Business Law: Donoghue vs Stevenson & Contract Essentials

This article discusses the Donoghue vs Stevenson case and its impact on the legal principles of negligence, duty of care, and agency relationships. It also explains the essentials of a valid contract, including offer, acceptance, and communication of acceptance. Additionally, it highlights the differences between partnerships and companies in terms of liability.

Running Head: BUSINESS LAW
BUSINESS LAW
Name of the Student:
Name of the University:
Author Note

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Section A
Answer One
In the case of Donoghue vs Stvenson, Ms Donoghue had visited Wellmeadow Café with a friend.
Te parties had ordered pear and ice and Scotsman ice cream float which was a mixture of ginger
beer and ice cream. The ginger beer had been ordered by Ms Donoghue. The café had poured the
ginger beer from a brown and opaque bottle on which was written D. Stevenson, Glen Lane,
Paisley. Donoghue had consumed almost half of the bottle, which was made of opaque glass.
When she poured the remnant of beer from the bottle into a tumbler, the remains of a
decomposed snail floated out of the bottle. She stated that the sight of the snail had made her feel
sick and she suffered from gastro enteritis subsequently.
Mrs. Donoghue had not been able to claim damages for the breach of warranty as she was not a
party to the contract of sale. However, she started proceedings against Stevenson, the
manufacturer of the ginger beer.
Ratio decidendi can be defined as a Latin term which literally translates to “rationale for the
decision.” Ratio decidendi can be considered to be the legal, social and moral principles which
had been used by the court to compose the rationale for giving the judgment or verdict (Zander
2015). Ratio Decidendi unlike obiter dicta is binding upon the courts or lower jurisdiction. Ratio
decidendi can be thus be also termed as a judicial precedent. The Ratio decidendi of the
Donoghue v Stevenson case are enumerated below
 Negligence- This case provided the provisions to prove negligence. It was held by the
House of the lords that negligence is a tort. In case of negligence the plaintiff is entitled

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to take civil action against the defendant if such plaintiff suffered injury and loss of
property (Knapp, Crystal and Prince 2016).
 Duty of Care- Lord Atkin held in the case that manufacturers have a duty of care towards
the consumers (McKendrick 2014)
 Neighbor principle- In this case the scope of negligence was extended beyond the
aggrieved party and the tort feasor
Obiter Dicta can be defined as a judge’s expression of his opinion in the court which is uttered or
written. However such Obiter dicta is not binding upon other courts (Zander 2015). In this case
an obiter dictum had been suggested by Lord Esher in relation to the case Heaven v Pende, that
whenever any person is paced in the position and circumstance of a reasonable person he would
assume that his conduct would cause injury to the other person, if he did not act using ordinary
care and skill.
Mrs. Donoghue had not been able to claim damages from Stevenson for the breach of warranty
as she was not a party to the contract of sale.
This case can be considered to be a civil case as it established the civil law of tort of negligence.
The state or federal government did not initiate this case and thus it cannot be called a criminal
case.

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Answer2
Issue
 Legal effect of Ali’s letter to Zaman 1st December 2015
 Whether Zaman’s witten reply to Ali on 3rd December amounts to acceptance?
 Legal effect of Zaman’s written reply to Ali on 3rd December
 Legal effect of Zamans written letter Ali on 8th Deceber
 Can Ali sell the hotel rooms to Bee?
Rule
It can be stated that Offer and Acceptance are the primary essentials of a Valid Contract. A valid
contract is formed once a valid acceptance is made by the party to whom the offer had been
made (Fried 2015). However as held in the notable case Hyde v Wrench (1840) 49 ER 132,
acceptance can be considered to be valid once the offer has been accepted on the terms as
proposed in the offer (Poole, 2016). If any change in the terms is proposed by the accepting
party no contract will exist. Such change in the terms of the offer would constitute counter offer.
Communication of acceptance is a must for the contract to be legally binding upon the parties
Entorres v Miles Far East [1955] 2 QB 327. However there are some additional provisions
regarding the communication of the news of acceptance to the offeror (Cartwright, 2016). As
held in the case Adams v Lindsell (1818) 106 ER 250 acceptance would be considered to be
successful when the letter of acceptance is properly addressed, stamped and posted (Hunter
2017). This rule of communication of acceptance by post is termed as postal rule.
Application

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It can be stated by analyzing the facts of the case study and applying the legal provisions to it,
that no contract had been formed between Ali and Zaman. On 1st December Ali had offered to
sell the hotel rooms at the stipulated price and specific conditions to Zaman. This can be
considered to be a valid offer. However Zaman did not accept it on the terms proposed by Ali.
Thus by the application if of the principle of Hyde vs Wrench it can be termed as a mere counter
offer which terminates the original offer. Thus Ali is free to sell the rooms to the Bee.
Conclusion
 Ali’s letter constitutes valid offer
 Zaman’s reply to Ali did not constitute valid acceptance
 Zaman’s reply to Ali on 3rd December constituted a mere counter offer
 There is no legal effect of Zaman’s letter on 8th December as Ali had not accepted his
counter offer
 Ali can therefore sell the rooms to bee
Answer 3
Issue
The issue which has been identified by analysing the facts of the scenario is that whether
Greg is bound by the transactions entered by Meng
Rule
In the landmark case of Lister v Hesley Hall Ltd [2001] UKHL 22 it had been ruled by the
court that where a principal agent relationship is established between two person and the

