Task 01 Understand the essential elements of a valid contract in a business

context.

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

The agreement which is enforceable by law is called contract. All contracts are agreement but all
agreements are not contract. There are some elements of a valid contract that are essential to be
enforceable by law. All these elements are important for a valid contract. If any of them is
absent, the agreement will be a contract.

a. Offer and acceptance:

First step for starting a contract is one party making proposal or offer to another party
which will be lawful and the party to whom offer is made will accept the proposal when
accepted becomes promise.
b. Consideration:
The cause of promise is consideration. Without consideration contract is void. For an
example, A agrees to sell a house to B at $400,000. B also agrees to pay $400,000 for the
house. This $400,000 is consideration. Consideration is unlawful when:
It is fraudulent;
forbidden by law;
court may regard it as immoral;
c. Capacities of parties:
Every parties involved in the contract should be mentally sound and competent for the
contract. Followings are the persons who are incompetent for the contract:
Miner;
Persons disqualified by any law;
Persons of unsound mind.
d. Free consent:
Free consent means both parties agree upon the same thing. Consent of both parties must
be free. The consent should not be obtained from:
Undue influence
Misrepresentation
Coercion
Mistake
e. Objective:
There should be lawful objective in contract. This means the purpose or design of the
contract must be valid. Objective will be unlawful if:
It is forbidden by law;
It is fraudulent;
Court may regard it as immoral;
It involves to the injury to the person;
It would defeat the provision of any law.
f. Certainty of meaning:
The meaning must be certain according to section 29. Contracts must not be vague. If it is
vague, it cannot be enforced.
g. Writing:
A contract must be written and registered. Oral contract is also valid. In India, documents
under section 17 need to be registered. Writing is required in case of sales, mortgage,
lease and gift of negotiable instruments.
h. Legal relationship:
Agreements including legal relationship are contracts. For an example, if one party
invites for birthday party to another party, it will not a contract as there is no formal
relationship between the parties.
i. Possibility of performance:
The contracts must be capable of being performed. If the act is impossible physically or
legally, it cant be enforced by law.
j. Enforceable by law:

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 To be valid, a contract must be enforceable by law. Otherwise it will be agreement. The
agreement that satisfies all conditions of a valid contract cannot be avoided by any law
(Palmer, 1978).

Linda Green was successful for the home travelling of clients to make contract with them. She
considered all the elements above for her mobile operator business. Clients offer them for a
mobile service and she accept the proposal if the party has capacity to involve in the contract. As
her main concern was to give service by travelling home, a lot of offers came toward her.

1.2Discuss the impact of different types of contract.

There are different types of contracts enforceable by law. Each type of contracts affects the
relationship between the parties in different way.

Implied contracts:

Contracts that are arising from mutual agreement and intention of promise are implied contracts.
The implication of mutual agreement must be reasonable. A contract will be implied where it
would result in inequity or harm. When divergence or doubt exists in the mind of parties, the
court may not infer a contractual relationship.

Express contracts:

The parties in express contracts sate the terms orally or in writing at the time of its formation.
There is written or oral offer accepted by the offered that explicitly concentrates on the consent.

Executed and Executory contract:

When nothing remains to be done by other party it is called executed contract. Executory
contract is the inverse concept. When some future act remains to be performed by other party it
is called executor contract.

Bilateral and unilateral contracts:

When there is a promise between two parties is called bilateral contract. The promise that one
party makes constitutes sufficient consideration for the promise made by other party. Unilateral

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contract is a contract that constitutes promise made by only one party. This is one sided contract
because only offeror makes the promise.

Aleatory contract:

An aleatory contract is a mutual agreement the effects of which are triggered by the occurrence
of an uncertain event. In this contract, one or both parties assume the risk.

Void and voidable contract:

Where no legal rights or obligations upon the parties and not enforceable by law is called void
contract. On the other hand, voidable contract is enforceable by law but may encounter some
legal disability (Corbett & Tang, 1999).

