LO1 Understanding the essentials of valid contract in business context



The most important elements of the valid contract are offer and acceptance. These elements are essential to determine whether valid acceptance has been made between offeror and offeree. Offer is required to be made in appropriate manner so that there are fewer chances to commit errors. In case offer is not made in effective way then there will not be any valid contract and this offer will be invalid. For instance, as per the case of Colin and shields who are merchants of hide in London, an offer was made by them to Mr. Hartog. This person is Dutch furrier who is offered to purchase Argentina hare skin at a price of 30000 skins at 10d per piece. The agreement was shown by Mr. Hartog verbally. Written offer was made to Collin and shields it was provided that they would purchase hare skin at an amount of 30000 skins at 10d per pound. This price is third of what was offered earlier. This price was demanded by Mr. Hartog but it was not acceptable by Colin and shield and they refused that so legal relationship exists between them. The offer included mistake. Hare skin can be sold per piece rather than per pound. Mr. Hartog felt that selling it per pound would be beneficial for him (Hartog v Colin & Shields, 1939).

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An offer is required to be distinguished from invitation. Invitation for the purpose of treating is identified as preparation to make an offer that can create legal binding (Business Law, 2010).

An intention to create legal relationship

In an agreement, legal binding created is referred to as intention to create legal relationship. But it is not essential that all the agreements are contract. The existence of intention to create legal relationship is significant for any contract as it states which case be put before the law court for action. For example: an agreement to meet one of the colleagues for lunch cannot create legal binding but it is an agreement. But in case when new business has to be commenced with a friend, this agreement would imply certain legal implications. Thus for this sake, agreements are categorized into two, Commercial agreements and Domestic and social agreements.


When the term of offer is accepted then it is shows acceptance of concerned party involved in formulation of valid contract (Business Law, 2010). This can be inferred by action, words or conduct. But there are certain rules to acceptance which have to be followed:
Clear as well as certain agreements must be made: It is required that acceptance must match with offer terms. If two terms exist in an offer then there is no valid contract (Tinn v Hoffman & Co, 1873). Other than this, offer must have set objectives and it has to be reasonable. An unclear offer cannot be enforced (Cammell Ltd v Ouston, 1941).


It is consisted of right, interest, benefits or profit which is acquired by one party concerned with contract. Another party receives responsibility, detriment or some patience (Business Law, 2010). In consideration, bargaining is done by promisor and promisee. Both the parties will attain something that may be benefit or detriment. Without consideration no contract can create legal binding.


Types of contract are categorized into three. These are law by conduct, distance selling and change of impact by form of contract. These contracts can be written, oral or mix of both.

Face to face contracts

In this type of contract, face to face interaction is made by all the parties so as to formulate contract. The terms of conditions and warranties are known by both the parties in such contract. Thus, their agreement can also be determined. The people who know each other generally enter into face to face contracts.

Written contracts

This type of contract is regarded as the most trusted format while entering into contract. Written contract is a document which is signed by parties to contract. With this parties can be protected against breach of contract as it an evidence that reflects association of persons. The contract of consumer credit, share transfer, and land are required to be made in written form.

Contract made in written format contains necessary terms which are essential for each party to know. This contract can be modified by writing only. The evidence declared orally cannot be added, contradicted and varied in written document. This is known as parole evidence rule. The case of Hawrisk v Montreal in 1969 is based on this parole evidence rule. As per this case, a guarantee was signed by a solicitor with bank. Under this, interest was shown in company’s liabilities by solicitor to busy assets of another company. An oral assurance was provided by assistant manager of bank that when joint guarantee will be received from company only then guarantee would be released. Later the firm became insolvent. With effect to this, solicitor was not free but guarantee was gained. The solicitor claimed that guarantee was given. But at this, court refused as it was made orally. Thus, it has no evidence which can be proved. As it contradicts guarantee bond terms hence no collateral agreement was found (Hawrish v Bank of Montreal, 1969).

Conduct contracts

Such type of contract is on the basis of action but not on words. This creates impact on both the parties regarding not to disrespect certain aspects. Thus this will represent that no errors are committed as contract terms exist. The case of Brigden v Metropolitan railway (1877) is an appropriate example to conduct contract.

