The Importance of the Essential Elements Required for the Formation of a Valid Contract - Coursework Example

Aspects of Contract and Negligence for Business By + Introduction and Background Businesses thrive in diverse environments and conditions, largely prompted by the nature of transactions they perform and other factors such as legislations by the government, economic conditions, climatic conditions, social factors and technological factors. These factors are largely known to be responsible, directly or indirectly, for the structure and the activities the organisations engage into given that they determine the adaptability to the environmental factors of pricing, demand and marketing strategies of their products (Fazio 2007). However, success in business needs to be understood from the context of analysing the nature of contracts businesses sign and the impact on their operations. This is attained through the determination and understanding of the aspects of offer, acceptance, intention, consideration, and capacity as highlighted in business law. Also, the administration of the law of contract varies slightly among different countries, but with greater similarities among the Commonwealth nations. By characterization, the law of contract relates to the agreement that exists between two parties or individuals and with the intention of it being legally binding upon consideration of the same. A contract, in business law, is defined by the core feature of the agreement that is considered as the first imperative feature acknowledged by the parties. This is because the contract will be guided and defined by the rules of offer and acceptance. Thereafter, the agreement or obligation is affirmed by the consideration from the other party accepting the agreement. However, should the agreement lack the desire for the creation of legal relations on the part of the two parties, the agreements are treated in the forms of domestic arrangements, social invitations and gentleman’s promise. These scenarios are not regarded as having constituted a contract given that no cause of action arose in favour of the parties; hence, no intention of creating a legal relationship or contract by both parties (Hussain, 2003). This report mainly seeks to highlight the core aspects of negligence and contract as aspects of law that are commonly practiced by business units and owners across different sectors in the UK. In the contemporary world of today, the business environment where production factors are employed comprises of various agreements that are made between individuals, as well as businesses alike. Most of these agreements and contracts are made in the formally written formats, even though in certain instances, oral/informal agreements are taken as constituting legal contracts. There are several reasons why business prefer formal written contracts over the oral contracts, key among them being that the formal written contracts can be easily enforced and implemented than the oral agreements. Often this is because the parties engaged in oral contracts tend to retract their commitments to such when called upon to act. Subsequently, this report seeks to highlight the obligations of parties to a contract, as well as the remedies and actions that can be implemented in the even that either of the parties fails in fulfilling their duties. The essence of a written contract to a business is that it would provide it with a legal document that highlights the expectations of all parties to the contract, and the repercussions or remedies for failure to meet the obligations i.e. the solutions to be applied in case of negative situations to the contract. Contracts are legally enforceable in courts; hence, are a representation of the tool that can be used by an organisation to protect its properties (Worthington 2003). On the contrary, negligence in business is perceived in the manner by which it has rapidly grown and turned to be a cornerstone that is used in defining the nature and context of compensations that is given in the event that accidental injuries and damages are caused. In business law, negligence is quite significant in that it is one of the basis that the courts rely on in trying to determine the magnitude and extent of damage or injury caused to a business, and then award damages in tort based on the same. Largely, negligence applies in the context of tort law in which the courts find it extremely hard to accord damages. Additionally, negligence as a concept is creatively applied in the determination of the compensation given to people as a result of the financial loss they have incurred in the business context irrespective of whether a remedy was given or not (Turley 2001). UNDERSTANDING THE ESSENTIAL ELEMENTS OF A VALID CONTRACT IN A BUSINESS CONTEXT 1.1. The importance of the essential elements required for the formation of a valid contract The constitution and implementation of a valid contract between two parties is defined by the existence of certain core elements/features of the contract. These elements include agreement (offer and acceptance); intention to create legal relations; consideration; capacity; and privity of the contract (Gillies 2004). The application of these elements to a business context are as described below. a. Agreement: This always comprises of an offer and an acceptance to the offer in which at least two parties are required. One party (the offeror) creates an offer which needs acceptance by the other party (the offeree). An offer relates to the expression of the willingness of the offeror to enter into a contract with the offeree with the intention that it shall become legally binding on both as soon as it is accepted (Miller, Cross & Jentz 2013). On the other hand, the acceptance is the unqualified and final acceptance of the terms presented in the offer by the offeror. The acceptance makes a contract binding