Unit 5:
Aspects of Contract and Negligencefor Business
Study Manual
Contents
LO1 Understand the essential elements of a valid contract in a business context
1.0Introduction
1.1What is a contract and why is contract law needed?
1.2The three key elements of a contract
1.3The parties
1.4Offer
1.5Unilateral contract
1.6Invitations to treat
1.7Revocation of an offer
1.8Acceptance
1.9Communication of acceptance
1.10Counter offers and correspondence
1.11Postal rule
1.12Rejection of offer or lapse of time
1.13Death of one of the parties
1.14Consideration
1.15Capacity
1.16Privity
1.17Written contracts
1.18Verbal agreements
1.19Distance selling contracts
1.20Conditions and warranties
1.21Innominate terms
1.22Exclusion clauses
1.23Express and implied terms
1.24Summary
LO2 Be able to apply the elements of a contract in business situations
2.0Introduction
2.1An offer or an invitation to treat?
2.2Apply the law of acceptance
2.3Conditional agreement
2.4 Period tenders
2.5Some questions about timing
2.6Failure of a condition
2.7Express terms
2.8Implied terms
2.9The Parol Evidence Rule
2.10Standard Form Contracts
2.11Reading and understanding terms
2.12Parties with previous dealings
2.13Breach of contract
2.14Causation – proof of breach
2.15Remoteness of damage
2.16Mitigation of loss
2.17Amount of damages
2.18Equitable remedies
2.19Injunction
2.20Summary
LO3 Understand principles of liability in negligence in business activities
3.0Introduction
3.1Defining the law of tort
3.2How does contract law contrast with tort law
3.3Duty of care
3.4Negligence
3.5The Caparo test (Duty of care)
3.6 Occupier liability
3.7 Definition of occupier
3.8Definition of premises
3.9Lawful visitors
3.10Non lawful visitors
3.11Reasonable care and lawful visitors
3.12Child visitors
3.13Common calling
3.14Warning
3.15Independent contractors
3.16Defences under the Occupiers Liability Act 1957
3.17Occupier’s Liability Act 1984
3.18Vicarious Liability
3.19Who is an employee?
3.20The tort must be committed during the course of employment
3.21Violence and vicarious liability
3.22Health and safety at work
3.23Responsibilities
3.24Enforcement of Health and Safety legislation
3.25 Civil liability for breach of statutory duty
3.26Summary
LO4 Beable to apply the principles of liability in negligence in business situations
4.0Introduction
4.1Applying the law of negligence
4.2A reasonable person
4.3Other factors to consider
4.4Economic loss
4.5Nervous shock
4.6The three essentials
4.7Secondary victims
4.8Examples of occupier liability
4.9Examples of vicarious liability
4.10The defence of consent
4.11Rescue cases
4.12Unavoidable accident and necessity
4.13The defence of necessity
4.14Contributory negligence
4.15Damages
4.16Injunctions
4.17Summary
Unit 5 Overview
This unit covers two very important areas of law as they apply in a business context: the law of contract and the law of tort.
A legally binding contract is formed when a valid offer is made by one party that is accepted by another party. You will learn that there are several factors that must be present, without which the contract cannot be binding. Business contracts can come in different formats, for example face to face, written or through distance selling. It’s important to know the differences between these types of contract and their standing in law, and what the different types of terms in a contract mean, such as conditions, warranties and exclusion clauses. Terms are regulated by law when they are not met or breached. Breaches of contract are generally matters for the civil courts.
The law of tort, like the law of contract, applies to both individuals and companies. A tort can be defined as a physical (or other) type of harm caused to one person that another person is responsible for. This area of the law is concerned with a person’s responsibility to others. It also relates to civil wrongs. The person wronged sues in a civil court for a remedy, not a criminal court. Negligence can include a failure to take reasonable steps to prevent a harmful act being committed (called an ‘omission’). For example, you could cause a tort by not maintaining equipment properly or if you did not put up signs to warn people of a danger. Equally, an employer can commit a tort by asking an employee to do a job, without the proper safety equipment.
Learning Outcomes
- Understand the essential elements of a valid contract in a business context. (Part 1)
- Be able to apply the elements of a contract in business situations. (Part 2)
- Understand principles of liability in negligence in business activities. (Part 3)
- Be able to apply the principles of liability in negligence in business situations. (Part 4)
Reading List
Contract:
Andrews, Contract Law (2011)
Anson’s Law of Contract (29th ed 2010)
Chen-Wishart, Contract Law (3rd ed 2010)
Cheshire, Fifoot and Furmston, The Law of Contract (15th ed 2007)
McKendrick, Contract Law (8th ed 2009)
O’Sullivan and Hilliard, The Law of Contract (5th ed 2012)
Treitel, G.H., The Law of Contract, 10th edn,
Tort:
Murphy, Street on Torts (13th ed 2012)
Hepple, Matthews and Howarth, Tort: Cases and Materials (6th ed 2008)
Lunney and Oliphant, Tort Law Text and Materials (5th ed 2013)
Markesinis and Deakin’s Tort Law (7th ed 2012)
McBride and Bagshaw, Tort Law (4th ed 2012)
Steele, Tort Law: Text, Cases and Materials (2nd ed 2010)
Winfield and Jolowicz on Tort (18th ed 2010)
Case Law
Case law has been formulated over the last 250 years, and in this course there are many references to old cases. For example, you will see that one key case used when defining a contract goes back to 1789.