Distance selling

The aim of this type of contract is to ensure protection of buyer. This contract is made between seller and buyer. It can be done in written as well as oral so that confirmation to the terms of contract can be shown. Moreover, the customer can know on what basis are the terms. But in distance selling, 7 working day period is granted to buying party to cancel payment or put through again. Thus, these types of contracts are less reliable as they are mostly agreed upon orally.


There are two terms under contract law that is express and implied terms.

Express terms are those which are mentioned and defined in meaning through written document or oral communication. These terms are mentioned by both the parties to each other and they have agreed to this before the emergence of acceptance. Thus, no dispute may arise as the terms are clearly mentioned and parties to contract have shown their agreement to it.

On the other hand, implied terms are very different from expressed. They are not expressed or mentioned beforehand. This is because these terms are deemed to be obvious. As contract, may not be carried out commercially without their implication. Statue terms and court terms form mostly emerge in case of implied contract.

In addition to the term discussed above, there is one more term that is exclusion clause. The meaning of such clause is that either any party can limit or smother its liability in some cases. If this clause is added to the contract then in case of any fault party can protect itself for the loss caused by another party because of misdeed conducted by them (The Law Teacher, 2014).

LO2 Application of the elements of contract in various business situations


Business scenario 1

Miss Kaur showed her interest in buying a pen present at a shop which cost £1050. She asked shop assistant to sell her at £800. But he refused and counter offer of £950 was made by him. Miss Kaur replied that she would think for while before making purchase. Thus the shop assistant refused to sell her. When Mr. Kaur returned back, she analyzed that the pen was already sold by shop assistant at £1000.

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An auction is not considered as offer but there was an invitation to treat. Thus, Miss Kaur cannot claim. Advertising contains the information regarding auction but it was not stated that it an offer. Therefore, it is considered just an invitation to treat. So, under this case she can claim for the cancellation of auction.

There is a valid condition that shopkeeper sold the pen without waiting for Miss Kaur. She cannot claim for cancellation as there was no contract between them. Moreover, there was no legal binding on the shopkeeper to sell as no consideration was given by Miss Kaur. Along with this, the final offer made by shop assistant was not accepted by her rather she asked for some time to give a thought.
There was no acceptance made by Miss Kaur, thus under this case, shopkeeper has full authority to sell pen to others.

Business Scenario 3

A business of construction was commenced by Mia and work was allotted to him by his brother and friends with a promise that they will pay £1,000 and £2,000 respectively as and when the work gets finished by him.

When the work was over, both of them refused Mia to pay the money. They said that their purpose was to assist her in providing work.

Under contract law, it is stated that to create a valid contract, there must be intention to create legal binding. Moreover, the other essentials of valid contract that is offer, acceptance, capacity and consideration are also essential. In case of domestic contract, the legal relationship generally does not exist. However, intention to be in legal relationship occurs in case of commercial contract. In case of domestic contract, intention can be created if necessary proofs exist (Soulsbury v Soulsbury (2007). (Macsain, 2014).

As per the given case, Mia can claim for money as there was intention to create relation by her friend and brother. So, Mia in this case can recover the amount.


A standard form presents the terms in relation with bargain among parties. This intends to embody consensus among the parties. Thus it represents the act that is enforceable by law. Unfair contract terms Act 1977 demonstrates that trader that deals with customers or deal with his own written standard business terms cannot exclude his liability for breach of contract. Moreover he cannot offer inadequate services until he does not satisfy the clause related with test of reasonableness. Further the trader cannot require consumer for the purpose of indemnify him against the loss that can be beard by customer due to act of negligence. It involves breach of contractual duty in order to take reasonable care or exercise reasonable skills.

Terms that create significant imbalance in the rights and obligations of parties to the detriment of consumer are referred as unfair. Mr John has signed the contract for computers from Mr Bob. But some were defective. This was the exemption clause and proved to be unfair with regards to unfair contract terms. Mr John has asked to terminate the contract and wanted refund. But the trader refused this. Such reflects unfair terms in consumer contracts regulation Act 1999.

