Contract Law Theories and Applications

This assignment delves into the theoretical underpinnings of contract law, examining various schools of thought and their impact on contemporary legal practice. It requires students to analyze seminal works by prominent scholars like Charles Fried and delve into specific applications of contract law in areas such as virtual property, financial services, and international arbitration. Case studies and comparative legal perspectives further enrich the understanding of this dynamic field.

ASPECTS OF CONTRACT
AND NEGLIGENCE IN
BUSINESS

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
1.1 Importance of essential elements of a valid contract ...........................................................1
1.2 Impact of different types of contract.....................................................................................2
1.3 Analysis of different terms in contract..................................................................................3
TASK 2............................................................................................................................................4
2.1 Application of elements of contract......................................................................................4
2.2 Application of terms of contract...........................................................................................4
2.3 Evaluating effects of different terms.....................................................................................5
TASK 3............................................................................................................................................6
3.1 Contrast between liability in tort and contractual liability....................................................6
3.2 Nature of liability in negligence............................................................................................7
3.3 Vicarious liability..................................................................................................................8
TASK 4............................................................................................................................................8
4.1 Applying Tort of Negligence................................................................................................8
4.2 Applying Vicarious Liability................................................................................................9
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
A contract is an agreement between two parties which is enforceable by law and each
party intends to create one or more legal obligation between them. A contract will be considered
valid by the law if the agreement contains essential elements – offer and acceptance, contractual
intention, consideration, legal capacity of parties and free consent. The foremost requisite of a
contract is that the parties should have reached an agreement. An agreement is said to be reached
when one party makes an offer which is accepted by the other party (Veneziano, 2013). Present
report is on Asda Stores Ltd. which is a British supermarket retailer. The company was founded
in 1965. It became subsidiary of Walmart which is an American retail corporate in 1999.
Between 2003 and 2014, it was the second largest supermarket chain in Britain. Apart from its
core supermarket retail, the company also offers a number of other products including financial
services and a mobile phone company. This report explains the importance of essential elements
of a valid contract. Further, it also focuses on impact of different types of contract. Moreover, it
explains the difference between liabilities in tort with contractual liability. Lastly, it explains
elements of tort of negligence and vicarious liability.
TASK 1
1.1 Importance of essential elements of a valid contract
A agreement will be considered valid by law if it contains following essential elements:
1. Offer: It is an expression of willingness to contract. It is made with the intention to bind
once it is accepted by the party to whom it is addressed. An offer may be expressed or by
conduct (implied). In case of Harvey v Facey, 1893, it was contented that intention
should be clear while making an offer. An offer should be distinguished from an
invitation to treat. Whether a statement is an offer or invitation to treat depends mainly on
the intention with which it is made (Bix, 2011). Some examples of invitation to treat
include – advertisements, display of goods on a shelf in a self-service store. In this
context, display of goods in the retail stores of Asda will not amount to an offer but an
invitation to offer.
2. Acceptance: An offer is said to be accepted when the other party gives his assent. An
offer must be accepted in accordance with the defined terms and all terms of offer shall
be accepted. From the case of Entorres v Miles Far East, it can be concluded that
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acceptance will be effective only when it is communicated to the offeror. The term of
acceptance must exactly match the terms of offer as per the case of Hyde v Wrench 1840.
The agreement must be certain.
3. Contractual Intention: An agreement is not binding as a contact if it is made without an
intention to create legal obligation. As per Esso Petroleum v Commissioners of Customs
and Excise, 1976 case, there is a presumption that parties intend to create legal obligation
in context of commercial transactions (Lurger, 2010). In case of Balfour v Balfour, 1919,
it was contended that social and domestic arrangements do not amount to contract as they
are not legally binding.
4. Consideration: Consideration is something of value in the eyes of law that is given for a
promise and required to make the promise enforceable as a contract as per Thomas v
Thomas, 1842 case. Following rules govern the law of consideration :
 Past consideration is not a valid consideration
 Consideration need not be adequate but it must be sufficient
 It must move from the promisee
 An existing public duty or contractual duty will not amount to valid consideration.
5. Capacity: The parties who are legally competent can only enter into contract. Person below
the age of 18 years i.e. minor and unsound mind are not legally competent and contract entered
by them will be void (Sarapinian, 2012).
1.2 Impact of different types of contract
The different types of contract include face to face, written and distance selling and the
situation and conditions prevalent at that time decide which type of contract would be formed.
