Contracts and Liability - 2016

Overview of todays lecture
Contracts
Liability
Essential and optional elements

Types
Forming and Discharge
2012
Incurred by: breach of contract or committing a tort

Types: product, business and personal liability
Ways to minimize liability claims
What is Negligence in Design, Strict Liability?
Identify criteria for defective design
Meganiese Ontwerp 444: Regsaspekte in
Stelselontwerp
Contracts
What needs to happen to form a contract?
In order for a contract to be formed, the parties must reach mutual

consent. This is typically reached through offer and an acceptance.
2
2012

Stelselontwerp
Essential Elements of a Contract
Offer
is an expression made by one person that leads another person to

reasonably expect that the promisor wishes to create an agreement.
Acceptance
is required in order to make a contract legally binding.
Considerations
are promises (with value) to be exchanged under the contract

Example: A promises B to pay Rxxx for maintaining a machine.
Both the money and the service are considerations.
The offer and the acceptance must be voluntary.

Promises must be legal.
Contract differs from a gift.
2012

Stelselontwerp
Optional contract elements
Confidentiality Agreement
Trade restrictions (restraint of trade)
Een van die partye onderneem om nie

inligting, ontwerpe, produkte, ens. wat die
ander party aan hom/haar bekend gaan
maak, aan iemand anders bekend te maak
nie.
Mag nie tydens diens of na bedanking (vir 'n

spesifieke periode) soortgelyke werk doen
nie
2009a
2011

Stelselontwerp
Every business contract should contain
Introduction: title and date

Full name, ID no's and addresses of all parties (indicate if a
company)
Details of the agreement, all promises, including aspects such as
specifications, expected outcomes, payments (amounts, dates,
interest, ...)
Supporting documentation, e.g. drawings, conditions, etc..
Date and time when work starts and when completion is expected
Terms of payment
Damages in case of failure to fulfil obligations. How disputes will be
decided (e.g. arbitration)
Terms and conditions, wordings according to law, etc.
Signatures of parties, witnesses and a notary
20012

Stelselontwerp
Types of Contracts
Written or oral
Express contract
The agreement between the parties is inferred by their actions.
Bilateral contract
All the terms are agreed upon and expressed in words, either written or oral.
Implied contract
Oral contracts are difficult to enforce.
Both parties have made promises to each other.
Unilateral (e.g. reward) contract:
A contract in which only one party makes a promise without first securing
a reciprocal agreement from the other party.
2009a
2013

Stelselontwerp
Types of contracts when promisor > 1
Joint liability
Several liability
Separate promises made by more than one promisor. Each promisor is

liable for his / her individual promise.
Joint and several liability
Two or more persons promise to deliver the same thing as a single

party. All promisors are liable for the complete fulfilment of the contract.
If one party dies, disappears or is declared bankrupt, the other remains
fully liable.
Two or more parties make a joint contract but also state that they are
individually liable for completion of the contract.
A claimant may pursue an obligation against any one party as if they
were jointly liable and it becomes the responsibility of the defendants to
sort out their respective proportions of liability and payment.
2009a
2011

Stelselontwerp
Discharge of Contract
A contract is discharged when...
both parties are satisfied with the fulfilment of the

promises.
it becomes impossible to perform due to
circumstances outside the control of the contracting
parties, e.g. force majeure.
Note: A problem (often unforeseen) in the execution of the
contract is not an excuse.
2012

Stelselontwerp
Liability is incurred when...
breaking a contract (contract breach)

committing a tort (civil wrongdoing)
2012

Stelselontwerp
Breach of Contract
Refers to violating a contract promise, i.e. one party fails to

perform its part of the contract. The
other party can claim damages
in court.
It makes no difference whether this

was done intentionally or not.
(Force Majeure clause)
Damages can be specified in the

contract, but court can change it
if unreasonable.
Note: Plaintiff must act so as to

minimize the damage
10
2012

Stelselontwerp
Liability is incurred when...
breaking a contract (contract breach)

committing a tort (civil wrongdoing)
Tort suits involving engineers are concerned with
following actions:
11
2012
Misrepresentation, Fraud
Nuisance
Negligence
Product liability

Stelselontwerp
Negligence in Design
12
The product has a concealed danger.

The manufacturer failed to provide needed
saftety devices.
The design failed to comply with accepted
standards or inadequate materials were
used.
The user wasnt warned of possible
dangers in the use of the product.
2009a
2011

Stelselontwerp
Product Liability
Goals
History
Product recalls
13
Evolment of Product Liability

Risk Utility Test (or Risk Benefit Test)
Strict Product Liability
case study
Minimize potential product liability problems
2009a
2011

Stelselontwerp
Goals of Product Liability Law
Loss spreading
Punishment for causing needless loss

Deterrence
Prevent similar accidents from happening in the future.

