parties Signature of the parties
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Damages & Remedies & Damages & Remedies &
Application to Business Cases Application to Business Cases Application to Business Cases Application to Business Cases
1/13/2014 80
Performance and Breach Performance and Breach
If a contractual duty has not been If a contractual duty has not been
discharged discharged or or excused excused, the contracting , the contracting
party owes an party owes an absolute duty absolute duty (covenant) to (covenant) to
perform the duty. perform the duty. perform the duty. perform the duty.
Breach of contract Breach of contract If a contracting If a contracting
party fails to perform an absolute duty party fails to perform an absolute duty
owed under a contract. owed under a contract.
Types of Performance Types of Performance
Complete Complete
Performance Performance
Substantial Substantial Substantial Substantial
Performance Performance
Inferior Performance Inferior Performance
Summary: Types of Performance Summary: Types of Performance
Type of Performance Type of Performance Legal Consequence Legal Consequence
Complete Performance Complete Performance The contract is discharged The contract is discharged. .
Substantial Performance Substantial Performance
(minor breach) (minor breach)
The non The non--breaching party may recover damages caused by breaching party may recover damages caused by
the breach. the breach. (minor breach) (minor breach) the breach. the breach.
Inferior Performance Inferior Performance
(material breach) (material breach)
The non The non--breaching party may either: breaching party may either:
(1) (1) Rescind (Cancel Officially) the contract and recover Rescind (Cancel Officially) the contract and recover
restitution (damages), or restitution (damages), or
(2) (2) Affirm (Establish) the contract and recover damages. Affirm (Establish) the contract and recover damages.
Anticipatory Breach Anticipatory Breach
A breach that occurs when one contracting A breach that occurs when one contracting
party informs the other that he or she will party informs the other that he or she will
not perform his or her contractual duties not perform his or her contractual duties
when due. when due.
Breach of Contract Breach of Contract
Breach Breach of of contract contract is is the the failure failure to to perform perform
what what aa party party is is under under aa duty duty to to perform perform..
When When this this happens, happens, the the non non- -breaching breaching When When this this happens, happens, the the non non- -breaching breaching
party party can can choose choose one one or or more more remedies remedies..
Unless Unless damages damages would would be be inadequate inadequate aa
court court will will award award money money damages damages
Damages Damages
AA breach breach of of contract contract entitles entitles the the non non- -breaching breaching
party party to to sue sue for for money money (damages) (damages).. As As in in the the
context context of of contract contract law, law, damages damages compensate compensate the the
non non- -breaching breaching party party for for the the loss loss of of the the deal deal..
Damages Damages place place the the innocent innocent party party in in the the same same
position position they they would would have have occupied occupied had had the the
contract contract been been fully fully performed performed
Case Discussion Case Discussion-- Application Application
Case 1: Hadley v Case 1: Hadley v Baxendale Baxendale 1854 1854- - Page 174 Page 174
Case 2: Victoria Case 2: Victoria Loundry Loundry (Windsor v (Windsor v
Newman Industries 1949) Newman Industries 1949)- - Page 175 Page 175
Case 3: The Heron II 1969 Case 3: The Heron II 1969- - Page 175 Page 175
Case 4: H Parsons (Livestock) v Case 4: H Parsons (Livestock) v Uttley Uttley
Ingham Ingham- - Page 175 Page 175
1/13/2014 87
Types of Damages Types of Damages
There are basically four broad categories of damages There are basically four broad categories of damages::
Compensatory Compensatory (to (to cover cover direct direct losses losses and and costs) costs)..
Consequential Consequential (to (to cover cover indirect indirect and and foreseeable foreseeable Consequential Consequential (to (to cover cover indirect indirect and and foreseeable foreseeable
losses losses))..
Punitive Punitive (to (to punish punish and and deter deter wrong wrong doing) doing)..
Nominal Nominal (to (to recognize recognize wrong wrong doing doing when when no no
monetary monetary loss loss is is shown) shown)..
Compensatory Damages. Compensatory Damages.
These damages compensate the injured party These damages compensate the injured party
for damages arising directly from the loss of the for damages arising directly from the loss of the
deal caused deal caused by the breach of contract. by the breach of contract.
The The difference between the promised difference between the promised The The difference between the promised difference between the promised
performance and the actual performance. performance and the actual performance.
They They replace what was lost because of the replace what was lost because of the
breach of contract. breach of contract.
