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Aspects of Contract and Negligence for Business 105649/Nipuna Weerakoon

Business Management

Assignment: Aspects and Contract And Negligence for Business

Mr. Ibrahim Conteh


Higher National Diploma

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Aspects of Contract and Negligence for Business 105649/Nipuna Weerakoon

Table of contents
Executive summary Acknowledgements Introduction to Law
1.1 Offer 1.2 End of offer and Counter offer 1.3 Invitation to Treat 1.4 Acceptance and Communications of Acceptance 1.5 The Postal Rule 12 Case Study 1: Contract...................... 9 9-10 10 11

Case Study 2: Intention to create Legal Relations .............................. 2.1 Domestic Arrangements 2.2 Commercial agreement 14 14

Case Study 3: Part payment . 3.1 Consideration 3.2 Part payment 15-16 16-17

Case Study 4: Warranty and Condition

4.1 Condition 4.2 Warranty

19 20

Case Study 5: Exclusion Clause, UCTA 1977 and UTCCR 199

5.1 Exclusion Cause 5.2 The contra preferential rule 5.3 Unfair Contract Terms Act 1977 (UCTA)

21-22 22 23-25

Case Study 6: Potential liability for economic loss, Tort of Negligence..

6.1 Tort of Negligence 6.2 Duty of care

26 27-28

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Aspects of Contract and Negligence for Business 105649/Nipuna Weerakoon Case Study 7: Occupiers Liability

7.1 The Neighbor Principle 7.2 Occupier 7.3 Occupiers Liability 7.4 Trespasser 7.5 Visitor 7.6 Occupiers Liability to a Visitor

30 31 32 32-33 34 36

Case Study 8: Negligent Misstatement, Proximity Test .

8.1 Negligent Misstatement 8.2 Proximity Test

37 38

Conclusion Bibliography

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Aspects of Contract and Negligence for Business 105649/Nipuna Weerakoon


would like to acknowledge the advice and guidance of Mr. Ibrahim Conteh. Thanks very

much for Mr. Ibrahim Conteh provided lecture for students every Wednesday, and he patiently explained and analyzed from the most basic knowledge, help me step by step understand the questions of assignment and how to do it. Also I want to thanks for my classmates, thanks for your enthusiasm to help me solve the problems which I meet during the assignment. The major materials for the research from the library books, so thanks college library support books and social library staffs introduce some books for me.

Nipuna Weerakoon,

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Aspects of Contract and Negligence for Business 105649/Nipuna Weerakoon

Executive Summary
This report is prepared by the author addressing various influences that will impact on English Law. Furthermore, it will relate to other areas such as Contract law, Intention to create Legal Relation, part payment, Warranty and Condition etc, this report has been divided into eight chapters which have been discussed briefly as follows:

Chapter 1 about, law of contract which clarify an issue arise in a deal of printing press. judgment was based on the cases [Partridge v Crittenden 1968] and [Hyde v Wrench 1840] . In the second scenario the judgment was based on the postal rule and relevant case is [Adam v Lindsell 1818].

Chapter 2 highlight on the law term of intention to create legal capacity also talk about domestic and commercial relationship according to cases [Balfour v Balfour 1919] and [Merritt v Merritt 1970]

Chapter 3 emphasizes about the law terms of consideration, part payment and promissory estople. The previous cases decided relevant to these law terms which are [Foakes v Beer 1884], and [Pinnels case 1602],

Chapter 4 describe that Condition and warranty [Poussard v Spiers & Pond 1876] and [Bettni v Gye 1876] are the cases which relevant to this

Chapter 5 highlights about the exclusion clause and the requirement for a valid exclusion clause. [LEstrange v Graucob 1934] [Curtis v Chemical Cleaning Co 1951] and Unfair Contract Terms Act 1977 and Unfair Terms in Consumer Contract Regulations 1999 and its provisions to the exclusion clause all have been explained. [R & B Customs Brokers Ltd v United Dominions Trust Ltd 1988].

Chapter 6 directly connected to the potential liability for economic loss, Tort of Negligence [Donoghue v Stevenson(1932)] and [Hedley Byrne & Co Ltd v Heller & Partners Ltd (1964)] , are the cases which helps to describe decision.

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Aspects of Contract and Negligence for Business 105649/Nipuna Weerakoon Chapter 7 highlights that occupiers liability, the definitions of occupier, trespasser and the visitor and the occupiers liability to the trespasser and to a visitor. The cases of [Donoghue v Stevenson 1932], [Blyth v Birmingham Waterworks Co 1856], [Nicholas H Marc Rich & Co v Bishops Rock Marine 1995], [Glasgow Corporation v Taylor 1992], [Wheat v E Lacon and Co Ltd 1966], and many other cases helpful to justify the decisions.

The final chapter 8 focused on the duty of care and under that it was discussed about the negligent misstatement. [Headley Byrne & Co Ltd v Partners Ltd 1964], and many other cases helps to justify the decisions.

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Aspects of Contract and Negligence for Business 105649/Nipuna Weerakoon Introduction to Law:

English law is the legal system of England and Wales. The body of English law includes legislation, Common Law, and a host of other legal English Law norms established by Parliament, the Crown, and the judiciary. It is the fountain from which flowed nearly every facet of U.S. law during the eighteenth and nineteenth centuries. Structure of English court system.

Common law is in effect legal precedent that is made by judges sitting in court. Judge-declared Common Law law, Law which exists and applies to a group on the basis of customs and legal precedents developed over hundreds of years in Britain.

Contract is an agreement between two or more competent parties in which an offer is made and accepted, and each party benefits. The agreement Contract Law can be formal, informal, written, oral or just plain understood.

