The Development of Contract and Negligence in Business: A Comparative Analysis, Study notes of Business

Download The Development of Contract and Negligence in Business: A Comparative Analysis and more Study notes Business in PDF only on Docsity! 133 THE SUBSEQUENT DEVELOPMENT OF CONTRACT AND NEGLIGENCE IN BUSINESS CONTEXT. Syed Raza Shah Gilani*, Fayaz-ur-Rehman**, Inayat Ullah Khan***1 ESSENTIAL ELEMENTS OF A VALID CONTRACT IN A BUSINESS CONTEXT A contract can be defined as an agreement between the two parties, who voluntarily tie themselves in an agreement for a purpose of business or else. The contract creates a legal relationship between the parties and holds some duty to perform. It is necessary for a contract that its consideration must be lawful. The breach of contract usually results in a shape of compensation. In other words we can say that contract is a promise between two parties mutually agreed to do or not to do something. There are various essentials of a contract but two of them are vital. One is offer and the other is acceptance. The offer is an important part of a contract, which shows the intention of establishing a legal relation. The second part of a contract is acceptance, which makes the contract complete. Proposal and acceptance are always reciprocal for a valid contract. In order to convert a mere agreement into a legally binding contract, the law requires certain pre-conditions to be fulfilled. These pre- conditions may be termed as the essentials of the contract, and in default of any of the essential the law does not recognize the agreement as legally binding transaction. To make a valid contract the law requires that one of the parties to the contract must have made an offer to the other. The term offer signifies the willingness of the party making the offer to do or to abstain from doing something in reference to the proposed agreement, with the object of obtaining the assent of the other party. Offer needs to be distinguished from Invitation to Treat and the only difference *Assistant Professor in Law Department of AWKUM, Author of 2 international books **Prof. Law College, University of Peshawar *** Assistant Prof. Law College, University of Peshawar Journal of Law and Society Vol. 41, No. 57 & 58 Law College University of Peshawar January & July, 2011 issues 134 between them is the “price”. In case of offer the price is fixed not negotiable however, in invitation to treat the price is not fixed and can be negotiated. To constitute a valid offer it is essential that it must be absolute in itself and made to a specific person. In the case Fisher v Bell the court has decided that for a valid contract the offer must be coupled with a time period within which it is to be accepted and if the party makes default in stating the time period for the acceptance of the offer, the law on its own furnishes a reasonable” time frame within which offer is to be accepted (FISHER v. BELL. , 1961). Offer may or may not be coupled with conditions, but if it is conditional than acceptance of the offer is valid only if the acceptance is made with all the conditions stated by the proposer. There is a difference between a contract and an agreement, all contracts are agreements but all agreements are not contract. An agreement becomes a contract when there are competent parties, lawful consideration, free consent and object. Contract is a form of agreement which directly contemplates and creates an obligation. In an agreement of a contract it is not always necessary that offer and acceptance should be expressed orally or in writing. In some contracts they are implied. For example when a patient goes to the doctor for his checkup it is implied that he will pay the doctor’s fee. These contracts are called implied contracts or quasi-contracts and an implied acceptance is always there. Quasi-contracts usually help out in those situations where one person is liable to be compensated by another person the shape of money. It is not necessary that they have enteredinto a contract or signed an agreement but it is obvious in Quasi Contracts that one person receives a benefit from another person. In other words, the obligation under a quasi- contract is imposed by the law for the reason that the defendant has been unjustly enriched at the expense of the plaintiff. E.g “A” received a television delivered by “UPS” mistakenly and installed it in her lounge. The law binds her to pay the price of that television though she did not order the television but keeping the television created aquasi-contract and the court will make sure that price must be paid to the television company. Quasi contracts are also different from tort as in tort there is no duty owed to persons and the damages recoverable are liquidated. Quasi contracts and torts are different from each other, as in tort damages are always liquidated while in contract they are un-liquidated. Contracts and Tortsboth are different from Quasi-Contract. As in both 137 3. Time limitation clause.This kind of exclusion clause puts a time limitation bar in order to claim the certain right from the contract. COURTS AND STATUES SEEK TO ENSURE THAT EXCLUSION CLAUSES ARE FAIR & REASONABLE In one of the case L’Estrange v Graucobthe court held that the exclusion clauses can only be functional when they are actually part of the contract (L'Estrange v F Graucob Ltd, 1934) and they have described three methods. 