Incentive to produce safer products.
Affirmation of social values
14
Shift accidental loss from the victim to other parties better

able to absorb or distribute it. (=> Liability insurance)
2012
Symbolic reaffirmation that society values human safety

and quality in products.
Stelselontwerp
Privity of contract
Winterbottom v Wright (1842)
The plaintiff Winterbottom had been contracted by the PostmasterGeneral to drive a mail coach supplied by the Postmaster. The defendant
Wright had been contracted by the Postmaster to maintain the coach in a
safe state. The coach collapsed while Winterbottom was driving and he
was injured. He claimed that Wright had "negligently conducted himself,
and so utterly disregarded his aforesaid contract and so wholly and
negligently failed to perform his duty in this behalf."
In Winterbottom v. Wright, the court held that the plaintiff had no
redress. It held that since the defendant had a duty of care in contract it
could not also have a duty of care in tort. Therefore, as the industrial
revolution developed in the 19th century, maintenance contracted owed
no duty of care to individuals not involved in the contract. Similar social
engineering saw the courts in that era shield employers from actions by
injured workers.
The principle of Winterbottom meant that consumers who were injured
by defective products in the 19th century had no legal action against the
defective execution of a contract to which they were not expressly privy.
15
2012

Stelselontwerp
MacPherson v. Buick Motor Co.

The plaintiff, Donald C. MacPherson, a stonecutter, was
injured when one of the wooden wheels of his 1909
"Buick Runabout" collapsed. The defendant, Buick
Motor Company, had manufactured the vehicle, but not
the wheel, which had been manufactured by another
party but installed by defendant. It was conceded that the
defective wheel could have been discovered upon
inspection. The defendant denied liability because the
plaintiff had purchased the automobile from a dealer, not
directly from the defendant.
- Seminal court case for removal of requirement of privity of

contract for duty in negligence actions.
- Lack of privity is not a defence if it is foreseeable that the
product, if negligently made, is likely to cause injury.
16
2012

Stelselontwerp
Strict Product Liability
The plaintiff doesnt need to proof that the producer,

distributor or retailer were negligent.
Under strict liability the plaintiff must [only] prove :
The product was defective and unreasonably dangerous.

The defect existed at the time the product left the
defendants control.
The defect caused the harm.
Negligence by the plaintiff is no excuse.
17
This proof was seen as too difficult for an individual.
Designer must expect abuse.
2009a
2012

Stelselontwerp
When is a product deemed to be defective?
18
One needs criteria by which a defective and

unreasonably dangerous nature of any product may
be tested in litigation.
=> Risk utility test
2009a
2012

Stelselontwerp
Risk-Utility test
19
Usefulness and desirability of the product

Availability of safer, alternative products
Likelihood and probability of seriousness of injury
The dangers inherent in the use of the product
Obviousness of the danger
Normal public expectation of danger
Ability to avoid injury by exercising care in product use; e.g.,
following warnings and instructions
Feasibility to eliminate the danger without seriously impairing
the usefulness of the product or making it unreasonably
expensive
2009a
2012

Stelselontwerp
Evolvement of Product Liability

Pre-Industr. Rev.
No
Product
Liability
Some manufactures
offer warranty.
User must buy with
care.
Industrial Revolution
Privity of
contract
required
User can sue the
person with which
he/she formed a
contract.
This was in most
cases the dealer and
not the manufacturer.
20
2012
1906 (McPh vs BM)
Privity of
contract
not required
User can sue the
product designer or
manufacturer for
Negligence in Design.
- concealed danger
- no safety devices provided
- no compliance with accepted
standards;
- inadequate materials used
- User wasnt warned
2011 in RSA via CPA
Strict
Product
Liability
User needs only to prove
that
- the product is defective,
- the defect existed already
- the defect caused harm.
Court will use Risk Utility
Test* to prove whether the
design is defective.
*: Usefulness of product, vs.
risk when using it, vs. cost
of eliminating the risk

Stelselontwerp
Application of Risk-Benefit Test

in Product Liability law cases
Alternative, safer design
Crashworthy?
21
2012

Stelselontwerp
What is a product recall?
... is a request to return to the maker a batch or an

entire production run of a product, usually due to the
discovery of safety issues.
...is an effort to limit liability for
corporate negligence
22
avoid costly legal penalties

improve or avoid damage to publicity.
Recalls are costly ... although possibly less costly

than consequential costs caused by damage to
brand name and reduced trust in the manufacturer.
2012

Stelselontwerp
The sticky accelerator pedal recall

The massive global recalls have become a very expensive problem for Toyota.
How expensive? Depends on who you ask.
The figure from Toyota came on Feb. 4, 2011 along with the company's
October-December earnings results. It estimated that the worldwide recall, now
involving some 8.5 million cars, could cost about $2 billion.
Since the fall, Toyota has recalled more than 6 million vehicles in the United
States because of acceleration problems and braking flaws. Regulators have
linked 52 deaths to crashes allegedly caused by accelerator problems, and the
recalls were the subject of three recent congressional hearings.
At least 89 class-action lawsuits have been filed against the Japanese car
manufacturer, which could cost the company $3 billion or more.
23
2013

Stelselontwerp
Minimize potential
product liability problems (1/2)
Keep strictly to industry and international standards.