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actions of the agent which has been done within the actual or implied authority provided by
the principal is binding upon the principal.
Further it had been added by the case of Storey v Ashton [1869] LR 4 QB 476 that when an
agent of a principal enters into a transaction with a third party and the third party does not
have knowledge that the agent has exceeded the authority which has been provided to him
by the principal the act of the agent in relation to the third party is binding upon the
principal.
Application
In the given situation it has been provided by the scenario that Meng has been sent by Greg
for the purpose of purchasing equipments for his business. This means that Meng is the
agent of Greg. However Greg had only authorised Meng to enter into transactions which are
limited to an amount of $80000. It has been provided in the scenario that Meng has
exceeded the budget which has been provided to him by Greg by $10,000. Through the
application of the above discussed cases it can be stated that as the third party does not have
knowledge that Meng only has authority to enter into transaction with an amount of $80000
the actions of Meng would be binding upon Bing.
Conclusion
The actions of Meng are binding upon Bing as they have a principal agent relationship.
Section b
A

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A partnership is a form of business where the Identity of the partners is not different from the
identity of the business. It is a form of sole trading business which is carried out by two or more
person. In the same way as a sole trader has unlimited liability in relation to his business partners
also have unlimited liabilities in relation to the business (Jones 2017). However a sole trader
cannot be held liable for the actions of any other person. On the other hand a well founded
principle operates in case of partnership with states that every partner is the Agent of the
business and the act committed by any partner is binding upon the business and therefore on the
other partners (Twomey, Jennings and Greene 2016). The partners are jointly and severally liable
for the action which has been done by another partner (Jones 2017). Therefore in a situation
where negligence or a fraudulent activity has been done by the partner in the course of business
the act would be binding upon the other partners of the business even if they had not made any
contribution towards the act (Allen and Kraakman 2016). In case the business which runs in form
of a partnership fails, personal assets of the partners can also be attached to recover the dues of
the creditors. Therefore in the given situation as John is a rich partner in the business he has
significant risk that his personal assets can get attached due to any activity which has been done
by Peter who is not that rich.
B
A company is a form of business which has a totally different identity when compared to the
identity of its owners at law (Twomey, Jennings and Greene 2016). This means that the rights
and liabilities of a company are not the rights and liabilities of the owners of the company who
are called share holders. In the landmark case of Salomon v A Salomon and Co Ltd [1897] AC
22 it has been established by the court that a company has limited liability. The phrase limited
liability signifies that the liabilities of a person associated with the company can only be

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extended towards the amount of contribution they had made or have promised to make in
relation to the company. Unlike that of a partnership no personal assets of the members of a
company can be attached in case the company goes into liquidation and is not able to meet its
debts (Allen and Kraakman 2016). In addition where it has been provided that Peter wants to
incorporate a new dish to the business which if not cooked properly can cause death, there is a
significant risk of negligence involved in the business. If John and Peter carry out the business in
form of a partnership John may be liable for the plan of Peter. On the other hand the company
would be liable if anything goes wrong if the business is carried out in form of an incorporated
organisation. Therefore in the given situation it is best advised to Peter and John that they carry
out their business in form of an organisation rather than a partnership.

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Reference List:
Adams v Lindsell (1818) 106 ER 250
Allen, W.T. and Kraakman, R., 2016. Commentaries and cases on the law of business
organization. Wolters Kluwer law & business.
Cartwright, J., 2016. Contract law: An introduction to the English law of contract for the civil
lawyer. Bloomsbury Publishing.
Donoghue vs Stvenson
Entorres v Miles Far East [1955] 2 QB 327
Fried, C., 2015. Contract as promise: A theory of contractual obligation. Oxford University
Press, USA.
Hunter, H., 2017. Modern Law of Contracts.
Hyde v Wrench (1840) 49 ER 132
Jones, L., 2017. Introduction to business law. Oxford University Press.
Knapp, C.L., Crystal, N.M. and Prince, H.G., 2016. Problems in Contract Law: cases and
materials. Wolters Kluwer Law & Business.
Lister v Hesley Hall Ltd [2001] UKHL 22
McKendrick, E., 2014. Contract law: text, cases, and materials. Oxford University Press (UK).
Poole, J., 2016. Textbook on contract law. Oxford University Press.

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Salomon v A Salomon and Co Ltd [1897] AC 22
Storey v Ashton [1869] LR 4 QB 476
Twomey, D.P., Jennings, M.M. and Greene, S.M., 2016. Anderson's Business Law and the Legal
Environment, Comprehensive Volume. Nelson Education
Zander, M., 2015. The law-making process. Bloomsbury Publishing.