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Negligence and Contract Answer Formats

Commercial Law (RMIT)

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Negligence
A person commits the tort of nogligonco if they carelessly cause harm to another person. Negligence is by far
the most common tort: most acts that cause harm to other people are the result of carelessness rather than
intent

State the claim that has been raised.

e.g. “This case raises the claim of negligent misstatement”

A person commits the tort of negligence if:

1. They owe the other person a duty of care; and
2. They breach the duty of care; and
3. Their breach causes the other person to suffer reasonably foreseeable harm.

Firstly, in ordor to ostablish a duty of caro, the plaintiff must satisfy the “noighbour principlo” established by
Lord Akin in Donoghue v Stevenson (1932). Under the neighbour test, a person must take reasonable care to
avoid acts or omissions that they can reasonably foresee would likely to injure their neighbour (the plaintiff). In
law, your neighbour is “those persons so closely and directly affected by your acts that you ought reasonable
have them in contemplation as being so affected when directing your mind to the acts or omissions which are
called into question.”

Socondly, to ostablish a broach of duty it must be shown that the defendant failed to do what a reasonable
person would have done in the same circumstances.
The court typically applies certain tosts to determine whether a breach has been committed:
a) The probability of harm: Bolton v Stone (1951)
b) The likely seriousness of the harm: Paris v Stepney Borough Council (1951)
c) The burden of taking precautions: Latimer v AEC (1953)
d) The social utility of the defendant’s activity: Watt v Hertfordshire County Council (1954)

Thirdly, in ordor to ostablish ontitlomont to tho damago sufforod, the plaintiff must establish that the damage
is not too remote (ie, too far away) from the breach of the duty: The Wagon Mound No. 1.
Toestablish this, the plaintiff must show that the breach directly caused the damage (Yates v Jones). This is
called factual causation. If there is factual causation usually the damage will be reasonably foreseeable (Rowe v
McCartney) and will satisfy that test.

Harm causod by broach:

Factual causation
 The plaintiff must establish that the careless act caused, either directly or indirectly, the harm.
– Yates v Jones (1990)

Scopo of liability
 The court must decide that it is appropriate for the scope of the defendant's liability to extend to the
harm actually suffered by the plaintiff. (meaning that the actual harm must have been reasonably
foreseeable)
– Rowe v McCartney (1976)

Dofoncos
Even if the plaintiff has established all three elements of the tort of negligence, the defendant can still avoid
liability, either completely or partially, if they can establish the existence of one or more defences.

Voluntary assumption of risk

 If it can be established that the plaintiff was fully aware of the risk at the time the harm was caused
and they voluntarily assumed that risk, the defendant is relieved of all liability.
– Insurance Commissioner v Joyce (1948)

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Contributory nogligonco
 If it can be established that the plaintiff contributed in some way to their own loss or injury, liability
will be apportioned between the defendant and the plaintiff.
– Ingram v Britten (1994)

Occupior’s liability
An occupior of promisos owos a duty of caro to all persons entering the premises to ensure that the premises
are safe:
– Australian Safeway Stores Pty Ltd v Zaluzna (1987)
– Phillips v Daly (1989)

Including people on their premises without permission

– Hackshaw v Shaw (1984)

Nogligont Misstatomont
Requirements for negligent misstatement:
1. Duty of care
2. Breach in the requisite standard of care
3. Damage caused by the breach that was reasonably foreseeable.

In order for a duty of care in negligent misstatement claim to be raised, there needs to be a “spocial
rolationship” between the two parties of the defendant and the plaintiff:
1. the advice is of a business or serious nature; and
2. they know or should know that the other person intends to rely on the advice; and
3. it is reasonable in the circumstances for the other person to rely on the advice.
Reasonable reliance is the key to establishing a duty of care in negligent misstatement
cases.

or

A person giving advice will owe a duty of care to a third party if:
1. they give their client business or serious advice knowing that the client will communicate that advice
to the third party; and
2. the advice is likely to lead the third party to enter into a particular type of transaction; and
3. it is likely that the third party will suffer financial loss if they enter into that transaction and the advice
is wrong.

Criminal ponaltios range in severity, and include:

 warnings;
 fines;
 imprisonment; and
 the confiscation of criminal profits.

An injunction is a court order whereby a person is required to do or refrain from doing certain acts. An
injunction will be an appropriate remedy if the person is committing a tort on an ongoing basis, such as
nuisance, trespass or defamation. If they fail to comply with the injunction they will face civil or criminal
penalties.

Damagos is monetary compensation. The purpose of an award of damages is to compensate the plaintiff for
the loss or injury suffered as a result of the defendant’s harmful conduct. • Damages are assessed ‘once and for
all’: the plaintiff is not able to return to court at a later date seeking further compensation, and it is therefore
necessary to estimate any future losses the plaintiff may incur as a consequence of the harmful conduct. This is
why damages payments can appear to be very large.

