Elements Required for the Formation of a Valid Contract

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9th Dec 2019 Dissertation Reference this

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LO1 Understand the essential elements of a valid contract in CAM’S College

1.1Explain the importance of the essential elements required for the formation of a valid contract.

A contract is “an agreement giving rise to obligations which are enforced or recognised by the law” (G.H. Treitel.)

Considered that in a common law a contract is defined as an agreement have lawful object entered into voluntary by two or more parties which intend to create one or more legal obligation between them, is important for CAM’s college to have a contract with their teaching and nonteaching staff and also with their supplier.

The six main elements which need it to form a valid contract in the UK are as follows: agreement, consideration, capacity, certainty, intention and legality.

The first important part of a contract is that the parties have made an agreement which should contain offer and acceptance.

An offer is “an expression of willingness to contract on certain terms, made with the intention that it shall become binding as soon as it is addressed, the “offeree” (G.H. Treitel). The offer should be communicated by offeror (the person which make it) to the other part, which if accept the offer, became offeree. An offer can be revoked at any time prior to acceptance and can be bilateral (made to a specific person) or unilateral (made to the world at large). Carlill vs Carbolic Smock ball.co. ltd (1893). Here, it was publicly promised that if the ball, meant to prevent the contraction of influenza didn’t work customers would receive a compensation fee of £100.Carbolic Smoke Ball Company (defendant) deposited £1000 into a bank to support this offer. Mrs Carlill (plaintiff) purchased the smoke ball and after the suggested usage, contracted influenza. She then attempted to claim the compensation fee. The company refused to pay out but the court held that the fee must be paid in order to honour the promise which was made

Another variable to an offer is the invitation to treat. Here, the offeror invites the offeree to make or enter into a contract. For example, if one enters a supermarket to shop.

An offer is terminating when intervene acceptance, counter-offer (Hyde vs Wrench), revocation of offers (Routledge vs Grant) or lapse of time.

An offer when accepted becomes contract.

Acceptance is” a final and unqualified expression of assent to the terms of an offer” (G.H. Treitel)

Macmillan and Stone, (2004) state’ acceptance must be an agreement to each of the terms of the offer’. Aside from verbally or written, acceptance can be through conduct which is known also as the body rule. In support, Willes and Willes, (2008) state’ acceptance of the offer must be communicated to the offeror in the manner requested’ The conduct aspect of acceptance is seen in the case of Brogden v Metropolitan Railway, (1877). The two parties had long term business dealingswithout any written contract. Eventually both agreed to terms and a written contract was signed by the plaintiff and sent back to the defendant. However, no further form of acceptance was communicated to plaintiff from the defendant; yet still business dealings continued. Issues arose and the contract questioned, it was ruled that the contract was valid as acceptance had been actively performed and terms were adhered to.

It is important to mention that there are exceptions to the communication of acceptance. For example, if an offer is made to the public by a company it ought to be legally bound to the terms. However, the public are not lawfully bound to accepting the offer. This is highlighted in the case of Carlillv Carbolic Smoke Ball Co, (1893).

Issues can also arise with the postal acceptance method. The case of Adams v Lindsell, (1818) highlights the conduct of the offeror. The defendant wrote and offered the plaintiff some goods to be purchased. The letter was incorrectly posted and arrived with the plaintiff late. The defendant waited five days and did not get a response. The goods were sold to a third party. However, the letter was received by the defendants the next day. This would have been in the allocated time frame with which to accept.

The court held that acceptance was made in reasonable time under the circumstances and that the defendant was in breach of contract having sold the goods to a third party. This act is also known as revocation or withdrawal of an offer.

One can either change their mind or withdraw from accepting an offer. The offer may also lapse after an extensive amount of time. In these cases, the offer comes to an end (Macmillan and Stone, 2004).          Consideration is perhaps the vital element of the contract. His basically means that something is given in exchange for the offer. Both parties must feel value and see benefits. For example, an employer should consider wages when recruiting employers. Macmillan and Stone, (2004) suggest they have various rules relating to consideration within a contract.

The consideration must not be past otherwise it is considered invalid. In a case regarding McArdle(1951) work was carried out on a house left to Ms McArdles husband through his father. The trust was eventually left to him and his siblings. The work was carried out and the siblings signed and stated that in consideration of the work Ms McArdle should receive £480 from any sale proceedings.     This amount was never paid.

 The court held that the payment promise came after the performance of work (consideration) had been carried out. This meant the promise was not legally bound.

A contract must be meet with or supported by consideration to be enforceable and also only a person who has provided consideration can enforce the contract. The case of Tweddle v Atkinson (1861) tragically outlines this. A couple were due to get married and both fathers agreed to pay their son and daughter a sum of money.

