Pearson BTEC Level 4/5 HNC/D Diploma Business - Unit 5 : Aspects of Contract and Negligence for Business

Unit Description

This Aspects of contract and negligence for Business Assignment given in Icon College of Technology and Management, in which various sort and aspects of law has been resolved under the given criteria and study of law

Introduction

This aspects of contract and negligence for business assignment report was prepared to understand, evaluate and discuss some basic concepts of law and their application in the business world. Law and order is the core of the existence of a state and without law and order a state cannot survive in its present condition. Law helps in maintaining the peace and keeps the criminals and wrongdoers in control. In today’s time no country or state can function without law as law is present in every field like labour law, business law, civil law, criminal law, property law, international law, public law, private law, and numerous other laws. Another very important field of law is business law this regulates the economy of a state. In this report we will explain and discus the aspects of two private laws which are the ‘law of contract’ and the ‘law of tort’. The law of contract talks about contracts and ‘contracts are agreements that are legally binding on the parties’ whereas the law of tort talks about ‘tort which is a civil wrong where a person breaches his legal duty to care and causes injury to the other person’s body or property. We will see the implication of law of tort and law of contract in business.

TASK 1

P1 The essential elements of a valid contract in a business context

P 1.1 The importance of the essential elements required for the formation of a valid contract

Law of contract is one of the most important branches of the business law it is from the formation of the contract that a business activities start between two parties on legal ground. The contract helps in the smooth running of the business. To understand the law of contract we need to define firstly what a contract is and what the basic elements required for the formation of a valid contract. “A contract is an agreement between two or more parties who are legally capable with an intention of entering into a legal agreement and where both the parties agree with the terms of the contract”. The basic elements of a contract are offer, acceptance, and consideration, intention to create a legal relation, legal capacity and a form in writing.

Offer:  The offer is basically a proposal by the offer or to agree to do or refrain from doing an act provided that the offeree will also do or refrain from doing an act. This contains two initiatives

(1.)  An expression of compliance to be bound;

(2.) A declaration of what each party to the projected agreement ought to do or not do. (STEPHEN A. SMITH, P.S. Atiyah, 2006)

Acceptance: Is the willingness to agree to the terms of the offer where the party to which the offer was made gives it absolute and unconditional approval. (STEPHEN A. SMITH, P.S. Atiyah, 2006)

Consideration: It is the sacrifice or the price that the parties to the contract do or give which is of some value especially monetary value. (STEPHEN A. SMITH, P.S. Atiyah, 2006)

Intention to create a legal relation: Each party to the contract should have the intention to create a legal relation i.e. the parties should accept that the contract is legally binding in nature. As social contracts are not held as legal contract because the parties do not have the intention to enter into a legal relation. (BALFOUR V. BALFOUR, 1919)

Legal capacity: The parties to a contract should be legally capable of understanding the nature of the contract i.e. the person should not be a minor and he must not be of unsound mind, only an adult person of sound mind can enter in a legal contract. (STEPHEN A. SMITH, P.S. Atiyah, 2006)

P1.2 The impact of different types of contract

Aspects of contract and negligence for Business Assignment

The various forms of contracts are as follows

Unilateral contracts: When the acceptance of an offer is asked for not in the form of words but in the form of action than that contract is created after the required action is performed. In this contract performance of the terms of the offer by one party is sufficient to make the contract binding (WORMSER, I. Maurice dec 1916). In a leading case it was decided that the performance of the terms of the advertisement given will make the contract binding on the parties. (Carlill v. carbolic smoke balls , 1893)

Bilateral contracts:  In bilateral contracts performance by each party of the contract is required and the parties are legally bound to adhere to the terms of the contract. In this contract both the parties agree to do an act or abstain from doing an act. This contract is a contract from the time it came into existence and not after the performance of an act by the parties to the contract. (CATHARINE MACMILLAN, Richard Stone, 2012)

Oral contracts: When the contracts are orally agreed upon by the parties and they are not available in written form than that contract is known as an oral contract. Oral contracts are hard to prove and legally they are of less value. But oral contracts are enforceable by law if the contract could be proved or the party agrees to its existence. (LARSON, Aarson, 2003)

Written contracts: When the terms of the contract are pre-decided by the parties and all the terms and conditions are written on a simple paper or form and it is signed by both the parties than that contract is known as a written contract and this contract is legally binding and both the parties are held to be bound by the terms and conditions of the contract.

