Aspects of Contract and Negligence for Business
A Case Study on Different Terms in Contract Formation
In English law, contract is a legally binding agreement that gives rise to obligations recognized or enforced by law. The purpose of contract law is meant for enforcement of promises. But it is also important to note that all promises are not enforced by law. The project report is carried out by gaining understanding on various aspects of contract and negligence of business. It will describe various elements involved in valid contract agreement to be present in court. It is because many agreements look like valid contract but when considered in regard with elements, they are not valid contracts. The report will also include case studies to explain different validity of contracts in various business situations and judgments given by court.
The report also explains nature of liability in negligence; principles of liability exist in case of negligence in business activities and vicarious liability. The last part of report explains elements of tort of negligence and defences in business situations. The contract agreements explain here will be in between individuals and businesses that mutually agree to form a contract for one or the other valid reason. The report aims to explain various terms of contract, its formation and end procedure and damages and remedies applicable to innocent (Akintoye, Renukappa and Lal, 2012).
Contract can be defined as legal relationship between two or more parties to provide specific performance supported by mutual consideration. All parties are obliged to fulfill contractual obligation else they will be liable to provide damages for the breach. For the formation of valid contract, following elements are required to be present in the agreement of the parties.
Offer- Offer can be defined as a proposal given by one party to another to provide performance. Offer can be made in general or to the specific person. General offer is also known as unilateral offer which is made to the public and each person is entitled to accept the offer. Specific offer is made to a particular person and he is only entitled to provide acceptance. Expression of offer can be provided by advertisement, fax, email or even by implied conduct (Beale and Furmston, 2001). In the case study of Smith v. Hughes, Court said that the essential element in the determination of the valid offer is based on the situation. Intention of the parties will not be considered by the court of law for the determination of the validity of the offer. Invitation to treat cannot be considered as offer as it is merely an invitation given by one party to another to provide offer. Response of invitation to treat is offer not acceptance. On the basis of invitation to treat contractual liability cannot be imposed for the fulfillment of promises (Clarkson, 2010).
Acceptance- Party to whom offer is made is only eligible to provide acceptance for the offer. Acceptance given by other party will not be considered for the formation of valid contract. Acceptance made by the party should be certain and unconditional. If conditional acceptance is provided by the party then it will be considered as counter offer on which further acceptance will be required by other party. The essential factor in the valid acceptance is that parties should have subjective perspective to get engaged in the conduct of manifesting their assent. Party is eligible to resist the claim of breach by proving that they do not have any such intention to enter into contractual relationship. In the case of lucy V Zehmer, 196 Va 493 84 S.E. 2D 516 it was said that individual is entitled to act only upon what the other party reveals objectively (McKendrick, 2012).
Consideration- Performance given by the party should be supported by mutual consideration. It can be defined as a benefit for which promise is made by the party. Consideration can be in monetary or non-monetary terms. It is not required to be sufficient but it should be appropriate in the eyes of law ((Thomas v Thomas) (1842) 2 QB 851). There are several rules formed by the court of law to govern consideration i.e. it should not be in past form, it must be sufficient and it must move from the promisee.
Intention to Create Legal Relationship- Parties entering into contract must have intention to fulfill contractual obligation to discharge contract through performance. If agreement is made between parties on the basis of love and affection than it will not be enforceable by law. In such contracts assumption is implied by law that parties do not intend to enter into contractual relationship (Jones v Padavatton  1 WLR 328).
Oral and Written Contract - Oral contract between parties is formed through the verbal communication on the basis of trust and faith. In this deed is not prepared by parties to define terms and conditions of the contract. These agreements are informal in nature (Lando, 2003). In the situation of conflicts, situational approach is implemented by court of law due to absence of legal proof. In written contracts, deed is prepared by the parties to describe terms and conditions of the contract. In comparison to oral contract, these agreements are more specific and formal in nature. If dispute arises in written contract, then deed is referred by court of law to provide remedy to the aggrieved party.