Consequential Damages. Consequential Damages.
Damages caused by special circumstances Damages caused by special circumstances
beyond the contract itself. They flow from beyond the contract itself. They flow from
the consequences, or results, of a breach. the consequences, or results, of a breach.
The breaching party must know (or have The breaching party must know (or have
reason to know) that reason to know) that special circumstances special circumstances
will cause the additional loss. will cause the additional loss.
Case Study: Hadley Case Study: Hadley v. v. Baxendale Baxendale- - Page 174 Page 174
Punitive Damages. Punitive Damages.
Punitive, or exemplary, damages are generally Punitive, or exemplary, damages are generally
not awarded in an action for breach of contract. not awarded in an action for breach of contract.
Punitive damages are designed to punish. Punitive damages are designed to punish.
Contract damages are to compensate. Contract damages are to compensate.
Some intentional Some intentional torts (wrong doing), torts (wrong doing), such as such as
fraud, are a bases for recission and a tort fraud, are a bases for recission and a tort
allowing punitive damages for the commission of allowing punitive damages for the commission of
the the tort. tort.
Nominal Damages. Nominal Damages.
When no actual damages result from a breach of When no actual damages result from a breach of
contract and only a technical injury is involved contract and only a technical injury is involved
Jackson Jackson contracts contracts to to buy buy potatoes potatoes from from Stanley Stanley at at fifty fifty cents cents aa
pound pound.. Stanley Stanley breaches breaches the the contract contract and and does does not not deliver deliver the the
potatoes potatoes.. In In the the meantime meantime,, the the price price of of potatoes potatoes has has fallen fallen.. Jackson Jackson potatoes potatoes.. In In the the meantime meantime,, the the price price of of potatoes potatoes has has fallen fallen.. Jackson Jackson
is is able able to to buy buy them them in in the the open open market market at at half half the the price price he he
contracted contracted for for with with Stanley Stanley.. He He is is clearly clearly fortunate fortunate because because of of
Stanley's Stanley's breach breach.. Thus, Thus, in in aa suit suit for for breach breach of of contract, contract, Jackson Jackson may may
be be awarded awarded only only nominal nominal damages damages for for the the technical technical injury injury he he
sustained, sustained, because because no no monetary monetary loss loss was was involved involved..
Case Discussion Case Discussion-- Business Application Business Application
Case 1: Hadley v Case 1: Hadley v Baxendale Baxendale 1854 1854- - Page 174 Page 174
Case 2: Victoria Case 2: Victoria Loundry Loundry (Windsor v (Windsor v
Newman Industries 1949) Newman Industries 1949)- - Page 175 Page 175
Case 3: The Heron II 1969 Case 3: The Heron II 1969- - Page 175 Page 175 Case 3: The Heron II 1969 Case 3: The Heron II 1969- - Page 175 Page 175
Case 4: H Parsons (Livestock) v Case 4: H Parsons (Livestock) v Uttley Uttley
Ingham Ingham- - Page 175 Page 175
1/13/2014 93
Mitigation of Damages Mitigation of Damages
When When aa breach breach of of contract contract occurs, occurs, the the innocent innocent
injured injured party party is is held held to to aa duty duty to to mitigate, mitigate, or or
reduce, reduce, the the damages damages that that he he or or she she suffers suffers..
Example Example:: persons persons whose whose jobs jobs have have been been Example Example:: persons persons whose whose jobs jobs have have been been
wrongfully wrongfully terminated terminated have have aa duty duty to to seek seek other other
jobs jobs.. The The damages damages they they receive receive are are their their
salaries, salaries, less less the the income income they they received received (or (or would would
have have received) received) in in similar similar jobs jobs (Parker (Parker v v..
Twentieth Twentieth Century Century- -Fox Fox Film Film Corp Corp..))
Liquidated Damages Liquidated Damages
An amount, stipulated in the contract, that the An amount, stipulated in the contract, that the
parties to a contract believe to be a reasonable parties to a contract believe to be a reasonable
estimation of the damages that will occur in the estimation of the damages that will occur in the
event of a breach. event of a breach.
Example Example: a provision requiring a construction : a provision requiring a construction
contractor to pay $300 for every day he or she contractor to pay $300 for every day he or she
is late in completing the construction is a is late in completing the construction is a
liquidated damages provision. liquidated damages provision.