Both fathers died before they could do this. The groom attempted to sue the executors of his fathers will. This failed as he was not party to the parent’s agreement and consideration did not move from him.

Capacity refers to the ability of the contracts parties to enter into legally binding relation. Willes and Willes, (2010) define capacity as ‘the ability at law to bind a person to contract’. For example, in the UK it is both unethical and illegal for a person under the age of 18 to enter into a contractual agreement.

However, under the Sales of Goods Act (1979) minors can be contracted to goods or services which are deemed as necessities but the court will not accept a contract unless it benefits a minor. For example, in the case of De Francesco v Barnum, (1889) the plaintiff was a fourteen-year-old boy whom agreed to train in dancing while performing on the stage. The court however deemed that there were conditions within the contract which would not benefit the boy. Court held that the plaintiff would not be legally bound.

Many exceptions are made in regard to mentally impaired or intoxicated individuals. Consideration is also given to establishing whether one signs a contract for an essential or non-essential item.

In summary, for a contract to be valid there must be specific elements. Each has great significance, and without any one in place a contract would be invalid.

Certainty is “legal rule that all the requirements and stipulations for the performance of a contract must be known to the contracting parties before the contract is signed” www.businessdictionary.com

In a contract law the terms of a contract should be certain so, each of the arrangement must described or explained properly and clearly set forth.

An agreement will only become a legally binding contract if the parties intend this to be so. This will be strongly presumed in the case of business agreement but presumed otherwise if the agreement is of a friendly, social or domestic nature. In case Frank co vs Crompton Bros 1925, court of appeal said:” to create a contract there must be a common intention of the parties to enter into legal obligation, mutually expressed or implied.

Willes and Willes, (2010) argue ‘the intention to create a legal relationship is a presumption at law because the creation of the intention would otherwise be difficult to prove’.

Macmillan and Stone, (2004) further suggest this element is most necessary within social or domestic agreements. For example, in the case of Jones v Padavatton (1969), a mother promised to pay her daughter $200 if she left her well established job in the US and study in London.

It later surfaced that the mother was paying the daughter $200 Trinidad dollars which was much less than expected. Eventually the mother bought a house for the daughter to both live in and rent to lodgers. A while later, the mother then decided to take possession of the house. The court had to decide if there was any legally binding contract or whether it was a sociable agreement. Court held and the latter was decided.

The contract must be legally accepted in the law courts.

1.2 Discuss the impact of different types of contact

Yong (1997, pg1) defines a contract as “an agreement (usually between two people) giving rise to obligation which are enforced or recognized by law”

The Oxford Dictionary of law describes at contract as “a legally binding agreement. Agreement arises as a result of offer and acceptance, but a number of other requirements must be satisfied for agreement to be legally binding”

The main types of contract entered in the UK are: implied contract, express contract, oral contract, written contract, bilateral and unilateral contracts, void and voidable contracts.

“Implied contract is resulted from surrounding facts and circumstances that suggest an agreement” (Doti Chee, 2010).

You go to the doctor for the treatment of an illness; you and the doctor do not negotiate the terms of the treatment, how much you will pay or how the doctor will conduct the examination. You appreciate that he will do whatever appropriate examinations to establish the cause of your illness; and that you will pay fees for the doctor’s effort.

“Express contract is in which both parties have explicitly stated the terms of their bargain, either orally or in writing, at the time that the contract was created” (Doti Chee, 2010).

Oral contracts are the contracts which are agreements between two people but are not written. Hands a problem arrived it is for court to inform for the behavior parties to see if the contract exists.

The teacher who are employed and CAM’s College give some promises like they will have some free days but in fact they must come to the college.

Regards with written contract this are to ensure that both parties fully understand the agreement and are committed to complying to its stipulation. A written contract is generally used as evidence of an agreement and of the detail of that agreement. If one person backs out of the agreement after services or other obligation have been rendered by the opposite party, legal action may be taken.

Bilateral contract is a promise made by one party in exchange for the performance of some act by the other party; both parties are bound by their exchange of promises.

If you sign a contract to buy a used car, for example, a Black Audi, for 1900, then you have entered into a bi-lateral contract, with the person who is selling the car. The seller promised that he will not sell the car to anyone other than you; and you have promised to buy the Black Audi and will hand in the 1900 to the seller. Two promises were made here; the sellers promise to sell and your promise to buy, hence Bi-lateral.

Unilateral contract is where a promise only on one side, the consideration on the other side having already been executed

CAM’S College (offeror) offers a reward of 200 for the person who bring more person in to the college for courses. The offeree has made no promises, so nobody is obliged to bring more people, but if someone is  does, then CAM’S College will have to pay 200.

A void contract is not a contract at all. The parties are not bound by it and if they transfer property under it they can sometimes (unless it is also an illegal contract) recover their goods even from a third party.

