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Understanding the essential elements of a valid contract in a business context

P1.1. Explain the importance of the essential elements required for the formation of a valid contract There are several important elements in order to form a valid contract.

1. Offer and Acceptance.- In order to create a valid contract , there must be a ‘lawfull offer ‘ by one party and ‘lawfull acceptance’ of the same by the other party

2. Intention to Create Legal Relationship- In case,there is not such intetion on the part of partyes, there is not contract. Agreements of social and domestic nature do not contemplate legal relations .Case ; Balfour vs Balfour (1919)

3. Lowfull Consideration. Consideration has been defined in various ways Acourding to Blackstone ” Consideration is recompense given by the party contracting to another ” in other words of Pollock” Consideration is the price for wich the promise of the another is brought ”…….consideration is known as quid pro-quo or something in return

4. Capacity of Parties ;The parties to an agreement must be competent to contract. If either of the parties does not have the capacity to contract , the contract is not valid Accourding the following persons are incopetent to contract ; a -miners, b-persons of unsound mind c-person disqualifield by low to wich they ar subject

5. Lawfull Object.; The object of an agreement must be valid . Object has nothing to do with consideration it means to purpoase or design of the contract. This when one hires a house for use of a gambling house , the object of the contract is to run a gambling house

6. Legal formailities ; An oral Contract is a perfectly valid contract espect in those cases where writing registration etc,is required by some statute, in India writing is required in cases of sale, mortgage lease and gift on immovable propriety, negociable instrument etc

7. Certainity of Meaning; Acourding to Section 29; Agreement the meaning of wich is not Certain or capable of being made certain are avoid

8. Posibility of Performance; If the act is imposible in itselfe physically or legally if cannot be enforced at law. For example Mr A agrees with B to discover treasure by magic. SUCH agreements is not enforceable

P1.2. Discuss the impact of different types of contract

A contract is an agreement between two parties that must include an offer , an acceptance and a consideration .There are a variety of different types of contracts used for different purposes, in addition, certain types of contracts may be more popular in one jurisdiction than in another Bilateral and unilateral implied, viodable,executory and oral contractat are among the common types of contracts used throughout the world Bilateral contracts make up the majority of the contracts drafted. A bilateral contract consists of tho parties who are under an obligation to do something or refain from doing something. For example a contract for the sale of goods is a bilateral contract. The buyer promises to purchase the product and, in turn, the seller promises to supply the product

P1.3. Analyse terms ic contract with reference to their meaning and effect The terms of an agreement may be so vague and indefinite that in reality there is no contract in existence at all. (Scammell v Quston (1941)). The presence of a vague term will not prove fatal in every case. The contract itself may provide any disputes about the operation of the agreement can be resolved. (Foley v Classique Ltd (1934)). A court can ascertain the terms of a contract by reference to a trade custom or a course of previous dealings between the parties. (Hillas & Co Ltd v Arcos Ltd (1932)). A meaningless term which is subsidiary to the main agreement can be ignored and the rest of the contract enforced. (Nicolene Ltd v Simmonds (1953)). Express terms, are the details of a contract which have been specifically agreed between the parties. (Harling v Eddy (1951)). There are a number of express term that feature a standard contract such as exemption clauses, liquidated damages clauses and price variation clauses. This terms can effect a contract. For example liquidated damages clause can affect the term in a contract, because it lays down the amount of damages that will be payable in the event of a breach of a contract. Cancelation charges are an example of a liquidated damages clause. Implied terms, represent addition terms that are implied into an agreement. Those can be by custom (Hutton v Warren (1836), by common low (The Moorcock (1889)), or by statute. The most common being the sale or supply of goods Act 1979.

Be able to apply the elements of a contract in business situations P2.1.
Apply the elements of contract in a given business scenarios In the business scenario 1, at an auction sale the call for bids by an auctioneer is an invitation to treat, the bids are offers. The auctioneer selects the highest bid and acceptance is completed by the fall of the hammer. (Payne v Cave (1789)). Advertising a forthcoming auction sale does not amount to an offer to hold it. (Harris v Nickerson (1873)). An offer can be revoked at any time before the acceptance but it will only be effective when the oferee learns about it, and it is not necessary that the oferor himself should tell the oferee that the offer has been revoked. (Dikinson v Dodds (1876)). The case study shows that the offeror was Montblanc auction and Harry, Miss Kaur the oferee shown the intention to bid for pen fountain at Montblanc auction, willing to travel to Manchester for it, and she also shown intention to buy pen fountain from Harry but she did not decided 100%, therefore, even though the offer was expressed to be open until after lunch break, such offer can be revoked before the end of the time limit, because Miss Kaur did not agreed with the offer. A promise to keep an offer open will be binding if it can be enforced as a separate contract.

