Liability In Loan Agreement And Negligence Law

Brandon, a successful developer asked his friend Rees to lend him $ 100 000 for a development project that he was associated with. According to the agreement Brandon was to repay the money to Rees within 120 days at 15 per cent interest and in cash.  On 20 April 2012, at the conclusion of the 120 day period Brandon called Rees and said that he would be unable to pay the $ 100 000 as the development hadn’t sold as well as had been expected due to some sudden changes in the property market. Brandon also expressed to Reese his willingness to pay $ 90 000 by cheque in full settlement of the total debt.  Rees remained silence for a couple of minutes but subsequently accepted.  On 2 June 2012 Rees claimed the balance of $ 10 000, plus the interest. Brandon who was extremely upset argued that he should not have to pay any more because he had paid and he was protected by the law. According to Brandon, Rees was estopped from recovering the full amount. You have been asked to advise Brandon on this particular matter. Consider remedies and possible defences.

Hillary is someone who loves to party. One night she had been at a party and decided to go home at 11.00 p.m. She had been drinking heavily and could not walk properly. She decided to walk home and crossed the road without looking for traffic. Nicky is driving her car down the road, she does not see Hillary because she is looking at herself in the rear view mirror of her car and putting on some lipstick. She hits Hillary and injures her, breaking her two arms.  Advise what legal liabilities arise out of this situation. Cite case and statutory law authority where relevant.

The loan agreement between Brandon and Reese

The question that needs to be addressed in relation to the Brandon’s and Rees’s circumstances is that whether Brandon has the liability to pay Rees the remaining $10000 and the interest @ 15% based in the rules of Part payment of consideration and the doctrine of promissory estoppel.

The famous Pinnel's case 1602 5 Rep, 117 deals with the question relating to a part consideration. The landmark judgement of this case signified that the “part payment of debt is not a valid consideration” unless “accompanied by an additional chattel or fixture, paid at a different place or paid at a earlier date”. In this case the defendant had taken a loan from the plaintiff which he repaid in part and claimed full settlement of debt. The court stated that the defendant is liable for paying the amount due even where there was a promise to accept the part amount as a full settlement of debt on the part of the plaintiff unless the additional features asked above are not present.

The same principles had been discussed and applied by the court in the case of Foakes v Beer (1883-84) L.R. 9 App. Cas. 605. Here the plaintiff had received compensation from the defendant. The defendant requested the plaintiff to accept the payments in instalments without interest. The plaintiff accepted the request. The plaintiff latter made a claim for the interest on the sum. The court held that as there is a rule that interest needs to be paid in relation to delay in compensation payment the plaintiff was entitled to the payment of interest even where she made a promise not to charge the interest.

The primary reason behind both the judgements was that there was no valid consideration provided by the defendant against the promises made by the plaintiff to give right to a legal obligation.

However the doctrine of promissory estoppels may intervene as an exception to the rule of part payment of debt. This is a doctrine provided by rules of equity. There are some specific elements which need to be present for the doctrine to be applied. Firstly as per the case of Combe v Combe [1951] 2 KB 215 there must be a legal relationship between the parties. Secondly, as per the case of Woodhouse A.C. Israel Cocoa Ltd. v. Nigerian Product Marketing Co. Ltd. [1972] AC 741 it must be inequitable for the promisor to go back on promise made them to the promisee.  Thirdly, as per the case of D & C Builders v Rees [1966] 2 WLR 28 the promise has to be unambiguous and clear.

Part payment of consideration and Promissory Estoppel

It has been provided via the facts that Brandon has taken a loan from Rees worth $100000 @15% interest for the purpose of a development project. However due to some market difficulties he has not been able to receive adequate funding from the project. Brando has further requested Rees to accept $90000 as a “full settlement of debt” and forgive the remaining amount. This request was accepted by Rees. Rees now wants to make a claim from the remaining amount and interest. In line with the judgement provided by Pinnel's case it can be stated that Rees will be entitled to make a claim for the amount of $10000 and the interest. This is because “part payment of debt is not a valid consideration” unless “accompanied by an additional chattel or fixture, paid at a different place or paid at a earlier date”.  The case decision signifies that the defendant is liable for paying the amount due even where there was a promise to accept the part amount as a full settlement of debt on the part of the plaintiff unless the additional features asked above are not present. The position of Rees can be further strengthened through the application of the case of Foakes v Beer  where the court stated that plaintiff was entitled to the payment of interest even where she made a promise not to charge the interest. Thus Rees is entitled for the payment.