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Aspects of Contract and Negligence for Business 105649/Nipuna Weerakoon Case Study 1 Augustine and Christina: Advertisement of Printing press



The scenario deals about Advertisement of A printing Press. Augustine has advertised his painting press in a journal for the sale of 20,000 so this is invitation to treat (Partridge v Crittenden 1968)

Then Christina made the offer for 15,000 Augustine made a counter offer which was for 17,000.
Invitation to Treat Augustine

15000 Offer 17000 Counter Offer 15000 Invalid Acceptance


Legal Elements of a Contract: If the law of contract were not already entrenched in the traditions of legal education, would anyone organize a course around it, let alone produce books expounding it?(Wightman 1989)

A contract is a promise or a set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty [Restatement (Second) of Contracts 1 (1981)]

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Aspects of Contract and Negligence for Business 105649/Nipuna Weerakoon The essential elements necessary to form a binding contract are usually described as An Offer An Acceptance in strict compliance with the terms of the offer Legal Purpose/Objective Mutuality of Obligation also known as the meeting of the minds Consideration Competent Parties

1.1 Offer : An offer is defined as the manifestation of the willingness to enter into a bargain so made as to justify another person in understanding that his assent to the bargain is invited and will conclude it. [Restatement (Second) of Contracts 24 (1981)]

An offer can be oral or written as long as it is not required to be written by law. It is the definite expression or an overt action which begins the contract. It is simply what is offered to another for the return of that person's promise to act.

1.2 Counter offer and End of offer:

Counter offer: A counter-offer is an offer made by an offeree to his offeror relating to the same matter as the original offer and proposing a substituted bargain differing from that proposed by the original offer. [Restatement (Second) of Contracts 39 (1981)]

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Aspects of Contract and Negligence for Business 105649/Nipuna Weerakoon End of offer The below chart shows that, circumstances when the original offer is terminated and afterwards it is not possible to be accepted Rejection automatically terminates an offer as well as counter offer also terminates the original offer.

1.3 Invitation to Treat An invitation to treat is made at a preliminary stage in the making of an agreement, where one party seeks to ascertain whether the other would be willing to enter into a contract. The types these are, Advertisements Exhibition of goods for sale An invitation for Tenders Auction sales

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Aspects of Contract and Negligence for Business 105649/Nipuna Weerakoon 1.4 Acceptance and Communications of Acceptance


Acceptance of an offer can occur in several ways: Acceptance of an offer is a manifestation of assent to the terms thereof made by the offeree in a manner invited or required by the offer. [Restatement (Second) of Contracts 50 (1) (1981)]. An acceptance must not change the terms of an offer. If it does, the offer is rejected [United Concrete Pipe Corp. v Spin-Line Co., 430 S.W.2d 360, 364 (Tex. 1968)].A material change in a proposed contract constitutes a counteroffer, which must be accepted by the other party[Antonini v. Harris County Appraisal Dist. 999 S.W.2d 608, 611 (Tex.App.-Houston [14th Dist] 1999, no pet.)]

Communications of Acceptance: The general rule is that an acceptance must be communicated to the offeror. The acceptance is generally only validly communicated when it is actually brought to the attention of the offeror. The operation of this rule was illustrated by Denning LJ in Entores v. Miles Far East Corporation [1995] 2QB 327. Decision:

So the counter offer terminates the original offer [Hyde v Wrench 1840], final decision of this case Christinas original offer for 15,000 is not valid for a contract even later Augustine accept it for 15,000 Christina is not bounded to enter in to a contract with Augustine.

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Aspects of Contract and Negligence for Business 105649/Nipuna Weerakoon b.) Augustine and Florence: Sale of Office Computer: Analysis:

Augustine and Florence: Sale of Office Computer This scenario relates to the principle of acceptance of an offer by post. Augustine wrote to Florence by offering office computer for 12,000 The day which she received the letter she replied to Augustine by accepting his offer. Augustine
Offer - 12000


Acceptance by Post Postal Rule Invalid Revocation

1.5 The Postal Rule The offeror may expressly or by implication indicate that he expects acceptance by means of a letter sent through the post. The postal rule states that the acceptance is complete and effective as soon as a letter is posted. [Adam v Lindsell 1818] Decision:

According to the postal rule by the time she posted the letter to Augustine the contract was created.[Adam v Lindsell 1818] even later she changed her mind and sent a fax to Augustine to ignore the Acceptance though it was not delivered, there is a valid contract exists between Augustine and Florence for the computer.

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Aspects of Contract and Negligence for Business 105649/Nipuna Weerakoon

Case Study 2 Daniel and Catherine: Pay mortgage on the house


The scenario is

about the whether such a Domestic arrangement amount to the intention to

create legal relation in the law of a contract. Daniel agreed to pay Catherine 1,500 per month (money had to be used to pay off the mortgage on the house that Daniel and Catherine jointly owned) In this case when the informal agreement is made between husband and wife they had not been separated and it was not intended to be legally binding.

Intention to create Legal Relations :

When talking intention to create are two main types,

Commercial Arrangements

Intention to create Legal Relations

Domestic Arrangements

Traditionally, the law has distinguished between domestic and social agreements and commercial agreements. In the case of domestic and social agreement, it is presumed that there is not an intention to create legal relations. In the case of commercial agreements, it is presumed that there is an intention to create legal relations.

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Aspects of Contract and Negligence for Business 105649/Nipuna Weerakoon 2.1 Domestic Arrangements: Agreements between a husband and wife living together as one household are presumed not to be intended to be legally binding, unless the agreement states to the contrary but agreements between those parties relate to the property matters the courts are ready to assign an intention to create legal relations. [Balfour v Balfour [1919] 2 KB 571.


v Merritt 1970] In this case the wife had taken a written agreement from the

husband to transfer the house into her sole name when the mortgage had been paid off and she paid off the mortgage. The judgment was given in favor of wife after considering the circumstances.