A legally binding option will be created if the oferee provides some consideration in return for the offeror’s promise to keep the offer open. (Mountford v Scott (1975)). In the case study, Miss Kaur could have paid a deposit in advance to make sure she could still have the pen fountain. Consideration was shown between Harry and Miss Kaur, and each side promise something to the other party. This was not the case with the Mountblanc Auction, even if the auction for the pen collection supposed to be open, the parties did not enter into a consideration. Intention, the low is not concern itself with purely domestic or social arrangements. The parties must have intended their agreement to have legal consequences. In the first case Mountblanc auction showed the intention to offer for bid the pen fountain, and this was mention in the list of items to be auctioned, but because of one or another reason this was cancelled. On the other hand Harry shown the intention to wait until after lunch for Miss Kaur, but because it wasn’t any written contract between them, he decided to sell his pen fountain with a better price of £1000, breaching the informal contract that he had with Miss Kaur. In the context of contract low, Miss Kaur cannot take any action against the auctioneer for the expense of her travel to the auction and she cannot take any action to Harry for not selling the fountain pen to her.

Business scenario 1, shows that the agreement between Charles, owner of a house, and Murphy, who supposed to make renovation in the house by a set amount of money (£50.000), at a specific date. Secondly, consideration is shown in the case study where both parties agreed to give something in return. Charles agreed to pay £50.000 for the house renovation, and Murphy agreed with the sum initially. Intention, is shown when Murphy asked for an increase in salary in order for the job to be done in time, even if Charles agreed initially, than he turn his back on the offer that he made, respecting only the legal terms from the contract. In this situation Murphy can’t make any legal action against Charles. Capacity, in this case both parties where capable of fulfilling their commitments. Charles paying for the service, Murphy capable of doing the service. Genuineness of cons cent appeared between parties, when the initial contract was formed. Here was the time for Murphy to argue for an increase in salary, and not at a later date. Legality element of the contract is present, because it is nothing illegal or contrary to public policy.

P2.2. Apply the law on terms in different contracts

A standard form contract (sometimes referred to as an adhesion or boilerplate contract) is a contract between two parties, where the terms and conditions of the contract are set by one of the parties, and the other party has little or no ability to negotiate more favourable terms and is thus placed in a “take it or leave it” position. Examples of standard form contracts are insurance policies (where the insurer decides what it will and will not insure, and the language of the contract) and contracts with government agencies (where certain clauses must be included by law or regulation). For example MetLife insurance company, has the terms of the contract are contained in a written document, the parties will be quite clear about what they have agreed to and this is likely to minimise the possibility of disputes a later stage. For example MetLife can make a contract of a life cover with a minimum of £7, in which the client would know the standard terms and condition stipulated in the contract. It would be very time- consuming to negotiate individual terms with every customer, because the company is offering a standard service to a large number of people. Standard form, business-to-consumer contracts fulfil an important efficiency role in the mass distribution of goods and services.

These contracts have the potential to reduce transaction costs by eliminating the need to negotiate the many details of a contract for each instance a product is sold or a service is used. However, these contracts also have the ability to trick or abuse consumers because of the unequal bargaining power between the parties. For example, where a standard form contract is entered into between an ordinary consumer and the salesperson of a multinational corporation, the consumer typically is in no position to negotiate the standard terms. As example MetLife representative often does not have the authority to alter the terms, even if either side to the transaction were capable of understanding all the terms in the fine print. These contracts are typically drafted by corporate lawyers far away from where the underlying consumer and vendor transaction takes place.

The danger of accepting unfair or unconscionable terms is greatest where these artful drafters of such contracts present consumers with attractive terms on the visible or “shopped” terms of most interest to consumers, such as price and quality, but then slip one-sided terms benefiting the seller into the less visible, fine print clauses least likely to be read or understood by consumers. For example a customer of MetLife can be assured for accident protection, but there are only a specific accident that the company may cover the client. In many cases, the consumer may not even see these contracts until the transaction has occurred. In some cases, the seller knows and takes advantage of the knowledge that consumers will not read or make decisions on these unfair terms.(Standard Form of Contracts, 2014).

