LAW011-1 Business Law Case Study: Contract, Negligence, Company Law

This document presents a comprehensive case study in business law, addressing key concepts in contract, negligence, and company law. The case study begins with a scenario involving Funky Top Limited, where the managing director, Ronan, enters into a verbal contract with landscapers for the removal of old furniture and carpets. The analysis focuses on the elements of a valid contract, breach of contract, and available remedies, such as damages and specific performance. The second part of the case study explores a scenario involving a negligent misstatement made by Amanda regarding the future value of gold, which led Griet to make a financial investment and suffer a loss. This section examines the legal principles of negligent misstatement, including duty of care, standard of care, and causation, along with potential defenses. Finally, the case study briefly touches on the landmark case of Salomon v Salomon and Company Ltd, highlighting the concept of separate entity in company law. The document provides a detailed analysis of the legal issues and principles involved in each scenario, offering insights into the application of business law in practical situations.

Course Work Problem

Table of Contents
INTRODUCTION...........................................................................................................................3
PART ONE......................................................................................................................................3
Case Scenario 1......................................................................................................................3
PART TWO.....................................................................................................................................6
Case Scenario 2......................................................................................................................6
PART THREE.................................................................................................................................8
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
Business law deals with the trade and commerce and thus, who are engaged in the
business activities. The aim of the business law is to maintain order, protect the parties and
resolve the grievances. The purpose of the law is to provide the effective course of business
conduct. Business law need to be maintained in order to eliminate the disputes in respect of
commercial transactions. The law further provides the rights and remedies to the parties in
respect of their business conduct Legal regulations need to be complied by both the small and
large businesses (McGEE, 2018). The law deals with the business contracts, practices adapted in
hiring, manufacture and sale of goods etc. This report examines the application of business law
in the stated case scenarios.
PART ONE
Case Scenario 1
Ronan is a managing director of Funky Top Limited Company, which designs an
produces the clothing for teenagers. He is engaged in the managing the renovation functions held
at the company's head office. During the renovation the old furniture and carpets are kept outside
the head office and was not removed. Ronan after being annoyed with the pile of scraps outside
the renovated head office notices the young landscapers working across the road. He then asks
the landscapers to remove the pile of old furniture and carpet from outside the head office by the
end of day, for which he promised them with the consideration of £50 each. In response to his
offer the landscapers agreed to provide the services as promised. Later after the services, Ronan
refused them to pay the promised money.
Issue raised are:-
 Are Landscapers liable to receive the claim of £50 each from Ronan?
 Is Ronan liable for the breach of contract?
 If the breach is considered, how landscapers can claim the amount? What are the
remedies available to them?
A contract is considered as a legal promise made by one party to perform obligation for
another party in exchange of something and the latter party gives its final assent. The promise
can be made orally or in writing (Keeling and Davies, 2020). Further for the contracts to be
binding an agreement must contain the following essential elements:-

 Offer : The contract becomes legal when it is offered by one party and the other parts
accepts the same without making any alterations to it. An offer is willingness portrayed
by the party to perform the obligations specified in the agreement with an intention that it
will be binding once accepted by the latter party to whom it is addressed. An offer is
distinct from an invitation to treat. For example catalogue piece displayed on dummy,
cannot be treated as an offer. Further the offer shall not be binding if the other party has
no constructive knowledge of it (Wilson and et. al., 2020).
 Acceptance : The final assent given by the other party without any alterations is
considered as the acceptance to which the other party is bound. Also the assent need to be
communicated to the person who made the offer.
 Consideration : It means in exchange of something and thus, other party must promise to
give something of valuable in exchange for the fulfilment of a promise. A contract
without consideration will only be enforceable if made by deed i.e. gratuitous promise is
not binding.
 Intention to create legal relations : One of the essential is the parties intention to create
legal relations through agreement. The parties must have intended their agreement to
have legal consequences. The onus to prove this presumption is on the party who asserts
that no legal effect was intended. In other words burden of proof is on the party claims
that no legal effect is created.
 Capacity : The parties to a contract is required to be in a legal capacity to execute such
contract. For example Lunatics, unsound persons are incompetent to contract as they are
not in a state of mind to executes an agreement.
 Consent : Parties are required to enter into a contract with free consent without any
influence. For example through coercion.
 Form : The contracts can be formed either orally and in some cases written. Informal
contracts are also legally valid and binding. Whereas in some contracts no such oral or
written communication is needed. Thus, an informal contract can still be as binding and
legally valid as a written contract.
 Purpose :- The main purpose of the contract must not be illegal or contrary to public
policy.