when the offeree accepts all the terms of the offer and exactly matches all the contents of the offer. However, the presentation of the acceptance may be in a written, verbal or by action form. An agreement is an indispensable constituent of a contract in the sense that its components (offer and acceptance) are perceived as the methodology for dissecting the contract arrangement procedures. This aids in determining whether an agreement had been made and the time when the agreement was made. The mutual consent of the parties is considered as a significant factor enhancing understanding. b. Intention to create legal relations: While a contract is perceived as the agreement between two parties, it requires an expression of an intention for creation of legal relation in order for it to be enforceable. Therefore, this element of a contract is significant in the sense that it helps in the evaluation and defining of whether or not the involved parties intended the creation of legal relations from the inferred circumstances. A case example of which this element was applied in a ruling was in the Balfour v Balfour, 1919; Parker v Clark, 1960; and in Simpkins v. Pays, 1955 (Hussain, 2003). However, in their applications of this element, the courts have often been guided by the principle of examining facts of the agreement in order to determine whether a contract can be enforced. c. Consideration: In the English law, a mere promise made by a party is not considered as binding but for an act or one in the form of a specialty contract or one supported by a consideration (Marsh & Soulsby 2002). According to the ruling made in the case of Dunlop v. Selfridge, consideration is referred as the charge to be waged for the promise of the other party given that it was a forbearance or an act of one party given for the value of making it enforceable. This element is significant in the sense that it highlights the worth that is given by one party for the guarantee on a promise made; hence, may take on a form of right, profit, interest or benefit accrued to one party or a forbearance, loss, detriment or responsibility suffered, given or undertaken by the other party (Munday 2008). Without the support of a consideration, a simple contract fails to meet the threshold of being legally binding. d. Capacity: This element is essential in a contract to the extent that it helps in the determination of the categories of persons who can be presumed fit to enter into contractual agreements. Thus, it notes that only the parties that the capacity to enter a contract should be introduced to such legitimate and enforceable agreements. Generally, the law presumes that all persons are competent to enter into contracts, but provides limitations in respect to the age and mental instability or states of disabilities (Marsh & Soulsby 2002). Therefore, the absence of a contractual capacity in both or one of the parties is sufficient to render the contract voidable, void or unenforceable. Subsequently, this element is significant to the extent that it recommends that all persons claiming exemptions from the contractual liability due to incapacity be required to ascertain beyond reasonable doubt that they are incapable of being held liable to the contract (Tridimas 2011). e. Privity or consent of the contract: Should either party to the contract not enter into it readily, the understanding would be that the contract is invalid. Therefore, the element helps in certifying the assent that is given in an agreement by evaluating all the imaginable influences that could encourage the contract (Fazio 2007). f. Lawfulness: All consents regarded as disregarding the law or in any way are viewed as illegal are void by law. This element helps in preventing the institution and execution of contracts that would lead to the production of harmful or illegal substances. There are two main explanations that can be offered for the determination of a contract as illicit: when the article to the contract is unlawful and when the way of making the contract is unlawful. g. Certainty: This element helps in assessing whether all the terms to the agreement between the two parties are exact and clear to them before they consent to it (Nor 2011). Invitation to treat notes that the display of marked prices on a good on a shop window does not constitute an offer compelling the owner to sell the goods at the marked price. This aspect is largely used I showing that by the prospective buyer offering the price, he is in essence the offeror and if the offer is accepted, it leads to the creation of a binding agreement. Therefore, such an advertisement by James may not be considered as an offer, but an invitation to treat (Havenga & Havenga 2007). 1.2. The impact of the different types of contracts In the UK, the categorisations of contracts that individuals and businesses may form highlights the divergence in the impacts that these have. Such types of contracts include: a. Contracts of records. These are not considered true contracts until they are determined to be true given that the obligations on them do not result from the mutual agreements between the parties, but as a result of the imposition by the courts (Clarkson, Miller, Cross & Clarkson 2012). There are two main forms of this contract: court judgments and personal recognisances. In the court judgments, the previous rights in a contract are merged to the judgment, and upon entry into the court records, it constitute a contract of record between the disputing parties. In personal recognisances, the accused is acquitted based on personal convictions that failure to maintain good behaviour shall be a breach to the contract. b. Specialty contracts or contracts under deed. These are formal contracts that are delivered in writing, signed, scaled and delivered to the parties. This contract is important as it is commonly being used to effect special