Delivery in day(s): 5
Unit 5 Essential Elements of Contract law in Business Assignment
Diploma in Business
Unit Number and Title
Unit 5 Essential Elements of Contract law in Business
LO 1.1 Explain the importance of the essential elements required for the formation of a valid contract
To make a valid contract there is a need for compliance with all the essential elements. These elements make a valid contract which has the sanctity of law. Mainly, when an offer is accepted by capable people with legal intention along with consideration, then, a contract is made. So, all elements and their importance are analyzed hereunder: (Allen & Overy 2016).
- An offer is the first element. When the terms which are communicated one an individual (offeror) to another individual offeree) then such communication is an offer which he hopes that an offeree will approve and abide by (Harvey v Facey (1893). An offer is mainly the offeror intention which he wishes to be performed by an offeree (Carlill vs Carbolic Smoke Ball Co (1893).
- An offer is very important because it is the first step in the making of the offer. If there is no offer then there cannot be any contract which can be formed.
- An acceptance is the second contract ingredient. The offeree when after the receipt of the offer confirms to the same then it is an acceptance in law(Payn v Case (1789).An acceptance follows the exact terms of an offer and grants approval of the same
- An acceptance should come within th information and knowledge of the offeror to be valid.
- To make an agreement there is a requirement of an acceptance to an offer and thus it is very important in law.
- An offer which is accepted results in an agreement. This agreement must be made by the capable parties which is the third essential in a contract. The parties are capable when they are not of an unsound mind and have attained the age of minority.
- The capability of the parties is very important because no contract law with minor is valid in law and is void. Thus, to make a valid contract there must be party’s capacity.
- The fourth essential is legal intention. It implies that the parties must be willing to go to courts in cases of disputes. Absence of legal intention results in invalidity of the contract (Balfour v Balfour (1919).
- Intention is very important because if the parties do not want to bind the contract legally then such contract is domestic in nature and has no significance in law.
- Consideration is the last element. A consideration supports an agreement and makes it enforceable. A consideration is a kind of gain which is moved from the promisor against the promise which is performed by the promiseeFoakes v Beer (1884).
The consideration is important because it makes the contract enforceable and non-gratuitous.
LO 1.2 Discuss the impact of different types of contract
It is now important to understand the impact of certain kinds of contract , such as:
Face to face –when the contract is established by the parties by sitting next to each other physically, then such contract are face to face contracts (Phillips v Brooks (1919). The terms of the contract are discussed orally and thus are a form of verbal contracts. (Pettigrew 2012) The main impact of these contracts is that since they are not written in nature thus they does not hold much of the evidentiary value and thus is very difficult to prove in court. So, it is advice that wherever possible it is better to avoid face to face contracts as they are oral in nature.
Written contracts – When the parties do not negotiate the terms orally but write the sales planning in a document then such kinds of contracts are called written contracts. Written contracts are formed by the parties in documentation or text forms. The main impact of a written contract is that they are in text form and thus holds high evidentiary value and if any dispute arise it can easily resolved after relying on the terms of the written contract. (ElawresourceUK 2016)
Distance Selling contracts – these are the contract which is made when the parties are bodily apart. This can be made in written form or oral form, such as, through internet or telephone respectively. The main impact of these kinds of contracts is that such contracts hold evidentiary value only when are written in nature, that is, online. If they are oral then are not easy to prove. It is suggested that the contract should be made which is of written form so that they are easy to prove in the court of law. (The Law Teacher 2016)
LO 1.3 Analyze terms in contracts with reference to their meaning and effect
It is now important to understand the meaning and effect of few terms which are found in every contract, whether, oral or written. The same are:
Condition –condition are those terms which are the root of any contract, they are so important that without then no contract can be performed effectively. The impact when a condition is violated is grave in nature and the plaintiff has every right to cancel the contract. The plaintiff also has power to sue the defaulter for damages Poussard v Spiers & Pond (1876).
Warranty- When the contract terms are not so essential in a contract that is they are not root to the contract then such are warranties. They are not required for the validity of the contract. When the contractual party to the contract does not perform any of the warranty then the only power of the plaintiff is to demand damages Bettini v Gye (1876).