A contract for selling weapons to a country which has a ban on weapons is a void contract. None of the parties can enforce the contract, because if the seller is allowed to collect the money, then it would encourage further violations of the law which bans sales of weapons.

A voidable contract is a contract which one party may avoid, that is terminate, at his option. The contract is treated as valid unless and until is avoided. Property transferred to a third party before avoidance is usually irrecoverable from that third part.

1.3 Analyse terms in contracts with reference to their meaning and effect

In every contract, the terms are body of the contract. The term of the contract is usually classified by their relative importance as condition or warranties.

A condition is an important term which is vital to a contract so that its breach will destroy the basis of the agreement. It may arise from an express agreement between the parties or may be implied by the low. The one observance of the condition will affect the main propose of the agreement. Brick of the condition are allowing the part in complains to treat the contract as void and be discharge of the any obligation as was the case Poussard v Spiers 1876 were failure to sing in the opening night was a breach of condition which entitled the producer to treat the contract for the remaining performance as discharged.

A warranty is a minor term in a contract. If broken, the injured party must continue performance but may claim damages for the loss suffered. A brick of warranty doesn’t discharge one from the contract as can see in the case of Bettini v Gye 1876 were arriving for rehearsals with three day later, but before the opening performance, was a minor part of the contract and the producer could not discharge himself from the contract.

Sometimes it may not be possible to determine whether a term is a condition or a warranty. Where is not clear what the effect of breach of the term was intended to be, it will be classified by the court as innominate. The consequence of a term being classified as innominate is that the court must decide what the actual effect of its breach is. If the nature and effect of the breach is such as to deprive the injured party of most of his benefit from the contract, then it will be treated as breach condition. The injured party may terminate the contract and claim damages. In Hong Kong Fir Shipping Co Ltd v Kawasaki Kisa Kaisha Ltd 1962 case the term was innominate and could not automatically be construed as either a condition or a warranty. The obligation of seaworthiness embodied in many charter party agreements was too complex to be fitted into one of the two categories. The ship was still available for 17 out of 24 months. The consequence of the breach was not so serious that the defendants could be justified in terminating the contract as result.

Each party must be aware of the contract’s term at the time of entering into the agreement if they are to be binding. Complication can arise when it is difficult to determine at exactly what point in time the contract is formed so as to determine whether or not a term is validly included. An exception to the rule that there should be prior notice of the terms is where the parties have had consistent dealing with each other in the past and the document used then contain similar terms. If the parties have had previous dealing, but not on consistent basis, then the person to be bound by the term must be sufficiently aware of it at the time of making the latest contract.

Exclusion clauses is a clause in a contract which purports to exclude liability altogether or to restricted it by limiting damages or by imposing other onerous condition. The document containing notice of the clause must be an integral part of the contract. If the document is an integral part of the contract, a term may not usually be disputed if it is included in a document which a part has signed. The term must be put forward before the contract is made. It is not a binding term unless the person whose rights it restricts was made sufficiently aware of it at the time of agreeing to it. Onerous terms must be sufficiently highlighted. Chapelton v Barry 1940: there was a pile of deck chair and a notice stating “hire of chairs 2d per session of three hours”. The claimant took two chair, paid for them and received two tickets which he put in his pocket. One of the chairs collapsed and he was injured. The defendant council relied on a notice on the back of the tickets by which it disclaimed liability for injury. The decision of court was: the notice advertising chairs for hire gave no warring of limiting conditions and it was not reasonable to communicate them on a receipt. The disclaimer of liability was not binding on the claimant.

LO2 Be able to apply the elements of a contract in business situation

   2.1 Apply the elements of contract in given business scenario

It is important to having a valid contract for CAM’s college. Employers and employees own certain duties to one another and breach of this duties may result in legal action against the party who breached the contract.

The offer which is a proposal made by one party (the offeror) to another party (the offeree) indicating a willingness to enter a contract. For example, CAM’s college can offer to a teacher an amount of money to work for them. The agreement of the offeree to be bound by the terms of the offer. The teacher can accept and will be created an agreement or if the teacher ask for more money them there is implied the contra-offer and the college can refuse and offer is terminating or can accept and the agreement will be done.

Offer and acceptance go together to create genuine agreement or a meeting of the minds. Agreement can be destroyed by fraud, misrepresentation, mistake or undue influence.

After agreement will take place consideration: the thing of value promised to the other party in a contract in exchange for something else of value promised by other party. For example, the salary for teaching classes.

The law presumes that anyone entering a contract has the capacity to do so. Minors are generally excused from contractual responsibility, as are mentally incompetent and drugged or drunk individuals. So, CAM’s college should to avoid entering in a contract with these persons.

CAM’s college should take in consideration that parties are not allowed to enforce contracts that involve doing something that is illegal. Some illegal contracts involve agreements to commit a crime or an other involve activities made illegal by statutory law.