contracts such as conditional bills of sale, gratuitous promises, transfer of British ships or shares, and conveyance of land and leases above three years. c. Simple contracts. Are conventions that do not meet the specifications of specialty contracts; hence, need not be in any special form. However, these contracts are always required to be supported by considerations. d. Bilateral and unilateral contracts. A bilateral contract is where two substances are trading an equal and shared guarantee to the execution of a commitment, gesture or transaction or to the avoidance of the same. This type of contract is significant as it points to the two-way guarantees affiliated to the gatherings of an agreement between two parties. The unilateral contract is the one with a guarantee made by one party such that the offeror guarantees to execute a particular commitment or gesture upon the offeree corresponding to perform an act asked and lawfully enforceable. This form of a contract only requires the acknowledgment from the parties to execute the agreement. Subsequently, the contract is uneven given that only the offeror is liable in the event of engaging a court of law (Rush & Ottley 2006). However, the unilateral contract is imperative in the sense that the offeree cannot be sued for forsaking, restraining and neglecting to execute the agreement, as no guarantee is given. This can be illustrated by the fact that if two business entities engage in a reciprocal and mutual promise involving and requiring the implementation of an act, abandonment and refrain from the execution. 1.3. Terms in contracts with reference to their meaning and effect The understanding, implementation and enforcement of a contract is defined by certain critical terms. These are as discussed below in relation to their impacts. a. A warranty: This relates to a less significant term in a contract that does not define the establishment of a foundation for a contract. Its effect to a contract is to only give the injured party a right to claim the damages for the claim. However, the warranty term has no effect on revoking of the contract. b. A condition: Is an essential term that relates to the basic principle of reason behind the formation of an agreement. As such, this terms affects the contract greatly to the extent that its breaking would qualify the harmed party to deny the terms of the contract of seek for compensation for damages caused. Subsequently, the condition is imperative in that the aggrieved may have the upper hand in determining the nature taken by the contract. c. Intermediate terms: These are terms that determine the execution or failure of a contract based on the condition and warranty. This is because there may be difficulties in characterising a term perfectly prior as either a warranty or condition. As a result, the endeavours entail the settling for the immediate position that requires the surveying of the agreement based on the intended outcomes (Emerson 2009). Supposing that the rupture of an intermediate term brings extreme harm and misfortune to either party, the affected party will qualify for revoking the agreement. However, such revocations are based on the breaks that involved minor misfortunes limiting the harmed party to limited harm. TASK 2 APPLICATION OF THE ELEMENTS OF A CONTRACT IN BUSINESS SITUATIONS 2.1. Application of the elements of contract in the given business scenario In every case entailing the law of contract, the main aspects taken into consideration are the offer and acceptance terms. This is because they are exceptionally important and conventional in the assessment of a business scenario. Subsequently, these principles are significant in the sense that they are the ones used to incorporate the agreement terms and define the correspondence received from the two parties. In the given business scenario, the seller is not to be held reliable for the quality of the products after being sold. Therefore, with ABC Café purchasing the 56 inch TV, there is evidence of an agreement having been made. In the business concurrence, the agreement is considered effected with the purchase. 2.2. Explaining differences in terms In the conduct of the process of negotiations, several statements are made that lead to the formation of the contract or not. Such statements may be representations or terms. A representation refers to that which is used to induce the formation of a contract, but doesn’t become a term of the contract. The representation may either be true or false depending on the available remedies. On the other hand, a term refers to provisions of the contract that give rise to the contractual obligation, and upon which their breach would result into litigations. The terms may be express, implied, or innominate. Upon a statement being made into a term of the contract, the misled party is entitled to an entitlement of a breach of contract. If the statement is a mere representation, then the misled party would have the right to claim the misrepresentation that results in the lesser remedy than in the cases of breach of the contract. An express term is one that is expressly agreed upon by the parties to the contract to be the term to that contract (Abbott, Pendlebury & Wardman 2007). The implied terms are those that are deemed by the parties to be part of the contract while in essence they are not part of the contract as they are not expressly mentioned. Often, the contract terms are implied by the courts as required in order to give effect to the intentions that are presumed by the parties. However, in other instances, the terms are implied by the courts through statutes such as the sale of goods (Laibuta 2006). An innominate term is a form of an intermediate clause that is used by the courts to delay the making of a decision on whether an event is a breach of a condition or a warranty until the extent of the damage caused is determined. The understanding of the terms and representation of a contract, it is essential to note that the terms are often classified on the basis of their relative significance as warranties or conditions. A condition is vital because it goes to the root of a contract while a warranty is a less significant term that does not go to the root of a contract, but forms a subsidiary to the core purpose of the agreement (Laibuta 2006). The non-observance of a condition affects an agreement’s purpose in the sense that the breach of the condition shall entitle the party not in breach to regard the contract as discharged; hence, claim damages. Contrarily, the breach of a warranty only entitles the injured party to claim damages, but not ending of the contract. A case example is in Bettini v Gye 1876 and Poussard v Spiers 1876. 