Contractual and Tortious Liability Analysis

Introduction

Any particular person or business’ activity is regulated by law. Any argument between the parties will be considered and decide by high court based on the governed rules and a particular circumstance.

Contractual and tortious liability analysis is an important key under Common Law module. To explore the definitions and concepts of Contract and Tort with the relevant terms, this report will guide the readers through the following learning outcomes:

* Understand the essential elements of a valid and legally binding contract and its role in a business context.

* Explore the significance of specific terms in a business contract.

* Examine the role of the law of Torts in business activities assessing particular forms of tortious liability.

* Understand and apply the elements of the Tort of Negligence.

Findings and Analysis

1. Requirement 1

1.1. The different types of business agreement and the importance of the key elements required for the formation of a valid contract [P1]

In the SAE Guidebook, lesson RK.4, p.2, a business agreement is defined as:

“A Business Agreement is a written document signed by two or more people that contains details about the operation of a business venture”.

Under Common Law‘s theory, a business agreement is normally known as a contract which is an agreement between two or more parties regarding a consideration and enforced by law.

There are many different types of business agreement, but generally, it is classified into the following forms:

* Simple: The basic form of a contract which is verbal or in writing.

* Standard: The usual business forms such as invoices, bills and so on.

* Speciality: This is a formal contract which is produced by deed.

* Unilateral: The agreement is made based on the obligation of a party.

* Bilateral: A type of business agreement which requires the performance of both parties’ duties.

Referring to the definition of a valid contract, it needs to consist of four fundamental requirements to create the formation of a valid contract.

· Offer:

This is the first key. One party indicates the willingness to enter into a contract on specified terms. The offer becomes binding when there is an acceptance from the other party.

There are two types of offer which are: Specific offer (made towards specific people or individual groups) and General offer (made widely to public via public channels)

Legal case:

Powercor Australia Ltd v Pacific Power (1999)

· Acceptance:

This is the compliance of a party with all terms of an offer made by the other party. In the other words, this is a mirror image of an original offer where one party accepts the offer from the other party unconditionally.

The acceptance can be made via some ways: verbally, in writing or completing a few agreed actions. If the offeree wants to change the condition of original offer in the response, this response is considered as a counter offer to the original offerer

Legal case: Brogden v Metropolitan Rail Company (1877)

* Consideration:

This is a vital factor in the formation of a contract. A consideration identifies the certain exchanged goods or services, as well as price.

In the old definition, it referred to the concept of either a detriment to a promissee (giving the value) or benefit to the promisor (receiving the value).

Legal case: Jones v. Padavatton (1969)

In the new concept, consideration has been re-defined as an act (done before giving a promise to make a payment or to confer some other benefits) or forbearance (the claim is doubtful but forbearance to enforce).

Legal case: Pao On v Pau Yiu Long (1980)

Stott v Merit Investment Corp. (1988)

· Intention to create legal relations:

If an agreement supported by the consideration but without conducting by law, it is not binding as a valid contract. Law never recognises any illegal trading agreement as a contract.

Legal case: Clarke and Tucker v Tucker (1961)

1.2. The importance of the rules of intention and consideration of the parties to the agreement [P3]

1.2.1. Consideration: lies at the heart of English contract law.

· The consideration must move from the promise and does not need to move to the promisor

Two parties who involve in making the consideration in the contract called ‘promisee’ and ‘promisor’. If there is no consideration, that means no promise is enforced and a contract does not exist.

Legal case: Tweddle v Atkinson (1861)

Also, the promisee can provide the consideration to a third party if at the time the contract was made, this agreement was stated. The Contract (Rights of Third Parties) Act 1999 allows a third party is benefited if it was clearly stated when all parties contracted even no consideration was provided by that third party.

Legal case: Bolton v Madden (1873)

· Consideration cannot be past

The past consideration cannot be a good consideration in law of contract. If one person provided the consideration before the promise is made, that consideration would not be acceptable.

Legal case: Roscorla v Thomas (1842)

· Consideration must be sufficient but does not need to be adequate

The courts will not consider any consideration which does not have any economic value. Also the courts will not force or advise any value for the consideration; even it is minimal value, compared to the real world situation.

Legal case: Thomas v Thomas (1842)

· Consideration must be legal

In the case of illegal consideration, it will not be used for a valid contract in the court. One party or another needs to be aware the illegality upon the court.

In some commercial situations, the legal intent is created by the parties to make a contract. If one party denies carrying on the job without the improvement from something related to the job, that party did make a contractual intention. It is obligatory for another party to pay for new improvement to carry on the existing job.

Legal case: Rose and Frank Co v Crompton Bros Ltd (1925)

Honourable pledges come from several companies cannot create the legal contracts. The participants may not recover their winnings.

