Unit 5 Aspect of Contract in Business Assignment

Unit 5 Aspect of Contract in Business Assignment

Unit 5 Aspect of Contract in Business Assignment


Diploma in Business

Unit Number and Title

Unit 5 Aspect of Contract in Business

QFC Level

Level 4


This Unit 5 Aspect of contract in business assignment would entail the facets of elements of contract formation, contractual terms and clauses and its implication, element of liabilities in such contracts, liabilities of negligence and tort and the liabilities that are vicarious in nature. For enabling the gain of knowledge about the intricacies of application the report has included several case studies so that the mentioned aspects can be studied in the context of real life scenarios.

Unit 5 Aspect of Contract in Business Assignment

Task 1

1.1 Elements of contract formation

A contract that has validity in the eyes of law requires the fulfilment of the conditions given below which makes it mandatory for Mr. Peter Abraham to keep a strict note of in case of entering into any kind of professional or personal contracts with  business enterprise or individuals:

  • Intention to create legal obligations – it is most important for the parties who are willing to enter into a lawful contractual relationship to have an intention of getting into such a commitment. This element is prima facie as if there is no intention, there cannot be any kind of formation of contract. This is meaningful since in case the obligations of the contract are not met by any of the parties then the other can bring a legal claim for compensation from the one who has failed to do so ( McLeod., 2011).
  • Offer – when a person is willing to commit an act towards the other it constitutes an offer and is usually not time bound however time bound offers are preferred over the ones not having time restrictions since the former helps in avoiding probable disputes in the course of the contract. Silence from the acceptor does not constitute acceptance of the offer and an offer is not to be considered as an invitation to treat simply because invitation to treat is basically an invitation to offer and not deemed as an offer (McInnes et al. 2013). Invitation to treat means that there is scope for making offers and if someone accepts, although it is not deemed as a contract but is treated as a ground for future contracts. The best examples would be shop window displays, goods auction etc.
  • Acceptance – the presence of this element validates the offer and the contract must indicate that there has been acceptance and performance of duties at the same time or else conduct would be taken as acceptance (Pryor., 2005). Clarity is a must as it is referred to as the fisrt step in contract formation vide case of Entorres v. Miles Far East [1955] 2 QB 327 Court of Appeal- The method of acceptance to be taken into consideration must be agreed mutually by both the parties. In case where there are no such specifications, either of the below given rules are taken into practice:
  • Postal Rule – under this rule the formation of contract is deemed to be taken place when the acceptance letter gets posted without taking into consideration any delays in its arrival or subsequent loss of it in transit ( Revak., 2011).
  • Receipt Rule – in this case when the acceptance is conveyed through the medium of fax or e-mail, the element of its validity would rest on the fact of its receipt by the party who has made the offer even if he fails to go through it at that time. In case of acceptance that is partial or conditional in nature, the contract would not be taken as valid and would be considered as a counter offer. For instance, the contract where there is acceptance of some of the conditions followed by a new offer with new terms, it is not considered valid.
  • Consideration – this element may be termed as a point of bargain in  business law.  In other words it refers to the benefit or the advantage that both the parties try to get from each other in the course of their contractual relationship. The performance of contractual duties within the boundaries of legality becomes effective only when the validity of the contract is verified by the presence of a consideration that is legally valid. The essentiality of the element of consideration in the process of contract formation has been demonstrated in the case of Thomasv Thomas (1842) 2 QB 85.It is measured in the form of either services, goods, or money that would be exchanged between the two parties in exchange of an equivalent sum, object or service as had been agreed by them (Hogg et al., 2008). However its inadequacy in the eyes of law is established by the fact that if the price which has been offered for the service or object to be acquired is below the prevailing market price the receiver would have no rights to sue for the shortfall.
  • Capacity – the formation of a contractual relation between the parties must take into consideration the fact that the parties must not be minors in the eyes of law, is mentally stable and is not under the influence of any kind of intoxication at the time of contract formation. The absence of the element of capacity to enter into legal contracts results in the contract so formed to be treated as void and thus there are no occurrences of any kind of liabilities arising from breach of the same ( Hermalin et al., 2006). However there exists an exception which states that if a contract for necessities is formed between a minor and the provider of such necessities and in case the minor fails to pay the sum promised to the party for providing him with the necessities, a legal claim can be imposed on the minor for the payment.