P2.3. Evaluate the effect of different terms in given contracts In the business scenario 4, terms stipulated in the contract are the payment for the research assistant (£25000) and the working hours, witch in this case are “whatever hours are necessary to complete the assignments given to her”. Section 1 of Employment Rights Act 1996 that in fact requires the employer to state the amount of hours worked by the employee. Disciplinary procedures had to be insert in the terms of a contract, where, for example Miss Y had to receive a number of warnings that will be given to her before suspension or dismissal, for her behaviour of wearing trousers and not a dress, on the morning of 2nf June. Because of this terms of the contract, Miss Y can appeal to grievance procedures that relate to complains in regard to any aspect of the employment with witch the employee is not satisfied. In this case dismissal for asserting the right is automatically unfair and there is no service requirements by reason of section 104 of the ERA 1996. (Riches, S. & Allen, V. 2011).

Under the Employment Act 2002, Miss Y can claim compensation for unfair dismissal. She can also claim because of the Working Time Regulation (SI 1998/1833),where is stipulated that the employee has a maximum of 48 of work a week, a daily rest of period at least 11 consecutive hours in 24 hours, and in work rest break of 20 minutes for those working more them 6 hours daily. Miss Y, could also claim compensation and Health and Safety at Work Act 1974, if the court finds that she receives medical treatment for depression due to the employment environment.

Understand principles of liability in negligence in business activities

P3.1. Contrast liability in tort with contractual liability

Tort liability arises out of a civil wrong, for example, people who do business, sole proprietor or in a partnership are liable for the torts committed by themselves and for torts committed in the course of the business by their agent and/or partners. However, one may avoid tort liability for the acts of business associates if they operate their business as a corporation or a limited liability company. Thus, the choice of entity is too perceived to have potential benefit if one is concerned about limiting one’s tort liability. Regardless of what type of business organization a person is liable for torts committed by himself, if for example he/ she is driving the company vehicle and are involved in an accident the other party is liable if he/she negligently operated the vehicle whether he/she operate as a corporation, partnership or sole proprietor. (Business Law, 2014). Contractual Liability, appears when a corporation or a limited liability company may protect one’s personal assets should the operator incur a significant contractual liability from the business operation.

For example, a building contractor signs a contract to construct an office building for a business client and fails to meet the contractual deadline, the business client holds the contractor liable for consequential damages – profits lost for the time the client is not able to occupy the new building. Particularly in the construction area, contractual liability may exceed simply the contract price. So long as one does not personally guarantee the contract of the business entity, his or her personal assets, assets owned outside the corporation or LLC, are protected as the corporate operator should not be personally liable for the corporate debts, contracts and contractual liabilities. Often, however, people dealing with corporations demand that the principals of the corporation personally guarantee the contracts. (Business Law, 2014). P3.2. Explain the nature of liability in negligence

Liability of negligence appears when a claimant is able to prove that: “the defendant owed him a legal duty of care; the defendant was in breach of their duty; and the claimant suffered injury or loss as a result of the breach”. (Riches, S. & Allen, V. 2011:348). For example a producer of goods may be liable to a consumer for loss and damage caused by his defective product under the tort of negligence. A consumer must establish the manufacturer owed him a duty of care. In Donoghue v Stevenson (1932) case, House of Lords established the principles that a manufacturer was a duty of care to all persons who are likely to come into contact with his goods. The breach in duty occurs if the fallowing factors such as the like hood that the damage or injury will be incurred, the serious of any damage or injury, the cost and ease of taking precautions and the social need for the activity. (Balton v Stone (1951). In the final part the claimant has to prove that he suffered damage if this damage was caused by a negligent misstatement as in the case of Hedley Byrne & Co Ltd v Heller and Partners Ltd (1963), or it was consequent upon foreseeable physical injury or damage to property such in the case of Junior Brooks Ltd v Veitcho Co Ltd (1982).

P3.3. Explain how a business can be vicariously liable

Employers can be held vicariously liable for acts of negligence or omission on the part of their employees in the course of employment even if the employer did not authorise or was unaware of the acts in question. To mount a successful defence, an employer must demonstrate either that the employee was not negligent or that the employee was acting in an individual capacity unrelated to the business of the employer. In some circumstances employers may also be liable for the misdemeanours of their independent contractors or workers employed by a third party, such as an agency. For example, this applies where the employer authorises the wrongful act or had overall responsibility that could not be delegated.

