ASPECTS OF CONTRACTS AND

NEGLIGENCE FOR BUSINESS

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Table of Contents

INTRODUCTION...........................................................................................................................3

TASK 1............................................................................................................................................3

1.1 The Requirements for the formation of a Valid Contract......................................................3

1.2 Type of Contract....................................................................................................................3

2.1 Possible Claim of Eddie and Frank against Doris..................................................................4

1.3 & 2.3 Terms in Contract........................................................................................................4

TASK 2............................................................................................................................................6

2.2 Exclusion Clause and its Legal Treatment.............................................................................6

TASK 3............................................................................................................................................7

3.1 General Tortious Liability and Contractual Liability............................................................7

3.3 Employer’s Liability, Vicarious Liability and Health & Safety Implications.......................7

TASK 4............................................................................................................................................8

3.2 Components for a Successful Claim for Negligence.............................................................8

4.1 & 4.2 Application of rules of Negligence and Vicarious Liability for a Successful Claim of

compensation...............................................................................................................................8

CONCLUSION................................................................................................................................8

REFERENCES................................................................................................................................9

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INTRODUCTION

Contracts are a form of promise or consideration which is bounded legally to perform or not to

perform a particular thing (Brain, 2006). In the world of business, contracts are means of

understanding future obligations between two or more business entities (Sant, 2004). The present

report is an analysis on the concept of contracts and negligence in the business taking three

distinct scenarios. The report also gives various terms associated with contracts and their

practical application within the context of law.

TASK 1

1.1 The Requirements for the formation of a Valid Contract

A contract to be valid in the context of business transaction must be based upon certain factors

which prove its formation.

Agreement – Agreement between two or more parties is the sole base of a contract. In every

contract, there must be agreement among the parties to go ahead with the contract where one

party makes a valid offer and the other party gives legal acceptance to the offer (Morgan, 2012).

Consideration – Consideration in a contract relates to the exchange of things among the parties

upon which the contract is based (Chadman, 2009).

Intention – For a contract to be valid it must be based upon valid intentions of the parties, which

is to say there is an intention to create a legally bounded relationship. The intention must have

legal and rational factors and not illegal which would void the contract (Morgan, 2012)

(Chadman, 2009).

Capacity – For parties to enter into contract, they must be capable to enter into such parties.

Capacity also relates to age and mental condition of parties because according to laws of states

minors and mentally disabled persons cannot be considered as legally capable for a contract.

1.2 Type of Contract

The current case scenario of Doris, Eddie and Frank where one party offers to a business

proposal but there is no formal legal acceptance to the offer can be termed as a unilateral

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contract. The case scenario can be termed as a unilateral contract because only party offers to a

business transaction and promises to accept considerations on behalf (Singh, 2010). This is

unlike a bilateral contract where both parties agree to fulfil the terms of the contract (Calamari

and Perillo, 2004). The present scenario is also different from an express contract where all

parties express all the related terms and conditions of the contract (Calamari and Perillo, 2004).

But the current scenario is similar to an implied contract because both Eddie and Frank agree to

accept the offer of Doris even in the absence of all relevant terms and conditions expressed

correctly (Smitley, 2011). Another aspect related to the case is that there is no formal acceptance

to the offer because Eddie posted the letter at 11.30 am and Frank posted the letter of acceptance

of Doris offer at 12.30 pm, and neither of the letters has reached Doris. In light of this, Doris is

not aware of the acceptance by Eddie and Frank, and this somewhat makes the offer invalid, thus

making it a void contract. From all the above facts, it is definite the present case is a unilateral

contract.

2.1 Possible Claim of Eddie and Frank against Doris

As already proven that the case belongs to unilateral contract and the offer of the vase has not

been legally accepted by both Eddie and Frank, thus there is no application of the rules of offer

(Andrews, 2011). Coming to the rules of acceptance, there is no instance in the case indicating

that Doris is aware of either of Eddie’s and Frank’s acceptance against her offer, this means that

there is no legal contract among them (Andrews, 2011). In the absence of any legal contract, the

rules of consideration too do not apply to the given case. Looking at the case, it is evident that all

the rules of a valid contract have not been met and Doris in no way responsible in any way to

both Eddie and Frank. Therefore, Eddie and Frank have no right to any kind of claim against

Doris.

