Formation of a Legally Binding Business Contract - Essay Example

 Aspects of Contract and Negligence for Business Introduction This paper discusses the essentials of formation of a legally binding contract. It takes a deeper look at the subtleties attached with these essentials and demonstrates the application of rules regarding these essentials to tricky scenarios. It further discusses the significance of different types of terms in a contract and how they affect them. It also discusses the different types of liabilities that may arise under different circumstances. Liabilities that arise upon negligence e.g. vicarious liability are also discussed. Task 1 The requirements of a legally binding contract include a valid offer, acceptance, consideration and an intention to create legal relations. It is important to consider what constitutes a valid offer. There are various statements which seem like offers but are actually not offers. A distinction must be among offer, invitation to offer, and invitation to treat. Jess advertised a second hand van for sale on a car trade website for £2650. This is not an offer but a mere invitation to offer. This means that if anyone shows interest in the van, Jess reserves the right of refusing to sell it. As seen in the given case, Mr. Powell showed interest in the van but Jess told him that she would sell it if any other customer came before him. The interest shown by Mr. Powell was the actual offer but it was not accepted by Jess. Jess agreed to sell the van to him but she qualified her acceptance by saying that she would sell the van to any customer that came before him. A qualified acceptance is not a valid acceptance which is why they did not have any agreement yet. Mr. Powell told Jess that he would pay £450 in advance if she did not sell the van to any customer for three days. Normally, when general offers are made, the offeror is not bound to keep the offer open for any particular offeree. However, when an offeree agrees to pay a consideration for keeping the offer open for a certain period, the offeror becomes bound to keep it open for the stipulated period as seen in Dickinson v Dodds. Mr. Powell has obtained a promise with the consideration of £450 from Jess that she would keep the offer to sell the van to Mr. Powell open for three days. Now Jess and Mr. Powell have an agreement that is separate from that of selling of the van. Another important fact is that Jess’ invitation to offer turned into an offer during this negotiation. It is because anyone could have made an offer to Jess before she promised to keep her offer open. The new negotiation automatically means that now Jess has offered Mr. Powell to sell her van for £2650. No person other than Mr. Powell can accept this offer. It is important to notice that Mr. Powell is now bound to pay Jess £450 in advance and Jess is bound to keep the offer just as she has promised. However, Mr. Powell is not bound to buy the van. He has obtained an offer from Jess but he is entitled to reject the offer just like in any other normal case where an offer is made to an offeree and the offeree rejects it. If Mr. Powell refuses to buy the van after three days, he would still be bound to pay the £450 that he promised Jess. Acceptance is extremely important for the formation of an agreement. It must be communicated by the offeree to the offeror in order to be complete. In the given case, Mr. Powell has obtained a promise to keep the offer open but he has not yet accepted this offer. However, if Mr. Powell contacts Jess within three days and pays the price of the van to her, he would have accepted the offer and an agreement would be created. In order to form a legally binding contract, it has to be established that there is a valid consideration. Consideration is something done in return of a promise to do something. It does not need to be adequate. The law is concerned only with the fact whether there is a consideration and not whether a certain party has made a good bargain. There are certain exceptional cases in which agreements are valid and legally binding despite having no consideration for a certain part. But the given case does not fall in those exceptions. Consideration first came into play when Mr. Powell agreed to pay £450 in advance if Jess kept her offer open for three days. This £450 is consideration for Jess while her keeping the offer open for three days is consideration for Mr. Powell. Later, when Mr. Powell accepts the offer and buys the van from Jess, he would pay £2650 for it. The £2650 form consideration for Jess and the van forms consideration for Mr. Powell. Finally, there has to be an intention to create legal relations. The difference between mere agreements and contracts is the element of legality. An agreement becomes a contract only when it is enforceable by law. For instance, an agreement between A and B, in which B agrees to come to A’s house for dinner, is a social agreement and not