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Diploma in Business
Unit Number and Title
Legal Elements of Contract Law in Business
The legal elements of contract law in business provides the analysis of the contract law and law of tort. The types of liabilities arising under both the areas of law is essential to be studied to provide a detailed view in order to solve the case studies provided. The study of civil liabilities requires to determine the type of elements involved in order to validate the liability. The different aspect of liabilities in regards with differences between the two is to be discussed in order to determine the importance of the performance of the duties under the law.
A contract is defined to be a employee relationship between the parties coming together for a common purpose. The purpose shall be discussed between the parties and should be same in nature. The contract terms shall be pre-determined so that there is no confusion for the contract. Every contract shall include the basic elements of the contract such as offer, acceptance, consideration, capacity and intent. (Adams, 2008)
An offer is said to be a statement that requires the initial terms of the contract so presented by the offeror with an intent to enter into a contract. An offer is required to be clear and precise in its meaning. The offer usually is different from the invitation to offer. An invitation to offer is referred to as the statement made to inform the interested buyers of the presence of the product for a sale if a likely offer is made. Thereby, the invitation to offer, attracts the interested buyers towards the purchase of the product. A counter offer is made by the offeree that has been made an original offer. The offeree when alters the offer, it is said to be a counter offer. An offer is an important part of the contract because it initiates the contract formation process. Without the offer, the contract cannot be entered into by the parties. The offer determines that a contract may be formed on acceptance Carlill v Carbolic Smoke Ball Co. (Andrews, 2011)
Acceptance is said to be that part of the contract that ensures that a contract is entered into by the parties. The acceptance is made by the offeree and has to be clearly determined in order to gather the complete acceptance of the final offer so made under the negotiations. The acceptance shall be made through such a communication that the same is discussed under the contract negotiations. It may be either in writing, oral or through post. If the acceptance is made through the post, it should be valid as soon as it is posted. In the case of Adams v Lidsell it was discussed that the defendant had asked for the acceptance of the contract through the post. However, the same did not reach on time. The court held that the acceptance came into force as soon as the letter is posted. Therefore, when post is agreed to be the part of communication the same is said to be accepted as soon as the letter is posted. Not all contracts require the presence of acceptance. If the contract is advertised for in the newspaper stating the terms of contract and make an offer, it is considered to be an offer to the world whereby, the offer is made to any party and the party accepting the same shall enforce the contract. Since the offer is made to the world the parties accepting the offer have to merely represent that the said act has been performed by them in order to create the enforceability.
Consideration forms part of a contract as an essential element because the same creates an exchange relationship between the parties in order to provide the respective parties with a sum of amount lost under the transaction been made for the purpose of the contract. A consideration may be something of value and may include, profit, interest and such other factors. The consideration being made shall be present, sufficient, not arise from the previous duty of contractual or social nature. According to the case of Chappel v Nestle, it was discussed that the wrappers of toffees were considered to be sufficient as they added value to the toffees so sold in the marketing principle. (Collins, 2008)
Every contract shall be formed with the basic intent to enter into a contract of either social or commercial in nature. The intent to create legal relations aims at knowing the enforceability of the contract under the law. For the purpose of intent the types of agreements that can be classified are domestic agreements, social agreements, or commercial agreements. The domestic agreements are formed between the family members Jones v Vernon’s Pools Ltd.. The social agreements are the ones entered into by the friends. The commercial agreements are between parties that come together for a specific purpose without any prior relation between each other. Balfour v Balfour determined the importance of knowing the intent as it makes certain whether the parties had an intent to actually create enforceability under the law. (Meyer, 2010)
The parties so entering into the contract are required to be of certain capacity in order to create the enforceability under the law. It ensures the legality of the contract under the court of law. This is because, the contract entered into by the parties not of capacity are considered void. The capacity of the parties is considered based on the majority of age, mental stability and financial status. The capacity is to be determined in such a way that the legality of the contract is presented in order to enforce the contract.
If in case the contract is breached by either of the parties involved, the contract is said to be affected from the non-performance. The damaged party may only be able to claim for the breach so caused. It would mean that the parties to the contract are only entitled to the damages. This factor is considered to be a privity wherein no third parties are able to claim for non-performance of the contract unless the party is part of the contract in question.
