Analysis of Contract and Negligence for Business Development

This report provides a comprehensive overview of contract and negligence within a business context. It begins by defining the essential elements of a valid contract, including offer and acceptance, consideration, legal capacity, consent, and the intention to create legal relations, highlighting their importance in business agreements. The report then delves into different types of contracts based on formation, consideration, execution, and validity, providing examples and case law to illustrate each type. Furthermore, it analyzes contractual terms, such as conditions, warranties, and implied terms, and their impact on contract validity. The report then applies these elements to business situations, examining offer and acceptance scenarios and the application of contract terms. It also explores the principles of liability in negligence, contrasting it with contractual liability and explaining vicarious liability. Finally, the report applies these principles to business scenarios, including the elements of the tort of negligence and defences, as well as vicarious liability, concluding with a summary of the key findings and their implications for business operations.

ASPECTS OF CONTRACT AND NEGLIGENCE FOR
BUSINESS
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Table of contents
Introduction...........................................................................................................................................3
LO 1: The elements of a valid contract in a business context................................................................3
1.1 Importance of the elements required for the formation of a valid contract...................................3
1.2 The impact of different types of contract........................................................................................4
1.3 Analysing the terms in contracts......................................................................................................5
LO 2: Applying the elements of contract in business situations.............................................................5
2.1 Elements of contract applicable......................................................................................................5
2.2 Applying law on terms in different contracts...................................................................................6
2.3 The effect of different law of terms and exemption clause in contracts..........................................7
LO 3: Principles of liability in negligence in business activities..............................................................8
3.1 Contrasting liability in tort with contractual liability........................................................................8
3.2 The nature of Liability in Negligence................................................................................................8
3.3 How a business can be vicariously liable..........................................................................................9
LO 4: Applying principles of liability in negligence in business situations............................................10
4.1 Applying the elements of the tort of negligence and defences.....................................................10
4.2 Applying the elements of vicarious liability...................................................................................10
Conclusion...........................................................................................................................................11
Reference List......................................................................................................................................12
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Introduction
Over the time, as the business organisations evolved and expanded, they incorporated
legislations to protect the business interests. Due to the obligations and complications in the
verbal contract, most of the business organisations have put interested in legalising the
agreements in the form of a contract. The written version of any contract not only safeguards
the interest of the parties involved but also acts as a defensive shield for the plaintiff. The
legislations regarding negligence in business context became equally vital to resolve damage
control situations. The following report will look into the various aspects of contract and
negligence in the business context and outline the effective measures involving the
legislation.
LO 1: The elements of a valid contract in a business context
1.1 Importance of the elements required for the formation of a valid contract
A contract in the business context is referred to an agreement or a promise that binds two or
more parties regarding a common subject of interest. The elements give validity to the
contract, making it legally justified and there lies the significance of the elements. The
elements are offer and acceptance, consideration, legal capacity, consent and the intention to
create legal relations.
Offer and acceptance: An agreement is being constituted if a party offers any product or
service and another party accepts the offer with every terms and condition. The offer does not
require to be made to a specific person, but it can include the whole world. On the other hand,
the acceptance takes place, when any interested party reciprocates to that offer using an act or
a statement. According to the decided case law of Harvey v Facey [1893] Ac 442 Privy
council, it has been held that there was no contract established in between Harvey and Facey
as latter did not answer and respond to his offer. There was no proof and binding legal
relationship along with no intention to create legal relationship exists there in .
Consideration: Consideration is referred to exercising a right that results in the benefit of the
accepting party. Evidently, the benefit, be it monetary or something valuable, will lead the
offering party face a loss to construct the agreement. However, considerations must not
contain any illegal terms.
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Legal capacity: Any party with legal incapability cannot make a contractual agreement with
another party. Legal capacity of any party to make some factors and those determine a
contract are – (a) the parties must not suffer from mental disability (b) parties of minor age
group. (c) Bankrupt parties (d) parties are making an agreement on behalf of any organisation
without any consent (e) imprisoned parties.
Consent: Both the parties must enter into a legal contract with proper knowledge of what
they are entering into this. The agreement in a legal contract will be void if the parties make
an agreement based on the mistake, false statement, pressure or unconsciousness.
Intention to create legal relations: The parties involving in a business contract must intend
to create a legal relation through the contract. However, this element cannot be valid in all the
courses.
1.2 The impact of different types of contract
The contracts are made based on the formation, nature of consideration, execution and
validity. Based on the formation policy, the contract can be alienated into three divisions that
are express contracts, quasi-contracts and implied contract. Express contracts refer to the
contracts where both the parties had conversations regarding the agreement of the contract.
