The Standard of Care Required in Performance of Contract - Case Study Example

Contract Law All the three scenarios presented raise the issue of negligence on the part of ASL, although they evoke different aspects. In Alan’s case, the question is whether the tort of negligence can be applied to recover economic losses. In Barbara’s case, the question is whether the terms of the exclusion clause will prevail. In Charles’ case, the question is whether ASL will be held guilty of misrepresentation. As shown in the detailed explanations below, Alan does not have a chance to recover damages from ASL. But Barbara may be able to establish a claim in negligence against ASL for recovery of damages for injuries caused to her, because she is a consumer and ASL had the duty to perform the job with reasonable care and skill. Charles may also have grounds to refuse to pay ASL on the grounds that they have been guilty of misrepresentation. Alan: In the first scenario, ASL has performed its contract to supply the oven, but it has performed it late. The question that arises is whether ASL was negligent in failing to supply the oven in time. In Blyth v Birmingham Waterworks Co1 Alderson B defined negligence as “the omission to do something which a reasonable man” would do or “doing something which a prudent and reasonable man would not do.” In determining whether a business must assume liability, the Unfair Contract Terms of 1977 also states that the liability imposed must be “a fair and reasonable one to be included having regard to the circumstances which were, or ought reasonably to have been, known to or in the contemplation of the parties when the contract was made."2 Applying these definitions of negligence, it must be noted that ASL’s failure to deliver the oven on time was because of conditions that were not in their control; the weather was so bad that all roads leading to Alan’s restaurant were flooded. Secondly, at the time the contract was made between the parties, ASL would not have been in a position to know that the weather was likely to prevent deliveries; as a result the Courts may not consider it fair to impose liability in negligence on ASL for failing to deliver the oven in time. The standard of care required in performance of contract is the standard of the reasonable man.3 If a reasonable person would not foresee the harmful consequences of a particular action, then a failure to take precautions will not be held to be negligent. In the case of Hall v Brooklands Auto Racing Club4 it was held that the operators of the racing track could not be held liable for accidents that no reasonable person could foresee. Apart from the foreseeability of the harm, the extent of the harm caused will also be considered; for example in the case of Bolton v Stone5 the defendant was not held to be negligent, because the harm caused was not substantial. In this case, no personal injury has been caused to Alan because of ASL’s failure to deliver. The only damages he has sustained are economic damages and losses. The Privy Council has held that liability only arises for damages that can be anticipated.6 Purely economic losses may not be recoverable in tort. For example, in the case of Murphy v Brentwood7 a plaintiff bought a building from a local authority, but the foundations were not adequately checked, so it became unstable. The plaintiff could not spend the money needed for repairs, sold the house at a loss and tried to recover that loss from the local authority. The Court held that purely economic losses were not recoverable in tort, hence this may also apply in Alan’s case, since his losses are purely economic. Moreover, with the bad weather conditions, the Courts may also hold that it is not reasonable to impose a duty in tort. In the case of Barbara, ASL’s refusal to accept any liability is based upon the existence of an exclusion clause in the contract which states that “ASL are not liable for any damages or injuries howsoever caused”. Since Barbara has signed the contract containing the clause, she will automatically be bound by its terms, even if she has not read the contract or understood it, as was the case in LEstrange v Graucob.8 In general, there is a requirement that adequate notice about the exclusion clause must be provided to the consumer. In Thornton v Shoe Lane Parking9a ticket issued by an automatic machine contained the exclusion clause, but the Court held that it was printed so small that it did not constitute adequate notice. Although Barbara may argue that she was not provided adequate notice about the existence of the exclusion clause in the contract, it may still be held to have been incorporated into the contract. This is because Barbara has dealt with ASL before. For example, in the case of Spurling v Bradshaw10 the contract contained an exclusion clause, exempting plaintiffs for liability for damages caused by negligence. Although notice of the exclusion clause was received after conclusion of the contract, the Court held that because the parties had dealt with each other before and Plaintiff had received similar notices from defendants in earlier transactions, the exclusion clause was incorporated in the contract and would hold good. In McCutcheon v MacBrayne11, the reverse finding occurred because there was no previous dealing between the parties. Since ASL has done work for Barbara before, the exclusion clause may hold good. Where private parties are involved however, there is a requirement for a considerable number of past transactions, whereas in Barbara’s case, this is only the second transaction. In Hollier v Rambler Motors12 the plaintiff had used the defendant’s garage four to five times over a five year period, but this was not held to constitute a regular series of dealings. The precedent of this case may be helpful in Barbara’s case to contest the exclusion clause. Another aspect that works in Barbara’s favor is the ambiguous and all-encompassing nature of the exclusion clause. For example, in White v John Warwick 13, the exclusion clause stated: “Nothing in this agreement shall render the owners liable for any personal injury.” Hence defendants could have been liable in both contract and tort, while the wording may have excluded liability in contract, it did not exclude liability for negligence. This is also the case with the wording of ASL’s contract, which is not specific in excluding liability against particular events. The Court may also strike out any exclusion clause that is repugnant to the main purpose of the contract14. In Evans Ltd v Andrea Merzario Ltd15 the Court held that the defendants could not rely on an exclusion clause contained in the standard conditions because it was repugnant to the oral promise or assurances that had been given. ASL