Business Law Unit 5: Aspects of Contract Law and Liability

This report provides a comprehensive overview of contract law, focusing on the essential elements required for a valid contract, including offer and acceptance, competency of parties, free consent, consideration, lawful object, and enforceability. It explores the impact of different types of contracts, such as express, implied, valid, voidable, void, unilateral, and bilateral contracts. The report delves into the terms in contracts, examining both expressed and implied terms, including those implied by customs, statute, and courts, as well as excluding and limiting terms. Furthermore, it applies these elements to a case scenario, analyzing the formation and validity of a contract. The report also contrasts liability in tort with contractual liability, examining the nature of liability in negligence and how a business can be vicariously liable, and applies these principles to business situations.

UNIT 5 - ASPECTS OF
CONTRACT

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
LO 1.................................................................................................................................................1
1.1 Importance of the essential elements required for the formation of a valid contract............1
1.2 & M1 Impact of different types of contract...........................................................................2
1.3 & M2 Terms in contracts with reference to their meaning and effect...................................3
LO 2.................................................................................................................................................4
2.1 & D1 Applying the elements as per case...............................................................................4
2.2 & M2 Applying the law on terms in different contracts........................................................5
2.3 & D1 Effect of different terms of law...................................................................................5
LO 3.................................................................................................................................................6
3.1 Contrasting liability in tort with contractual liability............................................................6
3.2 & M1 Nature of liability in Negligence.................................................................................7
3.3 & M3 Way in which a business can be vicariously liable.....................................................7
LO 4.................................................................................................................................................7
4.1 & D2 Applying the elements of tort of negligence and defences in different business
situations......................................................................................................................................7
4.2 & D3 Applying the elements of vicarious liability in given business situations...................8
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
In any kind of business, to run it in a smooth manner, it is important to apply specific
rules, principles, norms as well as usages of contract. In the present scenario, there is hardly any
business which is not dealing with the purview of contract as to have a legal presence in the
market, it is highly significant. Contract is a voluntary agreement formed in between the two or
more parties. It is a legal binding agreement which is enforceable by law (Johnson, 2015). In the
present report, there will be discussion on essential elements of a valid contract in a business
context. Along with that, as per the given case scenarios, the elements of a contract in business
situations will be applied. In addition to this, laws on terms will be applied consisting of
condition, warranty and innominate term along with assessing the effect of different terms of
law. Further, principles of liability in negligence in business activities will be studied as well as
applied with respect to the given cases.
LO 1
1.1 Importance of the essential elements required for the formation of a valid contract
To form a valid contract, it is highly important that all essential elements will be present
as absence of any one of them will be considered as a barrier to make a contract valid. To be a
contract, at first, it must be an agreement that should be enforceable by law as well as its object
must also be lawful. The elements that are essentially required for the formation of a valid
contract are stated as below:
 Offer and acceptance - Further, it is significant that to form a valid contract, there will be
the proposal, that is, offer and acceptance. Offer is the willingness of a party to take
consent of another and acceptance is when the other person agrees with the given
proposal (Kodilinye, 2014). It can be said that life of an agreement starts with an offer
only which later take the shape of a legally binding contract when it is accepted by
another party to whom the offer has been given.
 Competency of the parties – In a contract, everyone cannot enter as only the people with
age of maturity and sound mind are with permission by law for the same. Also, those who
have not been disqualified from the contracting by any law can enter into the contract. On
the other hand, those who are minor, that is, below the age of 18 years or of unsound
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mind are not considered as competent parties as well as people who are disqualified by
any law cannot enter into the contract (Ghafar, Ismail and Tohirin, 2010).
 Free consent - In addition to this, it is necessary that both the parties will have free
consent. It is one of the most essential elements to a valid contract. Under free consent,
offer must be communicated to the other party which must be understood by another in
the same manner the offerer wants offeree to comprehend. It can be said that the same
thing must be understood in the same sense which offerer wants to convey to the offeree.
 Consideration - Apart from that, contract also requires a lawful consideration in between
parties so as to make it valid in the eyes of law (Herijanto, 2016). It means that there must
be sufferings for the offer made, that is, something of value that is given in return by the
afferee to offerer for the proposal he/she has made.
