Contractual Aspects and Business Negligence - Coursework Example

Task Elements of Valid Business Contracts Q1 There are four essential elements of forming a valid contract. These elements are offer, acceptance, intention to create legal relations and consideration. If any of these elements is missing, the agreements cannot be legally binding. The first step in forming a contract is an offer, which is a definite and binding promise. An offer and an invitation to treat are different. An invitation to treat forms part of the preliminaries to the formation of a contract and does not form a binding contract (Commission on European Contract Law 2003). The next step is acceptance of the offer. Acceptance of an offer must be made exactly as offered and no conditions can be added to the offer. Introduction of new terms to the offer results to a counter offer and such a counter offer terminated the initial offer. Acceptance can be given verbally, in writing or impliedly. For an acceptance to be valid, it must comply with the method prescribed by the offer (George Hudson Holdings Ltd v Rudder (1973)128 CLR 387). The parties entering into the contract must also have an intention to create legal relations. This implies that the parties to the contract intend the contract to be enforceable by law. The last element of a valid contract is a valid consideration. Consideration in this regard is a parties promise to do something in exchange of the other parties promise to provide a valuable benefit (McKendrick 2014). Q1.2 There are different types of contracts undergone in business and these include verbal contracts, written contracts and distance selling contracts. Verbal contracts are contracts undertaken without any written agreements and rely on the good faith of the involved parties. These contracts can be difficult to prove compared to written contracts. Written contracts, on the other hand, are contracts that are written and signed by the contracting parties. All the terms of the contract are often included in the written documents (Beale et al. 2010). The other type of contracts is distance-selling contracts, which are contracts entered at a distance from the supplier and are associated with online shopping. Distance selling contracts are enforceable provided they meet the requirements of a valid contract. These contracts are regulated by the distance selling regulations, which protect consumer rights when purchasing products online (Loos et al. 2011). Q1.3 The contents of a contract are referred to as terms of a contract. A contract will usually contain various terms, which can be either implied or express. Express terms are those terms, which are articulated by the parties when the contract is formed. These terms are specifically stipulated before the formation of the contract and parties agree to them. However, a term may not be mentioned by the parties to the contract but are included in the contract because a contract would not make commercial sense without them. These terms are referred to as implied terms and can be implied by law or by fact. Terms are implied by fact owing to the actual circumstances or conduct of the parties entering into the contract. Terms implied by law, on the other hand, are contractual terms created by statues and judicial decisions. In contrast to express terms, implied terms are more sensitive to deal with because the parties do not agree to these terms when forming the contract (Beatson et al. 2010). Task 2: Application of Contracts in Business Situations Q2.1 a) In order to have a valid acceptance there must be an offer to which the acceptance is a response. This condition does not only require making of an offer but also that the offer is in existence when making the acceptance. An offer can cease to exist when it is revoked by the offeror. Revocation is only effective when the offer has not been accepted. Revocation of the offer extinguishes the power of acceptance and must be communicated (Dickinson v. Dodds (1876) 2 Ch.D. 463). In view of this, it is apparent that there are no legal consequences on Green Pharma regarding the offer made. b) The promise for the extra £200 is not enforceable since there is a pre-existing legal duty for the performance of the duties. The employment contract already establishes the legal duty to provide the report and a mere promise of extra payment is not enforceable. The duty to complete the report is contained in the employment contract and therefore the consideration for the task already exists and the promise to pay the extra £200 is not a valid consideration. Additionally consideration must be provided as part of a contract and not post performance, therefore, the promise is not enforceable (Austen-Baker 2011). c) The contract with Joe to provide me with a lift to work in return for a contribution towards the petrol would be legally enforceable. An agreement to give a lift in return for a contribution forms a contract, although an informal contract as held in (Cornell v MIB 1969). It is noteworthy that the contribution towards the petrol forms a consideration and thus there is the intention to create legal relations. Q2.2 An indemnity clause