Contract Law Essentials and Application

This assignment delves into the core concepts of contract law, examining essential elements such as offer, acceptance, consideration, and intention to create legal relations. It analyzes various types of contracts, including express and implied terms, and explores remedies available for breach of contract. The assignment draws upon legal texts, scholarly articles, and online resources to provide a comprehensive understanding of contract law principles and their practical application.

ASPECTS OF CONTRACT
AND NEGILIGENCE 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...........................................................................................................................................7
2.3...........................................................................................................................................9
TASK 3..........................................................................................................................................10
3.1.........................................................................................................................................10
3.2.........................................................................................................................................10
3.3.........................................................................................................................................11
TASK 4..........................................................................................................................................11
4.1.........................................................................................................................................11
4.2.........................................................................................................................................12
CONCLUSION..............................................................................................................................13
REFERENCES .........................................................................................................................14

INTRODUCTION
The relationships prevalent in a business scenario are highly complex and require specific
norms and regulations for effective and smooth functioning. In pursuance to the same, Law of
Contract has special application in corporate, to take assistance from the legal framework, for
creation of rights and duties of parties to the agreement (Bisso and Choi, 2008). In addition a
specific application of Law of Torts is also prevalent to regulate those relations which are devoid
of any formal contract.
To ensure a smooth functioning of business operations and adherence to the provisions of
applicable laws, it is imperative for such units to understand the basic concepts of formation of
contract and the liabilities imposed by the Law of Tort. In furtherance to this objective, the
instant study explains the importance of various elements of contract, modes of forming a
contract and the terms/clauses of a contract. Further, with an aid of application in given facts
various concepts such as consideration, exclusion clause and implied term have been discussed.
The report establishes a distinction between Tortious liability and contractual liability and on the
basis of the same, it elaborates on the principles of vicarious liability and negligence.
TASK 1
1.1
A contract is formed when two or more parties enter into an agreement for a lawful
objective and with free consent. It is a process wherein an offeror makes offer to offeree which is
then accepted on the basis of a reciprocal promise known as the consideration. It is imperative
for Peter Abhraham to understand the essential elements of a contract which has been illustrated
below: Offer: This marks the commencement of formation of a contract. One of the parties to the
contract communicates his desire to enter into a contract with the intention to bind the
parties by law. In the case of Harvey v. Facey (1893) it was opined by the court that the
communication of the offer shall be effective enough to unambiguously communicate the
true intention to the other party. Another critical factor which shall be considered by
Peter Abhraham is that 'offer' and 'invitation to treat' are distinct to each other and the
latter cannot amount to be an offer in formation of a valid contract.

 Acceptance: In order to carry forward the process of formation, an offer shall be
responded with an unconditional acceptance which shall also be effectively
communicated to the offeror. It has been observed in the case of Felthouse v. Bindley
(1862) that a mere silence in response to an offer cannot amount to an acceptance. The
offeree is required to either accept the offer verbally or act in a manner which implies the
acceptance from his side. Intention to create legal relation: The parties while making the offer and accepting it
shall intend to bind each other with legal obligations (Hillman, 2012). In the case of
Jones v. Padavatton (1969) it was stated by the justices that in the case of domestic
agreements, a presumption of not desiring to bind each other under legal obligations is
made. Consideration: An instrumental role is played by this element as in absence of a valid
consideration; no contract can come into existence (Four Essential Elements of a
Contract,2014). The nature of reciprocity in a contract can be owed to payment of
consideration (Deakin, Johnston and Markesinis, 2012). In the famous case of Chappel v.
Nestle (1960), it was held that a consideration shall mandatorily be sufficient in nature.
The fact that it is adequate or not does not hold any relevance.
 Capacity: It is also imperative to assure that the parties to the contract are legally capable
to enter into a contract under the law of Contracts and are not minor, insolvents or of
unsound mind.
1.2
Under the Common Law, a valid contract can be either in a verbal form or in the written
form. The requirement of presence of essential elements of a contract is mandated under this
system of law. A contract can consist of implied terms or express terms and the same is
dependent on the nature of relationship shared between the parties. A mere exchange of promises
in a meeting can also bind the parties under the law, provided the intention to create a legal
relation existed, at the time of exchange of promises. Thus, Peter Abhraham shall understand the
fact that a valid agreement can be formed through following modes as well: Face-to-face: It shall be noted by Peter Abhraham that verbal contract also holds
relevance under Common Law, if supported by all the essential elements of a contract.