To get more detail on every one of the cases you can type the key words into a search engine, such as Google. Try that with the first of cases: Payne v Cave [1789] 3 Term Rep 148.
You will also find many cases are covered in:
•British and Irish Legal Information Institute (
•Lawyer Help (
Typically, the plaintiff or claimant is listed first in a case, because they are the ones that initiate the action another person or institution who is the defendant. The plaintiff starts the paperwork with the courts and the courts send a summons to the defendant who must defend himself/themselves against the said accusations in a court of law.
British Court System
The British courts system is complicated and – in places – confusing, because it has developed over 1,000 years rather than being designed from scratch.
Different types of case are dealt with in specific courts: for example, all criminal cases will start in the magistrates’ court, but the more serious criminal matters are committed (or sent) to the Crown Court. Appeals from the Crown Court will potentially go to the Court of Appeal or even the Supreme Court.
Source: wikimedia.org
Contract law and Tort law disputes are Civil cases that will sometimes be dealt with by magistrates, but generally go to a county court. Again, appeals against court decisions will go to the High Court and then to the Court of Appeal – although to different divisions of those courts.
Source: wikimedia.org
Note taking
Law contains a great deal of information and, therefore, you will need to take careful notes throughout and save these in an organised way, so that you can easily refer to them at a later date. Mind maps are a good tool to record lots of information in a simple way. For more information about Mind maps and how to use them, watch the following tutorial before you proceed:
.
Part 1:
Understand the essential elements of a valid contract in a business context
1.0 Introduction
In part one(LO1) you will learn what a contract is and about the essential elementsthat make up a legally binding contract within a business context.
In the law of contract, a legally binding agreementis formed when a valid offer is made by one party that is accepted by another party. In the event of the contract being broken, the injured party must show that there was a clear intention to enter into a contract at the time it was formed. This will depend on several factors being present that will be discussed, without which the contract cannot be binding.
Business contracts can be face to face, written, or made through distance selling, for example, items bought online or through a mail order catalogue. You will examine the major differences between these types of contract and their standing in law. For instance, it is easier to prove the existence of a contract that has been written down than one that has been made verbally.
Finally, you will understand that contracts contain different types of terms, such as conditions, warranties, innominate terms, express terms, implied terms, and exclusion clauses. It is important to understand what these terms mean,how they are regulatedand especially what happens when theyare not met or breached. Breaches of contract are generally matters for the civil courts.
By the end of this unit you will be able to:
1.1 explain the importance of the essential elementsrequired for the formation of a valid contract
1.2 discuss the impact of different types of contract
1.3 analyse terms in contracts with reference to theirmeaning and effect
1.1 What is a contract and why is contract law needed?
As a consumer you make a contract every time you buy something, even if you don't realise it.According to Sir Frederick Pollock (the British legal scholar), a contract is:"A promise or set of promises which the law will enforce".
The official definition of a contract is a legally binding agreement involving two or more people or businesses (called parties) that sets out what the parties will or will not do.
The manager of a business must make many agreements (or ‘contracts’) with a large number of other individuals and organisations. These agreementscan be either verbal or written.The law of contract relates to those agreements between the various individuals and organisations to ensure that they are fair.Sometimes the terms in a business agreement may favour one party over another.
Formal and Distributive Justice
Contract law’s original purpose was to lay out a standard set of rules that would regulate any contractual agreement – from big contracts like the sale of property to small everyday purchases like a carton of milk. This approach focused on something called procedural fairness or formal justice, and assumed that both parties to the contract had roughly equal bargaining power.
In practice, contracts are often agreed between people with very different degrees of power, which could potentially be unfair to the weaker of the two.
Over the last century, lawmakers and the courts have applied an additional approach to contract law known as distributive justice. This gives additional protection to the weaker parties in a contract, for example, consumers, tenants of a rented property and employees.
Apply:Briefly describe two types of agreement that you’ve made recently – verbal or written.
How did the two parties agree to what would be done and what the terms were?
Did the two parties have an equal level of power when reaching the agreement?
1.2 The three key elements of a contract
There are three key elements in any contract. We will introduce them here and then look at each one in more detail. They are:
- An agreement. This takes place between two parties and is normally based on an offer made by one party that has been accepted by the other party.
