Business Law: Contract and Negligence Principles and Applications

This report delves into the critical aspects of contract law and negligence within a business context. It begins by outlining the essential elements of a valid contract, including offer and acceptance, consideration, intention to create legal relations, capacity, and privity of contract. The report then explores various contract formation methods and different types of terms, such as express terms, implied terms, and exclusion clauses, along with their implications. Through practical scenarios, the report analyzes the application of contract principles, including the concept of invitation to treat versus offer, and the classification of contract terms into conditions, warranties, and in-nominate terms. Furthermore, it addresses the role of exemption clauses and their validity. Finally, the report briefly touches upon the law of torts, specifically the principle of negligence and vicarious liability, to provide a comprehensive understanding of the legal landscape in business operations. The report provides a detailed overview of the key concepts, principles, and their practical applications in business scenarios.

ASPECTS OF CONTRACT
AND NEGLIGENC IN
BUSINESS

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
1.1................................................................................................................................................1
1.2................................................................................................................................................2
1.3................................................................................................................................................2
TASK 2............................................................................................................................................3
2.1................................................................................................................................................3
2.2................................................................................................................................................4
2.3................................................................................................................................................5
TASK 3............................................................................................................................................6
3.1................................................................................................................................................6
3.2................................................................................................................................................6
3.3................................................................................................................................................7
TASK 4............................................................................................................................................8
4.1................................................................................................................................................8
4.2................................................................................................................................................8
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
Law of Contract occupies a highly instrumental position in the scenario of a business
enterprise, and accords the attributes of certainty and longevity to the business relations. This in
turns influences the extent of profits realized by the businesses in the general course of time.
With the assistance of these agreements, rights and obligations of all the parties are ascertained
to ensure a smooth flow of the business and the their relationship (Petsoulas and et.al., 2011).
Moreover, in the event an entrepreneur does not hold any certain relation with another entity, but
has suffered loss or injury due to some act of that entity, Law of Torts can be applied to sue such
a party.
To further deepen the understanding of these two laws, the present study demonstrates
the essential elements of contract and certain kind of terms which can be contained within any
agreement. In addition, a brief explanation of the principle of negligence has made, along with
the doctrine of vicarious liability to provide a better application in any kind of scenario.
TASK 1
1.1
In order to form a valid contract, every individual shall necessarily include the following
elements in the whole process of formation of a contract: Offer and Acceptance: Offer communicates the desire to enter into a valid or binding
contract. It shall be distinguished from 'invitation to treat' which considered in the case of
Pharmaceutical Society of Great Britain v. Boots (1953). The courts opined that if a
shopkeeper is displaying his goods, then it is merely an invitation to treat, in return of
which the customer in fact makes an offer. Hence, inviting offers from the end of the
customers is merely an invitation to treat. Further, the other party is required to make an
unconditional acceptance, which shall be effectively communicated to the offeror. In the
case of Entorres v. Miles Far East (1955) it was opined that communication of
acceptance shall be in a timely manner. Consideration: It is related to bargain of the contract, and is exchanged between the
promisor and promisee in return of a promise. Hence, the benefit or detriment which is
experienced by the parties in relation to a contract can be termed as consideration
(Elements of Contract, 2012).
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 Intention to create legal relation: The offeror and offeree while communicating their
desires shall hold an intention to bind each other in a contractual relationship. In the case
of Jones v. Padavatton (1969) the requirement of meeting of minds was reiterated as the
basic necessity for formation of contract. Capacity: The parties entering into contract shall necessarily be competent to form a
contract, and a similar finding was observed in the case of De Francesco v. Barnum
(1890). Hence, individuals who are minor or are incapable either mentally or financially
shall not be considered a competent party to the contract (Bix and Bix, 2012).
 Privity of Contract: This is a Common law doctrine which restricts the third party to sue
parties to the contract.