An agreement among two parties who don’t carry transaction is known as law of standard structure. It follows take it or leave it strategy.

The case of John and Best computer is accurate example that shows provision regarding law of standard structure. John was showing his interest in entering into contract with Best computer but he was not satisfied with the condition that organization will not claim damages in case any default in caused by PC’s. Also, John was provided with the information that business cannot change this condition for single client.


Business scenario 4

Y was employed by X as research assistant for salary of £25,000. There were certain conditions and terms applied under this. It was mentioned in terms that research assistant must be dressed in appropriate manner every time. He was not allowed to wear trousers. Moreover, it was presented that researcher will have to work for hours until and unless the assignment given is not finished.
On 1st June, Y was asked to generate statistics with specific duration by X. The work carried by Y the whole day till the midnight but he was not able to finish it on 1st June. The next day Y came to office at 7am to accomplish the work. X found such situation and also realized that Y was wearing trousers at work. This reflects the she was breaking the provisions of contract. Thus, she was expelled out from the job immediately and because of this Y became upset and went into depression.

Y can claim against X as to complete the work she was enforced to be in the office till late night. Under working time regulation, 1998 this condition is not tolerable. Every worker has the right to claim if they are provided with 11 hours rest in working days. The express term that researcher is required to work until it is not finished is unfair contract terms act of 1977. Y was told not to wear trousers and this request was accepted by her. Thus dismissal based on this is unjustified as it was just breach of warranty. Y has every right to claim for damages as she went into depression because of unfair termination.

LO3 Understanding principles of liability in negligence in business activities


For the purpose of law suit tort and civil wrongful are prepared. The physical injuries caused come under civil wrongs. They can be claimed for compensation. The objective of tort law is to make victim satisfied by compensating him for the injuries caused. The compensation is provided for loss of earning capacity, pain, medical cost and suffering.

Under tortuous liability, legal obligation is put on one party if any damage is caused by him to another party. This liability emerges when damages, injuries are caused to victim by violating the rights. Such cases are dealt by the court independently and they determine the exact party who is responsible for the damages. Thus, the party causing damages will be obliged to compensate for losses.

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But it is stated that liability in tort law is implied for third party, though there were no terms of contract between third party and the offer. The products and services are offered to third party who was liable to provide duty of care. But this has caused damages to third party and thus was liable. Ward vs Tesco store CA 1976 case is the best example to this. In this case, the victim got injured after slipping in yogurt pot as it spilled out on the ground of the supermarket. This demonstrates that Tesco store was liable for the injuries caused to Ward. Thus, it was agreed by court that duty of care principle has to be accomplished by Tesco store as and when she entered the store premises. Thus, Tesco has tortuous liability in this condition.


Liability in negligence arises when one party causes civil wrong to other. This is caused due to failure of one party to perform certain duties. This may result in harming others which is not acceptable as per law to cause civil wrong. This obligation may arise when one party is careless about certain situation and because of this harm is caused to another party. There are four conditions which must be met under this:

An owe or general populace must be made to offended party by an individual or entity.

If individual or entity fails to fulfill the first condition then obligation arises.

The damages may be caused to offended party when the individual and entity have not accomplished first condition.

It can be predicted by any reasonable person that because of failure to act upon first condition individual or entity has caused damages to offended party or general populace.


The existence of relationship between the parties gives rise to liability for tort of others. The doctrine of English tort law provides that employer is liable in case any default is committed by employee. While employee is performing the duty, the employer will be liable for any tort conducted by them.

An employer will be set liable for any discrimination or harassment conducted by them at workplace in relation to person employed. The obligation is put on them without giving due consideration to their size. Until and unless any reasonable steps are taken to reduce the liability are shown. Such legal obligation is termed as vicarious liability.

The definition of reasonable is not enumerated under legislation as they may differ depending on the type of corporation which may be small or large. It works as per the case. But it is required that potential measures need to be taken by employer so that risk attached with discrimination and harassment can be minimized. The checklist of all reasonable steps is included in fact sheet which provide guidance.