In nominate – The terms which are neither condition nor warranty but is converted into the same depending upon the situation when they are violated. The effect of in nominate term also depends upon how they are treatedThe Hansa Nord (1976).
Exclusion - Exclusion terms excludes or limits the obligation of one party to the contract by relying on contractual clause. The clause must be assented by both the parties. The contract should be approved by both the parties to be validChappleton v Barry UDC (1940) &(Hollier v Rambler Motors (1972). The party who is relying on the clause must prove that it has made all reasonable efforts to bring the clause within the knowledge of the other party. (Inbrief 2016)
Task 2 Be able to apply the elements of a contract in business situations:
LO 2.1 Apply the elements of contract in given business scenarios
Case 1 – Agreement: In the given scenario there are two important principles which prevail, that is, offer- acceptance and invitation to offer. When the terms which are communicated one an individual (offeror) to another individual offeree) then such communication is an offer which he hopes that an offeree will approve and abide by (Harvey v Facey (1893). The offeree when after the receipt of the offer confirms to the same then it is an acceptance in law.
But, when no acceptance is made to the terms of offer, rather, offer is invited, and then it is called invitation to offer. In invitation, the person invites offer from the public by displaying advertisements, auctions, through tenders etc. any individual who wishes to act on the invitations of the inviter must put forth their offers and when the inviter approves of the same then there is a contractual; relationship marketing (Pharmaceutical Society of Great Briton v Booths Cash Chemist (1953). (McKendrick 2011). In the given case, Gumtree place can advertisement for the same of couch @ 600. It is an invitation to treat ((Partridge v Crittenden (1968). So, Gumtree is an offeree. Carol acted on the advertisement and made an offer through mail. But, this offer was not accepted by Gumtree. Thus, there is no corresponding acceptance by Gumtreee to the offer of carol. Hence, no contract exist between the two.
Case 2 – Consideration: To make a valid contract there is a need for compliance with all the essential elements, that is, offer, acceptance, legal intention and consideration. A consideration supports an agreement and makes it enforceable. A consideration is a kind of gain which is moved from the promisor against the promise which is performed by the promisee. But, every consideration should support those actions which are future or present in nature (Pao On v Lau Yiu Long (1980). A consideration which is holding any past actions are invalid in law. (The Law Teacher 2016)
Devi was given a job on 12th April by George. However, Preston, who is the father of Devi, promised to pay @ 150,000 to George if he gives job to Devi. But this promise has no sanctity in law because the consideration that was provided by Preston was for those actions which were already performed by George. So the consideration is past and is not valid in law. So George cannot sue Preston for the recovery of money.
Case 3 – Exclusion Clause: Exclusion terms are one of the significant terms which are made part of a contract. These terms exclude/limit the obligation of one party and written on a contract at the assent of both the parties (Watford Electronics Ltd v Sanderson CFL Ltd (2001) (Thornton v Shoe Lane Parking (1971). The clause should be approved by both the parties to be valid. The relying party should undertake actions in such a manner so that the other party gets aware of the existence of the clause in order to make it valid and binding. (Furmston & Tolhurst 2010) In the given case, The exclusion clause was made part of the receipt by the restaurant against any loss or theft or item stolen from the pocket of the jacket. A couple was provided with the receipt when they handed their coat but found @ 500 missing which the coat was returned to them by the restaurant.
It is held that the restaurant cannot rely on the exclusion clause that was made part of the receipt. This is because; the clause was incorporated on the receipt unilaterally by the restaurant. The clause is valid only when the same was bright in the knowledge of the couple by resemble means. However, no such acts were taken by the restaurant. So the clause is not valid and restaurant can be held liable for their loss.
Case 4 – Implied Terms: There are two kinds of terms that are found in any contract. The terms which are reciprocally incorporated in contract are express and the terms which are part of the contract because of customer, law, usage are implied (Bannerman v. White (1861). Both the terms have legal significance and should be catered in order to avoid any kind of liability. (Weitzenböck 2012) In the given case, Zehphra and Aaron has entered into an express provisions that because Aaron has made repairs and improvements on the warehouse of Zehphra, so Zehphra will not make any enhancement in the value of the rent for next five years. This express provision was the part of their rent agreement.
