Unit 5 Aspects of Contract Law Negligence in Business Assignment

Unit 5 Aspects of Contract Law Negligence in Business Assignment

Unit 5 Aspects of Contract Law Negligence in Business Assignment


Diploma in Business

Unit Number and Title

Unit 5 Aspects of Contract Law and Negligence in Business

QFC Level

Level 4

Credit value

15 credits

Unit Code



This aspects of contract law negligence in business assignment report would entail a detailed study of the various aspects of formation of legal contractsand its implications from the point-of view of the terms and clauses to be included, the liabilities that gets conferred on the parties in cases of infringements and the significance of the various forms of contracts both to the businesses as well as the individuals. The aspects of contract formation, vicariously liability, tort of negligence and duty of care would also form part of the discussion and the practical implications of the various kinds of legal principles have been studied in the context of established as well as probable case scenarios to create an easy understanding about its applications in day-to-day affairs.

Unit 5 Aspects of contract law Negligence in Business Assignment

Task 1

1.1 Formation of Contract – elements

When two or more parties mutually agree to put their commitments towards each other in writing and in compliance with the regulations of the legal system in practice it can be said that a legal relationship called contract has been formed between the parties. For the contract so made to be legally enforceable it is imperative that its formation is inclusive of certain specified elements that have been listed below:

Intention to create legal obligations – both the parties to the contract must show some amount of willingness to legalise their mutual commitment towards each other as it is fundamental to the formation of a valid and lawful contract. This is vital since if any of the parties fail to adhere to the obligations of the contract then the other party can bring a legal claim seeking compensatory benefits arising out of such an act (McInnes et al. 2013).

Offer – this element is referred to the display of willingness of one of the party towards the other in the course of formation of the contract. This element is although not time bound in nature yet the time bound offers are preferred, since in the latter case the resolution of issues that takes place in its execution becomes much simpler. When the offer is accepted through silence it would not be taken as acceptance of an offer and offers cannot be considered as invitation to treat since the latter is construed as an invitation to offer and not an offer (McLeod, 2011). The acceptance of an invitation to treat is considered as the basis of contracts to be made in future but in no circumstance can it be taken as a contract. As for instance the auction shops and the displays in the shop windows are examples of invitation to treat.

Acceptance – the validation of the element of offer is in the element of acceptance and it is crucial that there is performance and acceptance in parallel for the conduct to be regarded as acceptance ( Revak, 2011). The contractual parties agree mutually on the mode of acceptance which if lacking gives rise to the application of the rules indicated below:

  • Postal rule – under the purview of the rule, the formation of the contract happens at the time the letter of acceptance is posted irrespective of the fact that it could be subject to delays or loss-in-transit in its course to the party who made the offer (Pryor, 2005).
  • Receipt rule – in cases that witness the acceptance via the ,mode of e-mail or fax, the receipt of the information is considered as acceptance even if the party making the offer is found to have gone through it at a later point of time.

A contract does not get validated on cases where there is part acceptance or acceptance of one of the conditions of the contract but not the others as such instances is treated as a counter offer which invalidates the primary offer ( Smith, 2011).

Consideration – this element is considered as the item that is accruable to the parties and is exchanged between the parties in the execution of the contract and could be in the form of goods, services or monetary sum as decided between the parties. However the consideration so decided must have legal validation since even the lawful execution of the contractual duties without a valid consideration would make it ineffective ( Hermalin et al, 2006). The inadequacy of this element could get reflected in cases where the sum of consideration for a service or good offered is less than its market price and in such instances, the aggrieved party cannot make any claims for the deficit.

Capacity – the parties who show a willingness to enter into legal relationship in the form of a contract must not be below 18 years of age, and should be of a stable disposition, both physically and mentally, and also must not be in state of inebriation or intoxication due to consumption of alcohol or drugs, at the time of the formation of the contract, since such contracts if formed, would stand to be nullified and treated as void, making it unenforceable in case of any liabilities arising from the actions of any of the parties ( Hogg et al, 2008). However the exception that can be applied to this rule appears in the form of contracts that take place between a minor and a man who has agreed to provide for his necessities since the contract can be made enforceable if the minor goes back on his words of paying for the necessities provided by the man to him.