2.2 Commercial agreement: In relation to commercial agreement, courts will generally presume that an intention to create legal relations is present. Esso Petroleum Ltd v Commissioners of customs and Excise (1976) Decision:

In this case when the agreement was signed, Daniel and Catherine had been legally separated and the domestic relationship between them can be treated as an intention to create a legal relations. [Merritt v Merritt 1970] Since Daniel agreed to pay 1500 monthly to Catherine as a part of the agreement and it had been given in writing and with that he had promised to transfer his share after the mortgage was paid off, and later though he refuse to do it, Catherine can sue against him under the term of intention to create relations.

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Aspects of Contract and Negligence for Business 105649/Nipuna Weerakoon Case Study 3 Richmond and Susana: Small consultancy business Analysis:

The scenario in this question law relating to part payment problem and its related to use cases such as Pinnels Case (1602) and Foakes V Beer (1884). Richmond is sole proprietor personal taxation adviser. He entered contract with Susana under which he agreed to prepare some draft business for her account. After complete work Susan told that she only can afford to pay 400 to Richmond. Finally Richmond accepted a cheque for 400 from Susana, also its mention that it is full and final settlement of the debt.

3.1 Consideration: In the classic definition the essence of consideration is said to be benefit to the promisor or detriment to the promisee, see: Currie v Misa (1875). Because of the rule that consideration must move from the promisee, detriment to the promisee will be present in nearly all cases and benefit to the promisor is often merely a by-product of this detriment, but either one is sufficient. It must be remembered, however, that detrimentdoes not necessarily imply suffering net loss or disadvantage: the promisee incurs a detriment by doing an act, making a promise or refraining from doing an act, however small or insignificant, provided that it has been agreed that she should do the act, etc. in return for the promise. See: Combe v Combe (1951). Note also the difficulty of deciding whether doing the act is in return for the promise or merely a condition attached to it the test is the intention of the parties as shown (objectively) by what they said and did. See: Chappell v Nestle (1960).

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Aspects of Contract and Negligence for Business 105649/Nipuna Weerakoon

Rules of consideration
There are various rules governing the law of consideration: The consideration must not be past. The consideration must be sufficient but need not be adequate. The consideration must move from the promisee. An existing public duty will not amount to valid consideration. An existing contractual duty will not amount to valid consideration. Part payment of a debt is not valid consideration for a promise to forego the balance.

3.2 Part payment: It is as well established that a person can vary its contractual right. When a person is under a contractual duly and with the consent of the other party performs less that he is bound to do in discharge of the full obligation, the question is can he legally enforce the performance of the balance of his obligation. The legal basis will be established on whether he has furnished consideration or not. The rule at common law was established in the PINNELS CASE (1602) Where the court HELD that part payment of a debt is not a good consideration for a promise to forgo the balance, however, there are circumstances where part payment can be regarded as good consideration in Pinnels case as affirmed by the House of Lords in FOAKES V. BEER (1884) The rules are: Acceptance of part payment on an earlier date that the due date or, Accepting a chattel instead of money even if it worth loss or, Acceptance of part payment in a different location or place to that originally specified. Subject to possible exceptions in Equity, those principles still representing the law, and there are two exceptions to this rule.

COMPOSITION AGREEMENT: Where a group of creditors who are owed by a

single debtor agree to accept 60kobo in the Naira as absolute discharge. Despite the absence of consideration, it is established that no individual debtor can subsequently sue for the balance owed.

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Aspects of Contract and Negligence for Business 105649/Nipuna Weerakoon

PART PAYMENT TO A THIRD PARTY: where this is accepted by the creditor to

receive the balance.


provide a means of making promise binding in certain circumstances in the absence of consideration. In CENTRAL LONDON PROPERTY TRUST LTD V. HIGH TREES HOUSE LTD. The land Lord leased a block of flats to tenants for 99yrs in 1937. He agreed to accept from the tenants half the ground rent stipulated in the lease because of war time conditions of shortage of tenants. As a result of war many young men were dragged into the Army, thus, the flats were not fully occupied, the land Lord agreed that the tenant should pay half rent. By 1945, when the flats were fully occupied again, a new management had taken over and the defendant wrote to the tenants that the rent must be paid at full rate and claimed areas between 1939 and 1945 in defense, the defendant contended that the plaintiff were estopped exceeding rent. Alternatively, that the plaintiff had waived their right to any rent in excess of the reduced rent from commencement of the lease. LORD DENNIN applying the principle of equitable estoppels HELD that the plaintiffs were bound by the promise to reduce the rent payable up till 1945 when the flat were underlet. According to him where a promise is made which is intended to create legal relation and which to the knowledge of the person making it was going to be acted upon by the person to whom it was made and which was infract acted upon, the promise will be HELD bound by the promise despite the absence of consideration. The principles in high trees case does not create new causes of action where none existed before, it can only prevent a party from insisting upon his strict legal rights when it would be unjust for him to do so having regard to the dealings that have taken place between the parties.

Promissory estoppels definition: A promise made to another party to a contract that the contract will not be enforced in whole or in part and which, once acted upon, prevents subsequent proceedings to enforce the contract as against the person who relied on the promise.