Unilateral and bilateral contract - In unilateral contract offer is made to general public in which each person is entitled to provide acceptance to the offer. However they are not obliged to fulfill their promise. If performance is made by them then primary party will be obliged to fulfill contractual obligation. In the case of Carlill v Carbolic Smoke Ball Co, unilateral offer was made by company through an advert. On the basis of that performance was given by the plaintiff to attain reward but company refused to pay that. In this situation court held that company will be obliged to pay damages. In bilateral contract there is exchange of promises between parties. Both the parties are obliged to fulfill their contractual obligations else they will liable to provide remedy for the breach. In the case of Woollen Mills Pty Ltd v. The Commonwealth (1954) court said that promise was made by parties in return of mutual consideration (Schwartz and Scott, 2003).
Face to Face and distance contract - In distance contract, parties are present at same place while formation of the contract. Terms and conditions of the agreement is determined through postal or telephonic communication between parties (Powell v Lee (1908) 99 L.T. 284; Robophone Facilities Ltd v. Blank  3 All E.R. 128. ). In this lapse of offer is determined through the postal rule. In face to face contract parties are present while formation of the contract. Generally if acceptance is not provided at that time then offer is lapsed and it is held valid for the acceptance (Knapp, Crystal and Prince, 2003).
Terms of the contracts can be defined as statements which describes rights and obligations of the parties to the contract. These are the clauses agreed by the parties regarding performance that what is need to be done and how it will be done in different circumstances. Terms of the contract can be classified as follow
Expressed Terms - These terms are inserted by the mutual will of the parties. Expressed terms can be in oral or written form. These terms must be incorporate before the formation of the contract (Chapleton v. Barry Urban District Council (1940). These can be further classified into conditions, warranties and innominate terms. Conditions are the main stipulation of the contract which describes primary obligation of the parties. If these terms are not fulfilled then innocent party is entitled to repudiate the contract. Warranties are ancillary stipulation to the main terms of the contract. It specifies the obligations of the parties (Riley, 2012). If warranties of the contract is not satisfied through the performance of the party then aggrieved party can claim for damages but they are entitled to terminate the contract (Poussard v Spiers (1876) 1 QBD 410). In the approach of innominate term, statements of the agreement are not classified into terms and conditions. In this effect of breach is considered that breach occurred by party was deprived of substantially the whole benefit of the contract or not (Hong Kong Fir Shipping v Kawasaki Kisen Kaisha  2 QB 26).
Implied Terms - These terms are assumed to be present in the contract by law to give effect to general intention of parties. It provides protection to the weaker party. Implied terms can be inserted by facts, by custom or by trade usage (British Crane Hire Corp. Ltd. v. Ipswich Plant Hire Ltd. (1975). For example, through the provisions of the National Minimum Wage Act 1998 it was said that payment of the workers should be in accordance with the minimum wage said by the parliament. Expressed terms of the contract should not be contradictory to statutory provisions else it will not be considered as part of the contract (Nystén-Haarala, and Lehto, 2010).
Exclusion Clause - These terms are inserted to eradicate liability in situation of non-satisfactory performance. To avail benefit of these terms following conditions are required to be satisfy by defendant-
A said to B, that he want to sell his car in £2000. Car will be provided in good situation along with the full petrol tank. On the response B said that he is interested in the purchase of car but price said by is not fair. He want to purchase the car in £1800. A did not agreed on this and
he sent his denial letter to B. Further B said he is ready to purchase car in £2000 but A had already sold car to another person. Applicability of elements of contract in case scenario
Offer- In the described case situation offer is given by A to B for the sale of car in £2000. Offer is made to specific person thus only B is entitled to accept the offer given by A. Offer is certain and legal.
Acceptance- In this situation conditional acceptance is given by B because he was not satisfied with the price on which offer is made. Conditional acceptance made by B will be considered as counter offer on which further acceptance is required by A for the formation of the valid contract. Further counter offer given by B was not accepted by the A.
Consideration- In the present agreement consideration for A will be £2000 and for B will be car given by A. In this situation consideration is adequate thus it is valid for the formation of the contract.
Intention to create legal relationship- A and B has intention to enter into contractual relationship for the fulfillment of promise made by the parties. Agreement made by the parties is not based on the love and affection.