The property later inherited by Yeti because of the death of Zehphra. Now, under the implied law, the person who inherits the property must do so with all its rights and liabilities. So, Yeti must also abide by the express provision that was entered amid Aaron and Zehphra. However, Yeti did not comply with the same and increased the rent and claimed the sake from Aaron. It is submitted that Yeti cannot do so under the implied terms of law and if he does so, then, he must pay compensation to Aaron. So, Aaron cam sue Yeti for compensation if he increased the rent before the period of five years.
LO 2.3 Evaluate the effect of different terms in given contracts
Case 5: As per the nature and importance that a term holds in any contract, the terms are divided into three broad categories, the same are conditions, warranties and in nominate terms
Condition are those terms which are the root of any contract. The impact when a condition is violated is grave in nature and the plaintiff has every right to cancel the contract. The plaintiff also has power to sue the defaulter for damages Poussard v Spiers & Pond (1876).Whereas, a warranty is a terms which are part of the contract but are not root to the contract and if they are not performed then only damages can be asked by the plaintiff (Bettini v Gye (1876).(Elawresource UK)
Now, in the given question, one important question was asked by the insurance company from the insurance holder before entering into the insurance policy, that is, whether the insurance holder himself or any other person has involved into any accident or theft claim of similar nature in the last five years. The insurance holder denied the same which was not true. Later it was found that a theft claim was made.
The question that was asked by the company was very important in order to make a decision of granting an insurance policy of not. Thus, it was a condition. This condition was violated by the holder. So, the company has every right to cancel the policy and claim damages from the insurance holder.
Case 6: As already said as per the nature and importance that a term holds in any contract, the terms are divided into three broad categories, the same are conditions, warranties and in nominate terms
T he terms which are neither condition nor warranty but is converted into the same depending upon the situation when they are violated. The effect of in nominate term also depends upon how they are treated. If they are treated as a condition then if the conditions are not performed then the contract can be terminated and damages can be claimed by the aggrieved party (Poussard v Spiers (1876). But, if treated as warranties then if the warranty is not performed then only damages can be asked by the plaintiff (Bettini v Gye (1876). Now, as per the given situation, Two important question were asked by the insurance company from the insurance holder before entering into the insurance policy, that is, firstly, any modification in the makers specification is made by the insurance holder or not; secondly, whether the insurance holder himself or any other person has involved into any accident or loss regardless of making any claim. The insurance holder denied the same which was not true. Later it was found that modifications were made and claims were made. It is submitted, that the question that were asked by the company was very important in order to make a decision of granting an insurance policy of not. But, the first question was nor very important and is thus a warranty. This warranty was breached as modifications were made but breach of warranty will only allow the company to seek damages. The second act of the husband of the holder, that a claim was made, has not resulted in the breach for thus second question which was a condition as is very important in an insurance contract. There was no accident/loss and only claims were made. So, there is no violation of a condition. So, the company cannot cancel the policy and only damages can be sought.
Task 3 Understand principles of liability in negligence in business activities:
LO 3.1 Contrast liability in tort with contractual liability
The present task requires the complementary features amid the liability of contract and the liability of tort. (EssayUK 2016)
- The law of tort is a civil law but imposes liability which is un-liquidated in nature.
- The law of contract is also a civil law but imposes liability which is liquidated in nature and is pre-decided as per the terms of the contracts.
- The liability in tort is imposed on the defendant when he does not comply with his legal duties.
- The liability in contract is imposed upon the defendant when he does not comply with his contractual duty.
- In tort, the burden is resoluted as per the law of the land.
- In contract, the liability is determined as per the terms of the contracts.
- When the defendant is at fault of his legal duties, then only the liability under the law of tort can be imposed upon the parties. Thus, it is a fault based liability.
- When the defendant does not comply his strict obligations under the contract then only the liability under the law of contract can be imposed upon the parties. Thus, it is a strict based liability.
- These are some of the contrasting features amid the two laws.