ADDITIONAL REMEDIES ADDITIONAL REMEDIES
Rescission Rescission terminates a contract and terminates a contract and
Restitution Restitution returns returns the contracting parties to the contracting parties to
the positions they occupied prior to the contract. the positions they occupied prior to the contract.
Reformation Reformation allows the contract to be allows the contract to be Reformation Reformation allows the contract to be allows the contract to be
rewritten to reflect the parties' true intentions. rewritten to reflect the parties' true intentions.
Equitable Remedies Equitable Remedies
The The court court may may at at its its discretion discretion ((Freedom Freedom
to to act act or or judge judge on on one's one's own) own) give give an an
equitable equitable remedy remedy by by ordering ordering the the
defendant defendant to to perform perform his his part part of of the the defendant defendant to to perform perform his his part part of of the the
contract contract instead instead of of letting letting him him buy buy himself himself
out out of of it it by by paying paying damages damages for for breach breach..
1/13/2014 97
Content 3: Understand the Content 3: Understand the
principle of liabilities in principle of liabilities in principle of liabilities in principle of liabilities in
negligence in business activities negligence in business activities
1/13/2014 98
Content Content
Negligence: Differences to contract; duty Negligence: Differences to contract; duty
of care; breach of duty of care; breach of duty
Damage Damage- - Causation and remoteness of Causation and remoteness of
damage; personal injuries; damage of damage; personal injuries; damage of
property; economic loss; occupier liability property; economic loss; occupier liability property; economic loss; occupier liability property; economic loss; occupier liability
Liability Liability- - Employers liability; vicarious Employers liability; vicarious
liability; health & safety issues liability; health & safety issues
1/13/2014 99
How to define negligence
How to explain the elements of
negligence
What Youll Learn
1/13/2014 100
negligence
How to define strict liability
Because any person is a potential victim
and a perpetrator (culprit) of negligence,
understanding this vital area of tort law
will help you protect yourself legally.
Why Its Important
1/13/2014 101
will help you protect yourself legally.
Legal Terms Legal Terms
negligence
Tort
strict liability
breach of duty breach of duty
proximate cause
contributory negligence
comparative negligence
assumption of risk
1/13/2014 102
Unintentional Torts
Negligence
Elements of Negligence
Defenses to Negligence
Section Outline
Defenses to Negligence
Strict Liability
1/13/2014 103
Unintentional Torts
A person can commit an unintentional tort,
when he or she acts in a careless manner that
results in an injury to a person, damage to
property, or both.
Negligence and strict liability are unintentional
torts.
1/13/2014 104
Intentional and Unintentional Torts Intentional and Unintentional Torts
Intentional Torts Unintentional Torts
Torts
Intentional Torts
Examples Examples
When a person commits a
wrong against another and
knows and desires the
consequences of his or her act.
Assault and Battery
Trespass
False imprisonment
Unintentional Torts
Examples Examples
Negligence
Strict liability
When acting in a careless
manner causes damage or
injury.
Negligence is an accidental or
unintentional tort resulting because of the
failure to exercise the degree of care that
a reasonable person would have exercised
in the same circumstances.
Unintentional Torts
in the same circumstances.
1/13/2014 106
Unintentional Torts
Strict liability is the doctrine that states
that people engaged in ultra hazardous
activities will be held liable, regardless of
how careful they were and regardless of
their intent.
1/13/2014 107
their intent.
1.1 Duty of care
1.2 Breach of duty
1.3 Differences to contract
Negligence
1/13/2014 108
Negligence
In a law of tort the concept of negligence In a law of tort the concept of negligence
appears in two different cases: appears in two different cases:
Causing loss by failure to take reasonable Causing loss by failure to take reasonable
care when there is a duty to do so care when there is a duty to do so care when there is a duty to do so care when there is a duty to do so
Due to carelessness defendant allows it to Due to carelessness defendant allows it to
happen happen
1/13/2014 109
To succeed in an action of negligence the To succeed in an action of negligence the
claimant must prove three things: claimant must prove three things:
The defendant owed him (the claimant) a The defendant owed him (the claimant) a
duty of care to avoid causing injury to duty of care to avoid causing injury to
persons and property persons and property persons and property persons and property
There was a breach of that duty by the There was a breach of that duty by the
defendant defendant
In consequence the claimant suffered injury In consequence the claimant suffered injury
or damage or financial loss or damage or financial loss
1/13/2014 110
1.1 Duty of care
Whether or not a duty of care exist in any Whether or not a duty of care exist in any
situation is generally decided by the courts situation is generally decided by the courts
Case Study Discussion: Case Study Discussion: Donoghue Donoghue v v Case Study Discussion: Case Study Discussion: Donoghue Donoghue v v
Stevenson 1932 (Page Stevenson 1932 (Page- - 254) 254)
http://www.e http://www.e- -
lawresources.co.uk/Donoghue lawresources.co.uk/Donoghue- -v v- -
Stevenson.php Stevenson.php
1/13/2014 111
1.2 Breach of duty of care
Breach Breach of of duty duty in in negligence negligence liability liability
may may be be found found to to exist exist where where the the
defendant defendant fails fails to to meet meet the the standard standard of of
care care required required by by law law.. Once Once it it has has been been care care required required by by law law.. Once Once it it has has been been
established established that that the the defendant defendant owed owed the the
claimant claimant aa duty duty of of care, care, the the claimant claimant must must
also also demonstrate demonstrate that that the the defendant defendant was was
in in breach breach of of duty duty..