The case study provides that the CAM’S College had advertised for a contest inviting the interested in a new teacher so provided in the advertisement to create a contact. This type of offer is said to be the offer to the world as it is clear in determining the intent to form a contract on performance of the act and expressing the same by notifying about to see how the teacher is with children before creating the contract. The offer has been made for contest whereby the successful person would be awarded a post in teaching. Alina she apply for the job and she can do as the advertisement suggests and expresses his acceptance for the same. The performance of the action mentioned in the advertisement would be termed as the acceptance performed by Alina.
When Alina provide her abilities and the director will be satisfied with what she is doing then he will prepare the contract. Alina is twenty eight years of age and is capable of entering into the contract. It may be derived that the parties involved are of capacity and intent to create the contract as determined under the advertisement. The offer and acceptance was duly made for the consideration in the form of the teaching. Since the basic elements of the contract are present in the given case study Alina would be able to take the post and to be able for successfully completing the contract.

2.2 Apply the law on terms in different contracts

Contract terms fall into 2 broad categories: express and implied terms

Express terms

There are promises specifically mentioned by either of the parties before or at the time of the contract and which become a part of it. It is important to remember that contracts can be made, purely by word-of-mouth which oral contracts or purely in writing or partly by word of mouth, and partly in writing.  Express terms agreed through negotiations, possibly taking place over an extended period of time. Therefore, the final contract will almost certainly contain more than a simple promise to deliver goods in return for a promise to pay a particular sum of money. It will show what was agreed between the parties.

Terms implied by the courts

When making an agreement, the parties may have omitted to cover all the necessary points. For example, an express term might not have been agreed because the parties considered the point so obvious that it ‘went without saying’ or simply because they forgot to deal with it

In general, the courts are reluctant to imply terms into a contract which the parties themselves have not expressly agreed to. However, the courts may be prepared to imply in some situations.  For example, when making an agreement, the parties may have omitted to deal with a particular matter which seemed obvious in view of a common practice in the local area or in the particular trade carried on by the parties. If so, the courts may be prepared to imply a term that the contract was subject to that custom or trade practice as said in Hutton v Warren (1836).

Terms implied by statute

Various terms are implied into contracts for the sale of goods by the Sale of Goods Act 1979 These implied terms, and the remedies available to the purchaser for their breach have been tightened up by the Sale and Supply of Goods Act 1994, and subsequently by the Sale and Supply of Goods to Consumers Regulations 2002 which was passed to give effect to an EC directive. In addition to express and implied terms there are other terms which may be part of the contract as well.

Conditions and Warranties and Innominate (intermediate) terms

Traditionally, contract terms have either been classified as ‘conditions’ which are considered to be vital terms or promises or ‘warranties’ which are incidental or minor terms for the purposes of deciding what remedy is available to the ‘innocent’ party in the event of a breach.

If a party has broken a: condition the innocent party will have the option to either carry on with the contract and claim damages or to terminate the agreement, even if the breach was only minor in the sense that no significant loss has been suffered, and the breach could easily be put right.

However, if a party has broken a warranty the innocent party will be unable to terminate the agreement and the remedy will be limited to damages, even though serious loss has been suffered as a result of the breach. The sale of goods, s.11(3) Sale of Goods Act 1979 states that “whether a stipulation in a contract of sale is a condition, the breach of which may give rise to a right to treat the contract as repudiated, or a warranty, the breach of which may give rise to a claim for damages but not to a right to reject the goods and treat the contract as repudiated, depends in each case on the construction of the contract; and a stipulation may be a condition, though called a warranty in the contract.”  Therefore, what this means is that if the contract calls something a warranty it doesn’t necessarily mean it is one. Courts will decide on each case if there a dispute.

  Because of the problems in terms of classification of the terms condition and warranties, an alternative approach to the classification of contract terms was eventually recognised by the Court of Appeal in Hong Kong Fir Shipping Co. Ltd v Kawasaki Kisen Kaisha Ltd

  1. Evaluate the effects of different terms in given contracts

It is important to remember that contracts can be made: purely by word-of-mouth or purely in writing.    Most agreements will be preceded by negotiations, possibly taking place over an extended period of time. The final offer and acceptance may involve little more than an offer to buy or sell a particular item for a specific price. However, the contract will almost certainly contain more than a simple promise to deliver goods in return for a promise to pay a particular sum of money. Therefore, what was agreed and what is put into writing as terms are of key importance.

Condition: There are several terms presented in the contract that helps in determining the nature of contract is known as condition. Any breach in performing the condition will lead to voiding the contract. Every contract have certain set of conditions which differs from the nature and purpose of the contract, these conditions are condition precedent, condition concurrent and condition subsequent (Cooke, 2007).