Face to face contracts are formed when both the parties are present in the same area as
they are able to meet and discuss facts and figures related to the contract. This reduces any kind
of ambiguity related to the terms of the contract and goods can be inspected before entering into
contract.
Generally, face to face contracts are entered into written form of contracts as parties can
get in touch with each other. All the terms of contract, clauses and conditions are written and
signed by both the parties. This reduces the chance of conflict in future and enables them to carry
out contract smoothly.
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But the situation is different when the parties are in different locations. They usually
enter in the distance selling contracts (TvarnÃ, 2010). Such contracts are based on trust and faith
because parties do not get a chance to meet in person and to inspect the goods. Such type of
contracts are negotiated and agreed by one or more organised means of communication like by
phone, post or through internet. An organised distance scheme must be present for selling goods
or providing services.
1.3 Analysis of different terms in contract
Contractual terms can be conditions, warranties or innominate terms. The terms
which are to be classified as conditions and are to be classified as warranties should be correctly
identified by the parties. In case of breach of contract, it is important to determine which type of
term; condition or warranty has been breached to establish the remedy available.
1. Conditions: It is a major term that becomes the base of the contract. Conditions are certain
terms, obligations and provisions which are imposed by buyer and seller at the time of entering
into contract. It goes to the root of contract and is indispensable to the objectives of a contract. In
case of breach of conditions, bonafide party can repudiate the contract and claim damages as per
the case of Poussard v Spiers, 1876.
2. Expressed clause: At the time of entering into contract, the conditions or warranties which are
clearly defined and agreed by the parties are known as the Expressed clauses (Smits, 2014).
3. Implied clause: Such conditions are not expressly provided in the contract. But as per law,
some terms are deemed to be present while making the contract. For example – condition
relating to title of goods, condition regarding the quality and fitness of the goods, warranty that
goods are free from charge, disclosure of harmful nature of goods etc. Implied conditions can be
waived by way of an express agreement.
4. Warranties: A guarantee or assurance provided by the seller to the buyer regarding quality,
fitness and performance of the product. These are minor terms which are not central to the
existence of the contract. According to Bettini v Gye, 1876, if there is breach of warranty, the
innocent party can claim damages but cannot rescind the contract.
5. Exclusion clause : It is a term which tends to limit or exclude the liabilities of one of the
parties. It is a provision in the contract by which one party's liabilities that would arise by
operation of law is excused or limited in certain conditions or situation.
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TASK 2
2.1 Application of elements of contract
In order to forma a valid and enforceable contract, it shall be assured by Asda that all the
essential elements of Offer, Acceptance, Consideration, Competency and consent are present.
Each of these elements formulate to be a stage of the process of development of a contract. For
instance, the commencement of a contract is marked by the element of offer. The management of
Asda shall be required to apply these elements at various instances, so as to protect their own
rights and interests. One of the common issues which it may face can be in relation to goods
displayed at their stores (Anson and et. al., 2010). For instance a situation arises wherein the
customer intends to purchase a specific product, which has been displayed for sale at a certain
price. However, the said product has already been sold, but was forgotten to be removed from
the display. In such cases, the customer cannot allege that an enforceable contract has been
created on acceptance being communicated against the offer. In such cases it is important to
establish that 'offer' is different from 'invitation to offer'. In accordance to ruling in the case of
Smith v. Hughes (1871), it is an established law that goods placed in display at a shop amounts to
invitation to treat, and in such a case the customer is not accepting the offer, but is in fact making
the original offer. Therefore, in light of the laid down law, Asda shall train its front line
managers to be prepared to effectively face such situations.
In addition, it shall also be assured by the company that at the time of entering into any
business contract, the other party shall necessarily be competent to form a contract. This implies
that the other party shall be a major, mentally capable and not restricted by law to formulate a
contract. A similar finding was also upheld in the case of Imperial Loan Co. Ltd. v. Stone (1892),
wherein it was held that a lunatic person is not capable to form a valid contract.
2.2 Application of terms of contract
An agreement is formed on the basis of different terms which are comprised within the
contract. Some of the specific clauses which are included in a business contract are goods
/services to be provided, quality of delivery, price to be paid in the form of consideration and so
on. These clauses can be in the form of express, implied, conditions, warranties and exclusion
terms. First of all it shall be known to the management of the company that a contract may be
comprised of both express and implied terms (Willmott and et. al., 2013). The former are the
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clauses which are mutually agreed by the parties, and included within the contract. On the
contrary, the latter are the terms which are not explicitly included within the contract, but are
equally applicable on the parties. For instance, if Asda enters into a contract with one of the
suppliers to provide a product, then the price at which the supply shall be made would be an
express terms included within the agreement. However, the supplier shall also be under an
obligation to supply products which are of satisfactory quality and fit to be used for the specific
purpose. This shall be an implied term applicable on the parties, even if not included within the
contract. In the case of Shell UK v. Lostock Garage (1976), it was held by the court that terms
can be implied to be included within a contractual relation through custom, in fact and at law
(Knapp, 2011).