The provision regarding vicarious liability occurs when discrimination and harassment is done against the person employed. Thus it can be analyzed that employer will be vicariously liable for the acts performed by employees; and reasonable steps are taken to minimize the risk in relation to harassment and discrimination which may occur in usual work environment. Moreover, it may occur at employer events such as sponsoring seminars, work functions, parties, business trips and conferences. Any damage caused at this point to employee will hold the employee liable for it.

LO4 P4 Application of principles of liability in negligence in business situations


While defending against the negligence of law suit it is essential that the defendant was trying to identify the elements of plaintiff’s course of action. The five elements to this are breach, scope of liability, damages, causation and duty.

Business scenario 5

UK ship without spilling was taking oil around the Sydney harbor. The spilling of oil was drifted into Wharf. It is the area where use of welding machines is generally done. Because of oil Wharf was put to fire. The fire was caused because of spark caused due to welding equipments and a piece of cotton lighted. The fire caused damages to welding machines present at Wharf as well as injuries caused to workers performing their duty.

In case of negligence of tort, the wrong doer is obliged when they commit breach of duty of care. However, he is only liable in case when breach of duty has caused injury to the victim. The tests such as reasonability, proximity and foreseeability if are satisfied then in such situation duty of care is breached by wrongdoer (Caparo Industries plc v Dickman (1990) (Souper M, 2008).

From the application of law stated above, it can be evaluated that the owner of Wharf cannot claim suit against ship charter as the damages which occurred were uncertain and unforeseen. Thus there exists no proximity. Therefore, the owner of Wharf may not file suit against charter of ship (Wagon Mound case (1961).

Business scenario 6

Bell was employed by Shell to perform duty as to maintain vehicles. Bell was already suffering from the defects of not able to view things from one eye. A chip of metal flew in his other eye and caused damage to it too. Thus Shell will be liable as it is his duty to provide Bell with personal care equipments such as glasses for eye protection.

The law of negligence provides that obligation is on the part of wrongdoer. Liability arises when he breaks the duty of care which he owns and this breach of duty has caused damage to victim who has suffered with damages.

However, it is essential that duty of care arises from the foreseen situations. Moreover, there must be an existence of proximity between sufferer and wrongdoer (Souper M, 2008).

In the given case scenario, Shell will be liable to Bell. This is due to breach of duty of care. The damages were unforeseen but proper safety equipments were not provided to Bell to prevent his eyes from damages. Therefore, this sets Shell liable for the injury caused to Bell.


Business scenario 7

The Safe Care Homes Ltd employed Alf as warden of children care home. He was blamed that he sexually abuses children while performing his duty to care. The guardian of children wants to file suit against Safe Care Homes Ltd. The deeds of employees will make Safe Care Homes Ltd liable to guardian of children.

The case above is about the law of vicarious liability. Hence in this case, vicarious liability of the employer originates. Thus, he will be liable for the actions performed by his employees. But it is necessary that actions are performed at the time of employment. Moreover, personal nature must not be there. In the case scenario, the employer is obliged to compensate for damages for the acts of his employees. Hence, Safe Care Homes Ltd would be liable for the actions performed by Alf during his course of employment. This is because Alf was employed in Safe Care Homes Ltd. as warden. Thus, it would set Safe Care Homes Ltd. liable in case any default in done within the period of employment.

Business scenario 8

A pump attendant named Amos was performing his job with AB and Sons garage ltd. It was found that Amos was making an attempt to steal diesel. This raises his conflict with Mr. Khan. Moreover he caused injury to Mr. Khan by hitting him. Thus, for the deeds committed by Amos, Mr. Khan filed a suit against AB and Sons garage ltd.

In this case, law of vicarious liability occurs. This law states that employer will be set accountable for the actions of employee while performing their duty. It also states that the deeds must be committed by employer at work and they must be of personal nature. That means that they may not arise due to personal enmity between the parties (LexisNexis, 2014).

As per the above case, Mr. Khan cannot file suit against AB and Sons garage ltd. This is because the act done by Amos was of personal nature. Thus Mr. Khan can take actions against Amos and not AB and Sons garage ltd. as the action were not related to employment course.

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