Bilateral and Unilateral contracts:A bilateral contract is said to be a standard contract that may be created by any party that is entering in the contract. The party are bound by the basic elements of offer and acceptance and such other. The bilateral contract may be either in writing, or oral. The bilateral contract for being simple in nature are easier to[CE1] be established under the law. This is because the presence of the same is easy to be determined by the parties to the contract. A unilateral contract is said to be the that wherein the all the elements are not necessarily present under the contract. In such contract the offer is made to the world through an open statement determined under the newspaper or magazine or such other media. Whereby the element of acceptance is waived off in order to enforce the contract. This contract determines the performance of the action presented in the offer as the acceptance since the party has shown a common intent that was sufficient to be counted as acceptance. The unilateral contract are difficult to be established in terms of time of existence and the consideration so due in proportion to the extent of act so performed to create the entire enforceability of the contract. (Richards, 2006)
Void and voidable contracts: Contracts that of illegal nature or the valid contracts that cannot be achieved without illegal steps are void contracts. A contract may also be void if the same is entered by parties without including the basic elements of the contract will also be considered as void. This is because the basic elements are essential in nature to form a valid contract according to the law. Thereby, these contract are unenforceable for the lack of element for being a contract. Voidable contracts are such contracts that are entered into by the parties with partial involvement of the basic elements but not so far from the meaning that the same is not recognized as a contract in itself. This would mean that the absence of a certain element does not play a major part for a particular contract and the parties may choose to ignore the same if required to carry out the contract as it is. The voidable contracts are enforceable only if the parties to the contract want to carry it forward. The contract may also be made void at the option of the affected party. (Collins, 2008)
Distance Selling Contracts: The contracts that are created from a distance between the parties is said to be the distance selling contracts. The parties in such contracts is not situated in the same locality to make a contact in person. Also, the parties from different parts of the world through a means of communication other than face to face. Such contracts are called distance selling contracts. The parties for such contract are located at a distant, and include the elements of a contract through distant communication. The distance selling contracts requires the seller to provide the sale details at the time the contract is created. The amount so charged, delivery details and the taxes charged are to be determined by the seller in order to keep the buyer informed. The distance selling contract are easier to be established for having date and time of the receipts and transactions so made for enforceability. The remedy for non-performance is easier to claim for having a lad out contract. Other such distance selling contracts are through mail order, locusassignments.and telephonic conversations. These contracts are to be established according to the arrangement so entered into by the parties. The parties should opt for written communication in order to clarify the creation of the contract.
Terms that are clearly determined under the contract are regarded as express terms. These terms are generally present in writing or discussed orally for oral contracts. (Collins, 2008)
The express terms are easier to be enforced as these are easier to be established for common intent between the parties. The parties in such context outright agree to the express terms to create a contract. Esso Petroleum v Mardon.
Terms that are agreed to between the parties without any mention of the same under the contract are said to be implied terms. These terms are implied under law, customs or previous dealings.
The implied terms are easier to be enforced for the proof of existence for the type of contract so created between the parties. Implied terms are not required to be discussed in order to create enforceabilityLiverpool City Council v Irwin.
A condition is said to be the essential part of the contract that deals in creating the basis of performance under the contract. A condition is directly related to the performance of the contract.
The condition when not performed would render the contract void. This is because the non-performance of the condition determines that he purpose for which the contract is formed is not fulfilled. Thereby, the non-performance would allow the affected party to discontinue the contractPoussard v Spiers.
A warranty is said to be such a term whereby, the contract is performed considering the warranty in relation with the condition. The warranty is secondary to the contract. (Adams, 2008)
The performance of the warranty is indirectly related to the performance of the contract. This is because these terms present in support of the condition and not directly related to the contract. The non-performance for these terms may allow the affected party to claim for the damages, specific performance or such other remediesBettini v Gye.
