Aspects of Contracts and Negligence for Business

This report discusses the essential elements of a valid contract, different types of contracts, and the analysis of terms in contracts. It also explores the impact of contracts and the difference between contractual liability and tort liability.

ASPECTS OF
CONTRACTS
AND
NEGLIGENCE
FOR BUSINESS

TABLE OF CONTENTS
INTRODUCTION ..........................................................................................................................3
TASK 1............................................................................................................................................3
1.1.................................................................................................................................................3
1.2.................................................................................................................................................4
1.3.................................................................................................................................................5
TASK 2............................................................................................................................................6
2.1.................................................................................................................................................6
2.2.................................................................................................................................................6
2.3.................................................................................................................................................7
TASK 3............................................................................................................................................8
3.1.................................................................................................................................................8
3.2.................................................................................................................................................9
TASK 4 .........................................................................................................................................10
4.1...............................................................................................................................................10
4.2...............................................................................................................................................11
CONCLUSION .............................................................................................................................12
REFERENCES .............................................................................................................................12
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INTRODUCTION
A valid contract is defined as an agreement signed between parties containing all the
essential elements of the valid contract (Connolly and Hoar, 2014). It is critical that all the
individuals that are engaged in signing the contract should have legal capacity for making a valid
agreement. Present report is based on aspects of contracts and negligence in business (Berger,
and Lester, 2015). The report describes about importance of essential elements that are required
for the formation of valid contract. In addition to this impact of different type of contract have
been discussed. Moreover, analysis of terms in contracts with references to their meaning and
effect has been mentioned. Along with this elements of contract have been applied in different
business situations and laws have also been applied on terms in different contracts. Furthermore,
difference between contractual liability and tort liability has been explained in the report.
TASK 1
1.1
There are some essential elements that are required Liau, T., 2015to be included while
making a legal contract. It is a legal process to make a contract and it is required that systematic
and legal approaches should be used by different parties while signing a contract (Liau, 2015).
Some essential elements that are required for making a valid contract are as described :
1- Offer :- When a party involves in signing agreement with other parties than some terms and
conditions are mentioned by parties for inviting others to enter into valid contract. If the next
party accepts the terms and conditions mentions the offer given by another than it is considered
as acceptance shown by another party (Carter and Courtney, 2016). Offer is an definite and
unequivocal promise or willingness to be bounded on specific terms without future negotiation.
It is assertive that terms of the contract should be accepted by both the parties and these terms
needs to bwe clear and definite. It has been referred from the case of Carlill vs Carbolic Smoke
Ball Co (1893) that an offer can be made to a particular person or to a class of person or even to
the whole world.
2- Agreement :- It is assertive that there should be free voluntary agreement between the
parties. It occurs if one party gives offer to another party and the offer is accepted by another
party (Thampapillai, Tan and Bozzi, 2012). It is the most essential element that is required to be
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included into agreement. Offer and acceptance are two terms that combine together for making
an agreement. Once a offer has been made it has than to be accepted before the contract can be
proceeded to the next stage (Sweet and Schneier, 2012). Acceptance is the unqualified and
unconditional agreements to all the terms of the offer. Acceptance can be oral, written or by
conduct.
3- Consideration :- It is essential that there must be some value or determining passing between
the parties. From the case of Dunlop Pneumatic Tyre Co v Selfridge &Co Ltd (1915 it has
been referred that consideration is an act or forbearance on the parts of one party to a contract as
the price of the promise made to him by the other party in contract.
4-Intention to create legal relation :- The parties must intend their agreement to have legal
consequences and therefore be capable for enforcement in case of breach (O'malley, 2012).
5-Legal capacity :- it is critical that each party signing contract should be equally capable to
enter into valid contract. A person below 18 years of age can not be engaged in signing any legal
agreement. Moreover an individual facing criminal charges can not be held liable for making a
valid contract with other parties and individual.
1.2
Different types of contracts are signed by parties when they enter into legal relationship
with each other. It is essential that impact of various types of contracts should be considered
while entering into legal relationship with other individuals. Legal effect and impacts of different
types of contracts is as described :-
1 – Bilateral contract :- ON the basis of formation these contracts are classified as A promise
made for promise. On the other hand unilateral contract are made for A promise for an act. A
bilateral contract is entered into by way of an exchange of promise between the parties (Oni-Ojo,
and Iyiola, 2014). The offer that is made for a promise becomes a promise by acceptance. Each
party that enters into a contract makes a promise to another party.
2- Void and voidable contract :- Valid contracts are those contracts that are having all the
essential elements which are required for formation of contract. On the other hand void contracts
are those contracts in which no contract exist and in voidable contract a party has option for
voiding or enforcing the contract (Lupton, 2013). There is one more type of contract that is
Unenforceable contract and this type of contract can not be enforced because of a legal defenses.
