Unit 5 Aspect of Contract Law in Business Assignment Merit Copy
This Unit 5 Aspect of Contract Law in Business Assignment Merit Copy is comprised of various elements of contract and tort and breaches and consequences of contract as well as the various defences available under tort. After analysing the various aspects of law and tort the application of the same has been applied in various given case studies making the understanding very easy and the applicability of the same even more simple and clear.
Meaning of contract
“A contract is a promise or a set of promises for the breach of which the law gives a remedy or the performance of which the law in some way recognizes as a duty” (lexinter.net, n.d).
- Elements of contract- To make a contract legally valid, the elements must be composed of offer, acceptance, consideration and intention to create legal employee relationship (Small Business Development Corporation, 2014).
- Offer- An offer is the manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it”(lexinter.net, n.d).
- Acceptance- An acceptance is an unqualified assent to all the terms of offer (Small Business Development Corporation, 2014).
- Consideration- “A valuable consideration in the sense of the law may consist either in some right, interest, profit or benefit accruing to one party, or some forbearance, detriment, loss or responsibility given suffered or undertaken by the other” (Currie v Misa, 1875).
- Intention to create legal relationship- Intention to create legal relationship is the most important element of contract. The parties must have a legal intention to be legally binding by the terms in contract. The court presumes that in domestic and social contracts the party doesn’t have legal intention as it was held in the case of Balfour v Balfour (1919), unless the same is rebutted by evidence to contrary as was held in the case of Merritt v Merritt (1970). Also, in commercial contracts the courts have made different presumption that the parties intends to make a legal relationship as was held in the case of Edwards v Skyways Ltd.(1964) and the same can be rebutted by evidence to contrary as in the case of (Ferrera v Littlewoods pools , 1998).
Factors that would impair the formation of a contract: To be legally bound by the contract, the person’sentering into the contract must have the legal capacity such as the minors, otherwise it impairsor say vitiates the contract. Others factors that vitiates the contract are duress, mistake, Unconscionability, misrepresentation and undue influence (Spark, 2013).
Terms in contract and their effect
The contents in the contract are terms of contract.The terms may be express terms or may be implied terms-
- Express term: Express terms are those which are explicitly laid down by the parties themselves. The parties agreeing to the terms expressly are aware of the terms and its consequences due to breach of the term in contract. If the term is not fulfilled then the innocent party may bring an action for breach of contract.
- Implied terms: Implied terms in contract are those which are not read into the contract but it’s the court decides depending on the nature of the contract and the parties, clear intention or on the basis of law defined in specific types of contract. The effect of this term isthat the parties are bound by the terms implied by law, fact, custom or trade usage (Weitzenböck, 2012).
The express and implied terms may be classified as conditions, warranties or innominate terms
- Condition- Conditions are the most important and major term of contract that goes to the root of contract. The effect of these terms is that the breach of condition gives contractual right to the innocent party to repudiate the contract and claim for damages (Poussard v Spiers, 1876).
- Warranty- Warranties are of less importance than condition in contract and does not go to the root of contract. The effect of this term is that the breach of warranty gives contractual right to the innocent party to claim for damages only but cannot repudiate the contract (Bettini v Gye, 1876).
- Innominate- Innominate term means intermediate term. When the condition or warranty is not explicitly mentioned in the contract then the court looks into the effect of breach of the terms and thereby decides whether to treat the breach under condition or warranty. If the breach of the term substantially deprives the whole of benefit of the contract then the innocent party have the contractual right to repudiate the contract (Hong Kong Fir Shipping v Kawasaki Kisen Kaisha, 1962).
Impact of different types of contract
Contracts may be made in written or may be oral-
- Written contract- A written contract is put into writing and any statement in the written contract is a term in the contract and any oral statement prior to the formation of written contract will be representation(Duffy and others v Newcastle United Football Club Ltd., 2000).
- Impact of written contact- The impact of the verbal contract is that the parties have read and agreed to the terms of the contract (Small Biz Connect, 2014).
- Verbal contract- Verbal contracton the other hand is made and agreed verbally between the parties (Small Biz Connect, 2014).