In the successful business, a Hair Salon formed by Linda Green, suppliers or wholesalers were
very conducive. Not only for product supply, but for the decoration of the office, they were
helpful. Some tradesmen became helpful at a very reasonable cost to refurbish the salon. They
were also eager to make contract relationship with Linda Green that is enforceable by law.

1.3Analyze terms in contracts with reference to their meaning and effect.

The first step in determining the terms of a contract is to establish what the parties said or wrote.
There are some contracts used in contracts mostly for the smooth understanding of contract.

Timing:
The court will consider the laps of time between the making of a statement and the contracts
conclusion. It is one of the most important terms that should be considered at the time of
formation.

Traditionally terms have been divided by two categories, conditions and warranties.
Conditions:
Condition is a major term which is vital in the purpose of a contract. A breach of condition
will entitle the injured party o claim damages. The word condition has another meaning that
a contract should not be enforceable except on the happening of a given event. It is called

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 condition precedent. When a contract is not enforced except at the end of the happening of an
event, it is called condition subsequent.
Warranty:
Warranty is less important term. It doesnt affect in the root of a contract. A breach of
warranty only gives the injured party a right to claim damages.

There are some terms implied by court:

Intention of the parties:
Sometimes parties fail to express their intention clearly. In this circumstance, court uses a
term business efficacy so that the contract makes commercial sense.
Relationship between parties:
Some terms are implied by law for the relationship between parties. Law seeks to impose a
model or standardized set of terms as a form of regulation (Goetz & Scott, 1985).

The wholesaler and supplier of famous Hair Salon by Linda Green were happy to give favorable
terms for a certain period of time. A new colouring agent had been introduced and the salon was
the first in the area to use it. After a number of uses, it was discovered that an allergic reaction
seemed to occur with a high proportion of skin types. Needless to say, the staffs were not
prepared to continue use of such a product. The wholesalers insisted that the use of the product
was continued until positive proof is available.

LO2: Be able to apply the elements of a contract in business situations.

2.1 Apply the elements of contract in given business scenarios.

A business contract is composed of several elements. Elements of contract depend on type and
nature of the contract.Let does illustrate the application of elements in a business scenario.

Mr. X was selected for assistant manager in a company and was offered a contract by HR
department of that company. In second situation, Mr. X was assigned a task of purchasing new

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computer. Mr. X purchases computers from XYZ computer producer and signed a contract
with that company (Governatori, 2005). Application of elements in the illustration:

In both situations, Mr. X was offered an offer to accept;

While signing with XYZ computer producer, performance must be legal and
consideration must pass through promise;
The employer of XYZ Company has legal right to respond to Mr. X claim because
they didnt provide within due date and time. Both parties have legal capacity to enter
into an agreement.

In given business scenario of Linda Green, the Hair Salon business and mobile operator business,
elements of a contract were applied. The staff selected for the work of business was offered a
contract by Linda. They were responsible for legal performance and capacity. Linda also made
contract with the suppliers for purchasing materials who accepted the offer by reasonable cost
with favorable terms and conditions. But the wholesalers were unable to exchange hair dryer
because they were not designed for heavy-duty salon usage.

2.2 Apply the law on terms in different contracts.

The major terms associated with a contract were discussed earlier. Some contract terms is
influenced by the application of law.

Contents of standard form of business contract: The contents of a contract are generally
known as terms or clauses. An agreement consists of different terms. Even the simplest form has
terms. Writing of terms is required for certain types of contract such as contracts for the sale of
mortgage, land and customer credit agreement.

Contract terms may be express or implied and they may be classified under conditions,
warranties and innominate terms (Kennedy, 1981).

Express terms: Express terms are those terms agreed between the parties themselves. These
terms are mentioned at the time of making a contract. Express terms may be oral or in writing
form.

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Implied terms: Terms which are put into the contract by the courts. Sometimes, they may not be
mentioned by any party. But they are required to be represented. Terms may be:

Implied by custom;
Implied by court;
Implied in law;
Implied by statue.