1.3 & 2.3 Terms in Contract

Type of term How does it come to be part of the Contract?

Express Term Express terms are the most important aspects of any contract as it

gives a detailed list of all the terms, conditions and warranties of a

contract. These terms define the nature of the contract and also the

considerations of the parties concerned (Morgan, 2012).

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Implied Term As the name implies, these terms are not clearly mentioned in a

contract but are essential to its formation. These are terms of common

understanding between the parties and can be made applicable to

contract by statutes or courts (Austen-Baker, 2011).

Table 1: Significance of Express and Implied Terms in a Contract

Type of term Actions available in case of

Breach

Relevant Case

Condition In case of breach of condition

in a contract by one party, the

other party can legally

terminate the contract and can

also claim for damages against

the breach (E-

lawresources.co.uk, 2015).

Poussard v Spiers (1876) 1

QBD 410

Warranty In case of breach of warranties

in a contract by one party, the

other party can claim for

compensation but has no legal

right to end the contract (E-

lawresources.co.uk, 2015).

Bettini v Gye 1876 QBD 183

Innominate term In case of breach of the

innominate term in a contract

by one party, the other party

can terminate the contract only

if the breach has caused the

loss of all the benefits from

the contract. In cases where

the loss is minor, only

damages can be claimed (E-

Hong Kong Fir Shipping v

Kawasaki Kisen Kaisha

[1962] 2 QB 26

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lawresources.co.uk, 2015).

Table 2: Type of terms in Contract and there Breach

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TASK 2

2.2 Exclusion Clause and its Legal Treatment

Exclusion clauses in a contract are a form of measures taken by parties to a contract whereby one

party seeks to limit or totally exclude its liability for any damage that may be caused to the other

party (Bunni, 2005). Problem associated with exclusion clause is that the party liable for damage

may use its incorporation in the contract for getting let-off from any responsibility of the

damage.

Exclusion clauses are termed as unfair terms in a contract by the Unfair Contract Terms Act

(UCTA) 1977 and Unfair Terms in Consumer Contract Regulations Act 1999. Lawful remedy to

exclusion clause is based on its incorporation and the loss covered (Posner, 2004). Incorporation

implies that the parties to the contract must be aware about the clause at the start of the contract.

Absence of knowledge about the clause will make it void in the eyes of the law. Considering the

cover of loss by the clause, the court applies the rule of contra proferentum rule (Posner, 2004).

The rule implies that if there is any ambiguity in the clause then the court will take upon the

wordings of the clause against the damaging party. According to UCTA, an exclusion clause will

cease to exist if there is:

death or personal injury

breach of standard implied terms of the contract (Legislation.gov.uk, 2015)

In the case of Mix-O-Crate, a contract is signed between the company and Bob and it looks like

Bob has full trust on the company. In the presence of exclusion clause, if the concrete mixer does

not work well but do no cause harm or personal injury, then Mix-O-Crate will be able to rely on

the clause. But if the mixer fails to work and causes death or personal injury then as per

definition by UCTA, Mix-O-Crate will be held liable for it.

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TASK 3

3.1 General Tortious Liability and Contractual Liability

General Tortious liability is a general aspect within the purview of contract which relies on the

performance of one’s duty of care. Tortious liability or tort law is a form of condition which

explains the degree of harm cause to a person whereas a contractual liability is an agreement

between persons and corporations (Legislation.gov.uk, 2015). The liability factor in tort law is

basically fixed by the court whereas in contracts it is more consent based between the parties

involved. Tortious liability is a form of negligence and in contrast contractual liability is mostly

intentional. The form of treatment related to claim of damages by court also explains their

difference in the real world (Legislation.gov.uk, 2015).

3.3 Employer’s Liability, Vicarious Liability and Health & Safety Implications

According to Employers' Liability (Compulsory Insurance) Act 1969, employer’s liability refers

to an employer’s understanding of the work environment within the organisation

(Legislation.gov.uk, 2015). Employer’s liability relates to the safety and security of its

employees within the organisation even when the employees owe a sense of duty of care

(Legislation.gov.uk, 2015). Vicarious liability comes into play when for the act of the employee

the employer too will be held responsible. Employee owe duty of care for the safety for

themselves and others, and any negligence causing harm to other will also vicariously liable the

employee along with the employee (Giliker, 2010). In light of both employer’s liability and

vicarious liability, the Health and Safety as Work Act 1974 was enacted which provided duty of

care to both the employee and employer with legal actions against any breach

(Legislation.gov.uk, 2015).

