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LEARNING OBJECTIVE:O1
Understand the essential elements of a valid contract in a business
context.
IMPORTANCE OF THE ESSENTIAL ELEMENTS OF A VALID
CONTRACT :
Contract is an agreement between two or more persons for doing or not doing of anything
particular. There must be two parties agreed upon the supposed activity regarding business/
donation/ job/ between employer and employee/ client and institution. All agreements are
contracts if they are made by the free assent of the parties, competent to contract, for a lawful
consideration, with a lawful entity, are not expressly declared by the Act to be negated, and
where necessary, satisfy the requirements of any law as to writing or attention or registration.
Following are the essentials of a valid contract:






Parties
Free consent
Lawful consideration
Lawful object
Registration

Suppose A & B enters into a contract where A is the manufacturer of school shoes and he agrees
to sell 20 shoes each at $10 to B (who has a shop containing shoes materials) up to 20th
December 2013. It was mentioned in the contract that B will pay the price after receiving the
material on 20th December 2013. The contract was then signed by both the parties and was
registered under section 17 of the Registration Act.
In the above mentioned contract all the requirements of a valid contract has been fulfilled i.e. A
& B are two parties who are major and sensible. They entered into a contract willingly without
any force or fraud and if there is some consideration that is money which B will give to A after
receiving the shoes. The object of both the parties is legal, one is selling its good for earning
money and the other is purchasing goods for his shop and also for selling and getting money. The
contract was registered and the date for the delivery of goods was also mentioned in the contract.
IMPACT OF DIFFERENT TYPES OF CONTRACTS:
VALID CONTRACT:
One that meets all requirements of law, is binding upon its parties, and is enforceable in a court
of law.
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A contract that complies with all the essentials of a contract and is binding and enforceable on all
parties
VOIDABLE CONTRACT:
Voidable is a term typically used with respect to a contract that is valid and binding unless
avoided or declared void by a party to the contract who is legitimately exercising a power to
avoid the contractual obligations.
EXAMPLE:
An example would be where a painter is contracted to paint a building. The building is
demolished by a tornado before the painting can take place. The contract is voidable by building
owner or painter since the subject matter has been destroyed.
VOID CONTRACT:
A contract that meets any of the following criteria:
(1) It is illegal from the moment it is made; (2) It is legal but declared null by the courts because
it violates a fundamental principle such as fairness, or is contrary to public policy; (3) It becomes
void due to changes in law or in government policy; or (4) It has been fully performed.
EXAMPLE:
A contract between illegal drug dealer and an illegal drug supplier to purchase a specified
amount of drugs for a specific amount, either one of the parties could void the contract since
there is no lawful objective and hence missing of one of the elements of a valid contract.
ANALYZE TERMS IN CONTRACT WITH REFERENCE TO THEIR MEANING AND
EFFECT:
Different terms used in contracts are:
Breach of contract - failure by one party to a contract to uphold their part of the deal. A breach
of contract will make the whole contract void and can lead to damages being awarded against the
party which is in breach.
Considerations-giving some amount of money or incentives for damage.
Express terms- the terms actually stated in the contract. These can be the written terms, or
verbal ones agreed before or at the time the contract is made
Implied terms - are terms and clauses that are implied in a contract by law or custom and
practice without actually being mentioned by any party.

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Injunction - a remedy sometimes awarded by the court that stops some action being taken. It can
be used to stop another party doing something against the terms of the contract. Injunctions are at
the court's discretion and a judge may refuse to give one and award damages instead - see the
finance contract terms below.
Misrepresentation - where one party to a contract makes a false statement of fact to the other
which that other person relies on. Where there has been a misrepresentation then the party who
received the false statement can get damages for their loss. The remedy of rescission (putting
things back to how they were before the contract began) is sometimes available, but where it is
not possible or too difficult the court can award damages instead.
Liability - a person or business deemed liable is subject to a legal obligation. A person/business
who commits a wrong or breaks a contract or trust is said to be liable or responsible for
Liquidation - the formal breaking up of a company or partnership by realising (selling or
transferring to pay a debt) the assets of the business
Ratification - giving authority to an act that has already been done for example a principal can
choose to ratify the act of an agent that was beyond the specified power of the agent.
Trademark - a registered name or logo that is protected by law. Trademarks must be granted
through the Patent Office
Equity - the monetary value of a property after any claims, such as a mortgage, are taken away.
Insolvency - the situation where a person or business cannot pay its debts.

