Aspect Of Contract And Negligence For Business

Abstract

This paper is focused on providing information about important principles of contract and negligence for business. The first part of the paper discusses the specificity of contract law by emphasising details from two case studies: East Midlands Airways Airbus and a case of the supply of mobile phones. The second part of the paper provides information about principles of tort law, as initially liability in tort is contrasted with contractual liability. The emphasis in the second part is on negligence for business, with reference to the case study of King’s Restaurant and a case involving Angelina and Christian Auctioneers.

Introduction

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In the area of law, numerous aspects should be given importance. The issue of contract and negligence for business has received substantial attention in the field of legal practice. This paper is divided into two major parts covering issues from contract law and tort law (Elliott and Quinn, 2003). In the first part of the paper, the focus is on identifying major elements for the formation of a valid contract as well as assessing the impacts of different types of contracts. There are two main case studies involved, respectively East Midlands Airways Airbus and the supply of mobile phones. In the part on tort law, liability in tort is contrasted with contractual liability through providing relevant examples from a case study of King’s Restaurant and a case of Angelina and Christian Auctioneers (Horsey and Rackley, 2011).

Contract Law

Legal Elements

In the case study of East Midlands Airways (EMA) Airbus, it is important to identify essential legal elements for the formation of a valid contract. There are certain major elements that indicate the legal bonding of the contract. They should be thoroughly considered as part of contributing to the validity of the contract (Poole, 2012). The first legal element refers to the inclusion of an offer, which indicates one’s willingness to enter into a specific bargain. In this case, an offer is made by Phil, the Chief Executive Officer of Zulu Aviation Ltd. Another important legal element for the formation of a valid contract is associated with acceptance, which should indicate an agreement to the terms initially made. Phil’s offer of ?100,000 for reserving the Airbus 321 has been accepted by Joseph, EMA’s Managing Director. The third significant legal element showing the validity of the discussed contract is the availability of a legal purpose (Knapp et al., 2012). It is clear that the contract’s purpose is legal because it is based on the sale of a second-hand Airbus 321.

Furthermore, mutuality of obligation presents a situation in which both parties ensure mutual understanding to the expression and form of their agreement. In other words, a common expectation is that the parties need to agree to the same thing, which is described in the same manner, and at the same time. These legal conditions have been met by both Phil and Joseph. Consideration indicates another essential element for the formation of a valid contract (Poole, 2012). Legal binding needs to be supported by valuable and realistic consideration. In the case study of EMA, Phil ensures his consideration by claiming that he will pay ?100,000 to EMA if the latter promises not to sell the Airbus 321 to another buyer for the period of five days. The importance of these components reflects in the validity and legality of the contract to be established, and if any of these conditions are non-present, it is virtually impossible to form a valid contract (Knapp et al., 2012).

Impacts of Different Types of Contract

When discussing the specificity and implications of contract law, it is important to consider the impacts of different types of contract, such as bilateral and unilateral contracts, express and implied contracts, void and voidable contracts, and distance selling contracts (Hillman, 2004). Bilateral contracts are commonly used in daily life, as they represent an agreement between at least two individuals or groups. Unilateral contracts are associated with an action undertaken by one individual or group alone, as this type of contract allows only one individual to involve in making a specific promise or agreement (Elliott and Quinn, 2003). In express contracts, a promise is stated in a clear language, while in implied contracts, the focus is on presenting behaviours or actions which lead parties to believe that a certain agreement exists (Hillman, 2004).

Void contracts are contracts that cannot be enforced by either party. According to law, void contracts are perceived as if they had never been established. The main aspect of void contracts refers to a situation where one of the parties performs in an illegal manner (Hillman, 2004). Therefore, void contracts cannot be conducted under the law. An example of void contracts can be found in Dickinson v Dodds [1876], where there is only an offer made and was intended to be an offer solely because it did not result in any legally binding agreement. There was no consideration ensured or promise and thus was judged non-binding. Although in the case of Shuey v US [1875] the revocation is prominent as the offer is, the type of offer is considered non-binding. On the other hand, voidable contracts are based on enforcement and hence they are valid (Elliott and Quinn, 2003). In general, only one of the parties is legally bound to such contracts. Yet, the unbound party has the right to cancel the contract and thus the contract automatically becomes void (Knapp et al., 2012). This implies that voidable contracts represent valid, legal agreements.

