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Unit 5 ACNB Contract Essentials Assignment
Locus Diploma in Business
Unit Number and Title
Unit 5 ACNB Contract Essentials Assignment
The Unit 5 Aspects of Contract and Negligences for Business Contract Essentials Assignment would involve a detailed study of the various aspects of formation of contractual relationship as well as the implication of the infringement of such a legal relationship to the parties involved. The study would also highlight the factors that can make the parties liable to each other in the course of execution of such a contract as well as the significance of the presence of different terms in such contracts. The discussion would explore the factors that could lead businesses to be held vicariously liable or negligent in their actions and also the implications that arise from tortuous actions. The case scenarios that have been used would help in understanding the aspects of contract to be discussed in the study in the practical context of day-to-day business activities.
1.1 Description of essential elements of Contract
The term contract refers to an agreement that takes place between two or more parties and can be enforced as per the prevailing law of the land. For an agreement to acquire the status of a legally valid contract it becomes imperative that the arrangement must reflect the presence of the following elements:
- Intention for creation of legal obligations – The individual who show their willingness to enter into a contractual relationship with each other in the eyes of law must at the very first place possess such an intention since in its absence, a legally valid contract cannot be formed. This is most important because failure to meet any of the contractual obligations by any of the parties in future makes the other eligible to file a suit against the other seeking compensation for such an act (McInnes et al. 2013).
- Offer –An offer gets constituted at that point of time when one of the parties displays a willingness to do an act towards the other. Offers are although not bound by time yet the ones that have limitations of time are preferred more since it becomes easier to resolve issues of crisis that may arise in the execution of the contract in the course of time. If the acceptor of the offer that has been made remains silent about his acceptance it would not be considered as an offer. Moreover offers cannot by any means be taken as an invitation to treat since the latter is an invitation to offer only and not to be considered as an offer ( Mc Leod., 2011). When there remains a scope of making offers it is an invitation to treat and in case such an invitation is accepted then it can be treated as a basis for contracts that can happen in the future but not in any circumstance can be regarded as a contract. The auction marts, window displays at various shops serve as good examples of such a case.
- Acceptance – It is the precursor to the validation of the offer that had preceded the situation. Acceptance and the performance of the contractual duties must be simultaneous otherwise conduct would be regarded as acceptance (Revak., 2011). The individuals who enter into the contractual relationship must mutually agree on the mode of acceptance, in the absence of which the rules that are considered have been indicated below:
- Postal rule – This rule implies that it would be considered a contract has been formed at the time of the posting of the letter of acceptance irrespective of any kind of delays in its receipt or incidence arising from loss-in-transit of the same (Pryor., 2005).
- Receipt Rule – This rule states that when acceptance is delivered through fax or e-mail to the offeror, its receipt would be deemed as acceptance even if the offeror does not go through it at that particular time.
- Partial or conditional acceptance does not validate the formation of a contract and is regarded as counter offer as for example if the party accepts not all the terms but a few of them and also places another offer having a set of different terms it would be held invalid.
- Consideration – In legal parlance this element is considered as a point of bargain. In other words consideration is the aspect of advantage or benefits that gets accrued to each of the parties from the other in the execution of the contract. The element of consideration that is decided between the parties must be valid in the eyes of law without which even if the duties pertaining to the contract is executed lawfully it would be considered ineffective in nature. The unit of measuring the element of consideration can either be in monetary form or in the form of services or goods which are exchanged between the two parties in lieu of the benefits that they derive from each other as per their mutual decision (Hermalin et al., 2006). Consideration would be taken as inadequate in case the offered price in lieu of the benefit, goods or service from the other party is less than its current price in the market, the receiver would not have the right to any legal claims for the shortfall.
- Capacity – The individuals who agree to get into a contractual relationship must be 18 years of age or above and must not be mentally unstable or under the spell of any kind of intoxication such as drugs or alcohol in the course of contract formation. It would otherwise be treated as null and void and infringements of any sort by either of the parties would not give rise to any kind of liabilities (Hogg et al., 2008). There is although an exception to this rule where it states that contracts between minor and the individual who would agree to provide for the minor’s necessities is enforceable in case the minor disagrees and breaks his promise to pay for the necessities provided to him.