LO 3.2 Explain the nature of liability in negligence
The character of the burden of the law of negligence is a very important concept and can only be understood when the law behind negligence can be evaluated. The law of negligence was a very important tort law which was originated in 1932 in the paramount case law of Donohue v Stevenson (1932) wherein the court has held that every manufacture should produce products so as not to harm their customers against any reasonably foreseeable harm. This obligation of care which is forced upon the manufacturer as resulted in the development in the law of negligence. To prove any person in law to be negligent in his actions, it is necessary that there are few fundamental principles which must be proved. The same are submitted herein under: (Web 2016).
The defendant must make sure that when he initiates any of his actions or inactions, then, he should do so resulting in no harm to any plaintiff. This precaution in the law of negligence is called duty to take care or duty of care. But, the defendant is not liable to take precautions in each and every situationHome Office v Dorset Yacht Co. Ltd. (1970).
The plaintiff and the defendant are neighbours. This implies that they are so attached that the actions/inactions of defendant falls directly upon plaintiff. Thus, the plaintiff is considered to be the neighbor of defendant under the law of negligence (Junior Books v Veitchi (1983).
Also, duty to provide care to the plaintiff is only imposed on the defendant against those impacts which can be rationallypredictable by the defendant. If the defendant cannot rationallypredict the impact, then, there is no duty of care to be imposed upon the defendant against the plaintiff(Caparo Industries plc v Dickman (1990).
When the duty of care is imposed upon the defendant then he must comply with the same in each and every situation. But, every situation requires the different level of care. When the defendant is not able to achieve the respectable level of care that is required in the given situation, then, the duty is said to be not complied with and is considered to be breached. This is the second element under the law of negligence, that is, breach of duty (Blyth v Birmingham Waterworks Co (1856). (Maclntyre 2007).
Because of the breach of the duty, the plaintiff should suffer loss. However, the loss is said to be incurred under the law of negligence provided:
- The loss is because of the direct results of the breach of duty of care, thus, there must be an element of duty of care(Jeb Fasteners Ltd v Marks, Bloom & Co (1982).
- The loss which is caused to the plaintiff is reasonably expected by the defendant, that is, the loss is not remote.
- The compliance of all the above fundamentals results in decision making the defendant liable under the law of negligence.
- Thus, the nature of the liability of the law of negligence is fault based, because it is only when the defendant is at fault of complying with his legal obligations, that, he can be held liable for negligence.
LO 3.3 Explain how a business can be vicariously liable
The law of vicarious liability is specifically imposed upon those relationship which deals with master-servant or employer – employees segment. Vicarious liability mainly makes the master answerable for the undertakings of his servant. To make any master liable for his actions of the servant it is necessary that few fundamentals should be comply with. The same are:(LawMentor 2016)
- The vicarious liability is applicable in the relationship covering master-servant, employer-employeeMersey Docks & Harbour Board v Coggins and Griffiths (1947).
- The servant should be acting as per the commands of the master.
- The servant should act in employment course.
- Within acting in the employment course, actions are undertaken which has caused damage to an outsiderNetheremere Ltd v Taverna & Gardiner (1984))..
- The actions of the servant are not personal in nature.
- In these given scenarios, the loss which is caused by the servant is not imposed upon him, but it is the master who is held accountable for the loss which is caused by the servant.
Task 4 Be able to apply principles of liability in negligence in business situations:
LO 4.1 Apply the elements of the tort of negligence and defenses in different business situations
Case 7: In the law of negligence, the defendant must make sure that when he initiates any of his actions or inactions, then, he should do so resulting in no harm to any plaintiff provided the plaintiff is his neighbor and the loss is rationallypredictableMuirhead v Industrial Tank Specialities (1985). When the duty of care is imposed upon the defendant is not performed causing loss to plaintiff who is direct and not remote then the defendant is negligent. (Web 2016). But, when the defendant can establish that the loss which is incurred to the plaintiff is the result of the plaintiff’s wrongful actions along with the acts of the defendant then the plaintiff can be held to have contributed to his own loss and the defendant can rely on the justification of contributory negligence. The defendant then can reduce his liability to the extent the plaintiff is negligent in his actions (Barrett v Ministry of Defence (1995). Now, as per the given question, Mr Brown submitted that he is suffering from Chest pain and breathing problem. The doctor prescribed the medicine without checking him. Later it was found that he is suffering from pneumonia and he died.