Legal case: Jones v Vernon Pools (1938)

1.3. The importance of the contracting parties having the appropriate legal capacity to enter into a binding agreement [P4]

Appropriate legal capacity of the parties is an important key to allow them entering into a binding contract.

This focuses on the ‘minor’ term. A minor is a young person under the age of eighteen years old. A minor’s capacities are not the same as the capacities of an adult. One of those is the ability for him or her into a binding contract. Normally, incapacity of a minor will be considered by court as a defence to a claim by other party who seeks to enforce the contract rather than as the basis of a claim by the minor for the restitution of the benefit he or she has consulted upon the other party.

In practise, according to the case of Steinberg v Scala (Leeds) Ltd (1923), the minor is free from liabilities in the future on the shares but she could not recover the money she had been paid. She will not be able to recover her money unless she can prove that there has been a total of failure of consideration.

1.4. The effect of exemption clauses in attempting to exclude contractual liability [P7]

The exemption clauses are provided to exclude or limit the liabilities of the parties within a contract. Therefore, exemption clauses are classified into two main forms: Exclusion clause and limitation clause. Sometimes, exemption clauses become very effective to allocate the risk between the parties. The parties who use the exclusion clauses in the contracts often gain the strong positions.

Under common law, an exemption clause can be incorporated into the term of contract by the following ways:

* Notice by display

* Notice in document

* Notice by signature

* Notice by course of dealings

For example: If the owner of hotel displays a notice board which states that he will not liable to pay for loss or damage of personal belongings of the customers. In that circumstance, he does not have to pay for that.

So, if an exemption clause is clearly incorporated by either the four above ways, a party who mentioned that can rely on it. But under the Unfair Contract Term Act 1977 (UCTA 1977), (apply to business’ liabilities), even an exclusion clause is clearly incorporated in the contract, it is invalid for causing death or personal injury (section 2.1). But relating with loss or damage to property, it can be considered, subjected to reasonableness test (section 2.2).

1.5. Tortious liability [P8]

Law of tort is a part of English common law. A tort is an act that injures someone in some way, and for which the injured person may sue the wrongdoer for damages. A negligent or intentional civil wrong is not arising out of a contract or statute. These include “intentional torts” such as battery or defamation, and torts for negligence.

When there is a duty of care and a breach of that duty care causes a damage that makes the tort of negligence.

The definition of tortious liability is as:

“Tortious liability arises from the breach of a duty primarily fixed by law; this duty is towards persons generally and its breach is redressible by an action for unliquidated damages.”

W. V. H. Rogers, Winfield & Jolowicz on Tort (16th edn, Sweet and Maxwell, 2002)

According to the definition of a contract as discussion above, contract requires agreement between two or more parties, but in tort, it is not necessary of agreement between two or more parties.

The main difference between tortious liability and contractual liability is the nature of duty. The duties in the torts are fixed by the law where the duties in the contracts are fixed by the contractual parties. Therefore, there is more structured and stricter in tortious liability than in contractual liability.

1.6. The nature of employer’s liability with reference to vicarious liability and health and safety implications [P10]

To access to the nature of employer’s liability, the followings aspects should be explored:

* Personal liability:

Considering the doctrine of common employment, it prevented the claims against the employer in respect of a fellow employee’s negligence. The employee brought an action against the employer for negligent injury in the workplace, the employee ran the risk that his employer could simply claim that he was not liable because:

– the injury was caused by the action of a fellow employee, and

– the employer had taken reasonable care in choosing the employee in question.

A difficulty had arisen. And the resolution is there is no excuse that the employer has taken care to ensure a competent fellow employee deals with safety: if the employee is injured due to lack of care, the employer is liable. The supporting case Wilson and Clyde Coal Co. V English (1938) shows that it was not enough for an employer to entrust the fulfilment of its duty of care to its employees, even when they had been selected with duty care and skill. The employer retained responsibility to provide:

ü A competent staff

ü Adequate plant and equipment

ü A safe place of work

ü A safe system of work

If there were not provided with reasonable care and skill; the employer would be liable. The later scope of personal liability indicates that the employee must show that there was a breach of duty of care and that breach caused the loss or injury suffered. The duty is owed to the individual employee, such as how to make a coffee or to enter to the toilet, etc.

* Vicarious liability:

This refers to the circumstances where the defendant is found guilty even if they did not commit the offence themselves.

Employees are the main force to create the value and profit for the business. So they should have right to entitle into the benefits which may be the responsibilities of the employer, such as:

ü Providing insurance for each employee

ü Recruiting and training the right people and under a right programs

ü Listening and understanding the concerns for job from employees

ü Being liable for the damage even it was caused by the employees on their own way

To consider whether a person is an employee of an employer or not, the court mainly depends on control test, also organisational test and multiple test.

