Common Law: A Contract and Exclusion Clauses - Case Study Example

Question A) In simple terms a contract is an agreement enforceable by law. It could either by oral, in writing, or implied from the conduct of contracting parties. An enforceable contract has to meet certain criteria to be validated as contractual agreements. 1. Offer and acceptance: There should be valid offer from the offeror and the acceptance of the same by the acceptor. An offer could be made to a specific person, or to the world at large. In the latter case, it could be accepted by anybody and the fact that the performance of contract is carried out is enough ground for notice of acceptance and no other special notice is required. In the seminal case of Mrs. Cargill v. Carbolic Smoke Ball Company, (1893) 1 QB 256, The defendants were owners of Company making medicinal compounds used in the treatment of breathing ailments. They issued an advertisement claiming that they would offer ' 100 to anybody who could contract influenza after using their smoke balls and claimed that they had deposited '1000 in a bank as a token of their sincerity for their claims. (Lindley and Smith, 2004). Mrs. Cargill used the smoke balls as per the Company's instructions and in the specified time frame, and yet contracted influenza. The Company remonstrated that there was no contractual obligation between them and Mrs. Cargill, since she had not informed the Company of her acceptance of contract - testing and using the product. The Courts, comprising of Judges Lindley, Bowen, A. L. Smith L. JJ. held that the very fact of buying and using the product constituted acceptance and could be enforceable in a Court of Law. (Old Cases with Weird Facts Still Define our Law of Contract. 2006). 2. Terms of contract: The terms of the contract should be clear and understood by contracting parties. It should be lawful and not against public policy, and should not have "unusual hazards for the contracting party" (Contract Unenforceable Transactions) 3. Legal relationships The main objective of the parties to the contract is to enter into valid contractual obligations and create legal relationship. "The parties must intend that the offer and acceptance be binding upon them. There is a presumption operating in commercial contracts that the parties intend to create legal relations." (Contract Law). 3. Consideration: This is an important aspect of contractual law since without consideration the contract may be voidable at the option of the parties. The aspect of consideration has been the bedrock of many legal disputes but the landmark case of PepsiCo Co needs to be mentioned. In the case of Leonard v PepsiCo Inc. 88.F.Supp 2 d 116 (SD NY 1996) in which a young man sued the PepsiCo Company in an attempt to enforce an offer made through television commercial for redemption of 7,000,000 Pepsi Points for Harrier jet fighter aircraft. In this case decided in 1999, the Judge, Kimba Wood ruled that this case could not be enforced on three counts: A. PepsiCo's commercial been only an advertisement and did not constitute a valid offer to the world at large, or in other words there was no consideration flowing from the parties. It would be difficult to imagine that one could get a fighter jet aircraft for $ 7,000,000,when" the cost of a Harrier Jet is roughly $ 23 million dollars, a fact of which plaintiff was aware when he set out to gather the amount he believed necessary to accept the alleged offer." c. There was no communication between the alleged contracting parties which was enough to satisfy the Statute of Fraud, which the applicant had claimed from the company. (Leonard, 1999, p.10). Absence of consideration from both the contracting parties could be witnessed in cases of gifts, payments made for charitable purposes, etc., where there may not be mutual consideration 4. Capacity to enter into contracts: The parties entering into contract should have capacity to enter into it, like being of majority age, free from mental disabilities or under state of inebriation when entering into contract, etc. which could render the contract void, ab initio. Further there should be absence of coercion, duress, undue influence or any other subsisting factors that could render the contract null and void at their option. 5. Specific performance: The contract could be completed upon specific performance enunciated in the contract, or, upon the terms of the contract being fulfilled, or at the mutual discretion of the parties to the contract. For instance if A hires a building contractor B, to build his apartment, the contract would complete when the apartment is build and handed over to A. 6. Terms should be certain: The terms of the contract should be certain and cogent. If A promises B that he would pay a sum of money upon finding his lost dog, the contract may not be clear since the consideration on the part of A is not certain. However, if A promises to pay B '100 for finding his lost dog, the terms of the contract are clear, and if B is able to trace and find out the lost dog, A would be bound to pay the reward sum of '100. Question 1: (B) The main idea behind exclusion clauses is to limit or exempt the extent of liability in the event of any problem relating to performance of the contract. The conditions for the enforcement of the exclusion clause could be in terms of the following salient aspects: 1. The exclusion clause must form an important constituent of the contract and the contracting parties must be aware of their existence and implications. In the case of L'estrange v. Graucob (1934) 2 KB 394 , it was held that a contracting party to the contract could not be freed from being bound to the terms of the contract just because she has not read or understood the terms of the contract. The case relates to the owner of a caf', Mrs. L'estrange who purchased a cigarette vending machine which proved to be defective. Although there was an implied clause that the machine should function properly, the exclusion clause absolved manufacturers from" all liability regarding the malfunction of the machine. It was held that Mrs. L'estrange could not claim damages on the grounds that she ''did not see'' the clause in the contract." (L'estrange v Graucob (1934), 2006). 