1.2 Forms of contract

The formation of contracts although necessitates the presence of both the parties in person who have expressed their willingness to enter into a legal relationship it can be done in other ways such as verbally based purely on the element of trust the parties have for each other. The contracts that are formed verbally can also be made enforceable since it has the presence of the element of faith that is construed as most crucial in the process of contract formation (Schmerler, 2008). This was justified in the case of Rowena Williams (as executor of William Batters) v Gregory Jones (25 February 2014) as also in the case of Winternitz v. Summit Hills Joint Venture, where it was revealed that imposition of legal claims for issues relating to clause infringement or lack of faith is possible and in fact in the cited case the accused was awarded a punishment.

The contracts that are formed in writing are mostly preferred in business and individual agreements across the world because of its extensive documentation that involves the mention of clauses, time frame, terms and other relevant information thus clarifying the outcome of any type of infringements to the parties involved in the contract (Deakin and Morris, 2012). The trait of enforceability in these contracts makes one of the parties liable for damages arising out of any kind of breaches to the other party in the course of executing the contract. The factor of risk gets minimised and the contract becomes more reliable compared to the other forms simply because of the process of documentation.

In the current age of online business and dealings the platform of internet and telephone has been much in use for entering into contractual relationship and is also preferred over the conventional form of contracts since not all the time it is possible for the parties to meet each other in person due to location and availability constraints. These contracts possess all the elements of conventional form of contracts and their infringement similarly imposes liability on the parties found guilty of such acts under the Electronic Commerce Regulations, 2002 (Ward, 2012). The business law activities taking place in the domain of e-commerce is regulated by this principle. For the online businesses it is most important that the companies ensure security to the online consumers and apply discretion in their dealings (Holmes, 2009). The contracts getting formed over the medium of telephone are considered as contracts made verbally and if it rues of inadequate documentation then it remains unenforceable in cases of any kind of infringements in the future. The absence of legal limitations subjects the termination of such contracts to the whims and fancies of the involved parties.

1.3 Case of Carlill v. Carbolic Smoke Ball Company (1893) – Contractual terms

The analysis of the given case scenario has to be understood from the context of terms of the contract and therefore the aspects of the case must be understood in detail. Carbolic Smoke Ball Company had claimed that their manufactured smoke balls when used as per the given instructions had the ability to cure influenza and had placed an advertisement to that effect in the daily news, also stating that the company has agreed to pay 100 pounds to anybody who suffers from its usage. Carlill came across the advertisement, brought the product and after using it for three months according to the methods suggested complained of sickness and eventually claimed compensation from the company.

On the grounds of the contract between the lady and the company being legal and binding in nature as it had the elements of a valid contract in the form of an offer for people who would need it and hence cannot be treated as an invitation to treat, an acceptance in the form of being acquired by the interested party, the monetary payment sufficing the element of consideration and the intention to enter into a lawful relation with the party by the declaration of 1000 pounds deposit in the bank.

There was an express promise on behalf of the company to pay the sum declared on the advertisement in case of any sickness suffered by the user of the smoke ball is to be treated as a condition and the company’s unwillingness to pay the amount to the lady when claimed on the grounds of her sickness would be considered as a breach of the conditions and thus the infringement of the entire contract. Furthermore the lady had suffered sickness even after using the smoke ball as per the instructions mentioned on the product, however the payment that the company had notified in case of sickness of the user was an express warranty which was infringed by the company in not willing to pay for the damages thus resulting in its breach which justifies the lady’s claim and the suit of compensation against the company.

The element of intention to enter into a legal relationship with the interested user of the product by the company was expressed through its notification of a deposit of 1000 pounds in the Alliance Bank.