So when an employee commits the tort in the course of agreement with an employer, that employer will be liable (in circumstances) for concept of employee, such as during time out of workplace (going to work or going out to meet a client), careless employee, criminal employee or over-zealous employee. By providing the concept of vicarious liability, it encourages the employers trying to use as much as possible their power to minimise that liabilities, ensure their employees work in the safest possible manner.

* Health and safety:

Health and Safety at Work, etc., Act 1974 was introduced with a number of duties phrased in very general terms were imposed on employers and others by sections 2-7 of the Act. For breach of general health and safety duties no civil action lay. But in section 15, it supports the Secretary of State to make the regulations to replace the existing statutory provisions. Section 47(2) provided that a civil action would lie for breach of these new regulations, except where the regulations provide otherwise. Also, the Management of Health and Safety at Work Regulations 1992 was implemented, then had been revoked and re-enacted by Management of Health and Safety at Work Regulations 1999. The regulations provides for risk assessments by employers, imposed general duties somewhat akin to those provided for in the 1974 Act.

1.7. Strict liability [P11]

Strict liability arises whether or not a contracting party is at fault. That means, committing an act is sufficient for liability, guilty mind is not necessary.

For example: A cleaner agrees coming to clean for a house on Saturday. If she does not come on Saturday, she fails to perform her duty. So she is liable for that even the circumstance is beyond her control.

So, the strict liability is based on committing an act, irrespective of fault. Whereby, tortious liability is based on fault, requires four factors: a duty of care, a breach of that duty of care, causation and damage.

2. Requirement 2

2.1. Rules of offer and acceptance in a given scenario [P2]

In the given case, the contractual parties have the legal capacity; also there is intention to create the legal relations and the offer of specific ovens. John gives the consideration of $5,000. If the party just follows the direction of the offeror that means there is a mirror image of an original offer. And unconditional acceptance is established. Therefore, it is sufficient for the existence of a valid contract between John and Robert.

In another hand, if considering John fail to fill the name and address in the sending email, the case now falls out of the general rule for method of acceptance. Thus, there is no valid of acceptance, hence no valid contract between John and Robert. The general rule for acceptance clearly indicates that the acceptance needs to be communicated. Email is a type of technology, allowing the people exchanging the information. But it only become a mode of communication for acceptance when the sender incorporate his or her name and address within that email.

Supporting case: J Pereira v Fernandes SA v Mehta (2006)

2.2. Specific contract terms with reference to their importance and impact if they are broken [P5]

A valid contract is usually specified with the terms. The terms of the contract are the sources of the duties of the parties under the contract. They actually are the pre-contractual statements which will become part of the contract.

* Conditions and warranties

* Express and implied terms

A condition is a fundamental term. It is very important to the main purpose of contract. If there is a breach of condition, the claimant can renounce the contract and sue for the damages.

Warranty is the less significant term of contract. If the warranty is broken, it will only support the claimant sue for the damages. He or she cannot rely on it to repudiate the contract.

Express terms are specified by agreement from both parties and mentioned at the time of contract made. They may be oral or in writing.

Implied terms are part of contract. Sometime, they are not mentioned by any party but they are required to be presented to help the contract making the commercial sense.

ü Implied by custom. Supporting case: British Crane Hire v Ipswich Plant Hire (1975)

ü Implied by the courts

o Implied in fact: (eg: all necessary accessorises should be included in a brand new phone box when a customer buy a new phone from a store). Supporting case: The Moorcock (1989)

o Implied in law: Supporting case: Liverpool City Council v Irwin (1977)

ü Implied by statue.

In the given scenario, there is an implied term that Salem will supply Robin with this gear system in sufficient quantities to manufacture the requisite number of bicycles. Because between them a contract has already existed, so consideration is clarified. There is no matter of by what way a party supplies another party the goods (he can do them by himself or buy from a third party) but the supplied goods need to meet the requirements, the standard specifications.

23. The law on standard form contracts [P6]

According to the natures of contracts, there was a valid contract between XLO Plc and Zion Ltd. All the important elements are satisfied. Zion had intended to enter into a contract and signed on the standard form of contract which was prepared by XLO. That means, Zion agreed with all terms and statements which are mentioned in that contract.

There was a breach of contract caused by XLO. Under section 3 of UCTA 1977, in breach of the contract, XLO can rely on that exclusion clause if satisfies the requirement of reasonableness.

And under section 11 of UCTA 1977, the test for reasonableness is identified:

“…the term satisfies the requirement of reasonableness; regard shall be had in particular to

(a) the resources which he could expect to be available to him for the purpose of meeting the liability should it arise, and

(b) how far is was open to him to cover himself by insurance.

