Legal Business Contract


A legal contract can be defined as an exchange of promises which are done by two parties and that is enforceable by law. Law of contract have different aspects which require a specific consideration at the time of formulation of business contract (Marsh and Soulsby, 2002). The present research report focuses of various aspects of the contract by a specific state of affairs. It helps in understanding different essential elements of a valid contract in business context. Study focuses on application of all business elements of a contract in different business situations. Along with this research also moves towards the negligence of the business. It deals with the civil wrongs, duties and responsibilities of different persons in a contract. The current report includes different negligence principles and responsibility of different individuals as per the case scenario and business activities. Including this, investigation spotlights on how all these negligence principles of liability can apply in business situation.


1.1 Essential requirements for the formation of a valid contract

Importance of the essential elements for a valid contract is as follows:

Offer: For a valid contract appropriate offer is a very essential element. It is important for a contract because as per the contract law if there is no offer in contract then there will be no valid contract between both parties and courts cannot take any judgement on that contract (McKendrick, 2009). As per the case scenario, Micawber makes different promises to persons because he thinks that he will be getting lottery amount. In this case he offers extra wages to his grumpy butler for performing his duties with smile. But it is not a valid offer because there is no legal objective in this offer. He promises his sons to give £500 to pass his degree but is also not a valid offer because it is considered in the love and affection. Along with this Micawber makes some offer towards the doctor to give £150 for his skilful treatment (Nebbia, 2007). But it is counted in a legal offer because it cannot bind the doctor to provide a skilful treatment by such amount of money. Seller of the BMW offers the full price for purchasing the car and it is the legal offer because it is in the written form and it bound to the seller for selling that car to Micawber if he accepted his offer.

Acceptance: In a valid contract after having any offer the other party must accept that offer without any condition. In this, it is important for a contract because without a lawful acceptance the agreement would not be valid (Willett, 2007). In case of Micawber there is no lawful acceptance by all four parties. In present case grumpy butler, Micawber’s son and doctor accepted their offer by default so all these promises cannot be considered as a valid contract. In case of seller of BMW Micawber thought that if seller will be silent till Friday it means he has accepted Micawber’s offer. But as per the contract law silence of one party cannot be considered as a signal of acceptance (Aspect, 2014). So silence of the seller would not be a lawful acceptance for this contract. Thus, in this case there is no lawful acceptance by each party so it is not considered as a valid contract.   
Intention to create legal relations: For a legal offer and acceptance both parties must have intention to develop a legal relationship for a valid contract. But in the case scenario Micawber does not have intention to create legal relation with grumpy butler, his son and doctor. Because, son is blood relative of Micawber and he made promise with his son did not make any legal contract or agreement for completing his promise. However, there is no case laws such as invitation to treat, legal offers and acceptance so, is cannot considered as an intention to develop a legal relations.  On other hand, in case of seller of BMW he has an intention to create legal relation with him by purchasing his car (Essential elements of a contract, 2014).

Consideration: is important component for a valid contract in which both parties consider something in return for their exchange. But in the given scenario appropriate consideration is missing in case of grumpy butler and son. But for doctor he considers a skilful treatment for their extra payment as well as he considers that the seller will give him BMW (Negligence, 2014).

Certainty: In a valid contract both parties should be understand all terms of promises and regulations which are stated at the time of contract. Micawber does not have a valid contract with others because there is no certainty in their contract.

Capacity: For a valid contract, capacity can be measured by the legal capacity of both parties of the contract and it is an essential for the contract because it identifies the actual capacity of the contract. In case, except Micawber’s son all persons are above eighteen years old as well as no minor. So, all are capable for understanding the rules and regulations of contract (Brand and Davenport, 2012). Following parties are not able to enter into contract:

  • Minor
  • Lunatic
  • Insane
  • Individual disqualified by law

1.2 Additional formalities for essential elements of a valid contract

For the following contracts additional requirements are required to be accomplished in order to form valid agreement that will be enforceable by law:

Sale of property: In this type of the contract both parties must state all rules and promises of the agreement on a document in a written format. It will increase the legal validity of the contract. In the given care scenario Micawber have a written contract with the seller of the car because he states all conditions of the promise in the written format. In the written format and valid contract both parties needs to write a statement of rules and promises for this contract and it is included in the additional formalities for a written valid contract.