Business Scenario 1

“XP WORLD” is a business which deals in computer and other computing systems it runs an advertisement to attract new customer which says “The first five customers to enter our shop on 15 February 2014 will be eligible to purchase one of our highest specification computers, which normally retail at £2000.00, for £2.00.” James read the advertisement and he was the first customer on 15 Feb. 2014 but when James told the shop assistant that he wishes to buy the computer for £2.00, he was denied and said that he will have to pay £2000.00 to buy the computer s the ad was not to be taken seriously. Issue is whether James can force XP WORLD to sell the computer for £2.00.

Solution: In the present case I would like to say that there is an offer in the form of the advertisement given by XP world and this offer was made to the world at large in this offer the mode of acceptance was in the form of an action which was to be one of the first five customers to enter XP WORLD on 15 Feb. 2014 and James accepted that offer by entering as the first customer now as soon as he has accepted the offer in the form of action a contract comes into existence and now XP world have to sell the computer for £2.00 to James, although £2.00 as a consideration for the contract is not adequate but the consideration needs to be sufficiently of some value and it may not be adequate (Chappell & Co v Nestle Co Ltd, 1960). This advertisement is in the form of unilateral contract where the acceptance of offer is in the form of an action and now this contract will be legally binding on the parties and this can be legally enforceable, as it was decided in the leading case of carlill v. carbolic smoke balls(1893), therefore in my opinion James can legally force XP world to sell the computer on the given price of £2.00. (Explore Unit 5 Food Beverage Operations Management)

P1.3 Analyse terms in contracts with reference to their meaning and effect

Various stipulations in the contracts are as following

Express clause term-  When the terms of contract are clearly mentioned in written form in the contract and both the parties have knowledge of those terms and the parties agree with those terms and are bound by it those terms are known as express terms in a contract. These terms are legally enforceable in nature. (CHARLES J. GOETZ, Robert E. Scot, 1985)

Implied clause term- Implied terms are those terms that tells about the intentions of the parties to the contract these terms are not mentioned but they exist generally because of certain customs or some laws e.g. loan agreements, rent agreement etc, where some terms are not mentioned but they are implied. (CHARLES J. GOETZ, Robert E. Scot, 1985)

Exclusion clause- Those terms in a contract which purports to restrain, alter or eliminates a remedy or liability arising out the breach of an agreement or contract are known as exclusion terms, the terms in this clause takes away the right of remedy from parties to claim injury or liability of the contract. (KELLEHER, Leslie, 1984-85)

Condition and warranty- A condition is a clause in a contract which can shelve, repeal or alter the main obligation. (LECTLAW, 2013) It is a major term of the contract which is the core part of the contract. If a condition is breached it can used as a reason for the termination of a contract. (Poussard v. Spiers, 1876)

A warranty is a legally binding assurance that the service or product is free from defect and it is as good as described in the contract, it is a minor term in the contract which is not vital to the subsistence of a contract and if warranty is breached than the party can claim for damages but breach of warranty will not repudiate the contract. (Bettini v. Gye, 1876)

Innominate terms- The Innominate term are those terms that are not specifically divided into warranty and condition and they are decided according to facts and the damage suffered by a party, it is something in between the warranty and contract terms. This term was first established in the case of (Hong kong fir shipping v. kawasaki kisen kaisha, 1962).

Task 2

P2 Apply the elements of the contract in business situation

P2.1Apply the law on terms in different contracts

 In a contract there are three kinds of terms that are present and all of them hold some importance, they are express terms, implied terms and exclusion terms.