1.2 Types of Contracts

i) Face-to-face Contract- These are also termed as verbal contracts and are entered into on the basis of trust that exists between the contractual parties. As the element of faith is vital between the contractual parties on the eve of contract formation, the contracts that take place face-to-face can also be legally put into practice if there exists strong faith as has been decreed in the case of Rowena Williams (as executor of William Batters) v Gregory Jones (25 February 2014). Lack of good faith and an occurrence of an infringement of clauses in such contracts can be imposed legal charges as was witnessed in the case of Winternitz v. Summit Hills Joint Venture, where the accused was awarded a punishment sentence ( Deakin and Morris., 2012).

ii) Written contract-This is regarded as the most common type of contract with an extensive use across the globe for all kind of personal and professional matters. These contracts contain all information, terms and clauses that are related to the contract in the written form and hence the consequences of infringement remain visible to both the parties to the contract. These contracts are legally enforceable and hence in case of any kind of infringements claims can be brought against the accused in the court of law. There is less risk because of astute documentation of all the terms and is therefore more reliable in nature than other forms of contract (Schmerler., 2008).

iii) Distance Selling (telephone / internet)-The formation of contract over the electronic devices such as internet and telephone are the current styles of forming contractual relationships since a large volume of business dealings take place in form of online transactions. These contracts constitute all the basic elements of a conventional contract and in the occurrence of any kind of breach by any of the parties charges can be imposed on the party under the purview of Electronic Commerce Regulations 2002 that underpins the operational principles of businesses in the domain of e-commerce (Holmes, 2009). As was stated in the case of L’Oreal v. eBay that the companies that do online businesses need to take a certain amount of liability as a part of the information society so that more prudence gets reflected in their dealings to secure the interests of their online consumers ( Zamore., 2015). However contracts entered into over the telephone are treated as face-to-face contracts and in the absence of any kind of documentation remains unenforceable and hence establishments of claims in cases of breach are regarded as invalid in law. Its termination too in the absence of any kind of legality is solely dependent on the fancies or whims of the contractual parties.

1.3 Contractual Terms analysis

i) Condition-At the time of forming the contract the formulation of contingent clauses for gaining knowledge to deal with future crisis are termed as conditions (Poussard v Spiers (1876) 1 QBD 410). The conditions must be fulfilled for the contract to be executed and could be done either in writing or verbally or by the legal process. The contract can be terminated by the aggrieved party on the basis of his suffering due to the reason of condition unfulfilment and the entire contract is considered as infringed even when only one of the conditions has been breached (McMillan and Stone., 2012).

ii) Warranty-This refers to the specific period of time mentioned in contracts of business which if lapses leads to nullification of contract validity thereby making it a void contract (Bettini v Gye 1876 QBD 183). It refers to the informational veracity that is conveyed by the seller to the purchaser at the time of sale of the product. Warranties can be either express or implied in nature. The former connotes that the product producer has made explicit claims and the law has made claims of implicit nature. Warranty if breached does not lead to contract cancellation but gives rise to claim for damages by the sufferer in lieu of the inconveniences (Ayres., 2012).

iii) Innominate Term-The effect of infringement is the focus of innominate term for gaining knowledge about the degree to which the aggrieved party has been deprived of the advantages of the contract (Hong Kong Fir Shipping v. Kawasaki Kisen Kaisha [1962] 2 QB 26). The repudiation of the contract can only follow from the fact that the benefit of which the innocent party has been deprived is significant in nature (McMillan and Stone., 2012). As it can mean both a warranty and a condition the parties must draw distinctions in the terms stating them either as warranty or conditions. It has been critiqued often since the element of certainty is compromised. In case the amount of deprivation is not a considerable sum then the innocent party is liable to bear the charges for nullifying the contract in a wrong manner ( Jewel., 2002). Under the declaration of the term by the parties as a condition, it may be declared as a minor term by the court and hence its infringement can lead to contract cancellation.

iv) Clauses of Exemption (including legality)

According to the Contract law of UK, the clauses of exemption are only applicable where the power of the contractual parties is restricted or they are excluded from bearing the liabilities of the contract. The clauses of exemption could be of three types - clause of time limitation, clause of true exclusion and clauses of limitation. The clause of exclusion is applicable when there is an apprehension about the infringement of the contract. The limitation clause is applied for the imposition of restriction on the amount of claim when the contract is infringed ( Smith., 2011). When a claim related action commences within the time set for the action the clause of time limitation finds an application.