Distance contract:

In this type of contract both parties have some distance at the time of development of the contract. In the current case Micawber have distance contract with the seller of the BMW because at the time of promise formulation Micawber and seller were not present at the same place (Epstein, 2003). It was written distance contract in which promises were written down on a document as an additional formalities. Along with this both parties can use digital signatures to justify their contract. In such contract, postal rule is applied which is exception to the general rule when acceptance is considered valid if it is directly communicated to the offeror. In this regards, Henthom v Fraser case can be referred. Along with this, Article 9 of the European Directive of Electronic Commerce 2000 [Electronic Communications Act 2000, s8(1)] says that contracting parties are required to assume that their legal system permits contracts to be concluded by electronic means.

Unilateral contract: Unilateral contract is a legal agreement in which offer is made to general public. In this kind of contract, acceptance is based on performance. Further, in this case offeree is not entitled for the performance even after the acceptance of but offeror has to perform its obligations in a proper manner.

1.3 Role of consideration in contract

Consideration is a mutual obligation of both parties with each other. In a valid contract both parties have some consideration that each party will give something to other as per their promise. It is important for a valid contract because without a valuable consideration the court does not enforce that contract.

In the give case of Micawber have mutual obligation and a lawful consideration with doctor and seller of the car in terms of a valuable treatment and BMW respectively (Gray, 2010). There are three types of consideration; valid contract executor, executed and past consideration.

Validity of promises made by Micawber

  1. Promise made by Micawber to grumpy butler is valid because performance is possible and beneficial for his business. Thus, offer is appropriate.
  2. Promise made by Micawber to his son will be considered as domestic agreement in which party do not intend to enter in contractual relationship. Along with this, contract is form out of love and affection because of the blood relation. So this promise is not valid (Stilk v Myrick).
  3. In the given situation, promise is made on the basis of past consideration. As per the case of Currie v Misa in a legal term for a valid contract there must be sufficient consideration even if it is not economically adequate. According to the doctrine of consideration and contract law past consideration is not sufficient for any kind of action. Thus, this promise is not valid.
  4. Statement made in this promise is not valid. In accordance with the English Contract Law, mere silence cannot be considered as acceptance. Thus, his promise is not appropriate and it will not be considered in legal terms (Collins v Godefrey).

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2.1 Clause was incorporated in Jim’s contract with the Diva Theatre or not

The main terms of contract as especially in exclusion clause is the content of the agreement which includes the subject matter of the contract that includes both the parties related to it (Burrows, 2009). Next are the express terms which are the expressed language in contract that takes place between both the parties. These help in determining clearly the terms and conditions for both the parties as in the case of notice mentioned by Diva Theatre that it is not liable for any loss (Lawson, 2011).

The given case of Jim and Diva Theatre is of exclusion clause in which one party seeks to exclude the liability that is arising to it as a result of being under the contract. Here, Diva Theatre has excluded itself of the liability and accepts no liability in case of loss or harm or any kind of damage to property to an individual in the dressing room (Unfair terms, 2014). Exclusion clause is said to valid if it is inserted in an appropriate manner and it is not contradictory in accordance with the legal provisions. In accordance with the case of Olley v Marlborough Court [1949] 1 KB 532, it was said that notice of exclusion clause will be considered in ineffective in situation if it is provided after the formation of contract. From the given case, it can be said that the exclusion clause is incorporated into Jim’s contract is not in timely manner as the term was brought to the notice of Jim after the formation of contract.