1. Incorporation by signature: It means that the said clause should be clear and understandable to an offeree at the time of his signature. E.g at the time of handing over clothes to the dry cleaner, at the back of the receipt it is clearly mentioned that the dry cleaner will not be responsible if the colors of the clothes fades during the said process. 2. Incorporation by notice: In Parker v SE Railwaythe court decided that a party can incorporate an exclusion clause in a contract. It is essentialthat the other party must be well informed about the said clause and this information must be conveyed on time (Parker v South Eastern Railway, 1877). 3. Incorporation by previous course of dealings: According to McCutcheon v David Mac Brayne Ltdthe court held that the parties can add an exclusion clause in a contract if the course of business between them is regular and consistent ( McCutcheon v David MacBrayne Ltd, 1964). Exclusion clause must be clear and well incorporated, otherwise court is of the opinion that it is strange that the parties enter into a contract and allow the other party to evade fault based liability and the party accepts his liability for negligence. In Canada SS Lines Ltd v The Kingthe court held that; “if the exclusion clauses mention negligence explicitly, then liability for negligence is excluded however if negligence is not mentioned, then liability for negligence is excluded.” (Canada Steamship Lines Ld V The King , [1952] ) Case Law Example. Mr. Tom is the owner of a private members gym. He purchased some new exercise bicycles. But after some time he received complaints from the members of the gym regarding jammed 138 pedals. He called the bicycle company and registered the complaint. The representative of the company quoted a clause which stated; “Bicycle Ltd will not be liable for any faults or defects in equipment supplied unless such faults are reported in writing within one week of the delivery.” WILL THE COMPANY ( BI-CYCLE LTD) BE ABLE TO RELY ON THE CLAUSE OF EXCLUSION? In a contract, offer and acceptance must be absolute and qualified. The offer may or may not be coupled with the condition but if the condition is attached to the offer the promisee has to accept the offer with the condition attached. Hence, in our case the Bi-Cycle company is on the principle of exclusion clause and is under no liability for the claim of the Tom. Since the right to file a suit has been expired according to Time limitation clause of the profile of exclusion. It is vital to mention here that, Article 16&15 sub-clause II, III and IV of Sales of Goods Act (III of 1930) describes implied conditions as to quality or fitness. However the abovementioned case does not qualify the conditions mentioned in Sales of Goods Act. PRINCIPLES OF LIABILITY IN NEGLIHENCE. Salmondhas defined “a Tort as a civil wrong for which the remedy is a common law action for un-liquidated damages, and which is not exclusively the branch of a trust or other merely equitable obligation.”In order to learn more about Tort we need to understand its five essential elements, which are as follows. (Sir John William Salmond, (3 December 1862 - 19 September 1924) ) 1. Civil wrong. 2. Infringement of right in rem. 3. Right fixed by law. 4. Common law action. 5. Remedy in a shape of damages i.e. compensation in a shape of money. No action in tort can be maintained, when the relationship does not give rise to any duty of care to plaintiff. Damages either for breach of contract or in tort are to be calculated in terms of actual loss. Plaintiff in a suit cannot claim any sum as damages happen on account of his own negligence. He is bound to take all rational steps to lessen the loss and if 139 some damages arecaused to him due to his own failure of performing his part of the contract damages for breach of contract under the Tortcannot be granted (CLC, 2000). In tort the action is coercive which may result in assault, battery, imprisonment etc. or may be committed without force. A person who is claiming damages in tort must prove that the injury caused to him was direct, the injury was not too remote, there were approximate reason and a proper care had not been observed. It means that there is a duty and an obligation upon the defended to take the proper care and to avoid causing injury to the plaintiff in all the circumstances. E.g. it is the responsibility of a road user to carefully drive and avoid the accidents. etc. Case Law: Donoghue v Stevenson In the above titled case where Mrs. Donoghue visited a café in Scotland with her friend and ordered a beer. She drank a half bottle and when she poured remaining beer into her glass a rotten snail fell into it. She was shocked and become sick and as a result she filed compensation. The court put liability on manufacturers and defined that an organization is held liable to strictly follow the standard rules of the company’s constitution to perform the duties with care( Donoghue v Stevenson, [1932]) Lord Atkinfurther interpreted that: “a manufacturer of products, which he sells in such a form as to show that he intends them to reach to the ultimate consumer in the form in which they left him with no reasonable possibility of intermediate examination and with the knowledge that the absence of reasonable care in the preparation or putting up of the product will result in injury to the consumers life or