Aspects of contract and negligence for business assignment 1

Unit OutcomesOutcome Evidence for the Internal Verification First attempt work 1.1 discuss the impact of different types of contract 1.2 analyse terms in contracts with reference to the

BTEC HND IN BUSINESS (Accounting)

ASSIGNMENT COVER SHEET

UNIT TITLE Aspects of Contract and Negligence for Business

ASSIGNMENT NO 1 of 2 (individual report)

SUBMISSION DEADLINE 5 Nov 2013

I, _Nguyen Thi Kieu Anh _ hereby confirm that this assignment is my own work and not copied or plagiarized from any source I have referenced the sources from which information is obtained by me for this assignment.

5 Nov 2013 _ Signature Date

-FOR OFFICIAL USE (Course Administrator)

Unit Outcomes

Outcome Evidence for the

Internal Verification

First attempt

work

1.1

discuss the impact

of different types of contract

1.2

analyse terms in contracts with reference to their meaning and effect

2.1

apply the law on terms in different contracts

2.2

evaluate the effect

of different terms in given contracts 2.3

Outcome Evidence for the

Internal Verification

First attempt

work

Re-Assignment

( ) Well-structured; Reference is done properly / should be done (if any)

Overall, you’ve

Areas for improvement:

ASSESSOR SIGNATURE DATE / /

NAME:

(Oral feedback was also provided)

STUDENT SIGNATURE DATE / /

Prepared for:

Lecturer, Mr John Andre

Aspects of Contract and Negligence for Business

Banking Academy, HanoiBTEC HND in Business (Finance)

Prepared by:

Nguyễn Thị Kiều Anh - Snow - F05ARegistration No: F05-014

No of words: 3000Submission date: 5 November, 2013

TABLE OF CONTENT

CONTENTS 7

TASK A: ESSENTIAL ELEMENTS REQUIRED FOR THE FORMATION OF A VALID CONTRACT 7

1 Agreement 7

2 Consideration 8

3 Intention to create legal relations 8

4 Capacity 9

TASK B: IMPACT OF DIFFERENT TYPES OF CONTRACT 10

1 Verbal contracts 10

2 Written contracts 10

3 Implied contracts 11

TASK C: TERMS IN CONTRACT 11

1 Innominate terms 11

2 Implied terms 12

3 Exclusion clause 13

CONCLUSION 15

APPENDIX 16

REFERENCES 22

In this report, I play role as a business consulting firm for Ken Kummings, owner of a smallchain of restaurants called Ken Can Cook (KCC) My responsibility is search for a betterunderstanding on how the law affects his business and gives suggestions on situations related

to law contract I write this report based on information in the Business Law course book andsome reference books, many sources from internet, newspaper In addition, many slides whichwere continuously updated every week by lecturer John also help me collect information,theory, and case study in order to support applying for situations of Ken Can Cook Company

CONTENTS TASK A: ESSENTIAL ELEMENTS REQUIRED FOR THE FORMATION OF A VALID CONTRACT

A valid contract is a contract that complies with all the essentials of a contract and is binding

and enforceable on all parties [ CITATION Ano131 \l 1033 ] Therefore, in order to form acontract to be valid and enforceable, a contract must contain elements including agreement,consideration, intention to create legal relations and capacity

1 Agreement

An offer is a define promise to be bound on specific terms Acceptance is the unqualified

agreement to the terms of the offer If one of two components of agreement is missing,there is no agreement [ CITATION BPP10 \l 1033 ]

A contract is formed when one party makes an offer and another party accepts it It is alegally binding the parties and each party must have responsibility to perform theagreement in the contract When an offer is given, meaning that the offeror is willing to bebound in specific term if the offer is accepted An offer must be clear, specific, avoidambiguity to ensure that others (other party, judge) see same as you [ CITATION Joh13 \l 1033 ] An offeror may revoke offer any time before it has been accepted, but the revocation ofoffer must be communicated to the offeree If an offer have revocation by the offeror,rejection, and lapse of time, it will not be accepted and is terminated [ CITATION Ano134 \l

1033 ]

 Offer and acceptance play an important role in evaluating the legally bound between theparties and form contract (no agreement, no contract)

Carlill v Carbolic Smoke Ball Co [1893]

The advertisment (reward £100 to any person stills influenza after using the smoke ballaccording to printed direction) of the Carbolic company to the public was also an offer (anoffer can be made to the whole world) and the purchasing and using ‘smoke ball’ of Carlillwas acceptance The offer was not vague because he smoke ball must protect the userduring the period of use Therefore, contract is formed

KCC v Delicious Tables

The court would decide that the advertisement on the radio also was an offer with specificterm (Delicious Tables will provide extra guarantee if goods was chipped or scratched inthe first year of service) Based on this advertisement, Ken accepted this offer (purchasedgoods from Delicious Tables) Contract was formed immediately when Ken bought it

Therefore, if Delicious Tables breached this contract, Delicious Tables have to replace

scratched tables for KCC, or compensate reasonable money for breach of the contract.