2.2 Circumstances in which terms are incorporated into contract by notice

The courts held that exclusion clause will only be incorporated by three methods, that is, by signature, notice and previous course of dealings. The conditions in which terms are incorporated by notice includes that the party relying on it has to take reasonable steps in order to draw the attention of the other party. Like in the present case of Jim and Diva Theatre, the theatre has placed large notices regarding that it would not be liable for any harm or loss of property. For example, in one of the case of train travelling and entering a car park, Mr. A drove to the entrance of a multi storey car park before attending a performance at some public place. He took a ticket from the machine and this was followed by parking his car (Willett, C., 2007). The case that is referred to is of Thornton v Shoe Lane Parking Ltd. The ticket said that it is issued subject to conditions of issue as they are displayed on the premises. Apart from this, on the pillars of car park there was a list of one excluding liability for any injury to the customer that may be loss, damage or injury shall be caused.  After three hours later Mr. A had an accident before getting into his car. Then at the time of judgment, it came out that clause was not incorporated as the wider the clause then there is the requirement of having a wider notice which was not followed by the car park (McKendrick, 2009). Another example of train travel is taken from the case of Parker v South Eastern Railway Company, it was decided by the court that an individual would not be able to escape from a contractual term on condition of failing to read the contract. However, a party that wants to rely on an exclusion clause need to take some proper steps so that contract can be brought to attention of customer.

Idea of incorporation by notice differs from implying a term into a contract as implied terms are not mentioned in the contract as it is thought by the parties that the matter was quite obvious and they may not think it worth to mention it. The terms may be implied in fact or by law also. However, whatever might be the reason for omitting; the additional terms may be implied in the contract to fill gap wherever it is reusable to do so. Also, a term is not implied if there is inconsistence with express wording of a contract. Also, implied terms also mean practice of setting down default rules signing of contracts when terms by both the contracting parties choose to omit as they are considered mandatory and understood eventually. On the other side, incorporation by notice is mentioned and only one party declares it. Also, the party following the unfair terms and accepting no liability has to specify this with notice (Nebbia, 2007). Incorporation by notice is fulfilled only when notice of terms is given wither before hand or while agreement of contract is going on and terms need to be found in a document that further intends to become contractual.

2.3 Effect of Unfair Contract Terms Act 1977 and the Unfair Terms in Consumer Contract Regulations 1999 on the clause

The Unfair Contract Terms Act 1977 regulates the contracts that are based on exclusion clause and affects by restricting the legality and operation of some of the terms of contract. The Act renders terms excluding or making the limiting liability ineffective. This can also subject to reasonableness that depends on the nature of obligation that is purported to be excluded from the contract. It also oversees that whether the party that tends to exclude or limit business liability and whether or not it is acting against a consumer thus protecting the other party (Unfair Contract Terms Act 1977, 2014). The terms subject to reasonableness according to this piece of law are negligence, contractual liability, indemnity clauses and misrepresentation. The act provides protection to consumers from parties that might be acting against them.

Another act Unfair Terms in Consumer Contracts Regulations 1999 is in conjugation with the above act. The Act affects the exclusion clause as it works to render those terms ineffective that can benefit the seller or supplier or the party that is not accepting any liability against the interests of the other party in contract. Both the acts are into protecting the other party by not accepting some of the terms of exclusion clauses (Unfair Terms in Consumer Contracts Regulations 1999, 2014). Both the acts are under the aspect of fairness and reasonableness as both are rendering those terms ineffective that can allow a party or seller to act against the other party or customers.

2.4 Diva Theatre be able to rely on clause or not

According to the case, Diva Theater will not be to rely on the clause as here insertion of exclusion clause is not in timely manner because notice is provided after the formation of contract. By considering this aspect Diva Theater is not in position to rely on the clause (Kelly, Hammer and Hendy, 2014). Due to this aspect they will be obliged to provide damages to the injured party for the loss occurred due to theft.