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Aspects of Contract and Negligence for Business 105649/Nipuna Weerakoon Decision:

Part payment of a debt is not valid consideration for a promise to forebear the balance unless at the promisor's request part payment is made either: a). before the due date or b). With a chattel or c). To a different destination According to above case between Richmond and Susana, The Richmond has right to claim rest of money 600 from Susana. [Pinnels Case (1602)]

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Aspects of Contract and Negligence for Business 105649/Nipuna Weerakoon Case study 4 Mobile phone Supplier Company Analysis:

In this case the scenario base with contractual terms relating to the law of contract
The company orders 300 mobile phones which they can use them in UK. But supplier supplies the phones which were illegal in UK. So When the contract was created, the in nominate term was there by ordering the phones which suitable to use in UK and the supplier has breached the term. That term is vital to the contract and the contract was formed on it since it goes to the root of the contract. The prime responsibility of the supplier was to supply the phones which are suitable to use in UK. Since that it was a breach of condition, the company has the right to terminate the contract or refuse to accept the order or perform on that and later sue to the supplier for the damages.

Warranty and Condition: 4.1 Condition: A condition is a term (oral or written) which goes directly to the root of the contract; or is so essential to its very nature party can treat the contract as discharged. That party will not therefore be bound to do anything further under that contract. [Poussard v Spiers & Pond 1876]

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Aspects of Contract and Negligence for Business 105649/Nipuna Weerakoon 4.2 Warranty: A warranty is a term of the contract which is collateral or subsidiary to the main purpose of the contract. It is therefore not so vital as to affect a discharge of the contract. A breach of warranty only entitles the innocent party to an action for damages; he cannot treat the contract as discharged. According to the definition a warranty is a subsidiary requirement which is not vital to the overall agreement, and in relation to which failure to perform does not totally destroy the whole purpose of the contract. A warranty is a less important term of the contract, which is minor to the main purpose of the contract. Breach of a warrant results in damages only and does not give the right to terminate the agreement. The injured party must complete their own part of the agreement, and then they can sue for damages. [Bettni v Gye 1876]

Decision :

In this scenario the supplier has provided the phones which can be used in UK according to the contract which they originally wrote and those phones need to turn to particular frequencies for two minutes. In this situation the contract did not fail because after it was turned to that particular frequency that can be used in UK. This incident can be treated as a breach of warranty but in this situation company should give extra effort to turn it and it will cost them some additional amount of money. The company does not have a right to void the contract and the option available for them is claim for the damages which cost them.

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Aspects of Contract and Negligence for Business 105649/Nipuna Weerakoon Case study 5 Grace and office Supplies Ltd: Purchase of mobile phone Analysis:

There are two contracts in related to this case. The first one is the contract between Grace and the Expansion Limited to undertake all the companys payroll work. Second one Grace and Office supplies Ltd, hired laptops. Grace and Expansion Ltd, Payroll Work 6 Months Contractual Term Renewable on a 12 month basis if work is satisfactory Incorrect Accounting Refuse to renew the Contract Grace and Office Supplies Ltd, Contract (not properly read) Laptop, Software Negligent designed Did not operate properly Financial Losses - Claim Damages Exclusion Clause Denied Liabilities There was an exclusion clause in the contract which she was signed by saying Office Suppliers Limited is not liable for the financial loses cased after using hardware or software products supplied by them.

5.1 Exclusion Cause: The simple definition for the exclusion clause is a Clause in a contract or a term in a notice which appears to exclude or restrict a liability or a legal duty which would otherwise arise (Yates, 1982, p.1). The law relates to this is governing by the common law, the Unfair Contract Terms Act 1977, the Unfair Terms in Consumer Contract Regulations 1999 and some other Acts as well.

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Aspects of Contract and Negligence for Business 105649/Nipuna Weerakoon Function of exclusion clauses Help allocation of risks under the contract. Help reduce litigation costs by making clear the division of responsibility between the parties. Exclusion clauses are often used in standard form contracts which, by enabling people,

Also the exclusion clause can be incorporated by signature, notice and also the previous dealings. In the above case Grace has signed the contract and accepted the exclusion clause without reading and due to that reason she bound to the exclusion clause. [LEstrange v Graucob 1934] [Curtis v Chemical Cleaning Co 1951]

5.2 The contra preferential rule: Hollier v Rambler Motors [1972] 1 All ER 399 (CA) Car towed to garage for repairs. Whilst at the garage, the car was damaged by a fire caused by the defendant's negligence. In response, the defendant argued that there was a clause that the company was not responsible for damage caused by fire to Law 232 L 07 customer's cars on the premises. Court of Appeal said - ambiguity not valid -clause could mean damage however caused - intentional and negligence Ambiguous. Therefore, since ambiguous, cannot exclude their liability. - "Rule of Strict Construction" or "Rule of Hostile Construction".

In the above case, since Grace signed and accepted the agreement even though without reading properly, she had given her consent to the exclusion clause was stated in the agreement by the Office Supplies Limited. Even if the exclusion clause passes the common law through its requirements it must also satisfy the statutory rules requirements which are, Unfair Contract Terms Act (UCTA) 1977. Unfair Terms in Consumer Contract Regulation (UTCCR) 1999

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Aspects of Contract and Negligence for Business 105649/Nipuna Weerakoon 5.3 Unfair Contract Terms Act 1977 (UCTA):

Unfair contract terms Act 1977 is a major attempt to regulate the use of excusion clauses in Britain. The Act provide the provisions to the exclusion clause in following scenarios,

Negligence liability The first issues which Act deals with are attempts to exclude or restrict liability for negligently inflicted loss also this covers breach of contractual obligations of skill and care, the common law duty of skill and care, and the common duty of occupiers of premises under the Occupiers Liability Acts 1957 and 1984. Person cannot by reference to any contract term or to a notice given to persons generally or to particular persons exclude or restrict his liability for death or personal injury resulting from negligence.