Task 2

2.1 Contractual Elements in case of David and Williams

In the given case, David had placed an advertisement through which he was willing to offer his services as a builder and Williams was looking for a builder who could construct a gym for him. Through the placing of an advertisement the willingness of David to enter into a contractual relationship with any interested parties becomes evident. On the other hand when Williams replies to the advertisement of David it shows his intention for entering into a contractual relationship with the latter. Therefore the advertisement can be considered as an offer and the subsequent acceptance is evident from the fact that Williams and David meets on the 10.05.16 to finalise their prior negotiation agreed upon on 01.05.16 between them. The remuneration or the fees of David, amounting to 18000 pounds, for constructing the gym of Williams can be referred to as the consideration in this legal relationship between the two. Hence the presence of all the required elements for establishing a contractual relationship between David and Williams has been revealed through the communication between the parties which can be concluded as the formation of a contract between the two. There was however the absence of a time schedule within which the David would have to complete the job of building the gym for Williams. Due to the non-inclusion of the time in the contract there could be a crisis during the course of the execution of the said contract since David has been kept in dark about the time stipulation for completing his job. As the intention of Williams has not been clarified in the contractual terms hence the formation of this contract displays non-transparency in the process of documentation of the facts that are considered relevant for its successful execution.

2.2 Formation of Contract between David and Williams

The contract that had taken place between David and Williams earlier in writing did not mention anything about the time within which David is required to hand over the complete gym to Williams. This incident can be construed as display of non-transparency from the point-of-view of Williams since he had no clear he idea about when did he wanted David to hand him over the complete gym to him. The written contract that took place between the two did not mention 31.07.16 as the date of completion in any place or form whatsoever, therefore when Williams conveyed the same information to David verbally after the lapse of 10 days in the execution of the contract, it would be considered as a contractual breach in the eyes of law.

2.3 Effects of Terms

a) Contractual term Violation

In the given case scenario, David cannot be accused of violating the terms of the contract since Williams had not mentioned or conveyed any kind of information about the stipulated time of completion of the construction of gym in the contract that had taken place between the two on 10.05.16. The contract lacked clarity of understanding about the aspect of time since the information was concealed by Williams at the time of contract formation. In the course of its execution although the time frame was conveyed verbally by Williams to David after the work had been on for 10 days such an act cannot be taken as a contractual term. In such a situation when Williams wanted David to complete the project within 31st July, 2016, it would be deemed as a mere request outside the contractual purview, and thus David’s inability to complete the project within the time as expected by Williams, would not in any manner, be termed as a violation of a term of the contract.

b) Justification of Claim of David for additional amount

The given case of David and Williams reveal that Williams had not mentioned any time limit to David in their written contract and when the work had been going on for 10 days he declared that the work be completed within a date. David knew that the deadline was framed outside the contractual purview but when he cited the problems of labour shortage and asked for an additional sum of 2000 pounds from Williams to complete the work by his set deadline, in the eyes of law it would be considered as the case of past consideration on the basis that the consideration of Williams came into being before he promised to pay David if he completes the construction by 31stJuly.2016. The court would hold the consideration as valid making Williams liable to pay the additional sum that he promised David on completion of his gym building.

Task 3

3.1 Contractual and Tort Liability – Differences

The basis of the principle of Tort law is explicable by the following theories:

Wider and Narrower Theory – if in the eyes of law the committed act has recognition and justification then there can be an exemption of damages or else the damages inflicted by the accused to the victim would be considered as an act of tort ( Shapo and Shapo, 2003).

Pigeon-Hole Theory – under the purview of this theory only a few specified acts of tort is covered by the application of the tortuous liability principle and the acts that does not get covered by the principles would not therefore be regarded as acts of tort.

Liabilities arise out of contracts when the act of one of the contractual parties is not in compliance with the contractual terms thus making him liable to the other party on account of a breach. For instance, in a contract where B has agreed to sell his furniture to C for a sum of 125,000 pounds within a specified time, if B fails to deliver the furniture to C on getting the agreed price, within the specified time as mentioned in the contract, a liability of infringement to the extent of the price of the furniture, gets imposed on B for failing to comply with the term of the time in the contract. Similarly when receiving the furniture if C does not pay the agreed sum to B, then non-compliance with the terms of the contract would make him liable for the breach and also for the loss suffered by B.