Warranty: Secondary natured terms related with the contract are known as warranty. Non performance of warranty will not affect the contract. Non managing performance of the warranty will not lead to revoke the contract. Restoration of the warranty can be done by claiming the damages, specific performance and injunction. There are various types of warranties which are applicable according to its nature like full warranty, life warranty, specific warranty, and the most commonly used warranty i.e. implied warranty (TAN, 2008).

Innominate Terms: In a contract there are several terms available that may or may not be regarded as condition or warranty these types of terms are known as innominate terms. These are the contracts which are classified by the effect that is caused by the non performance under the contract. In several contracts a condition may be termed as warranty and warranty may be termed as condition depending upon the effect caused due to non performance under the contract. Remedies therefore may be discussed based on the type of term that is breached (Morgan, 2011).

Exemption Clause: exemption clause are the clause that restricts the claims made by the party in case of occurrence of negligence. To enforce the exemption clause in the court of law it is necessary that it should be presented in a proper manner. Various aspects on which exemption clause are based on are strict and narrow interpretations, contra preference or fundamental breaches. To include exemptions clause it is necessary that the terms made between the parties should have signature, notice or previous dealings should be there. It is necessary to provide the opportunity to object the clause. Limitations availed in the exemption clause limits the remedies for the breach of contract.

LO3 Understand principles of liability in negligence in business activities

  3.1 Contrast liability in tort with contractual liability

A tort is a legal wrong for which the law provides a remedy. Many duties in tort arise by virtue of the law alone and are not fixed by the parties. There is therefore a duty imposed by the law to respect the legal rights of others. As duties in tort are fixed by law, the parties may well have had no contact before the tort is committed.

By contrast, the law of contracts is based notionally on agreements, the terms of which are fixed by the parties. Of contract it is often said that the parties will, through negotiation or by the act of contracting, have had some contact and be fully aware of their legal duties before any breach of contracts occurs.

To claim damages in tort the claimant must provide his loss. In order to claim the claimant must show he has suffered a wrong. If there is no wrong, then there can’t be an action regardless of the amount of damage caused by the defendant. Like example Electrochromic v Welsh: the defendant’s lorry, driven carelessly, crashed into a fire hydrant. As a result, the water supply to the claimant’s factory nearby was cut off. The factory had to close until the supply was restored. The claimant claimed damages for his loss. Decision: the fire hydrant was not the claimant’s property and so, in spite of his loss, no legal wrong had been done to him for which he could hold the defendant liable.

There is no need in tort to consider the defendant’s frame of mind. Good motive will not excuse a tortious act and bad motive will not turn an innocent act into a tortious one, how we can see in Mayor of Bradford v Pickles 1895 where Pickles sank a shaft on his land to divert the flow of subterranean water through it, because he wished the Bradford Corporation to buy his land at very high price. As a result of less water flowed into the reservoir and it was discoloured. The corporation sued for an injunction, a court order to Pickles to desist. The decision was the action must fail. Pickles was exercising his rights as a landowner and was not infringing any rights of the corporation. It was immaterial that the corporation had suffered loss and that Pickle’s express motive was to inflict loss.

A contract liability is created when two or more parties promise certain things to each other. A person may engage some one to clean their house in exchange for an agreed amount of money.

If either party defaults on the agreement, that is breach of contract and legal remedies are available to the ‘injured’ party Liability in tort does not have to be caused by breaching of the contract as it is with contractual liability.

To form contract agreement, parties involved are needed but not with tort where duties are given by the law and there is no agreement or contract needed as it is valid for everybody in society.

The terms of breach of contractual duty is discussed under the contract whereas the terms of breach are not discussed between the parties under tort as it is not a pre-meditated relationship or arrangement.

The owners of the ship, The Mihalis Angelos, chartered the ship to the defendant to use for the carriage of some cargo. A clause in the agreement stated the ship was expected ready to load on 1st July. In fact, the owners had no grounds for believing the ship would be ready to load on that date as it was in Hong Kong at the time and would not be ready until at least the 14th of July and in fact it was not ready at that date. The defendant cancelled the contract on 17th of July. The cargo that they expected to be carrying had not arrived due to the bombing of a railway in Vietnam. The ship owners brought an action against the defendants for anticipatory breach. The defendants argued that the claimant was in breach of condition of the contract by not be ready to load on the specified date.

3.2 Explain the nature of liability in negligence

“Negligence is a tort and is therefore a category of law in which there is a dispute about the fault of one person as a contributing factor in the casual injury or damage to another person… The development of the law of tort occurs on a basis of precedent in which like cases follow like decision (stare decisis) and are either binding or persuasive depending on which court hierarchy they are in and where they are placed (Brown & Bailey, 2002)

In the law of tort, the concept of negligence appears in two different senses: there is a distinct tort of negligence which is causing loss by a failure to take reasonable care when there is a duty to do so or the defendant may not wish to inflict injury but by his carelessness he allows it to happen. The wrong is unintentional but negligent and so the defendant is held to be at fault for the negligent doing of a wrong.