Thus, it shall be known to him that promises exchanged in a meeting can also be
enforced in the court of law. Written Contract: In a business scenario, agreements shall always be documented for
future reference (DiMatteo, 2012). Hence, written contracts shall be preferred over oral
contracts for effective handling for disputes or other conditions in future.
 Distance Selling (telephone, internet): Contract being entered on a telephone or through
exchange of emails can also amount to a valid contract provided all the elements are
present. Hence, Peter Abhraham shall assure to be careful while exchanging promises.
However, for the long term written contracts shall always be preferred as against such
oral contracts.
1.3
In order to formulate effective and reliable contracts, as well as completely understand
other contracts in a business scenario, Peter Abhraham shall understand the importance and
implication of various terms/clauses contained in a contract. Conditions: These are the terms which form the crux of an agreement and play an
instrumental role for furtherance of the objective of the contract. The importance of
these contract can be understood from the fact that in the event of breach of a condition,
the suffering party is capable to repudiate the whole contract (Elliott and Quinn, 2015).
The rationale behind this is that a condition is so vital for the operation of the contract
that in absence of the same it would be impossible for the parties to exercise their
respective promises. A Condition can be either express or implied in nature. Warranties: A term in the form of a Warranty refers to the surety provided by one of
the parties in regard to the state of the product or as the case may be. These are the
auxiliary terms which does plays a supporting role in the functioning of an organization
(Frey and Frey, 2000). It shall be noted by Peter Abraham that breach of a Warranty
empowers the aggrieved party only to receive damages and cannot cancel the whole
contract. In-nominate Terms: These are the intermediate terms which only concentrates on the
extent of injury caused by a party due to breach of a term to the contract (Riley, 2012).
The courts while analyzing a case of breach of these terms determine the extent to
which the suffering party has sustained injuries or loss and in consequence has been

deprived of benefits. It is important to highlight that, the nature of these terms is
determined by the courts and cannot be tagged by the parties while formation of the
contract. A similar finding was observed in the case of Schuler v. Wichman Tools
(1974).
 Exemption Clause: This is one of the terms which is know to bring uncertainty in
functioning of a contract. It operates to limit the liability of one of the parties to the
contract, against the injury caused to the other party due to some negligent or wrongful
act (Huyssteen and et.al., 2010). The legality of the exclusion clause has been analysed
in various cases by the court. It has been opined by the court that this clause shall be
used with utmost caution. In pursuance to the same the court in the case of Olley v.
Marlborough Court (1949) reiterated the test of incorporation to determine the validity
of inclusion of these terms within a contract.
TASK 2
2.1
Case 1
Carol, who was residing in an unfurnished apartment, desires to make a purchase of a
couch which she saw on Gumtree, an online advertisement site. By referring to the mentioned
contact details, Carol through an email communicated her wish to buy the couch for £600, as
mentioned in the advertisement.
The given set of facts attract the distinction of 'invitation to treat' and 'offer'. Former
refers to the situation when an individual makes an invitation to call offers from the general
public, while, the latter is an offer to a specific person for formation of a valid contract. In the
case of Fisher v. Bell (1961) it was held that a shopkeeper displaying products on the shelves is
makes an invitation to offer. In responding to which the customers make the actual offer which is
then accepted by the shopkeeper to formulate a valid contract. In the instant case, Gumtree by
showcasing an advertisement made an invitation to treat. Followed by which Carol emailed them
her desire to purchase the couch for the mentioned amount, which in fact shall amount to be the
actual offer.

Therefore, in absence of any acceptance by Gumtree to the offer of Carol, no valid
contract came into existence as the essential elements were not present to form a legal contract
between the parties (Jennings and Twomey, 2010).
Case 2
On 12th April, 2015 Devi received confirmation from George, Smith & Fogarty, Inc., for
the position of cyber-security. Unknown to this fact Preston, father of Devi, made an offer of
£150,000 to the said firm for hiring his son. This communication happened on 13th April, 2015 a
day after the Devi received a confirmation of the job. There was no other communication
between the parties pursuant to this. Now the firm desired to enforce the alleged agreement.
It is an established law that a contract is formed only if it is based on a valid object and
consideration. It has been observed that past consideration or object cannot form a contract.
Moreover, a person can sue another individual under contractual liability only if privity of
contract can be established between them. In the case of Tweddle v. Atkinson (1861) the court
held that doctrine of privity mandates that a parties to a contract are only empowered to sue each
other for enforcing their rights under a contract. In the instant case, no contract came into
existence as main condition of hiring Devi was already fulfilled at the time of making an offer
and hence, no contract could have been created between the said parties. Hence, George cannot
enforce the promise as it is not supported by a valid contact. Further, it is also important to
highlight that in accordance to the doctrine of privity of contract, George and Preston are not
empowered under law to sue each other. Therefore, George cannot enforce the promise against
Preston.
2.2
Case 3
A couple visiting a known restaurant in London, handed over the overcoat to the
attendant at entrance, in return of which he was given a receipt. After the meal when the man
wanted to make payments he realized that he had forgotten to remove the wallet from the
overcoat which he had given to the hotel attendant. To the shock of man £500 were missing from
this wallet, which he claimed from the restaurant. He at that point in time got to know that the
receipt given to him by the attendant contained an exclusion clause at the backside. The
restaurant has invoked the said clause.