Distance selling contracts refer to the main responsibility assumed under the law to protect consumers while they conduct shopping activities online. Such regulations also occur in situations where consumers enter into other contracts, as they are at a distance from the supplier (Hillman, 2004). Special protection is ensured to customers on the basis that they are unable to meet directly with the supplier and check the quality of goods and services that are offered for sale. Distance selling regulations have been enforced in the UK since 2000, but it is essential to note that they are inapplicable to contracts between businesses (Elliott and Quinn, 2003). The main legal effect of these regulations is that they enable consumers with the right to receive accurate and proper information about the supplier, including the products and services that are provided for sale. In addition, consumers tend to receive a written confirmation of such information, which makes the regulations credible. There is also a cancellation period of seven working days in which consumers have the right to withdraw from the contract. Individuals receive protection from different forms of fraud associated with the option of using payment cards (Knapp et al., 2012).

Case Study of EMA

In the case study of EMA, the focus is on determining whether the two parties have formed a valid, legal contract. As previously mentioned, the parties applied each of the essential legal elements for a valid contract, including offer, acceptance, legal purpose, mutuality of obligation, and valuable consideration. The terms of the contract between EMA and Zulu Aviation Ltd are clearly specified. However, it can be argued that the type of contract presented by the two parties is express considering that the promise for forming a legally binding agreement has been stated in a clear language verbally, via phone (Poole, 2012). Despite the precise form of the binding procedure, the validity of such express contract is apparent. There are strictly claimed promises on the behalf of both sides: the first party needs to pay a particular amount of money to guarantee the sale of the Airbus 321; the other needs to keep his promise not to sell the Airbus 321 to another buyer for the next five days. It can be concluded that such initial conditions of forming a legal contract have been met (MacMillan and Stone, 2012). Simply put, there is an offer followed by an acceptance by EMA’s Managing Director. An example of the complex transaction that took place between EMA and Zulu Aviation Ltd can be found in the case of Byrne v. Van Tienhoven (1880), which presents relevant inferences on the issue of revocation with regards to the postal rule. In the case of EMA and Zulu Aviation Ltd, the phone rule (considering the phone conversation between Phil and Joseph) may not apply in revocation. In other words, while a phone conversation to arrange a contract may simply indicate a valid acceptance, it is most likely that the court will rule that it does not count as proper and valid revocation (MacMillan and Stone, 2012).

Moreover, there is a stated legal purpose that legally binds both parties to form a valid agreement. They are focused on keeping their promise, which is an initial requirement for the establishment of a legal contract. It can be indicated that the objective of the contract between EMA and Zulu Aviation Ltd is to achieve a legal purpose. Thus, the condition of a creating a purpose for the existence of a binding contract has been applied in the case (Poole, 2012). The mutuality of obligation is also evident considering the motifs and promises ensured by both sides. There is a strong sense of mutual understanding on the behalf of each party regarding the expression and specificity of their agreement. In addition, there is an objective standard being applied in the case in terms of determining what the parties have precisely said in the process of forming their agreement (Knapp et al., 2012). The fact that the offer is clear and definite is indicative of both parties’ acceptance of the terms outlined in the offer. There is a valuable consideration illustrated in the statement of Phil, who is ready to pay ?100,000 in case EMA’s Managing Director fulfils his promise. Therefore, this case study illustrates the application of an express contract law (MacMillan and Stone 2012).