has undertaken to build a special shower, hence it was obliged to adhere to its promise to supply good work and cannot rely on the exclusion clause. Another aspect to be considered is whether ASL’s clause excluding all liability would be fair to a consumer, applying the provisions of the Unfair Contract terms Act of 1977. Under Section 2(1) of the Act, no business can exclude liability in negligence arising out of personal injury. This may constitute a fundamental breach of contract, despite the decisions in UGS Finance v National Mortgage Bank of Greece16, later affirmed in the Suisse Atlantique17 case and Photo Production Ltd v Securicor Transport18, on the grounds that it interferes with freedom of contract. In this case, ASL has breached its contract by a failure to provide good workmanship and service. The Sale of Goods Act of 1979 requires that goods and services supplied must be satisfactory and there is an implied condition about their good quality19. Since Barbara is a consumer and ASL is a business, the latter cannot escape its liability for negligence arising out of a breach of contract under the UCTA 1977.20 ASL’s clause also excludes all liability on a blanket basis, but an exclusion clause must be reasonable in its limitations, so that reliance upon it can be allowed.21 In this instance, ASL’s exclusion may be found to be unreasonable, as was the case in George Mitchell v Finney Lock22, because it aims to exclude all liability altogether, irrespective of the circumstances. Where Charles is concerned, the issue may involve one of misrepresentation. One of the directors of ASL has informed Charles during the negotiation process that the Company are “specialists” in designing garages. A misrepresentation occurs when a false statement is made by one party to another, and although this false statement may not be included as one of the terms of the contract, it may be the factor that indices the other party to enter into the contract. This is exactly what has happened in Charles’ case, because he has been encouraged to enter into the contract in the first place on the basis of the statement of ASL’s director. Since the statement of the Director cannot be attributed to be a statement of opinion23, it is likely that it may be held to a statement of fact in accordance with the precedent set out in the case of Smith v Land and Property Corporation24. In this case, it was held that when a person making a statement is in a position to know the true facts and could not have reasonably held such a view as a result of such knowledge, he would have misrepresented. Rather than choosing to remain silent25, the Director has made the statement that they “specialize” in designing and building garages. Moreover, when a person is aware that his promise or statement will induce another to enter into a contract, despite having no intention of carrying out the statement, he will be liable.26 In the case of Edgington v Fitzmaurice27, the Plaintiff shareholder had purchased debentures on the basis of statements from the Directors of the Company that the purpose of the issue was to pay off pressing liabilities of the Company, whereas the actual purpose was to carry out alterations to a property the Company had purchased. In this case, the Court of Appeal held that the statement of intent of the Directors was in effect, a statement of fact. Hence the failure by Directors to use the shareholder funds for the stated intent was held to be a misrepresentation, because the Court held that the defendants had no intention of keeping to such intent at the time they made the statement. This is also the case with ASL, because they had no intent of actually building a Super Beckham Garage II, since they never designed garages. There was thus, also a failure on the part of ASL to disclose this fact, thus breaching the duty of disclosure of all material facts in a contract of good faith. Thus could lead to a finding of misrepresentation, as in the case of Lambert v Co-Operative Insurance Society.28 In Esso Petroleum v Mardon29 an Esso representative estimated a certain throughput of petrol on a given site, on the basis of which the purchaser Plaintiff entered into a tenancy agreement for three years. Despite Plaintiff’s efforts, the land did not yield the expected throughput and he sustained losses, for which he claimed damages. In this case, Lord Dening MR of the Court of Appeal, stated: “It seems to me that if such a person makes a forecast -intending that the other should act on it and he does act on it- it can well be interpreted as a warranty that the forecast is sound and reliable in this sense that they made it with reasonable care and skill”30. On this basis, the Court held that a collateral contract had been created, where in return for the consideration that the contract was made with due care and skill, Plaintiff agreed to enter into the lease. Affirming the finding of negligence established in the case of Hedley Bryne v Heller31, the Court held that a negligent misrepresentation had been made in this case, because the person making the representation was a skilled person in a position to have some knowledge about the matter where a claim was being made. Since ASL is a building supplies Company, they are in a position to know something about the building of garages, hence their representation that they are specialists and can build a Super Beckham Garage II was a fact; if they did not carry through on it, then it is likely to be a misrepresentation. Bibliography Stone, Richard. “The Modern Law of Contract”, Cavendish Cases cited: Bisset v Wilkinson [1927] AC 177 Blyth v Birmingham Water Works Co(1856) 11 Exch 781 Bolton v Stone (1951) AC 850 Esso Petroleum v Mardon [1976] QB 801. Edgington v Fitzmaurice (1885) 29 Ch D 459 Evans Ltd v Andrea Merzario Ltd [1976] 1 WLR 1078 Glynn v Margetson [1893] AC 351 Hall v Brooklands Auto Racing Club (1933) 1 KB 205 Hedley Bryne v Heller and Partners Ltd (1964) AC 465 Hollier v Rambler Motors [1972] 2 AB 71 Lambert v Co-Operative Insurance Society [1975] 2 Lloyds Rep 485. LEstrange v Graucob [1934] 2 KB 394 McCutcheon v MacBrayne [1964] 1 WLR 125 Murphy v Brentwood(1991)AC 398 HL Nettleship v Weston (1971) 2 QB 691 (CA). Photo Production Ltd v Securicor Transport [1980] AC 827. Smith v Land and Property Corporation (1884) 28 Ch D 7 Smith v Hughes (1871) LR 6 QB 597 Smith v Eric Bush [1989] 2 All ER 514. Spurling v Bradshaw [1956] 2 All ER 121 Suisse Atlantique [1967] 1 AC 361 The Wagon Mould (1961) AC 388 (PC). Thornton v Shoe Lane Parking (1971) 1 All ER 686 UGS Finance v National Mortgage Bank of Greece [1964] 1 Lloyds Rep 446 White v John Warwick [1953] 1 WLR 1285 Legislation cited: Unfair Contract Terms Act of 1977 The Sale of Goods Act of 1979 Read More