To succeed in an action for negligence the claimant must provide three things:

  • The defendant owed the claimant a duty of care to avoid causing injury to person or property;
  • There was a breach of that duty by the defendant;
  • In consequence the claimant suffered injury or damage or financial loss.

“Donoghue v Stevenson came before the House of Lords (the highest court of appeal in England at the time) and was critical in establish the legal principles necessary to convict someone or him liable for negligence (Miller, 2002). In 1932, Mrs Donoghue and a friend entered a café in Paisley, where her friend ordered a bottle of ginger beer. The bottle was made of dark glass, preventing its contents from being inspected and Mrs Donoghue drank a glass of ginger beer before pouring out the remainder. On pouring, she discovered the decomposing remains of a snail (or possibly a slug). The experience left her suffering both shock and gastroenteritis.

Because it was not Mrs Donoghue who purchase the bottle, she had no recourse under standard contract law to pursue a claim for the loses she suffered as a result of drinking the contaminated drink. She therefore brought a negligence case against Stevenson, the manufacturer.

For her case to be successful, she need to prove a duty a care existed between Stevenson as the manufacturer and herself as the end consumer despite their being no clear contractual line between them. The case went to the House of Lords, who ruled that a duty of care did indeed exist. In his assessment of the case, Lord Atkin summarised the situation in his famous “neighbour principle” rule of negligence, which states: “You must take reasonable care to avoid acts or omissions which you can reasonably foresee would be likely to injure your neighbour.

In Lord Atkin’s view, “your neighbour “is any person who it sufficiently close to your action, or inaction, and whom you can reasonably be expected to take note of may be deemed to have a right to be taken care of.

3.3 Explain how a business can be vicariously liable

Vicarious liability is legal responsibility imposed on an employer, although he is free from blame, for a tort committed by his employee in course of his employment.

A tortfeasor (the person committing the tort) is always liable for his wrong. Others may also be jointly or severally liable with him, this is known as vicarious liable

To make an employer liable for a tort of an employee it is necessary that:

  • There is a relationship of employer and employee between them;
  • The employee’s tort is committed in the course of his employment.

The employee remains liable as a joint tortfeasor. The employer liability that is, does not depend on proof of fault on his part. For an employer to be held liable, the wrong must be committed within the course of employment. This criterion is question of fact and it is immaterial whether the wrong committed by the employee was authorised or not. Like example Limpus v London General Omnibus Co 1862. This concerned the bus driver’s involvement in competitive driving and racing and blocking buses from a rival company, thus going directly against orders and resulting in injury to a third party. The defendants (the bus company) were liable. The driver was acting within the course of his employment at the time of the incident. It no made difference that his act had been forbidden.

An employer will only avoid liability in this situation if it can be shown that an employee acted in a way that was unconnected with his employment as in Beard v London General Omnibus (1900), in this instance the plaintiff was run over by a bus belonging to the defendants. Beard brought an action against the company for negligence of the person who was driving the bus. The person driving the bus at the time was not employed as a driver-he was employed as a bus conductor. The bus company were found to be not liable due to the fact that a conductor, whose job it was to collect fares, had been driving the bus and this was considered completely outside the scope of his job

An employer will not be found liable for the acts of an employee who goes off on a “frolic of his own” as in Hilton V Thomas Burton Ltd. Hilton went for a drink one lunchtime with some of his colleagues. They drove to the pub in the work van belonging to the company they worked for. On leaving the pub the van crashed due to the negligence of the driver and Hilton, one of the passengers, was killed. Hilton’s wife sued the company on the basis that they were vicariously liable for the van driver’s negligence. The employer was held not liable as Hilton and his colleagues had been on a “frolic of their own” at the time of the accident and were not acting in the course of their employment.

The employers are responsible for having the work carried out, it is only right and proper that they are responsible for ensuring that the work is carried out safely as they should exercise control over their employees. Employers also had a responsibility to train their employees and provide supervision to avoid vicarious liability.

It is necessary that an employer should undertake all the steps which should protect its workers and the health standards of the organization. Employer should manage the safety and security and health measures according to the health and Safety at Work Act of 1974. En employer should ensure that the water and equipment’s used at the workplace should be availed according to the standard. A test for the responsibility for the liability was formulated under the case of Ready to Mix Concrete (South East) V MPNI (1968). Information was provided that if the employee works under more than one employer then the employer directly responsible for the work performed at that time will be said to be liable for the damaged caused during the performance of duties by employee (Richards, 2006).