According to general rule, verbal contracts are considered as legally binding just the way
written contracts. But justice takes time in verbal contract as it becomes complex to gather
evidence in terms of disputes between the parties. Verbal contract refers to an legal agreement
between two parties where one party promises to offer its services to another in respect to
remuneration for the promised services. Once verbal agreement is made the party becomes
legally binding to perform the obligations and the latter party can claim against the party in case
of breach of contract (Kirton and Greene, 2017). In order to enforce a verbal contract following
condition need to be satisfies:-
 The contract must be valid i.e. containing the legal essentials.
 Both the parties to the contract must have determined the terms and conditions to pursue
the contract.
 The verbal contract is required to be complete, as incomplete contract fails to create legal
consequences.
In the stated case, Ronan being one party ask the landscapers the other party to remove
the furniture and carpets from outside of the head office and place them in skip for the
consideration of £50 each on fulfilling the promise by the end of the day. The landscapers agreed
to provide their services and therefore removed the items and placed them in the skip by the end
of the day. Later, Ronan as promised required to fulfil his part of obligation to pay £50 each to
landscapers but he failed to do so and thus, his failure to perform obligation led the breach of
contract. In this case the latter party which is the landscapers can claim against the breaching
party for the remuneration promised. In order to preserve the rights of other party the law
facilitates the remedies in respect for breach of contract. Further the remedies envisages by the
landscapers can be:-
 Damages: The landscapers can claim damages from Ronan, the party in breach of
contract. The act causes party to be awarded with substantial damages as the actions of
party in breach led monetary loss. The parties to a contract can claim compensation for
the loss or damage caused as a result of the breach of contract. It must be noted that the
actual loss has been caused, such loss be entitled for compensation and must not be too
remote (Moore and Petrin, 2017).
 Specific Performance: It is considered as decree ordered by the court compelling the
party to perform its obligations. The specific performance is granted by the court if it is

deemed that the damages are inadequate. The court order the party in breach to fulfil the
terms of a contract. Thus, under this remedy the court may order Ronan to perform its
obligation i.e. to pay the promised amount to landscapers.
 Quasi Contract (Other remedies): It is considered as an alternative remedy in case where
no such remedy for breach of contract is available (Mik, 2019).
PART TWO
Case Scenario 2
Griet was on flight to France and she later started talking to woman name Amanda sitting
beside her. The conversation between them was in respect of global economic challenges. While
talking, Amanda raised her point by saying that she would bet that the value of gold will increase
this year and all those who will buy gold this year would be rich by the end of the year. After few
days, Griet on relying the statement made by Amanda used all her savings in buying gold. The
market subsequently collapsed which led Griet lost a lot her money.
Issue raised are:
 Is Amanda is negligently liable for her statement ?
 What are defences in respect of negligent misstatement ?
A negligent misstatement means any statement which is made carelessly but with honest
intentions (Hasif, 2018). In other words, it is considered as an opinion or advice or information
given by one party with honesty but the stated statement proves to be misleading or inaccurate.
Negligent misstatement in common law of tort applies where:-
 Defendant has a reasonable duty of care towards the defendant.
 Defendant breach the duty by making false or misleading statement to the claimant
 Claimant further relied on the statement made and as a result suffers loss
 Negligent misstatement must be sufficient to support the loss
On satisfying the above condition the defendant shall be liable for the consequences of
loss and the claimant can claim for loss suffered as a result of this statement. If the claimant fails
to prove the above conditions he shall not be able to claim for the negligent misstatement. In
such cases a contract between the parties makes its easier to prove the breach of contract.
Main three elements for negligent misstatements discussed in the landmark case Hedley Byrne v
Heller [1964] AC 465 are:-