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Cases on Breach of duty of care
Nettleship Nettleship v Weston 1971 v Weston 1971- - Page 259 Page 259
http://www.e http://www.e- -
lawresources.co.uk/Nettleship lawresources.co.uk/Nettleship- -v v- -
Weston.php Weston.php Weston.php Weston.php
Scott v London & Katharine Docks Co Scott v London & Katharine Docks Co
1865 1865- - Page 261 Page 261
http://www.bitsoflaw.org/tort/negligence/ http://www.bitsoflaw.org/tort/negligence/
study study- -note/degree/breach note/degree/breach- -of of- -duty duty- -proof proof
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Easson v LNE Railway Co 1944 Easson v LNE Railway Co 1944- - Page 261 Page 261
Paris v Stepney Borough Council 1951 Paris v Stepney Borough Council 1951- -
Page 260 Page 260
http://casebrief.me/casebriefs/paris http://casebrief.me/casebriefs/paris- -v v- -
stepney stepney- -borough borough- -council/ council/
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1.3 Differences to contract: Contrast liability in
tort with contractual liability
They are similar in that They are similar in that
Both are civil wrongs; and Both are civil wrongs; and
The person wronged sues in the court for The person wronged sues in the court for
compensation compensation
Differences Differences
In case of tort claim, the defendant may not have any In case of tort claim, the defendant may not have any
previous transaction or relationship with the claimant previous transaction or relationship with the claimant
In a contractual claim, the defendant and the In a contractual claim, the defendant and the
claimant must be the parties to the contract claimant must be the parties to the contract
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Oracle sued for salary Oracle sued for salary
discrimination against Indian discrimination against Indian
http://timesofindia.indiatimes.com/tech/te http://timesofindia.indiatimes.com/tech/te
ch ch- -news/software news/software- -services/Oracle services/Oracle- -sued sued- -
for for- -salary salary- -discrimination discrimination- -against against- -
Indian/articleshow/28704205.cms Indian/articleshow/28704205.cms Indian/articleshow/28704205.cms Indian/articleshow/28704205.cms
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Damage
Causation and remoteness of damage; Causation and remoteness of damage;
Personal Injuries; Personal Injuries;
Damage to Property Damage to Property;;
Economic loss; Economic loss; Economic loss; Economic loss;
Occupier liabilities Occupier liabilities
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Damages in tort in tort
Damages may only compensate for loss Damages may only compensate for loss
which is not too remote which is not too remote
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Causation Causation
To demonstrate To demonstrate causation in tort causation in tort
law law,, the claimant must establish that the the claimant must establish that the
loss they have suffered was loss they have suffered was caused caused by by
the defendant. the defendant. the defendant. the defendant.
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Remoteness of Damages Remoteness of Damages
When When there there is is aa sequence sequence of of physical physical
cause cause and and effect effect without without human human
intervention, intervention, the the ultimate ultimate loss loss is is too too
remote remote (so (so the the damages damages can can not not be be
recovered recovered for for it) it) unless unless it it could could have have been been recovered recovered for for it) it) unless unless it it could could have have been been
reasonably reasonably foreseen foreseen that that some some loss loss of of that that
kind kind might might occur occur as as aa consequence consequence of of the the
wrong wrong..
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Personal Injuries Personal Injuries
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Damage to Property Damage to Property
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Economic loss Economic loss
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Occupier liabilities Occupier liabilities
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