To analyze these facts, it is important to understand the concept of exclusion clause
(Jentz and Miller, 2007). The essence of this clause was considered by the court in Parker v. SE
Railway Co. (1877), and it was held that this clause basically functions to restrict the party from
bearing any liability arising out of their negligent or wrongful acts. It was further observed that
though, these terms are legal in nature, they bring immense uncertainty in the contractual
relationship. Therefore, courts have been very careful in validating the exclusion clause present
in contract and have developed the test of incorporation. In the case of Olley v. Marlborough
Court (1949), a general rule was established which required the parties to specifically highlight
the inclusion of this clause in the eyes of other party. Presence of such a clause cannot be
assumed under normal circumstances. However, in the present case it was the negligence of the
man that he left the wallet in the coat. Moreover, it has been opined that if inclusion of clauses is
a custom or has been included in previous agreements, then exemption clauses can be validated.
In addition, since the clause was present on the receipt it can be said to be valid, disregarding the
fact that it was not read or noticed by the man. Therefore, under these circumstances it can be
concluded that the restaurant can rely on the exemption clause to avoid the liability imposed by
the said couple.
Case 4
Aaron entered into an agreement with Zehphra to rent a warehouse. Due to its dilapidated
conditions, Aaron undertook some repairs in the Warehouse in return of which Zehphra
promised not to alter the rent for a duration of 5 years. However, Zehphra expired within an year
and the property was inherited by one Yeti to increase the amount of rent. Aaron refused to the
said escalation on the basis of promise made Zehphra, in consequence to which Yeti terminated
the tenancy. Aaron now seeks to reimburse the expenses which he had incurred while
undertaking repairs to which Yeti is not agreeing.
In the case of Shirlaw v. Southern Foundries (1939), the court described the validity of
implied terms and held that these terms shall function at par with other express terms of the
contract. Under tenancy, it is the obligation of the landlord to undertake the repairs until and
unless the contract has a contrary clause. In the instant case, Zehphra has promised to not
increase the rent in return of the repairs undertaken by Aaron. Hence, the termination of contract
by Yeti is completely in violation of the original agreement. Hence, the claim of Aaron in

pursuance to the expenses incurred by him on repairing of the Warehouse under the present
circumstances, is completely lawful and makes Yeti liable to pay the compensation amount.
2.3
Case 5
While filling a motor insurance form, the policyholder refused that no claim was made in
respect to the said vehicle by her or anyone else, during the past 5 years. However, later when a
claim against theft was made by the same policyholder, the insurance company was appraised
with the fact that a claim was, in fact, made by him within the stipulated duration of time. Hence,
the policy was held void by the insurer.
In Poussard v. Spiers (1876), it was held that condition is the basis of formation of a
contract and violation of the same shall invalidated the whole contract. On applying this law on
the given facts, it can be concluded that the policyholder by not disclosing the relevant
information has reached a condition essential to the insurance contract. The defence that no the
disclosure was not made merely because the claim was not granted at that time, cannot be
admitted in the given facts. Moreover, a direct answer in terms of 'yes' or 'no' was required,
which he failed to reply in a truthful manner. Therefore, the decision to make the policy void is
completely correct under the law.
Case 6
In accordance to the scenario, the policyholder failed to disclose the relevant information
in regards to the modifications as well as the earlier claims made in respect of the car. However,
on investigation of the case, the insurance company got to know the truth, in result of which the
policy was terminated from its inception point. It is important to highlight that the requirement of
disclosures form a condition to the contract in the present case and hence violation of the same
shall make the policyholder liable to bear the losses. The fact that she was not aware of the
modifications and the claims made by her husband, one of which was rejected, does not hold any
relevance and shall not provide a sufficient defence to the policyholder. It shall be noted that she
acted in a negligent manner to answer these questions and hence has breached a condition
essential to the insurance policy. Thus, the insurer is correct for making the policy void ab initio.