In this case scenario due to absence of appropriate acceptance there is no contractual relationship between parties. In this contract counter offer given by B was not accepted by the A. At this point offer will be lapsed. Thus another response that he is ready to purchase car in £2000 will be considered as new offer not acceptance. On the basis of above description it can be said that A is not obliged to sell the car to B due to the absence of contractual relationship between parties.
However if negotiation was done between the parties regarding the price of the car then there will be valid contract between parties. In addition to this, after the formation of the valid contract if car was sold to another person then A will be held liable to provide damages for the contractual breach.
Sam purchased second hand Morris car by relying on the fact that it is model of 1948. For the purchase of the car deed was prepared by parties(Kerber and Heine, 2002). In the deed, it was stated that model of the car is of 1948. In the following year car was used by his daughter as a trade in for the brand new Hillman Minx which she was purchasing from Frank. In the deed his daughter stated that model of the car is of 1948, and on the basis of it Frank offered her discount of £260 on the purchase price of Hillman Minx. After 8 months it was discovered by the Frank that car is of 1939 model and worth is comparatively lower. Due to breach of term he bought a claim against the daughter for the breach of the contract. For this purpose he said that model no. of the car is fundamental term of the contract thus he is entitled to repudiate the contract.
In the described situation price and model of the car are the expressed terms of the contract. Deed was prepared by the parties thus there was written contract between them. Implied terms of the contract will be that parties will act fairly. They will fulfill the contractual obligation to discharge the contract by performance. In this situation case of Oscar Chess Ltd v Williams  1 WLR 370 can be refereed (Schäfer, and Ott, 2004). Similar situation was occurred in this case that car was purchased by the claimant by relying on the statement that it was model of particular year. Claimant was the dealer of the car. Later in this case it was discovered the statement was not true. In this situation court held that statement related to the age of the car will not be considered as a term of the contract it will be treated as representation. Further claimant (The representee) was a car dealer thus he should have great knowledge regarding age and year of the production of the car. On the reference of the case” Oscar Chess Ltd v Williams  1 WLR 370” it can be said that clause of model will not be considered as term it was the representation.
Tina went to the local park for the visit in Sunday morning. She hired a deck chair to spend some time in the park. For this purpose she had paid 30P to the manager of the park and they provided her ticket. After some time, the chair collapsed and she got injured. She went to the manager for the complain and she claimed for the damages. At that time manager point out at the back side of the ticket on which it was stated that management of the park will not accept any liability in situation of injury due to the hired equipment.
Evaluation of the effect of different terms in given contracts
In the described situation term inserted by the management of the park that “ management of the park will not accept any liability in situation of injury due to the hired equipment” will be considered as the exclusion. It is reducing the liability of the entity in situation of non-satisfactory performance. Described situation can be linked to the case precedent of Chapelton v Barry UDC  1 KB 532 (Kerber and Heine, 2002). In this case claimant went to the park and he hired a deck chair. After some time his clothes were damages due to collision of the deck chair. When he complained regarding the injury council denied to provide damages. Further claim was done by the claimant and court held that ticket provided by the council was merely a receipt thus it will not be considered as part of the contract and council is entitled to provide damages. With the reference of Chapelton v Barry UDC  1 KB 532, management of the park will be liable to provide damages to the Tina as exclusion clause inserted on the ticket will not be considered for relief because it is inserted after the formation of the contract.
On the basis of above description it can be said that terms of the contract are mandatory to be complied by the parties else they will be liable to provide damages for the contractual breach (Emerson, 2009). If exclusion clauses are inserted to reduce the liability in situation of non-satisfactory performance then it should be introduced prior to the formation of the contract. In addition to this, exclusion clause should not be contradictory to the statutory provision of the law.
Contractual and tort liability are governed by the aspects of civil. Objective of both the liability is to provide damages to the aggrieved party for the injury occurred. Contractual liability arises if parties to the contract fails to satisfy the terms through their performance. Tort liability arises in situation of negligence (Mann, 2013). In this party fails to take reasonable care of their actions which causes injury to the other party. In contract, parties enter into relationship by their own will by providing valid acceptance to the offer made by the other party. In tort liability is imposed by court of law as there is absence of contractual relationship between parties (Zoll, 2012). Objective of tort liability is to provide remedy to claimant to bring him position if act of negligence was not committed by the party. Purpose of contractual liability is to bring aggrieved party is position if satisfactory performance was given by party.