Express clause term:  The terms that are clearly mentioned in written form and both the parties agree to its terms, these terms are binding on the parties like in a bilateral contract the terms are expressed evidently. (Esso Petroleum v Mardon, 1976)

Implied clause term:The terms that are not written in a contract, but are they are generally presumed to be a part of the contract. These terms exist because of some custom, trade or legal history in the types of contracts like rent agreements, loan agreements etc. (Hutton v warren, 1836)

Exclusion clause:  It is a term in a contract that excludes one of the parties from all kind of liability from the breach of contract where it takes away the right to remedy of the party that suffered loss because of the breach. (Spurling v Bradshaw, 1956) (see the best 3 ways to increase pocket money)

P2.2 The effect of different terms in given contracts

Scenario 2

 Peter buys a new I pad from XP WORLD on the basis of a 24 months contract without reading it, when later on he uses the I pad he finds that it is defective and asks XP world to replace it but he is informed that he will have to pay for the replacement or repair of the product and even if her chooses not to repair the I pad he is bound by the 24 month contract for its full duration. The issue is whether peter can force XP world to repair or replace the product and whether he is bound by the 24 month contract.

Solution: This case comes under the “Consumer contracts Regulations 1999” which protects the consumer from unfair terms in a contract. Regulation 5(1) defines the principle of unfair term which says that if the contractual terms were not individually negotiated and the terms are in favour of the seller rather than being balanced and of being of equal favour to both the parties also the term is against the requirement of good faith than that term is unfair. Regulation 8 provides that if a term is found to be unreasonable it will not be binding on the consumer but other fair terms would remain binding (Director General of Fair trading v First national bank, 2001).So after discussing the law and the case i would suggest that yes Peter can legally force XP world to repair or replace the I pad without charges as the terms in the contract are unfair as Peter was given a defective product therefore he deserves a replacement or repair without extra cost. Peter would be held bound by the 24 month contract as he has entered into it by his own will but unfair terms of the contract will not be binding on Peter. (MCLEOD, Miss Jane L, 2005)


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 Task 3

P3 contrast liability in tort with contractual liability

 The law of contract is a law that is more of a part of a business law and it helps in the smooth functioning of the business whereas the law of tort is a civil wrong that provides liquidated damages to the party that suffered a legal injury due to the negligence of another party.

The law of contract and the law of tort are very different in nature although both of them are part of the private law. In the law of contract two parties agree on similar terms whereas in law of tort the two parties do not have any kind of agreement between them. The law of contract is positive in nature and it is necessary for the smooth functioning of business, but law of tort is negative in nature and it gives liquidated damages to one party for the wrong of another party. The law of contract is wider in its approach whereas the law of tort is narrower in its approach. The law of tort is based on maxims whereas the law of contract is based on sections of the law. (CHRISTIAN VON BAR, Ulrich Drobnig, 2004)

P3.1 Nature of liability in negligence

Negligence: Is the failure to implement the duty to care which a reasonable and cautious person would have in the eyes of the law. The conventional rule of negligence was that a person would be held liable only when he is proved to be negligent i.e. he did not take the required duty to care and caused an injury to the other person (POSNER, RICHARD A., 1972). Negligence is the legal duty to care which may not be present morally also moral duty to care does not comes under negligence. Negligence is a behaviour which involves an irrationally enormous risk of causing damage, and by due care one can be saved from that risk. The nature of liability depends on the conduct of a person where in a given situation what kind of conduct would a reasonable and prudent person would have shown. Negligence consists of acts and omissions of taking precautions while doing a work of dangerous nature like driving a car at a very high speed in the dark of a night where the chances of an accident would increase. The reasonableness of a certain risk depends upon some factors, like:

(1). the enormity of the risk, the higher the risk the greater the amount of care required.