1.2 Discussion on the possibilities of contract without physical presence
It is a usual practice that at the time of formation of legal contracts both the parties to the contract is present in person unless otherwise determined by them. It is also true that not all the times the physical presence of the contractual parties makes them enter into a contract which is done in the conventional format of a written document. In such cases the contract is formed verbally on the basis of mutual trust. The element of faith being the most crucial of all the aspects in the course of formation of contracts verbal contracts can also be made enforceable as has been revealed in the case of Rowena Williams (as executor of William Batters) v Gregory Jones (25 February 2014) ( Schmerler., 2008). Another case, Winternitz v. Summit Hills Joint Venture, serves as the evidence that legal suit can be imposed in such contracts to settle issue of breaches of clauses and an absence of faith and as such in the above case, a sentence of punishment was awarded to the accused individual.
Written contracts on the other hand are used widely all over the globe both in personal and professional agreements and is the most preferred one since it involves documentation of the aspects of the contract in the form of time, terms of contract, clauses and all relevant piece of information thereby making the consequences of its breach clear to both the parties to the contract (Deakin and Morris., 2012). As these contracts are enforceable in nature hence legal claims can be brought against one party by the other when there is an instance of breach of any of the terms or clauses of the contract by any of them. Rigorous documentation mitigates the element of risk in these contracts thus making it more reliable than the other forms of contract.
In the present wake of globalisation and the evolving culture of consumerism not all the times it is possible for the parties willing to enter into lawful contracts can be present physically or enter into a conventional written forms of contracts simply because of their variable locations and constrained availability, hence more often the electronic medium of telephone and internet serves as a handy tool to enter into contractual relationships. It is also because of the online presence of the business nowadays that has made this possible, and such contracts must also fulfil the elements required for the written contracts as also its breach by any of the parties makes him liable to charges as decided by Electronic Commerce Regulations, 2002 responsible to regulate the principles required for commencing business strategy activities on the e-commerce domain. It must be noted that the businesses that are commenced online must remain aware that they bear the liability to secure the interest of the online traffic they deal in and therefore must display a sense of discretion while transacting with the consumers (Holmes., 2009). The contracts that are formed over the telephone are regarded as verbal contracts and if it lacks documentation then it cannot be legally enforced for resolving any kind of act of breach by the parties. As there can be no legal boundaries of such contracts hence the contract can be ended as and when the parties would want it.
1.3 Analysis of Contractual terms in the context of the case of Carlill v Carbolic Smoke Ball Co (1893)
It is important to understand the facts of the given case to analyse it in the context of effects of contractual terms. The company by the name of Carbolic Smoke Bal was producing smoke balls that they claimed could cure the people infected with influenza and the company had placed an advertisement in the newspaper declaring that a sum of 100 pounds would be offered to the individual who falls sick by using the product. This advertisement and promotion on being seen by Mrs. Carlill was accepted and she on acquiring the product on the payment of the sum used it for three months as per the given instructions and fell sick which made her place claim for her money from the company.The court held that the contract between the party and the company was legally binding since the offer cannot be treated as an invitation to treat as it was for them only who would comply with the terms of the advertisement, taking the smoke ball in use would be considered as an acceptance, the payment of the money satisfies the criteria of consideration and the declaration of the deposit of 1000 pounds at the bank displays intention for entering into a contractual relation with the party.
It is important to note that the company had expressly promised to pay the sum if the usage of the product in accordance to the given instructions results in the disease which is a condition that has not been fulfilled by the company in not paying the sum to the lady making it a case of breach of the entire contract. As the lady had used the smoke ball as per the given instructions that was conveyed to her by the advertisement which carried the express warranty of paying the promised sum would be accused of breach of the same thus giving rise to a situation whereby the lady has the right to sue the company for damages caused by such breach and hence she was legally justified in her claim against the company.
