ASPECTS OF CONTRACT AND NEGLIENCE FOR BUSINESS

ACNB Assignment 1 Fall 2013-2014 i
ASPECTS OF CONTRACT AND NEGLIENCE
FOR BUSINESS
Title page














Prepare for: Professor John Andre
Contracts
BTEC HND in Business (Finance)
Banking Academy, Hanoi


Submitted on November 5
th
, 2013


Prepared by: Trần Quyết Thắng – Joe
Class: F05 – B

Registration No.: ITP – F05 – 194



ACNB Assignment 1 Fall 2013-2014
Table of Contents
Title page i

Introduction 1

A.

The importance of the essential elements required for the information of a valid
contract and its application in the business. 1

1.

Offer & Acceptance 1

2.

Consideration 2

3.

Capacity 2

4.

Intention 3

B.

The impact of different types of contract 3

C.

Several different terms in contracts referencing their meaning and effect 5

1.

Implied term 5

2.

Exclusion clauses 6

3.

Condition & Warranty 6

Conclusion 7

Reference 8


ACNB Assignment 1 Fall 2013-2014 1
Introduction
This report aims to find out the essential elements of a valid contract including offer and
acceptance, consideration, capacity and intention. Based on these elements, the courts can make

the decisions to settle the problems amongst parties who involve to the contract. In addition, there
are several types of contracts. For example, an agreement can be made by oral or in writing or
other types like implied contracts or collateral contracts. In the legal contracts, there are numerous
different terms which help the courts to adjudicate the contradictions between a claimant and a
defendant.
A. The importance of the essential elements required for the information of a
valid contract and its application in the business.
There are four essential elements which create a valid contract. They are: offer and acceptance,
consideration, capacity and intention.
1. Offer & Acceptance
“An offer is a definite to be bound on specific terms” (BPP, p59, 2010). An offer can be brought
to not only a particular person but also the public like an advertising (Carlill v Carbolic Smoke
Ball Co, 1893). This can be shown through the case that the supplier, Delicious Tables offers to
sell the tables to anyone who has the demand through an advertising on the radio. Moreover, “an
invitation to treat is an indication that someone is prepared to receive offers with the view to
forming a binding contract” (BPP, p61, 2010). For example, if a KCC waiter deliveries a menu
that including the price-list of different foods to customer, this is only an invitation to treat.
Actually the customers are making an offer for a dish and the restaurant have the right to reject
this offer. (Gibson v Manchester City Council, 1979).
“In Gibson v Manchester City Council (1979), The House of Lords, however, ruled that the
Council had not made an offer; the letter giving the purchase price was merely one step in the
negotiations for a contract and amounted only to an invitation to treat. Its purpose was simply to
invite the making of a ‘formal application’, amounting to an offer, from the tenant.” (Elliott and
Quinn, 2013, p. 14)
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Another factor is acceptance. “Acceptance is unqualified agreement to the terms of the offer”
(BPP, p67, 2010). There are several ways to accept an offer such as signing a contract or verbal…
However, silence will not be counted as an acceptance (Felthouse v Bindley, 1862). In the case
with the customer named Albert, the restaurant has accepted by preparing and serving the food for
him. Based on offer and acceptance, the court will be able to find out where all parties are bound