A special attention shall be paid to reviewing standard form of contracts, which may be
inclusive of terms generally more favourable for the concerned company. These agreements are
in the form of leave it or take it, and cannot be negotiated. For instance the exclusion or
exemption clauses included in such standard contracts cannot be considered as invalidly
incorporated in the contract even if not specifically informed to the management of the company,
as reiterated in the case of Philips v Products Hyland (1987).
2.3 Evaluating effects of different terms
After understanding the significance of each of the terms which are included within a
business contract, it is essential for Asda to understand the effect of breach of any of the terms.
Condition occupies to be one of the most fundamental terms of contract, as it is vital for
fulfilment of the primary purpose of entering into contract. In the case of Mihalis Angelos (1971)
the court held that terms which are a necessity for satisfaction of the primary object of the
contract, shall be termed as a condition (Cifrino, 2014). Further, it was also held that breach of
these terms, render the parties incapable of satisfying the primary object, and in view of the same
the entire contract can be repudiated. In view of the same, Asda shall be able to distinguish
between the terms, and understand implications of each one of them. For instance, if a insurance
policy is obtained by Asda, and while filling the application certain information is required to be
disclosed. In such an event disclosure shall amount to be a condition, on the basis of which the
insurance policy shall be granted. Hence, it shall be assured that correct disclosure is made.
However, breach of a warranty does not render the entire contract void ab initio, but entitles the
aggrieved party to claim damages to the extent of loss sustained. Further, the implication of
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breach of in-nominate terms ascertain the characterization of a term. In the case of Bunge
Corporation v. Tradax Export (1981) it was held that the courts are entitled to vary the nature of
in-nominate terms on the basis of effect posed on breach. For instance if Asda violates any of the
in-nominate terms, in consequence to which the parties are rendered incapable to fulfil the
requirements of the contract, then the said term shall be considered as a condition. In other cases,
it shall be considered as a warranty, wherein the remedy to claim damages is available.
Lastly, it shall also be assured that exemption clauses are incorporated within the contract
correctly, as otherwise they can be rendered invalid. Exclusion clause basically operate to restrict
the liability of any of the parties in event of contradiction of any of the clauses (Zamir and et. al.,
2014). However, the legality of these clauses shall be verified by applying the test of
incorporation and construction , which were propounded by the court in Parker v. South Eastern
Railway (1877). further in the case of Chappleton v. Barry UDC (1940), it has also been decided
that the party including these clauses within the contract shall effectively communicate the same
to the other party, subject to certain exceptions.
TASK 3
3.1 Contrast between liability in tort and contractual liability
A tort is an act by one person that causes injury to other. It is a civil wrong based on the failure
of one party to perform his duties in a reasonable manner so as not to harm others. Intrusion by
one party into health, safety, profit or privacy of the injured is involved in torts (Grundmann,
and Atamer, 2011). The liability in tort is held when their wrongful act causes injury or damage
to other party and they have to pay compensation to injured party. A party may be held liable in
tort law even if his act was done unintentionally. A common case in tort law is negligence where
tort is caused by the carelessness of one party as per Reyland v Fletcher, 1868 case.
A contract is an agreement between two parties in which duties and responsibilities of
one party to another is clearly outlined. Contract law defines the remedies available by one party
in case of breach of contractual duties by other party.
Following are the similarities between contract law and tort law :
 Both are civil law
 The claimant can sue defendant to claim for compensation
 Burden of proof is on claimant.
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Some of the differences between tort law and contract law are :
 Relationship between parties : The relationship between parties is created and governed
by contract under contractual liability. While, in tort liability relationship is non –
contractual and is imposed by law.
 Consent : Free consent by parties is an important element for the contract to be valid.
Parties cannot force each other to enter into an agreement. On the other hand, tort liability
is not based on consent (Piers and Vanleenhove, 2012). It includes intrusion by a person
in health, safety, profit and privacy by other party.