In the case of other loss or damage, a person cannot so exclude or restrict his liability for negligence except in so far as the term or notice satisfies the requirement of reasonableness.

Where a contract term or notice purports to exclude or restrict liability for negligence a persons agreement to or awareness of it is not of itself to be taken as indicating his voluntary acceptance of any risk.

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Aspects of Contract and Negligence for Business 105649/Nipuna Weerakoon Liability of breach of contract The person who imposes the exclusion clause, or who deals with the consumer cannot claim unless the term is reasonable. Dealing as a consumer A party to a contract deals as consumer in relation to another party if he neither makes the contract in the course of a business nor holds himself out as doing so; and


the other party does make the contract in the course of a business; and

In the case of a contract governed by the law of sale of goods or hire-purchase, or by section Miscellaneous contracts under which goods passof this Act, the goods passing under or in pursuance of the contract are of a type ordinarily supplied for private use or consumption. But if the first party mentioned in subsection (1) is an individual paragraph (c) of that subsection must be ignored.] But the buyer is not in any circumstances to be regarded as dealing as consumer


if he is an individual and the goods are second hand goods sold at public auction at which individuals have the opportunity of attending the sale in person;

If he is not an individual and the goods are sold by auction or by competitive tender.]


Subject to this, it is for those claiming that a party does not deal as consumer to show that he does not.

A contract is only made in the course of a business where it is integral to the business or it forms part of the regular course of dealing of that business (R&B Customs Brokers Ltd v. United Dominions Trust Ltd [1988] 1 WLR 321)

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Aspects of Contract and Negligence for Business 105649/Nipuna Weerakoon Indemnity Clauses An indemnity clauses is a clause under which one contracting party promises to indemnify (that is to say, reimburse) the other for any liability incurred by him in the performance of the contract. (Philips v. Hyland and Thompson v.Lohan (plant Hire) both of cases essentially involved commercial indemnity clauses.)


After considering this in to the above case between Grace and Office Supplies Ltd, the company is liable to pay the damages suffered by Grace due to the negligent designed. The company cannot claim on the exclusion clause, since the clause is not reasonable. Grace can sue the Office supplies Ltd for the loss in her profits which she suffered due to the mistake. But she cannot do anything about the contract which was refused to renew by the Expansion Ltd since she could not perform her duties.

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Aspects of Contract and Negligence for Business 105649/Nipuna Weerakoon Case study 6 Alfred: Renting a Flat

Analysis: This case study concerns the potential liability for economic loss caused by negligent advice and information. Alfred Who was wishing to rent a flat was approached George the landlord, with the reference of Alfreds work place accountant Charles. When George approached Charles regarding the reference, Charles negligently provides wrong information about Alfred confused with another one. The reference supplied by the Charles had an exclusion clause of This firm will not accept any liability for inadequacy contained this reference or any loss incurred as a consequence to avoid the firms liability

towards Explanation: the reference. Based on the reference, George agrees to rent the flat to Alfred.
Some months later, Alfred disappears from the flat with several months rent arrears.

6.1 Tort of Negligence Negligence is the omission to do something which a reasonable man, The breach of a legal duty to take care, resulting in damage to the claimant which was not desired by the defendant: L.B. Curzon, Dictionary of Law. guided upon those considerations which ordinarily regulate the conduct of human affairs, would do, or doing something which a prudent and reasonable man would not do. Per Alderson B., Blyth v Birmingham Waterworks Co. (1856)

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Aspects of Contract and Negligence for Business 105649/Nipuna Weerakoon This can be identified as the breach of a legal duty to care, resulting in damage to the claimant who was not desired by the defendant. But there are three key elements which must always be established for a successful action in negligence, which are mentioned below. 6.2 Duty of care

A duty of care was originally established by applying Lord Atkins Neighbour Test from: Donoghue v Stevenson (1932).

The modern three-stage test was laid down by the HL in: Caparo Industries v Dickman (1990). The court must now consider:

(A) Whether the consequences of the defendants act were reasonably foreseeable.

(B) Whether there is a relationship of proximity between the parties, ie a legal relationship or physical closeness. For example, there was proximity in: Home Office v Dorset Yacht Club (1970). But not in: Caparo v Dickman (1990).

For example, damage or harm was held to be reasonably foreseeable in: Kent v Griffiths (2000); and Jolley v Sutton LBC (2000). But not in: Bourhill v Young (1943); or Topp v London Country Bus Ltd (1993)

(C) Whether in all the circumstances it would be fair, just and reasonable that the law should impose a duty. It was held not to be fair, just and reasonable to impose a duty on the police in: Hill v C.C. of W. Yorkshire (1988). However, a duty was imposed on the fire brigade in: Capital v Hampshire County Council (1997).