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LEARNING OBJECTIVE:O2
Be able to apply the elements of a contract in business situations.
APPLY THE ELEMENTS OF CONTRACT IN THE GIVEN SCENARIO:
The contract cannot be considered as a legal contract because all the essentials of a valid contract
were not fulfilled so the contract cannot be enforced in the court of law because:
Madam Anne got ill and she was not present on the opening of the opera which violated the
contract. The producer had no other choice to hire another singer because he could not bear up
all those huge loss.
The substitute was arranged on her insistence to perform on all the performances but the owner
showed no acceptance and remained silent. The contract lacks material dates and facts of the
substitute there is no proof as both the parties has no seal. So there is no obligation on the owner
to hire the same substitute for the remaining performances.
EVALUATE THE EFFECT OF DIFFERENT TERMS IN THE GIVEN COTRACT
VOIDABLE CONTRACT:
Some essentials of the valid contracts were missing which makes it voidable and is not
enforceable in law.
ACCEPTANCE:
There is no contract unless and until the offer is acceptance by the person to whom the offer is
addressed. Acceptance is normally made verbally or written.
CONSIDERATION:
There is no price of the services discussed or time frame. The owner remaining silent is refusal to
carry forward the offer.
APPLY LAW ON TERMS OF DIFFERENT CONTRACTS:
In the given scenario when employer agrees to make an ex-gratia payment to the employee who
they are making redundant, this payment is not made in the contract so it has no lawful
accountability on the employees. The compensation isn’t done legally; instead it is made in terms
of ethical commitment. When ex gratia payment is made then it has a no legal value and did not
fulfil the specific terms of contract.
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Term and conditions are applicable to goods as well as to the business to business. In some cases
it varies from business to business and from goods to goods but generally the legal terms remains
same for all i.e. size of the business, legal requirements, etc.
The differences mainly speak about to the nature and business, certain things will always remain
the same i.e. costs and products, payments on delivery, etc.
Importance of these terms is that they are helpful for the contracting parties and it enables the
parties to understand about the business and to enter into it, if it seems fit to the party. They are
not only helpful for the parties but also to the others and after signing these terms and conditions
the parties become legally bound to follow these conditions otherwise they would be held liable
and for any breach and the other party will be allowed to ask for damages or for specific
performances. It is applicable to the above mentioned case in the way that there was a term in the
contract between employer and employee that at the time of making an employee superfluous the
employer will make an ex-gratia payment to him. So the employer is bound to pay the ex-gratia
payment.
FORCE MAJEURE:
This clause is included in contracts to remove liability for natural and unavoidable disasters that
interrupt the expected track of events and restrict participants from fulfilling obligations.
RETENTION CLAUSE:
Provision in a contract is that it allows a customer to withhold a part of the contract price until
the determination that the project or goods meet the determined or standard specifications.
PRICE VARIATION:
It is a clause inserted into a contract which allows a business or company to sell goods at
different prices. The best example for this could be petrol, as they change their prices every day.
DAMAGES:
In law, damages are a reward typically of money to be paid to a person as compensation for loss
or injury.

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LEARNING OBJECTIVE:03
Understand principles of liability in negligence in business activities.

CONTRAST LAIBILITY IN TORTS AND CONTRACTUAL LAIBILITY:

Torts liability

Contractual liability

-One party is intentionally harmed by another
party

-One party fails to abide the contract

-The breach of contract is based on the
fraudulent conduct of one of the parties and is
considered in the same lawsuit.

