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The business or personal contracts in English law are legally binding agreements between two parties who agrees to comply with the obligations that are set in the terms and conditions of the contract through a mutual consent. There are different types of contract formation which depends on the availability of two parties. The following report is carried out to understand the significance of essential elements of contract and impact of different types of contract in legal terms. The report also includes case examples to explain the various liabilities in contract.
A contract is considered as an agreement that gives rise to set of obligations which are enforced by the law to be fulfilled by both parties. The basic elements of contract are agreement, contractual intention and consideration which requires to be fulfilled with the valid formation of contract in legal terms. The significance of elements are described as follows -
Offer - It is the willingness of one party to enter into contract on specified terms with the other. It is made with an intention that it is binding after being accepted by the party or person to whom it is addressed. The offer can be made to a single person or may be group of people as well as the business or world (Mondal, 2014).
Acceptance - In order to complete the agreement, it is must that the offer is accepted in its original form. The acceptance from the other party can be in form of writing or act. But in case, if the other party give additional terms and conditions on top of the original offer, it is then considered as counter offer which discards the original offer.
Consideration - The consideration element refers that each party in the contract agrees or promises to do something in return. A valuable consideration consists of interest, profits, right accruing to other party or some form of losses that are suffered by the other party ((Thomas v Thomas)(1842) 2 QB 851). It is important that consideration must be sufficient to put forward in order to legally recognized by the court (Riley, 2012).
Contractual Intention – It is already mentioned in the acceptance element that offer must be made with an intention that it will be binding upon acceptance. It is here essential that all parties in agreement have an intention to enter into legal relations. It can be said that parties agree to accept the legal consequences that are attached with the agreements. In other words, parties are very well aware of the fact that agreement is legally binding with recourse to external party i.e. court. It is thus required that parties of the agreement must intend to enter into legally binding agreement. This may be rarely considered explicitly but usually concluded from the situations in which the agreement has been made (Appleman, Appleman and Holmes, 2013).
Contract formation can take many forms depending on the consent and mutual agreement between the parties.
Face to Face Contract - This form takes place when both parties of the contract are present in front of each other and agrees to the terms and conditions to enter into legally binding agreement (Deaki and et. al., 2007).
Written Contract - The terms and conditions of the contract are written in precise form and is understood and signed by both the parties. The agreement includes terms, condition, clauses of the contract.
Distance Selling - These types of contract formation takes place when two parties enter into the agreement with specified terms without meeting. The parties choose to communicate with each other through telephone or postal service or fax (Havighurst, 2000).
The terms are referred as contents of the contract. A contract consists of various terms such as subject matter of contract, price paid, etc. The inclusion is significant for the purpose of imposing obligation to be fulfilled by both the parties who have initially agreed upon it. It is also important that language of the contract and terms must be written in conventional and easy form to be understood by both the parties in the same manner (Laufer and Strudler, 2000). The essential terms are explained as below -
Implied Terms - These terms are considered and read by the court that is based on the nature of agreement and intention of parties therein or on the basis of legalities in particular contract types (Hutton v Warren EWHC Exch J61). These terms are not explicitly expressed in the contract but are included in it by virtue of law.
Express Terms - These terms are expressly expressed by the parties of the contract. These terms are mentioned and agreed upon by contractual parties (McKendrick, 2012).
Condition - These are considered as the most important contractual terms and are also considered in case of serious consequences. These are usually mentioned in detail and non fulfilment of such terms is referred as repudiation of contract.
Expiration - The contracts which are time bound includes the end date. This means that contract must be fulfilled within the time duration otherwise it is not considered as valid. The contract is termed as invalid once the end date has been passed and thus, no legal obligation exist on either parties.
Breach - Contract involves certain obligations which are required to be fulfilled by the parties that are agreed to enter into it. Breach in contract is referred as failure to fulfil the end of bargain which is mentioned under the contract. Breach can occur when a party fails to perform the act under required duration or does not perform in accordance with the terms and conditions of contract (Cheshire and Furmston, 2001).
Warranty - These terms are considered as promise or guarantee which ensures that conditions of the contract will be fulfilled. The contractual parties have the right to take legal actions in case if warranties are not fulfilled.
The case details states that Alpha Trading hired Arrow Consultants for the designing, supply, installation and maintenance of billing system. Due to delay in implementation of the system both the companies agreed to modify the agreement in order to implement an operational billing system which could be put into operation. But within three months of operation Alpha trading identified many issues with the system in relation to wrong billing to customers. Within the 10 months time duration, Alpha trading notified fundamental defects in the billing systems which Arrow consultants reduced to accept because of the clause mentioned in the agreement. The clause states that liability for loss of profits and losses were excluded which means that neither side would be liable for damages for these costs. Alpha trading is now claiming for losses occurred due to deficiency in billing system.