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Aspects of Contract and Negligence for Business 105649/Nipuna Weerakoon The case of Donoghue v Stevenson(1932) was the first case based to establish this concept On 9th April 1929 Mrs Mary M'Alister or Donoghue brought an action against David Stevenson aerated water manufacturer Paisley, in which she claimed 500 as damages for injuries sustained by her through drinking ginger beer which had been manufactured by the defender. Mrs. Donoghue and her friend went to a shop occupied by Francis Minchella, and known as Wellmeadow Caf, at Wellmeadow Place, Paisley where the friend purchased ice cream, and ginger beer suitable to be used with the ice cream as an iced drink. for Mrs. Donoghue to drink. Mrs. Donoghue had no direct or indirect claim against the manufacturer based on contractual obligations because she did not purchase the product. The ginger beer was contained in an opaque bottle that prevented the contents from being viewed clearly. Mrs. Donoghue consumed some of the product after which the decomposed remains of a snail emerged from the bottle when the remaining ginger beer was poured into her glass. She sought damages against the manufacturer, Stevenson, from the resulting nervous shock and gastro-enteritis, which she claimed was caused through the incident. The trial judge found that the plaintiff could bring an action. The Court of Appeal overturned this decision. The plaintiff appealed to the House of Lords. Hedley Byrne Co. Ltd v. Heller & Partners Ltd. 1964 House of Lords Hedley Byrne was a firm of advertising agents. A customer, Easipower Ltd, put in a large order. Hedley Byrne wanted to check their financial position, and credit-worthiness, and subsequently asked their bank, National Provincial Bank, to get a report from Easipowers bank, Heller & Partners Ltd., who replied in a letter that was headed,"Without responsibility on the part of this bank" It said that Easipower was, "Considered good for its ordinary business engagements". The letter was sent for free. Easipower went into liquidation and Hedley Byrne lost 17,000 on contracts. Hedley Byrne sued Heller & Partners for negligence, claiming that the information was given negligently and was misleading. Heller & Partners argued there was no duty of care owed regarding the statements, and in any case liability was excluded.

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Aspects of Contract and Negligence for Business 105649/Nipuna Weerakoon


Duty of care to Charles - because, George were to be rely on his reference and to rent his apartment to Alfred. Charles falls under condition of negligence of duty to care because Charles has been provided misinformation about Alfred with confusing someone else and without even checking his file. According to this scenario Charles and he was breach the duty by providing misinformation by negligently and finally that breach has caused damage of several thousand pounds to Georg. Hedley Byrne & Co Ltd v Heller & Partners Ltd (1964), Hedley Byrne & Co Ltd v Heller & Partners Ltd scenario is concerned, Charles has clear duty to care on the reference made to George since the type of damage was reasonably foreseeable and in the meantime, he has breached the duty to care by providing misinformation on which George made his decision. Therefore, based on all these factors, George is eligible to claim his losses from Charles.

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Aspects of Contract and Negligence for Business 105649/Nipuna Weerakoon Case study 7

Analysis: This case base on the occupiers a of premises liability to visitors and Trespassers. In the given case Driscoll, who is considered as a trespasser entered in to the leisure centre which was under custody of tourism board. The purpose of visit was to have a look around the site Unfortunately in doing so he tears his jacket and cuts his arm on a rusty barbedfence laid around the top of the wall.

7.1 The Neighbor Principle Neighbor principle is a principle of English law which says that a person should take reasonable care to avoid acts or omissions that she/he can reasonably foresee as likely to cause injury to the neighbor. Neighbor includes all persons who are so closely and directly affected by the act that the actor should reasonably think of them when engaging in the act or omission in question. The standard was set by Lord Atkins in the famous English case Donoghue v Stevenson. The neighbor principle is based on the Christian principle of "loving your neighbor." The case of [Donoghue v Stevenson 1932] was the first to establish that a duty of care may be owned to a person, (for more details question 6.2 duty of care)

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Aspects of Contract and Negligence for Business 105649/Nipuna Weerakoon 7.2 Occupier Under common law, the test as to who can be considered an occupier is one of control, i.e. someone who has some degree of control over the premises. This means that the occupier need not necessarily be the owner of the land or premises but may instead be a tenant or an independent contractor employed to carry out work. Indeed, there may be more than one occupier at the same time (see Wheat v E. Lacon and Co., 1966) Duty of Care (Neighbour Principle) [Donoghue v Stevenson 1932] This case involved two ladies. A friend of the claimant purchased a bottle of ginger beer. The claimant drank some of the beer in which was found the remains of a decomposed snail. She was subsequently ill and sued the manufacturer. She was unable to sue the manufacturer for breach of contract because the only contract that existed was with the claimants friend who had bought the ginger beer and the manufacturer.

The House of Lords held that the defendant being the manufacturer of the ginger beer owed a duty of care to the claimant as the consumer of the beer to take reasonable care to ensure that the bottle did not contain anything that might cause harm.

In this case the judge said that reasonable care must be taken to avoid acts or omissions which, with reasonable foresight, you would know would be likely to injure your neighbour. This is known as the Neighbour Principle. Therefore the test whether someone is a neighbour, in the legal sense, can be established if it can be reasonably foreseen that the act or omission may cause harm to them.

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Aspects of Contract and Negligence for Business 105649/Nipuna Weerakoon 7.3 Occupiers Liability Occupiers liability concerns the duty owed by those who occupy land (and premises upon it) towards the safety of those who enter onto the land. This area of tort is similar to negligence and was originally developed through common law, although today it is governed by statute: The duty owed to lawful visitors or those with permission to enter onto the land is defined in the Occupiers Liability Act 1957. The duty owed to those who enter onto land without permission (trespassers) is defined in the Occupiers Liability Act 1984. To analyze the given case it is important to talk about the occupiers liability to the visitors and to the trespassers.

7.4 Trespasser A trespasser is someone who enters land or premises without permission. His or her presence must either be unknown to the occupier or, if known about, be objected to. A person can enter land or premises as a visitor and then become a trespasser. For example, if the occupier told a visitor to remain downstairs, and the visitor then went upstairs, the visitor would be trespassing in that area. Occupiers Liability (Trespass) [Robert Addie and Sons (Collieries) Ltd v Dumbreck 1929] The is the operator of a winch and pulley system at a coal mine. The system consists of a large wheel, which drives a long cable to hoist coal ashes out of the mine. The wheel is driven by a motor, and is only operated intermittently. The wheel assembly is located in an open field, owned by the many kids play in the field, but the warns them away, and tries to keep people out of the field. The son was playing in and around the wheel, when it started up, killing the boy. A landowner owes no duty of care to protect a trespasser from injury, even from concealed danger.