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TASK 4

3.2 Components for a Successful Claim for Negligence

In order to prove a successful claim for negligence, a claimant must be able to prove the

following components:

The claimant must first prove duty of care against the defendant in the negligence.

The claimant then must prove that there was certainly a breach of the said duty of care.

The claimant must next prove the causation damage, personal injury or financial loss,

caused by the breach of the duty of care by the defendant (Posner, 2004).

4.1 & 4.2 Application of rules of Negligence and Vicarious Liability for a Successful Claim

of compensation

After following the case scenario, one thing that is very definite is that it was the fault of both

Jerry and Asif for the severity of injury. Looking at the rules of negligence, it is clear that Jerry

was negligent in driving his company van to 50mph speed in a 30pmh zone and his negligence

caused the crash and subsequently injury to Asif. The rules of negligence also apply to Asif who

was not wearing his seat belt which increased the propensity of damage and this may cause

weakening of his case in the court (Andrews, 2011).

When looking at the rules of vicarious liability, Asif was injured for the fault of Jerry and it was

Jerry’s negligence which caused the initial crash and this may prove beneficial in proving Asif’s

case. Also, vicarious liability also implies to the employer of Jerry as for the negligence of

employee the employer too will be held liable (Giliker, 2010). Asif will be able to claim damages

from the employer as it was the company can which caused the accident. Therefore, Asif will be

able to gain certain claim for damages but will also be legally held for not wearing his seat-belt.

CONCLUSION

Looking at all the scenarios, the researcher from the report has been able to present a coherent

picture about the various terms associated with contracts. Claimant and defendant must be aware

of all the conditions, terms and warranties in a contract as also the exclusion clause. The report

also outlined the liability in relation of business and this shows the important clearly defined

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contracts in a business, both between seller and consumer and also between employee and

employer.

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REFERENCES

BOOKS

Andrews, N. (2011). Contract law. Cambridge: Cambridge University Press.

Austen-Baker, R. (2011). Implied terms in English contract law. Cheltenham, UK: Edward

Elgar.

Brain, R. (2006). Contracts. St. Paul, MN: Thomson/West.

Bunni, N. (2005). The FIDIC forms of contract. Oxford: Blackwell.

Calamari, J. and Perillo, J. (2004). Contracts. St. Paul, MN: Thomson/West.

Chadman, C. (2009). Contracts and partnership. Getzville, N.Y.: Bridge Publishing Company

LLC.

Giliker, P. (2010). Vicarious liability in tort. Cambridge, UK: Cambridge University Press.

Morgan, J. (2012). Business law. Redding, CA: BVT Publishing.

Posner, R. (2004). The law and economics of contract interpretation. [Chicago, Illinois]: Law

School, University of Chicago.

Sant, T. (2004). Persuasive business proposals. New York: AMACOM.

Singh, A. (2010). Business and contract law. London: Thorogood.

Smitley, M. (2011). Implied contract. Sadler, Tex.: First Edition Design eBook Pub.

WEBSITES

E-lawresources.co.uk, (2015). Conditions, warranties and innominate terms. [online] Available

at: http://e-lawresources.co.uk/Conditions,-warranties-and-innominate-terms.php [Accessed

17 Nov. 2015].

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Legislation.gov.uk, (2015). Employers’ Liability (Compulsory Insurance) Act 1969. [online]

Available at: http://www.legislation.gov.uk/ukpga/1969/57/contents [Accessed 17 Nov.

2015].

Legislation.gov.uk, (2015). Health and Safety at Work etc. Act 1974. [online] Available at:

http://www.legislation.gov.uk/ukpga/1974/37 [Accessed 17 Nov. 2015].

Legislation.gov.uk, (2015). Occupiers’ Liability Act 1957. [online] Available at:

http://www.legislation.gov.uk/ukpga/Eliz2/5-6/31 [Accessed 17 Nov. 2015].

Legislation.gov.uk, (2015). Unfair Contract Terms Act 1977. [online] Available at:

http://www.legislation.gov.uk/ukpga/1977/50 [Accessed 17 Nov. 2015].

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