For instance, X has offered to sell his car, and Y expressed his consent in buying that with
expression. As per Geistfeld (2011, p.53), an implied contract refers to a contract where none
of the parties has been vocal about the contract by any means. For instance, X, being a train
passenger may have an implied contract with the driver of the train regarding the safety of X.
According to the case law of Marks and Spencer plc v BNP Paribas Securities Services Trust
Company (Jersey) Ltd and another[2015] UKSC 72,it has been held that there was no
existence of term relating to providing lease for rent purpose. So the tenant was successful in
this case.
Bilateral and unilateral are the most popular types of contracts that are formed by nature of
consideration. The bilateral contract is being formed when both the parties agree to a specific
term of consideration. For instance, party A and party B agrees to the point that A will
provide with a specific service to B on a particular day with the condition that B has to pay
for the service on that very day. On the other hand, unilateral contract occurs when the
considerations are moved to a specific direction.
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Based on the execution of a contract, two types of contract can be formed that are executed
and executory contract. When the terms of the contract are being executed without any legal
obstacles, it is referred to an executed contract, and if any legal obstructions appear, then the
contract is being referred to an executor contract. According to Kilpatrick et al. (2011, p.7),
five types of contracts are formed by validity of a contract and those are the valid contract,
void contract, voidable contract, illegal contract and unenforceable contract. A theoretical
review of these contracts by Geistfeld (2011, p.57) suggests that contracts that are illegal may
refer as void contracts, but various void contracts may be equivalent to a valid contract if
there are requirements, evidence and logics to justify its validity.
1.3 Analysing the terms in contracts
The parties engaging into the valid contract must go through the contractual terms and
policies to establish its validity. Each condition defined in the contract, or verbal agreement is
considered the terms of a contract and to validation of the terms is determined by the
execution of those terms.
The first term in this context is the condition. Any breach of the condition will be considered
as the unlawful behaviour of the breaching party. The parties suffering from the breach in
condition will have the full right to defend themselves on this note. Secondly, a warranty is
also an essential term in the case of constructing a contract. If the plaintiff alleges the
defending party with the lawsuit regarding the breach of the warranty, it will not possess the
right to cancel the contract at any point. The Hong Kong Fir Shipping Co Ltd v Kawasaki
Kisen Kaisha Ltd (1962) lets the court make its judgement based on the effectiveness of the
breach of terms. For instance, if any breach of the term causes harm to a minor, then the
plaintiff may possess the power of cancelling the contract.
Implied terms are those terms which are implied in nature. It means that these are
those terms and conditions which the parties of the contract do not expressly mention in their
written statement. They are implied and obvious from the nature. It also means that parties to
the contract should understand their importance and perform accordingly. Implied terms
should be clearly understood by both the parties.
LO 2: Applying the elements of contract in business situations
2.1 Elements of contract applicable
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Ivan’s case clearly points out the very first element of a valid contract vide case law St
Albans City and DC v International Computers (1994) that is offer and acceptance. Both
these elements should be counted in this condition as these are dependent on each other
regarding establishing a contract. In this case, when Ivan finds out the HND law book in
Todor’s bookshop and decides it to buy, there were no specific terms mentioned. However, as
the book was on display, it can be considered as an invitation to treat from Todor’s part.
According to the rules of forming a contract, vide case laws Carlill v Carbolic Smoke Ball
Company [1892], when the goods are on display for sale, it is not an offer but an invitation
to treat. If any party showcase willingness to reciprocate to the invitation, it becomes the
decision of the shopkeeper to decide whether he wants to sell the good to the offering party or
not. Secondly, the offering party must not make the offer to any specific person, but he can
address the offer towards the world or a section of people, just like Todor did. The case of
‘Pharmaceutical Society of Great Britain vs. Boots (1953)' can be presented as an effective
example in the context of selling goods on display. As an act of acceptance, Ivan went to
Todor with the money that makes him agreeing with the terms of the offer. However, Todor
refused to sell the book and withdrawn his offer by saying that the book is already sold, but
he forgot to omit it from the display. In this context Lewis (2013, p.39) has commented, the
offering party possesses the right to withdraw the proposed offer before its acceptance.
However, the withdrawal process will be effective regarding legislation when the offering
party communicates with the accepting party regarding the withdrawal. In this case, Todor
has not accepted Ivan’s offer and also communicated with Ivan about his withdrawal.