2.3. Report to the manager of ABC LTD. This report is directed to the manager of ABC LTD and it is intended at explaining the effects of a breach of a condition and the legality if an exemption clause. Breach of a condition This is essential in the sense that it entitles the party not in breach of the contract to regard the contract as satisfied; hence, claim damages (Abbott, Pendlebury & Wardman 2007). This implies that the injured party has the right to terminate the contract. A case example is in Poussard v Spiers 1876, in which Madame Poussard was obligated (under contract) to appear for an operetta, but didn’t due to illness. The ruling by Justice Blackburn J. was that the failure to turn up was in breach of the condition; hence, Piers could rescind the contract. This is because Poussard’s obligation was to perform from the first night and was a condition on her. Legality of exemption clause An exemption clause in a contract seeks to purport the exclusion of liability or restriction of the same altogether through the limitation of the damages or imposition of onerous conditions. Often, these clauses are interpreted strictly and in favour of the party that did not write them (Laibuta 2006). Therefore, its legality is in restricting the liabilities that might arise out of a legal relation. TASK 3 UNDERSTANDING PRINCIPLES OF LIABILITY IN NEGLIGENCE IN BUSINESS ACTIVITIES 3.1. Contrast of liability in tort with contractual liability (Brad’s Address) Dear sir, RE: ADVICE ON RECOVERY OF LOSSES FROM CHARLES In line with above scenario, I wish to pinpoint to you some of the legal aspects to consider in relation to the duty of care in a tort of negligence, and the contrast between the contractual liability and liability in tort as exemplified in the scenario. First, the element of negligence is the legal duty of care that concerns the relationship between you (the claimant) and Charles (the defendant). In this, an obligation is required upon the defendant to take appropriate care to avoid injury to you the plaintiff. As such, you have a position by which to claim for losses resulting from Charles’ negligence. The duty of care may be established in the following forms: Existence of one ‘special relationship between the claimant and the defendant. Outside of the relationships based on the case law developed principles. Therefore, in this scenario, Charles, as the Accountant who certified Albert as being an excellent client, is responsible for the damages in rent arrears due to his negligence and the depicted tortious obligation he had. Yours sincerely, (Sender’s name & signature) 3.2. Nature of liability in negligence Difference between nature of liability in contract and nature of liability in tort. Contractual obligations are undertaken voluntarily while tortious obligations are implied/imposed by law. Therefore, one has a free choice to either enter a contract and be bounded by obligations or enter a tortious obligation that has no choice (Abbott, Pendlebury & Wardman, 2007). A case example is the obligation to not defame another person, or trespass on their property. Therefore, the contrast is that liability under contract is strict, while liability under tort is based on fault; hence, not very strict. Duties in tort are also as a result of virtues of law alone; hence, cannot be fixed by the parties while in contract, the terms are fixed on individuals as they are notionally based on agreements. In the given scenario, Michael is responsible for the actions of his workers in causing flooding on Jim’s adjacent given that he was aware of the underground lake in the cavern and negligently failed to inform the workers. He is also under the liability of the tort not to trespass. 3.3. How a business can be vicariously liable Duty of care, as is used in tort law relates to the legal obligation that is executed on a person due to the required observance to the maintenance of a reasonable care during the performance of specific acts with the capability of harming others or causing injury to their personality (Emerson 2009). Duty of care is essential in tort law for the reason that it is the foremost element required to be established for the successful proceedings with an exploit in negligence. Success in any action of negligence requires that the claimant prove beyond reasonable doubt that the defendant owes them a duty of care for the avoidance of injury to persons or property (Miller, Cross & Jentz 2013). Subsequently, the claimant should be able to prove the mentioned breach of duty by the defendant and that the claimant must have inconsequently suffered a financial loss, injury or dame of any form (Abbott, Pendlebury & Wardman, 2007). A case example of this concept is as presented in the Donaghue v Stevenson 1932. References List Abbott, K., Pendlebury, N., & Wardman, K. (2007). Business law. London, Thomson. Clarkson, K. W., Miller, R. L., Cross, F. B., & Clarkson, K. W. (2012). Business law: text and cases: legal, ethical, global, and corporate environment. 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