Test all products thoroughly before release.
Emphasize quality assurance.
Study your product failure in respect of use with other
products. (System relations; up and downstream)
Document the design, testing and quality activities
24
Documentation is the single most important factor in

winning or losing a product liability lawsuit.
continued ...
2012

Stelselontwerp
Minimize potential
product liability problems (2/2)
Place warning labels and create user manual.
Do formal design reviews before product is released

for production
Have an active product safety committee
Develop a product usage and incident-reporting
system.
Have insurance for lawsuits and product recalls.
25
Use international warning labels
Retail price contains a portion for insurance, etc.
Get legal advice.

2012

Stelselontwerp
Managing Business Liability

Form an appropriate business organisation, e.g. a
private company to limit business liability
A private company is regarded as a juristic person.

Shareholders are not liable in their individual capacities in
respect of claims against the company.
Directors have the duty to act with due diligence and are
liable if they didnt do it.
Full liability for sole proprietorship or partnership.

(see Wikipedia South African company law)
26
2009a
2011

Stelselontwerp
27
2009a
2011

Stelselontwerp
Managing Personal/Professional Liability
Marriage
In Community of Property
Joint Estate
Out of Community of
Property by concluding an
Antenuptial Contract
Separate estates: Creditors
cant claim assets in the
spouses name.
Consult a professional!
28
2009a
2012

Stelselontwerp
Summary
Contract
Liability
29
Forming of ~
Elements of ~
Types of ~
Breach of ~
Types of ~
Causes and identification of defective design
Means to minimise ~
Protection against ~ claims
2009a
2012

Stelselontwerp
URLs
30
Wikipedia: South African contract law

Wikipedia: Product liability
The consumer-protection-act-no-68-of-2008 cpa-section-61
injuries-and-defective-goods
product-liability-will-go-strict-under-the-consumer-protectionact
Wikipedia: South African company law
Wikipedia: Types_of_business_entity#South_Africa
2015

Stelselontwerp

Contracts and Liability - 2016

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Contracts and Liability - 2016

Uploaded by

Copyright:

Available Formats

Overview of todays lecture

Essential and optional elements

Incurred by: breach of contract or committing a tort

In order for a contract to be formed, the parties must reach mutual

Meganiese Ontwerp 444: Regsaspekte in

Essential Elements of a Contract

is an expression made by one person that leads another person to

is required in order to make a contract legally binding.

are promises (with value) to be exchanged under the contract

The offer and the acceptance must be voluntary.

Meganiese Ontwerp 444: Regsaspekte in

Optional contract elements

Trade restrictions (restraint of trade)

Een van die partye onderneem om nie

Mag nie tydens diens of na bedanking (vir 'n

Meganiese Ontwerp 444: Regsaspekte in

Every business contract should contain

Introduction: title and date

Meganiese Ontwerp 444: Regsaspekte in

The agreement between the parties is inferred by their actions.

Oral contracts are difficult to enforce.

Both parties have made promises to each other.

Unilateral (e.g. reward) contract:

Meganiese Ontwerp 444: Regsaspekte in

Types of contracts when promisor > 1

Separate promises made by more than one promisor. Each promisor is

Joint and several liability

Two or more persons promise to deliver the same thing as a single

Meganiese Ontwerp 444: Regsaspekte in

A contract is discharged when...

both parties are satisfied with the fulfilment of the

Meganiese Ontwerp 444: Regsaspekte in

Liability is incurred when...

breaking a contract (contract breach)

Meganiese Ontwerp 444: Regsaspekte in

Refers to violating a contract promise, i.e. one party fails to

It makes no difference whether this

Damages can be specified in the

Note: Plaintiff must act so as to

Meganiese Ontwerp 444: Regsaspekte in

Liability is incurred when...

breaking a contract (contract breach)

Meganiese Ontwerp 444: Regsaspekte in

The product has a concealed danger.

Meganiese Ontwerp 444: Regsaspekte in

Evolment of Product Liability

Minimize potential product liability problems

Meganiese Ontwerp 444: Regsaspekte in

Goals of Product Liability Law

Punishment for causing needless loss

Prevent similar accidents from happening in the future.

Affirmation of social values

Shift accidental loss from the victim to other parties better

Symbolic reaffirmation that society values human safety

Meganiese Ontwerp 444: Regsaspekte in

MacPherson v. Buick Motor Co.

- Seminal court case for removal of requirement of privity of

Meganiese Ontwerp 444: Regsaspekte in

Strict Product Liability

The plaintiff doesnt need to proof that the producer,

Under strict liability the plaintiff must [only] prove :

The product was defective and unreasonably dangerous.

Negligence by the plaintiff is no excuse.