Evidently, this case brings out several aspects of the elements ‘offer and acceptance’ in the
formation of a valid contract vide case law Overland Shoes Ltd v Schenkers (1998).
2.2 Applying law on terms in different contracts
The terms in a contract refer to three classified categories that are warranties, conditions and
innominate terms. In the case of a breach in any of these terms, the contract will subject to be
judged by the court. However, the significance of these terms is decided upon the levels of
these terms. While the condition is a term that validates a business contract, on the other
hand, warranties are often given the least priority.
According to the regulations of a contract, vide case law Director General of Fair Trading v
First National Bank plc [2001], the condition can be considered as the most important term in a
contract. As per Lewis (2013, p.38), the condition constitutes an agreement between the
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parties where it can be promptly presented, or remained absent. For example, when a
passenger has entered into an implied contract with the train driver, the condition of making
the passenger reach to his destination remains absent. The example of Poussard versus Spiers
(1867) 1 QBD 410 can justify the importance of condition in a contract. Madam Broussard
signed a contract with Spiers where she was being taken as an opera singer for three months.
However, Poussard breaches the contract as she became ill and could not even perform at the
opening night. Spiers decided to terminate the contract as she broke the condition of singing
on the opening night as that night was very important for Spiers to establish the reputation of
the opera. For this reason, Spiers was not only eligible for breaking the contract but also
possessed the right to claim damages.
Warranty, on the other hand, is not that significant as it cannot entitle the innocent party to
dismiss the contract. However, they possess the right to claim damages from the breaching
party. The case of Bettini versus Dye (1876) QBD 183 can clarify the consequences of
warranty breach in a contract, vide case law Hadley v Baxendale [1854].Bettini, the opera
singer, signed a contract with Bye for three months as she will sing in the opera. However,
she became ill and could not appear for the rehearsal for six days. Blaming her for the breach
of contract, Bye dismissed her with immediate effect. However, when the court overviewed
the facts, it declared that the contract cannot be broken as there was anything in the contract
regarding the rehearsals. According to Morgan (2012, p.51)Hong Kong Fir Shipping (1962)
2, QB 26 case suggested the presence of an innominate term in the case of contract. The
defendant in the case claimed that they had an agreement with the applicants to charter a ship
that must be seaworthy for sailing two years. However, the ship's engine caused trouble, and
as a result, the ship remained off to the sea for consequently 20 weeks. As the defendant
ended the contract, the applicants went to the court to seek justice. Their prime claim
regarding this issue was false denial from the defendants as term ‘seaworthiness' was neither
a condition nor a warranty. The court's judgement went in favour of the applicants as 20
weeks within a two years period cannot take away the benefits from the defendants
2.3 The effect of different law of terms and exemption clause in contracts
According to SCHEINMAN (2000, p.207), the exception clause can be taken into
consideration by the court to judge whether any of the parties, especially, the defendant party
is free from liability or not. Limitation clause occurs to charge a party under liability, whereas
the exclusion clause frees the parties from any liability.
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In this case, when John bought the ticket for the chair, he did not go through the condition of
the contract of the local park council he was entering into this. The ticket clearly stated that if
any personal injury occurs due to the accident caused by hired equipment, the liability will
not be taken by the local council. As John met with an accident due to the breaking of the
chair, he claimed compensation that the council dismissed referring to the exemption clause.
Evidently, the referred exemption clause was exclusion clause under which kept them free
from taking any liability or responsibility for any damage. The section 2(1) and 2(2) of Unfair
Contract Terms Act 1997 gives altering ideas for such circumstances. While section 2(1)
suggests if the contractual terms or conditions were unfair and caused personal injury to the
party from an act of negligence, the contract will not be excluded from liability. On the other
hand, 2(2) suggest if the terms are fair, then the exclusion of responsibility will occur in the
case of negligence. In this case, the local council will not be liable for John's damage as the
condition of the contract was clearly stated in the paper that is on the ticket John bought. For
this reason, the local council will not be bound to give any compensation to John and will be
excluded from liability though it was an act of negligence on their part.
LO 3: Principles of liability in negligence in business activities
3.1 Contrasting liability in tort with contractual liability
Civil liability is based on a uniform legal orientation and non-unitary related to the
legal status. The civil liability can be divided into two major forms that are the tort liability
and contractual liability. Other than this, the presence of special and derogatory liability
cannot be ignored. As both these liabilities are civil liability, in most of the cases it may seem
to be similar. However, the application must be different. According to Tofaris (2010, p.13),
any of this liability will be questioned when some obligation will affect the consumer's right.