 Lawful object – In order to form a valid contract, it is significant that object and the
consideration must be lawful in the agreement which means that it must not be forbidden
by law. Along with this, if it is fraudulent or of nature that it may defeat the provisions of
law, it cannot be considered as lawful. In addition to this, if consideration and object are
against the public policy or welfare, then also, these will be taken as unlawful and so,
valid contract cannot be formed (Tiganescu, 2013).
 Enforceability in law – If all the elements will be present in an agreement, then too, it
will not be considered as a valid contract of it is not enforceable by law. It includes
situations like impossibility of performance because of the nature of agreement or if trade
of any person gets unduly restrain, then a valid contract cannot be formed. Therefore, to
fulfil all legal requirements is crucial for a valid contract as absence of same may lead it
to be a void agreement which is unenforceable by law (Burnham, 2014).
1.2 & M1 Impact of different types of contract
Various types of contracts are there that have their distinct impacts while formatting of
making a contract valid. The contracts and their impacts are mentioned as below:
 Expressed and implied contract – As per the expressed term, if an offer or acceptance is
made in words, it can be termed as an express one. These terms can either be in oral or
in written form. On the other hand, when such offer and acceptance is made and if there
is no formal expression for the same, it is implied from the acts performed by parties
involved.
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 Valid contract – Any contract which is permitted or enforceable from the side of law is
considered to be valid. In a valid contract, all requirements must be fulfilled according
to what has been imposed by the law (Cousy, 2013).
 Voidable contract – The voidable contract can be termed as the one that is a temporary
status which for some specific reasons need to be made enforceable by law or has to be
set aside. However, both the conditions are dependant only at the option of one party
and not another. Considering the nature of voidable contract, the law is being
determined according to which it will be validated. Therefore, it can be said that a
contract cannot remain voidable forever. But, it can be rather valid or void.
 Void contract – When a contract does not remain enforceable by law, it becomes void.
Thus, it can be termed that the contract is not a void ab initio (Ford, 2010). It is
because; as per the law, if a contract is not having enforceability from law, it will be
void. The first requirement of a void contract is that firstly, it must have an existence of
a valid contract. When the enforceability of this contract will be ceased for any reason,
it will be known as a void contract.
 Unilateral and Bilateral contract – Under the bilateral contract, parties involved in it
take on an obligation by the way of making promise to other for something. On the
other hand, in unilateral contract, only one party assumes obligation in it and other has
no concern with the same (Wang, Wang and Delgado, 2014).
1.3 & M2 Terms in contracts with reference to their meaning and effect
Two major terms are there in the contract, that is expressed and implied however, under
implied terms, there are different terms used depending on the nature of different cases and
situations faced by parties involved in a contract. These are:
 Terms implied by customs – It is a well-known fact that a contract is essentially to be
subjected to the terms that custom sanctions where they should be commercial. It is
because; if these are non-commercial, parties will not expressly mention the same.
Extrinsic evidence of customs and their usages are permitted by law in case of precedents
that follow commercial transaction (The terms of a contract, 2013).
 Terms implied by statute – According to the history of contracts for sale of goods, it is
apparent that there will be translation of usages into agreement and of agreements into
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statutory terms. However, the major example for this term if the provisions of Marine
Insurance Act.
 Terms implied by courts – The terms implied by court refer to a number of transactions
which are judicially implied. This is the reason; in Lynch v Thorne, (1956) the Court of
Appeal made decision in favour of the defendant. According to this, it was held that they
could not imply any term if it is leading to occur inconsistency with the express language
of bargain (Beale and et.al., 2010). In the similar way, House of Lords in Lister v
Ramford Ice and Gold Storage Company Ltd and majority of the judge also made same
decision with respect to make favour of the respondent.
 Excluding and limiting terms – The common law includes terms that can be excluded as
well as limit the liabilities by one party. This situation mainly occurs in the case when
something in written is given to a party but not read by him/her. In this case, there is
exclusion clause as per which considering the statements written additional which are
actually not published and mentioned in it but added later by pen or pencil is not
considered to be valid (Jayaraman and et. al., 2013). Under the same, on one hand, it is
considered as a promisor's obligation while, on the other side, it can be taken as a
defence.