The formation of the tort liability is dependent on the fact that an unlawful act has been committed by one of the parties through the infringement of his commitment of not causing damages while the formation of contractual liability is the result of the creditor’s failure in fulfilling the contractual commitments (Routledge-Cavendish., 2010). Breaches in contracts take place when liability arises due to the act committed voluntarily by one of the party while in cases of liability arising out of tort, two separate people are pulled together by mistake or misfortune. In cases of liability arising out of contractual infringements, the debtor is presumed to be guilty while on the other hand, evidences must be provided by the victim of the tortuous liability in support of the act of damages that has been inflicted by the offender. The compensatory angle in cases of liabilities arising out of tort, the remittance of the indirect, direct, unpredictable and predictable cost by the offender is mandatory but in contractual liability cases the debtor is only required to pay the damages that could be foreseen at the time of the contract formation ( Kidner, 2008). The principle of liability of tort takes into consideration acts done by a series of offenders as one single liability while in contractual infringements, the offenders or parties to breach must share the liability amongst themselves.

3.2 Tort of Negligence

The consideration of the following conditions is necessary for understanding the characteristics of the liabilities that occurs in cases of actions caused out of negligence:

Direct Cause – through this cause the outcomes of the acts committed in negligence either by business enterprise or individuals by violating or non-violating the contractual terms and conditions gets highlighted (Owen, 2006).

Duty of Care – this characteristic refers to the degree of repentance that the accused undergoes and the amount of individual responsibility and hence the accused must seek apology either in person or in the presence of the others.

Legal Causation – as the rules of judiciary determines the element of direct causation therefore factual or direct causation is taken into account in the process of adopting the measures of discretion ( Zamore, 2015).

Breach of Duty – the party who suffers the damages must be provided compensation as an outcome of the act of breach of duty as a part of the event of negligence (Kappeler, 2006).

The case of Donoghue and Stevenson declares the limitations of the care duty in cases of negligent actions as was determined by the statement of Lord Atkins which stated that it is important to practice a considerable extent of care to evade actions that can be potentially harmful to a neighbour. The use of the term neighbour denoted the degree of closeness of the offender with the victim in order to understand the result of the conduct to such a person before the act is committed (Coke, 2009). In this case the negligence of the cafe owner in serving his guest with drinks that could cause harm reflected the lack of care duty towards the victim. The absence of the care duty made him liable for the compensation claimed by the victim. The establishment of the liability of the defendant from the negligence of the duty of care thus gets confirmed and so is the veracity of the claim brought against him by the victim.

3.3 Vicarious Liability

This is the legal principle through which a liability is conferred on an individual who has not committed the injurious act but has a legal relationship with the person who has actually committed the negligent action (Giliker, 2010). It must be noted that if the contractual terms mention it clearly that acts which can put others at risk are prohibited and not to be engaged in, and still the offender engages in it without discretion and results in making one party liable without his knowledge, for the offences he has caused to the third party, there cannot be impositions of vicarious liability on the first party.

The following cases help in understanding of the various dimensions of vicarious liability:

In the case of Twine v. Bean’s Express Ltd (1946) 62 TLR 155, the employee of the enterprise had provided lift to a person on the company’s vehicle and inflicted injuries to him out of action committed in negligence. The victim had claimed for compensation for damages from the company by the imposition of vicarious liability, citing the fact that the commitment of the wrongful conduct was within the scope of employment. It was found by the court on further investigations that as the employer had clearly asked the employee during his appointment not to engage in any such act hence the injuries inflicted even within the stipulated hours of his duty without paying heed to the instructions of the employer would not impose any vicarious liability on the employer to pay the compensation claimed by the victim.

In a similar manner the case of Conway v George Wimpey & Co Ltd [1951] 2 KB 266 reveals that the action of the driver to give lift to the employee of the different firm was against the clear instruction of the employer not to engage in such acts, and hence the court ordered that accidental damages suffered by the person from the actions of the driver would not bring any sort of vicarious liability on the employer, even if done within the limitations of his employment.

However in the Rose v. Plenty [1976] 1 All ER 97 case the act of the employee had made the owner vicariously liable since the child who was hired by the employee was hurt while helping the employee in the conduct of the business activities hence the damages suffered by the child due to the negligence of the employee resulted in the imposition of vicarious liability on the employer making him pay for the damages. Although the employee was instructed not to involve the services of children but the act of hiring was executed within the scope of his employment and also to promote the activities of the business.

The case of Lister and Others v. Hesley Hall Ltd [2001] 2 All ER 769 states that the warden had abused the boarders of school and as a result the owner of the school was imposed with vicarious liability on the grounds that the assault of the students were within the purview of the employment since it was his responsibility to look after the students. As the incidence of physical attack occurred during the course of delivering his duties and there was narrow proximity between designated responsibilities and the accusations, the employer thus was held vicariously liable for the act of the warden.