 Purpose of award damage : In case of breach of contract, compensation is generally
stated in the contract and party compensates on the basis of that only. While, in tort
liability, the compensation is usually for claimant's loss and is based on the extent of
damage of the victim.
3.2 Nature of liability in negligence
Negligence :
Negligence is failure to exercise reasonable care that a prudent person will generally
exercise in the like circumstances. It is unintentional i.e. the harm is caused due to carelessness.
The law of negligence was established in case of Donoghue v Stevenson, 1932. For the claim to
be successful, the claimant need to prove :
 defendant owe duty of care;
 there is breach of such duty;
 damage was caused due to breach of duty and; the damage is not too remote.
Duty of Care :
The circumstances and relationships that are recognised by law giving rise to a legal duty
to take care is referred as duty of care (Karton, 2011). If the defendant fails to take care, he will
be liable to pay compensation for claimant as there is breach of duty of care as per the case of
Topp v London Country Bus, 1993.
Breach duty of care :
To be successful in claim of negligence, the claimant must prove there was a breach of
duty of care of defendant and it has caused damage to him. The court would consider whether the
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act of defendant comes under the standard of reasonable care i.e. he should act in the same
manner as a reasonable person in the same circumstances would have acted.
Damage to the claimant :
Claimant will only be compensated if he has suffered actual loss, damage, injury or harm
due to other person's actions. He need to prove that the damage was not too remote.
3.3 Vicarious liability
Vicarious liability : The circumstances in which defendant is considered guilty even though he
has not committed any offence is known as vicarious liability.
Employees are a vital element for the success of an organisation (Oman, 2012). They are the
main force to create value and profit to the business. Following are some of the responsibilities
of employers toward their employees :
 Providing insurance
 Recruitment and training of right staff
 Understanding employees' concern regarding the job
 Compensating for damages even if employee was liable for such damage.
Employer will be held for damages, in case of negligent act done by employee during normal
course of his employment. This is to ensure that employees work in safest possible manner.
Personal liability : According to the case of Wilson and Clyde Coal Co. v English, 1938, it is not
enough on the part of employer to entrust his duty of care to its employees, even if they are
selected with duty care and skill.
Health and Safety : Health and Safety at Work etc Act 1974 imposes duty on all employers to
ensure health, safety and welfare at work of all the employees.
TASK 4
4.1 Applying Tort of Negligence
The principle of Negligence is required to be understood in various perspectives which
cause personal injuries, damages to property or in the form of economic loss. In the case of
personal injury it is required to demonstrate that the defendant failed to undertake reasonable
care, which any other prudent person would have taken in similar situations. For instance a
driver over speeding the car in a crowded area, shall be negligent in relation to other drivers and
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persons on the road. Such a person shall be liable for negligence, if he injures any such person
(Somma, 2013). Asda can be held liable for personal injury by acting in a negligent manner. In
the event it provides a defective product to any of consumer, and the person falls sick due to
consumption of that product, Asda can be held negligent. In addition, if any of the activities of
company cause damage to the property of a third person, or causes economic loss, then it shall be
liable for negligence. Further, in order to establish negligence it is important that company has
failed to exercise reasonable care, and could not foresee the damages.
Further, this principle is also inclusive of occupier's liability wherein the occupier of the
land is imposed with a duty towards individuals present on his/her land. In the case of Wheat v. E
Lacon & Co. Ltd (1966) it was opined by the court that the rule of remoteness s applicable to this
form of liability, and such a occupier is required to ensure the safety of each visitor in a
reasonable manner. In the case of negligence, Asda can raise the defence in the form of voluntary
assumption of risk or comparative negligence. In the former defence, the company shall take the
defence that the other party voluntarily assumed the risk. The aggrieved party in such cases
proceed to engage in activities even after knowing the level of risk. Hence, in such cases no
damage is required to be paid to other party. This defence of Assumption of risk has been upheld
by the court in various cases. The latter defence of comparative negligence entitles the defendant
to give damages to the extent of fault undertaken by him (Doralt, 2011). Hence, only that
percentage of damages shall be paid to the plaintiff. Earlier the law also considered contributory
negligence as a valid defence, but the position has been over turned. This form of negligence
refers to contribution of both the parties in undertaking a particular negligent act. Hence, in such
a case both the parties can be made liable to the extent they contributed in undertaking the
negligent act.