In the case of Poussard v Spiers (1876) 1 QBD 410 there was contractual relationship between claimant and defendant created through the contractual agreement. Parties enter into contract to perform as an opera singer for three months. However defendant was not able to perform on the starting night thus she was get replaced by the another opera singer (Kerber and Heine, 2002). In this situation parties enter into contractual relationship at their own will. They have legal intention to fulfill contractual obligations. In this situation damages was provided by court of law to bring defendant party in position if satisfactory performance was given by party.
In the case of Topp v London Country Bus  1 WLR 976, defendant was the bus company. They left a mini-bus in a lay-by overnight. Bus was not locked and driver forgot the keys in the ignition. The next driver was expected to pick the bus but he did not turn up for his shift. Bus was stolen by the thieves and it Unfortunately hit a woman off her bicycle and killed her. Further her husband brought the claim for the remedy of the injury. In this case there is no relationship between parties it was imposed by the law. However court held that bus company does not owe a duty of care for the acts of third party (Torgansn and Bushaw, 2001). Although thief were held liable under provisions of criminal law. For the company it was said that Negligent act was not foreseeable that thieves would take the bus and run a woman off her bicycle.
Negligence can be defined as situation where a person fails to take reasonable duty of care by which injury is occurred to the other party. Modern law of negligence was established through the case precedent of Donoghue v Stevenson  AC 562. In order to claim liability under negligence claimant is required to satisfy the following principles-
Duty of care- Defendant should owe duty of care to the claimant. Duty of care can be defined as obligation of individual to take standard care of their actions to prevent possibility of risk of injury. This principle was established through the principle of neighbor love. Through this, it was stated that individual should love their neighbor (related parties) thus they should prevent act of omissions which can cause injury to other party (Middlemiss, 2012). Applicability of duty of care is influenced by the eccentric of loss and for this various legal tests are applied. The neighbour test is used for this purpose. It is based on the Reasonable foresight of harm and relationship of proximity.
Breach of duty- Defendant should fail to take care of reasonable care in their actions by which injury is occurred to the claimant. After the establishment of the breach of duty, defendant is held liable to provide damages for the negligence. To prove breach of duty test of objectivity is applied (Giliker, 2010). This test can be variable as it is dependent on the situation of the negligence. For this purpose case of Vaughan v Menlove (1837) 3 Bing. N.C. 467 can be refereed. In this case haystack of the defendant caught fire because of the inappropriate system of ventilation. In this defendant argued that according to him there was not possibility of fire but claim was held successful and he was held liable to provide damages.
Causation- For the establishment of the principle of the causation, claimant should prove that primary reason of loss was the negligence occurred by the defendant. Causation in tort is determined by the but for test. In the case of Barnett v Chelsea & Kensington Hospital  1 QB 428, claimant went to the hospital due to the stomach ache and vomiting. He was seen by a nurse and she informed the doctor for the same (Dobson, 2013). The doctor said her to sent him home and contact his GP in the morning. Further claimant died due to the arsenic poisoning after five hours. In this case it was held by the court that hospital is not liable for the death. It is because primary reason of death was not denial of doctor for the check-up.
Remoteness of damages- This principle is related to the requirement that damages to the claimant must be foreseeable from the act of negligence occurred by the party. It is an additional mechanism in the tortuous liability. In tort remedy is not provided for the every loss. Defendant is liable only for those losses which are occurred as a consequence of breach. In the case of Re Polemis & Furness Withy& Company ltd. 3 KB 560, some stevedores carelessly dropped a plank of wood into the hold of the ship (Deaki, and et.al., 2007). Plank got stroked by which leaded to the destruction of ship. It was said by the arbitrator that spark was not foreseeable from the negligence of the stevedores by which claimant appealed. In this case court held that there is no requirement that damage is foreseeable and defendant is liable for the action.