-The breach of contract issue must be heard in
one lawsuit, and the assault claim must be dealt
with separately.
-they just pay for the damages

-The party must pay for the damage and also for
-expectation losses
future reimbursement,
-compensatory losses

EXPLAIN THE NATURE OF LAIBILITY IN NEGLIGENCE:
Careless behavior due to which a person has caused an unlawful act for which he might be
sued.When a court finds that a person has been negligent it is making an ex post assessment of
their conduct. A person who totally disregards the safety of others but does not injure them is not
guilty of negligence, although they may be morally reprehensible. On the other hand, the person
who tries their best, but falls below the standard set by the court and causes damage, will be
liable. The standard set is an objective one. The court will apply the test of what a ‘reasonable
man’ would have done in the defendant’s position. One effect of this test is that no account is
taken of individual disabilities.
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negligence has three main elements:
 The defendant owed the claimant a duty of care.
 The defendant breached that duty of care.
 Reasonably foreseeable damage was caused by the breach of duty.
If an there is an car accident and people are injured so the driver might be sued to pay all the
injuries and the drivers proves that it happened due to negligence than he is protected against
three types of harms




Personal injury
Damage to property
Economic loss

HOW A BUSINESS CAN VICARIOUSLY LAIBLE:
For example, an employer can be held liable for the unlawful actions of an employee, such as
harassment or discrimination in the workplace. Even though the employer is not the one who
committed the unlawful act, the employer is held liable because it is considered responsible for
its employees' actions while they are on the job and it is considered to be able to prevent and/or
limit any harmful acts performed by its employees. The employer may be able to avoid vicarious
liability by exercising reasonable care to prevent the unlawful behavior.
Suppose if an abc company owner hires a sales person in March of 2014 to deliver and stock
bakery products on store shelves. Given his own territory, the owner made stops at local stores to
replenish previously delivered products for consumer purchase. Sometime on May 1, 2014, when
the owner arrived at store to stock the shelves, but noticed that the prime shelf space was not
available.
After exchanging words with salesperson over the use of specific shelves, owner violently
assaulted sales. On his way out of the store, owner even threw products on the floor.
Salesperson sued Company for damages he suffered at the hands of their employee and won.
The simple test proved that owner was working for company, making him an agent, or
representative of the company at the time.
During that time, he violated the company's duty of care to an entity or relation to the company
and an injury was suffered as a result. It was the court's belief that regardless of whether the
employer knew of, authorized or whether the act was willful, the employee acted within the
scope of his job.

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LEARNING OBJECTIVE:O4
BE ABLE TO APPLY PRINCIPLES OF LAIBILTY IN
NEGLIGENCE IN BUSINESS SITUATION:
APPLY THE ELEMENTS OF THE TORTS OF NEGLIGENCE AND DEFENCES IN
DIFFERENT BUSINESS SITUATIONS:
CONTRIBUTORY OF COMPARITVE NEGLEGENCE:
This law states that if a plaintiff (a person who brings up case) is partially responsible for the
harm than his defendant from the may be reduced. The reason for which the recovery of the
plaintiff is reduced is because the harm was due to his own negligence.
EXAMPLE:
For example, if the jury decides that the plaintiff has sustained damages of $100,000.00, but that
his own negligence was one-fourth the cause of the damage, the plaintiff would only be allowed
to recover $75,000.00. Some states combine the contributory and comparative negligence rules
and refuse to allow the plaintiff to recover anything if his negligence is more than 50% of the
cause of the harm.
ASSUMPTION OF RISK DEFENSE:
Assumption of risk is a defense which a defendant can raise which basically states that the
plaintiff has knowingly assumed the risk of the harm that was caused.
EXAMPLE:
For example, if a plaintiff drives an automobile knowing his brakes are defective and he fails to
stop at a railroad crossing and is therefore hit by a train, comparative or contributory negligence
would be more appropriate than assumption of risk, although the plaintiff could arguably be
deemed to have assumed the risk of an accident by driving with defective brakes that he knew to
be defective.
APPLY THE TERMS OFVICARIOUS LAIBILITY IN GIVEN BUSINESS CASE.
The business will be vicariously liable for the entire loss. In this case Mr. Owais cannot be sued
in court of law because Mr. Owais has been authorized to transact business on behalf of the
company. He has been authorized to bring loss or profit to the business. There should have been
periodical checking, inspection, audit and performance review by head office which have not
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been carried out. The Director(s) of the company must have been receiving a daily statement of
affairs, a weekly position and some monthly statements. The performance of Mr. Owais must
have been in the eyes of the executives of the company. If Mr. Owais has been concealing facts
from his controlling office, he should have been removed or he can be removed from the job
now.Mr. Owais has been unable to do the job assigned to him. The losses to the business are not
due to any criminal breach of trust or misappropriation of lands by Mr. Owais.

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