UKCBC

Course title

Unit number and title

HND Business-Level 4

Unit 5: Aspects of Contract and Negligence for Business

Mr. Daniel Oluwatayo

Date issued

Completion date

Submitted on

17//06/2014

17/8/2014

Assignment title

Aspects of Contract & Negligence for Business

Contents
Introduction................................................................................................................ 3

1.1.Elements of a Valid Contract & Their Importance.................................................4

1.2. Different Types of Contracts................................................................................ 8
1.3.Various Contractual Terms.................................................................................... 8
2.1. Application of Elements of Contract..................................................................10
2.2. Application of Contractual Terms.......................................................................11
2.3. Evaluating effects of Terms................................................................................ 12
3.1. Contrast Liability in Tort with Contractual Liability............................................13
3.2. Liability in Negligence....................................................................................... 13
3.3. Vicarious Liability.............................................................................................. 14
4.1. Application of Elements of Tort of Negligence...................................................14
4.2. Application of Vicarious Liability........................................................................15
Bibliography............................................................................................................. 17

Introduction

For business students, study of law is of great importance in contemporary business world.
Organizations have to deal with various legal issues. The most important thing is that
organizations do often enter into contracts with different other parties. So, study of contract laws
is vital. Here, in this assignment, different topics of contract law, their application in given
business scenarios & their overall legal aspects have been covered according to the assessment
criteria respectively. Both contractual liability & tort have been explained different aspects have
been covered. Issues of tort, vicarious liability were applied in selected business scenarios with
logical arguments & previous examples & statutes.

1.1.Elements of a Valid Contract & Their Importance

Contract stands for authorized settlement among two or more than two parties & they need to
fulfil certain legal procedures & obligations to make the contract. (ATIYAH, P.S, 1979)
If either of the parties breaks the terms of the contract, monetary or other forms of
compensations can be given to the other party. Rules of compensation may be specified in the
contract. In case of disagreement among the parties about compensation or any other dispute
regarding the contract, they can go to court for justice.

There are some laws regarding contract & contractual issues. But the fact is that these laws vary
to a considerable extent in different regions or states or countries. So, standard procedure or rules
of contracts may differ. However, all of the contracts regardless of regions or laws have some
common aspects. There exist some common elements of a contract for its being considered valid.
The elements can be named as follows:

Offer (By one or several party to the other concerned party or parties)
Acceptance (From the parties who were offered)
Consideration &
Will to enter into a legal & authorized relationship

Following is a brief description of these four components & their significance:

Offer: The name of the component does suggest that something should be offered by one
party to the others in the first place to introduce the procedures of a contract. This is the
primary element & without its presence, there is no scope of making a valid contract.
The party can offer in a face to face communication or through other mediums of
communication like letter, email, telephone & so on. So, there is a scope that the offered
party may not receive the offer at the same time it was made. For this reason, the offer
will only be legally recognized when the other party or parties do get the knowledge of
the offer. (WILLMOTT, L et al., 2009) This is an elementary rule of offer. In other words,
if an offer doesnt reach the other parties, law wont consider it as an offer.
So the constituent offer does aid in giving the contract an official & lawful arrangement
or a proper structure that safeguards transparency, uprightness, and appropriate
communication procedures amongst the concerned parties & also lessens the jeopardy of
future disputes.

Acceptance: The second component of a valid contract is acceptance & only can it take
place when something was offered. Parties can offer many things, but the other ones may
not accept the offer. If the offer is not accepted, no contract will be made & the procedure

of the contract will be stopped at the second stage. If the offer is accepted as it was
offered, then the process may proceed. (DOUGLAS, D, 2002)
However, the acceptance stage can be a bit more complicated. There are other options
except acceptations & rejections. The offered party may agree with some part of the offer
& they may disagree to the other parts. In these cases they may alter those disagreed parts
& they may send the modified version to the first party for their acceptance. So,
acceptance can come from both sides. Now, the modified offer can be accepted by the
first party as it has been modified by the second party or the first party can further modify
some components of the offer & send it again. In simple words, proposal then number of
counter proposals or offers can take place on the way of the contract formation.
(GILLIES, P, 1988)
This acceptance component does give the parties structured & standard procedures to
come to an agreement when both of the sides do agree. Formal negotiations are made to
do so. It is to be noted that proposal & counter proposals do have legal rules that are to be
followed. Besides, like the offer component, when the offerer party becomes aware of the
other partys acceptance, only then the process may proceed. The contract becomes valid
when the first party gets to know that their offer has been accepted.
Consideration: The third component is consideration however the consideration stage
takes place between the offer & acceptance stages. The second party evaluates the offer
to judge that there is some gain in accepting the offer. Similarly, the first party does make
that offer because in return, they want something from the other party. So, both parties
are getting something from the contract. That is an exchange of benefits. Therefore,
contract is not a gift where only one side gets the benefit & here the consideration
element differentiates a contract from a gift. (M.P, Frumston, 2007)
For instance, a very simple example of a contract is the job agreements or contracts. A
firm is hiring a person because they need his service. So, the firm is offering the person a
job that includes both the persons giving services to the firm & the firms providing
salary & other benefits to the person. So, here the salary & benefits are the consideration
for the person. Both parties are getting something.
However, the benefits which are to be received by the parties can take numerous forms.
For instance one party may have leverage against the other one & they may use it to get

something from them. The contract may state that one party will abstain from doing
something & in return they want money. So, consideration has a very wide range.