Implications regarding the Supply of Mobile Phones

The only specified term in the contract between Key Services Enterprise (KSE) Ltd and Unique Mobile Solutions (UMS) Ltd is that of the provision of 500 mobile telephones, which are suitable for use in the UK. The court will classify these types of contractual terms as intermediate or innominate terms (Poole, 2012). The status of these terms is not clearly defined, as their significance lies between a condition and a warranty. Innominate terms were established in the case of HK Fir Shipping v Kawasaki Kisen Kaisha [1962], where the defendants chartered a ship for the duration of two years from the plaintiffs. In the agreement established between the two parties, there was a specific clause indicating that the ship was suitable for performing cargo service. Due to problems with the engine, 20 weeks of the charter were lost and thus the defendants were entitled to bring an action for damages for breach of contract on the grounds of the clause specified in the agreement (MacMillan and Stone, 2012).

Under the circumstance that the use of the telephones supplied was illegal in the UK, and they could not be modified to make their use legal, the court will classify this term as misrepresentation or a false statement made by the mobile phone seller regarding the use of the products. As in the case of Gordon v Selico [1986], it is possible to make a misrepresentation by words or by conduct. However, it should be considered that representation is not a term. Moreover, the telephones supplied required tuning to particular frequencies, a task taking two minutes for each one. This aspect also indicates the presence of innominate terms (Knapp et al., 2012). However, under the circumstance in which the CEO of KSE signed the contract with UMS, there is no reference to any other document. In addition, KSE’s CEO accepted the receipt of the transaction without reading it, which represents a serious mistake that can be identified as negligence in lawful terms. The harm caused by the decision of KSE’s CEO to sign a contract with UMS is as a result of his carelessness. There is a failure to behave with the proper level of care required for the described circumstances (Poole, 2012). On the back of the receipt provided by UMS, the statement can be classified by the court as an exclusion clause because the provider of the mobile phones has directly excluded liability for contractual breach.

In an attempt to analyse the exclusion clause as a term under the circumstance in which KSE’s CEO accepted the receipt without reading it, specific implications can be drawn. As a term in a contract, an exclusion clause indicates the purpose to limit or restrict the rights of the parties bound to the contract (Hillman, 2004). A true exclusion clause, as in the case of UMS, recognised a potential breach of contract, and then serves as an excuses liability for any potential breach. Therefore, it can be concluded that an exclusion clause was ‘incorporated’ into the contract with KSE. The effect of this term in the contract should be evaluated on the basis of incorporation (Elliott and Quinn, 2003). This means that UMS has actually incorporated an exclusion clause by signature (at the back of the receipt of the transaction provided to KSE). The fact that KSE’s CEO accepted the receipt and signed it means that the respective clause is considered part of the contract. Yet, the party representing the clause, UMS, has not taken any reasonable steps to bring it to the close attention of the second party in the contract (MacMillan and Stone, 2012).

Applying the legal controls that the court would use in assessing the validity of the term in the contract should refer to principles of strict literal interpretation and contra proferentem (Hillman, 2004). In order an exclusion clause to operate, it needs to cover the breach with an assumption of a potential breach of contract. In case there is a breach of contract, the specific type of liability which is emerging is also relevant in the process of interpretation by the court. There is strict liability involved, which arises as a result of a state of affairs in which the party at breach is not necessarily identified as responsible for the fault (Smits, 2005). However, the court needs to consider the case of liability for negligence, or in other words, liability arising as a result of fault. A common tendency demonstrated by the court would be to require the party which relies on the clause to have drafted it adequately in order to result in a situation where that party is exempted from the liability arising (Cauffman, 2013). In the presence of ambiguity, as it might be in the case of KSE and UMS, the court would most probably apply the legal control of strict literal interpretation against the party which extensively relies on the exclusion clause in the contract.

In the process of assessing the validity of the exclusion clause in the contract, the court may also apply the legal control of contra proferentem (MacMillan and Stone, 2012). In case ambiguity persists even after attempts have been made to construe an exclusion clause with regards to its natural meaning, the court may decide to apply a rule identified as contra proferentem. This term implies that the clause needs to be construed against the party in the contract that imposed its initial inclusion, respectively UMS. In the context of negligence, the court would most probably take the approach that a party would enter into a contract that permits the second party to evade fault based liability (Cauffman, 2013).