Exclusion clauses: The Unfair Contract Terms Act 1977 has a major impact on the use of
exclusion clauses. A clause which seeks to exclude or restrict liability for a breach of contract,
breach of implied terms or misrepresentation is exclusion of clauses. There are three ways to
incorporate exclusion:

By notice;
By signature to a written contractual document;
By course of dealing.

Repudiation: It has two meanings in contract law. The first is a party refuses to comply with a
contract and the second is where a contract is made by a minor person (under the age of 18).

Arbitration: In law, arbitration is an important term. A third party that involves in settling any
dispute between two parties without going to court. Arbitrary party must be agreed by both
parties.

Other terms discussed earlier are also influenced by the application of law in the same manner
(Macneil, 1977).

2.3 Evaluate the effect of different terms in given contracts.

There are different terms exist in a contract. If one fails, it may pose difficulties in a
contract.Hair Salon and mobile operator business of Linda Green used different terms that
affected their contract relationship (Taylor, 2009).

Conditions: Conditions are basis of any contract in contract law. If one of them fails or is
broken, the contract is breached. It is a major term in contract. Favorable conditions were

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 applied in the business of Linda. Suppliers agreed to supply the product at conditions that
were conducive to her business.
Warranty: It doesnt usually leads to the breach of contract but leads to the adjustment of
prices and payment of damages. It cannot end the contract. Mobile operator business of
Linda Green made home delivery and also gave warranty of their service.
Other terms like express terms were also useful in her businesses. All parties of Hair Salon
and mobile operator were agreed upon some terms. Thats why; Linda was asked to pilot new
products as when they were brought out. Some major terms discussed earlier have also effect
in a given contract. Intention of parties was important for starting contract. Capacities of
parties were critical at the formation of a contract (Basch, Schiller & Blanc, 2013).

LO3: Understand principles of liability in negligence in business activities.

3.1 Contrast liability in tort with contractual liability.

Each liability is based on the liability for failure to observe a duty imposed by law. Contract is
an agreement that is enforceable by law. If one party in the contract fails to perform under terms
of contract, that party incurs contractual liability. On the other hand, a tort is a civil wrong based
on the failure of one to perform ones duty in a reasonable manner so as not to harm others. Tort
occurs as a result of negligence. The person who fails to perform duty correctly incurs liability in
tort (Priest, 1985).

Illustration: Mr. X contracts with Mr. Y to purchase automobile at $100,000. If Mr. Y fails
to deliver the automobile within the due time, he will be contractually liable to Mr. X.
Similarly if X fails to pay the amount of automobile, he incurs contractual liability for the
loss sustained by Mr. Y.
Mr. X has a duty to control the truck carrying the product, to maintain proper efficient
drivers. If he transfers this duty to an inefficient driver and fails to deliver the product in
time, he incurs liability in tort.

3.2 Explain the nature of liability in negligence.

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Negligence is a type of tort or civil wrong. To be liable for something under the law means to be
responsible in some way for an outcome that results in the violation of law incurs criminal
liability. To be responsible that results in an injury to others causes civil liability.

Criminal negligence must be proven and it is difficult to prove. On the other hand, four factors
must be in considered in tort negligence. First, the defendant must owe some sort of duty to
either plaintiff or general public. Second, the defendant failed to honor the duty in some way.
Third, the plaintiff incurred some sort of injury like physical, financial and emotional. Fourth, a
reasonable person could have predicted that the defendants failure may cause injury to plaintiff
(Shavell, 1980). Negligence law has also some other features:

Children generally are not held to the same standard as adult;

Defenses against negligence: For an example, two people in a parking lot hit each
other with their automobiles and the judge finds that the first driver was 75% faulty.
So, the first driver cant sue the second driver. But the second driver can sue the first
one for 75% damage of total loss.

3.3 Explain how a business can be vicariously liable.

Vicarious liability is the responsibility of the superior for the acts of their subordinate. It is the
responsibility of a third party who entails the rights and abilities to control the violator activities.