Will to Enter into a Legal Relationship: The fourth component also contribute
towards giving a contract a formal & authorized structure & version. Friends make
promises to each other; but if the break their promises, they cant seek justice in the court
as they did not go into a legal relationship. (MARTIN, E and Law, J, 2006)
If the parties do not want to enter into an authorized & legal pact & relationship, that
wont be considered as an authorized contract. That may be an agreement, promise or
accord but not a contract. So in case of breach of their terms, they have to deal with it
internally; they cant seek justice or rule from the court as at the first place they did not
want an legal structure.
So, this component ensures that future disputes can be dealt with legal actions.
The major four elements have been discussed. However, there are some other components
without which the contract wont be a valid one. For example, both the parties must be in their
full senses & mentally stable positions at the time of making the contract. Otherwise, law wont
consider the contract as valid. (BARNETT, Randy E, 2003) For instance, two businessmens
promising to do something in pub in totally drunk condition does not make a valid contract. This
component is named as Capacity. Someone must reach a certain age to make a legal contract.
Kids promises arent contracts.
On the other hand, another significant element is clarity or certainty. There are terms in a
contract. These terms should make clear senses. Ambiguity or vagueness in the terms may lead to
an invalid contract. (FRUEHWALD, Scott, 2009)

1.2. Different Types of Contracts

Contracts are of different types. It has been mentioned that contracts can be both verbal &
written. Besides, contracts can be made face to face or from distance. If the parties or their
authorized representatives sign & carry out the procedures of the contract being physically
present then it is called face to face contracts. The opposite can be said for distance contracts.
Different mediums of communication are used like telephone; email, mail, and fax are used as
mediums. Or, a third party can be used as conveyer. Face to face contracts are recommended as
there is less scope of ambiguity.
Similarly, written contracts consist all the terms, conditions & other things in an authorized
written form. Written contracts are also preferable as verbal contracts may create ambiguity or
dispute in future often.
Contracts can be classified from different dimensions. For instance, there are unilateral &
bilateral contracts. The names clarify that in unilateral contracts, only one party does or has to do
the specified job, others are not bound to do the same. (MCINTYRE, E, 2011) For example, if
someone loses his cellphone & advertises in the newspaper that he will give someone $100 if he
returns the phone to him, then its a unilateral contract as the man is offering something but the
people who see the ad arent bound to find the phone. Similarly, if both of the parties need to do
something then a bilateral contract is made. (ADAMS, A, 2010)

1.3.Various Contractual Terms

As it has been mentioned before, there exist some terms in any contract. Any part of the contract
that creates any obligation or requirement from either of the party can be expressed as terms.
Terms can also be classified from different dimensions.
Condition & Warranty: Conditions are the fundamental terms of a contract. Breaching these
terms gives the other parties the right to repudiate or renounce the contract. On the other hand,
breach of warranties doesnt break the contract. But if one party breaks the warranties, then the
other party is affected by the breach. So, the second party may be given certain compensations
by the first party for their breaching. (Meehan Vs Jones, 1982)

For example, if a contract says that Mr. George has to give $1000 immediately to Mr. Graham
when he delivers a certain quantity of cement, then it is a condition & if Mr. George fails to
deliver the money then the condition is breached. Warranties imply less imperativeness than
conditions.
Innominate Terms: These terms are different than conditions or warranties. Unlike conditions &
warranties, it is not certain that whether the breach of innominate terms gives the affected party
the right to end the contract or not. To decide this, the gravity of the damage & the breach will be
considered. Often this terms are criticized for their less certain characteristic. These terms can
create disputes between the parties. (Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha
Ltd, 1970)
Express & Implied Terms: Express terms are either clearly stated in the written contract or have
been communicated clearly before the signing of the contract. The implied terms are opposite,
they are not clearly specified in the contract. An example can be given regarding job contracts. It
may not be written in the contract but both the firm & the employee have to maintain mutual
trust & confidence. So, it is an implied term. (Masters Vs Cameron, 1954)
Exclusion Clauses & Legality of Exemption Clauses: Sometimes, in certain circumstances, one
party can be excused in spite of their breaching the contract. The terms that express these
exclusion issues are exclusion clauses & they should be clearly stated. The exemption clauses
actually define the liability that one party has to bear if they breach the contract. The exemption
clauses can establish a limit of the liability. These terms can be named limitation clauses at these
cases. (Exemption Clause Law & Legal Definitions, 2012)