The matter of the advertisement stating the deposit of 1000 pounds in the Alliance Bank is construed as a serious intention of the company to enter into a legal relationship with the reader or the party who wishes to accept the offer.
2.1 Identification of elements of contract in case scenario of David and Williams
In the given scenario, the advertisement of David for rendering his services as a builder displays his intention to enter into a lawful contract with the interested party who would like to hire his services. William’s response similarly shows that he too had the intention of entering into a legal contract with David after coming across his advertisement and hence negotiated for hiring his services as a builder. The advertisement is construed as an offer and the acceptance from William is displayed by the fact that after the initial negotiation on 1st May, 2016, they meet again on 10th May to take their decision forward. The aspect of consideration also can be found as David agreed to render his services to build the gym at a consideration worth 18000 pounds. Therefore as all the elements required for the formation of a lawful contract can be found in the interaction that took place between both the parties thus concluding that a contract was formed between William and David by the dint of which David had agreed to build the gym of William for a sum of 18000 pounds. However it must be noted that there was no mention of the time frame within which William would want David to hand him over the complete gym and this aspect could lead to future crisis since the latter is completely unaware of the intention of the former thus displaying lack of clarity in the process of documentation of all relevant facts in the formation of a contractual relationship.
2.2 Contract formation between David and Williams
In the initial contract that was in the written format between David and William there was no mention of any time frame within which the project needs to get completed. William had showed lack of clarity in the contract by failing to mention the time within which he wanted to be handed over the gym by David. As the contractual term of completing the work within 31st July, 2016 was not mentioned in the initial contract between the two, the conveyance of the information after a period of 10 days by William would amount to the breach of the contract that already existed between the two.
2.3 Effects of Terms
- Violation of contractual term - David was not in violation of the terms mentioned in the contract that had taken place between William and David on 10th May, 2016, since William had not clearly mentioned any information about the time within which David was supposed to complete building the gym and hand it over to him. There was absence of clear understanding about the stipulated time since David had concealed the information at the time of forming the contract. Although William mentioned the date of delivery to David in the course of his work after completion of 10 days it cannot be construed as a term of the contract and hence when David expressed his inability to complete the project within the time that William had asked him to outside the purview of the contract formed between them, it cannot be held that David has violated the contractual term.
- Explanation for David’s claim of extra money - In the given scenario David had asked for an additional sum of 2000 pounds so that he could hire extra labour and complete the work by the deadline set by William outside the initial contract formed between them. The court would hold that thus is the vase of past consideration, as the consideration of William took place prior to his promise of paying the extra sum to David at the completion of the gym, hence it would be considered valid and William must therefore pay the promised sum on the completion of the project.
3.1 Differences between Tort Liability and Contractual Liability
The basic principle on which the law of tort is based can be explained by the theories of:
- Wider and Narrower Theory –If the act that has been committed can be justified or recognised from the perspective of law then exemption can be sought otherwise the damages that one of the party has suffered due to the other would be regarded as a tortuous action (Routledge-Cavendish., 2010).
- Pigeon-hole Theory –This theory states that the principle of tortuous liability is applicable only to a particular number of acts considered as torts and acts outside the limitations of those principles are not to be considered as acts of tort.
The event of contractual liability is formed in case when one of the parties fails to comply with the terms of the contract and becomes liable to the other for the infringement. As for example, in a contract between two fictitious individuals by the name of S and T a contract is formed for the sale of a vehicle by S to T, involving a payment of $ 100,000 within a stipulated time. Now when the vehicle does not reach T on payment of the price within the mentioned time there would be an infringement of the term of the contract making S liable for the act in accordance to the price of the vehicle while on the other hand if T fails to pay S even after the vehicle has been delivered within the specified time, then T becomes liable for the breach of the contractual term and consequently for the loss of S.
