NELSON COLLEGE LONDON

BTEC HND in Business

Aspects of Contract and Negligence for Business

Student Name: Nazim Uddin

ID: 9130182

Date of Submission: May 27, 2014

Contents
Introduction.................................................................................................................. 1
Task 1: Elements of a Contract and Its Terms......................................................................2
P1- Importance of All the Elements for a Valid Contract........................................................2
P2- Impact of Different Types of Contract...........................................................................4
P3- Meaning and Effect of Express Terms in Contracts..........................................................5
Task 2: Scenario Analysis................................................................................................. 6
P4- Applying the Elements of Contract in Given Scenario......................................................6
P5- Applying the Law on Terms in Different Contracts..........................................................6
P6- The Effect of Different Terms in Given Contract.............................................................7
Task 3: Literature Review................................................................................................ 9
P7- Contrast Liability in Tort with Contractual Liability........................................................9
P8- Nature of Liability in Negligence..................................................................................9
P9- How a Business Can be Vicariously Liable...................................................................10
Task 4: Fictional Case Analysis - Memo (P10-P11)..............................................................11
Conclusion.................................................................................................................. 13
Bibliography............................................................................................................... 14

Introduction
The success in every business depends on a lot of things. Contract is a major component of a
successful business. A proper contract if not done between two parties, a big business deal may
get ruined and it would bring a big loss. So to protect business owners or consumers from any
kind of unwanted situation business law has its branches to support the victims. And contract is a
basic element that comes first to protect buyer and seller. So contract is very important for
business. And this is not a very small concept rather the depth of contract is vast indeed. And law
makers often give a big priority to the contract of two parties because most of the disputes start
from confusion in contracts.

Task 1: Elements of a Contract and Its Terms

In general word contract is an agreement between two parties. But in case of law it has some
broader meaning. To become a valid contract some essential elements are needed. And there are
specific terms to become a valid contract.
P1- Importance of All the Elements for a Valid Contract
In general terms an agreement which acquires the qualification of enforceability by law becomes
a contract (Anon., n.d.). So basically to become a valid contract it is needed that the agreement
has enforceability by law.
A contract has six vital components.

Offer
Acceptance
Consideration
Intention to create legal relation
Certainty
Capacity

Offer: Offer is the first element of a contract. To make an agreement or contract it is essential
that one party makes an offer to the other party. Suppose two persons are talking about a car.
Person 1 says I want to sell my old car @ $10,000. This not an offer. Because Person 1 did not
ask Person 2 whether or not he wants to buy it. So to become an offer it would be like I want to
sell my old car @ $10,000. Will you buy it? So this is the very concept of offer and in case of
making a valid contract offer comes at the first place. If there is no proper offer then there is no
contract. So offer is very important because if one party do not make an offer then no contract
can be made.
Acceptance: After making an offer by the 1st party the 2nd party replies whether or not s/he
accepts it. In the previous scenario if the Person 2 replies in affirmative that he agrees to buy that
car then it is acceptance. But if he says I want to buy the car but can you please make it $8000?
This is not an acceptance rather the 2nd person is making a counter offer now it is the 1 st person
who will accept or decline the offer. So in the second phase of a valid contract a proper

acceptance is needed. No counter offer is counted as an acceptance. And without acceptance it is

obvious that a contract cant be made.
Consideration: Consideration is something of legal value which is given in exchange of
promise. It can be some right, interest or benefit (not necessarily money) going to a party or
forbearance if suffered or undertaken by the other party. A promise of a gift cant be a contract
because it has no consideration. Consideration protects the concerning parties from any breach of
contract. So the agreement which has no consideration is void to be a contract. A consideration
need not to be adequate. And consideration is needed to form a contract which has enforceability
of law. So it is essential for a contract.
Intention to Create Legal Relation: There are many agreement that which are made in daily
life. Some of these agreements are official agreements and some are normal promises. Say for
example a father promises his little child about bringing chocolate while returning from the
office. It is a mutual consent however there is no intention to create a legal relation. But if
someone borrows money and agrees to bear a 10% rate of interest each year then this agreement
has a legal value. And if the borrower do not comply with this the lender would go to court. So in
this case the parties have intention to create legal relations. And if this intention is there then it is
a contract.
Certainty: Consideration has to be certain. If the actions referred to as considerations are not
certain then legal action cant be taken for any breach of that contract. So to make a contract
viable certainty in consideration is a must.
Capacity: The parties implicated in the contract should most certainly need to show certain
quality to prove s/he is capable to keep the contract. A person who is mentally impaired, minors
(young people), bankrupt, ineligible through law cant become a party in the contract. Because
these people do not have the capacity to make a contract successful. So for a valid contract these
factors must be given priority. (Anon., 2013)

