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Unit 5 Application of Legal Principles in Contract and Tort
Diploma in Business
Unit Number and Title
Unit 5 Application of Legal Principles in Contract and Tort
A contract can be presented as an agreement resulting to emergence of obligations that can be enforced by the legal principles of contract law. Therefore According to English contract law ‘All agreement is contract if they are made by the free consent of the parties, competent to contract, for a lawful consideration and with a lawful object and are not expressly declared to be void.’ A contract is formed between two or more involved parties who bear the legal capacity to enter into a valid contract. In this application of legal principles in contract and tort it can be sated that individuals below the age of 18 years are not legally entitled for entering into a contract. Apart from this the mentally challenged individuals incapable of making their own independent decisions or individuals with evidences of narcotic abuse are also restrained for having the legal capacity to form a contract (Andrews, 2011).
A legal validated contract demand certain elements or certain conditions that must be fulfilled by the agreement and hence need to be enforceable by the legal principles of contract business law. To begin with offer and acceptance to the offer are the major initiation required for a contract to be developed. In this case, meeting of minds is also essential depicting the consent of the parties to enter into a contract. The case of Balfour versus Balfour (1919) can be cited that reflected that fact that agreement made between husband and wife are not generally contracts as parties do not intent to be legally bound by the said agreement. Furthermore intention to bind to the terms and conditions of a contract formed is also essential. A contract established on the basis of a fraudulent activity, mistake, misinterpretation and undue influence is not acceptable legally. The other key elements significant for forming a valid contract comprise of lawful consideration, certainty, possibility of performance, legality and proper documentation of the contractual terms and conditions. Lawful consideration with respect to a contract formation process can be explained as an agreement to do something that is enforceable by law (Elliott and Quinn, 2007). Moreover the legality of the object with respect to contract formation is the object for which agreement has been developed. The possibility of performance in this context can be described as that fact that the said agreement must be capable of being performed. Last but not the least, a legally validated contract should be well documented specifying the contractual terms and conditions relevant to the said contract. Therefore the basic general principles applicable for governing all contracts are freedom of contract wherein the parties own the liberty to bargain, sanctity of contract and privity of contract. The latter indicate that only parties involved in a negotiation with respect to contract formation are entitled to sue or can be sue for breach in contract (Cartwright, 2007).
There exist a number of variants reflecting the domain of categories of contracts. Hence a contract can be bilateral unilateral, simple, void or can also be categorised as a contract formed through face to face communication or by distant selling approach. The key difference between a bilateral contract and a unilateral contract is the former include both parties who are bound to oblige to the contractual terms and conditions while the latter consider the obligations of only one party to bound to contractual obligations and offer made
in such case is normally made to the world at large (Elliott and Quinn, 2007). Both the types of contract although enforceable by law but in case of unilateral contract, it is enforceable when someone opts to begin fulfilling the act demanded by the promisor while a bilateral contract is enforceable from the get-go; wherein both the involved parties are bound to fulfil the promises made. The case of Carlill versus Carbolic Smoke Ball Co (1893) is an example of a 'unilateral contract'. The case of Hyde versus Wrench  can be reviewed for understanding the legal consequences with respect to a bilateral contract (Australiancontractlaw.com, 2016).
A deed can be presented as special type of binding promise or commitment to do something and it appear to be a substantial requirement of a deed that it be intended by the executing parties to be the most serious indication to the community. Hence deed previously known as ‘evidence’ is a legal instrument in writing that passes or confirms an interest, right or property that is signed, attested and delivered and in sealed. Deed in contract is generally found to be associated with property transfer issues (Smith, 2007). On the contract a simple contract is a contract signed or orally established between the parties rather than contract made under seal. The presence of valid contractual considerations along with both expressed and implied terms are part of a simple contract that is mandatory for the involved parties to remain obliged. Hence the key difference between a deed and a simple contract is in case of the former considerations are not needed. Deed poll, escrow deed, financial guarantee or letter of credit, confidentiality deed, deed of termination and indemnity deed are the major categories of deed. The execution of deeds is in accordance to the Property Law Act (1974) of Australia while a simple contract can be enforced under the English contract law (Claytonutz.com, 2016).