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Aspects of Contract and Negligence for Business 105649/Nipuna Weerakoon [British Railways v Herrington 1972] The board was held liable for injuries to a six year old child who had been playing on the railway line. The child had got through a gap in the fence near the railway line. The board, as occupiers, were aware of previous trespasses but had failed to maintain the integrity of the fence. The House of Lords held that the occupier of the railway premises owed a duty of common humanity to the child. Until this case no duty of care was owed to trespassers. (The Occupiers Liability Act 1984 extended the duty of care to include trespassers).

A.) First scenario:


The Tourism Board is considered as the occupier in this case and it is the duty of them to display a warning sign about the danger, to the people who enter in to the premises. But they have not taken any action to avoid the danger they are liable to pay the physical damages happened to Driscoll. Driscoll can claim only for the cut on his arm and he cannot claim for the damages happen to his jacket since occupiers liability does not cover the personal properties of the outsiders.

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Aspects of Contract and Negligence for Business 105649/Nipuna Weerakoon 7.5 Visitors. A visitor is someone who has express or implied permission from the occupier to be on the premises anyone who enters the premises without such permission is classed as a trespasser whose rights are governed by the 1984 Occupiers Liability Act. Express Permission. This is where the person has been invited on to the premises. Implied permission Permission can be implied through conduct or circumstances. Certain classes of people are treated as having implied permission automatically: a police officer with a search warrant, meter readers. Post people, even door to door sales people. Conduct This is where the conduct of the occupier has been held to mean that they do not mind people being on their premises. Lowery v Walker (1911) A farmer had not taken legal action against people using one of his fields as a short cut, this had been going on for 35 years. He decided to put a (wild) horse into the field. The horse bit an unfortunate short cut taker who then sued the farmer. The farmer claimed the plaintiff was a trespasser but the claim but the claim was upheld because the court ruled that he had not previously taken any action to stop people crossing the field and therefore had given implied permission. 7.6 Occupiers Liability to a Visitor The common duty of care is a duty to take such care as in all the circumstances of a 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 to be there. Common duty of care standard is the same as in common law of negligence. All the circumstances of the case occupiers liability will be judged by the conduct of plaintiff (claimant) if he by is own conduct causes himself injury, he will be regarded as having Consented or the plaintiff might be held to have been contributory negligent. Is reasonable to see that forseeability is relevant because in Ryalnds versus Fletcher damage which was not reasonably foreseeable will not be actionable so Jolly v Sutton (1998) boys in the boat case. Reasonably safe: reasonable precautions only need to be taken by the occupier. This will depend on the occupiers financial situation see Herrington handout. Trespassers.

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Aspects of Contract and Negligence for Business 105649/Nipuna Weerakoon For the purposes if a visitor starts using premises for the purposes other than those for which he was invited on to the property he will have no claim if he is injured. (Again volenti) Warnings. If an occupier gives sufficient warning so as to render a visitor reasonably safe, the occupier will not be liable for any damage suffered by the visitor as a result of that danger. (See Roles v Nathan) However Simply following a warning will not be enough if the visitor cannot avoid the danger in using the property for the purposes for which he was invited. Lord Denning illustrated this with his two bridges analogy in Roles v Nathan

Wheeler v Copas [1981] 3 All ER 405, Chapman J A builder P working on D's property was injured when a ladder lent to him by D broke under him. The judge said a ladder could under some circumstances be "premises", but D was no longer the "occupier" since he had no control over the ladder at the relevant time. (D was found liable in ordinary negligence; subject to a 50 per cent deduction for P's own contributory negligence in using a clearly unsuitable ladder.)

B.) Second scenario:


In the second scenario Spencer a local authority building inspector, visits the site to inspect the work done by Tourism Board and on his duty he was injured from a tile fallen from the roof.

In this scenario, Spencer is treated as a visitor to the place controlled by tourism board and the duty of care exists to the tourism board to take a reasonable care on Spencer while he was inspecting. Due to the negligence of Tourism board Spencer was injured and Tourism board is liable to pay the damages for him.

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Aspects of Contract and Negligence for Business 105649/Nipuna Weerakoon Case study 8 Negligent Misstatement, Special Relationship, Proximity Test


This case base on legal requirement for negligence and proximity, and special relationship with them also assumption of responsibility.

Mary, Barnett hospital and comfort Home.

Mary was an employee in Barnet Hospital for seventeen years and Mary was
expecting to get the job in Comfort home.

Mary who suffered the lost due to the negligent misstatement made by Barnett

Duty of care - Barnett Hospital had duty of care to provide the correct information
to the comfort home.

Mary, Joe (Investment Advisor) and ex-primary school

Mary invested her redundancy money in her ex-primary school which is now
offering private education, with the advice of Joe who is an investment Advisor and old friend of Mary who met for a drink.

Unfortunately due to the allegations of the company share price fallen.

Mary and Thomas (Investment Guru)

Thomas published the article online and it was not specifically addressed to the
Mary to make the investment by using her own decision.