A liability for being tortuous gets formed when it can be established that one of the party has breached his commitment of not causing harm to the other by performing unlawful actions and in case of a liability that arise from the infringement of contractual terms is considered when the creditor fails to fulfil the commitments mentioned in the contract (Shapo and Shapo., 2003). Contractual infringements happen when one of the parties to the contract commits a voluntary act giving rise to a liability whereas in cases of tortuous liability two individuals are brought together by accident. The presumption of the debtor being guilty is considered in cases of liability arising from breaches of contractual term, while in cases of tortuous liability the sufferer must produce evidences supporting the act of injury he has been subjected to by the offender. From the point of view of the compensation in tort liability cases the offender must remit the predictable, unpredictable, direct and indirect cost but in cases of contractual breaches only the foreseeable damages at the time of forming of the contract would have to be paid by the debtor ( Kidner., 2008). Tort liability principles take the commitment of the illegal act as one single liability irrespective of the number of offenders while in cases of breaches in contracts, liability must get shared amongst the ones who had committed the breach.
3.2 Establishment of the occurrence of Tort of Negligence
The following conditions needs to be considered in the discussion about the nature of liabilities that arise out of negligent actions:
- Direct Cause – The consequences that are suffered due to the negligent action of the business enterprise or individuals either out of non-violation or violation of the terms and conditions of the contract is brought forward by the cause ( Kappeler., 2006).
- Duty of Care – This trait denotes the extent of the responsibility of the individual as well as the remorse suffered by the accused and therefore, forgiveness followed by confession must be sought by such accused in the view of the masses or individually.
- Legal Causation – Discretionary measures are adopted from the direct or factual causation since direct causation is based on the rules of the judiciary.
- Breach of Duty –Compensation must be awarded to the sufferer of damages as a consequence of infringement of the duty as a part of the act of negligence (Owen., 2006).
In the famous case of Donoghue v. Stevenson the boundaries of the extent of the duty of care in negligence and its limitations were determined by the decree by Lord Atkins that suggested a fair amount of care must be practised so that certain actions are avoided which could inflict harm to one’s neighbour. Neighbour here connotes the extent of intimacy of the individual with the sufferer so that the consequences of committing an action towards him can be apprehended prior to such commitment (Cooke., 2009). In the case indicated here the lack of treasonable care was established when the cafe owner negligently served the ginger beer causing harm to the victim. There was a lack of duty of care towards the victim from the owner of the cafe making him liable to pay for the damages suffered by the victim. The defendant’s liability thus gets established arising from the negligence of care decision making him pay for the claim brought in by the sufferer.
3.3 Vicarious Liability
The liability that arises when one of the parties commits an act of tort without the knowledge of the other to a third party and the party not having the knowledge of the act is held liable for the damages resulting from the commitment of such tortuous action (Giliker., 2010). It must be understood that in the presence of the explicit prohibitionary clause and terms in the contract about the avoidance of such acts which could bring liability to the party without his knowledge the other party if engages in any such commitments and causes damages to any third party the first party cannot be held vicariously liable for the act.
This can be cited well vide the case of Twine v. Bean’s Express Ltd (1946) 62 TLR 155, where the employee of the company had given lift to an individual in company’s vehicle and caused him injury due to negligent actions and the sufferer had held the company vicariously liable for the act of injury on the grounds that the act was committed in the course of business activities. The court however found out that the employer had explicitly mentioned in the appointment letter about avoiding such actions to the employee and hence injuries caused by ignoring the instructions of the owner even during the duty hours could not justify the claims of compensation for damages by any third party.
Similarly, in the case of Conway v George Wimpey & Co Ltd  2 KB 266, it was found that the driver had given lift to an employee from a different firm in spite of being explicitly instructed against such actions by the employer and caused him accidental injuries by negligent action. The victim had brought charges of vicarious liability on the employer but the court decreed that the act was committed by the employee outside the purview of his employment in the presence of the explicit instructions by the owner of the company and hence no liability could be imposed.
In the famous case of Rose v. Plenty  1 All ER 97, however the employer was held vicariously liable for the act of his employee who had hired the service of a young boy in delivering milk and had injured him due to negligent driving during the course of his employment. Here although the employee was not asked to hire children for helping him in his duties, it was found that the employee had acted within the scope of the business and the hired child helped in the furtherance of the activities of the business hence the employer was vicariously liable and had to pay for the damages to the child.