(c) it is for those claiming that a contract term…satisfies the requirement of reasonableness to show that it does.”

So if the claimant (Zino) can sue for the loss from insurance company, XLO can rely on this exclusion clause. Otherwise, XLO cannot rely on this exclusion clause if Zino cannot expect anything from insurance.

The case law:

Overseas Medical Suppliers Ltd v Orient Transport Services Ltd (1999) can support more for the understanding about the case between XLO and Zino. OMS sued to recover the value of goods lost because they were lost while being transported on the return journey from Teheran by OTS and OTS had failed to insure the goods. The decision was that OMS could not rely on the exclusion clauses because they had not passed the test of reasonableness set under UCTA 1977 s.11.

2.4. The liability applicable to an occupier of premises [P9]

Occupier:

A person in charge of premises under certain circumstances may have to take responsibility for the safety and well being of visitors to the premises. Under the statutory legislation, there is two keys: the Occupiers’ Liability Act 1957 and the Occupiers’ Liability Act 1984.

Premises mean variety of peculiar places and types of vehicle, eg: car, boat, school, etc.

The Occupiers’ Liability Act 1957 mentions the duties of the occupier for the lawful visitors, and it was expanded for the trespassers in Occupiers’ Liability Act 1984. Under Occupiers’ Liability Act 1957 section 12:

“(1) An occupier owes a common duty of care to all his visitors, except in so far as he is free to and dose extend, restrict, modify or exclude his duty to any visitor or visitors by agreement or otherwise,

(2) The common duty of care is a duty to take such care as in all the circumstance of the case is reasonable to see that the visitor will be reasonably safe in using the premises for the purposes for which he is invited or permitted by the occupier to be there.”

In the given scenario, Lady Patricia can claim damages. Mike was responsible to repair the flying chair for the fun fair. He did employ Dennis and allowing carry on the ride, even Dennis reported he could not find any replacement. There was a negligence of duty of care. Mike will have to be liable for Lady Patricia’s injury.

2.7. The application of the elements of the Tort of Negligence [P12]

According to the nature of tort of negligence as discussed above with considering the case: Donoghue v Stevenson (1934); the given scenario is similar. The important key of the case is about the ‘neighbour principle’. In fact, of course there would be a liability of the owner’s cafe de Tam to Bony. But whether ginger beer manufacturer owes a duty of care to Bony or not? The common law duty of care, ‘neighbour principle’ states: Defendant owes a duty of care to the neighbour’. Again, who neighbour is; and the consideration is explained as: someone who suffers for the injury caused by another party’s negligence. So if Bony suffered shock and severe gastro-enteritis caused by ginger beer manufacturer’s negligence, she is a neighbour of that manufacturer. Therefore the manufacturer was responsible for Bony’s injuries.

2.8. The practical applications of particular elements of the Tort of Negligence [P13]

In highland Great Britain and Wales, there is no liability for omission of negligence unless there is a legal duty to act. For example: A shop security man if he breaks a TV by himself will be liable for it. If someone tries to steal it, he tries to prevent the thief in that circumstance and he might break the TV. But if he fails to prevent that, he will be liable for that. So applying for the given case, if Hab has a legal duty to rescue Fay and he did fail to do that with unreasonable circumstance, he has to pay for the claim. Hab’s negligence has fail into one form of creating a legal duty to act is engaging in hazardous activity. But if there is no legal duty to act established, he would not have to be responsible.

A high standard of care is imposed on the drivers on the roads because the standards for all types of drivers on the road should be the same. It is required for the road safety. Any driver, old drivers or young drivers, leaner drivers or passed drivers have the same duty on the road. That is the policy of safe society.

Conclusion

Through the above discussion and the analysis for the supporting cases and given scenarios, this report has launched such huge information of contractual law and law of torts. People can obtain the understandings from the theory to be able to differentiate law of contract and law of torts.

Also, people can have enough knowledge to be able to analyse and solve the different practical applications of contractual liability and tortious liability areas.

Reference

1. Taylor, Exemption clauses, [Online]. Available at: http://www.oup.com/uk/orc/bin/9780199299997/taylor_chap06.pdf [Accessed: 14/01/2010]

2. Law Teacher, Consideration Law, [Online]. Available at: https://www.lawteacher.net/contract-law/lecture-notes/consideration-lecture.php [Accessed: 17/12/2009]

3. Duhaime, Consideration and Deeds, [Online]. Available at: http://duhaime.org/legalresources/contracts/lawarticle-88/part-3-consideration-deeds.aspx [Accessed: 14/12/2009]

4. Elliott & Quinn, (2002), Contract law, UK.