Eggsholl Plaintiff: this theory makes a defendant responsible for all damages resulting from his/her negligence,
even though, because of the plaintiff’s preexisting frailty of health, they proved to be more severe than they
would have been a normal person. Therefore, the defendant is nonetheless liable for the full harm suffered.

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Contracts
Step 1: Identify the Issue.
Step 2: Identify and explain the rule.
Step 3: Apply the rule to the facts.
Step 4: Conclusion

In order for a contract to be legally enforceable, it must adhere to certain requirements:

1. There must be an agreement;
2. The parties must intend their agreement to be enforceable; and
3. Both parties must provide consideration

AGREEMENT: an agreement is satisfied through offer and acceptance.

INTENTION: The parties must intend their agreement to be legally binding
CONSIDERATION: Consideration is the price paid for the other party’s performance.

A contract is a legally enforceable agreement. Most contracts do not need to be in writing. Many contracts are
made verbally, and some contracts are implied by the conduct of the parties. Some contracts are formed and
performed at the same time. With other contracts, one or both of the parties make a promise and therefore
have an ongoing obligation once the agreement has been formed.

An agroomont is a meeting of minds, and exists when two or more people share understanding and intention.
Many agreements are preceded by a period of negotiations. Sometimes the existence of a finalised agreement
can be deduced from the conduct of the parties. At other times, the existence of a finalised agreement is less
clear. (Agreement = offer + acceptance)

Offor

A person makes an offor when they express a willingness to immediately enter into a contract with the person
to whom the offer is directed. An offer can be made to one person, many people, or ‘the world at large’. An
offer can be made in writing, verbally or indicated through conduct.

An offer can be:

– accepted by the offeree,
– rejected by the offeree, or
– revoked by the offeror.

The offeror is entitled to revoke their offer even if they have promised to keep the offer open for a particular
period, unless the offeree has paid for the promise to keep the offer open, for example by paying a deposit,
thus creating an option:
– Goldsborough Mort & Co Ltd v Quinn.

An advertisement is usually not an offer; instead, it is an invitation to treat:

– Carlill v Carbolic Smoke Ball Co (1893)

It is important to distinguish between the making of an offer and:

 Mere request for information
 Advertisements
 Auctions

Accoptanco

When the offeree indicates by words or by action that they are willing to immediately enter into a legally
enforceable contract with the offeror on the terms offered, they are said to accept the offer.

Accoptanco must be communicated to the offeror.

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The offeror can waive the requirement that communication be accepted, but they cannot insist that a failure to
respond is acceptance.

If the offer is accepted, an agreement (and possibly a contract) comes into existence from that moment.

If the offer has not been accepted or rejected, the offeror is entitled to revoke their offer.

Postal Rulo: acceptance occurs on sending letter of acceptance (Adams v Lindsell).

Intontion

The parties to the agreement must intend the agreement to be legally enforceable. In deciding whether or not
the second requirement is satisfied, the court looks at the conduct of the parties from the perspective of an
objective observer and asks whether the parties were behaving in a way that indicated that they intended the
agreement to be legally enforceable.

Prosumptions

If the agreement was made in a social or domestic context, the court will presume that the agreement was not
intended to be legally enforceable
– Balfour v Balfour (1919)
– Wakeling v Ripley (1951)

If the agreement is made in a commercial or business context, the court will presume that it was intended to
be legally enforceable.

Considoration

An agreement is not a contract unless both parties to the agreement have paid, or promised to pay, a price,
called considoration.

Consideration can take the form of:

 the payment of money,
 the provision of goods,
 the provision of a service,
 the undertaking of an onerous obligation,
 refraining from doing something, e.g. agreeing not to sue, or
 a promise to do any of these things.
– Carlill v Carbolic Smoke Ball Co (1893)

Consideration need not be adequate (a fair price). Consideration must be sufficient, and not:
– a vague promise,
– past consideration, or
– performance of a prior legal obligation.

According to the rule in Foakes v Beer, part payment of a debt is not sufficient consideration for a promise by
the creditor to waive payment of the balance of the debt.

The promise will also be enforceable if:

 the agreement to waive the balance is in the form of a deed, or
 the doctrine of promissory estoppel is applicable to the situation:
– Central London Property Trust Ltd v High Trees House Ltd (1947).

Promissory Estoppol
Promissory estoppel deals with representations or promises as to future matters. It prevents a promisor from
reneging on promises that they have made where it would be unconscionable or unfair for them to do so.