As per the contract law, the applicability of elements are as follows -
Offer and Acceptance - Arrow consultant and Alpha trading form an agreement for a new billing system to be implemented at Alpha trading. but after various delays the agreement was modified. In this case, the original offer was cancelled and replaced by new agreement.
As per the terms of new agreement, an operational billing system is put into place. The agreement also includes a term that restricts the liability for damages of either party. This clause is called exclusion clause (Lando and Beale, 2000).
According to contract law, the exclusion clause restrict the liability of Arrow consultants for billing deficiencies. It is because the formation of new agreement cancels the old agreement as it comes under counter offer. So old terms and conditions would not be applicable in new agreement. Thus Arrow consultants is not liable for damages caused due to the billing system.
The case states that John parked his car in a private car parking and paid for two hours. The parking area includes many notice boards that are visible in plain view to the public. But John came back after three hours at the parking area. He found a ticket on the windscreen of his car that mentions he has been fined £70.00 for late pick up. It also mentions that he could pay only £50.00 if he makes the payment within 21 days. But if he took more than 21 days, he has to pay the full amount. John wants to contest the excessive fine because original charge is only £1.00 per hour.
According to contract law, there was valid agreement between John and parking area owner. John overstayed his car for one hour which cause a subsequent fine of £70.00. John can appeal the court for the excessive charge on the grounds that £70.00 does not represent a genuine estimate of loss and also there was not further loss caused to the parking area owner with the incident. There is also no denying that John is liable for penalty due to delay in car pick up. John can further add to his appeal that Parking owner can sue him for breach of contract and for the damages of actual costs. But he cannot sue him for punitive damages. The car parking charge is only £1.00 per hour and a fine of £70.00 against one hour delay seems too excessive and cannot be justified because there was no loss faced by the parking area owner. Here the parking area owner must demonstrate the amount charged as penalty as genuine losses. John can also demand that amount of penalty must represent the cost or expenses incurred as a consequence of breach of contract by him. The excessive amount for penalty can be seen as opportunity of profit by the parking company (Nystén-Haarala, Lee and Lehto, 2010).
|Basis||Contrast liability in tort||Contractual liability|
|Legal Meaning||The tort liability arises at the result of the negligence of standard or reasonable duty of care even when there is no legal contract formed between the two parties.||The contractual liability is established by law as a result of the damages caused due to non performance of contractual obligations which has been agreed upon by the parties at the time of contract formation (Torgans and Bushaw, 2001).|
|Relationship between contractual parties||Parties may or may not know each other. But obligation are imposed by law.||Parties are known to each other as they have entered into the legal agreement to fulfil the terms and conditions.|
|Purpose of legal obligation||The objective is to bring plaintiff in the place where the negligence is avoided.||Here the purpose is to enforce contractual liability justifying that damages is caused because of non performance, delay or improper execution of obligations that were mentioned and agreed upon in mutual consent in the contract (Cerqueira and et. al., 2003).|
|Cases examples||Vaughan v Menlove (1837) 132 ER 490 (CP). The case explains that there was haystack build by the defendant on the boundary wall of the house of plaintiff. There was a chimney attached to the haystack that prevent hay from ignition. But plaintiff noticed that chimney was not build properly and it causes hay to spread in his area. He also warned the defendant many times in the past to change the chimney but he did not give much attention. One day, the ignition spread in the area of plaintiff and cause two of his cottages catches fire and damages completely. The court ruling established tort liability on part of defendant and states that due to his negligence, the fire has occurred and cause damages to the plaintiff.||Poussard v Spiers and Pond (1876). Poussard and Spiers had a contractual written agreement that Poussard will sing and play lead role in their Opera for there months. But Poussard fell ill just before the performance and were unable to attend the rehearsals. Spiers hired another performer for the show. When Poussard agrees to perform at the show to which Spiers rejected. Spiers sue Poussard for damages caused to which Pussard appealed. The court ruled out that Poussard breach the contract and because of that another artist was hired which seems reasonable.|
Negligence arises when one contractual party fails to perform in a reasonable manner which causes injury or damage to innocent person. there are four main principles required to prove the liability under the negligent act -
Duty of Care - The neighbour principle is established by the court which states that an individual needs to take care of his actions in reasonable manner to avoid any loss in terms of physical, emotional, or financial to unknown party (Emerson, 2009).
Breach of Duty - When one contractual party failed to fulfil the promise as required, it is referred as breach of duty and is liable for damages.
Causation - This principle requires that negligent act must cause damage to the claimant.
Remote Damages - The injury caused to the claimant must be from the tortuous act of defendant. It also means that claimant is not responsible in any way for the damages (Kerber and Heine, 2002).