2. The second aspect regarding exclusion clause is that it should have been communicated to the party to the contract, or he/she needs to have awareness of the existence of exclusion clause. If the exclusion clause is not known by the party at the time of entering contract, then by application of law, it may not be applicable. In the leading case of Olley v. Marlborourgh Court Hotel (1949) 1 KB 552, a lady deposited her fur cloak in the hotel locker which was subsequently stolen. She sued the hotel for loss of the cloak, but the hotel management pleaded that in the contract of service there was a specific disclaimer for liability arising out of theft. It transpired that the disclaimer notice was in the hotel room and not at the reception where the contract was initiated between the lady and the hotel management. Hence the exclusion clause could not be enforced. (Olley v. Marlborourgh Court (1949), 2006). 3. The duration and regularity of business is also an important aspect with regard to exclusion clause. It is seen in leading cases that where the contracting parties were in business relationship for some time, it is expected that one party need to be aware of the existence of exclusion clause enforceable by the other. In the case of Spurling Ltd. v Bradshaw [1956] 1 WLR 461, the existence of exclusion clause was used to enforce payment in favour of Spurling who, despite causing losses to Spurling, due to negligence in storing food materials, was able to enforce the exclusion clause. This is because, in the opinion of the Court, Spurling had longstanding business dealings with Bradshaw and was deemed to have awareness of the exclusion clause. However, in the case of McCutcheon v Mac Brayne [1964] 1WLR 125, McCutcheaon hired one of MacBrayne's ferry for transporting his car. The ferry sank and the applicant claimed damages. The defendants sought recourse through the exclusion clause, citing that the applicant had earlier dealings with them. However, the court ruled that "these dealings, although regular, were not of a sufficiently consistent nature to claim incorporation by prior business." (McCutcheon v MacBrayne (1964), 2006). Application of 'exclusion clause' in this case study: In this case study, Deals r us Ltd has shown negligence while providing computer and software to Mark although they were fully aware of intended use of these software for the plaintiff, Mark. He needs to seek recourse to Unfair Contract Terms Act 1977, challenging the validity of the exclusion clause absolving Deals r us Ltd. of its liability despite apparent negligence in the supply of computer software to Mark on these grounds: 1. Mark was not in the habit of purchasing computer software regularly and was thus not in a position to know about the technical aspects of computer and its applications for his business. 2. He had relied on the technical skills and expertise of the manufacturer, Deals r us Ltd., who, unfortunately did not supply the standard products, as a result of which Mark suffered financial and health losses. 3. The onus would be on Deals r us Ltd to prove that their disclaimer clause was reasonable and not designed to the detriment of customers. 4. Mark needs to impress upon the Court that exclusion clause could be a dangerous weapon that could be used by manufacturers to escape liability from wilful or accidental negligence and could set dangerous precedents for their future customers. A favourable settlement to Mark in this case would dissuade manufacturers from providing defective materials to customers. 5.In the leading case of Philips Products v. Hylam (1977 )the court held that while the plaintiff was not in a position to estimate the risk involved in purchasing of the product or service, the defendants, however, were operating in their main line of business, and should have been able to assess the risk accurately." (Philipps Products v. Hylam (1977), 2006). Therefore, it is necessary that the exclusion clause be revoked and the manufacturer sued for non -performance of contractual obligation and Mark should seek compensatory damages for loss of health and business prospects. Question 2 (A) Tort of negligence- civil wrongs: The general guiding principles of the tort of negligence could be seen in terms of a legal duty or need to take care, the omission of which results in damages to the health, or properties of the plaintiff, the scope of which was not intended by the defendant. Torts are not criminal acts, but are civil wrongs, since the motives are not intentional, but accidental. Standard of care: seminal case of Donoghue v. Stevenson A person who drives carelessly on the road does not intend to cause accidents, but the nature and scope of her activities could be the root cause of accidents and injuries, not only to herself, but also to others. The need for a duty of care, which underpins the aspect of tort laws in the UK, has been established in the seminal case of Donoghue v. Stevenson, in which the manufacture of soft drinks was held liable for civil misfeasance in not ensuring that the consumable product met the highest quality and is fit for human consumption. "'That case