TASK 3
3.1
In a business scenario, liabilities can arise in the form of contractual liability or tortious
liability. These two liabilities have various commonalities as well as differentiations which have
been mentioned herein under:
Contractual Liability Tortious Liability
Civil in nature (Lockwood, 2011) Civil in nature
Obligations arise out of privity of contract Obligations arise out of general duty towards
the public (Levy, Golden and Sacks, 2015).
The rationale behind this liability is to restore
the original position of the aggrieved party
(Kelly, Schwartz and Partlett, 2010).
Similarly, this liability is also imposed to make
the loss or injury good.
Liquidated damages are awarded Un-liquidated damages are awarded.
E.g. A person supplies X material to the buyer,
against the requirement of Y material, as
mentioned in the contract, then a contractual
liability shall be imposed
E.g. If a person is making use of some
hazardous material and the said material
escapes from his possession to harm another
person, then the liability so imposed is tortious
in nature.
3.2
The principle of negligence was propounded by the famous case of Donoghue v.
Stevenson (1932) to make individuals liable for acting in an unreasonable manner and in result
injuring others. In this case the seller sold a ginger beer which consisted of an insect within the
drink, due to which the buyer suffered a mental trauma. Hence, the court held that it was the duty
of the seller to supply products with due care and hence, held him liable for acting negligently.
The following elements were also evolved by the court in this renowned case, to establish an act
of negligence in the court of law: Duty of care – First and foremost, it shall be established that the defendant was under a
certain duty to act reasonably (Orkuma and Ayla, 2015). For instance, a person is

obliged to drive slowly in a area which is prone to children. This is a general duty
imposed on an individual. Breach of duty - Followed by establishment of a duty, it shall be proved by the claimant
that the said duty was violated by the defendant (Rangaswamy, 2015). That he acted in
an unreasonable manner. In the case of Vaughan v. Menlove (1837), it was held that
breach of duty shall be established in relation to an obligation which is imposed on the
said person. For instance, if an individual is over speeding in a school prone area and
injured a child on the way, then he has satisfied these two conditions of negligence.
 Causation – A direct link between the injury caused and breach of the duty shall be
established and the same shall be proved beyond doubt.
3.3
The doctrine of Vicarious liability functions to make an individual or entity liable for the
acts of another person, who was in fact acting on behalf of the first person. It is an established
fact that a specific relation is required to exist between the parties, to the effect that one is acting
on behalf of the other (Schulze, 2007). For instance, parent-child relation, employer-employee,
principal-agent and so. Lister v. Hesley (2001) established that the doctrine operates to impose a
strict obligation in the form of a primary liability on such persons. Various tests have been
developed to over the years to check existence of such a relationship, which in essence
determines the presence of the element of control and supervision being exercised by one party
on the other. Therefore, if it is established that the work was being carried out under control and
supervision of one person, then such person can be made vicariously liable for the negligent acts
of another person, who is practically carrying out these activities.
For instance if an employee is assigned the task of delivering a product at the client's
place and while driving to the place he decides to consume alcohol which lead the collision of
the bus with another car. In such a case, the employer shall be made vicariously liable to pay the
damages to the injured party. In the case of London General Omnibus Co. (1862), the court held
that to make an employer vicariously liable, it is important for the negligent act to be within the
course of employment, irrespective of it being authorized or unauthorized (Xu, Cheng and Sun,
2015).

TASK 4
4.1
Case 7
Mr. Brown on visiting Goodmayes Hospital, with the complaint of chest pain and
breathing issues was not attended by any doctor and was prescribed pain killers on phone. On the
next day he died from pneumonia, which actually was caused due to presence of toxic moulds
around him.
In such an event the hospital can be held liable if it is proved that the actual reason behind
the death of Mr. Brown was heart attack or any such related problem caused from chest pain.
The negligent act of doctor to not attend the patient and prescribe him pain killers over the phone
is a negligent act, which if had resulted into death of Mr. Brown would make the hospital
vicariously liable.
However, as stated in the facts the actual reason of death was pneumonia and the pain
killers had no connection with causation of death. Therefore the authorities of the hospital cannot
be held responsible for death of Mr. Brown.
4.2
Case 8
The Chauffeur Company is vicariously liable for the act of its driver, who acted in a
negligent manner while performing his duties. The fact that he consumed alcohol on duty and
met with an accident is a negligent act, during the course of employment. As held by the courts
in London General Omnibus Co. (1862) that the actions of employees during the course of
employment are capable of making the employer vicariously liable (Smits, 2016). It does not
matter if the employee was undertaking the work in an un-authorized manner or illegal manner.
Applying the principle in the facts of the case it can be said that the driver by picking up the
client from airport was acting in the course of employment, however decided to drink and drive
which is an unauthorized manner. Therefore, in pursuance of the laid down law it can be stated
that Chauffeur company is vicariously liable for the unauthorized act of the driver and shall be
required to compensate the client for his injuries.
Case 9