Duty of Care
The defendant has the reasonable duty in respect of statement. Further shall be liable if it
is found that, the defendant made the statement knowing the consequences of loss to the
claimant. Further the relation between the parties are required to be sufficient in order to create a
reasonable duty of care (Kochan and Dyer, 2020) .
Standard of Care
The defendant is required to observe the care. The standard must be in accordance with
the law and not what defendant thinks. The defendant will be liable he fails to act prudently. The
defendant need to observe the standard care while conducting the action.
Causation
The plaintiff or claimant is required to prove that the statement on which he/ she relied
led to suffer loss. The burden of proof is on plaintiff to show the consequence of misstatement. If
plaintiff fails to prove then he / she shall not be liable to claim for loss occurred due to negligent
misstatement (Stone, 2018).
According to case scenario, Amanda made an inaccurate statement in respect of increase
in the value of gold. Further relied on the financial statement made by her, Griet used all its
savings to buy gold and suffered loss of money when the price subsequently collapsed. The case
is examined below:-
 Firstly, there is not such reasonable duty of care. Amanda owes no such duty towards
Griet as they do not form a relationship which requires a reasonable care.
 Secondly there was no such contract causing binding effect on Amanda.
 Thirdly, there is no duty of care in making statements especially of financial nature.
Amanda shall be responsible for making negligent misstatement if such statement creates
circumstances which made reasonable for Griet to rely on them.
 Fourthly, Griet made the decision of using its savings to buy gold on the basis of
assumption and further there seem no responsibility from her side before taking the
decision.
Under this case the defence available in respect of Amanda is Contributory negligence by
Griet. She suffered the loss of money because of her own negligence and thus, cannot sue
Amanda for damages. Griet placed herself in the situation by making wrong decision.

PART THREE
Salomon v Salomon and Company Ltd (1897) AC 22 is a landmark case in company law.
The case construes the concept of separate entity. According to the concept the company is
required to be formed under the regulations of the Companies Act and the company shall be
treated separately, not as an agent of the owner. Further the case also constructed the significant
principle of limited liability (Asante Boadi and et. al., 2020).
Facts of the Case
Mr. Salomon was a sole proprietorship of Salomon Ltd., a boot making company in
England. Later he decided to transfer his business and incorporated as limited company A
Salomon & Co Ltd., with members comprising his sons, wife and himself as shareholders. The
two eldest son became the directors of the company. The Salomon was paid transfer price
through shares and debentures accompanied by floating charges on the assets of the company.
Twenty thousand shares were issued to Salomon. The company gave to Salomon £10,000 in
debentures and further received £5,000 from creditors as security on debentures. Later the
failure of business led the company into liquidation. The unsecured creditors received nothing
from the liquidation proceeds further they raised issue against the right of Salomon's recovery
against debentures prior to them. Thus, sued Salomon for the remaining company assets of
£1,055. It was argued that the Salomon is responsible and need to pay creditors from the
remaining. The liquidator overlooked the corporate personality concept and argued to make the
Salomon liable for the company's debt just the way if he conduct business as sole proprietor.
The issue raised was: Being a separate legal entity, the shareholder of the company is
liable to pay above their capital contribution? Whether unsecured creditors need to be paid?
Held in the Case
Salomon complied all the regulations formulated under The Companies Act 1862. It was
held that company being a separate entity is distinct from its members. The company does not
act as an agent for its controller. So is in this case, Mr. Salomon was the founder of limited
company, A Salomon and Company Ltd. and is considered as separate from its members. Further
the court held the concept of corporate personality with an aim that the creditors could not sue
the shareholders of the company to pay the outstanding debts (Tamanaha, 2017).
According to the concept of limited liability, the members liability is limited up to the
value of money they brought or invested in the business. The concept keeps the personal assets