In the case of Lister and Others v. Hesley Hall Ltd  2 All ER 769, the resident boarders of the school were abused by the warden and the employer was imposed with the charges of being vicariously liable, since the warden had assaulted the students within the scope of his employment as he was employed to take care of the students. The assault had taken place during the deliverance of his duties and the closeness between the allegations and the duties of employment was indeed narrow thereby holding the employer vicariously liable for the act of his employee.
4.1 Comparison of Verdicts in given caser scenarios
It is important that the facts of both the cases of Donoghue v. Stevenson (1932) and Hill v. Chief Constable of West Yorkshire (1989) must be understood in detail for drawing a comparison between the two.
In the first case of Donoghue v. Stevenson (1932) the lady had visited the cafe with her friend where she was served a bottle of ginger beer which had a decomposed snail in it and its consumption caused damages for which the lady sued the cafe owner for negligence claiming compensation. It was decreed that the owner lacked duty of care towards its customers as the probable damages that was caused was foreseeable and hence he was held liable to pay for the damages to the consumer (Owen., 2006).
In the case of Hill v. Chief Constable of West Yorkshire (1989), the mother of the last victim claimed that the police had been negligent in the area of West Yorkshire in offering protection to the general public from the attacks of the Yorkshire ripper and that in the absence of reasonable amount of care in catching the criminal, a duty infringement has been committed by them. It was decreed by the high court that the police cannot be held for lack of care duty in case an individual from the public attacks another and the House of Lords had upheld the decision saying that the police would be exempted from the liability of lack of care duty on the grounds that there was no proximity between the criminal and the police which could arise either when the criminal has become fugitive or is in custody ( Kappeler., 2006).
In my opinion the verdict of the second case amounted in offering a cover of immunity to the police authorities, since the decision of this case was widely in usage for addressing any allegations of negligence of the police authorities. This defence of denial of a duty of care towards the general public by the police authorities has been widely used in several cases in the late 80s.
4.2 Case Scenario of Vicarious Liability
In the given case scenario apparently it can be understood that the owner of the taxi service has explicitly declared that damages caused by the negligence of the hired drivers or the employees to the riders would not be borne by the company under any circumstances so that in case of any such untoward incident the owner would not be held vicariously liable for the act of his employees. However in the light of the famous case of Rose v. Plenty  1 All ER 97, it was revealed that the driver although hired the service of the child despite being instructed against it to conduct the business activities of the employer and caused injury due to his negligent driving the court decreed that the employer was vicariously liable for the act of the employee since the injury was caused in the course of his employment as the child helped in the conduct of the business activities. Hence in the present case scenario the hired drivers while being in the duty if causes any kind of damage to the passengers it would be considered in law to have happened within the scope of his employment thereby making the owner vicariously liable for such act and thus the owner would have to pay for such damages caused to the passengers by the negligence of his employees ( Bishop., 2005).
The report has covered in its course the various aspects of formation of legal contracts, the significance of terms and clauses of the contracts and the consequences of its infringement in the eyes of law. It has used certain case scenarios so that the application of the legl principles could be understood in the practical context. The report has also highlighted the topics of tort of negligence business and vicarious liability and its implications on the victims as well as the offenders.
From the conduct of the above study it becomes clear that whether an individual or a business organisation entering into contracts with other businesses or individuals must note that the contractual relationship that they are willing to enter into must have clarity and transparency in documentation of the relevant details in the form of various terms and clauses, the absence of which could lead to future crisis and wrongful breaches from either of the parties. In cases of breaches it would be impossible to establish claim unless the same can be proved by its presence within the contract. It is also recommended that the contracts formed must be in compliance with the prevailing law otherwise it could lead to subsequent nullification of the same. The parties to the contract must show a duty of care and avoid committing actions out of negligence leading to an imposition of liability on the other.
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