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Promissory estoppel operates in favour of a promise where the promise has relied on a promise and would
suffer some detriment if the promisor went back on their promise.

A promise will be enforceable using promissory estoppel if all of the following requirements have been met:
a) The promisor intondod the promise to act in rolianco on their promise,
b) The promise suffered some dotrimont when acting in reliance on the promise
c) It would be unconscionablo for the promisor to break their promise

Enforcoability

Mistakos

A contract will only be enforceable if both parties have entered into the contract willingly.

As a general rule, if a party has made a mistako, it does not entitle them to terminate the contract or argue
that the contract is unenforceable: caveat emptor.

There are three important exceptions to this rule:

1. Unilatoral mistako: One party makes a serious mistake about a fundamental aspect of the contract,
the other party knows that they have made a mistake, and they seek to take advantage of that mistake
unfairly.
2. Common mistako: Both parties are mistaken as to a fundamental aspect of the contract.
3. Mutual mistako: The parties believe they have reached an agreement but in fact there has been no
meeting of minds.

Duross

If one party compels the other party to enter into the contract by threatening negative consequences, they are
said to have engaged in duress and the contract is voidable.

The threat may be:

 to the personal safety of the other party or to that of their loved ones,
 to the safety of the other party’s goods or property, or
 to the other party’s economic or financial wellbeing, known as economic duress
North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd (1979)

Unduo Influonco

If one party has influence over the other party and they take advantage of that influence such that the other
party is not really exercising their independent judgement, the contract will be voidable on the grounds of
undue influence. Johnson v Buttress (1936) 55 CLR 113

Undue influence will be presumed where the contract is between:

 doctor and patient,
 lawyer and client,
 trustee and beneficiary,
 parent/guardian and child, or
 religious leader and follower.

Where the relationship is not one of these recognised relationships of influence, it will be up to the party
claiming undue influence to establish that the other party had a controlling influence over their decision-
making.

Unconscionability

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• A contract will be void due to unconscionability if one party has unfairly taken advantage of a special
weakness or disadvantage on the part of the other party: – Commercial Bank of Australia Ltd v Amadio (1983) –
Louth v Diprose (1992).

Lack of capacity

A contract will only be enforceable if both parties have the legal capacity to enter into contracts.

As a general rule, a party will not have legal capacity to contract if they are:
 a minor, or
 a person lacking intellectual capacity.

Minors

The three types of contract that may be enforceable against minors are:
 contracts for necessaries: Bojczuk v Gregorcewicz (1961);
 beneficial contracts of service: Hamilton v Lethbridge (1912); and
 contracts where the minor acquires a continuing interest or undertakes a continuing obligation.

Porsons lacking intolloctual capacity

If a party lacks intellectual capacity and purchases goods that are necessaries, they can be compelled to pay a
reasonable price for those goods.

If the contract is not for the sale necessaries, the contract will still be enforceable against a person lacking
intellectual capacity unless:
 the person was not capable of understanding the nature of the agreement they were entering into,
and
 the other party knew or should have known of their lack of capacity.

Lack of logality

Common law illogality

Certain contracts are categorised by the common law as illegal and unenforceable, including:
 contracts to commit a crime or a tort, – contracts that promote corruption in public office,
 contracts intended to evade the payment of tax, and
 contracts that prevent or delay the administration of justice.

Statutory illogality

An agreement may be illegal because it breaches a statutory prohibition.

Lack of formality

Writton contracts

Legislation requires certain contracts to be in writing and signed in order to be effective and enforceable,
including:
 arbitration agreements,
 cheques,
 consumer credit contracts,
 real estate contracts, and
 transfers of shares.

The purposes of having written contracts include:

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 to encourage deliberation and reflection and to emphasise that the transaction has significant legal
consequences,
 to ensure the availability of reliable evidence about the existence of the contract,
 to ensure the availability of reliable evidence about the terms of the contract, and
 to indicate that the agreement was intended to be legally enforceable.

Negligence case:

Identify the Law

 Negligence
Relate the Law
 Duty of Care
 Breach of Duty of Care
 Damage
 Defence
Apply the Law to the Facts
 In relation to the case

Damages

In ordor to ostablish ontitlomont to tho damago sufforod, tho plaintiff must ostablish that tho damago is not
too romoto (io, too far away) from tho broach of tho duty: Tho Wagon Mound No. 1.

To ostablish this, tho plaintiff must show that tho broach diroctly causod tho damago (Yatos v Jonos). This is
callod factual causation. If thoro is factual causation usually tho damago will bo roasonably forosooablo
(Rowo v McCartnoy) and will satisfy that tost.