In scenario 2 of this assignment the college may be found vicariously liable for the injuries the guard has suffered as the college is responsible to ensure the health and safety of its employees. Now as the guard is working under the direction of the supervisor the later must ensure that all the measure are taken to ensure the health and safety regulations are met. In our scenario the supervisor ignored that the guard was not wearing protective cloths and send him outside. Hence the college might be vicariously liable for the mistake his employee supervisor has committed and might be responsible to pay compensations to the guard.

 

 

LO4 Be able to apply principles of liability in negligence in business situation.

4.1 Apply the elements of the tort negligence and defences in different business situation.

Negligence amounts to non-wilful conduct which could cause loss or injury. According to Jones, (2011) there are three factors which can influence a claim for negligence.

Duty of care

Evidence of lack of duty of care is highlighted in the Donoghue v Stevenson (1932). The claimant could not claim under contract law as no document was signed. The manufacturer did have a duty of care and was liable to pay damage compensation to Ms Donoghue.

Three tests are used to establish the existence of duty of care:

  • There was a foreseeable event that the defendant should have considered.
  • The proximity rule is outlines that anyone whom purchases or is affiliated to an organisation is classed as a ‘neighbour’. This means that duty of care should be exercised.
  • It was fair and just to impose the duty onto the defendant as it was known many would purchase the drink.

Breach of duty

Proving that a person breached their duty of care can often be difficult. Courts compare case details with the acts of a reasonable individual in order to establish whether there is breach (Jones, 2011).  The case of Vaughan v Menlove (1837) describes these circumstances.

Courts take four particular elements into account when deciding if breach exists.

  • The likelihood of the potential harm – Outlined in the Bolton v Stone (1951). The probability of ones actions causing injury to another is question to establish breach of duty.
  • The severity of the potential harm – The court has to decide whether the defendant knew of the high chance and risk for harm to be caused. The case of Paris v Stepney Borough Council (1951) highlights this element.
  • The costs/practicalities of taking precautions to minimise risk of potential harm such as in the cases of Haley v London Electricity Board (1965) and Latimer v AEC (1953).
  • In the case of Watt v Hertfordshire County Council (1954) emergency care was necessary. Courts will take into consideration the risk of injury inflicted on a person if it was in the line of social duty.

Damage/Causation

After having established duty of care existed and was breached it is important to prove that all loss and damages incurred were a result of the breach (Harpwood, 2009). McKendrick, (2011) suggests the ‘but for’ test is used to establish a link between the cause of the duty breach of the defendant and the extent of the damage caused.

In the case of Barnett v Chelsea & Kensington Hospital Management Committee (1969), the defendant did have a duty of care to the claimant’s husband. However, breach was not the cause of death and therefore was not the fault of the defendant.

However, this rule does not apply in all cases. Instances may arise where the ‘but for’ test does not apply. These are listed below with a highlighting case.

Two causes of the same injury as in the case of Fitzgerald v Lane (1989).

Multiple causes of the same injury or multiple parties involved in causing the injury, highlighted in the case of Fairchild v Glenhaven (2002).

  • Remote or extreme consequences will be viewed as no breach of duty by the courts, as in the case of Overseas Tankship (UK) Ltd v Mort’s Dock & Engineering Co Ltd (1961).
  • The foreseeable circumstances surrounding the nature of an incident does not always need to be present, as seen in Jolley v London Borough of Sutton (2000).
  • Intervening acts (‘Novus Actus Interveniens’) are new elements which may influence or affect the existing claim. In the case of Baker v TE Hopkins & Son Ltd (1959), the factor of the independent actions of the doctor (‘volenti non fit injuria’) directly influenced this case. New activities can impact on the negligence claim in three ways; through a natural event, through the acts of a third party or claimant. Acts through the claimant are referred to as contributory negligence.

The case study derives that the security guards and laborer’s in CAM’S College have to wearing of protective clothing. All the employee has to work under the direction and control of supervisor. The company’s policy that a member of staff who refuses to wear the right protective clothing will not be compensated if they suffer any accident.

The same instruction would form an official duty. The duty so breached is during the employment. The duty of care was supposed to be undertaken by the employee while is at work. The employer should have assumed the duty of care with respect to the employee’s actions. The duty was breached when the he doesn’t take a visible jacket.

Therefore, the present case may be determined to be a breach of duty of care and tort of negligence. The defenses that are present under the tort are venti non-fit injuria and contributory negligence. The volante non-fit injuria provides that the person has intentionally waived off the duty of care to be undertaken as a precaution by others for a certain reason and cannot hold the same liable for the loss. The contributory negligence implies that both the parties are responsible for the wrongful act creating the liability for the damages. The damaging party would only be liable for the share of neglect and not the entire liability altogether.  The defenses that may be used under the present case would be that of the professional negligence for the person having an obligation as a employee to provide protection to the College. The fact of this negligence the security guard is now not capable to work due to the accident and your clients are not willing to compensate him.