The terms that are neither condition nor warranty are regarded as the innominate term. These terms are considered to be so only when the effect of the same is derived in a given situation. (Richards, 2006)
The remedy for the breach of innominate term depends on the effect of the term based on the situation. If the breach is direct in nature affecting the performance of the contract then it’ll be a condition and if not then it’ll be a warranty Hong Kong Fir Shipping v Kawasaki.
Contracts contain a certain clause that convey the restriction of liability if the contract is not performed as agreed. These terms are exclusion clause as they discuss the exclusion of the liability. The validity and enforceability of the clauses is determined according to the UCTA.
The exclusion clauses are considered to be valid only if they are related to the purpose of the contract. The clauses in regards with restriction of liability for injury or death is invalidSchuler v Wickman Tools.(Andrews, 2011)
Invitation to offer:According to the facts of the case it is observed that the advertisement so posted in the journal of aviation is an invitation to offer. An invitation to offer is referred to as the stamen made by an intending party to create a contract if the right offer is made. It is merely an intimation rather than a concrete offer. Th interested parties on the intimation may present an offer containing the term of the contract to the intending party in order to initiate the contract Fisher v Bell.
Offer: The offer so made shall contain the basic elements and be clear in meaning. When the CEO of Zulu approaches the MD of EMA he is said to be making an offer. The CEO is the offeror here and the MD is the offeree. The terms of the offer were that he would not be available to make the purchase and would like the MD hold the sale till Friday for a certain amount of consideration Harvey v Facey.
Acceptance: Every offer may be concluded by either acceptance or rejection. If the offer is accepted the same[CE2] shall be for the entire offer and not just the partial offer. If the acceptance is made for few terms of the offer the offeree is said to be making a counter offer. The MD in turn accepts the offer. The acceptance being made results in creation of the contract between the parties Gibson v MCC.
Consideration: Every contract shall include the element of the consideration to create an exchange mechanism between the parties to restore the value of the loss so suffered from the exchange taking place in the contract. The consideration shall be sufficient and be past. The amount of consideration so discussed is for 100,000 Pounds Currie v Misa.
Intention: Every contract should include the intent to enter into a contract. The intent of such contracts shall be clear in order to be establish the enforceability of the same within the law. Therefore, whereby the parties have no prior relationship are said to be commercial contracts. Both the parties’ intent to enter the contract. As the parties were not previously related they may be considered for being intending to create a commercial contract DPP v Smith.
Capacity:When a contract is being formed the capacity of the parties is important to be assessed in order to establish the legality of the contract. This is because if the parties are not of capacity or under influence at the time of creating the contract, the same would be regarded as void ab initio. The parties are capable for being involved in the contract as both are of majority of age and sound mind with good financial position for being in respective professional positions De Francesco v Barnum.
Privity:In case the contract is breached by either parties by not presenting the airplane for offer as agreed or paying up the amount of consideration as agreed under the contract, the contract would be termed as breached. In such a situation only the parties affected from the wrong would be allowed to claim the damages. This is because the parties are the only beneficiaries of the performance of the contract Tweddle v Atkinson.
Thereby, based on the analysis of the case study, the contract is said to be valid under law. (Collins, 2008)
Two situations are identified under the scenario presented. Both the situations so discussed are as follows:
First Situation: The term so breached in the given case is that of supply of the mobile phones so contracted for was illegal. The contract clearly mentioned the term stating the phones should be available for immediate use. Thereby, the term so breached is said to be a condition. A condition is the essential term that directly relates to the performance of the contract. The condition if not performed would void the contract Poussard v Spiers & Pond.(Richards, 2006[CE3] )
Second Situation: As per the second situation it is determined that the telephones were set to a certain frequency that wouldn’t allow the use to be immediate in the UK. It may be said that the phones so supplied were legal and be used just had to be adjusted to make a proper use. Thereby, the term so affected under the contract would be of warranty. A warranty is that term that is not directly related to the performance of the contract. The terms are present in support of the conditions. The warranty when breached allows the damaged party to make claim for the damages so caused but does not let the party discontinue or void the contract Bettini v Gye.
An exclusion clause is said to be a term wherein the contracting parties restrict the liability in case of non-performance of the contract. The exclusion clauses according to the common-law rules shall be included through signatures, notices or previous dealings. In the current case since the contract containing the exclusion clause was not signed but included in the previous dealings, it would be applicable despite of not signing the contract.