property, owes a duty to the consumer to take that reasonable care.” (Atkin, (28 November 1867 – 25 June 1944)) There was another case Carroll v Fearon a manufacturing company of tires negligently manufactured few tires which resulted in a serious accident on the motorway. There was no specific negligent act or omission on the part of the manufacturer. The court in this case held the manufacturing company responsible for this accident. While describing suchinjury which is directly caused by tort feasor and damaged as a result of that breachthe act comes under the domain of negligence and the manufacturer is responsible( Carroll v Fearon & Ors, January 20, 1998) 142 harmony between the parties, whereas no such harmony is present in case of tort. In breach of contract motive of the defended is immaterial, whereas in tort it is often taken into consideration though not always. In breach of contract and Tort there is a different parameter to award the damages and compensation. In a few cases, tort and breach of contract resemble. In both cases infringement of private rights takes place and the society in general is not concerned at all when breached. Furthermore, in both cases action is taken by the person himself and the remedy is by the way of compensation & damages. In some cases a person can be liable for the breach of contract and tort simultaneously. e.g. “A physician who harms his patient by negligently administering a poisonous drug is liable both in tort and in contract”. The contract is founded on consent and tort is imposed without consent. In tort the duty arises from the law and in contract duty arises from an agreement between the parties. In tort reasonable foereseability is applied to determine damages, while in contract only laws which arises 'naturally' and which is within the reasonable contemplation of the parties is used to determine damages. Case Law Dave and Manjit work as delivery drivers for Hurryhaste Ltd. Dave has been employed for three years. Manjit has been taken on as casual laborer. Dave and Manjit decided to have a race to see who can make the most deliveries. Manjit reversedhis van into a parked car in haste, denting the door. Dave received a phone call to pick his daughter from the school urgently. Dave decided that he should make a few deliveries, while on the way to his daughter's school, after his last delivery Dave negligently crashed the van into Sheila’s car, injuring her.Sheila was not wearing her seat belt. Manjit. He himself is personally liable to the owner of the parked car. In this case we have to see the rule of vicarious liability of the master, second either this act of Manjit was foreseeable and does the casual labor covered by vicarious liability or not? There were a company van and Manjit was performing his duty, hence, vicarious liability of a master is 143 proved. However employer would probably escape liability unless plaintiff could show that his behavior was foreseeable and that the employer knew of his tendency to engage in races etc. Is Manjit liable to his employer if he has caused damage to his employer’s van? The answer is yes. Dave. He is himself personally liable for the incident and he cannot escape from the liability by just pleading that it was an emergency and he had to pick up his daughter. He is negligent and is liable for the personal injuries and damage to Shelia’s van; is his employer liable? Also refer to the concept of contributory negligence; Shelia will be guilty of contributory negligence if her failure to wear the seat belt contributed to some or all of her injuries. For example, if she suffered whiplash which was contributed to by failure to wear seat belt she may be contributory negligent by fifty percent. Conclusion Despite the valuable distinction between tort and contract remedies, courts appear to be increasingly willing to allow business plaintiffs to recover in tort for breaches of commercial contracts. To preserve commercial arties’ freedom to craft the terms of their relationships with their contracting partners, courts should avoid thetemptation to punish a breaching party by providing a tort remedy to a plaintiff. Rather, courts should hold on to the distinction between tort and contract remedies and only allow there covery of contract damages for a breach of contract. BIBLIOGRAPHY Atkin, L. ((28 November 1867 – 25 June 1944)). James Richard Atkin, Baron Atkin . Aberdovey. Carroll v Fearon & Ors, EWCA Civ 40 (Court of Appeal - Civil Division, Judge Wilson-Mellor) January 20, 1998). Canada Steamship Lines Ld V The King , A.C. 192 (UK [1952] ). (2000). CLC. 215 (e). Donoghue v Stevenson, 100, AC 562 ( UKHL [1932]). EXTEMPORE. (2012, octuber 29). Retrieved from extempore.ie: http://www.extempore.ie/2011/03/16/lynch-v-binnacle-vicarious- liability-confirmed/ Feinman, J. M. (n.d.). Distinguished Professor of Law at Rutgers . Fisher v. Bell. , 1 qb 394 (queen's bench division 1961). 144 Harvey v Facey, 1,AC 552 (UKPC 1893). L'Estrange v F Graucob Ltd, 2 KB 394 (Kings Bench 1934). Lynch v. Binnacle Ltd, IESC 8 (Cavan Co-op Mart [2011]). McCutcheon v David MacBrayne Ltd, 4 (UKHL 1964). Parker v South Eastern Railway, 2 CPD 416 (UK 1877). Sir John William Salmond. ((3 December 1862 - 19 September 1924) ). W. V. H. Rogers, Percy Henry Winfield, J. A. (John Anthony) Jolowicz.. (27-Jul-2010). Winfield and Jolowicz on Tort. Edition, 18, revised. Sweet & Maxell.