is an agreement where one party agrees to keep the other party free from any damage or loss, which the beneficiary may suffer. An indemnity is an obligation to compensate for loss or liability. The term guarantee and indemnity are often used interchangeably but the terms are different as guarantees are a form of indemnity. In a party-to-party indemnity, the indemnifier provides the beneficiary compensation in case of losses or damages incurred because of a contract. Because an indemnity is often part of a contract the effect of the indemnity depends on the terms, which the indemnity is drafted. In this regard, an indemnity is meant to make a party to a contract whole again in the event that a contractually specified event occurs (Loos et al. 2011). In the case of Alban, Brenda’s garage Ltd agreed to indemnify Alban for any defects, which could not be discovered on roper examination of the vehicle at the time of purchase. The indemnity was valid only for three months and thereafter all work would be charged to the customer. The engine and the gearbox seized after the three months had elapsed and therefore there is no valid agreement to indemnify Alban. If Alban had bought the car for his personal use, he would be a consumer under the Unfair Contract terms Act 1977. Because Alban was a consumer, the terms of the contract would be subject to the reasonableness test under section 11 of the Act. For the purpose of reasonableness, a term is fair and reasonable to be included in a contract if the parties knew the circumstances of the term at the time of forming the contract. In view of this, it is clear that Alban knew the terms of the indemnity and therefore the answer would not be different. Q2.3 a) A condition in a contract goes to the root of the contract and a breach of a condition results in a repudiation of the contract. Warranties are minor terms to a contract and are not central to the existence of a contract therefore a breach does not lead to termination of the contract but the innocent party is entitled to damages. An innominate term is an intermediate term in a contract and lies between a warranty and a condition. Breach of an innominate term gives rise to a claim of damages but a serious breach of an innominate term terminates the contract (Beatson et al. 2010). b) An exemption clause is a clause contained in a contract, which seeks to limit the rights of parties to the contract. Exemption clauses have to be reasonable and liability cannot be excluded for faulty goods, personal injury or death resulting from the negligence of the party relying on the clause. Where there is an ambiguity the wording of an exemption clause, the clause is interpreted against the party relying on it. There are two types of exemption clauses; limitation clauses which limit the liability of a party and an exclusion clauses which excludes the party from liability (Austen-Baker 2011). Task 3: Principles of Liability in Business Negligence Q3.1 There are two types of liability, contract liability and tort liability. Tort liability arises out of a civil wrong while a contractual liability arises out of a contract. A liability in tort arises where the defendant owes a duty of care and breaches this duty. On the other hand, a liability in contract stems from the responsibilities of each party as set out in the contract. Liability in tort is determined by whether there was voluntary action, whether there was damage and the remoteness of the damage. Liability in contract is assessed based on the amount of damage, the value of the contract and the kind of term breached (Deakin, Johnston & Markesinis 2012). Duty of care in torts is the obligation imposed on an individual requiring the individual to observe a standard of reasonable care. Manufacturers, for example, owe a duty of care to consumers who consume their products. A landowner also owes a duty of care to individuals who come into their land. Causation in tort provides a direct connection between the negligent act of the defendant and the loss and damage of the claimant. Remoteness on the other hand acts to limit the amount of compensation payable. The test of causation does not only require that the defendant was liable but also that the loss incurred was not too remote (Lunney & Oliphant 2013). Q3.2 Liability in negligence may be based on fault or maybe strict. Fault liability arises when the defendant does not live to a given standard through an act or omission. Such liability may arise out of an intentional act by the defendant, such as where the defendant hits the claimant with a stone, or a negligent act by the defendant, for instance where the defendant negligently causes an accident. There are however, some cases where intention or negligence is not required to establish negligence and such liability is considered strict liability. In strict liability the defendant is held responsible where it is established that he caused the damage irrespective of whether the conduct was negligent or intentional (Jones 2014). Q3.3 The doctrine of vicarious liability provides that a person who authorizes an act resulting in a tort is liable for damages or loss arising out of the