The doctors and the hospital were negligent in their actions because it was their paramount duty to check the patient before prescribing any medicine to them. The doctors and the patient are neighbors of each other because any action of the doctor will impact the patient directly,. The doctors can reasonably foresee the impact of his actions on the patient, thus, this duty is voialted by the hospital resulting in Mr Browns death. So, the hospital is negligent in its actions. But, the hospital can take the defense of contributory negligence as Mr Brown has wrongly provided information of his health and has contributed to his loss.
LO 4.2 Apply the elements of vicarious liability in given business situations.
Case 8: In the law of vicarious liability, relationship amid the parties must be of master-servant, employer-employee and the servant should be acting as per the commands of the master and in employment course which has caused damage to an outsider and the actions of the servant are not personal in naturePhoenix Society v Cavanagh (1997) &Rose v Plenty (1976).
In the given case, the driver of chauffeur company has caused loss to the client of the chauffeur company while driving back from the airport when the driver his the lamp post. It was found that the driver was too drunk. It is held that the driver was acting and driving within the instructions of the chauffeur company and the loss was undertaken when he is performing his employment duties. Though he was drunk but that will not mitigate the responsibilities of the chauffeur company. So the client will sue the chauffeur company for his loss through the company may later sue the driver for the recovery of damages.
Case 9: In the law of vicarious liability, any obligation can be imposed upon the master for the actions of his servant provided the loss which is caused by the servant to any outsider should be while perfuming his official duties. If a loss is caused by the servant but he is not acting within the scope of his employment then such loss is not to be made good by the companyColonial Mutual Live Assurance Society v The Producers and Citizens Co-operative Assurance Co of Australia (1931). (Keith 2012)
In the given case, Mr Jones causes injury to his colleague when loading some pallets in the truck. But, when he was doing so, at that time he was not within the employment of the supermarket, but, the department of health and safety was transferred to some other company. So Mr Jones was not the employee of the supermarket at the time when the loss was incurred. So, the colleague should not sue the supermarket and must sue the other company for the loss that is caused to him.
Allen & Overy, 2016, Advocates For International Development At A Glance Guide To A Glance Guide To A Glance Guide To Basic Principles Of English Contract Law, <http://www.a4id.org/sites/default/files/user/documents/english-contract-law.pdf>. Viewed on 27th October 2016.
British Steel Corp. v Clevenland Bridge and Engineering Co. (1984).
Balfour v Balfour (1919).
Bannerman v. White (1861).
Bettini v Gye (1876).
Blyth v Birmingham Waterworks Co (1856).
Caparo Industries plc v Dickman (1990).
Colonial Mutual Live Assurance Society v The Producers and Citizens Co-operative Assurance Co of Australia (1931).
Chappleton v Barry UDC (1940)
Carlill vs Carbolic Smoke Ball Co (1893).
Chitty J, 2012, Chitty on Contract : General principles, Sweet and Maxwell, p1012.
Donoghue v Stephenson (1932).
Elawresource, 2016, Conditions, warranties & innominate terms <http://e-lawresources.co.uk/Conditions,-warranties-and-innominate-terms.php>. Viewed on 27th October.
EssayUK, 2016, Differences and similarities between rights and obligations in contract and tort, http://www.essay.uk.com/essays/law/essay-differences-and-similarities-between-rights-and-obligations-in-contract-and-tort/. Viewed on 22nd July 2016.
ElawresourceUK, 2016, Mistake http://e-lawresources.co.uk/Mistake.php. Viewed on 27th October.
Furmston & Tolhurst, 2010, Contract Formation: law and practice, Oxford University Press, p13 – 20.
Foakes v Beer (1884).
Glsagow Corporation v Taylor (1992).
Harvey v Facey (1893).
Hollier v Rambler Motors (1972).