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3.1 Liability of the Negligence in a business

Negligence can be defined as failure to perform a specific duties and responsibilities which are imposed by law due to the let down in duty of care of business. Negligence notifies that how much care is required for a business towards other persons and employees (Busch, 2006). For example; if a driver who is drunk and drive the car in a speedy way and injure someone then it will come in the criminal negligence. Negligence has three principles; these are:

Duty of care: It is a significant principle of the Negligence which comprises some legal responsibilities and obligations which are imposed by the law for developing a standard and reasonable care for their actions (Morgan, 2011). This legal obligation is required for the business for developing a liability of individual towards others in case when their actions can harm other. Duty of care is a significant liability for the negligence of the business because it will be helpful for the claimant in case of breach of duty. Negligence can be applied through the duty of care without any direct relationship between both parties, because as per the tort law individuals have some responsibility in some manner. For example: Doctor has a duty of care towards their patient for a skilful treatment and appropriate medical attention (Nystén-Haarala, Lee and Lehto, 2010). In the case precedent of Donoghue V Stevenson, defendant was manufacturer of beer thus his duty was to provide healthy products to the product which does not contain inappropriate ingredients.

Breach of duty: It is also a negligence liability. It can occur in case when an individual has some duty of care with another but he has failed to provide a standard concern towards negligence principle. Due to their negligence if any person suffer from some type of injury then he is liable for another person’s damage. For example: If a doctor provides unusual medical treatment to their patient and due to his treatment patient has died (Tikkanen and Kaleva, 2011). In the case of Donoghue V Steveson, decomposed snail emerged out of drink of defendant. This act shows breach of duty by Stevenson.

Remoteness of damage: It is an important liability of negligence in which test of causation of damage is essential for determining the liability of defendant towards the injury of damage (Tomprou and Nikolaou, 2011). For example if hotel provides warning session towards the construction sites and restricts tourists to go in that area but if Neil who read that warning notice and ignore it and went towards the construction side and has suffered from physical injury. In this case hotel is not liable for his injury because of the remoteness of damage. As per the case of Donoghue v Stevenson remoteness of the damage was the negligence of the manufactured of the beer bottle. Due to negligence of Stevenson injury was occurred to claimant.

By considering above case it can be noticed that all the principles of negligence were satisfied in this case. Due to this aspect claim of claimant was held successful and she was in position to recover the damages.

3.3 General defences to negligence

To obtain successful protection against the negligence defendant can use some defences which states that remoteness of damage is his/her breach of duty and also with this he exercised all duty of care with effective standards for duty of care (Bonell, 2009). There are some specific defences to negligence, these are:
Contributory negligence: this defence can be used by defendant in case of Saville LJ in Marc Rich & Co v Bishop Rock Marine when claimant did not follow some necessary standards for taking protection towards the damage. In this negligence claimant can avoid the injury but he or she avoid it and negligent towards it and suffered from losses. For example: A garage owner has provided helmets to their employees for wearing at the time of welding operations. But is one employee suffered from the burning injury of his face due to the avoidance the use of helmets. In this case, employer can use the defence of Contributory negligence for reduce his liability towards the employee loss (Harpwood, 2000.).      
Comparative negligence: In some cases when claimant involves in the illegal activity and also has some liability in their own damage than defendant can use the comparative negligence to reduce percentage of remoteness of damage. For example: if a driver has drunk and hit his car to a person who has crossed the border for walking distance on road. Than in this case driver can use the comparative negligence for reducing their liability towards the injured person because in this case injured person is also have equal fault in damage (Kelly, Hammer and Hendy, 2014).

Assumption of risk: This negligence can occurs in case if claimant has assumed any type of risk in such types of dangerous action but he or she engage in that activity anyway. In this case he or she cannot be claim on defendant for their damage and defendant can use the defence of assumption of risk. Including this, Ex turpi causa non oritur actio in included in the legal doctrine which states that in one person is engaged wiht the illegal activity than they cannot claim on another for their damage which arising out of that activity. In such type of situations illegal contract is enforceable by law. For example: In the competition of rock riding participants has assumed some risk even after they takes part in that competition and faced some injury than in this car sponsor of competition has no liability towards the injury of participants (Lawson, 2011).