LO 2
2.1 & D1 Applying the elements as per case
As per the given case scenario, Ivan went to the bookshop of Todor where he had desire
to buy the book of HND law that was of £50 and displayed on the shelf. Thus, Ivan considered it
as an open invitation given by the offerer, that is, the shopkeeper to offer. Therefore, Ivan took
the book to the counter for making payment of the same. While, Todor informed him that the
book is already sold to some other party named Carl and the copy of the book is his only copy
however, he forgot to remove it from display shelf (Lipshaw, 2011). Due to this, Ivan got upset
and tried to insist Todor to give him that book but could not do so. According to this contract,
there are various contractual terms present with respect to sell the HND law book to Carl. As per
the scenario given, Todor is not liable to accept the offer given by Ivan as promise of selling
book to Carl has already been made by him. Apart from that, as Ivan has not given any
consideration to Todor, he is also not entitled to sell the book to him. Further, Ivan cannot claim
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for the book to Todor as there is no contract made in between them (Chamallas, 2014). Along
with that, as there were no innominate and implied terms of contract in between Ivan and Todor,
shopkeeper is not liable to sell the book to Ivan. On the other hand, it can also be assessed that,
as Carl has already only made an intention to purchase the HND law book from Todor, thus, he
has not received the possession.
2.2 & M2 Applying the law on terms in different contracts
There are some specific terms which are implied by the law and that parties involved in a
contract have to follow. These terms may either be expressed or implied. Under the expressed
terms, parties have already made discussion and approve on the basis on which contract is going
to be formed. However, implied terms are those which are obligatory to the parties which they
have to comply with even if they are not agree with the same (Kodilinye, 2014). These can be
implied by the law or statute involving rules and regulations along with policies and acts. Major
terms that fall under the contract are mentioned as follows:
 Conditions – Conditions are those terms that lie in the essence of contract and play a
significant role in affecting parties significantly. At the time when there is possible
breaches of conditions in the contract, it mainly results in terminating and claiming
damage on the behalf of party that is suffering with the occur losses/damages/injury due
to another (Johnson, 2015).
 Warranties – Warranties are mainly considered to be less important as well as they are
not taken as a core issue that will lead to affect the parties. This is the reason; remedy is
reduced to make claim for the damages only as it cannot end the contract (What are
warranties, conditions and innominate terms?, 2012).
 Innominate terms – Innominate terms can neither be defined as a condition nor as a
warranty as it refers to the consequences that occur due to breaching the contract by
which parties get affected. These terms show the extent to which deprivation of the whole
benefit of the contract is significant for them. As per these terms, if there is substantial
deprivation of the whole benefit, it results in terminating the contract (Kodilinye, 2014).
2.3 & D1 Effect of different terms of law
In accordance with the given case of John, there are some terms of law on terms as well
as on exemption clause in contracts. As per the scenario, in a park managed by local council, a
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notice has been given stating that “chairs for hire for 50p per hour”. John has purchased the chair
and gave 50p for which he was given with a ticket by parking attendant. However, later the chair
collapsed for which John complained as he got injured as well as his clothes also got damaged.
Here, implied term is applied as per which if a product is being delivered to a party, it is implicit
that it must be of decent quality and value is provided to the one who is purchasing the same.
But, attendant points to an exemption clause on the ticket which states, “No liability is accepted
for any damage or injury caused by the failure of any hired equipment”. Therefore, in this case,
exclusion clause can be applied according to which if anything which is not published or
mentioned on the receipt or ticket and written additionally cannot be considered to be valid
(Ghafar, Ismail and Tohirin, 2010). Along with that, expressed term is also applied in case of
John and attendant as with the mutual consent of both the parties, contract has been formed
where they both agreed on condition that for the purchase of chair for 1 hour, 50p will be paid.