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Task 2

2.1 Application of Contractual elements

Case 1-The advertisement by Gumtree was not clear and transparent to be considered as an offer by Carol and hence it could be considered as an invitation to treat and not an offer in itself (Harvey v Facey [1893] AC 552 Privy Council). Therefore there was no formation of any kind of contract between Gumtree and Carol. Moreover when Carol replied for acquiring the furniture, in the absence of a former communication between the company and Carol, it would be considered as a counter offer.

Case 2-The case scenario is quite interesting since Devi was hired by the organisation of George just a day before Preston had requested George for the same and Devi had no knowledge that Preston had been requesting George for many weeks. As the company had imposed interest on Preston it in turn reveals the interest of the company making Preston obliged to payment of 150,000 pounds as per his promise. The confusing element in the case gets cleared in the context of the case of Lampleigh v. Braithwaite [1615] EWHC KB J17, which stated that the defendant was responsible for the murder and hence was sentenced to death, however, as the defendant had promised to pay the plaintiff a sum of 100 pounds if the plaintiff could hold back his death sentence, and even on repeated efforts when he was not being given the promised sum, it was adjudged by the court of law that as consideration of the defendant took place before the promise, it is considered as a past consideration, but its validity is constituted by the request thus making the defendant obliged to keep his promise of paying the sum (Beatson et al., 2010). Hence in the given scenario Preston must pay the promised sum to George since the consideration was fulfilled before the request.

2.2 Application of Law of terms

Case 3-The supplied case scenario must be studied with due consideration since there is a strong presence of contradictory occurrences. The case mention the presence of the wallet in the coat pocket and when refund was sought the restaurant went forward with the imposition of the clause of exclusion. In the context of the case of Parker v. South Eastern Railway (1877) 2 CPD 416, Parker came to know about the clause of exclusion after the loss of the bag. Therefore if the man at the restaurant had not seen the clause he is entitled to get his lost wallet, but if he did not seem to believe in the clause even after knowing it, there can be defence in favour of the restaurant, since the establishment of the clause is proved by its presence in the receipt, and so the disbelief of the plaintiff cannot be taken into consideration (Hogg et al., 2008). Furthermore citing another case of L'Estrange v Graucob [1934] 2 KB 394, where the company defended itself on the grounds that the clause of exclusion was found on the box of contents, it can be concluded that the man in the given case scenario would not be given allowance by the presence of the exclusion clause to impose claim on the restaurant.   

Case 4-The given scenario reveals of a verbal contract between the parties based on the mutual trust therefore when Zephara died, the act of Yeti taking  possession of the space and also increasing the rent is to be treated as a wrong doing which can be further discussed in the context of the case of Hutton v. Warren [1836] EWHC Exch J61, wherein the receipt of the sum of compensation for the investment of the labour in sowing the seeds and raising the crop was decreed to the aggrieved party before the contract was terminated by the owner of the land. Hence in the given case, customary terms shall be implied on the basis of the fact that there were no glitches in the verbal agreement between Zephara and Aaron as it went forward in accordance to their decisions.

2.3 Effect of Contractual terms

Case 5-A contract is formed when the terms of the contract has been agreed upon by both the parties and there must also be a clear understanding about the presence of the various contractual clauses to both of them ( Scott and Triantis., 2006). In the supplied case scenario, it was clearly stated that the policy holder is not supposed to have any kind of claims such as claims for theft etc, following which such claims were found to be present thus resulting in an infringement of the terms of the contract.

Case 6-After careful consideration of the second event it can be understood that the policy holder had not revealed the truth to the insurer when she was being asked by the latter explicitly, following which it was found to be untrue by the insurer on further investigation. This not only nullifies the claim but also leads to policy cancellation. The claim of the lady on the basis of assumption that the alteration was not in her knowledge and hence she affirmed to the policy clauses would still be held as an infringement of the term of the contract leading to the nullification of the contract and the claim as well.