in an agreement. Moreover, there must be a communication between offeror and offeree to make
a valid contract.
2. Consideration
Another essential element of a binding contract is consideration - the exchange some value things
such as money, the rights to do something or time between all parties involved into the contract.
“A valuable consideration in the sense of the law may consist either in some right, interest, profit
or benefit accruing to one party, or some forbearance, detriment, loss or responsibility given,
suffered or undertaken by the other.” (BPP, p80, 2010). Nonetheless, there are some situations that
are not counted as consideration in a valid contract such as some illegal things or something had
done (Roscorla v Thomas, 1842) or the duty of the promise has not done (Stilk v Myrick, 1809).
In the agreement with the health inspector Charlie, KCC restaurants assented to give Charlie ₤500
in order to receive the clearance. However, this was an illegal action so there is no consideration
in this case.
3. Capacity
A valid contract can only made by people who has the legal personality following the law’s
requirements. This element is called ‘capacity’. “Capacity refers to the fact that the law regards
some groups as being unable to enter into binding contractual arrangements, because they might
not be in a position to fully understand the agreement they have entered into” (BPP, p101, 2010).
There are some situations that people has lack of capacity such as being intoxicated, under duress,
be ignorant, etc. In this case with a customer named Bob, he is under the age of majority (18 years
old) so he is considered as a minor (Family Law Reform Act 1969). It is held that he only can
contract to purchase the necessaries. “‘Necessaries’” means goods suitable to the condition in life
of the minor or other person concerned and to his actual requirements at the time of the sale and
delivery.” (Sale of Goods Act 1979). Nevertheless, a minor must pay a reasonable price - the
standard price and do not have the right to agree or deal about the price. As a result, Bob cannot
ACNB Assignment 1 Fall 2013-2014 3
said that he did not have to pay the food – a necessary thing for life because of under 18 years old.
On the other hand, if Ken Kummings sells something which is not necessary such as clothes to
Bob, Ken will lose in this case (Nash v Inman, 1908).
4. Intention

“Intention to create the legal relations can be defined as ‘An agreement will only become a legally
binding contract if the parties intend this to be so.’” (BPP, p98, 2010). In domestic agreements
such as between husband and wife or relatives, this seems to be the problems of a family so they
do not wish to be enforced or bound by the court (Balfour v Balfour, 1919). On the other hand, the
commercial agreements will be presumed that there is powerfully intention for the court to involve
in order to solve business problems of the parties. For example, when KCC restaurants sold foods
for the customer named Albert, this is a commercial transaction so intention is presumed so that
the judge can intervene to help them solve all the disputes (Esso Petroleum Ltd v Customs and
Excise Commissioners, 1976).
In brief, the agreement between a customer named Albert and KCC restaurant, the customer has
made an offer by ordering some food and the restaurant has accepted by preparing and severing
the foods. Furthermore, both parties has exchanged some value things (KCC will receive the
money for the meal and Albert will be severed the meal). This is the consideration between Albert
and KCC restaurant. In addition, this is also a commercial transaction so the intention will be
created so that the courts can involve to the agreement if there is any problem. In additional,
assume that Albert have the capacity to made this contract because there is no doubt that he is
intoxicated or under duress…Based on these elements, there is a valid contract that bind not only
the customer Albert but also KCC restaurant. It means that Albert cannot deny that there is no
contract and nothing signed. Therefore, KCC restaurant can win and Albert has to pay for the cost
of the food.
B. The impact of different types of contract
There are some types of contracts such as verbal contracts, written contracts, implied
contracts Firstly, “an oral contract is an agreement made with spoken words and either no
writing or only partially written” (Joshi, 2011). All parties which involved to a verbal contract
will be bound if the contract includes all essential elements of a valid contract. However, it is hard
to demonstrate the existence of a verbal contract (Hadley v Kemp, 1999). In addition, an oral
ACNB Assignment 1 Fall 2013-2014 4
contract can be proved with some proofs of terms which are written (Brogden v Metropolitan
Railway Co 1877). In this case, it was held that Metropolitan’s agent has the draft agreement that
included the terms involving to supply coal to approve the existent valid contract; despite of the

