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Corporate Legal Framework

Notes Discharge of Contracts by Breach

A breach of contract is one party’s failure, without a legal excuse, to live up to any of its promises
under a contract.

Novation and Assignment of Contracts

Assignment means transfer. When a party to a contract transfers his right, title and interest in the
contract to another person or persons, he is said to assign the contract. Assignment of a contract
can take place by (i) operation of law or (ii) an act of parties.
The rules regarding assignment of contracts are: Firstly, the obligations or liabilities under a
contract cannot be assigned except by Novation. Thus, if A owes B ` 10,000, he cannot transfer
his obligation to pay to C and compel B to collect money from C. However, if the promisee agrees
to such an assignment he will be bound by it. In such a case a new contract is substituted for the
old one. This is called ‘novation’. Secondly, rights and benefits under a contract may be assigned.

Thirdly, the rights of a party under a contract may amount to actionable claims which can be
assigned by a written document. Notice of the assignment is to be given to the debtor to make it
valid.

Case Study Carbolic Smoke Ball Company

he Carbolic Smoke Ball Company made a product called the “smoke ball”. It

claimed to be a cure for influenza and a number of other diseases. The smoke ball
Twas a rubber ball with a tube attached. It was filled with carbolic acid (phenol). The

tube was then inserted into the user’s nose. It was squeezed at the bottom to release the
vapours into the nose of the user. This would cause the nose to run, and hopefully fl ush

out the cold. In fact the inflammation caused by the device would have probably increased
susceptibility to catching infl uenza.
The Company published advertisements in the Pall Mall Gazette and other newspapers on
November 13, 1891, claiming that it would pay £100 to anyone who got sick with infl uenza
after using its product according to the instructions set out in the advertisement. £100
reward will be paid by the Carbolic Smoke Ball Company to any person who contracts

the increasing epidemic influenza colds, or any disease caused by taking cold, after having
used the ball three times daily for two weeks, according to the printed directions supplied
with each ball.
£1000 is deposited with the Alliance Bank, Regent Street, shewing our sincerity in the
matter.

During the last epidemic of influenza many thousand carbolic smoke balls were sold as
preventives against this disease, and in no ascertained case was the disease contracted by
those using the carbolic smoke ball.

One carbolic smoke ball will last a family several months, making it the cheapest remedy

in the world at the price, 10s. post free. The ball can be refilled at a cost of 5s. Address:
“Carbolic Smoke Ball Company, “27, Princes Street, Hanover Square, London.”
Mrs. Louisa Elizabeth Carlill saw the advertisement, bought one of the balls and used three

times daily for nearly two months until she contracted the flu on January 17, 1892. She

Contd...

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