 

4.2 Apply the elements of vicariously liability in given business situation

Vicarious liability is likely to arise i.e. the circumstances in which an employer can be held strictly liable for a tort committed by an employee during the course of his employment.

For the employer to be liable for his employee negligent action certain elements must be proved. Those are:

A tort must have been committed by the employee

The person who committed the tort must have been an employee rather than an independent contractor

The employee must have been acting in the course of his employment when the tort was committed, and not ‘on a frolic of his own’

In Salmond on Torts (1st edh, 1907) court said “a wrongful act carried out by an employee will be treated as having been done in the course of employment if it is either a wrongful act expressly or impliedly authorised by the employer, or a wrongful and unauthorised mode of doing some act authorised by the employer.

In the scenario, the security guard was an employee and was injured at work. Employer owes him a duty of care and provided the right protective clothing. if not providing appropriate tools to employees could be seen as negligent action by the employer and therefore liable for security guard injures. But in this case the college it is not liable.

 Employee agreement to work under the direction and control of the supervisor – Employee liability insurance has to be secured in the Cam’s college by the Board for employees of the University for acts committed in connection with their employment by doing so will prevent such issues from happening again. And it also provide coverage to the Covered Party as described herein under the terms described herein2) Supervisor has inherent authority to control the employee.When considering the case study given in scenario 2 of this assignment, the supervisor had to monitor the work of the safeguard. Therefore the supervisor had the duty to ensure that the guard is wearing the protective cloths before  sending him out for work.

Supervisor has inherent authority to control the employee- The concept of vicarious liability arose initially from the notion that an employer must hold responsible for the wrongs committed by its employees in the course of their employment. It is in the employment context that vicarious liability most commonly arises, but the categories of relationships in law that may attract vicarious liability are not closed.

Conclusion

With the verification of various aspects and understanding developed with the help of the cases it could be concluded that nonperformance of the duties would lead to breach of contract. Breaches occurred could be compensated that is to be paid by the party causing breach. An understanding could be made that the law of tort and law of contracts are different and compensations are to be paid according to the nature of breach occurred. It can also be concluded that vicarious liability is the liability for which employer is termed to be responsible for every activity related with the safety and security of the workplace no matter with whose negligence the damage has occurred. If the damage occurs while performing the duty by the employee then employer will be liable for the damages occurred to the party.

REFERENCE:

Beatson, J., Burrows, A., and Cartwright, J. (2010). Anson’s Law of Contract, (29th edition). Oxford University Press, USA.

Blay, S. (2010). Torts, (6th edition). Thomas Reuters. Australia

Collin, P. (2007). Dictionary of Business. A & C Black Publishers Ltd, London.

Edexcel. (2011). BTEC Higher National – Business Study Guide. Pearson Education Limited, England.

Giliker, P. (2010). Vicarious Liability in Tort: A Comparative Perspective. Cambridge Studies in International and comparative Law.

Gulshan, S. S., and Kapoor, G. K. (2013). Business Law Including Company Law, (16th edition). New Age International, New Delhi, India.

Harpwood, V. (2009). Modern Tort Law (7th edition). Routeledge-Cavendish. England

Jones, L. (2011). Introduction to Business Law. Oxford University Press. England

MacDonald, E. (2006). Exemption Clauses and Unfair Terms, (2nd edition). Tottel Publishing, Ireland.

MacMillan, C., and Stone, R. (2004). Elements of the Law of Contract. University of London.

McKendrick, E. (2011). Contract law, (9th edition). Palgrave Macmillan, London

Richards, P. (2004). Law of Contract, (6th edition). Pearson Education Ltd, England.

Von Bar, C., and Drobnig, U. (2004) The Interaction of Contract Law and Tort and Property Law in Europe: A comparative study. European law Publishers

Willes, J. A., and Willes, J. H. (2008). Fundamentals of Canadian Business Law, (2nd edition). McGraw-Hill Ryerson.

Journals:

Dawson, F. (1982). Parole Evidence, Misrepresentation and Collateral Contracts. McGill Law Journal Revue De Droit De McGill (3), 27

McWilliams, R.L. (1919). The Parole Evidence Rule in California. California Law Review (7), 417-440

Owen, D.G. (2007). THE FIVE ELEMENTS OF NEGLIGENCE. Hofstra Law Review (4), 35

Websites:

http://www.australiancontractlaw.com/law/scope-terms.html – Accessed on 01.4.14

http://www.bailii.org/ew/cases/EWCA/Civ/1892/1.html – Accessed on 20.3.14

http://www.bbc.co.uk/news/entertainment-arts-19925344 – Savile case: Could BBC be ‘vicariously liable’? -12 October 2012. Accessed on 21.3.14

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