established that, under certain circumstances, one man may owe a duty to another, even though there is no contract between them. If one man is near to another, or is near to the property of another, a duty lies upon him not to do that which may cause a personal injury to that other, or may injure his property." (Donoghue v. Stevenson (1932) House of Lords (1932) All ER.REP 1). Caparo Industries Plc v. Dickman: The duty of care needs to ensure that the defendant does, or refrains from doing anything that could cause harm to the applicant or any other person. The test of validity in tort is examined through the Three Fold Test as established in the case of Caparo Industries Plc V. Dickman. In this case the court sought recourse to the Three Point Test: 1. the defendant needs to be in a position to foresee the consequences of his/her actions 2. There was a degree of closeness or proximity between the contracting parties and 3. Whether, in all such situations, the aspects of fair, just and reasonableness could be established in terms of duty of care' In the landmark case of Caparo, the shareholders based investment judgments on wrong financial accounts, and later sued for negligence. The Court held that the auditors were functioning as watchdogs to the directors and, while they could have foreseen that their report would be seen by the investors, it was not reasonable for investors to rely on it." (Caparo v. Dickman (1990), 2006). Essentials of tort: The following aspects have to be considered to establish tort. It has to be seen in the context of the risks involved and the need for taking proper precautions by the parties concerned. It is not only necessary that the defendant had taken proper care and judgment which a person of ordinary intelligence and prudence would have done under such situations, but it is also necessary that the plaintiff establish that the degree of care taken by the defendant had been significantly lower than that would have been taken by employers in similar circumstances. (Latimer v AEC [1953] AC 643 (HL), 2006). Further it is also necessary that material damages could have resulted due to lack of suitable care taken by the defendants. In the case of Paris v. Stepney BC (1951), a workman with only one eye (other eye lost to cataract) was blinded when a steel chip struck his eye. His employers maintained that the rarity of such occurrences obviated the necessity to provide suitable eye protective gear to such workmen. The House of Lords held that this was not a primary issue- what was more important is that the defendants were aware of the fact that the employee had only one eye and it was necessary that suitable protection need to have been provided to the workmen.(Paris v Stepney BC [1951] AC 367 (HL), 2006). This was enforced in the case of Scott v. London and St. Katherine Docks Co (1985) in which the Court resorted to the dictum of res ipsa loquitur (the thing speaks for itself) and the evidence of a single witness in order to establish circumstantial evidence to verdict negligence on the part of the employers to ensure safety of workmen. (Negligence - Breach of Duty). Thus it may be seen that a lot of factors need to be considered while establishing the tort of negligence, and also the circumstances of the specific cases also has to be considered. In summary it could be said that tort would invoke material harm caused to the plaintiff through negligence or apparent misconduct which needs to be compensated through compensatory and punitive relief. The compensatory damages are intended to put the aggrieved party in a position had the losses not occurred and the punitive relief is meant to act as a deterrent to ensure that there are no recurrences by such offenders of such tort of negligence in future. . Question 2 (B) The main aspects that surround this case study are: 1. Laurie is a novice learner driver who has not yet attained proficiency in driving 2. Her negligent and lack of due care are the fundamental reason for the commission of tort. 3. As a result of her misconduct she has caused serious injuries to Stacey and Tommy resulting in physical injuries and loss of incomes for them for several months. 4. The case involves tort since the accident was not of a criminal nature but resulted out of over enthusiasm of Laurie. The writer proposes to consider this case study from both perspective- from the point of view of Laurie and also from the angle of the aggrieved parties, Stacey and Tommy. From the point of view of law: This case history may run parallel to the case established in Nettleship v. Weston (1971) when the standards of care of learners were enunciated by the Court. In the above cited case, the defendant crashed her car during driving lessons, injuring her instructor. Although the driver was a learner, the court believed that the standards of care and judgment required by her, needs to be a par with an accomplished driver. The fact that she is a novice does not absolve her from lack of standards of care, or liability for wrong doing. The Courts need to take an objective view and measure the standards displayed by Laurie with that of a proficient driver. It is of little consequence that the accident resulted due to the ineptness and lack of quick thinking on the part of Laurie. (Cases law and morality, 2000-2008). Although an incompetent driver could justify his own incompetence, it has to be seen in the context on the magnitude and implications of her actions In this case lord Dennings held "Thus we are, in this branch of the law, moving away from the concept: 'No liability without fault'. We are beginning to apply the test: 'On whom should the risk fall'' Morally the learner-driver is not at fault; but legally she is liable to be because she is insured and the risk should fall on her." (Sixth Form Law: Cases law and morality: Therefore it could be said that being a learner driver, Laurie would be liable to her instructors and not to Stacey and Tommy. Moreover, it is also seen that Stacey was not wearing her seat belt prior to the crash, and this carelessness could be a contributory cause for major injuries suffered by her. Finally, in this case study the aspects that would have to be considered are as follows: 1. The Courts would establish the standard of care that need to have been taken by Laurie. 