It is an important term in the liability of negligence is vicarious liability. When a party is

deemed to be responsible for the negligence of another, as second driver usually regarding the
employees and the companies, vicarious liability is incurred. For an example, a truck driver of
Walmart Company dozes off and hits another car. Here, the both drivers and Walmart may incur
liability for the accident.

An employer in a business can be vicariously liable for an employees tortuous act against the
person or property of a third party. Under the principles of respondent superior, an employee can
be vicariously liable when the claim is based on tort. The officers and the agents in a business
organization who violate a duty owed to third person are liable to such person for their tort. A

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corporation is not only liable for the own tort but also for the torts of agents. Employees should
have right to entitle into the benefits which is the responsibilities of employer:

Providing insurance for each employee;

Listening and understanding the concern of job;
Recruiting and training the right people under right program;
Being liable for the damage.

By using the concept of vicarious liability, employees are encouraged to try using as much as
possible power to minimize the liability (Williams, 1957).

In given scenario, clients can claim for damages. Linda was responsible for repairing the
damaged mobile. Suppliers were responsible for Linda Greens injury.

LO4: Be able to apply the principles of liability in negligence in business

situations.

4.1 Apply the elements of the tort of negligence and defenses in different
business situations.

The elements of tort injure someone in some way and for which the injured person may sue the
wrongdoer for damages. The elements include defamation, intentional torts and torts for
negligence (Torts, 1992).

In the given scenario, Linda was concerned about employing reliable and experienced staff but it
was not easy task. Staffs were not available in the occasion and they were not trained properly.
For perm treatment, Linda Green didnt train properly the junior stylist and the stylist was unable
to follow Lindas verbal instruction. As a result, customers had to wait for a long time for service
and left the salon some time. Customers complained for that reason. Linda was responsible for
her negligence because she had not prepared the hair stylist by proper training. The assistant of
Linda also made a habit of leaving work. When Linda was not in salon, she left the salon half an
hour before the actual time of closing.

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In such way, the tort of negligence exists in Linda Green Hair Salon. For the defense against the
tort of negligence occurred, Linda decided to dismiss the hair stylists (Beatty,
Samuelson&Bredeson, 2012).

4.2 Apply the elements of vicarious liability in given business situation

Vicarious liability has been discussed earlier. Theelements of vicarious liability involve:
Claim for loss;
Training and recruiting right people;
Handling the liability occurred for negligence of other part
Provides employee benefits (Flynn,1993).
The application of vicarious liability in Linda Green Hair Salon was rapid. Customers would
complain to Linda for their damages. Linda was liable for the damages. This Hair Salon
Company procured hair dryer from their main wholesaler. But the dryers damaged after few
weeks use. They claim for loss and asked the wholesaler to exchange the hairdryers. But the
wholesaler didnt agree to exchange dryers. So, Linda Green was deemed to be responsible for
the damage occurred. Linda was also liable for recruiting and training right people for operating
salon. Once, a hair stylist kept customer waiting for a long time which was against their
principle. She was not the right staff to be trained. So, Linda Greens major concern was always
to recruit and employ the reliable and experienced staff to operate the Hair Salon (Linda Green's
Salon in Angier Jobs).

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Conclusion:

Aspects of contracts and negligence have been discussed in different view. We have focused
Linda Green Hair Salon business to smooth the understanding. To do any business, contract
making is significant. There are a large number of agreements incurred in a business
organization between two or more parties. When the agreement is more legal, it will be valid
agreement or contract in business. But negligence is a common phenomenon in contract of a
business. Negligence in tort and vicarious liability are two important aspects in contract
negligence. Both the concept helps us to enhance the practical knowledge of contract in business
context.
This paper has analyzed the aspects of contracts and negligence through proper academic point of
view. Organizations have to go with various types of agreements with different parties. To deal
with any parties legally, the parties should come with valid and written documents that must
meet the legal guidelines. Various other concepts mentioned here would help to understand the
basics of this filed.

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