enforceable by law. A would not be able to sue B if B fails to show up. On the other hand, an agreement between Jess and Mr. Powell, where Jess has agreed to sell her van to Mr. Powell and Mr. Powell has also acquiesced, is an agreement enforceable by law and hence a contract. Also, the agreement where Mr. Powell has agreed to pay £450 to Jess for keeping the offer open for three days is also a legally binding contract as the intention of creating legal relations can easily be implied in this case. Task 2 The terms of a contract may include conditions, warranties or innominate terms. Condition is a term that is essential to a contract. Such term goes to the very root of the contract and is so essential that a party would not even enter into the contract if not for this term. A breach of this term gives the aggrieved party a right to treat the contract as repudiated. The aggrieved party also reserves the right of treating the breach of condition as a breach of warranty. Warranties are terms that are not essential to the contract. These terms do not go to the root of the contract. A breach of warranty gives the aggrieved party a right to receive damages and not the right to treat the contract as repudiated. Innominate terms are those terms that are meant to be conditions but court disqualifies them from being so. This is done because these terms do not go to the root and do not defeat the whole purpose of the contract. When the aggrieved party cancels the contract upon breach of such terms, the court holds it liable for a wrongful breach. Other terms of a contract may include exemption clauses, and exclusion clauses. Exemption clauses seek to limit the liabilities that may arise upon breach of a legal obligation. For instance, a party intimates to the other that it will only accept liability up to the amount £500. In contracts where a particular party drafts the contract, exemption clause is generally included to protect that party from being sued by the other party for damages, negligence or other losses. Exclusion clauses seek to exclude liability if a legal obligation is breached. In order to make such clauses valid and operational, they must satisfy the following criteria: They must be incorporated into the contract; They must be clear and unambiguous; and They must fulfil the statutory requirements. In order to incorporate such a clause into a contract, notice of the clause has to be provided before the acceptance of the offer. It was seen in Olley v Marlborough Court Hotel that there was a notice in the plaintiff’s bedroom that stated that the proprietor would not be liable for theft of guests’ property. Later, some jewellery and furs that belonged to the plaintiff were stolen. It was held that the contract was concluded at the reception desk when the plaintiff was booked in. It was before the plaintiff actually read the notice. The notice did not form a part of the contract hence the defendant was not exempt from liability for the theft. However, if two parties engage in a series of similar type of contracts, a party may be deemed to have an implied notice of the clause. In such cases, courts must be satisfied that the past contracts were made on similar terms and sufficiently regularly over a sufficient length of time. Another important thing to notice is that exemption or exclusion clauses are not binding if the offeror has not taken reasonable steps to bring them to the attention of the offeree. Greater degree of notice is required for more onerous terms. Such terms have to be printed or typed in the body of the document clearly and they must be highlighted or underlined. But this rule is not applicable on signed documents. In such documents, it is always assumed that the signing parties have properly read and perused the documents before signing them. They are deemed to have constructive notice of exemption clauses contained therein. In the given case, Barry hired a chair for 50p from the local council and was given a ticket. The chair collapsed under him later and damaged his clothes. Upon his complaint, the attendant referred to a note written on the ticket which stated “No liability is accepted for any damage or injury caused by the failure of any hired equipment”. This case can be compared directly to Olley v Marlborough Court Hotel. Just like that case, Barry’s contract with the local council was concluded when he paid 50p and was provided with the ticket. Barry saw a notice that stated that chairs were for hire for 50p per hour. This was an invitation to offer by the local council. When Barry approached and paid for a chair, it was an offer to hire a chair. The management silently accepted the 50p and gave a chair to Barry. This was the acceptance of Barry’s offer by the local council. As far as the exclusion clause is concerned, it should have been brought to Barry’s notice before his offer was accepted. By the application of Olley v Marlborough Court Hotel, the exclusion clause would