ASPECTS OF CONTRACT AND NEGLIGENCE FOR BUSINESS Lecturer: Judith Robb-Walters Lesson 1

ASPECTS OF CONTRACT AND NEGLIGENCE FOR BUSINESS LO 1: Understand the essential elements of a valid contract in a business context September – November 2014

The Basic Syllabus - Understand the essential elements of a valid contract in a business context. Be able to apply the elements of a contract in business situations. Understand principles of liability in negligence in business activities Be able to apply principles of liability in negligence in business situations.

LEARNING OBJECTIVES At the end of the class, students should be able to: - Explain the importance of the essential elements required for the formation of a valid contract.

OVERVIEW “Contracts are agreements that are legally enforceable. A contract may involve a duty to do or refrain from doing something, and the failure to perform such duty is called a breach of contract. The law provides remedies if a promise is breached- aiming to restore the person wronged to the position they would occupy if the contract had not been breached, rather than punish the breaching party. The existence of a contract requires: 1. an offer; 2. an acceptance of that offer which results in a meeting of the minds, 3. a promise to perform, 4. a valuable consideration, 5. a time or event when performance must be made, 6. terms and conditions for performance, 7. performance, if the contract is "unilateral".” definitions.uslegal.com

OFFER AND ACCEPTANCE The first essential element in the formation of a binding contract is agreement. This is usually evidenced by offer and acceptance. An offer is a definite promise to be bound on specific terms, and must be distinguished from the mere supply of information and from an invitation to treat.

OFFER AND ACCEPTANCE An offer is a definite promise to be bound on specific terms and may be defined as follows. 'An express or implied statement of the terms on which the maker is prepared to be contractually bound if it is accepted unconditionally. The offer may be made to one person, to a class of persons or to the world at large, and only the person or one of the persons to whom it is made may accept it.' A definite offer does not have to be made to a particular person. It may be made to a class of persons or to the world at large. However, it must be distinguished from a statement which supplies of information, from a statement of intention and from an invitation to treat

UNILATERAL OFFER Contracts may be bilateral or unilateral. The more common of the two, a bilateral contract, is an agreement in which each of the parties to the contract makes a promise or promises to the other party. For example, in a contract for the sale of a home, the buyer promises to pay the seller $5,000,000 in exchange for the seller's promise to deliver title to the property. In a unilateral contract, only one party to the contract makes a promise. A typical example is the reward contract: A promises to pay a reward to B if B finds A's dog. B is not obliged to find A's dog, but A is obliged to pay the reward to B if B finds the dog. In this example, the finding of the dog is a condition precedent to A's obligation to pay. The classic example of such a contract is where A promised to pay B £100 if B will walk from London to York: see Rogers v Snow [1573] Dalison 94.

Carlill v Carbolic Smoke Ball Co 1893 The facts: The manufacturers of a patent medicine published an advertisement by which they undertook to pay '£100 reward .... to any person who contracts .... influenza .... after having used the smoke ball three times daily for two weeks'. The advertisement added that £1,000 had been deposited at a bank 'showing our sincerity in this matter'. The claimant read the advertisement, purchased the smoke ball and used it as directed. She contracted influenza and claimed her £100 reward. In their defence the manufacturers argued against this. (a) The offer was so vague that it could not form the basis of a contract, as no time limit was specified. (b) It was not an offer which could be accepted since it was offered to the whole world. Decision: The court disagreed. (a) The smoke ball must protect the user during the period of use – the offer was not vague. (b) Such an offer was possible, as it could be compared to reward cases. You should note that Carlill is an unusual case in that advertisements are not usually regarded as

Gunthing v Lynn 1831 The facts: The offeror offered to pay a further sum for a horse if it was 'lucky'. Decision: The offer was too vague and no contract could be formed

INTENTION TO CREATE LEGAL RELATIONS In order to create a valid contract, the parties must have intended to create a legal relationship between them. This is usually obvious and in most commercial cases the court will presume that there was this intention. This criteria is only really seen in cases involving domestic or social contexts where the court presumes that there was no intention to create legal relations unless proved otherwise. The reasoning behind this is that as a matter of policy the court wants to avoid intruding too much into the private lives of families.

INTENTION TO CREATE LEGAL RELATIONS The fact that the parties are husband and wife does not mean that they cannot enter into a binding contract with one another. Contrast the following two cases. Balfour v Balfour 1919 The facts: The defendant was employed in Ceylon. He and his wife returned to the UK on leave but it was agreed that for health reasons she would not return to Ceylon with him. He promised to pay her £30 a month as maintenance. Later the marriage ended in divorce and the wife sued for the monthly allowance which the husband no longer paid. Decision: An informal agreement of indefinite duration made between husband and wife whose marriage had not at the time broken up was not intended to be legally binding.