- Impact of verbal contact- The enforceability ofcontracts made verbally is quiet difficult. The conduct of the parties before and after making of the contract, the activities of the parties and their past dealings can support the enforceability of the contract (Small Biz Connect, 2014).
Case study 1
- Offer and acceptance in the present case- The advertisement of the van for sale on a car trade website for £2650.00 made by Jess is an invitation to treat and an invitation to treat is not an offer as held in the case of (Partridge v Crittenden, 1968). In an invitation to treat offer comes into scene when the offeree expresses his willingness to purchase the product. Here, Mr. Powell made an offer to purchase the van when he expressed his wish.
- Consideration in the present case- £2650.00 is the consideration for the purchase of van.
- Intention of the parties in the present case- The nature of this transaction is a commercial one and therefore the parties do have the intention to create a legal relationship (Esso Petroleum v Commissioners of Customs & Excise, 1976).
All the essential elementsof contract are presentin the case and therefore a valid contract has been formed to hold the van for 3 years for Mr. Powell in order to give him anopportunityto view the van but no valid contract for sale and purchase of the van is formed between Jess and Mr. Powell.
Case study 2
- Offer and acceptance in the present case- The notice constitutes the offer and collecting the chair will amount to acceptance.
- Consideration in the present case- 50p per hour for the chair is the consideration.
- Intention of the parties in the present case- Though it’s a social contract but the sale and purchase of chair demonstrates that the nature of this transaction is a commercial one and therefore the parties do have the intention to create a legal relationship.
Hence, all the contract is a valid business law as all the elements of contract are present but the exclusion clause that reads “No liability is accepted for any damage or injury caused by the failure of any hired equipment.”is not incorporated into the contract.
Exclusion clause- The present case deals with the exclusion clause. An exclusion clause is type of unfair term that excludes or restricts the liabilities of the party arising out of breach of any contract (Insite Law, 2014). An exclusion clause is incorporated into the contract only if –
- The term is brought into the notice of the contracting party during the formation of contract (Olley v Marlborough Court, 1949).
- The party seeking to rely on the clause takes reasonable steps to bring the term into the attention of the contracting party (Thompson v LMS Railway, 1930).
- The parties have dealt with each other previously (Spurling v Bradshaw, 1956).
In the present case, the term is not incorporated into the contract because it was held in the case of Chapelton v Barry UDC (1940) that any reasonable person would regard the ticket as nothing more than a receipt and would not except it to contain any contractual terms.
Case study 3
Generally, an offer can be revoked at any time before the acceptance is made (Byrne v Van Tienhoven, 1880), and it is also essential that the revocation must be communicated (Dickinson v Dodds, 1876). But in unilateral offers the performance of the act is sufficient to form a binding contract and communication of revocation is not required.
Unilateral Contract- A unilateral contract is where only one party is under an obligation to perform their promise Such as in reward where the party promising the reward is under an obligation to perform their promise (Carlill v Carbolic Smoke Ball Company, 1892). In the present case, the advertisement to reward of £1,000 for the first person to paddle across the English Channel in a bath, from Dover to Calais forms a unilateral offer. And the consideration is the performance of this act. Adam cannot withdraw the offer as Brian has started to walk and is liable to pay Brain once his performance is completed.
Contrast liability in tort with contractual liability
The parties in contract voluntarily agree to the terms of contract and are aware of consequence its breach.
The duty of standard care required by the parties is imposed by law.
The parties are known to each other before hand.
The parties are strangers to each other.
Privity of contract is implied in contract.
Privity not required in tort.
There is consent of the parties.
Tort is mete out without consent.
The remedy is for liquidated damages.
The remedy is for unliquidated damages.
Nature of liability in negligence: Negligence is carelessness of a person required to be taken which any reasonable man would take care of in similar situation. The case of Donoghue v. Stevenson (1932), demonstrates the law negligence and the following elements of negligence were established in order to bring a claim of negligence-
- The defendant owed a duty of care
- The duty was breached
- The breach of duty by the defendant caused direct consequence of harm to the plaintiff.