For example an employee that works for a catering agency, who does wrong doing at one of the clients that the agency is sending him to work for, the agency can be responsible for. The main deciding factor as to which employer has the responsibility for a sub-contractor or agency worker is that of ‘control’. The employer who gives direction and instructions for the work to be conducted will usually be the one to bear responsibility for misdemeanours carried out during the course of that work. If more than one employer can be identified as having control over the work of the employee then the principle of dual vicarious liability may apply. This is a principle introduced by the decision of Lord Justice May in the recent case of Via systems (Tyneside) Limited v Thermal Transfer (Northern) Limited & Others. The case involved compensation for a flood at a factory which had been caused by the sub-contractor of a sub-contractor. In his ruling, Lord Justice May decided that more than one employer could be subject to a claim and that the amounts awarded should be split equal unless it could be clearly demonstrated that one party bore more of the responsibility than the other. This courageous decision overturned the principle established in Laugher v Pointer in 1826 that only one employer could be held vicariously liable. (Vicarious Liability, 2014).

Be able to apply principles of liability in negligence in business situations

P4.1. Apply the elements of the tort of negligence and defences in different business situations The tort of negligence is concern with certain kinds of careless conduct with cause damage or loss to others. As explain in task 3.2. There are three factors to consider. Firstly duty of care, if this duty is break and if the other party suffered any damages. In the Business Scenario 5 it is presented the fact that a UK ship was taking oil in Sydney harbour, spilling oil in the water, and because of a spark it set fire to a wharf witch was at 200 yards distance. The case also shows that safety precaution were taken but does not explain how. On the one hand, it can be argued therefore that the duty of care of the UK ship was broken, because the ship supposed to take more precautions on the duty of care and harm any neighbour. The defendant has break their duty of care because the likelihood of an accident such as this could be foreseen.

On the other hand, it can be argued that the defendant can claim “res ipsa loquitur”, witch mean that the facts spick for themselves, and it can be prove to court that the UK ship took enough safety precaution to avoid any accident, therefore the defendant would not be seen as negligent. The condition must be satisfied for res ipsa to come to play are in case of the event which caused the accident must have been the defendant’s control, witch in this case can be argued that it was, and the accident must be in such nature that it would not have occurred if proper care had been taken by the defendant, witch again could be argued that the ship took enough safety precaution. The damage that occur after this accident was that the claimant suffered damaged on his wharf, thereby he has to prove in court that this damages was made as a consequences of the UK ship actions in the harbour. In the case of Business Scenario 6, the negligence was made by Shell, because they had failed to provide protection goggles to Bell while he was working in spite of the fact that this was not a normal practice at the firm. Negligence was also made but the employee Bell, because firstly he supposed to protect himself especially because he had lost one eye, and he could have been more precaut.

The breach of duty was made by Shell, because the job that Bell has implied vehicle maintenance, and while working with materials such as metals, the company should have provided protection for Bell under the Consumer Protection Act 1987. Bell, can therefore claim compensation for its employee negligence towards him, because he suffered injury while working at Shell Company. P4.2. Apply the elements of vicarious liability in given business situations Low states that an employer is liable for damage caused to another person by his employee, while the employee was caring out his work. The employer is liable even though he was not in any way at fault, and this rule even if seems to be unfair for the employer, it is based upon the law and policy. Employer and employee are regarded as “associated parties” in the business in which both are engaged. In the Business Scenario 7 and 8, Alf and Amos Bridge breach their contractual duties, therefore because they were acting at work, the employer is automatically consider guilty as well by the court.


1. Business Law, Available at: http://pullman-wa.com/law/businessLaw.htm, [Accessed on 12.03.2014]; 2. Riches, S.& Allen, V. (2011), Keenan and Riches’ BUSINESS LAW, 10th (ed), Pearson: London; 3. Standard form Contracts, Available at: http://faircontracts.org/what-are-standard-form-contracts, [Accessed on 15.03.2014]; 4. Vicarious Liability , Available at : http://www.uktrainingworldwide.com/BB/VicariousLiability.htm; [Accessed on 13.03.2014];

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