Task 4

4.1 Comparative study of Verdicts of case scenarios

In the course of undertaking a comparative analysis of the verdicts of the cases of Hill v. Chief Constable of West Yorkshire (1989) and Donoghue v. Stevenson (1932), it is important to have a detailed understanding of both the trails.

In the 1989 case of Hill v. Chief Constable of West Yorkshire, one of the parents of the last casualty had claimed the negligence of the police in the locality of West Yorkshire in taking precautionary measures for protecting the local people from the attacks of the ripper. The police was accused of lack of reasonable care in nabbing the rogue which tantamount to a breach of their responsibilities. However the high court declared that the accusation of lack of care cannot be imposed on the police authorities in instances where one of the members of the public attacks another and the decision was upheld by the House of Lords which added that there can be an exemption for the police from the liability that arises out of lack of care if the closeness between the police and the criminal is not proved. The case of no proximity is considered in cases where either the accused has escaped or is in the custody of the police authorities (Bishop., 2005).

The renowned 1932 case of Donoghue v. Stevenson involves the consumption of a bottle of ginger beer by the claimant on her visit to a local café with her friend. The beer was found to be having a decomposed snail in it for which the lady had to suffer physical injuries. The owner of the café was sued on the grounds of being negligent in delivering his duties and thus compensation was sought for the damages suffered by the lady. The House of Lords decreed that the duty of care was lacking in the conduct of the café owner since the injuries suffered by the lady and the extent of damages that was caused could reasonably be foreseen and hence was avoidable if it was not for the owner’s negligence and thus the café owner must make good of the compensation that the lady has claimed in her suit against the café (Kappeler, 2006).

The verdict that was offered in the first case, I presume, resulted in allowing an immunity cover on the police authorities, as there was a common practice among the police authorities during the late 80s, of using this case decision in instances of protecting itself from allegations of lack of care duty towards the public and also to address negligent claims imposed on them.

4.2 Vicarious Liability – Scenarios

From the details of the case provided an apparent understanding can be gained about the unambiguous declaration of the taxi service owner that in case, the drivers who had been hired is found to be responsible for any kind of negligence in their duties resulting in injuries to any third party, the owner would not bear any responsibility for such damages. This declaration would thus provide a cover of protection to the taxi service owner from vicarious liability that may arise out of the conduct of his employees or the hired drivers. Nonetheless the case of Rose v. Plenty [1976] 1 All ER 97, states that although the child was hired by the driver even after he was instructed against such an act, in order to help him in performing the business activities of the employer, on the instance of the child getting injured by the negligent driving of the employee, the employer would be vicariously liable for the damages suffered by the child on the grounds that such injuries took place while the child executed the business activities of the employer.

Thus in the light of the above decree it can be said that in the given scenario, in the eyes of law, if the passengers suffer injuries due to the conduct of the hired drivers within the scope of executing the employer’s duties, the owner shall be held vicariously liable for such acts of its employees, making him compensate for the damages caused out of negligence of his employees ( Owen, 2006). 


In this aspects of contract law negligence in business assignment report the various facets of contract formation and the legalities involved in the process has been discussed at length along with the consequences that can happen in cases of any kind of breaches by any of the parties. The understanding of the implementation of the principles of law from the practical point-of-view has been enabled by the use of a range of case scenarios. The significance of the aspects of vicarious liability, tort of negligence and care duty has been also included in the report.


The conduct of the above discussion lays bare the following facts which if adhered and complied with would ensure a hassle free legal relationship between the parties willing to enter into a contract with each other:

  • The contracts that take place between parties must have transparency and clarity in stating the terms that have been agreed upon mutually by the contracting parties.
  • The documentation must mention the clauses and limitations and the consequences thereof in case of any kind of infringements by any of the parties.
  • The contract must be formed in compliance with legal regulations in practice or it may lead to its subsequent nullification.
  • The contractual parties must ensure the fairness of their conduct in the process of execution and must avoid acts that are devoid of care and display negligence, thus making them liable towards each other.


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