be held null and invalid, and the local council would be held liable to reimburse Barry for his damaged clothes. Task 3 In the given case, Adam advertised a reward of £1,000 to the first person who paddles across the English Channel in a bath, from Dover to Calais. It is normally believed that advertisements do not constitute an offer. But in this case, Adam’s advertisement was a general offer and it had a condition. This offer could have been accepted by anyone who fulfilled this condition. The contract hence created would have been called a unilateral contract. Unilateral contracts are such contracts in which the offeror makes an offer which can only be accepted if a certain act is done. Once this act is done, it is considered that the offer has been accepted. If any person accepts the offer by Adam, Adam would be contractually liable to pay £1,000 to that person. Contractual liabilities are those liabilities to which a party promises when it enters into a contract. If there is a breach of its promise, the aggressive party is made by the court to perform its promise, or if it is not possible, pay damages to the aggrieved party. The damages are ascertained according to the rule that the parties are to be put in the same position as they would have been in if the contract was performed as promised. Contractual liabilities must be differentiated from liabilities arising under negligence. In order to determine whether there arises a liability under negligence, the courts consider following elements: Duty of care This means that it must be proven that the party that is accused of negligence owed a duty of care to the injured party. Donoghue v. Stevenson is one of the leading cases in this matter. In this case, the plaintiff drank ginger beer given to her by a friend, who bought it from a shop. The manufacturer of the beer was the defendant. The plaintiff discovered the remains of an allegedly decomposed slug while drinking the beer. Normally, no two parties can sue each other if they have never been in a contractual relationship. According to the doctrine of privity of contract, the plaintiff could not have sued the defendant. The courts established that the defendant owed the plaintiff a duty of care. He should have been careful that the ginger beer was free from impurities. Therefore, two parties can owe a duty of care to each other even though they are not in a contractual relationship. In case of breach of this duty, the liability hence arising is called negligence liability. Breach of duty Once it is established that a duty of care exists, the second step is to check whether this duty has been breached. A defendant that knowingly exposes the plaintiff to a risk of loss breaches this duty. Also, the defendants who fail to realize that the plaintiff would be exposed to a risk of loss, which any reasonable person would have realized, are also in a breach of this duty. This is an important element because some events are such that are out of control of a certain party. In Bolton v Stone, the court decided that a defendant is not negligent if the damage caused to the plaintiff was not a reasonably foreseeable consequence of his conduct. In this case, the plaintiff was hit by a cricket ball that was struck by the defendant while the plaintiff was standing outside of her house. The courts rejected the plaintiff’s claim because cricket balls are normally not hit a far enough distance to pose a threat to people standing as far away as was the plaintiff. Therefore, the danger needs to be reasonably foreseeable. Factual causation The damage caused through negligence must not be too remote. Negligence has to be the direct cause of the damage to a plaintiff. Or the negligence should be such that increases the risk of harm to the plaintiff significantly. Otherwise, the breaching party cannot be successfully sued. Harm Finally, a plaintiff has to prove that it has suffered a pecuniary injury as a result of the breach. However, it was seen in Constantine v Imperial Hotels that when damages are not a necessary element, a plaintiff can win his case without showing that he suffered any loss; he would be entitled to nominal damages and any other damages according to proof When the existence of these elements is determined by the court, the injured party is awarded damages. Damages are more like of a punitive nature (especially nominal damages) in contrast to a contractual liability. Attached to the concept of liability under negligence is the concept of vicarious liability. This refers to cases where businesses are held liable for the negligence of their employees. Employers are generally held liable for any tort committed by their employees while they are conducting their duties. Harms caused by employees when they are not in the course of conducting their duties under their employment do not hold their employers vicariously liable. The control test, as established in Yewens v Noakes, is vital in the decision