Vicariously liability is imposed on the innocent party for the act of the tortfeasor. Such liability is introduced due to influential relationship of parties. Liable party was in position to control the act of negligence but they failed to do so. On the basis of provisions of vicarious liability business is held liable for the negligent actions of employees. Thus they are obliged to take care of actions of their subordinates to prevent the possibility of the injury (Vicarious Liability, 2014). Employer will be held vicariously liable if act of negligence is occurred in course of employment.
In the case of Imperial Chemical Industries Ltd v Shatwell  AC 656 the claim of vicarious liability was held successful by saying that negligence is occurred in course of employment deliberately by employees. In addition to this, the workers were under the statutory duty not the employer.
The tort of negligence is legal wrong that one party of contract suffers at the hand of another. Negligence is considered as form of tort that causes loss or damage to a party even when there is no contract in between two parties and thus there exists no reason for one party to sue another (Whittaker and Zimmermann, 2000). The essential elements of the law of torts to be proved in law are -
The case of Donoghuevs Stevenson occurs when plaintiff became ill when she drank ginger beer at a cafe. The bottle of ginger beer was opaque so it was not possible to see the contents form outside, when plaintiff poured content in the glass, she found decomposed snake in the bottle. Till then she had drank enough content from the bottle that made her to visit the hospital for treatment. The plaintiff cannot sue in contract because drink was purchased by her friend. Therefore, court decided to establish new principle i.e. duty of care to neighbor which enabled plaintiff to sue the manufacturer for damages caused (Mondal, 2014).
Duty of Care - The concept of duty of care was established in case of Donoghuevs Stevenson.
Breach of Duty - The manufacturer failed to comply with standards of care and that caused injury to plaintiff.
Damage - The plaintiff had to undergo treatment at the healthcare facility several times.
Causation - The illness was caused from the negligence of manufacturer that did not ensure quality of contents before sending it for sale (Padhi, 2012).
The liability at the manufacturer exits if any of the following defenses are availed by defendant
Contributory negligence - It occurs when plaintiff is also responsible for injury or damage caused. In other words, the plaintiff is also responsible for own protection as per standard of acre and if the party fail to meet, it is considered as contributory case, with conduct of defendant, for injury to plaintiff. For example, when a pedestrian is intentionally walking on street without looking for traffic and hit by car (Faure, 2009).
Necessary - When it is necessary to incur negligence for defendant then he will not be obliged to compensation of damages. For example, if a customer broke glass of his room to escape from Fire - this is not considered as negligence because it became necessary to break the glass to save from injury.
Illegality - If conduct of negligence is for the purpose of reporting any illegal incident then defendant cannot be held liable for damages. For example, if personal information of any individual is reported to income tax official to prohibit tax evasion, it cannot be considered as illegal action (Kidner and Richard, 2007).
Comparative negligence - Also called non absolute contributory negligence. The doctrine of comparative negligence reduces plaintiff's recovery of damage from defendant in which plaintiff is also responsible for damage or injury. There are three types of comparative negligence -
Pure - Plaintiff is compensated on the basis of percentage of damage or injury cased by defendant.
Modified - Plaintiff is compensated only when his negligence is equal to or less than the defendant's.
Slight Gross - Plaintiff is compensated when his or her negligence is slight and that of defendant's is gross.
Assumption of Risk - In case when plaintiff assumes risk in dangerous activity but still involved in activity, then he or she cannot be compensated with damages. Further this to apply the plaintiff should have actual knowledge of risk involved and that he should also accepts risk involved. The assumption will not apply to unknown or additional damages or injuries. For example, a player participating in cricket match cannot complain and seek compensation if he or she suffers any injury caused by opponent accidentally (Commission on European Contract Law, 2003)
According to English Tort law, vicarious liability imposes strict liability on employers for wrong conduct of employees. It can be referred to as situation in which innocent party is held liable for tortuous act of other party being the actual culprit. The obligations of vicarious liability as imposed by law states that employer is liable for wrong conduct of employees due to the influential relationship with employees (Jansson, 2003).
The case of Lister v Hesley Hall Ltd(2001) led to extend the boundaries of vicarious liability to consider sexual abuse in vicarious liability.