Task 3

3.1 Contrasts and Similarities between Contractual Liability and Liability of Tort

When a contract is breached or a tort is committed the liability the liability that emerges from the act so committed is considered of civil nature and in both the cases the structure is similar and it fulfils the elements of action illegality, prejudices and guilt and relationship between the causes of guilt, action that is illegal and prejudices ( Kidner., 2008). The primary ideology behind both the forms of liability remains re-instatement of the prejudice that has been the result of an illegal action which the asset has been subjected to, hence the injury caused and the advantages that are receivable gets aptly covered. The economic value of the prejudice is considered in cases where the damages cannot be reimbursed in kind. The business organisations as well as the individuals come under the ambit of the imposition of the both the kind of liabilities. The dual theories that help in the explanation of the basic principle of tort law are given as under:

  • Wider and Narrower Theory – the exemption follows only from the point of lawful recognition and justification of the act or else the damages that are caused by one party on the other would be considered tortuous in nature (Shapo and Shapo, 2003).
  • Pigeon-hole Theory – the tortuous liability principle is applicable to a specific number of tortuous acts and no torts are taken into consideration outside its boundaries.

When a noncompliance of the contractual terms by one party is witnessed in case of a contract between two parties that can be enforced by law, a case of liability due to breach of contract takes place. The following illustration can be helpful in understanding the situation: a contract takes place between X and Y wherein Y is supposed to sell furniture which is priced at $ 22000 and the time within which X was supposed to receive it lapses, causing a liability of contractual breach on Y equivalent to the price of the furniture. In the similar fashion if X would have failed to pay he would have had to bear the liability of breach for the losses incurred by Y.

The tortuous liability is utilised when the person has infringed the commitment of not causing damage to the other by actions that are considered unlawful in nature and on the other hand the occurrence of contractual liability is taken into consideration when contractual commitments remains unfulfilled from the end of the creditor ( Routledge-Cavendish., 2008). The liability arising out of infringement of contracts is a voluntary commitment by either of the two parties who has come together vide a contract whereas the liability of tort pulls two persons together by accident. In case of contractual liability the guilt is presumed to be from the debtor’s end while liability of tort is in requirement of the evidences from the sufferer, in favour of the injurious act committed by the offender. The compensatory perspective of cases of tortuous liability states that both the indirect, direct, unpredictable and predictable costs must be paid by the offender but in liability arising out of infringement of contracts the debtor is supposed to account for the damages that could be foreseen at the time when the contract was getting formed ( Bishop., 2005). When there are more than one offender who has committed the unlawful act, then the principle of liability of torts considers it as a single liability whereas in case of contractual infringements the multiple offenders must share the liability among themselves.

3.2 Liability for Negligence

The nature of Liabilities of Negligence can be discussed in consideration of the following conditions:

  • Direct cause – this cause point out to the results that the business or the individual suffers due to the negligent act which could take place irrespective of the fact whether such an act has stemmed from the violation or non-violation of the contract conditions and terms ( Owen., 2006).
  • Duty of Care – the degree of individual responsibility and repentance of the accused is denoted by this characteristic and thus such an individual must confess and seek forgiveness in the event of being accused either in person or in public view.
  • Legal Causation – it is kept distinct from the causations that are either of factual or direct in nature and this happens because the judiciary laws and rules are the basis of direct causation (Kappeler., 2006).
  • Breach of Duty – the individual must be awarded a compensatory amount for suffering the damages caused out of a duty infringement as a part of a negligent action.

The determination of the limitation of the care duty out of negligence was the result of Lord Atkin’s articulation of the principle of duty of care in the context of the 20th century case of Donoghue v Stevenson (1932) AC 562. The ginger beer that had caused harm was brought by Mrs. Donoghue’s friend and hence claims of compensation could be imposed by the friend on the owner of the cafe under the existing contract. Such an imposition was seconded by the House of Lords stating it as valid since a possibility of absence of care duty has been witnessed in the actions of the owner towards the victim. The limitations of the care duty suggest that there must be a presence of reasonable degree of care to avoid specific acts that could result in harm or injury to the neighbour. The term neighbour denotes how close the person is so that the cause of the effect of a negligent act towards such person seen much before the act has been committed ( Cooke., 2009). The defendant must therefore face the damage claim arising out of the liability resulting from an infringement of care duty towards the claimant.