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A void contract can not be enforced by either party and in the language of law void contracts are
those contracts that are never formed. For example any contract containing an illegal subject
such as theft, drugs and prostitution are included in the void contract. In addition to that contracts
that require the performance of something impossible is also considered as a void contract
(Dorfman and Cather, 2012). A voidable contract is a valid contract that can be enforced and
usually one party is bound to the contract terms in a voidable contract.
3 – Distance selling contract :- Distance selling contracts are those contracts that are formed
between a trader and a consumer. Physical presence of trade and the consumer is not there in the
distance selling contract. Face to face interaction of parties does not take place and means of
distance selling contracts includes internet, text messaging, phone calls and mail order.
1.3
Analysis of terms of contracts requires a systematic and strategic approach and it is vital
that appropriate approaches should be used for accomplishing this objective. According to the
mentioned case scenario East Midland airways has advertised for a second hand Airbus 321 for
sale in an aviation industry trade journal. Price of the object was kept at £10.4m. On the same
date of publishment of advertisement in the newspaper The chief executive officer of Zulu
Aviation limited has phoned EMA'S managing director Mr. Joseph. Phil mentioned on the phone
call that he is interested in viewing the Airbus 321 but as he is off on a five day business trip to
New york, United state of America. He mentioned that he is unable to view the aircraft until he
returns from the America.
Joseph mentioned that if another buyer would turn up to view the aircraft than he will be
needing to sell the Aircraft to that buyer. Phil mentioned that he is willing to pay £100,000 if
EMA makes promise for not selling the Airbus to another buyer for the next five days. Joseph
gets agrees to this proposal.
In the present case no legal agreement was signed between both the parties. Willingness
was shown by Phil towards purchasing of the Airbus and Joseph had agreed to the proposal. As
per the case of Partridge v Crittenden(1968) It has been referred that an advertisement of goods
is an attempt to induce offers and is therefore classified as an invitation to treat. Distance selling
contracts can be made between two parties through phone calls, E-mails and Postal medium. In
the present case both the parties have accepted the terms and conditions of another parties and
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therefore parties are legally bound to enter into contract with each other. Moreover It has been
referred from the case of Entores v Miles Far Eastern (1955) that acceptance must be
communicated to the offeree.
TASK 2
2.1
Elements of contract in given business scenario is as follows :-
According to the given case scenario A company makes contract for the purchase of 300 mobile
phones that are immediately suitable for use in the UK. From the view point of types of
contractual terms in law, court can classify the term in specific circumstances. There are three
type of contractual terms that are used while making agreement with other parties. The terms that
are used are as mentioned :-
Innominate terms :- These terms are neither included in conditions ad nor in warranty and the
remedy for breaching the terms of contract depends upon situation. If it is trivial than damages
only and it will be included under warranty (McInnes, Kerr and VanDuzer, 2013). Moreover, if it
is serious than damages and discharges both are to be included.
Condition terms :- A condition is an important term that forms the root cause of the contract.
Breach of condition results in damages or discharge or both. Moreover breach of condition
entitles the innocent party the right to either terminate the contract and refuse to perform their
part of it or sue for the damages (Martin and Van Linden, 2015). Effects of breach of innominate
terms is binding on both the parties and if it is trivial than damages only. If it is serious than
damages, discharges or both. It has been referred from the case of The Hansa Nord(1976) that
the remedy was damages and so the breach was insufficient to justify treating the whole contract
as ended.
Warranty :- Warranties are those terms that are not vital for making overall agreement and
failure shown by a party in meeting the warranty does not totally destroys the purpose of the
whole contract (Liau, 2015). A warranty is less significant term of contract as compared to other
contractual terms and it is subsidiary to the main purpose of the statement. From the case of
Bettini v Gye (1876) it was held that there will only be breach of a warranty. The injured party or
defendants could not treat the contract as ended.
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2.2
Applying law on different terms in given contract are as follows :-
(1) Use of the telephone supplied was illegal in the UK and they could not be modified to make
their use legal-
The company has taken contract for making 300 mobile phones that are going to be used in
market of UK. Use of telephone supplied in UK is illegal and they could not be modified to
make their use legal. In this case company will be engaging in an illegal activity if mobile
phones will be supplied by it. In this case this is a conditioned term and conditions are important
term that forms rot cause of the contract. Breach of condition results in damages and discharges
and sometimes both. In the present case the company has signed the contract for selling mobile
phones in UK/ however use of the telephone supplied has been made illegal in UK and they
could not not be modified for making the use legal. Moreover, as the supply is illegal so
therefore the contract that has been signed by the company can not be declared as an legal
contract.
