Andrew Mudrek

group 3 course

Contract Law

Odessa 2008

Donald Diggers Ltd tenders for the contract to construct a new hotel for Opulence Ltd. Donald quotes a highly competitive price on the basis that the contract is concluded on its standard terms. Opulence awards Donald the contract, which is duly signed on Donald's terms.

Initially, work proceeds smoothly and according to schedule. However, Donald's workforce is affected by an outbreak of bird influenza and it proves extremely difficult to hire the replacements needed to keep the project on schedule.

Donald is forced to pay premium rates. Donald approaches Opulent to see if Opulent will share the additional cost. Opulent needs the hotel to open on time as it has invested a considerable sum in publicizing the opening and hiring a top celebrity to perform the opening ceremony. All this will be wasted if the opening is delayed. Opulent therefore agrees to contribute $5,000 to the additional labour costs.

The work is completed on time, the opening goes ahead and the first guests arrive. Soon, however, problems start to appear. The swimming pool proves to be only six feet deep instead of seven feet as specified in the contract and it is marked on the outside of the pool. One of the guests breaks his nose after diving in. Some guests contract food poisoning after eating in the one the hotel restaurants. Overall, considerable adverse publicity has been generated, future bookings are low and some bookings have been cancelled.

When Opulent complains to Donald, the latter responds that the food poisoning has nothing to do with its work. Moreover, in respect of the swimming pool, Donald points out that all Opulent needs to do is to change the sign on the side of the pool to indicate its true depth. The market value of the hotel, Donald claims, is unaffected by the shallower pool. Moreover, Donald refers to clause 4 of the contract, which provides as follows:

"All liability for defective installation of swimming pools, whether arising by reason of negligence or otherwise, is hereby excluded."

For its part, Donald is seeking payment of the additional $5,000. Opulent denies that it is legally liable to pay this in any event. Even if it so liable, opulent is withholding that sum by way of set-off against Donald's maintains that Opulent is legally liable to pay extra $5,000 and relies on clause 7 of the contract, which excludes any right of set-off.

DISCUSS. IT IS NOT IN DISPUTE THAT THE FAILURE TO CONSTRUCT THE SWIMMING POOL TO THE CONTRACTUAL SPECIFICATION QUALIFIES AS "DEFECTIVE INSTALLATION" WITHIN THE MEANING OF CLAUSE 4 OF THE CONTRACT.

Issues:

There are four areas of contract law that have to be discussed when considering the issues in this scenario, which are; frustration; duress; and the validity of the exemption clauses. It must be noted that at this point the food poisoning is factor outside of the contract between Donald and Opulent and cannot be any point of claim against Donald. Therefore this discussion will look at the validity of the exclusion clauses and the variation of contract.

Application of the Law to the Issues:

Exclusion Clause:

In order for Opulent and Donald to be bound by the exclusion clause there needs to be a valid contract, which means that four requirements have to be fulfilled. A valid contract must have the following elements; offer; acceptance; consideration; capacity; and intention. These are present in this contract when Donald offers his work and Opulent accepts verbally. There is also intention because there is an understanding that Donald will turn up to work on a certain day and Opulent will close the night club, which is evidence of consideration as Opulent is at a disadvantage.
Join now!


This is a valid contract, however the next area to explore is whether the exclusion clause and standard terms apply because Opulent has never worked with Donald and at the verbal contract point does not indicate what his usual terms and conditions are. Under contract law there are only three ways that they can be incorporated which are; by signature even if they are not read; by notice where there has to be sufficient notice; and by custom where there has been previous dealings between the parties even if the clause is added in later. In this case ...

This is a preview of the whole essay