At the time when injury was inflicted by Jones, he was acting within the course of
employment. As given in the case he is assigned to deliver the job, and while undertaking an
ancillary activity of loading the material an accident happened which caused harm to a colleague.
It has been held is various cases, that employers are responsible for the acts of their employee
only when undertaken within the course of employment (Wishart, 2012). In light of these
circumstances it can be said that the supermarket shall be vicariously liable to pay damages to
the colleague who has sustained injuries.
CONCLUSION
From the report, it has been articulated that the understanding and concepts of the
contracts' aspects are highly significant for the individual in developing better knowledge,
perspective and cognition over the same. It is stated that the elements of contracts plays a vital
role in developing appropriate lawful values and legal consideration. However, courts make
suitable consideration and judgement for the case on the basis of the elements and related
aspects. It assist them in directing some effective ways and paths as per which the decisions
could be made and implemented for giving justice to the victim party. Along with this, the report
is also specifying about the terms and clauses in the basis of which are generally present in the
contract. Moreover, the contracting party must follow a structure as per which they can engage
into a valid contract. The report is also specifying about some specific case studies that are
beneficial for understanding the topics.

REFERENCES
Journals and Books
Bisso, J. C. and Choi, A. H., 2008. Optimal agency contracts: The effect of vicarious liability and
judicial error. International Review of Law and Economics. 28(3). pp.166-174.
Deakin, S., Johnston, A. and Markesinis, B., 2012. Markesinis and Deakin's tort law. Oxford
University Press.
DiMatteo, A. L., 2012. False dichotomies in commercial contract interpretation. Journal of
International Trade Law and Policy. 11(1). pp.27-43.
Elliott, C. and Quinn, F., 2015. Contract Law. Pearson Higher
Frey, P. and Frey, M., 2000. Essentials of Contract Law. Cengage Learning.
Hillman, R. A., 2012. The richness of contract law: An analysis and critique of contemporary
theories of contract law (Vol. 28). Springer Science & Business Media.
Huyssteen, V. F. L. and et.al., 2010. Contract Law in South Africa. Kluwer Law International.
Jennings, M. and Twomey, D., 2010. Business Law: Principles for Today's Commercial
Environment. 3rd ed. Cengage Learning.
Jentz, G. and Miller, R., 2007. Cengage Advantage Books: Business Law Today: The Essentials.
8th ed. Cengage Learning.
Kelly, K., Schwartz, V. E. and Partlett, D.F., 2010. Prosser, Wade and Schwartz's Torts: Cases
and Materials. Foundation Press/West Academic.
Levy, N. M., Golden, M. M. and Sacks, L., 2015. General Principles of Liability and Immunity
of Public Entities and Employees (Vol. 5). California Torts.
Lockwood, G., 2011. The widening of vicarious liability: implications for employers.
International Journal of Law and Management. 53(2). pp.149 – 164.
Orkuma, J. A. and Ayla, O. N., 2015. Ethico-legal aspects of hospital-based blood transfusion
practice; implications of professional negligence to medical practitioners: a review.
International Journal of Medicine and Biomedical Research. 3(3). pp. 219-235.
Rangaswamy, M., 2015. Conflictual aspects of Contracts Law in UK.
Schulze, R., 2007. New Features in Contract Law. Sellier European Law Publ.
Smits, J. M., 2016. New European Union Proposals for Distance Sales and Digital Contents
Contracts: Fit for Purpose. Zeitschrift für europäisches Privatrecht.
Wishart, C. M., 2012. Contract Law. Oxford University Press.
Xu, X., Cheng, X. and Sun, Y., 2015. Coordination contracts for outsourcing supply chain with
financial constraint. International Journal of Production Economics. 162. pp.134-142.
Online
Four Essential Elements of a Contract. 2014. [Online]. Available through:
<http://www.smallbusiness.wa.gov.au/four-essential-elements-of-a-contract/ >. [Accessed on
30th September 2016].
Riley, J., 2012. Contract - Express & Implied Terms. [Online]. Available Through:
<http://www.tutor2u.net/law/notes/contract-express-implied-terms.html>. [Accessed on 30th
September 2016].