(11) The telephone supplied required tuning to particular frequencies, a task taking two minutes
for each one
The telephone that are supplied by the company requires tuning to a particular frequencies and it
is a task that requires two minutes for each one. These are considered as innominate terms that
are included under the present case scenarios. As per the case of The Hansa Nord(1976) it has
been referred that if the remedy was for damages than the breach was insufficient to justify
treating the whole contract as ended.
2.3
Effect of different terms in given contractual situation is as mentioned :-
According to the mentioned case scenario Cathy always took her to be service at Brakes limited
and she did the same in the month of January 2013. in the previous situations Cathy was always
requiring to be sign a contract before handling her car over to the garage. The statements that
were mentioned in the contract were as follows ;- “Brakes accepts no responsibility for any
consequential loss or injury sustained as a result of any work carried out by the company, where
as a result of negligence or otherwise”. In the recent case Cathy reached the garage when it was
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vary busy and she was not asked for signing any document. She was given a particular receipt for
the car and the receipt was taken by her without reading it.
On the back side of the receipt following conditions were mentioned and it was not read
by cathy. It was observed that the accident occurred by a mechanic at Brakes limited who had
failed to properly reconnect the car's steering mechanism. It was accepted by Brakes limited that
it is their employee who were negligent but they denied any kind of liability relaying on the
exclusion clause. Cathy deserves right to take action against the Garage. Exclusion clause has
been incorporated into her contract with Brakes limited. In this case use of Exemption clause has
been taken by garage for moving away from their liability.
In this clause a party to a contract may include a term in a contract to exclude or limit
his/her liabilities in the event of breach of contract in some particular circumstances. Exemption
clause seeks to restrict the liability that may arise from the legal relation. A party's liability is
excluded for specific outcomes when there is breach of contract. According to the case of
L’Estrange v Graucob (1934) it has been referred that if a person signs a document , than they are
bound by the terms even they does not read the terms. In the present case Cathy has previously
signed contract with the garage but in recent situation she was given a slip on which specific
situations were mentioned. As she has not signed any contract this time she deserves the right to
take legal action against the garage.
TASK 3
3.1
Contractual liability differs from tort liability and there are some similarities that also
exist between tort liability and contractual liability. Tort is defined as breach of legal duty which
creates damages for the another party (Dorfman and Cather, 2012). Civil wring committed by
any party is included in the category of tort and it gives rise to Non contractual claims for the
damages. Breach of legal duty is defined as tort and no liability can be imposed unless the law
recognizes that the duty exists. Along with this principle of tort are based on rights, the related
duty to respect the rights and the compensation for infringement (Lupton, 2013).
On the other hand contractual liability is undertaken voluntarily by all the parties who
engages for making contract with each other. If there is situation in which breach of contract is
there than it is required to be proved that defendant was subjected to the obligation of contract.
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Liability in case of tort are not taken voluntarily and it is imposed by court. Some specific
kind of behavior that are performed by the individual are considered in the category of civic
wrong. Punishments and penalties are imposed by the court if it is observed that an individual
has been involved in making any civic wrong (Sweet and Schneier, 2012). In tort liability it is
not required that relationship exist between parties who are trying to proving claims under the
tort liability. It is not vital to have contractual relationship among the parties. Legal
consequences are faced by parties and individual under the tort liability. This liability is based on
fault and legal consequences are likely to be faced by the parties for involving in civic
wrongdoing. On the other hand under contractual liability if any party involves in breaching the
terms of contract than legal action can be taken by another party.
3.2
Nature of liability in negligence is defined as liability that arise because of careless
involved in rendering liability. Negligence is defined as tort that covers an enormous number of
situations. Breach of duty done by a party comes in the category of negligence and if it results
into injury or damages than legal consequences are likely to faced by the parties (Thampapillai,
Tan and Bozzi, 2012). Major elements in the tort of negligence includes as follows :-
1 Duty of acre :- Duty of acre is owed by the defendant. There is duty to take reasonable care for
not causing foreseeable harm to other that includes neighbors. The Neighbor principle states that
an individual must take reasonable care to avoid acts and omissions that are likely to be caused
injuries and damages to other people. In the neighbors principle neighbor is defined as a person
who gets affected by the act. It has been referred through the case of Donoghue v Stevenson
(1932) that there is duty on the part of manufacturer to take reasonable care while manufacturing
the products.
2 Breach of duty of care :- The claimant requires to prove that defendant failed in taking
appropriate care due to which losses and damages have been sustained by another party (Oni-Ojo
and Iyiola, 2014).
3 Resulting loss :- As a consequence of the breach of contract damages and losses are suffered
by the parties. There are some standard principles that are needed to be considered to test for
breach of contract and it includes Probability of injury, Seriousness of risk, particular skills, cost
and predictability and common practice.