How a business can be vicariously liable: Vicarious liability is imposed on the employer for the wrongdoings of their employee if the employee committed the tort during the course of employment (Lister v Hesley Hall Ltd., 2001). Hence, the relationship of employee an employer must be there and the tort committed by the employee must be during the course of employment.
Case study 4
- Statement A: Neil is not liable because the gloves were provided but he intentionally did not use them. And if the employee themselves refusesto wear the safety devices though provided by the employer then the employer will not be liable for negligence as held in the similar case of (McWilliams -v- Sir William Arrol & Company Ltd., 1962).
- Statement B: As held in the case of Priestly v Fowler (1837), that an employer cannot be liable for injuries caused by employee to another employee in the course of their employment, similarly Roger cannot bring a claim in vicarious liability against Ben for Colin’s actions because it was a personal and independent act done in a common employment.
- Statement C: The Poshplace Hotel is liable to Mark under the Occupiers’ Liability Act 1957 which imposes an obligation on occupiers with regard to their ‘lawful visitors’. Section 2(2) of the act provides that 'The common duty of care is to take such care as in all the circumstances of the case is reasonable to see that the visitor will be reasonably safe in using the premises for the purposes for which he is invited or permitted by the occupier to be there’(legislation.gov.uk, n.d).Here, the Poshplace Hotel has a non-delegable duty of care to keep the possession of its lawful visitors safely.
- Statement D: The Poshplace Hotel is not liable to Mark under the Occupiers’ Liability Act 1984 because of its warning notice because the warning issued was clear and Mark would have been safe if he heeded the warning (Roles v Nathan, 1963).
- Statement E: Mark cannot s claim against Poshplace the Poshplace hotel may take the defence of volenti-non-fit injuria that under section 2(5) of the Occupiers’ Liability Act 1957 the common duty of care does not impose an obligation on occupier’s in regard of risks that have been willingly accepted by the visitor (legislation.gov.uk, n.d).
- Statement F: Under section 2(5) of the Occupiers’ Liability Act 1957 Mark will not be able to claim for the cost of his designer swimming trunks because even though the warning was clear he ignored the same and has consented to the risk of danger (legislation.gov.uk, n.d).
- Statement G: Mark can bring a claim in vicarious liability against Poshplace Hotel for the loss of his jewellery because they owed a duty of social care to keep the possession of their visitors safely (Morris v CW Martin & Sons Ltd., 1966).
A contract is a promise or a set of promises for the breach of which the law gives a remedy or the performance of which the law in some way recognizes as a duty and to form a valid contract all the essential elements such as offer, acceptance, consideration and legal intention must be constituted. Negligence and vicarious liabilities are claims brought under tort. The defences in torts are volenti-non-fit injuria and contributory negligence.
ACCA, 2014. Home>Students>ACCA Qualification Student Journey >Qualification resources>ACCA Qualification>F4 Corporate and Business Law>Technical articles.[Online]
Available at: http://www.accaglobal.com/in/en/student/acca-qual-student-journey/qual-resource/acca-qualification/f4/technical-articles/key-aspects-of-the-law-of-contract-and-the-tort-of-negligence.html
[Accessed 26 11 2014].
Balfour v Balfour(1919) 2 KB 571 .
Bettini v Gye(1876) QBD 183.
Byrne v Van Tienhoven(1880) 5 CPD 344 .
Carlill v Carbolic Smoke Ball Company(1892) EWCA Civ.
Chapelton v Barry UDC(1940) 1 KB 532 .
CONTRACTS, n.d. [Online]
Available at: http://www.macrealestate.com/SAMPLE.pdf
[Accessed 26 11 2014].
Currie v Misa(1875) LR 10 Ex 153.
Dickinson v Dodds(1876) 2 Ch D 463.
Donoghue v. Stevenson(1932) AC 532.
Duffy and others v Newcastle United Football Club Ltd.(2000) All ER (D) 892.
Edwards v Skyways Ltd.(1964) 1 WLR 349 .
Esso Petroleum v Commissioners of Customs & Excise(1976) 1 WLR 1.
Ferrera v Littlewoods pools(1998) EWCA Civ 618 .
Hong Kong Fir Shipping v Kawasaki Kisen Kaisha(1962) 2 QB 26 .
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