1.2
Contracts can be formed through various means, and in accordance to the same varied
impact may be posed on the parties to the contracts: Face to face: Parties in physical meetings are capable to enter into a valid contract in the
eyes of law. Ascertainment of the terms can be through a face to face conversation, and
the same is completely valid under the rule of Common Law. In addition, these contracts
can even be enforced in the court of law. Written Contract: In the Business parlance, individuals prefer to make use of this form of
contract for undertaking of transactions or dealings. All the terms and conditions of the
agreement are noted down with a mutual consent of the parties, and this shall enable them
maintain the authenticity of relationship in the long run.
 Distance Selling Contract: Even if two individuals are residing across the national
boundaries they can enter into a contract through the medium of telephonic or email
conversation, and determine the terms on the basis of which they shall carry out the
business (Bogg, 2010).
1.3
A contract is comprised of various forms of terms and clauses which ha the potential to
impose different forms of effects on the parties involved in the agreement. Primarily, the
following terms and clauses are present in the contract: Express Terms: The terms and conditions which included in the agreement, by mutual
consent of the parties, at the initial stage of formation of the contract can be termed as
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Express Terms. As characterized in Scammel v. Ouston (1941) express terms are
ascertained at the preliminary stage of development of a contract, and is included only
with the consent of all the parties to the contract (Eidenmüller, 2013). Implied Terms: These terms are not mentioned in the agreement, however, shall be made
applicable on the parties at par with the express terms. In Shirlaw v. Souther Foundries
(1939) the court recognized implied terms at law, in fact and through custom. In the case
of Hutton v. Warren (1836) the courts upheld the application of a practice which is
prevalent in the business parlance, on the other hand in the case of Moorcock (1889) the
business efficacy test was propounded to check the validity of terms implied by fact.
Further, in case of Shirlaw v. Southern Foundries (1939) the officious bystander test was
evolved to check the reasonability of application of a term in a particular scenario.
Finally, in the case of Liverpool City Council v. Irwin (1977) the terms implied by law
was recognized in specific relationships such as landlord-tenant or buyer-seller.
 Exclusion Clause: These terms are included in the agreement to benefit one of the
parties, and exempt them from any liability which may arise due to breach of terms of the
contract (Anson and et. al., 2010). Though the validity of this clause has been questioned
many times, in the case of Olley v. Marlborough Court (1949) the courts while reiterating
the opinion stated that exclusion clause can be held valid or invalid in accordance to the
facts and circumstances of the case (Harrell, 2016).
TASK 2
2.1
Ivan while surfing through the displayed books in the shop of Todor picked up a HND
book, which was tagged for £50. When Ivan communicates his interest to purchase the said
book, he is informed by Todor that the book has already been sold to Carl and that there is no
other copy available with him. Ivan now wishes to insist Todor to sell him the respective book.
It shall be highlighted that products being displayed in shops are not offers, in fact, are
characterized as invitation to treat. It is the obligation of the customer to make an offer to buy the
products, by responding on such an invitation. Finally, the seller has the discretion to accept or
reject the offer. In the case of Fisher v. Bell (1961) it was held that goods displayed in shops are
merely an invitation to offer from the side of the shopkeeper, and the customers shall make an
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offer if they desire to purchase a particular product in display (Botchway and Choong, 2011). In
the case of Patridge v. Critenden (1968) a clear distinction was established between the concepts
of 'offer' and 'invitation to offer', wherein the former was characterized as a component of the
process of formation of contract. On the other hand, the latter was considered as merely a call
from the end of the shopkeeper or an advertiser in the case of advertisement, to make an offer in
respect to certain products.
In the present case, the act of display of the book n the shop was merely an invitation to
treat, while the communication on the part of Ivan at the counter was, in fact, the actual offer
which had commenced the process of formation of the contract. However, the process could not
be proceeded further as Todor did not accept the same and no contract could come into
existence. Hence, in light of the above scenario Ivan is not empowered under law to force Todor
to sell the book, as no contract came into existence.