The case was foundation to the neighbour principle that established the liability between two parties even when there is no legal agreement. on one evening, Donoghue went to a cafe with her friend in a restaurant. Her fined bought a ginger beer and ice cream. The beer bottle was opaque. Donoghue drank some beer directly form the bottle. After having substantial amount of beer, she than poured the rest of content in a glass and saw a decomposed snail coming out of it. Later on the that day, she suffered acute stomach pain and had to undergo emergency treatment at the hospital. the medical test verifies that pain was due to drinking of beer. She also had to take treatments through regular visits. Donoghue took the case to court to seek damages. the court cannot provide any judgements under the current principle and contract laws. It is because the beer was purchased by the friend and drank by Donoghue. There was no direct agreement between manufacturer and Donoghue. It was then established the principle of neighbour which holds the responsibility of an individual to take care of his actions to avoid any loss or damage to any other. The court ruled out that manufacturer owes duty of care against the customer who is purchasing or using its products. If the manufacture had taken care of quality produce, there was not physical damage cause to the customer. Moreover, the damage was caused solely due to the negligence of manufacture which was procured in the medical test. thus manufacturer is liable for the damages cause to plaintiff.
Vicarious liability occurs to an innocent party who is liable for the damages caused by the actions of third party. The obligation on innocent party is enforced by the law because of an influential relationship that exist with the culprit. The purpose of vicarious liability is to prevent the negligible action by taking proper care (Padhi, 2012). The influential relationship includes - teacher - student, lawyer - client , husband - wife, master - servant.
The principles of vicarious liability explains that employer is liable for the damages caused by the employees during the course of employment. When the employee move s to another employer or left the job, the transfer of liability also moves along with it. The liability of employers are held under the superior doctrine for negligence act of employees. The reason for the liability are as follows -
Mersey Docks was hired by Coggins and Griffith for the supply of employees and equipments on hire basis. During the unloading of a ship, a person was injured due to the negligence of Mr. Newell. The court ruled out that employee belongs to Mersey Dock who was responsible for his training and duties. The contract with Coggins did not transfers the tortfeasor's employment. There was no real transfer of employment and that employee was consider under the liability of Mersey Dock. The crane operators worked under the Mersey Dock and were trained by them. Thus Mersey dock is liable for the damages caused due to negligence of their employee.
The principles of tort law includes some defences available for businesses to restrict their liability in cases when the accused has not caused the damage.
Contributory Negligence - This is referred to as when defendant failed to take reasonable care of his actions to protect the plaintiff and that an additional act on part of plaintiff contributes to the damages. It can also be understood as that loss or damage is caused from the equal actions of defendant and plaintiff. In such case, defendant cannot be held liable for the damages (Mondal, 2014).
Comparative Negligence - This is established to reduce the availability of defendant for the damages. There are three kinds of comparative negligence -
Assumption Of Risk - It refers to the situation when plaintiff is aware of the risk factors involved in his act but still proceeds to perform the action and caused damages to self. It can also be understood as that when plaintiff knows that certain act would definitely cause damages and willingly takes action and cause injury.
a. James owns a factory which manufacturer furnitures. on one day, a prospective customer visits his factory and trips over some timber and cause injury. In this case, James is liable for the damage cause to the prospective customer. As per the tort liability, James owes duty of care towards the visitors who came at his place for any purchase. James failed to take care of the reasonable action to avoid nay injury to the visitors. If he had placed the timber at some other place, the injury could have been avoided. also the visitor was not aware of that some timber had been placed there. Thus according to Occupier Liability Act 1984, tort of negligence exist on part of the James which makes him liable for the damages caused to the visitor. The act explain that duty of care is required when the occupier knows that damage exists at his p[lace and that visitor may injury.
b. In another incident with James, one of his employee takes the van for delivery of furniture. On his route, he knocks over a pedestrian on a crossing.
As per vicarious liability, James is liable for the negligence of his employees because the act was occurred during the course of employment. The driver was on his way for delivery of furniture and injured a pedestrian due to his negligence. Thus liability exist on part of James to pay for damages. Also if James could have ensured the driving skills of his employees or have provided necessary training for road safety, the loss could have been avoided (Appleman, Appleman and Holmes, 2013). The case also present two important elements of vicarious liability which are -
It can be concluded from the report that there requires inclusion of four main elements for the formation of valid contract. If any of the elements is missing, the agreement cannot be considered as valid in terms of law. The contract includes various types of terms and consigns that are part of the contract and require to be mutually agreed to fulfil the obligation. The contract formation could take many forms but it is advisable to have written format to establish due liability. The report also explain major differences between tort and contractual liability. furthermore, defences available to the business that aims to restrict the liability of innocent person under situation.
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