2 Consideration

Consideration is exchange between two parties, in which, one party give something ofvalue (such as money, good or services, promise to do something in the future) to getbenefits, another something of value from other party Consideration may be executed (anact in return for a promise) or executory (a promise in return for a promise)

Consideration is valid when:

 Something legal (not promise to break the law, do illegal acts)

 Something possible (only promise what you can do, under your control)

 Something sufficient but necessarily adequate (adequate and fair - equal in value arenot issue, just must be reasonable) [ CITATION BPP10 \l 1033 ]

 Most of contracts require consideration (No consideration, no contract)

Hartley v Ponsonby [1857]

The large number of desertions made the voyage more hazardous, and this had the effect ofdischarging the original contract The claimant had a new contract, under which hispromise to complete the voyage formed consideration for the promise to pay an additional

£40 (Refer to appendix)

In the case of Edie v Ken v Gary, there was an exchange between Ken and Edie, each

party got something of value and both of parties have benefit (Ken would get a dishwashing machine from Edie, and Edie would gain a cash register from Ken), which formedconsideration between them Similarly, Ken got £300 from Gary and Gary receivedwashing machine from Ken, each party got something of value and benefit from others,which formed consideration between Ken and Gary

3 Intention to create legal relations

It can be defined as “the parties to the agreement intended to be legally bound by theagreement” Intention to create legal relations consists of 2 kinds: domestic agreements andcommercial agreements [ CITATION BPP10 \l 1033 ]

 Domestic agreements included agreement between spouses, relatives, friends and

other social relations Spouses who are living together, were close and happy, and trusteach other are not intend to be legally binding but if they are divorced, an agreement ispresumed as intends to be enforceable [ CITATION Joh13 \l 1033 ]

Balfour v Balfour [1919]

The agreement was made when spouses was still happy and trust each other (domesticagreement) so the parties didn’t intend to create legal relations, even though there mayhave been consideration (Refer to appendix)

 Commercial agreement is presumed as intends to be legally bound It is not valid

contract if it is ambiguity, mere ‘puffs’, honor clauses, and sentence ‘subject tocontract’

have to replace scratched tables for KCC as given in term of advertisement

4 Capacity

Capacity refers to some groups such as minor, drunkenness, duress, mentally ill as beingunable to enter into binding contractual arrangements because they are not in position tofully understand the agreement which have entered into The contract is made bydrunkenness is still enforceable if the offeror ratify the offer while sober and do not revokethe offer until after acceptance The contract is formed by minor is valid if contracts areratified after majority (18th birthday), contracts for the supply of goods and services whichare necessaries, bring benefits for them and if it is guaranteed by parents…[ CITATION Joh13

\l 1033 ]

Nash v Inman [1908]

The cloth could be appropriate to the station in life of the undergraduate, but the contractwas not enforceable because the minor was already adequately supplied with clothes.Therefore, clothes supplied by the tailor could not be classified as necessaries As a result,Inman must pay £122 for Nash (Refer to appendix)

KCC v Bob

Based on Sec.3, Sale of Goods Act 1979, although Bob is minor (under 18 years old), the

contract was still enforceable because this contract for supplying food which is essential

products (contract for necessaries) and bring benefit for minor Therefore, Bob must pay a reasonable price for them, not need to pay full amount (£200) due to late delivery

TASK B: IMPACT OF DIFFERENT TYPES OF CONTRACT

1 Verbal contracts

Verbal contract is a business contract based on spoken promises rather than a writtendocument It is as legally binding as a written contract In order to be valid, a verbalcontract must contain three factors: offer, acceptance, and consideration Some contractsmust be in writing such as buying, selling real estate, transfer of shares, consumer credit…Verbal contracts can lead to difference in understanding or memorialize contract’s content

of each party  If any problem arise, terms of a verbal contract may be hard to prove, andthere are no witnesses to the agreement [ CITATION Frand \l 1033 ]

Noel Edmonds v Ulrik Lawson [2011]

In this case, neither of the arrangements between the parties were formalized in writing,and the parties relied on oral agreements Because Edmonds did not remember theconversation clearly so it leads to disputation (Refer to appendix)

In the case of Ken v Fast Money Bank, there was offer (Ken’s promise is taken by

talking terms), acceptance (actions of loan officers of Fast Money Banks: gave Ken the

₤10,000 and the two shook hands), and consideration (have exchange value, and bringbenefits for each parties - Ken receive money for operating company, Fast Money Bank

get interest from lending) so verbal contract is valid However, according to Consumer Credit Act 1974, any contract involving credit must be in writing so consumer credit must

be in writing, not verbal contract As a result, this verbal contract was unenforceable and

Ken can stop paying.