of such cases. An employer is regarded to have control over the acts of his employee where he dictates both what work is to be done, and how it is to be done. But this test does not adequately cover all types and instances of employment; a lot depends on the individual aspects of each case. It is, however, important to distinguish between employees and independent contractors. The acts of independent contractors do not hold the business vicariously liable. As far as revocation of general offers is concerned, a general offer can be revoked at any time before it is accepted. But unlike offers that are made specifically to certain parties, the notice of revocation of a general offer is valid even if all the offerees are not aware of it. All that is required of the offeror is to revoke the offer in the same manner in which it was made. In the given case, Adam made his offer through an advertisement in a newspaper and revoked it through an advertisement in the same newspaper. While he made the revocation, Brian was in the middle of completing the act which was required for the acceptance of the offer. But he did not complete the act before the offer was revoked. This means that he did not accept the offer before its revocation. Therefore, the revocation by Adam has been successful and he would not be liable to pay £1,000 to Brian. It may seem unfair that Brian took all those pains for nothing but Adam too had no way of knowing that Brian had embarked on his journey. Hence, Adam has no contractual liability. Task 4 1. Ben does not owe Roger a not-delegable duty of care as an employer to provide a safe working environment. Employers generally owe a duty of care to their employees for providing them with a safe working environment. They must make sure that the employees are not exposed to a risk of harm while performing their duties. If this duty is breached by an employer, and the employee suffers an injury as a result, the employer is likely to be successfully sued for his negligence. The elements of factual causation and the degree of remoteness are also to be considered. In the given case, Ben is the owner of the Poshplace Hotel where Roger works as a dishwasher. He has to wash dishes for long periods of time which is why it is likely that he would develop a rash on his skin. Ben is aware of this risk which is why he has provided all the dishwashers with gloves which can save them from developing rashes on their skins. However, it can be implied from the given facts that Roger has never used the gloves while washing dishes. Therefore, he would not be able to prove that Ben has been negligent as he did provide all the dishwashers with gloves. As far as non-delegable duty of care to provide a safe working environment is concerned, it is only applicable in cases of schools. It was established in Woodland v Essex County Council that schools owe a non-delegable duty of care to the children as the children depend on how the defendants act and completely rely on them. This rule cannot be stretched to the given case because Roger does not completely rely on Ben. Ben has provided Roger with gloves and now it depends on Roger whether he wears them. 2. Roger can bring a claim in vicarious liability against Neil for Colin’s actions. Roger complained about his rashes so much that it made Colin, the head chef, lose his temper. He knocked Roger unconscious with a frying pan. This is a case where an employee has assaulted another employee while performing his duties. There have been many such cases in which an employer is sought to be held vicariously liable for his employee’s assault. But the courts have drawn a line between when an employer can be held vicariously liable and when not. It has been seen that when an employee assaults someone in relation to his job, the employer is held vicariously liable. For instance, the employer of a tram conductor was held liable in Smith v North Metropolitan Tramways Co when the conductor pushed a passenger out of a tram, after he had not paid his fare. Also, in Poland v Parr & Sons, the employer was held liable when the employee assaulted a boy as he believed him to be attempting to steal his employer's goods. But in Warren v Henlys Ltd, the employers were not held liable for a garage attendant’s assault on a customer because it was an act of personal vengeance and spite. It is also relevant to compare this case with Mattis v Pollock in which a bouncer assaulted a customer with a knife due to personal anger. The employers were held liable because the bouncer was employed to act in an aggressive and tough manner. In the given case, Colin’s assault on Roger is based solely on personal anger and is in no way connected to the performance of his duties. Being, the head chef, his job does not require him to act in an aggressive and tough manner either. Therefore, Ben would not be held vicariously liable for Colin’s assault. Roger can directly sue Colin. 