LO 3
3.1 Contrasting liability in tort with contractual liability
Contractual liability can be referred as the terms that are mainly acknowledged when
parties become incompetent to fulfil their contractual obligations. On the contrary, under tort
liability, intentional actions state to an act of violation i.e. a breach of duty either made in
negligence or due to a violation of statutes. However, it becomes significant for the party to
compensate the victim for harm and damages made to him (Herijanto, 2016). Some of the
differences between contractual liability and tort liability are stated as below:
 Source of interest and duty: This is the law which has created interest in tort as well as in
its corresponding duty. While, in case of contract, there are parties in between the
agreement takes place.
 Nature of duty: Under tort duty, the interest of another party is not violated is towards a
particular person but for all involved. However, on the other hand, in contract, such duty
is mainly for the parties involved only and no one else who is not associated with the
same.
 Nature of remedy: Damages are always supposed to be unliquidated in tort whereas, for
breach of contract, a claim can only be made for the liquidated damages when they are
specified in the contract (Tiganescu, 2013).
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 Others - There is legal relationship in the contractual liability which is mainly developed
by parties but, on the contrary, in tort liability, there is no legal relationship in between
the parties involved. It is significant in the contractual liability that the parties involved
will acknowledge each other and then, a contractual relationship will be formed in
between them. On the other hand, in tort, parties have no knowledge about the other as
well as it is necessary for them to form a legal identity (Burnham, 2014).
3.2 & M1 Nature of liability in Negligence
In almost all kind of torts, it can be said that liability is based on intentions or negligence.
An act can be considered as negligent if the consequences occur by same are neither desired nor
are substantially certain. However, these consequences are so probable that a party can easily
avoid the same as well as can even foresee it. Therefore, it has been seen in some cases of
negligence that the defendant might be unaware of the conduct he made along with its
consequences and thus, he has committed the same (Cousy, 2013). But, on the other hand, there
are many case where defendant is having knowledge about both; that is, his conduct as well as
the consequences which can distinguish negligence from intention. In case of intention, one party
always have either actual or presumptive desire while, whereas in case of negligence,
consequences are never desired by any of the parties.
3.3 & M3 Way in which a business can be vicariously liable
Vicarious liability states about the action taken by the individual due to his negligence
and thus, held liable for the damages or harm occurred by tortfeasor. As per vicarious liability, it
can be said that the party liable is responsible to have control on the action made by offender.
Vicarious liability in simple terms can be termed as the obligation that a party has due to wrong
committed by another. Basically, a person is always held liable for the wrongs which he/she
commits but as per vicarious liability, a party held liable for the wrong which is done by the
other (Ford, 2010). The most common example to understand vicarious liability is that of master
for acts of his servants like; when in the course of employment, if tort is committed by an
employee, then for his act, employer becomes liable and thus, he has to pay for the damages on
the behalf of person who committed wrong.
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LO 4
4.1 & D2 Applying the elements of tort of negligence and defences in different business
situations
According to the scenario given, tort of negligence is there in case of injury which Kevin
had because of getting hit through telephone pole. Here, there is breach of duty or it can be said
that failure of telephone company, TeleCo as according to law, it must exercise the standard of
care required which it has not provided and thus, David and Kevin both got permanently injured
as it resulted in damaging the party to whom the duty of company was owed (Wang, Wang and
Delgado, 2014). It is because; company should have provided a standard quality of products and
services by which the party which is using hit would not get harmed in any way. While, TeleCo
has used cheap material in their telephone poles because of which Kevin got permanently
injured. On the other hand, contributory negligence is also there according to which claimant
cannot collect any damages if it caused because of his own reason and David collided because of
his negligence as he was driving 35 MPH in 25 MPH zone down a four lane street. So, company
is not having any liability towards David in this case (Beale and et.al., 2010). Also, comparative
negligence is there as David contributed in the injury caused to Kelvin but insignificantly and
unintentionally. But, he becomes responsible for the damage and may have to pay his part for the
same.