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Aspects of Contract and Negligence for Business 105649/Nipuna Weerakoon

8.1 Negligent Misstatement

The majority of professionals are aware that the provision of negligent advice or a negligent misstatement may expose them to liability. However, such professionals may not be aware of the extent of their potential liability. Negligent misstatement relates to a representation of fact, which is carelessly made, and is relied on by another party to their disadvantage. For some time it has been possible to claim for economic loss arising out of a negligent misstatement where no contractual or fiduciary relationship exists between the parties. This is provided however that a special relationship or a sufficient proximity1 exists between the parties. (For more details question number 6 Hedley Byrne Co. Ltd v. Heller & Partners Ltd. 1964 House of Lords) Special Relationship Generally, a special relationship will exist where the adviser knows that the other party is justifiably relying on him for his skill, expertise or knowledge. Where a person voluntarily takes it upon themselves to act on behalf of, or to advise, another in a professional capacity, they assume a duty to that other person to act or advice with care. A court will not impute a duty of care following informal discussions or during social courtesies. In attempting to define the scope of the term special relationship, a court will consider whether or not:-

The plaintiff relied on the defendants skill and judgement, The person who gave the advice knew, or ought to have known, that the other party
was relying on him, and

It was reasonable in the circumstances for the plaintiff to rely on the defendant.

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Aspects of Contract and Negligence for Business 105649/Nipuna Weerakoon 8.2 Proximity Test The Supreme Court recently addressed the issue of whether or not a claim could arise when the negligent misrepresentation was not made to the plaintiff directly but to another individual making an inquiry of the defendant which concerned the plaintiff. The defendant asserted that as the statement was not made to the plaintiff directly there could be no liability. The Supreme Court unanimously rejected the defendants argument. It held that if it was foreseeable that a statement made would be relied upon by the plaintiff and there was sufficient proximity between the parties, it was fair just and reasonable that the party in question should be liable and that they should compensate the plaintiff for the losses incurred. The Supreme Court held that in order to fulfil the proximity test in respect of negligent misstatement: The person effected must include persons in a limited and identifiable class, The maker of the statement can reasonably expect that they will rely on this statement, and Such person or persons will act or not act in a particular manner on foot of the statement or advice. This test of proximity embraces persons who could reasonably be expected to rely on the inaccurate information provided by the adviser even if the adviser has had no direct contact with that person. Of further note is a recent High Court3 decision which reaffirmed the principle that an adviser is under a duty to ensure that the information they provide, for the benefit of a limited category of persons, is reasonably accurate in the circumstances provided that the relationship between the parties is sufficiently proximate to give rise to a special relationship. In this case the Court also addressed the issue of whether or not the presence of a waiver could exempt a party from liability arising out of a negligent misstatement. The defendant argued that the existence of a disclaimer on the material containing the misstatement precluded the existence of a special relationship and that it would make it unfair, unjust and unreasonable for the Court to impose an obligation on them. The Court in finding for the plaintiff held that the waiver was not sufficient to relieve the defendant of liability. The Court held that the publication of the disclaimer was immaterial due to the fact that the information was directed at the plaintiff and he was influenced by it. These cases illustrate the potential exposure of financial institutions and other professionals arising out of a negligent misstatement which detrimentally affects an individual deemed to have been sufficiently connected to the adviser. Clearly advisers should be wary of their potential

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Aspects of Contract and Negligence for Business 105649/Nipuna Weerakoon liability due to the onus placed on them when providing advice, not only to a particular individual, but also to a third party making an inquiry about the individual in question.


Mary, Barnett hospital and comfort Home. According to this scenario and previous law terms author can be decided that Mary who suffered the lost due to the negligent misstatement made by Barnett Hospital, has the rights to sue the hospital for the financial losses caused to her. Barnett Hospital - had a duty of care to provide the correct information to the comfort home. By relying on the references given by the Barnet Hospital there is a special relationship between them. Comfort Home also relied on the first references provided by the Barnett hospital and it fulfill the requirement of proximity test to confirm the relationship among the parties. Because of this reasons, it can be said that Barnett Hospital is liable for the damages caused to Mary. Mary, Joe (Investment Advisor) and ex-primary school In this scenario according to the special relationship definition, generally a special relationship will exist where the adviser knows that the other party is justifiably relying on him for his skill, expertise or knowledge. Mary met Joe for a drink and in that occasion he gave his advice to her regarding the investment opportunity. Even though Joe is a skilful and experienced person in trade, the law defines that the statements made in social gatherings such as given occasion and informal discussions cannot make a special relationship between the parties. So in this reason Mary cannot claim for the lost occurs to her in the first investment.

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Aspects of Contract and Negligence for Business 105649/Nipuna Weerakoon Mary and Thomas (Investment Guru) In this case advertisement published generally and it does not create a special relationship between Thomas and Mary.

Mary made her decision But Thomas dont know what Marys decision
According to this case the decision made by Mary does not cover the requirement which need to fulfill the elements of special relationship and Mary cannot sue on it.

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Aspects of Contract and Negligence for Business 105649/Nipuna Weerakoon

This report is mainly based on contract law and law of torts which considered as two key areas in business law. For the introduction author has briefly explained the English law, Common Law and Contract Law and its origin. Throughout the report the given eight cases have been explained with relevant theories and appropriate past cases

After all this case worthy to note that the court will not enforce an illegal contract and that for the court to enforce a contract the offeree must always show by proving that something has been exchanged or given for a promise made as a prove of acceptance in a bargain and that which has been given in exchange even if not valuable but with the consent of parties will be enforceable as it need not be adequate but sufficient in the eyes of the law.

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Aspects of Contract and Negligence for Business 105649/Nipuna Weerakoon

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Vickneswaren, K., (1997) Obligations: Contract Law (1st Edition) Old Bailey Press: London Furmston, M.P. Cheshire, Fifoot and Furmstons Law of Contract. (London: Butterworths, 2001) 14th edition [ISBN 0 4069 3058 9] 7988.

Giliker, P., (2010) Vicarious Liability in Tort: A Comparative Perspective (1st Edition) Cambridge University Press: England. Richard. (P) (2007) Law of contract, (8th Edition) Longman Limited, UK Stuhmmcke,.(2001) Essential Tort Law (2nd Edition)Cavendish Publishing (Australia)

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