3. The Poshplace Hotel is liable to Mark under the Occupiers’ Liability Act 1957 Mark was robbed in his room by Neil, the gardener. Mark is a legal visitor on Ben’s premises and it is Ben’s duty to provide Mark with a safe environment under Occupiers’ Liability Act 1957. Also, it was seen in Nahhas v Pier House Management that a porter, who was entrusted with keys by a tenant, entered her flat and stole jewellery. It was held that the employer was vicariously liable for negligently employing a 'professional thief' and breaching a duty to protect the plaintiff's flat. In the given case, Ben has employed Neil negligently as he turned out to be a professional thief. Therefore, the Poshplace Hotel is liable to Mark for the theft of his valuable antique jewellery. 4. The Poshplace Hotel is not liable to Mark under the Occupiers’ Liability Act 1984 because of its warning notice. Mark went to the hotel pool for a swim and ignored the sign that said “Pool closed between 7.00pm to7.00am. No entry to visitors during these hours. Dangerous when unattended.” Mark suffered an injury and his expensive swimsuit also got ruined. In this case, Mark must not be regarded as a visitor because he entered an area which was forbidden during that time. He must be regarded as a trespasser and his rights would be governed under Occupiers’ Liability Act 1984. Under this Act, the occupiers owe a duty of care to trespassers that they would not be harmed by any danger. This duty applies where the occupiers are aware of the danger under S 1(3). In the given case, it is obvious that the Poshplace Hotel was aware of the danger. But by putting up a clear and unequivocal notice, they discharged their duty of care "by taking such steps as are reasonable in all the circumstances of the case to give warning of the danger concerned or to discourage persons from incurring the risk" (Section 1(5)). Mark had due notice of the danger which is why the Poshplace Hotel would not be held liable under the Occupiers’ Liability Act 1984. 5. Mark can use ordinary negligence principles in his claim against Poshplace. It may be argued that ordinary principles of negligence can be used against the Poshplace Hotel. In the case of the robbery, the hotel is clearly liable for it did not take reasonable precautions while hiring Neil. However, in case of the swimming pool incident, Mark would not be able to use these principles because the hotel did take reasonable precautions to inform Mike of the danger. The Occupiers’ Liability Act 1984 is largely derived from the ordinary principles of negligence. The sole application of ordinary principles cannot help improve Mark’s case. 6. Under the Occupiers’ Liability Act, Mark will not be able to claim for the cost of his designer swimming trunks. Mark entered the pool knowing of the risk which is why the hotel is discharged of its duty. Cases where even warning signs do not constitute discharging of duties involve children who cannot read or are unable to appreciate the danger. This does not apply to Mark. Mark is a grown man who is able to read and understand without exception what the sign said. Therefore, he would not be able to recover the cost of his designer swimming trunks. 7. Mark can bring a claim in vicarious liability against Poshplace Hotel for the loss of his Jewellery. As discussed above, the hotel did not take reasonable precautions while hiring Neil, a professional thief. He stole the keys to Mark’s room and robbed him. The hotel is vicariously liable for the theft. Therefore, Mike can bring a claim against Poshplace Hotel for the loss of his Jewellery. Conclusion In closing, the paper shows that formation of a legally binding contract can be a very complicated matter. It can be as simple as a routine transaction at a superstore and can be as complicated as was in the case of Jess and Mr. Powell. There are different types of liabilities. Contractual liability is the one that naturally arises when a contract is made. Employers have to be careful about the activities of their employees during the work hours as they can be held vicariously liable for negligent acts of their employees. Further, negligence is a tort and it leads to a liability even if the parties involved do not have any contractual relation. Therefore, formation of contracts and their performance have to be carefully executed. References Bolton v Stone [1951] AC 850 Constantine v Imperial Hotels Ltd [1944] KB 693 Dickinson v Dodds [1876] 2 Ch D 463 Donoghue v Stevenson [1932] UKHL 100 Mattis v Pollock [2003] 1 WLR 2158 Nahhas v Pier House Management [1984] 270 EG 328 Occupiers’ Liability Act 1957 (UK) S 1 Occupiers’ Liability Act 1984 (UK) S 1(3) Occupiers’ Liability Act 1984 (UK) S 1(5) Olley v Marlborough Court Hotel [1949]1 All ER 93 Poland v Parr & Sons [1927] 1 KB 236 Smith v North Metropolitan Tramways Co [1891] 55 JP 630 Warren v Henlys Ltd [1948] 2 All ER 935 Woodland v Essex County Council [2013] UKSC 66 Yewens v Noakes [1881] 6 QBD 530 Read More