Secondly, the presence of damage must be there to justify the liability. Thirdly, the damage
must be caused by a particular type of illegal act.
According to the case law of Tesco v Constable, it has been held that claim in tort law can
not be based on pure economic loss. The policies and contract between both the parties
include the contractual liabilities 5that are conferred on both of them. In this exception clause
has been inserted. According to this case law it has been evolved that parties are bound with
the contractual liabilities at the time of framing the contract.
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The contractual liability will be taken into consideration by the court when the contractual
agreement will cause any obligation resulting in the damage of the creditor. It may also occur
when the debtor fails to perform any duty that caused a delay or loss to the creditor. On the
other hand, when any illegal act, out of the contract, caused any damage to the party, the tort
liability is being bestowed to the other party. The basic difference between contractual
liability and tort liability is the contractual liability may be caused by voluntarily united
people, whereas the tort liability is not a voluntary act and keep the people united with the
matter of chance. The cases regarding tort liability are being triggered by a breach in the
general conduct causing harm to others. However, the cases of contractual liability occur as
an illegal act of a debtor that hinders the contractual terms. In the case of contractual liability
cases, the legal obligations must be justified in the view of the contractual clauses.
3.2 The nature of Liability in Negligence
The liability in negligence is considered when the applicant is presenting the following
elements in front of the court. Firstly, the applicant must have proper proof that can justify
the probability balance. This means the applicant must submit enough proof that the
defendant has breached the duty of care that was owed to the plaintiff. To do that, the
plaintiff must prove the standard of the breached duty of care along with the justifications of
the suffering caused by the breach. In the case of absence of solid proof, the plaintiff needs to
have the evidence regarding the act of negligence of the defendant has caused the plaintiff a
loss that is not far from the loss. For instance, in case a person has the permanent hearing loss
in a concert must proof with medical evidence that high volume was causing the injury.
According to Cornelius (2012, p.293), the defendant will be liable for the negligence in the
business context if there is no exemption clause presented. Along with the personal injury,
the plaintiff can also thrust the liability by economic loss. For instance, X worked in a
restaurant and had a contract with an electrician Y to resolve the issues of frequent electric
failure. Y, despite being a standard electrician negligently left a wire to lose that caused
massive electrical failure in X's restaurant for three consecutive days, resulting X to face a
severe loss in business. The liability of negligence, in this case, can punish Y and make him
eligible for compensation by standard of negligence.
According to the famous case law of Donoghue v Stevenson [1932] AC 562,it was
consist of the fact that Mrs Donoghue went to a cafe with her friend. Her friend brought her a
ginger beer bottle. The contents were not visible. Then Mrs Donoghue empty the content of
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bottle in ice cream and found a snail in it due to this she suffered personal injuries. The court
held that Mrs Donoghue was entitled to get claim for damages caused to her. It is related to
the concept of negligence. In which the defendant is entitled to owe a duty and he breached
the contract.
3.3 How a business can be vicariously liable
Vicarious liability is the term in which the other person is held liable for the actions
performed by other persons. In the context of work place it has been mentioned that there are
employer is held liable for the acts and deeds performed by its employee. However the acts
should be done during the course of its employment.
The reputation and business of a company are determined by the actions of its employees
from restraining it to be liable for any condition. Despite the implementation of HR
regulations and laws, businesses often turn out to be vicariously liable. According to Tofaris
(2010, p.13), vicarious liability occurs when any employees become the reason of another
employee leaving the workplace. The law requires the leaving employee to submit enough
proof to the court regarding the situations caused by another employee occurred during the
employment period.
In most of the cases, the key factor involve in constituting a vicarious liability is to determine
the employee went beyond the personal capacity, or the act happened as an impact of the
employment. In most of the cases, vicarious liability becomes pose an obstacle in the
assessment. As per the rules of forming a contract, vide case law Moran v. University College
Salford,the liability does not incur to the organisation or any other employee after another
employee leaves the company. However, the existing employee who caused the dismissal or
termination of another employee will remain punishable in the eyes of the law.
The vicarious liability can also cause punishment to an employee if any third party such
customers or clients are being suffered any harassment by any employee of a company. To
avoid the lawsuits regarding vicarious liability, proper training, staff development and
strengthening HR policies must be incorporated by any business organisation.
LO 4: Applying principles of liability in negligence in business situations
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4.1 Applying the elements of the tort of negligence and defences
The case suggests several occasions where negligence has occurred, and elements of the tort
of the negligence can be applied. Firstly, the case needs to be viewed in respect of David.