P2- Impact of Different Types of Contract

Contracts can be classified based on different aspects. And there is now strict classification of
contracts. Based on certain things contract is divided in many types. Such as

Verbal or written contract

Executed and Executors contracts
Unilateral or bilateral contracts
Express or Implied Contracts
Contracts under seal etc.(Anon., n.d.)

Written contract is signed by both parties and it is easy to go for a legal action because the proof
of contract is written and signed by the parties. In verbal contract no written document is there.
Both parties agree verbally on any matter. Usually for very general purposes it is used but for
some serious matter written contract is preferred.
When a contract is stamped with seal and the seal represents the legal viability of the contract
then it is a contract under seal. In this kind of contract the seal works as consideration.
Previously it was required to be sealed to take any legal action. So this type of contract has a firm
impact on the parties.
If actions mentioned in the contract is already taken by the parties then it is an executed contract
and on the contrary if the actions will be taken in future then it is termed as an executor contract.
So based on execution contract I also classified.
In express contract all the terms and conditions are discussed or written before the contract is
made. The parties agree on that and make the contract. But in implied contracts everything is not
written rather perceived by the parties. Quasi-contract is the more accurate designation of
contract implied in law. Implied contract is not expressed but the circumstances suggests the
mutual intention of the parties.
A bilateral contract is a two sided contract where both the parties make some promises and work
accordingly. In case of unilateral contract only one party makes promises. Here offeror makes a
promise if offeree performs certain things. Performance and promise work as consideration
alternatively in this case.

P3- Meaning and Effect of Express Terms in Contracts

In express terms all the terms and conditions of a contract is agreed mutually by the parties. No
third party determines the terms. The parties making the contract are in liberty to set whatever
they need in the contract. If there is any breach in the contract then the deceived party can go to
court and ask for judgment according to the terms. Moreover when the terms are mutually agreed
the contract is signed by both the parties. So no party can back out from that or cant breach any
of the terms. So basically express terms is a very simple form of making contract as the
concerned parties make the terms while in implied contract court or other third party set the
terms which may not be accepted by the parties making the contract. So express terms are more
popular in case of making contracts.

Task 2: Scenario Analysis

P4- Applying the Elements of Contract in Given Scenario
In the given scenario there are some flaws which essentially decline the chances of contract. At
the first place when Jane and Mr. Musa were talking in Germany Mr. Musa was drunk. So he
was not in good mental state to make a verbal contract. So an element of contract that is
CAPACITY was missing. So it cant be a valid contract. Then Jane made a new OFFER to Mr.
Musa and for that offer he asked her to sign in a written agreement. But when Mr. Musa sent the
agreement paper it was not an ACCEPTANCE by him rather it was a COUNTER OFFER. So
now it is Jane who will decide whether or not ACCEPT the offer.

P5- Applying the Law on Terms in Different Contracts

Mr. X is a wholesale dress seller. He sells dresses in lots. A buyer has to buy a whole lot and
cannot buy a single piece or some pieces from the lot. Beauty Fashion House is a dress retail
seller. It buys dresses regularly from Mr. X. And every month the shop buys 50 lots of dresses.
And because of buying 50 lots the shop gets a discount. And they pay the money at the time of
buying the lots. The contract between Mr. X and Beauty Fashion House is

Every month Beauty Fashion House has to buy a minimum of 50 lots of dresses to get a

discounted rate.
The payment has to be made at the time of purchase.
If any defect in dresses are found then Mr. X will be responsible to compensate for the

dress.
Any complain regarding the supply must be notified between 3 business days.
Delivery charge will be paid by the buyer.
Mr. X will not take return any lot if it is unsold.

The terms discussed here are express terms and both party agrees to it. But still there are some
implied terms such as

If Beauty Fashion House misses one month to buy 50 lots then from next month the

discount will be discontinued.