A contract can be formed both verbally and through documentation. In case of verbal contract, the entire contract is formed on the basis of mutual faith between the parties and in such contracts, not documentation of contractual terms and conditions is evident. In contrast to this, a written contract comprise of properly written contractual terms and conditions with full signature of the parties. Important to note, in contrast to a verbal contract, a well drafted written contract is capable of minimising the risk of ambiguity and the risk of developing disputes within the involved parties (Ruff, 2014). However, although certain advantages of a written contract are lacking in a verbal contract, but the parties action following a verbal contract can be evaluated by the judiciary body in order to assist in forming the full extent of terms agreed. The case of Texaco versus Pennzoil indicated that an oral contract developed in presence of proper witness is enforceable by law (Casebriefs.com, 2016).
A contract established with clear communication of offer and acceptance to the offer through face to face communication is distinct from a contract developed by distant selling approach. In case of a contract formed by face to face communication, meeting of minds is easily achieved and a contract formed in much faster compared to that by distant selling approach. On the contrary the concept of distant selling with respect to contract formation includes the use of electronic media or telephonic conversation (Ruff, 2014). Exchange of emails is also a part of distant selling which is absent in contract formed through face to face communication. Moreover the Consumer Protection (Distance Selling) Regulations 2000 are applicable for distant selling that cannot be implemented on face to face contract formation process. However in both the modes of contract formation process, postal rule cannot be implemented. The case of Couturier versus Hastie  is an example of contract formed by face to face communication. Distant selling is an approach for business expansion. This approach of contract formation reflects real life situations in retail businesses selling goods and service to the customers distantly located (InBrief.co.uk, 2016).
The contents in a legal validated contract are also known as re terms or clauses of the said contract and it is mandatory for a simple contract bear contractual terms. Expressed and implied terms are the two variants of contractual terms and the former in explicitly expressed or documented with the said contract. On the other hand implied contractual terms are not documented within a contract. Such terms are put into the contract by the court or the statutory guidelines. However with respect to a contractual term the statement made during the process of negotiation is very crucial. Such statement can be identified as an express term, a representation and also viewed as a part of collateral contract (Cartwright, 2007). The case of Esso petroleum versus Mardon (1976) can be cited in this respect. Famous case ‘The Moorcock (1889)’ introduced business efficacy test applicable for evaluation of implied terms (Austen-Baker, 2011). Terms implied by custom, in fact and al law are the major categories of implied terms. In context of discussion it can be further added that contractual terms can also be presented in form of conditions, warranties and or innominate terms. Innominate terms are midway between a warranty and a condition. The case of Hong Kong Fir Shipping can be reviewed in this context. Essential to convey that a breach in contractual condition enable the innocent party to terminate the contract and claim for compensation while warranty being not central to a contract made enable the injured party to claim for compensation but is not capable of terminating the said contract (Austen-Baker, 2011). The case of Poussard versus Spiers (1876) is an example depicting the legal aspects of contractual condition. The legal aspect of warranty is explained in the case of Bettini versus Gye (1876) (swarb.co.uk, 2016).
Another significant aspect related with the legal implication of contract law is the exclusion clause that can be identified as contractual term restricting the rights of the parties to the contract. True exclusion clause, limitation clause, and time exclusion clause are the major types of exclusion clause. However application of an exclusion clause in legal valid provided the clause has been properly incorporated within the said contract and is not contrary to law (Andrews, 2011). The case of Thornton versus Shoe Lane Parking Ltd (1971) can be cited that indicated communication of the exclusion clause is highlight important. Furthermore the exclusion clause has to be legal.
Limitation clause being a variant of exclusion clause finds its application in placing a limit on the amount that can be claimed for a breach in contract regardless of the actual loss or damages suffered. Important to add incorporation of exclusion clause being pivotal with respect to applicability of this clause should be incorporated either by signature, by notice or by previous course of dealing (Lawhandbook.sa.gov.au, 2016). The case of Mc. Cutcheon versus David MacBraye Ltd is a case example in this aspect. The case of Olley versus Marlborough court (1949) can be reviewed that exemplified incorporation of unfair terms in contract (swarb.co.uk, 2016).