- Some kind of exchangeknown as a consideration. This isusually money or services. Thisoccurs between the two parties, for example, if I simply offer to give you something without payment of some kind, we have not formed a contract.
- An intent to create a legal relationship. The two parties must agree to be bound by the agreement - in other words, honour their legal obligations.
Looking at the three elements in greater detail, we need to consider a number of specific points.
1.3The parties
There's usually two sides involved in making a contract. These can be an individual consumer buying from a trader or an agreement between two businesses or private individuals. For example, Mr Smith (party one) buys a sofa from Ms Green (party two).
One of them (the offeror) makes an offer which the other (the offeree) accepts. This acceptance may, of course, follow after lengthy discussion and negotiation by either side.
It's important to know if you are the party to a contract because this affects your right to do something about it and whether action can be taken against you if anything goes wrong.
Can there be more than two parties to a contract?
In some contracts, there may be more than one individual in each party. For example, if you and your partner both sign a contract for a package holiday, you will both be parties to the contract, along with the tour operator. You will both be equally bound by the terms and conditions of the contract and be able to take action if something goes wrong with the holiday.
What if someone else bought goods or services for you?
If you are given goods or services bought by someone else, you are not a party to the contract. This means that if something goes wrong with them, you don’t automatically have a legal right to get the trader to put things right. For example, if you receive a stereo as a present and it is faulty, you couldn’t go back to the trader yourself and ask for a replacement or a refund. You would need to go back to the person who bought you the present and ask them to sort things out with the trader.
However, it is possible for you to be given the right to sort things out with the trader directly. The person who buys the goods or services must let the trader know that they are buying them for you. The buyer would need to help the trader identify you. For example, they could write your name on the receipt, invoice or guarantee card or give them your address for delivery of the present.
Some contracts give third party rights to those who receive goods or services as a present. This is common for wedding present lists. This means that although the wedding presents are bought by others, those who receive the presents are given the right to complain to the trader directly if there’s something wrong with one of them.
Agents
You can authorise someone else to negotiate a contract on your behalf. The person who negotiates the contract is called an agent and the person on whose behalf they are acting is called the principal. Any contract is made between the principal, not the agent, and the other party. For example, a contract made with a travel agent is usually between the buyer and the tour operator, rather than with the travel agent. Other examples of agents in a consumer contract include estate agents, auctioneers and insurance brokers.
If something goes wrong with goods or services
Once a contract is made, the parties are legally bound by it. If one party breaks the agreement, the other party has a legal right to enforce what was originally agreed. This includes all the terms and conditions of the contract.
For example, if you had some building work done on your house which was of a poor quality, the trader may have broken the contract. Under consumer law you have a right to get the trader to put things right. You only have a right to do this if you are a party to the contract.
1.4 Offer
Treitel defines an offer as:"an expression of willingness to contract on certain terms, made by the “offeror”,with the intention that it shall become binding as soon as it is accepted by the person to whom it is addressed", the "offeree".
The expression of an offer may take different forms, such as a letter, newspaper advertisement, fax, email and even conduct, as long as it is communicated to the offeree, and communicates the basis on which the offeror is prepared to contract. For example, if I offer to sell you my bike for £200, I am saying that you can have the bike provided you agree to that price.
Whether the two parties have reached agreement on the terms or whether a valid offer has been made is an issue which is determined by the courts using criteria known as 'the objective test' which was explained in the following case:
Key Case:Smith v. Hughes (1871) LR 6 QB 597
Facts:
The claimant had purchased a quantity of what he thought was old oats having been shown a sample. In fact the oats were new oats. The claimant wanted the oats for horse feed and new oats were of no use to him. The seller was aware of the mistake of the claimant but said nothing. The claimant brought an action against the seller, which failed.
Court held:
In this case, the court emphasised that the important thing in determining whether there has been a valid offer is not the party's own (subjective) intentions, but how a reasonable person would view the situation.Silence was not considered as an act to mislead the claimant to believe they were old oats. Only the quality of the oats was mistaken, and not the fundamental terms of the contract.
Unless the offer included the key terms of the contract, it cannot be the basis of a binding contract. For example, as a minimum requirement for a sale of goods contracts, a valid offer must include at least the following 4 terms:
- Delivery date
- Price
- Terms of payment that includes the date of payment
- A detailed description of the item on offer including a fair description of the condition or type of service.
Unless the minimum requirements are met, an offer of sale is not classified by the courts as a legal offer, but is instead seen as an advertisement.
1.5 Unilateral contract
The contract in Carlill v Carbolic Smoke Ball Co[1893] 1 Q.B. 2563 was of a kind of contract known as a unilateral contract, one that is made to the entire world, in which the offeree(and there could potentially be many) accepts the offer by performing an act which indicates his or her agreement with the bargain.