If the contract is discontinued for one month, it will be void.

If any damage done due to buyers carelessness then Mr. X wont be responsible to

compensate for that loss.

Mr. X will not set any retail price. And Beauty Fashion House can freely set the retail

price.
If Beauty Fashion House takes delivery by their own transportation then any damage
during transportation will not be compensated by Mr. X.

So these are some express and implied terms in the scenario discussed above. Now in November
due to less number of sales in October Beauty Fashion House buys 35 lots of dresses. But in
December due to Christmas Season the shop buys 75 lots of dresses. And In December Beauty
Fashion House asks for a discount due to buying more than the promised number dresses. Mr. X
declines to give the discount. And for this when they went to the court Mr. X wins the case.
Because in November there was a breach of contract. So the contract is void. So to get a discount
Beauty Fashion House needs a new contract with Mr. X.

P6- The Effect of Different Terms in Given Contract

In the given business scenario there is no valid contract. To make a contract some steps are
needed. A party has to make an offer and the other has to accept it. But in that scenario Offer was
verbally accepted but when it comes to make a deed the second party made a new offer and the
first party didnt accept that. So there was no Acceptance in that scenario. So there was no
contract. And because of that no terms will be put into effect.
In the scenario discussed in P5 there was a contract with express and implied terms.
Due to express terms Beauty Fashion House cant make any payment on account. The shop has
to pay the bill while purchasing. Because it is clearly stated in the contract. Then again if any
dress is found to be in a bad condition suppose a dress is discoloured then Mr. X has to
compensate for it. If some dresses remain unsold in the retail store then it is the headache of the
store and Mr. X is not liable for that.
In Implied terms if the dress which is discoloured is damaged due to the buyers negligence then
the compensation will not take place. Because implied terms tells that it is the buyer who is
responsible for such damages. Mr. X cannot advice any retail price if the retail seller does not ask

him. Retailer is at his liberty to set the retail price. Due to transportation if any loss occurs then it
will be depending on the parties. If Mr. X shipped with his transport system then it is his liability
but if the buyer uses his own transport then it is up to the buyer. And obviously due to implied
terms the contract gets void if agreed amount of dresses is not bought in one month by the buyer.

Task 3: Literature Review

P7- Contrast Liability in Tort with Contractual Liability
Tort is basically wrong action by an individual. Tortfeasor is the person who commits tort.
Liability in tort is very sensitive. A tortfeasor harms or injures another individual or another
individuals property by his/her action. Sometimes tort is done intentionally sometimes it is due
to negligence, sometimes even a person becomes liable for a tort without doing any fault and
there are production tort as well when someone manufactures faulty products.
Sometimes tort is observed as the reasons of actions which are not specified as contract or
entitled in fiduciary law. (Harpwood, 2009) But tort and contract has a firm similarity because in
both case there are breach of duties and modern law have blurred those duties(Harpwood, 2009).
In some cases an action is not clearly understood whether it is taken for tort or for contract and
court determines the fittest one. Professional negligence is visible in both torts and contracts
(Harpwood, 2009). In case of damage Punitive damages are comparatively not similar in tort
casesvs. contract cases (LaMance, 2013). The pure economic loss ruleis used to determine the
boundary between tort cases and contract cases in USA and court has the flexibility to consider
cases which involve both the areas to fall under one same area of law or legal actions (Sorensen,
et al., 2012)

P8- Nature of Liability in Negligence

Negligence occurs when a person breaches the duty of care owed to another person from the
view point of an average reasonable person. A famous case of 1932 stated negligence as a tort.
The Case is known as Donoghue v Stevenson ( Donoghue v Stevenson Digital Resources, 1932).
Later in England Tort of Negligence was established (Ferrari, 2010).So liability put into effect
based on these actions. And since negligence is counted as tort, the liability of tort is imposed for
Negligence.

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P9- How a Business Can be Vicariously Liable

A business firm is liable for its employees action. If an employee does something wrong a part
of the employees liability comes on the business firm. And this is the concept of vicarious
liability (Anon., n.d.). A doctrine of English Tort Law is vicarious liability which imposes strict
liability on the employers for the wrong doings of their employees. While an employee is doing a
job of the employer and commits a tort during that time the employer will be liable for that
(Deakin, et al., 2003). Further the liability is extended in the case of Lister v Hesley Hall
Ltd(Lister v Hesley Hall Ltd, 2002). So a business is liable for the action of the employees and
this portion of liability is termed as vicarious liability.