The depicted case scenario of task 2 (2.1) has presented a situation where in a unilateral contract was made from the side of City Car Dealers. In this case understanding the lines quoted as advertisement do not reflect an advertisement but a clear intention to bind into the contract. As the given case scenario do not reflect an invitation to offer, the claimant has right to obtain what was promised by the City Car Dealers. In support of this it can be further stated that the lines although presented as an advertisement strongly reflected a condition that on fulfilment, the concerned candidate shall be awarded. Furthermore, in case of unilateral contract there is no requirement of communication from the offeree’s side as the acceptance to the said offer is through full performance (Peel and Treitel, 2011). This particular case can be aligned with case details of Carlill versus Carbolic Smoke Ball Co. (1893) wherein the case decision was in favour of Mrs. Carlill who has entitled for reward as the advertisement constituted an offer of a unilateral contract. Therefore referring to the legal implications as observed in this particular case, it can be inferred that often a unilateral contract may turn out to be legal and binding contract wherein the offer was clearly notified and accepted with its subsequent considerations and bona fide without prejudice (E-lawresources.co.uk, 2016).
Consumer Rights Act has replaced the Sale of Goods Act with effect from 1st October, 2015. According to this act the goods for sale should be as described, satisfactory quality and fit for purpose. Also the goods or products sold must match with the sample kept at the concerned store or should essentially have a description brochure (Jasper, 2007). However it is to be noted that exceptions to the requirement of satisfactory quality are if a defect is evident. Referring to the given case scenario, Eric is definitely entitled to claim for compensation for the damages or injury suffered as a result of faulty brake in his newly purchased vehicle. Furthermore with although the contract terms and conditions were signed stating no liability shall be taken by the car seller if any accident occur, on with respect to implied terms, it is implied that the car sold is of satisfactory quality without a faulty brake system. However it is important for the claimant Eric to prove his claim with respect to the malfunctioned brake system in the car that he recently purchased. Therefore on the concluding ground it can be stated that Eric who is the claimant in the given case although has signed the contract paper agreeing on the expressed contractual terms and conditions has right to claim for compensation. His claim for compensation is further strengthened by the fact that the seller or the defendant of this case, Rani should easily foresee that damages or injury may is incident while running a car with a faulty brake system. Hence the damage caused is not remotes and the negligent claim is established. Also the degree of risk can be evaluated while making a negligent claim by the claimant (Horsey and Rackley, 2011). As the severity of injury suffered was high, Eric should be rightly compensated by Rani. The case of Haley versus London Electricity can be reviewed in this respect (E-lawresources.co.uk, 2016).
According to the legal principles of tort law a tort is presented as a wrongful action that subsequently cause damage or injury to another. Breach in duty is one of the key indications that a tort has been committed. However a sharp contrast exists between tort liability and contractual liability. Considering tortious liability it is important to mention that a tort being a civil wrong enable the injured party to sue the accused and compensation can be claimed for an injunction can be placed against repetition. On the contrary in case of contractual liability, it is essential for a contractual relation between the defendant and the claimant to exist. Furthermore contractual liability can be viewed as a result of agreement while contractual liabilities are the result of law. The damages suffered as a result of breach in contract are identified as expectation loss while tort damages are compensatory (McBride and Bagshaw, 2005). The case of Thake versus Maurice can be cited as exemplified the contractual liabilities (swarb.co.uk, 2016). The popular case of Kasturilal Ralia Ram versus The State of Uttar Pradesh (1965) can be reviewed that exemplified the legal aspects emergent as a result of tortious liabilities.
The concept of negligence can be viewed as the failure to impart reasonable care while executing a duty or a responsibility with consequences like damage or harm to the other party. The case of Donoghue versus Stevenson (1932) can be cited that introduced the concept of marketing principle in this context (lawgovpol.com, 2016). Furthermore in order to successfully establish a negligent claim it is essential to prove the duty of care existed and the defendant owned a duty of care. Importantly it has to be established that a breach in duty if care has been incident and subsequent damage or injury has occurred (Abele, 2003). The case of Pokura versus Wabash Ry. Co (1934) can be cited that established the fact that the plaintiff‘s negligence is determined by the facts and a reasonable person standard. Additionally, it has to be established that with respect to remoteness of damage, the damage caused was foreseeable. Hence breach of duty is evident to be based on the standard of care that is expected from a reasonable individual (Swan, Reiter and Bala, 2006). The case of Roe versus Mins of Health can be reviewed that exemplified the aspects of standard care with respect to duty of care (E-lawresources.co.uk, 2016). On the contrary the case of Paris versus Stepney (1951) indicated that if a claimant need more than usual care, the standard of care need to be higher. The case of Ward versus Tesco Stores Ltd (1976) can be cited wherein the burden of proof was reversed and placed on the defendant in place of the claimant (swarb.co.uk, 2016). A negligent claim cannot be established if it is proved that the loss was remote if no specific cause that can be identified or unforeseeable. In this context the case of Overseas Tankship (UK) versus Morts Dock Engineering (1961) popularly known as the Wagon Mound case is a good example (Casebriefs.com, 2016). However defences to negligence comprise of contributory negligence, Volenti non fit injura or Voluntary acceptance of risk and implementation of exclusion clauses.