of the owners and shareholders out of the reach of creditors. The concept is formulated to distinct
the personal assets of owners as these cannot be used to pay the company's debt. Thus, the
concept encourage the separate legal entity principle. Under the Salomon case, the company's
shareholders are not liable to pay unsecured creditors from their remaining assets. Also the
Salomon is to paid prior to the unsecured creditors according to the payment preference during
liquidation process.
The corporate personality is considered as landmark principle in the company law. It
portrays the company as separate legal entity from its shareholders. The concept of legal entity
applies as soon as the company is incorporated. The concept makes the members liability limited
which evolves another concept of limited liability. Further the concept of lifting of veil was
devised where court distinct the actions of entity to the actions of its members or shareholder.
This concept was introduced after when the members started taking the advantage of the
corporate personality principle. The members after committing fraud hide behind the company in
order to avoid any liability (Kuntner, 2021). In this case, the unsecured creditors raised the
question in respect of prior payment to Salomon. The question was answered as, Salomon was
the legal creditor of the company as half of the transfer price was paid to him through debentures
which was secured by the floating charges. So at the time of liquidation and being a legal
creditor he has a right to be paid first before the unsecured debtors as his debts were
accompanied by floating charge i.e. the debt was secured by a charge against the assets of the
company.

CONCLUSION
From the above report it is concluded that, necessity of business law is required in order
to conduct business effectively and efficiently. Business law is the way to maintain commercial
activities or transactions. The law lay down the standards in respect of business by protecting the
rights of the company as well as its members. It also provides the remedies to the parties in case
of breach of standards. Further with the introduction of Contract law the concept of trade become
easier with less irregularities in the course of business environment. It formed rights,
responsibilities, remedies in case of breach of contract, rules for the parties in the course of
business. The law creates a legal effect which protects the parties from court proceedings or
misunderstandings. Furthermore, contract law encourages parties to opt from many alternative
course of actions and helps to recognise the existence of their rights and the power or privileges
arising out of contract. The report also examined the significance of the landmark case Salomon
v Salomon in the company law.

REFERENCES
Books and Journals
Asante Boadi and et. al., 2020. Employees’ perception of corporate social responsibility (CSR)
and its effects on internal outcomes. The Service Industries Journal. 40(9-10). pp.611-
632.
Hasif, M., 2018. The Problem with Quantification of Unquantifiable Damages for Breach of
Contract. Sing. Comp. L. Rev., p.32.
Keeling, J. and Davies, C.T., 2020. THE LAW AND SAFEGUARDING THE OLDER
PERSON IN THE UK. Safeguarding Across the Life Span. p.195.
Kirton, G. and Greene, A.M., 2017. Understanding Diversity Management in the UK.
In Corporate Social Responsibility and Diversity Management (pp. 59-73). Springer,
Cham.
Kochan, T.A. and Dyer, L., 2020. Shaping the future of work: A handbook for action and a new
social contract. Routledge.
Kuntner, S., 2021. Limited Liability. In China’s Foreign-Invested Limited Partnership
Enterprise (pp. 231-283). Springer, Cham.
McGEE, J.O.H.N., 2018. Warwick Business School, University of Warwick, Coventry, UK A
significant issue that is increasingly affecting the operations of companies is the policies
of governments with regard to the natural environment and the activities of
nongovernmental organizations in promoting codes of practice and other forms
of. Business Ethics and Strategy, Volumes I and II.
Mik, D.E., 2019. Smart contracts: a Requiem. Journal of Contract Law, Forthcoming.
Moore, M. and Petrin, M., 2017. Corporate Governance: Law, Regulation and Theory.
Macmillan International Higher Education.
Stone, P., 2018. THE PROPER LAW OF A CONTRACT. In Stone on Private International
Law in the European Union. Edward Elgar Publishing.
Tamanaha, B.Z., 2017. A realistic theory of law. Cambridge University Press.
Wilson and et. al., 2020. Management and Industry: Case studies in UK industrial history.
Routledge.