Law of Tort

Liability in Tort and Contractual Liability

While discussing certain implications of liability, contrasting liability in tort with contractual liability is important. All activities initiated by individuals as well as organisations are regulated by law. Tort law represents a branch of the civil law, and it should be considered that any dispute in civil law is usually between private parties (Horsey and Rackley, 2011). As indicated in the previous section, strict liability illustrates a solid legal doctrine according to which a party is held responsible for the damages resulting by his or her actions. Strict liability is also applicable to tort law especially in cases involving product liability lawsuits (Okrent, 2014).

In the context of tort law, strict liability refers to the process of imposing liability on a party or individual without a particular finding of fault. In case fault is found, the court would determine a situation known as negligence or tortuous intent (Hodgson and Lewthwaite, 2012). As a result, the plaintiff would need to prove the occurrence of the tort and the implied responsibility of the defendant. The objective of strict liability is to discourage any forms of reckless behaviour as well as irrelevant product development and manufacturing. Therefore, liability in tort refers to the duty of care along with the negligence of that duty. On the other hand, contractual liability is associated with a situation in which two or more parties promise specific things to each other (Okrent, 2014). Liability in tort and contractual liability are similar in the point that they are both civil wrongs, and the individual wronged sues in the court in order to obtain compensation. However, the main difference is that in a claim related to liability in tort, the defendant may not have been involved in any previous relationship or transaction with the claimant. On the contrary, in a claim of contractual liability, the main condition that should be met is that the defendant and claimant should be the parties representing the contract (Hodgson and Lewthwaite, 2012).

Case Study of King’s Restaurant

In an attempt to analyse the situation described in the case study of King’s Restaurant, it appears that it should be considered on the basis of tort of negligence. The claimants in this case, Carlos and Janet, need to prove certain elements to the court so as to provide a valid proof of negligence and claim damages (Okrent, 2014). These elements refer to proving that the restaurant owed them a strict duty of care; the restaurant breached that particular duty of care; and Carlos and Janet suffered damage resulting from the breach. The notion of the duty of care was established in Donoghue v Stevenson [1932] in which the court enforced the decision that an individual may sue another person who caused them loss or damage even in the absence of contractual relationship. Yet, in the case of Carlos and Janet, it needs to be considered that even if the court proves negligence, the restaurant may have a defence that protects it from liability, or decreases the precise amount of damages it is liable for (Horsey and Rackley, 2011).

Hence, it can be argued that there is tortuous liability action against the restaurant. There is a breach of a statutory duty in King’s Restaurant case study, as the direct consequence was harming a person, which gives rise to tortuous liability for the restaurant towards Carlos and Janet under the legal doctrine of negligence (Christie et al., 1997). However, the victim should be identified in the class of individuals protected by the statute. Another important condition related to the success of the tort suit is that the injury should be of the specific type that the statute intended to prevent. Thus, the claimants need to prove their claim on specific balance of probabilities. It is also important for Carlos and Janet to show that the damage suffered is not quite remote from the breach (Horsey and Rackley, 2011). It should be assumed that a duty of care existed in this case because King’s Restaurant is identified as an award-winning and very expensive English restaurant, which directly brings the conclusion that the services provided by the restaurant should be at a superior level. The standard of care should be determined through expert testimony and through the consideration of applicable, professional standards in the industry. The harm in the case is mostly physical, which makes it a sufficient claim for negligence. The problem in the case study can be resolved if Carlos and Janet definitely consider the option of claiming tortuous liability against the restaurant (Christie et al., 1997).