2.2
Classification of the terms is undertaken by the parties and consequently by the courts, in
order to distinguish between the manner in which breach of each one of them shall affect the
parties involved: Condition: This can be characterized as one of the primary terms of the contract, which
has a direct relation with the intention of the parties in pursuance to which they have
entered into a contract. This is a fundamental terms, which shall necessarily be complied
by all the parties to the contract (Harris, 2010). In the case of Poussard v. Spiers (1876),
it was held that breach of these terms shall entitle the aggrieved party to repudiate the
whole contract, and in addition claim damages for the injuries sustained by them. Warranties: These terms are not central to the operations of the contract, and hence,
function as supplementary terms supporting the main object of the agreement. In the case
of Bettini v. Gye (1876) it was upheld that the injured party in the case of breach of
warranties shall be entitle to receive damages to the extent loss or injuries have been
suffered by them.
 In-nominate Terms: Hong Kong Fir Shipping v. Kawasaki Kisen Kaisha (1962) evolved
in-nominate terms, and distinguished them from conditions or warranties. The courts
shall assess the injuries or loss sustained by the parties due to breach of certain terms.
Hence, this extent of this deprivation of the benefits shall determine if the contract shall
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be repudiated as a whole or the injured party shall receive damages. In the case of
Schuler v. Wickman Tools (1974) the parties at the point of initiation of the contract had
distinguished the terms, however, the courts while dealing with a related dispute deviated
from the ascertainment (Cartwright, 2016). Hence, the classification made by the parties
was not taken into account by the court.
2.3
John visited a local council's park and hired a chair for 50p per hour. On paying the
requisite amount he was given a ticket and the chair. However, after some time, when John was
sitting, the chair collapsed thereby injuring John and his clothes. John now seeks to claim a
compensation from the authorities of the Local Council, who are relying on the exemption clause
mentioned on the back of the ticket to restrict themselves from any liability.
In such a scenario it is imperative to establish the significance of Exemption Clause
which was also noted in Parker v. SE Railway Co. (1877) to define it as a means to limit the
liability of parties in case of breach of any of the terms. It is often known to bring uncertainty
and ambiguity in the operation of the contract, and hence, is carefully assessed by the courts
before validating them (Burrows, 2013.). The test of incorporation as well as construction have
been evolved by the courts to analyze the validity or application of these clauses in certain
situations. It is also an established law that inclusion of the terms shall be brought to notice of the
other party, otherwise the specific terms of the agreement shall be considered as void. A similar
finding was made by the court in Olley v. Marlborough (1949). However, it has also been noted
by the courts in various cases that it shall be assured by the parties that if the exemption clause if
being applied then the product or service so supplied is of satisfactory quality and is fit for the
purpose.
In the present case it can be observed that the chair provided to John under the hire
agreement was not of satisfactory quality and was not fit to be used by anyone. Therefore, the
local council cannot restrict his liability under the exemption clause. In addition it shall also be
noted that presence of an exemption clause in a hire ticket cannot be assumed by any one and the
attendant was in particular under an obligation to highlight the same at the time of handing over
the ticket to John. A reasonable person cannot assume presence of an exemption clause on the
back side of receipt of acknowledgement. Hence, in the present Local Council is under an
obligation to pay adequate compensation to John.
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TASK 3
3.1
Liabilities under Law of Tort and Law of Contract can be distinguished on the basis of
the relation which is shared between the parties involved in the case. Contractual Liability arises
only in presence of a valid contract, which has been entered into by the parties. On the other
hand, Tortious liability arises from breach of duty of care which is imposed on an individual in
respect to the public in general. This breach of duty shall result into loss or injury, which may be
caused to someone from the public. As noted in various cases by the court, both these liabilities
are civil in nature, and entitles the aggrieved parties to claim damages, compensation or specific
performance (Rustad, 2010). In the case of contractual liability the doctrine of privity of contract
shall be applied, in accordance to which none of the third party shall have the power to sue the
parties of the contract for breaching the terms. While, for application of tortious liability there is
no requirement for existence of a certain relationship between the parties, hence, any person who
has sustained injuries due to negligent acts of others shall impose this liability. A common
rationale is shared by both the liabilities, as law through these mediums intends to restore the
position of the aggrieved parties by providing them damages or compensations (Briggs, 2013).