The facts state that appellants aged between 12-15 years were residing at Axaholme House which was boarding house of Wilsic Hall School in Wadsworth. The school and boarding home was owned and managed by Hesley Hall Ltd. the appellant raised complaint that boarding house warden sexually abuses them with unwarranted gifts and alone trips. The case then brought to criminal investigation in which warden was found guilty of the conduct.
In this case, Court of Appeal found that sexual abuse of child by headmaster was beyond the scope of employment and thus employer is vicarious liable.
Here the application of vicarious liability does not neglect the obligation of primary culprit and warden was imprisoned for seven years.
The principle of vicarious liability states that employer is held liable for the conduct of employees that occur in the course of employment and under their care. The justification of recovery can be made of two reasons
The most important justification is for the purpose of reducing risk of employers and to take precautions in business execution in hiring, selecting and monitoring the activities of employees (Chandler, 2007).
Dubai Aluminum Co Ltd v Salaam(2002), was concerned with breach of trust and dishonesty.
The solicitors of Salaam filed complaint against Dubai Aluminum Co. Ltd. who was in partnership with Amhurst Brown Martin & Nicholson. Amhurst drafted certain documents for salaam.
The court rules out that Dubai Aluminum cannot be held liable for dishonest acts of Mr Amhurst based on that wrongful act under partnership that can only be considered under vicarious liability for extended common tort law. It cannot be held for equitable wrongs such as dishonesty in partnership. Therefore Salaam is entitled to seek damages from Amhurst but not from Dubai Aluminum. The house also stressed the significance of considering close relation between employee duties and dishonesty. The mere fact Amhurst was dishonest or act for personal benefit is not sufficient to consider that he was not acting according to employment contract (Schäfer and Ott, 2004).
The facts of the case states that Mr. Cranston was employed as bounder at the door of Flamingos night club in London to maintain order and discipline. During an incident occurred with a customer Mr. Fitzgerald in which Cranston hit a friend of him using physical force. Cranston was instructed to use such measure to maintain compliance. On another day, Cranston ejected Mr. Cook who was barred from the club due to incident. Later on, Mr. Cook again came to the club and Cranston assaulted him which involved several other customers in club and forced Cranston to flee. Mr. Mattis who was not at all involved in any of the incidents was on his home when Cranston stabbed him with a knife. Mattis brought complaint against club (defendant) based on vicarious liability for the injuries caused.
The court ruled out that Mr. Pollock who was club owner was not liable for the injuries because the event occurred outside the employment and was not part of continuing events that occurred at the club.
It was further considered as lapse of time and other intervening events. The stabbing event was considered as unpleasant which might have started at the club but could still be considered as isolated from those events.
Thus establishing vicarious liability also takes into account subsequent series of events taken in place to held defendant liable and seeks damages (Kim, 2006).
An off duty policeman borrowed a marked police van though not lawfully to help his friend reach home. when the van was loading, the policeman through Mr. Weir is interfering into his friends belongings. subsequently policeman assaulted Mr. Weir. the chief constable was employed by Merseyside police and is held liable for the wrong act in the course of employment.
The court rules out that policeman were acting in his capacity at that time and is responsible for assault.
It is thus concluded from the report that in order to be eligible for legal contract, the presence of four elements is must to form the contract. Absence or non compliance of any of those elements does not form validity of contract. In such cases, any of the parties are not allowed by law to bring any case and help liable to seek damages. The various types of contract formation also effect legal proceeding and given the importance of written and signed agreements, they are considered as more valid to be considered for legal proceedings. Terms described in contract are used to form obligations for parties to be fulfilled. some of the terms in contract are mentioned as necessary requirement for contract. there are also other terms which are not mentioned but still are considered for legal considerations. the contractual liability and tort liability are defined separately and applied in different circumstance in law. Both have different considerations for formation of contract and application of terms. the report explains four elements required to satisfy nature of liability. Additionally, there are also defences available for defendants to reduce their liability part. the report also explain vicarious liability that imposes obligations on employers for any wrongdoings of employees performed in the course of employment. moreover, the various contracts and liabilities are explained in references with cases and exampled that helps to understand situation in a better way.
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