Case Study of Angelina and Christian Auctioneers

In this case, the legal principles of tort of professional negligence misstatement and vicarious liability can be applied. The tort of professional negligence misstatement refers to representing a fact, which is improperly and carelessly made. This claim is usually relied on by another party and results in their disadvantage (Hodgson and Lewthwaite, 2012). Vicarious liability presents a doctrine according to which an individual is responsible for the actions of another person because of a special relationship available between the parties, such as the one between an employer and an employee. Angelina has rights and remedies against Brad and Christian Auctioneers in connection with the incorrect advice given to her about the worth of the painting (Okrent, 2014). In the case, Angelina relies on the other party for their expertise, knowledge, and judgment. Moreover, the person who provided advice to Angelina, Brad, knew that the other party was relying on him and his judgment about the painting. It can be also argued that it was reasonable for Angelina in the presented circumstances to rely on Brad and Christian Auctioneers. Brad on the behalf of his organisation, Christian Auctioneers, has given a negligence misstatement regarding the painting’s value. His judgment was personal rather than professionally based (Hodgson and Lewthwaite, 2012).

Angelina’s rights against Brad and Christian Auctioneers are based on the premise of the special relationship established between her and this organisation. In the process of examining the special relationship concept, an example can be observed in the case of Shaddock & Associates PTY Ltd v Parramatta City Council [1981], in which a solicitor acting on behalf of Shaddock established contact with the Parramatta City Council to seek advice regarding the potential impact on a property as a result of road widening proposals (Okrent, 2014). The council employees gave the solicitor a negligent misstatement, and as a result, Shaddock purchased the property and significant losses have been suffered. When applying the law in the case of Angelina, duty of care should be established in order to claim for negligence. It is important to consider the question of whether it was reasonably foreseeable that the actions of Brad and Christian Auctioneers would cause harm or loss to Angelina. Furthermore, it is essential to establish the presence of a physical or factual link between Angelina and Brad and Christian Auctioneers. It can be deduced that their relationship was physical considering that Angelina approached the company to give her a valuation of some antique furniture present at her flat (Christie et al., 1997). The court would also need to determine the vulnerability of the plaintiff, and it can be indicated that the vulnerability to Angelina was high because she was relying on Brad and Christian Auctioneers for their professional advice in order to make a sound decision (Horsey and Rackley, 2011). The court would need to consider the actual damages caused. Considering that Angelina sold a valuable painting of Rembrandt for only ?100 is indicative of the losses she suffered due to the incorrect advice given to her.

Moreover, the principle of vicarious liability could also refer to this case (Horsey and Rackley, 2011). Vicarious liability is applicable because liability is attributed to Christian Auctioneers that has a responsibility for its employee, Brad, who negligently causes a loss to Angelina because of the incorrect advice provided to her. In other words, the employer is responsible for the actions of the employee. Therefore, this form of strict liability can be imposed on Christian Auctioneers due to the negligent conduct of its employees in the case of Angelina (Okrent, 2014).

Possible Defences Available to Christian Auctioneers

There could be possible defences available to Christian Auctioneers. Such defences are mainly based on the assumption whether there is a contractual relationship between the parties (Okrent, 2014). An example of this aspect can be found in the case of Henderson v Merrett Syndicates Ltd [1994], emphasising a statement of responsibility by an individual providing professional services along with reliance by the individual for whom the services were provided. Therefore, in the case of Angelina, it can be deduced that there was no special, contractual relationship between the parties (Christie et al., 1997). Angelina sought a free valuation, which may imply that there would not be liability for such type of information.

Conclusion

This paper discussed essential aspects of contract law and tort law. The first part of the paper focused on describing the elements comprising a valid, legal contract along with differentiating the effects of common contracts (MacMillan and Stone, 2012). Details from two case studies were provided, namely from East Midlands Airways Airbus case and the case involving the supply of mobile phones. Important issues pertaining to contract law were discussed with the application of relevant law. The second part of the paper emphasised important principles of tort law by differentiating liability in tort and contractual liability. Negligence liability was discussed with regards to the case study of King’s Restaurant. Specific details about tort of professional negligence misstatement and vicarious liability were provided in the case study of Angelina and Christian Auctioneers (Okrent, 2014). In conclusion, legal and business practitioners need to stay informed about valid and applicable law principles with regards to contract and negligence in order to adhere to professional standards of conducting appropriate business practices.

References

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Donoghue v Stevenson [1932] UKHL 100

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HK Fir Shipping v Kawasaki Kisen Kaisha [1962] EWCA 7

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