3.3 Vicarious liability of employer for the tort of their employees

As per the vicarious liability employee of the organization are responsible for safety and security of their employees. According to the occupiers Liability Act 1957 owner of the business is vicarious liable for the effective working environment and safety and security of their health during the working hours. It comprises the liability of employers, parental and principles. As per the vicarious liability parents of the children are responsible towards their children for providing a specific cares and concerns (McKendrick, 2009). For example: If Sam was delivering a parcel to a specific client and at that time he hit the ATM on the way to the destination of delivering the parcel. In this situation as per the vicarious Sam and his boss both are liable for this damage. Vicarious liability can be checked by the different testing such as integration test and control test, etc. For example in case of master and servant integration test deals with that master’s and servant’s degrees of involvement in the organization. Along with this control test deals with the ability of employer to control the action of the employee. For example, control test will found the ability of master to monitor the activity of servant. Employer will be held responsible for the negligent action in situation where misconduct is occurred in course of employment in provided rights and duties. Course of employment can be defined as period in which employer is in position to control the actions of employees.


Negligence in the area of tort law implies harm that is caused by carelessness and it is not an intentional harm. The given case is of Carl who was injured because of breaking down of car that was not repaired properly by an employee of Slapdash Garage. Because of breaking down of car in midway he sets off to the nearest village where he was struck by a car that was negligently driven by Bill and suffered from amputation of leg.

Applicability of principles of negligence (case of Andy and garage)

  • Duty of care: By considering the above case It was the duty of Slapdash garage and his employee Jenny to use authorized machinery parts during the repair of the car.
  • Breach of duty: In this case employee of the garage had used cheap mechanical parts. This action shows breach of duty by the garage. Due to this aspect, the defendant as the garage and Jenny breached the duty of care they owe to Carl (Negligence, 2014).
  • Causation and remoteness of damages: Due to the act of garage Carl was injured as accident occurs.

Applicability of principles of Vicarious liability (case of Andy and garage)

Garage will be held responsible in this case for the act of their employee. It is because, it was obligation of garage to ensure that proper mechanical parts are used by their employees. However, they failed to do so. Further, negligent action was occurred in the course of employment. Due to this aspect, they will be held obliged to provide damages to the Andy for the negligent action of their employee.

By considering above described aspect, Slapdash Garage will be vicariously liable to provide damages to Andy for the negligent action of employee. However, it will not relinquish the obligation of primary culprit i.e. Jenny. She will also be liable to provide damages to Andy because all the principles of negligence are satisfied in it.  
Applicability of principles of negligence (case of Carl and Andy)

In the given case, injury caused to Carl was because of breaking down of his car in the mid way that was repaired by a mechanic Jenny of Slapdash Garage. However, in the case of Carl defence negligence of voluntary assumption of risk as he should not sit down on the grass in the middle of the night and when beaten by the dog it can be assumed that he might be having knowledge that sitting on the grass can prove to be risky for him (Nystén-Haarala, Lee and Lehto, 2010).


The present research report concludes that a valid contract has different essential elements such as offer and acceptance, consideration, intention to create legal relationship, capacity and certainty, etc. It has described different types of contract face to face, written, and verbal and distance contract. Along with this a valid contract different express and implied terms by which one party can exclude their liabilities towards damages. Contractual and tortuous liability have difference in terms of remoteness of damage, duty of care, breach of duty, etc. along with this employer of the organization are vicarious liable towards the workforce of the organization towards their safety and security.


  • Craven, P. and Hay, D. 2004. The criminalization of free labour: Master and Servant in comparative perspective. Slavery and Abolition.
  • Donohoe, S., 2009. The new Construction Act 2009: implications for building surveyors. Structural Survey.
  • Epstein, R. 2003. A common law for labor relations: a critique of the New Deal labor legislation. Yale Law Journal.
  • Gray, J., 2010. Legal commentary.  Journal of Financial Regulation and Compliance.
  • Morgan, P., 2011. The Modern Law Review. Wiley.

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The Law of Negligence

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