David caused a severe breach of the duty of care by driving his car at 35 MPH in a zone
where 25 MPH is allowed. Secondly, that was a street where children were playing.
However, when Kevin, the child came in front of the car, he tried to manage the situation by
swerving the car into the other lane. In this light, David can defend himself from the tort of
negligence to some extent based on Innocent Prior Conduct or Misfeasance. This section of
limited duty rules suggests that if any individual acts to stop the harm from occurring, then it
will be considered as an exception. However, his act of saving Kevin from the accident did
not become fruitful as he hit the telephone pole owned by Teleco.
As David hits the pole, it fell in parts causing serious injury to Kevin. In this situation, David
will also hold Teleco responsible in his defence claiming that the pole had the manufacturing
defect that caused the whole accident. If the pole was not there, he could have saved Kevin
from his act of negligence. The case, if raised in the court, will go in favour of Kevin as he
can claim damage from both Teleco and David with the tort of negligence.
4.2 Applying the elements of vicarious liability
The case involves various aspects of vicarious liability and throws light on the major
dilemma regarding the chargeable party in the event of such circumstances. Firstly, it has to
understand; that Colin is the head chef of Regent Hotel. He is neither the owner nor the
employer of employees like Colin. It must be clarified that whether an employee can bring
charges against the employer with the vicarious liability or not resolve the first issue. When
someone suffers an injury in the workplace during the working hours or within the duration
of his employment, the employer is liable to compensate for the harm. The doctrine of
‘respondent superior' clearly suggests that employers remain vicariously liable for any
negligent acts that have caused harm to any of the employees. In this case, the employer of
Regent Hotel will fell under this condition as because firstly, the employer could not stop
Colin's action that caused direct personal injury to Roger. Secondly, they could not provide
enough training to Roger that could result in controlling Roger's attitude or anger. It was
important as because Roger's unprofessional conduct was somehow responsible for Colin's
action. However, in this situation the court may look upon this matter and try to resolve it
applying the frolic deviation. The frolic deviation is referred to a situation where the
employers do not take the responsibility of the employer's personal action. As Roger's
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behaviour at the workplace was not proper and despite the employer's initiative, he did not go
to the hospital, the employer can also clear the charges of not being liable for his injury as
well.
The ‘respondent superior’ theory will also justify the second issue, as in the cases of injuries
the employer rather than the other employee or co-worker who caused the harm. The
meaning of the Latin word ‘respondent superior’ is ‘let the master answer’. It means the
employer will take charge of the actions made by the employees. For this reason, despite
causing the harm to Roger, Colin’s answer will be given by his company he is working for.
Colin will not solely be responsible for his actions related to vicarious liability.
Conclusion
In the light of the above discussion, it can be suggested that many aspects of negligence and
breach guide the law of contract. To sustain the validity of the English law related to the
formation of a valid contract, vide case law Smith v. Hughes, the required precautions
regarding negligence need to be taken in all the business organisations. The study has also
segregated contractual liability from general tort liability that falls under the common civic
law. The outcomes of case studies also stressed on how negligence, as well as vicarious
liability, disrupts both humanitarian grounds and organisational environment.
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Reference List
Cornelius, S. (2012). The unexpressed terms of a contract. International Journal of Private
Law, 5(3), pp.293.
Geistfeld, M. (2011). Tort Law and the Inherent Limitations of Monetary Exchange: Property
Rules, Liability Rules, and the Negligence Rule. Journal of Tort Law, 4(1). pp. 45-67
Kilpatrick, D., Reider, B. and Taylor, C. (2011). Cost Assignments In A Managerial
Accounting Contract Logging Context. Journal of Business Case Studies (JBCS), 7(6), pp.7.
Lewis, D. (2013). DECISION MAKING IN COMPLEX SITUATIONS. Business Strategy
Review, 24(4), pp.37-40.
Morgan, J. (2012). Business law. Redding, CA: BVT Publishing.
SHEINMAN, H. (2000). Contractual Liability and Voluntary Undertakings. Oxford Journal
of Legal Studies, 20(2), pp.205-220.
Tofaris, S. (2010). WHO PAYS FOR THE SUB-CONTRACTOR'S NEGLIGENCE?
VICARIOUS LIABILITY AND LIABILITY FOR “EXTRA-HAZARDOUS ACTIVITIES”
RE-EXAMINED. The Cambridge Law Journal, 69(01), pp.13.
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