4.2 & D3 Applying the elements of vicarious liability in given business situations
As per the given case of Colin and Roger where Colin is the head chef of Regent hotel is
getting fed up of Roger attitude and anger who is actually a dishwasher. Colin knocks Roger one
day with a frying pan but unconsciously. However, with this act, Roger is severely injured and
now, he is refusing to go to hospital. In accordance with this scenario, vicarious liability is there
which is implied through elements like tort is committed by Colin. There is direct employment
relationship in between Colin and Roger as Roger is the dishwasher in Regent hotel where Colin
is the head chef (Jayaraman and et. al., 2013). Also, act is committed in the course of
employment only, that is, when Roger and Colin both are the employees of hotel. Apart from
that, there is one more important element of vicarious liability i.e. tortuous conduct has been
conducted unintentionally by Colin. Apart from that, as Roger was working under the direction
and control of the employer of an agreement of their employment, it shows that there is vicarious
liability for the Colin being employer to pay for the damages occurred due to tort committed by
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him (Lipshaw, 2011). Therefore, Roger can claim in vicarious liability against Regent Hotel for
Colin’s actions as well as he can directly sue Colin direct for the action he made and injury that
occurred to Roger due to the same.
CONCLUSION
It can be concluded from the study that importance of the contract law is obvious. It is
applied so that businesses would determine, arrange and guarantee rights as well as obligations
and apply the same so that firms would perform the same accordingly. To run a business in a
legal way, contract is highly important that is an act which is enforceable by law in which two
parties get engaged with each other through mutual consent. However, it can be said that if any
of the party is not able to fulfil the elements of contract then it would go void. To make a
contract valid, it is crucial that elements must be there. To each party involved in contracts and
duty of care, is applicable to every individual. For organisations, it is important to get the
grounds of contract and tort law and apply elements of tort of negligence and vicarious liability
in such a manner that they will have a positive employer image.
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REFERENCES
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Beale, H. and et.al., 2010. Cases, materials and text on Contract law. Hart.
Burnham, S. J., 2014. Are You Free to Contract away from Your Right to Bring a Negligence
Claim.Chi.-Kent L. Rev. 89. p.379.
Chamallas, M., 2014. Two Very Different Stories: Vicarious Liability Under Tort and Title VII
Law. Ohio St. LJ. 75. pp. 1315.
Cousy, H. A., 2013. About sanctions and the hybrid nature of modern insurance contract law.
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Ford, D. G., 2010. The Ethical Duties and Prohibitions Affecting the Decision of an Attorney to
Blow the Whistle on an Organization Client. Mustang Journal of Law and Legal Studies.
1. p.44.
Ghafar, B., Ismail, A. and Tohirin, A., 2010. Islamic law and finance. Humanomics. 26(3).
pp.178-199.
Herijanto, H., 2016. The Mudharib’s Legal Responsibility for the Business Risk in Mudharabah.
Journal of Islamic Banking and Finance. 4(1) pp.22-32.
Jayaraman, V. and et. al., 2013. Offshoring business process services and governance control
mechanisms: an examination of service providers from India. Production and Operations
Management. 22(2). pp.314-334.
Johnson, J. A., 2015. Additional Insureds and Contractual Liability. Insurance & Indemnity Law
Journal. 8(2).
Kodilinye, G., 2014. Commonwealth Caribbean tort law. Routledge.
Kodilinye, G., 2014. Commonwealth Caribbean tort law. Routledge.
Lipshaw, J. M., 2011. Contract as Meaning: An Introduction to 'Contract as Promise at
30'. Contract as Promise.
Tiganescu, A. M., 2013. Legal Aspects of the Contract of Public-Private Partnership. Contemp.
Readings L. & Soc. Just. 5. pp.519.
Wang, H. H., Wang, Y. and Delgado, M. S., 2014. The transition to modern agriculture: contract
farming in developing economies. American Journal of Agricultural Economics. 96(5).
pp.1257-1271.
Online
The terms of a contract. 2013. [Online]. Available through:
<http://www.lawhandbook.org.au/handbook/ch12s01s03.php#Ch1304Se258604>.
[Accessed on 13th April 2017].
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What are warranties, conditions and innominate terms?. 2012. [Online]. Available through:
<http://singaporelegaladvice.com/law-articles/what-are-warranties-conditions-and-
innominate-terms/>. [Accessed on 13th April 2017].
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