Statutory Rules:These clauses should be included according to the Unfair Contract Terms Act and not restrict the liability for injury or death. The UCTA lays down the exclusion clauses so applicable for variety of contracts and makes it illegal to exclude liability for the damages so caused in the form of injury or death. The Unfair Term in Consumer Contracts Act focuses on the exclusion clauses concerning the consumer contracts. This legislation provides that the contract terms are unfair if the same are not individually negotiated, are not in good faith or comply an imbalance of the rights of the parties to the contract.
Common Law Rules: An exclusion clause is said to be entered into by the parties through signatures. Notices and previous dealings. It is determined that the Cathy is allowed to claim for the loss and injury suffered as the exclusion clause limiting the liability for such cases is invalid. Although the clause would form part of the contract for being a part of pervious dealings, however the same is not applicable for being invalid. The liability may arise for having provided the sub-par services to the customer under the Unfair Term in Consumer Contracts Act for not being individually negotiated and creates a misbalance for the rights of the parties. Although the contract applies from previous course of dealings, the exclusion clause is invalid[CE4] .
As per the provided case study it is determined that Cathy had been a regular customer at the Brakes Ltd. And had signed the same documents every time on visit. This time she did not sign the same document. This would mean, according to the common-law rules that he exclusion clause was part of the contract from previous dealings. Although, it contained that the company takes no responsibility for the loss or[CE5] injury so caused from the work conducted by the company on the car for negligence or otherwise. According to the statutory rules the exclusion clauses for the liability in case of injury or death are invalid under the UCTA. It is noted that Cathy had met with an accident after using the car on the way back. Th e company would be said to have breached the contract as even I the exclusion clause was part of the contract it was invalid to begin with and the company would be liable for the physical and other such damages so caused to Cathy from the accident for the non-functioning of the car on servicing. (Adams, 2008)
Liability arising under law of tort is that of the performance of a social wrong for a breach of duty so owed to the society. The liability arising under law of contract and tort is for the breach of a duty. The liability is strict in nature for both the aspects as the immediate breach creates a liability by the person performing it without any escape. The liability under contract and tort are however different on the following grounds:
The liability arising from the breach of a duty is regarded as negligence. Such a breach should be a breach of duty of care already owed to be performed towards the neighbor while undertaking desired actions. The breach of duty of care shall affect the neighbor in a manner that the affected party is damaged in terms of monetary, physical or psychological loss. The breach of duty of care shall be determined from an act that is result of the negligence, irresponsibility or carelessness. According to the judgment of Donoghue v Stevenson, it was held that the duty of care so owed for a manufacturer under a market is direct towards the consumers. The relationship of the manufacturer and the consumer shall not be direct because the manufacturer owes the duty towards anyone capable of consuming the product. This created the necessary obligation to undertake precautions for the manufacturer towards the customers that may consume the product in question.
In the case of Caparo Industries, it was held to determine the extent of wrongful act three factors shall be considered under the tort. The remoteness of damage would refer to the extent to which the parties are remotely connected from the wrong so committed. The causation determines the directness of the wrong so committed to create the effect in question. The proximity defines the ability of the effect to be caused as determined. It is also discussed that whereby a certain act could be predicted to cause a damage the performing party is obligated to undertake the required precautions to maintain the foreseeable effect. (Cooke, 2007)
A business is said to be vicariously liable in a way that the people employed work in accordance with the requirements of the business to benefit the business. It would mean that whereby a certain act is delegated by a person or a business the performing party would not be liable for the damage so caused from the performance as the same is done to benefit the delegating party. This type of liability arises under the relationship of employer-employee because the parties are related for the performance of a specific function that wouldn’t have been performed if the same was not an official duty. The employer would only be responsible towards the wrongful act if the same is committed by the employee in the course of employment and not the personal motivation.