3.3 Vicarious Liability

This form of liability is reflective of a situation where tort is committed by one of the parties to the other, of which the other had no knowledge and hence, the party committing the tort does not stand to be held liable or responsible for his act of wrong to the other (Giliker., 2010). In the case of Twine v. Bean’s Express Ltd (1946) 62 TLR 155, the facts revealed that the owner of the company had no knowledge that his employee had given left to a third party in the company’s vehicle and out of his negligent action has caused accidental injury to the individual. Hence the company in no way could be held responsible for the negligent action of his employee since the employer had also imposed explicit prohibition to such acts at the time of his appointment. The incident as had occurred outside his employment orbit does not hold the owner vicariously liable for the committed act. The driver had also ignored the instructions of his employer which furthermore establishes no liability on the owner in case of damages caused during the deliverance of the business activities.

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Task 4

4.1 Scenarios of Tort of Negligence

Case 7

  • On taking the case scenario of Mr. Brown into consideration, the facts reveal that his death took place at his residence and the cause could be attributed to the infection that was pneumonic in nature in the presence of the toxic mould. However his widow could bring allegations for his death on the  finance in hospitality authorities on dual grounds of death happening after he was brought to the hospital or death on account of negligent show of care duty by the doctors towards the deceased. The presence of an overruling cause following the actions of the committer of tort leading to damages to the native is immensely significant (Cooke., 2009). Therefore to bring charges of negligence against the hospital for causing the death of Mr. Brown, the establishment of proofs that the hospital lacked in providing the duty of care, proofs that hold up the establishment of care duty along with a connection between the consequences of the infringement and the consequences arising from damages must get established.
  • The evidences that was available in the event of Mr. Brown’s death points out that the cause of the event was the infection from the toxic mould that was found in his house. In such a situation the hospital cannot be held liable legally on grounds of infringement of the care duty and also because there are no supporting evidences to such a claim by the claimant. In the event of a court probe into the probability of injury, a balance is also present in the form of prescribing a medicine to the deceased over the counter thus displaying the required level of care that could be delivered to the patient (Owen., 2006). The compensatory claim can be defended from the point of view that a remote cause could have caused the damage vide the supporting case scenario of Lamb v. London Borough of Camden LBC [1981] 2 All ER 408. Hence no claim on the hospital can be established for causing Mr. Brown’s death.

4.2 Scenarios of Vicarious Liability

Case 8-Considering the given scenario in the context of the case of Lynch v. Binnacle Ltd. t/a Cavan Co-op Mart, (2011), the facts that get highlighted are that there was acute shortage of care duty and extreme show of negligence in the actions of the driver thereby causing bodily damages to the victim. The claimant in the case has the lawful right to claim damages that he suffered physically from the employer of the driver since the event was caused during the tenure of the driver’s employment in that enterprise. Thus such an action reflecting gross negligence on the part of the driver during his employment tenure can hold the employer vicariously liable to the party who has suffered from the consequences of such negligence by his employee ( Dobbs et al., 2009).

Case 9-In the given scenario, citing the case of Glasgow Corporation v. Taylor (1992), the most significant fact that has to be taken into consideration is whether the responsibility of supervising the  health and safety  issues of the supermarket was delegated to a third party enterprise. In such a case there cannot be any direct claims of vicarious liability on the supermarket in the event of an injury to Mr. Jones’ colleague. However if the negligence of the supermarket in monitoring the level of competency of the supervising organisation in delivering the safety and health at the stores can be established then charges of vicarious liability can be imposed on the supermarket (Giliker., 2010).


In the course of the preparation of the above report a detailed knowledge could be gained through the detailed study of the elements required for the formation of a valid contract as well as its real life implications through several case scenarios, along with an insight into the laws related to tortuous liability, vicarious liability and that of negligence by any of the contractual parties.


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