2.1. Application of Elements of Contract

Business Scenario 2: Here, the contract was a written one. Murphy agreed to do the job for
50,000. He had to do some renovation work which was offered by Charles. In return Murphy
would get certain amount of money & he did receive an initial payment of 20,000. So, offer,
acceptance & consideration was present in the contract. In addition, they signed a contract in
authorized way so the presence of willingness to enter into a legal relationship has also been
ensured.
But Murphy broke the contract by saying that he would not do the job if he was not paid an extra
10,000. So, Charles could sue hi,. But the fact is that he did not sue him but agreed to pay the
extra 10,000. So, there was a new contract or a modified version of the contract. So, from then,
both the parties had to abide by the terms of the contract. Murphy did so, but Charles did not.
Murphy can sue Charles for the extra amount of money as Charles broke the new & modified
contract. However, if the modifications were made in written form, the case for Murphy would
have been stronger. If the negotiation were made verbally, that would become a bit difficult for
Murphy to prove his claim. (Anderson Vs Graham, 1978) The main fact is that Charles had an
opportunity to end the contract or go in the court, but he rather agreed to make a modified
contract & later broke it. So, now Murphy can seek justice in court.

Business Scenario 3: Mia went in verbal contracts with both Hakim & Jane. Both Hakim & Jane
offered certain amounts of money in the exchange of services from Mia & Mia accepted the
offers. So, Offer, acceptance & consideration can be identified in the contract. However, they did
not enter into a legal relationship & Mia did not have any written document of Hakims & Janes
promises. Although Mia can seek justice in court, it would be difficult to prove his claim because
of the absence of written documents. However, if Mia does have any witnesses or any other
proof, he can make a strong case. Investigation of the actual incidents may make considerable
effect in the jurisdiction in that case. (The Law & Verbal Agreements, 2011)

2.2. Application of Contractual Terms

Here, in this section, an example of a real contract of a chosen organization will be used for
reviewing the terms of the contract & applying express terms, implied terms & legality of
exclusion clauses.
Lafayette College of Easton does contract with their teacher in legal & authorized formats. Here,
the example of their format of contract will be used.
Some Sections of the Contract are as follows:
The contract is valid for 1 year. The teacher must inform the authority at least one month before
the expiration date of the contract if he/she wants to renew the contract. Renewal of contract will
be done with mutual agreement.
The per month teaching hour will total to 120 hours. Every effort will be made to standardize the
per week work hour to 30.
Classes & teaching are scheduled in accordance with the needs of the institution. Reasonable
efforts will be made to accommodate the requests of the employee.
Here, the work hours, the contract renewal timeframe has been clearly mentioned & are express
terms. Here, the teacher has a time frame to inform his will to continue the job, but the
employers time frame of renewal or termination of the employment agreement is not mentioned.
So, the termination policy is implied terms. Lafayette College is in the United States. So, laws
there should be considered. The employer has to have a justified reason if they want to terminate
the contract. (Employment Rights Act, 1996) So, without any just reason the employee cannot be
fired & he has to be given a notice of termination before a reasonable period of the enactment of
the termination. (Tameny Vs Atlantic Richfield, 1980) These are implied terms.
Exclusion clauses arent mentioned in the contract. However, the employee may be in certain
circumstances where he cannot perform his specified duties. For instance he may be in illness
when he is unable to take classes. Here, it was mentioned that reasonable efforts will be made to
accommodate the teachers request. In addition if the teacher fails to inform the employer within
one month of the termination date of the contract, he will breach a term. In that case, the
employer do have the authority to terminate contract.

2.3. Evaluating effects of Terms

Here, both of the given clauses are considered as conditions because of the imperativeness of the
terms. So, if Y breaks any of the terms, X gets the right to terminate the contract or in other
words he can fire Y. Here, the terms are express terms because of their clarity & written form.
Here, Y broke the first condition, not the second one as she did worked her level best & in other
words worked whatever hours she could to finish the job. She failed but her effort fulfilled the
second clause.
However, in job contracts, mutual respect, trust & cooperativeness are implied terms. (Esso
Petroleum Co Ltd v Mardon, 1976) X broke implied terms by terminating her contract in an
angry manner & doing it in front of her colleagues which made her humiliated.
Here, exclusion clauses werent mentioned. However, the circumstances might have been
difficult. Y worked late at night & returned to office at a very early hour because it was an
emergency situation. So, she might not have enough time to dress properly. These issues may be
used for arguments. However, the mention of in any circumstances has to be considered here
also as this was an express term.