According to the Health and Safety at Work etc. Act, it is essential for the employer to provide the employees with an business environment that is fit for use and safe to work at. The essential requirements are provision of clean water and sanitation facilities. The material so provided for the work shall be fit for use and of standard quality. Also, determined by the Occupier’s Liability Act, employer or the occupier shall undertake the necessary steps to ensure that the visitors and non-visitors are safe while present on the premises. The same may be done if the occupier ensures to display the signs and notices at an accessible place to ensure the persons visiting and working on the premise towards the unsafe environment and possible dangers so present on the premises. The same may apply to the trespassers. (Giliker, 2010)
As per the facts, the case study implies the tort of negligence on the part of the restaurant while providing the cake contaminated with an insect. As a service provider, it is the duty of the restaurant to provide a healthy meal to its customers in order to ensure the health of the customers. When Janet had the cake with the insect she ran into shock and became ill after returning from the restaurant. In the case of Donoghue v Stevenson it was determined that the person providing any service of food and beverages shall be responsible for the safety of the customer that may consume the product or is capable to do so. Therefore, Janet may be able to claim the damages for the loss so suffered from the negligence so performed by the restaurant. Janet is also entitled to remedy under the Consumer Protection Act, 1987 for not being provided services of standard quality and claim damages for the loss and injuries so suffered without proving for the negligence. (Vettori, 2007)
The nature of professional negligence is said to be that of the liability arising from the negligence committed while performing the skills specifically acquired to earn a living. This type of negligence is referred to as a professional negligence. The present case study determines that the organization had specifically asked the representative not to make any other estimates other than the one he was being sent for Hedley Byrne v Heller. When Angelina asked Brad of his advice on the painting, he made an estimate in personal capacity and not professional capacity however, the same had been conducted while performing the official duty. However, the profession of Brad was reason enough to believe his estimate and act upon it.
The defences that may be used in the case of tort are that of the following nature:
Contributory Negligence:The negligence whereby both the parties are responsible to make the said contribution towards the breach of duty is said to be the contributory negligence. This negligence allows the party breaching the duty of care to only pay for the wrong contributed by the party and not the participation of the other party towards the wrong Revill v Newbery.
Volenti-non-fit-injuria: This type of defense is applied in the cases whereby the affected party willingly waives of its right to safety from the said damage so undertaken by the party performing the breach of the contract. The party committing the breach of duty could not be liable as the affected party knew of the duty of care and yet decided to carry on with the respective actions. This defence is voluntarily and called volenti-non-fit-injuria Nettleship v Weston.
Exclusion Clause: Whereby in the contract it is derived that the said action so undertaken would not be responsibility of the performing party is said to be the exclusion clause. If the same is signed by the parties to the contract, then it would be regarded as the agreement whereby the affected party would not be able to bring any claim as the same had been discussed between the parties. Th exclusion clause shall only be valid if it is not restricting the liability for death or injury. It is also essential to note that the parties shall include these clauses through the signatures, notices or previous dealings Baldry v Marshall.
According to the case of Rose v Plenty, as the negligence was not so far from the negligent act, the organization would be vicariously liable for the same. The defense that may be used by the Brad is that of the contributory negligence as Angelina knew it was a opinion and not the professional for the lack of experience for valuing the paintings. Also, that Angelina was informed that he is not the right person for doing the same still she chose to believe him is regarded as volenti non-fit injuria. (TAN, 2008)
The assignment determines the different types of contract that may exist between two parties. The effect of the contract on the non-performance is studied in detail in order to determine the rights and duties of the parties so involved. There are two types of liabilities that exist under contract and tort that have been discussed to highlight the function of the legislations in case of any damages so caused from the breach of duty. Contract law determines the different types of terms that consider the breach of the contract whereas the law of tort considers other factors that relate to the analysis of the tort and the wrong so committed.
Andrews, N. (2011). Contract law. Cambridge: Cambridge University Press.
Meyer, L. (2010). Non-performance and remedies under international contract law principles and Indian contract law. Frankfurt am Main: P. Lang.
Vettori, S. (2007). The employability skills and the changed world of work. Burlington, VT: Ashgate Pub.
Giliker, P. (2010). Vicarious liability in tort. Cambridge, UK: Cambridge University Press.
Cooke, P. (2007). Law of tort. Harlow: Longman.