However, the distinction lies on the point that liquidated damages are provided in the case of
contractual liability, whereas, un-liquidated damages shall be provided in the case of tortious
liability.
For instance in the case of Donoghue v. Stevenson (1934) the principle of negligence was
evoked as the seller had provided contaminated ginger beer to the buyer, in pursuance to which
he fell ill. This is a case where tortious liability was imposed on the seller. However, in the event
the buyer and seller had entered into a contract for the supply of goods, and provision of goods
with low quality would have imposed a contractual liability on the seller.
3.2
The principle of negligence requires the public to act in a reasonable manner and not
injure any of the members of the public. A strict liability may be imposed for undertaking a
negligent act. In the renowned case of Donoghue v. Stevenson (1934) the courts while deciding
on the facts of the case, developed the following elements of negligence which shall be required
to be established in the court for proving the case of negligence:
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 Duty of Care: It refers to the responsibility imposed on an individual to act in a particular
reasonable as well as careful manner, and is a purely legal duty. Failure of abide by such
a duty shall make the person liable for damages to the injured parties for breach of duty
of care (Negligence – Duty of care, 2016). It may also depend on the type of loss or
injury sustained by the party. The case of Topp v. London Country Bus (1993) an
additional element of reasonable foresight was recognized under the duty of care. In
pursuance to the same, a person is under a duty to reasonably foresee if any harm is being
caused by his acts to anyone in the surroundings. Hence, for establishment of negligence
imposition of this duty of care shall be proved at the first instance. Breach of Duty: The duty of care imposed under law shall be breached by the tortfeasor.
In the case of Vaughan v. Menlove (1837) it was reiterated that breach shall be only of the
duty of care which is imposed under the Law of Torts.
 Causation: The breach of duty shall directly form to be the reason behind the causation
of injury to an individual (Hart and et. al., 2012). Hence, a direct nexus shall be
established between breach of duty and injury caused to the aggrieved.
3.3
The doctrine of vicarious liability in essence imposes an imputed liability on an
individual for the negligent acts of another person. The application of this type of liability is
made on specific relations of employer-employee or principal-agent, wherein one person is
acting on behalf of the other and representing him in the market or otherwise. After considering a
series of cases, the court has developed various tests for ascertainment of these relationships,
which shall check the elements of supervisions and control of the employers, principal or any
person acting in such a capacity (Steele, 2010). The court in case of Lisley v. Hesley (2001)
opined that a strict liability is imposed on the person acting as a principal and this shall also be in
the nature of a primary liability.
In the case of employer-employee relation it shall be established that the employee is
acting under the control and supervision of his employer, and all the work which is being carried
out shall be in accordance to the employer. In the case of London General Omnibus Co. (1862) it
was opined that the negligent act of the employee shall be undertaken within the course of
employment. Further, the fact that the negligent act is authorized or un-authorized in nature shall
not hold any relevance while determining the liability under the doctrine of vicarious liability. It
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can be inferred from this law that the negligent act of the employee can be ethical or unethical in
nature, if it is within the course of employment then the employer shall be imposed with a strict
liability. Further, to impose this liability a distinction shall be established between the concepts
of 'contract of service' and 'contract for service' (Harris, 2015). The former defines the relations
between an employer and employee, whereas the latter is that of an independent contractor who
is under the freedom to act in accordance his own norms.
TASK 4
4.1
David in the provided factual scenario was over-speeding the car in a street which was
prone to children. Suddenly when Kevin, a nine year old, ran on the road behind his ball he came
in front of David's car. Since, David was driving at a high speed he swerved into another lane to
save Kevin and collided with a telephone pole, which was owned by TeleCo. It was then
observed that the pole instantly broke into pieces and fell on Kevin thereby injuring him. In the
present case, David by over-speeding the car was acting in a negligent manner under the law of
the land, and due to his breach of the duty the pole fell down, consequently injuring Kevin.