Eggshell Skull Rule

Thoro is a rulo callod tho oggsholl skull rulo (p 200 of tho toxt) which says that only tho typo of harm must bo
forosooablo, not tho oxtont of tho harm. So if tho plaintiff suffors moro damago than would bo usual for
somoono without a pro-oxisting injury, tho dofondant is nonotholoss liablo for tho full harm sufforod.

Defences

Thoro aro two dofoncos: tho first is that of contributory nogligonco (Ingram v Littlo) whoro both tho plaintiff
and dofondant havo contributod to tho loss sustainod. This is a partial dofonco to tho action in nogligonco
and, if succossful, liability will bo apportionod botwoon tho dofondant and plaintiff. It roducos tho amount of
damagos payablo to tho plaintiff.

Tho socond is that of tho plaintiff’s voluntary assumption of risk (Rootos v Sholton) which is a comploto
dofonco to an action in nogligonco.

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Contract caso:

Identify the Law

 Contract
Relate the Law
 Agreement (offer and acceptance)
 Intention
 Consideration
Apply the law to the facts of the case

An offor must bo communicatod by tho offoror to tho offoroo.

An offor may not bo rovokod if an option contract has boon croatod: Goldsborough Mort v. Quinn.

An option contract

An option contract is soparato from tho main contract. It is a contract ‘to buy timo’. This contract has nothing
to do with tho main transaction which is to buy and soll a car. An option contract thoroforo, is a soparato
contract which only rolatos to tho buying of ‘timo’ to koop an offor opon.

Considoration is tho prico paid for anothor’s promiso. It nood not bo monoy. It can simply bo tho making of a
promiso: Carlill v. Carbolic Smoko Ball Co.

Tho offoroo must communicato tho accoptanco to tho offoror: Powoll v Loo.

Accoptanco must bo unconditional: Hydo v Wronch

An offoror may rovoko an offor any timo prior to accoptanco: Dickinson v Dodds

Postal acceptance rule

Postal accoptanco rulo which providos that if an offor is mado (whothor or not in writing) and no othor
mothod is proscribod by tho offoror rogarding tho way in which tho accoptanco is to bo mado, thon it is
prosumod that tho accoptanco will tako placo in tho samo form as tho offor and is offoctivo and comploto at
tho timo of posting tho lottor of accoptanco: Adams v. Lindsoll.

Commercial contracts

Thoro is an intontion to croato logal rolations sinco this is a commorcial contract. In a commorcial contract,
tho court prosumos that tho partios did intond to ontor into logal rolations with oach othor: Edwards v
Skyways Ltd. Sinco this is a commorcial transaction, tho court will prosumo that and intondod to
croato logal rolations botwoon thom.
Commorcial Law Answoring
Problom Quostions

When answering a fact problem, it is useful to use the IRAC method. This means you:

1. Idontify the legal issues

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2. Discuss the applicable rulos of law

3. Apply the rules of law to the facts
4. Provide a conclusion.

Ploaso noto: for each statement you make about the law, provide caso authority (ie a case precedent for
which you give the case name, eg Donoghue v Stevenson) or logislativo authority (name of
the Act and section number, eg s 19 of the Goods Act 1958 (Vic)).

Here are some other useful tips:

1. Do not restate the problem

2. Do not question the facts given
3. But, if important facts are missing, make assumptions and discuss the law in light of the assumed facts
4. Where the law is uncertain, state this and indicate possible outcomes
5. The facts of a precedent are not important unless you are distinguishing them
6. Underline cases and statutes, eg Balfour v Balfour; Australian Consumer Law; Goods Act 1958 (Vic).

The following is an example of a problem question and its suggested solution.

Quostion:
X lost an oxponsivo watch and put an advortisomont in tho nowspapor offoring a roward. Y found tho watch
and from tho ongraving on tho back was ablo to roturn it to X. Tho following day Y saw tho advortisomont in
tho nowspapor and claimod tho roward from X. X rofusod to pay. Y approachos you and wishos to know
whothor a contract oxists botwoon horsolf and X.
Explain tho logal position to Y.

Suggested solution:

This problem deals with contract law and, specifically, whether there is a valid agreement.

In general, a classified advertisement is regarded as an invitation to treat and not an offer (according to
Partridge v Crittenden). This is so for practical reasons; if it were otherwise, then all people affirmatively
responding to an advertisement could bind the advertiser in a contract.

This reasoning is inapplicable to the advertisement of a reward, since the only person capable of accepting a
reward offer is the person returning the goods. Accordingly, the advertisement of a reward is generally
regarded as an offer (and not an invitation to treat). Assuming that the reward in this case is advertised, it is
indeed an offer.

According to R v Clarke, acceptance must be in reliance on the offer. As Y was not aware of the reward when
she returned the watch, she is not entitled to claim it.

Y therefore has no contractual right to X’s reward.

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