3.1. Contrast Liability in Tort with Contractual Liability

There are basic differences between contractual liability & liability in tort. If one party breaches
the terms of contract, they incur contractual liability & they may have to pay certain amount or
quantity of compensation to the affected parties. However, a tort is done when a party does any

civil misdeed. They may do it intentionally or without even being aware of it. Tort can arise from
negligence. From the negligence of one party, one or more than one or even a community can be
harmed in various ways- Physically, financially, emotionally , spiritually & so on. So, tort
involves a very wide specter of civil wrongs.

3.2. Liability in Negligence

So, liability in tort can arise from either negligence or intention or even both. Here, the aspects of
liability in negligence will be described. Four conditions are there to determine liability in
negligence:
The party alleged for liability in negligence must have certain duties towards the affected.
The alleged party must have been unsuccessful in performing their duties towards the
affected party.
The affected party must have incurred some kind of damage; it has been mentioned that
the range of damages can be very wide.
It will be rational & lucid to assume that the alleged party has done some damage.
An example can be given regarding liability in negligence. For instance, a company uses
different types of chemicals for their manufacturing process which are harmful to human &
environment. They dump the waste materials in the nearby river & for their action large number
of fishes died & became sick. In addition, the environment of that area got polluted to an
alarming level. The residents of that area got affected because of the environmental degradation,
many became sick.
Now, the company had responsibilities towards the environment & general people of the area &
they negligently failed to do that & the people & environment got affected because of their
actions. Moreover, it is rational for any rational person to conclude that the company is liable for
the harmful effects. So, all the conditions are satisfied, therefore, the company incurs liability in
negligence.

3.3. Vicarious Liability

Organizations can become liable for some misdeed even if it did not do it directly nor had any
knowledge beforehand. But, they had the scope for taking preventive measures that could have
stopped the misdeed. In these cases the organization will incur vicarious liability.
For instance, at a school, a lot of child study at grade 4. There is a Muslim student also. A teacher
of their class called him a son of terrorist when the boy failed at the exam. Here, the school did
not offend the child or the religion but their employee did. The school authority should have
trained the teachers to treat all the students equally & not to disrespect any race, religion or
culture. So, here the school becomes vicariously liable for the teacher, even though the school is
not directly involved in the wrong deed.

4.1. Application of Elements of Tort of Negligence

Business Scenario 5: The oil company should have taken preventive measures to avoid the
incident. If oil spills into the water, it will cause harmful effects to the sea water & sea life. In
addition water will be polluted & accidents can happen due to the oil. So, the oil company was
negligent in performing their duties & someone got affected. So, the company incurred liability
in negligence.
In addition, oil companies were sued for similar cases. For example, the British Petroleum
company (BP) spilled oil in the sea & the area was in United States. The sea water got polluted
& sea life was affected. BP had to pay a great amount of compensation for their liability in
negligence. (British Petroleum Vs The United States of America, 2011)
So, the owners can sue the company.

Business Scenario 6: The risk of eye injury was small, but even though the probability was less,
eye injury could happen & in spite of knowing this the company did not make the practice of
wearing protective goggles mandatory or a normal practice. The should have taken every
possible measures to protect their employees because any accident can change the life of the
employees.
So, Bell can go to court for compensation. Besides, companies have been sued before for not
taking protective measures for their employees in spite of knowing the risks. Tazreen Garments
Company of Bangladesh was sued because they did not take measures to deal with fire accidents.
Fire escapes werent there & employees died when a fire accident took place. (Tazreen Vs
Karim, 2013) Was sued when one of their employees So, Bell can make a strong case.

4.2. Application of Vicarious Liability

Business Scenario 7 & 8: Alf did civil wrong when he was an employee of the care home. He
abused children. Although the care home is no directly involved, but the home should have made
sure that their employees are not doing any wrong. They could not manage their employee. They
should have investigated & evaluated all of their employees performance & works. So, the care
home is vicariously Liable.
In the next scenario, an attendant of Amos Bridge physically attacked one of the customers.
Although the customer was accused of not paying bills, the attendant should have done
investigation in proper ways & before finding any proof, the attendant cannot take any punitive
measures. In addition, physical attack should not have been any type of punitive measure. If the
customer was angry, the attendant should have been calm & make the customer understand the
facts in a good manner. So, the AB becomes liable for not training their employee in proper
customer servicing.

Organizations have been sued for their employees wrong deeds. (Lister Vs Hesley Hall Ltd,
2002) In the case, because of an employees sexual assault, the company got sued. So, in both
cases there is very high chance that the authority will face vicarious liability charges.

Bibliography
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