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Task 4: Fictional Case Analysis - Memo (P10-P11)

MEMO
To: Director, Reading Plc
From: Director, Famer Dale Farm
CC: Bob the builders contractor Ltd
Date: May 21, 2014
Re:
Take greetings from Famer Dale Farm. I am very much sorry for your recent loss due to harvest
work in my farm. Basically I second that tort is created between us. Your clinic was heavily
disturbed by the noise and a devastating fire destroyed your property. This is a clear sign of
negligence and we admit that. But understand that we Famer Dale Farm is also affected during
the work was going in. Our swimming pool got severely damaged. Besides, there was no
complain from you. As a result it was thought that you had no problem regarding the work. But
however the damage is done and I tell you Famer Dale Farm is not responsible for this. All the
work was subcontracted to Bob the builders contractor Ltd. Famer Dale was their client. During
their service they not only damaged your property but also damaged our property. And the
immense noise created is not a matter of concern of Famer Dale Farm because the whole work
was done by Bob the builders contractor Ltd. So it was their duty to keep the environment calm
and dust free. Even if it was impossible to make a soundless move, they could restrict it in a
tolerable level. It was their fault that they harmed the neighborhood people. And the dust created
in the work also damaged the swimming pool water of us. There might be a possibility of
comparative or contributory negligence but we the victims were not expecting this much
damage. And it was so kind of you that you didnt disrupt ongoing construction. But still the
liability goes to Bob the builders contractor Ltd because of their being exclusively accountable
on the project.

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There is another vicarious liability fact. Joe an employee of Bob the builders contractor Ltd was
responsible for the fire accident in your property. But as the accident happened during
performing his job the employer of him cannot help but being somewhat accountable on
catastrophe. At the end I again apologize for your loss and I consent my loss as well. And a tort
case can be filed together against Bob the builders contractor Ltd. Waiting for your reply.

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Conclusion
Contract is a very important element of business law. No business dealing can be productively
executed without a proper contract. Express and implicit contract serve consequently to protect
the right of both parties. And following the proper steps of contract is essential to make it valid.
On the other hand Breach of contract and tort are very close to each other. Tort may arise in
different contexts and point of time but no written contract is there to handle tort. So tort law is
very important for everyone to get compensated for any tort case. And there is a strong
correlation between tort and contract. Understanding these fundamentals of business law is
crucial for any business practitioner or any person related to business. And knowledge focusing
in realistic scenarios unquestionably assist individuals to comprehend these correctly.

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Bibliography
Donoghue v Stevenson Digital Resources (1932) Scottish Council of Law Reporting.
Anon., 2013. The Law Handbook. [Online]
Available at: http://www.lawhandbook.org.au/handbook/ch12s01s02.php
[Accessed 21 May 2014].
Anon., n.d. [Online]
Available at: http://www.law.cornell.edu/wex/contract
[Accessed 21 May 2014].
Anon., n.d. [Online]
Available at: http://legal-dictionary.thefreedictionary.com/Types+of+Contracts
[Accessed 21 May 2014].
Anon., n.d. Investopedia. [Online]
Available at: http://www.investopedia.com/terms/v/vicarious-liability.asp
[Accessed 21 May 2014].
Deakin, S., Jhonston, A. & Markesinis, B., 2003. Tort Law. 5th ed. London: Oxford University
Press.
Ferrari, F., 2010. Donoghue v. Stevenson's 60th Anniversary. Annual Survey of International &
Comparative Law, 1(1).
Harpwood, V., 2009. Modern Tort Law. 7th ed. New York: Routledge-Cavendish.
LaMance, K., 2013. Contract and Tort Law. [Online]
Available at: http://www.legalmatch.com/law-library/article/contract-and-tort-law.html
[Accessed 21 May 2014].
Lister v Hesley Hall Ltd (2002).
Sorensen, T., Davidson, M. & White, M., 2012. When Can a Breach of Contract be a Tort and
What Difference Does It Make?. s.l., s.n.