What is Consideration Consideration is the benefit that each party gets or expects to get from the contractual deal -- for example, Victoria's Secret gets your money; you get the cashmere robe. In order for consideration to provide a valid basis for a contract -- and remember that every valid contract must have consideration -- each party must make a change in their "position." Consideration is usually either the result of: a promise to do something you're not legally obligated to do, or a promise not to do something you have the right to do (often, this means a promise not to file a lawsuit).

CAPACITY Capacity to contract means the legal competence of a person to enter into a valid contract. Usually the capacity to contract refers to the capacity to enter into a legal agreement and the competence to perform some act. The basic element to enter into a valid contract is that s/he must have a sound mind. Certain class of people are exempted from the category of people who are capable of entering into contract: 1. infants/minors; 2. insane; 3. people under the influence of drug; 4. bankrupt;

PRIVITY OF CONTRACT As a general common law rule, only parties to a contract will have rights or obligations under that contract. Examples A contract between A and B cannot impose obligations on C A contract between A and B can not be enforced by C, even if the contract is intended to benefit C.

PRIVITY OF CONTRACT Strict application of the doctrine can give rise to harsh results, particularly where contracts are intended to benefit a third party and a third party relies upon this. In some cases exceptions or alternative remedies have emerged to avoid or limit those harsh results. The doctrine of privity of contract was formally recognised and entrenched in Tweedle v. Atkinson (1861). In this case, the father of a bride promised the father of the groom to pay the groom (plaintiff) a sum of money upon the marriage. However, before making this payment, the bride's father died and his estate refused to honour his promise. The plaintiff sued for the money but failed on the ground that, although the contract had been made for his benefit, he was not a contracting party.

PRIVITY OF CONTRACT Facts John Tweddle (the Plaintiff's father) agreed with William Guy (the Plaintiff's father in law) for the latter to pay money to the Plaintiff upon marriage. Guy died before making payment and the Plaintiff (William Tweddle) sued the estate (Atkinson was the executor) for the promised sum.   Held No consideration moved from the plaintiff to Guy and therefore the plaintiff had no right to sue on the contract. Natural love and affection is not good consideration (Crompton J)

PRIVITY OF CONTRACT Dunlop Pneumatic Tyre Co Ltd v Selfridge and Co Ltd [1915] AC 847   Facts The plaintiff (Dunlop) sought to establish and enforce a resale price maintenance (RPM) scheme. The plaintiff sold tyres to Dew & Co (a tyre dealer) which then sold to Selfridge on condition that Selfridge would not sell below the list price. Selfridge failed to comply with the condition; the plaintiff sued for breach of contract. Held Although the promise made by Selfridge to Dew (not to sell below list price) had been made for the benefit of Dunlop under its RPM scheme, Dunlop was not entitled to enforce the contract against Selfridge because it was not a party to the contract.

REVIEW QUESTIONS 1. In relation to the law of contract explain the meaning and effect of: (a) The doctrine of privity (b) The intention to create legal relations. 2.Explain in relation to the law of contract the rules relating to acceptance of an offer. 3. Define the term consideration as it is understood in contract law.

REVIEW QUESTIONS 1. Which of one of the following cases illustrates an offer to the public at large? (a) Gibson v Manchester City Council (1979) (b) Carlill v carbolic Smoke Ball Co. (1893) © Thornton v Shoe Lane Parking Ltd. (1971) 2.All contracts are agreements, but not all agreements are contracts. The primary reason is that: (a) Certain agreements cannot be enforced by law. (b) certain agreements cannot be licensed number law. © agreements do not fall under any classification of contracts. (d) a terms of an agreement usually are different from those of a contract.

REVIEW QUESTIONS 3. Apart from contracts for necessaries, which bind the minor, the general rule at common law is that minor’s contracts are: (a) obligatory (b) enforceable ©binding (d) voidable

Further readings The law of obligations 4: Formation of contracts I ACCA BPP F4 Claim-advice.com definitions.uslegal.com  Judicial Studies Institute Journal [2010: 2 PRIVITY OF CONTRACT: THE POTENTIAL IMPACT OF THE LAW REFORM COMMISSION RECOMMENDATIONS ON IRISH CONTRACT LAW KEVIN T. O’SULLIVAN http://lawexams.com CASE LAW QUOTES.com australiancontractlaw