However as analyzed above the doctrine of promissory estoppels may intervene as an exception to the rule of part payment of debt. The doctrine will apply where there is an existing legal relationship which is actually present in the situation between Brandon and Rees. There must be a clear and unambiguous promise which has to be made and here also the promise not to claim the money is clear. However it must be inequitable for the promisor to go back on the promise. In this case it is not so. This is because there is no detriment which would be suffered by Brandon as a result of the promise and thus the doctrine cannot be applied in the situation.

Conclusion

Brandon has to provide the remaining payment and interest to Rees.

In this situation the rights and liability of Hillary with respect to the injury caused to her has to be analyzed in line of the law of negligence.

The most relevant rule which should be applied to address the issue question is that of the tort of negligence. These rules had been analyzed by the case of Donoghue v Stevenson [1932] AC 562.

Legal liabilities arising from the accident

The case dealt with the issue of personal injury which has been faced by the plaintiff due to the carelessness of the defendant. There was no contractual relationship between the defendant and the plaintiff. The court stated that the basis of claim in this case is that of a “duty of care”. Any person by whose actions or omissions another person can be harmed ought to have a duty of care towards such person. The court applied the test of foreseeability to find out the duty of care in a situation. A duty of care is ought to be present as per the test if a reasonable person can foresee that by his actions or omissions another person can be harmed.

The next element which was requires identification in relation to negligence is “breach of the duty of care”. The test of analyzing the duty is “objective”. A reasonable person placed in the situation of takes precautions which are more than what has been taken by the defendant to avoid the harm to the plaintiff it would lead to “breach” of the duty on the part of the defendant. The court applied the test in Stokes v House With No Steps [2016] QSC 79.  

The final element is known as “factual causation”. The element is best analyzed by a specific test provided by the case of Barnett v Chelsea & Kensington Hospital [1969] 1 QB 428 known as the “but for” test. The “harm” to the plaintiff has to result out of the “breach” by the defendant and not otherwise. The satisfaction of all of these elements will result out in a successful claim of negligence.

Any damage resulting out of the harm which is reasonably foreseeable and are not too remote will be considered as eligible for compensation as provided via the ruling in The Wagon Mound no 1 [1961] AC 388

The claim of negligence is entitled to be defended successfully in part on full via the use of “contributory negligence” principle. The principle was discussed by the case of Podrebersek v Australian Iron and Steel [1985] HCA 34. The court stated that plaintiff has a duty of care to himself to take reasonable care of avoiding injury. The breach of the duty results in contribution to own harm. The court may proportionate the damages in such circumstances by analyzing the breach on the part of the plaintiff and the defendant.

The principles of duty of care, breach of the duty of care and causation as well as contributory negligence  has to be applied in the situation to analyze the issue.

Nicky is driving her car down the road and reasonable people in her position ay foresee that others on the road have the risk of getting harmed due to her act or omission. Therefore Nicky also has a duty of care to Hillary who is crossing the road as per the test of foreseeability provided in the case of Donoghue case.

Nicky has  breached her duty owed to Hillary and this can be confirmed by applying the objective test. Any reasonable person in the position of Nicky  would not apply lipstick while driving a car as there is a risk of accident.

The injury to Hillary could have been avoided if Nicky did not divert her attention from the road and would not have been caused otherwise. This means that the “but for” test is satisfied.  Here Hillary has broken her arms due to the breach of duty and the three elements of negligence are satisfied.

Hillary also evidently contributed to her injury as she crossed the road without looking for traffic under the influence of alcohol. Thus as per the principles of Podrebersek v Australian Iron and Steel case the courts will proportionate the damages with respect to the harm caused to Hillary.

Conclusion

Nicky is negligent but Hillary is also contributorily negligent and thus the courts will proportionate the damages with respect to the harm caused to Hillary.

References

Barnett v Chelsea & Kensington Hospital [1969] 1 QB 428

Combe v Combe [1951] 2 KB 215

D & C Builders v Rees [1966] 2 WLR 28

Donoghue v Stevenson [1932] AC 562.

Foakes v Beer (1883-84) L.R. 9 App. Cas. 605

Pinnel's case 1602 5 Rep, 117

Podrebersek v Australian Iron and Steel [1985] HCA 34.

Stokes v House With No Steps [2016] QSC 79.  

The Wagon Mound no 1 [1961] AC 388

Woodhouse A.C. Israel Cocoa Ltd. v. Nigerian Product Marketing Co. L