(2). the significance of what is exposed to risk, that object is known as the principal object, so if the object is of high value than the reasonableness should also be in sync with the object (TERRY, Henry T., 1915). In a leading case it was held that a railroad company ought to take precautions for the safety of its passengers and that precaution will be same even for a poor company who can less afford the expenses. (Denver & R.G.R.R. Co. v. Peterson, 1902)

 P3.2 how a business can be vicariously liable

Vicarious liability is the third party is held responsible for the conduct of negligent act or wrong done by the second party to which causes injury to the first party this is due to the relation which is present between the second and third party. These relationships include relationship between a employer and employee, servant and master, and principal and agent. In a partnership all the partner are held responsible for the wrong of one partner, the master is responsible for the wrong done by his servant because the servant works on the directions given by the master so the wrong could be the result of the master who did not choose the right person or he did not care about the danger associated with the work and whether that servant was well equipped to deal with the task and did he had the required talent and ability required for the work which was assigned to him (DOUGLAS, William O., 1929).

Where the profit earmark was there in existence and full control was in practise but it was clearly mentioned in the agreement given still they were held liable as the possessor of vital characteristics of risk distributors and were held liable as partners (Spaulding v. Stubbings, 1893).

Scenario 3

Alina was a passenger on “Great Northern Trains” which was liquidated, there was a crash and Alina injured her arm because the driver was asleep. Issue is whether Alina can claim for damages.

Solution: In the present case I would suggest Alina to file a claim for damages because the company was responsible for the negligence of its employee i.e. the driver and which has caused an injury to Alina. Also the Insolvency (Amendment) rules 2006 extended the definition of debt to include claims founded in tort where all of the elements required to bring an action against a company exist at the time a company goes into liquidation, except that the claimant has not yet suffered any damage and therefore, at that time, has no cause of action against the company. Future tort claimants who can demonstrate sufficient proximity to a company’s negligent action or inaction will now be able to prove in the liquidation even if they are yet to exhibit any signs of material damage.

Conclusion:

After discussing all the aspects of law of contract and law of tort we see that both the laws are vital for the smooth functioning of the business and they both have different applications where law of tort is penalising in nature law of contract is positive in nature and the purpose of both the laws is to provide remedy to person who suffered a legal injury due to fraud, negligence or misrepresentation by the other party. The law of contract is a law that is more of a part of a business law and it helps in the smooth functioning of the business whereas the law of tort is a civil wrong that provides liquidated damages to the party that suffered a legal injury due to the negligence of another party. But both the laws have their own unique identity in the business process.

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References

BALFOUR V. BALFOUR [1919]

Bettini v. Gye [1876] QBD 183.

Carlill v. carbolic smoke balls [1893] QB 256.

carlill v. carbolic smoke balls [1893] 1 QB 256.

CATHARINE MACMILLAN, Richard Stone. 2012. university of london international programmes elements of the law of contract. [online]. [Accessed 6 may 2014]. Available from World Wide Web:

Chappell & Co v Nestle Co Ltd [1960] AC 87.

CHARLES J. GOETZ, Robert E. Scot. 1985. The Limits of Expanded Choice: An Analysis of the Interactions between Express and Implied Contract. California Law Review. 73(2), pp.261-322.

CHRISTIAN VON BAR, Ulrich Drobnig. 2004. The Interaction of Contract Law and Tort and Property Law in Europe: A Comparative Study. european law publication.

Condon v. Basi [1985] 1 WLR 866.

Denver & R.G.R.R. Co. v. Peterson [1902] 30 Colo.77,69 pac. 578.

Director General of Fair trading v First national bank [2001] UKHL 52.

Donoghue v Stevensen [1932].

DOUGLAS, William O. 1929. Vicarious Liability and Administration of Risk II. Yale Law Journal. 38(720), pp.720-745.

Esso Petroleum v Mardon [1976] 801.

Hong kong fir shipping v. kawasaki kisen kaisha [1962] 2 QB 2

Hutton v warren [1836] EWHC Exch J61.

KELLEHER, Leslie. 1984-85. EXCLUSION CLAUSES IN CONTRACT. Manitoba law journal. 14

LARSON, Aarson. 2003. contract law-An introduction. [online]. [Accessed 6 may 2014]. Available from World Wide Web:

LECTLAW. 2013. Lectiric Law Library condition. [online]. [Accessed 7 may 2014]. Available from World Wide Web:

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