A tort or a wrongful action can be intentional or negligent or may bear strict liability or fault based. However, the commonly evident forms of torts are trespass, nuisance, defamation, deceit, passing off and vicariously liability. The concept of vicariously liability can be cited as an example of strict liability and is in accordance to the common law doctrine of ‘Respondeat Superior’ wherein an employer of an organization can be held accountable for the tort committed by his employees (Brodie, 2010). Every business organizations are conscious regarding the consequences of vicariously liability as the employer is responsible to compensate the damages cause if proved. However in order to correctly held an employer vicariously responsible it is mandatory to investigate whether the defendant is an employee of the concerned organization and the tort committed was incident in course of his employer tenure and was a part of the defendant’s professional duty. In case of independent contractors or self employed individuals the legal implication of vicarious liability cannot be applied. As the legal implications in this context are complicated three major tests have emerged. The control test, the integration test and the economic reality test are the investigative procedure applicable in this context (BAGLEY, 2012). The case of Yewens versus Noaks (1886) was the origin of the control test while the case of Cassidy versus Ministry of Health introduced the integration test. The case of Ready Mixed Concrete versus Ministry of Pensions (1968) was the founder of the economic reality test (http://www.accaglobal.com, 2016). Hence vicarious liability is applicable over the employer particularly in employer-sponsor events like seminars, conferences and training workshops, work related social function and in business trips. The case of Leslie versus Graham (2002) exemplified the employer vicarious liability due to the incident of sexual harassment involving two employees attending a conference (Humanrights.gov.au, 2016). Therefore in order to eliminate the chances of an employer to be held vicariously responsible it is essential for business strategy to prohibit workplace discrimination and harassment. Formulation of workplace discrimination and harassment policy are important in this context.
Learning from the situation provided with the case scenario of task 4 the legal implications with respect to vicariously liability on the employer or the restaurant owner can be applied. In this case, it is justified for the injured party (Emma and Danis) to make a negligent claim as they owned a duty if care from the restaurant and also a breach in duty of care is evident. Furthermore the severe food poisoning suffered by the claimant strongly indicates an injury has been caused. Additionally with respect to remoteness of damage, it can be easily established that the chef who prepared food using expired food stuff could easily foresee the adverse consequences that the customers might face in this respect. The case of Caparo versus Dickman can be cited that mentioned the application of Caparo test in order to evaluate whether the damage caused was foreseeable (Brodie, 2010). Furthermore the case of Martin versus Herzig can be reviewed that highlighted statutory violation and duty of care. In this case, the restaurant owner can be held vicariously responsible for the negligent act of his employee (chef, George) because it is evident that the individual who committed this tort was an employee of this restaurant and the tort was committed in course of the employment tenure also the tort is a part of George’s professional duty. However for better assessment of the given case the jury is likely to perform control test, integration test and economic reality test (Giliker, 2010). The case of Limpus versus London General Omnibus Company can be considered wherein the employer was held vicariously responsible for the reckless driving of its driver that resulted to a road accident (European Encyclopedia of Law (BETA), 2016). The case of Glasgow Corporation versus Taylor (1992) can be cited that highlighted the significance of probability of injury in context of negligent claim (swarb.co.uk, 2016).
However, considering the possible defences that the restaurant company, it can be stated that the tort committed by the chef was intention and hence the restaurant owner has legal rights to sue the chef. Furthermore in alignment with the legal implications of contributory negligence claim, the concerned restaurant owner is legally entitled to claim compensation from the accused in order to cover up some portions of the loss suffered by the restaurant. The case of Sayers versus Harlow can be cited in this context (E-lawresources.co.uk, 2016).
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