2 Written contracts

A written contract is an agreement made on a printed document outlining an agreementthat has been signed by both parties When signing into a contract, it is assumed thatparties have read and agreed to all of terms in the contract [ CITATION Latnd \l 1033 ].Written contract concludes everything that is necessary for a contract: standard, commonand easy to understand It is different from verbal contract; it is evidenced and difficult todispute The contract is invalid if it is no consideration and bound parties to do illegalthing, even have signatures[ CITATION Joh13 \l 1033 ]

Pym v Campbell [1856]

Campbell entered into a written agreement with Pym to buy three eighth's of the benefits

of Pym's invention for £800 'which if Abernethie approved the invention Although thewritten contract signed by both signed, Abernethie did not approve the invention Thus,there was no contract (Refer to appendix)

Ken v Charlie

This was written contract because there were fully elements such as name, date makingcontract clearly, signatures of both parties, consideration (KCC restaurant can beconsidered as Ok for doing business, Charlie can get £500) However, this written contract

was invalid because it bound parties to do illegal thing (receiving bribe to hide KCC are not clean enough) so Ken cannot reclaim Charlie.

3 Implied contracts

An implied contract is a contract that has not been written up or signed but was understood

to be an agreement It is an agreement that will uphold in court through the actions ofthose involved [ CITATION Maund \l 1033 ] This contract is ‘not written, not verbal betweenthe two parties’ Unilateral contracts (does not bind offeree, only offeror) Dr Visit,Lawyer visit is considered as implied contracts[ CITATION Joh13 \l 1033 ]

Carlill v Carbolic Smoke Ball Co [1893]

In this case, it was considered as an implied contract with unilateral contract (theadvertisment of the Carbolic company to the public was also an offer and implied that thedefendants were bound by their offer)

In the case of Ken v Albert, there was an implied contract between them because

restaurants did not serve foods and services for free and going to KCC restaurant andordering some foods was actions which indicated that Albert accepted the contract

Therefore, Albert has to pay £150 for Ken.

TASK C: TERMS IN CONTRACT

1 Innominate terms

Innominate terms are known as ‘intermediate terms’ which will be can classify in

condition or warranty terms depending on the impact of the breach If the effects of thebreach are serious, the term will act as a condition; if they are minor, it acts as a warranty

[ CITATION Ell09 \l 1033 ]

Hong Kong Fir Shipping Co Ltd v Kawasaki Ltd [1962]

The term ‘seaworthy’ was innominate, the effects of the breach also were not seriousbecause the ship was still available for 17 out of 24 months Therefore, the defendantcannot breach the contract (Refer to appendix)

In the case of Ken v Jelly Bean Rentals, the term ‘the stove worked correctly during the

length of the lease’ was innominate In this case, the court would consider that the timer onthe stove just a small part of stove, when it stopped working, it didn’t affect seriously onoperating of stove due to other parts are still working normally Therefore, this term is

considered as warranty term and Ken cannot cancel the contract However, Jelly Bean Rentals must compensate for late repairing services which effects small part on KCC’s performance Due to the fact that contract cannot be revoked; Ken must pay double to

£400 per month for failing to make 2 or more payments on time which is stated in the

contract

2 Implied terms

Implied terms are terms which are not stated but are part of the contract for various

reasons [ CITATION Joh13 \l 1033 ]

These implied terms are divided into different groups

 Terms implied by custom: Terms can be implied into a contract if there is evidencethat under local custom they would normally be there

 Terms implied by statute: Terms may be implied by statute It permits the parties tocontract out of the statutory terms or the statutory are obligatory: the protection given

by the Sale of Goods Act 1979

Sale of Goods Act 1979 has some key provision:

- Section 12: Implied term about title: The seller must have the right to sell thegoods (protects purchases where the seller does not have right to sell the goods)

- Section 13: Implied term that the goods will correspond with the description

 Terms implied by the courts: Terms may be implied if the court concludes that theparties intended those terms to apply to the contract, including term by fact and bylaw [ CITATION BPP10 \l 1033 ]

Liverpool City Council v Irwin [1976]

The court did implied a term, which arose as a legal incident in contracts of a defined typebetween landlord and tenant that the landlord was to take reasonable care to maintain thecommon parts However, there was no breach of this duty (Refer to appendix)

Edie v Ken v Gary