1. Apply the elements of contract in given business scenarios.
2. Apply the law on terms in different contracts.
3. Evaluate the effect of different terms in given contracts.
4. Explain the nature of liability in negligence.
1. Business transactions are concluded by executing a contract between the transacting parties. A valid contract is required to fulfil a few essential elements in order for it to be enforceable under the prevailing laws governing contracts in the United Kingdom. The essential elements are as follows (Hkclic.org 2016):
- Legal Capacity, and
- Intention of the parties
In the given scenario, Johnson & Co and Delta & Co, whereby computers were supplied by the latter to the former against a consideration of £30,000, entered into a contract. This contact fulfilled the essential elements, as there was a valid offer and acceptance of demand and supply of computers against a valid consideration. There was a valid intention of the parties to create a legal relationship between them – presence of a valid consideration validates the intention of the parties. Capacity refers to the ability of a party to enter into a valid contract. According to the provisions of the Companies Act 2006, an incorporated business is competent to enter into a contract until it has been declared insolvent by a competent court. The capacity of a company to enter into a contract is defined under the “Objects” clause of the incorporation document of the company (Lawteacher.net 2016). Unless contrary is proved, the parties in the given scenario will be treated as of having the capacity to enter into the contract and the contract will be treated as a valid one.
2. Along with the contract of sale, there was another contract between the parties to provide and receive after sales services. The services were to be provided by Delta & Co. This is an implied contract between the parties where the terms to provide services implied and consists an obligation of part of the company to provide effective and efficient services to Johnson & Co (TheFreeDictionary.com 2016). This obligation arises out of the mutual agreement between the parties along with an intent to promise that Delta will be servicing all the defects caused to the computers (kumar 2012). However, this promise was not fulfilled in a proper manner as problems kept on recurring on a regular basis and as a result Johnson & Co faced a considerable amount of loss of business and financial resources. Nevertheless, there was a mutual agreement between the parties regarding after sales services. Therefore, this element creates a contractual obligation on Delta & Co.
3. In a business transaction, the good supplied are required to be of a certain standard. This element was absent in the given case as the computers supplied by Delta & Co were below standard and not working properly. Some of the computers supplied even stopped working. Numerous occasions of break down happened during a span of six months. Therefore, it can be said that the contractual obligations of Delta & Co were not performed by it in a proper manner. In such a scenario, absence of an explicit “refund” clause will not cast serious effect on enforceability of compensation. In the given situation, legal action can be taken against Delta and a refund can be claimed (www.a4id.org 2016). However, it will be up to the competent court to decide the matter – whether to order full damages or partial compensation. The court may also order specific performance of the executed contract between the parties.
4. Under the English law of contract and law of torts, a party to a contract owes a “duty of care” to the other party (E-lawresources.co.uk 2016). In other words, a contracting party is required to make sure that the other party to contract does not face any unreasonable harm or loss as a result of the activities of the former. In essence, contractual obligations are required to be performed in its true sense without misrepresenting or causing any loss to the other party. In case, where there is a breach of such duty, the breaching party is required to make good the losses faced by the aggrieved party. This principle came to the forefront in the case of Donoghue v Stevenson (1932). Not performing this duty of care results in a breach of the contractual terms and is termed as negligence. This is true in the given case. Delta & Co was supposed to supply goods of a certain standard that did not happen and the other party faced considerable amount of losses. The problem was prolonged and amounts to negligence for which damages and compensations can be claimed by Johnson & Co.
E-lawresources.co.uk. (2016). Duty of care. [online] Available at: https://e-lawresources.co.uk/Duty-of-care.php [Accessed 12 Jun. 2016].
Hkclic.org. (2016). CLIC - Business and Commerce - Setting up a small or medium-sized business in Hong Kong - Making a business contract - What are the basic requirements for making a valid contract?. [online] Available at: https://www.hkclic.org/en/topics/businessAndCommerce/setting_up_business_in_Hong_Kong/making_a_business_contract/q1.shtml [Accessed 12 Jun. 2016].
kumar, S. (2012). Business law: ESSENTIAL ELEMENTS OF A VALID CONTRACT. [online] Shivamlawworld.blogspot.in. Available at: https://shivamlawworld.blogspot.in/2012/02/essential-elements-of-valid-contract.html [Accessed 12 Jun. 2016].
Lawteacher.net. (2016). Main Elements constituting A Valid Contract | Law Teacher. [online] Available at: https://www.lawteacher.net/free-law-essays/contract-law/main-elements-constituting-a-valid-contract-contract-law-essay.php [Accessed 12 Jun. 2016].
TheFreeDictionary.com. (2016). Types of Contracts. [online] Available at: https://legal-dictionary.thefreedictionary.com/Types+of+Contracts [Accessed 12 Jun. 2016].
www.a4id.org. (2016). BASIC PRINCIPLES OF ENGLISH CONTRACT LAW. [online] Available at: https://www.a4id.org/sites/default/files/user/documents/english-contract-law.pdf [Accessed 12 Jun. 2016].