Hence, there is a direct nexus which can be established in the present scenario between breach
and the injury of Kevin.
However, David can take the defence that he collided with the telephone pole, and due to
the poor quality of the product it broke into pieces, injuring Kevin. This infers that the defence of
Contributory negligence can be taken by David with TeleCo., against Kevin. On the other hand,
TeleCo. can take the defence that the pole was standing intact and it was only due to the
negligence of David that the pole broke down. Therefore, TeleCo. on the basis of this argument
can raise a defence against the allegiance of contributory negligence.
4.2
Colin, head chef of Regent Hotel, hit Roger with a frying pan after getting frustrated of
his attitude and anger. Roger sustains serious injuries and when offered to take to the hospital, he
refused. On understanding the circumstances of the case it can be held that Colin by hitting
Roger, acted outside the course of employment. In such a case, the doctrine of vicarious liability
shall not be applied, as Colin was acting outside the course of employment while hitting Roger,
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and hence, Roger under such circumstances is entitled to directly sue Colin for the injuries
caused to him.
CONCLUSION
It can be inferred from the above stated laws and factual scenarios that an instrumental
position is occupied by the Law of Contracts as well as Law of Torts while functioning in the
business scenario. Importance of inclusion of different elements of contract, various terms of the
contract and the impact which it may cause in different situations has been demonstrated. It can
be directly inferred from the highlighted significance that every business organization shall
include all the elements necessarily, and understand the concept of each term before entering into
such relationships. Furthermore, the relevance of principle of negligence, along with the doctrine
of vicarious liability has been illustrated, with the assistance of different factual scenarios.
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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. and Bix, B. H., 2012. Contract law: rules, theory, and context. Cambridge University
Press.
Bogg, A. L., 2010. Good Faith in the Contract of Employment: A Case of the English
Reserve. Comp. Lab. L. & Pol'y J. 32. p.729.
Botchway, F. N. and Choong, K. A., 2011. Not Ready for Change? The English Courts and Pre-
Contractual Negotiations. The International Lawyer. pp.625-645.
Briggs, A., 2013. The conflict of laws. OUP Oxford.
Burrows, A. ed., 2013. English private law. OUP Oxford.
Cartwright, J., 2016. Contract law: An introduction to the English law of contract for the civil
lawyer. Bloomsbury Publishing.
Eidenmüller, H. ed., 2013. Regulatory competition in contract law and dispute resolution.
Bloomsbury Publishing.
Harrell, A. C., 2016. The Importance of Contract Law: A Historical Perspective. Okla. City UL
Rev. 41. p.1.
Harris, M., 2010. Fairness and Remoteness of Damage in Contract Law: A Lexical Ordering
Approach. Journal of Contract Law, Forthcoming.
Harris, P., 2015. An introduction to law. Cambridge University Press.
Hart, H. L. A. and et. al., 2012. The concept of law. Oxford University Press.
Petsoulas, C. and et. al., 2011. The use of standard contracts in the English National Health
Service: a case study analysis. Social science & medicine. 73(2). pp.185-192.
Rustad, M.L., 2010. Torts as Public Wrongs. Pepp. L. Rev. 38. p.433.
Steele, J., 2010. Tort Law: Text, cases, and materials. Oxford University Press.
Online
Elements of Contract, 2012. [PDF]. Available through:
<http://www.londoninternational.ac.uk/sites/default/files/programme_resources/laws/
ug_subject_guides/elements_law_contract-subjectguide4chapters.pdf>. [Accessed on 15th
November 2016].
Negligence – Duty of care, 2016. [Online]. Available through:
<http://e-lawresources.co.uk/Duty-of-care.php>. [Accessed on 15th November 2016].
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