2. These standards would be compared to the actual standards taken by Laurie 3. The deficiency in care or presence of apparent lack of care needs to be established. In this case it is seen that Laurie has shown lack of care by pressing the accelerator, instead of the brakes, which is below the care to be taken by the trainee driver. This has been the precipitating cause for the accident in which the occupants of the other car, Stacey and Tommy were injured. In the case of learners, the standard of care should not fall below ordinary and reasonable standards that could be fairly established for such circumstances. In this case it is established beyond reasonable doubt that the accident occurred due to the rash and negligent driving of The learner driver, Laurie and is an offence that could be booked under tort laws. The fact that Laurie is a beginner makes it all the more necessary for her to exercise restrain and care while driving on public roads. Further, she had abandoned her sense of prudence and consideration for others when, upon seeing the crowded roads, she did not opt to go back home or give the steering wheel to her friend who may have been a better driver than her. Her lack of prudence and quick thinking has been a major factor for this accident and she would be held liable for compensatory and punitive damages, depending upon the views of the Court. There are also other aspects in this case, with relation to insurance claims. Normally the insured persons who are injured could get their injuries claims settled , but this could only be possible when it is proved that they are not at fault, and the fault lies with the other driver. Therefore, in this case study, it is incumbent upon Stacey and Tommy to prove conclusively that the fault was with the other party, Laurie, inn order to get their insurance claims settled. As Justice Dennings observed in his landmark judgment in the Nettleship v. Weston case (1971) the matter than needs to be settled would be in terms on which the risk should fall. The risk should by course of law fall on the learner driver since she is insured. Although morally Laurie may not be at fault, legally she is at fault, since her lack of care and judgment was the cause of the accident. The lack of care would be in terms of the following: Driving without proper vision Driving somebody else's vehicle, whether with or without their permission Lack of fundamental understanding of driving rules Lack of judgment on the roads. Rash and negligent driving on crowded roads has resulted in accident liability that Laurie has towards Stancey and Tommy The liability that Laurie has towards Stancey and Tommy could be seen in the context of the following: 1. Does Laurie have a duty of care towards the other car's occupants- Stancey and Tommy' 2. Has there been a breach of care on the part of Laurie' 3. As a direct and consequent result of this breach of care, has there been ensuing damages and losses to the other party' In this case, it is seen that all these questions could be answered in the affirmative. 1. Laurie has a duty of care to the other car occupants. Since she was driving on a public thoroughfare 2. Yes there has been a breach of care since she has, through rash and negligent driving, and lack of spatial judgment, caused grievous and serious injuries to Stancey and Tommy 3. Yes, the direct consequences of her breach of care has resulted in the accident, resulting in loss of car and injuries to its occupants. Laurie has to make necessary compensatory damages and punitive damages (optional) to Stancey and Tommy. Works Cited Lindley, Bowen., and Smith, A. L. UK Law Online. Cargill v Carbolic Smoke Ball Company. 21 Dec. 2004. 18 Mar. 2008. . Old Cases with Weird Facts still Define our Law of Contract. Metafilter Community Weblog. 25 May. 2006. 18 Mar. 2008. . Contract Unenforceable Transactions. The rule of different legal system: Unenforceable Transactions. Encyclopedia Britannica. P. 10. 18 Mar. 2008. . Contract Law. Legal Explanations. Solicitors and Lawyers. Gillhams: Solicitors. 18 Mar. 2008. http://www.gillhams.com/dictionary/276.cfm Leonard, John D. R. United States District Court for the Southern District of New York. P. 10. 4 Aug. 1999. 18 Mar. 2008 . L'estrange v Graucob (1934). The K-Zone. 23 Feb. 2006. 18 Mar. 2008. . L'estrange v Graucob (1934). The K-Zone. 23 Feb. 2006. 18 Mar. 2008. . Olley v. Marlborourgh Court (1949). The K-Zone. 23 Feb. 2006. 18 Mar. 2008. . McCutcheon v MacBrayne (1964). The K-Zone. 23 Feb. 2006. 18 Mar. 2008. . Philipps Products v. Hylam (1977). The K-Zone. 23 Feb. 2006. 18 Mar. 2008. . Donoghue (or M'Alister) v. Stevenson House of Lords (1932) All ER.REP 1. Butterworths. 18 Mar. 2008. . Caparo v Dickman (1990). The K-Zone. 23 Feb. 2006. 18 Mar. 2008. . Latimer v AEC [1953] AC 643 (HL). The K-Zone. 23 Feb. 2006. 18 Mar. 2008. . Paris v Stepney BC [1951] AC 367 (HL). The K-Zone. 23 Feb. 2006. 18 Mar. 2008. . Negligence - Breach of Duty. The Reasonable Man Test Law Teacher. 18 Mar. 2008. . Cases Law and Morality. Sixth Form Law. 2000-2008. 18 Mar. 2008. . Read More