4.2 Applying Vicarious Liability
This is one of the most crucial forms of liability which shall be imposed on the company,
even after acting in a careful and reasonable manner. The doctrine of vicarious liability makes
the principal company liable for the negligent actions of the employees, who are essentially
acting as an agent of the employer. The rationale behind the same is that employees while acting
within their course of employment, are acting on behalf of their employers and are representing
them (Leonhard, 2012). Therefore, in law the employer shall be made liable for all the wrong
done while undertaking such tasks. In the case of Barker v. Corus Plc (2006), an employer was
9

made vicariously liable for the personal injury caused to a third person due to negligent actions
of an employee. Similarly, Asda shall ensure that all its employees are working in a careful and
reasonable manner. Further, it is important to note that vicarious liability shall be imposed for
only those negligent acts which are within the course of employment. A similar view was upheld
by the court in Lister v. Hesley Hall Ltd. (2001), wherein another issue of unauthorized acts was
also considered. It was held that unethical or illicit actions undertaken by the employees within
the course of employment shall also make the employers vicariously liable. Hence, actions
sufficiently related to the authorized tasks shall also be included within the scope of vicarious
liability (Riesenhuber, 2011). For instance, if any of the employee negligently injured the
customer while providing services at Asda, the company shall be vicariously liable to pay
damages to the aggrieved customer. In addition, even if it is found that any of the employee is
drunk during the working hours, and injures another employee during the course of employment,
then also Asda can be made vicariously liable.
CONCLUSION
It can be inferred from the discussion that formation of a business contract can be
undertaken correctly by Asda only in the event all the essential elements of contract are included
within the process. In addition, it shall also be ensured that an appropriate form of contract is
chosen, depending on the kind of relation being developed. The terms or clauses in the form of
conditions, warranties, exclusion term etc. shall classified and understood in a proper manner.
This shall enable Asda to avoid situations of uncertainties. In pursuance to the principle of
Negligence and Vicarious liability, Asda and its employees shall ensure that they act in a
reasonable and careful manner, so as to not breach the duty of care and cause damages.
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REFERENCES
Books and Journals
Anson, W. R. and et.al., 2010. Anson's law of contract. Oxford University Press.
Bix, B. H., 2011. Theories of contract law and enforcing promissory morality: comments on
Charles Fried. Suffolk UL Rev. 45. pp.719.
Cifrino, C. J., 2014. Virtual property, virtual rights: Why contract law, not property law, must be
the governing paradigm in the law of virtual worlds. BCL Rev., 55. pp.235.
De Geest, G. ed., 2010. Contract law and economics (Vol. 6). Edward Elgar Publishing.
Doralt, W., 2011. The Optional European Contract Law and why success or failure may depend
on scope rather than substance.
Grundmann, S. and Atamer, Y.M., 2011. Financial services, financial crisis and general
European Contract law: Failure and Challenges of Contracting(Vol. 17). Kluwer Law
International.
Karton, J. D. H., 2011. Culture of international arbitration and the evolution of contract law
(Doctoral dissertation, University of Cambridge).
Knapp, C. L., 2011. Contract Law Walks the Plank: Carnival Cruise Lines, Inc. v. Shute. Nev.
LJ,12. pp.553.
Leonhard, C., 2012. The unbearable lightness of consent in Contract Law. Case W. Res. L. Rev.
63. pp.57.
Lurger, B., 2010. The 'Social'Side of Contract Law and the New Principle of Regard and
Fairness.
Oman, N. B., 2012. Markets as a Moral Foundation for Contract Law.
Piers, M. and Vanleenhove, C., 2012. Another step towards harmonization in EU contract law:
the Common European Sales Law.
Riesenhuber, K., 2011. A Competitive Approach to EU Contract Law. European Review of
Contract Law. 7 (2). pp.115-133.
Sarapinian, A., 2012. Fighting Foreclosure: Using Contract Law to Enforce the Home Affordable
Modification Program (HAMP). Hastings LJ 64. pp.905.
Smits, J. M., 2014. Contract law: a comparative introduction. Edward Elgar Publishing.
Somma, A., 2013. Private law as biopolitics: ordoliberalism, social market economy, and the
public dimension of contract. Browser Download This Paper.
TvarnÃ, C. D., 2010. Law and Regulatory Aspects of Public–Private Partnerships: Contract
Law and Public Procurement Law. Chapters.
Veneziano, A., 2013. The soft law approach to unification of international commercial contract
law: future perspectives in light of UNIDROIT's experience. Vill. L. Rev. 58. pp. 521.
Willmott, L. and et. al., 2013. Contract law.
Zamir, E. and et. al., 2014. Contract Law and Theory: Three Views of the Cathedral.
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