act. Vicarious liability is a form of strict liability, which holds a superior liable for the acts of a subordinate. For an employer to be vicariously liable for the acts of his employee, the employee must have been acting in the ordinary course of employment. For an employee’s act to be considered within the course of employment, the act must be authorized or related to an authorized act in such a way that it is considered a mode of performing the act (Giliker, 2011). In determining vicarious liability, it is essential to distinguish between a frolic and a detour. Where the employee goes on a detour while performing his duties the employer will be held vicariously liable. However, where an employee who acts in his or her own right instead of the employers business is considered to be undertaking a frolic and the employer cannot be held liable (Sterk 2011). Task 4: Application of Principles of Liability in Business Situations Q 4.1 a) A learner driver owes the same standard of care as a reasonable prudent person. The standard of a reasonable prudent person is established by determining whether a prudent person would observe such level of care. A Chinese herbal doctor working in England owes a professional standard of care. The professional standard of care is determined by the standard of care that would be exercised by another prudent professional in that occupation. A junior doctor in a hospital owes a medical standard of care. Such standard of care specifies appropriate treatment founded on scientific evidence and collaboration between other doctors (Merrills & Fisher). b) Green Pharma would be liable for the electrocution of Leo. The Occupiers Liability Act 1957 provides that the owner of a building owes a duty of care to individuals who occupy a premise or to those who visit the premise. Liability arises from injury caused by accidents, defects or dangerous conditions of the premises. Section 2(4) (a) provides that a warning will discharge the occupiers duty only if it enables the safety of the person whom the duty of care is owed. This implies that the warning must be clear about the danger and the means of avoiding the danger is available (Pennels 1997). The notice at the entrance is not clear about the danger and does not provide a means of avoiding the danger and therefore the answer would not be different, as the notice does not discharge the duty of care owed. Q 4.2 a) Green Pharma is not vicariously liable since the driver was not in the ordinary course of employment. Vicarious liability requires that for an employer to be held vicariously liable for the acts of his or her employee the employee must have been acting in the course of employment. In this case, john was not acting in the course of business and was acting in his own right instead of the employers business. b) An employer cannot be held liable for battery or assault committed by an employee unless the nature of the employment requires the use of force. Where the nature of employment requires the use of force the force used must be reasonable (Bell, J 2013). Section 3 of the Criminal Law Act 1967 provides that an individual may apply force, which is reasonable in the situation for the prevention of crime. In Roberts’s case, the company required him to keep order by force- if necessary. However, Roberts’s action of stabbing Mr Mattis in the back is clearly unreasonable and as such; Green Pharma cannot be held vicariously liable. Cases Cornell v MIB 1969 Dickinson v. Dodds (1876) 2 Ch.D. 463 George Hudson Holdings Ltd v Rudder (1973)128 CLR 387. Legislation Criminal Law Act 1967 Occupiers Liability Act 1957 The Unfair Contract terms Act 1977 Reference list Austen-Baker, R 2011, Implied Terms in English Contract Law, Edward Elgar Publishing. Beale, H, Tallon, D, Vogenauer, S, Rutgers, J W & Fauvarque-Cosson, B 2010, Cases, materials and text on Contract law, Hart. Beatson, J, Anson, WR, Burrows, AS & Cartwright, J 2010, Ansons law of contract, Oxford University Press. Bell, J 2013, ‘The basis of vicarious liability’, The Cambridge Law Journal, 72(01), pp. 17-20. Commission on European Contract Law 2003, Principles of European contract law, Kluwer Law International. Deakin, SF, Johnston, A & Markesinis, B 2012, Markesinis and Deakins Tort Law, Oxford University Press. Giliker, P 2011, ‘Vicarious Liability or Liability for the Acts of Others in Tort: A Comparative Perspective’, Journal of European Tort Law, 2(1), pp. 31-56. Jones, MW 2014, Blueprints: tort law, Pearson. Loos, MBM, Helberger, N, Guibault, LUCIE & Mak, C 2011, ‘The regulation of digital content contracts in the optional instrument of contract law’, European Review of Private Law, pp. 729. Lunney, M & Oliphant, K 2013, Tort law: text and materials, Oxford University Press. McKendrick, E 2014, Contract law: text, cases, and materials, Oxford University Press. Merrills, J & Fisher, J, ‘Liability in Negligence’, Pharmacy Law and Practice, Third Edition, pp. 220-227. Pennels, C J 1997, ‘Liability in negligence’, Professional nurse (London, England), 13(1), pp. 52-53. Sterk, SE 2011, ‘Strict Liability and Negligence in Property Theory’, U. Pa. L. Rev., 160, pp. 2129. Read More