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TASK 4
4.1
Applying tort of negligence and defenses in different business situation requires a
systematic and legal approach. According to the mentioned case scenario Jim who is working as
a banker had invited Tina for dinner for their first date. They made booking in an award wining
restaurant and name of it was Queen's restaurant. They were getting vary well and the food was
vary great and good vintage wine was shared by them. Cake and coffee were ordered by them
and with this chocolate ice-cream was ordered by them.
While eating the Cake she spluttered, coughed and spat out a decomposed insect. The
sight of insect make her to get nervous shock and she collapsed. The bill of the restaurant cost
them around £200. The will was paid by Jim for avoiding any further Tina was brought home as
she was feeling continually ill and she suffered Gastroenteritis for next several days. They both
decided for taking remedial action against the restaurant. In this case damages were sustained by
Tina due to the negligence shown by the restaurant and due to that it becomes responsibility of
the restaurant to pay for the damages that were sustained by the client. The food that includes
cake, ice-cream and coffee was not of good quality and due to that client faced health related
issues. According to tort of negligence it is required that the principal remedy in any case
involving negligence will be An award of damages. It is also required that damage caused to the
claimant must be of type that is included in the category of “Reasonably foreseeable”.
Moreover a loss is considered as reasonable foreseeable if a reasonable man would have
foresen the type of injury, loss or damages. According to the case of Overseas Tankship
(UK) V Morts Dock and engineering Co (The Wagon Mound (1961 it has been referred that
defendant is liable if any injury or damage is sustained by an individual. In the present case due
to negligence shown in preparing food Tina had suffered injuries. It imposes liability on the
restaurant to pay for the damages that have been sustained by the client. According to the
vicarious liability it becomes responsibility of the restaurant to pay for the damages that have
been sustained by the consumers due to the wrongdoing and mistakes that have been committed
by their staff members. An action could be taken if physical and financial losses are suffered as a
result of negligence that has been shown by the other party. It has been referred from the case of
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(Mrs Donoghue v Stevenson) that legal action can be taken in such cases if losses are suffered
by the parties due to the negligence shown by a party.
4.2
Vicarious liability is defined as accountability of employer to pay for the damages and
injuries that are sustained by an individual due to the mistakes and wrongdoing committed by the
staff members. According to the present case scenario Susan approached Lima Auctioneers for
giving her a free valuation of some antique furniture that she had recently inherited from her
grandfather and was considering selling at auction. Lina has send their employee Brad who was a
furniture expert to provide the valuation at Susan's flat. Susan has asked the brad about the
painting that she had inherited was of worth. Brad Who had been instructed by Lima for not
giving advice outside his field of expertise had a look at the painting and pronounced that it is of
little value. It was also added by him that he is not an expert but still he can make valuation of
the artistic objects. The painting was later sold by Susan for £100 to an elderly neighbor and he
thought that it would look fantastic in her sitting room.
Later a few weeks later, Susan had read the following headlines in the newspaper that
“Pensioners hits jackpot with rare Rembrandt for £100. The painting that Susan sold was
pictured underneath. Susan has rights and remedies against Brad and Lima. In the present case
Susan send Brad to ask Lima for valuation of her paintings. In the present case ‘tort of
professional negligence misstatement' applies.
According to this an Inaccurate statement that is made honestly but carelessly in the
form of advice. It is given by one party who posses specific skills, capability and knowledge to
another party that lacks the skills, capability and knowledge. In this case a person can be held
liable for negligence and legal action can be taken against that person. It has been referred from
the case of Hedley Byrne & Co Ltd v. Heller & Partners & Esso Petroleum Co Ltd v. Mardon
that a person providing inaccurate information can be held liable for the losses suffered as a
result of negligence misstatement. In the present case strict directions were given to Brad for not
giving advice outside his expertise but he has not followed the instruction and as a result of this
painting was sold. In this case Brad can be held liable for the losses suffered by the Susan.
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CONCLUSION
Aforementioned report concludes that elements of contract are vital to be included for
making a valid agreement. Essential elements includes offer, acceptance, consideration, legal
capacity and intention to create legal relation. It is essential that all the required must be
included in making contracts and it will aid for making an agreement in legal and lawful manner.
Moreover there are many methods through which a contract can be signed and it includes
written, oral and distance selling method. An agreement is defined as a valid contract if it
contains all the essential elements of the contract. There are some specific contractual terms and
it includes warranty, condition and innominate terms. Exemption clauses are mentioned by
parties while signing a contract and it aids in moving the liability of an party for making any
legal agreement. Vicarious liability is defined as liability imposed employer for the wrong doing
and mistakes committed by the staff members of the organization. Contractual liability and tort
liability differs from each other and in tort liability it is imposed for civic wrong committed by
any individual. This liability is imposed by state and in contractual liability a person is held
liable if found in involved in breaching the terms and conditions of the contract.
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