fact that nothing was ever signed. Furthermore, if the parties acknowledge the same terms in a
contract in different ways, the contract will also become invalid.
Secondly, “the written contract may take the form of one document, which both parties sign, or of
identical documents, each signed by one party and then exchange” (Mackenzie and Mackenzie et
al., 2002). Therefore, the form of the contract between KCC and the health inspector Charlie has
the places for both parties to sign. However, this is an illegal action. For this reason, the contract
is invalid. In addition, there are some situations that contracts must be written in order to be a legal
contract. They are as follows: the transfer of shares in a limited company (Companies Act 1985);
bills of exchange, cheques and promissory notes (Bills of Exchange Act 1882); and regulated
consumer credit agreements (Consumer Credit Act 1974).
It means that the contract between KCC and Fast Money about lending money is not valid because
both parties agreed by talking and nothing in writing. However, a valid written contract also have
the essential elements. For example, if this agreement is in written document, it could be a valid
contract; because both parties already concurred the terms of this contract and there is a
consideration that KCC can borrow ₤10,000 for two years to invest and pay 10% interest per year.
Furthermore, this is a commercial transaction so intention is presumed and both parties have the
capacity to make this contract. With this valid written contract, there will be a collateral contract
between KCC and Fast Money. “A ‘collateral contract’ is a separate contract which exists
alongside the main contract. Generally, where a contract is in writing, the written terms of that
agreement form the basis of the contract. In addition, where statements have been made and
intended as a promise, and intended to induce the main contract, a collateral contract will be held
to exist.” (The Law HandBook, n.d.). It means that there are two contracts which start together.
The second contract is linked to the first contract – Fast Money lends KCC money to constitute a
tight transaction and it is about the action of Fast Money if KCC fail to make any payment on time.
Hence, in this case, Fast Money will have the right to take and sell any assets from KCC so as to
get the money owed by KCC. For this reason, Ken Kummings can lose his restaurants for the debt
(J Evans & Son (Portsmouth) v Andrea Merzario, 1976).
ACNB Assignment 1 Fall 2013-2014 5
‘In J Evans & Son (Portsmouth) v Andrea Merzario (1976) some members of the Court of Appeal
held that there was a partly written, partly oral contract, and others that the oral statements made

constituted a separate, collateral contract. They were agreed that the result of either analysis was
that the plaintiffs could recover damages for breach of an oral promise, even though the written
contract between the parties did not mention the subject matter of the promise.’ (Elliott and Quinn,
2013, p. 128)
Another type of contract is implied contract. First of all, like other types of contract, to be valid,
an implied contract also includes offer and acceptance, consideration, capacity and intention.
Furthermore, Supply of Goods and Services Act 1982 requires that service is provided under the
contract. Therefore, there is an implied contract between KCC restaurant and a customer named
Albert. It means that coming to the restaurant is an action like an acceptance to pay for the food
which Albert is reserved as his order. For this reason, Albert has to pay for the cost of the food in
spite of the fact that nothing is signed. This is also applied for going to hospital, hairdresser,
builders or plumbers, etc.
C. Several different terms in contracts referencing their meaning and effect
1. Implied term
“Implied term: a term deemed to form part of a contract even through not expressly
mentioned. Some such terms may be implied by the courts as necessary to give effect to the
presumed intentions of the parties. Other terms may be implied by statue, for example, the Sale of
Goods Act” (BPP, p114, 2010). For example, in fact, most of customers have a custom that eat hot
dogs with some condiments like ketchup, mustard or chili sauce. In addition, in KCC restaurants,
the condiments are free for customer. It means that the term of supplying the condiments with hot
dogs will be included in the contracts between KCC and a customer who ordered 1,000 hotdogs
for a party. There is a term that is implied by custom, so KCC has to pay this customer for the cost
of the condiments (Smith v Wilson, 1832).
“In Smith v Wilson (1832) evidence was admitted to the effect that, under local custom, 1,000
rabbits meant 1,200 rabbits – a sort of ‘bakers’ dozen’.” (Elliott and Quinn, 2013, p. 127)
ACNB Assignment 1 Fall 2013-2014 6
2. Exclusion clauses
“Exclusion clause: a clause in a contract which supports to exclude liability altogether or to restrict
it by limiting damages or by imposing other onerous conditions. They are sometimes referred to
as exemption clauses.” (BPP, p119, 2010). In the case involved Henry and Ivan, they received the

receipt with the notice after purchasing for the foods which they was ordered. It means that the
acceptance had done. For this reason, the clause was not encompassed into this contract. (Thorton
v Shoe Lane Parking 1971). Moreover, Consumer Protection for Unfair Trading Regulations 2008
required that exclusion clauses for personal injury are invalid. Consequently, Ken will lose and
have to compensate both Henry and Ivan for the loss of the smartphones and the hospital bills after
the accident.
“In Thorton v Shoe Lane Parking (1971), acceptance took place when the customer drove up to
the machine, and the contract was then complete. The terms printed on the ticket which was
delivered a moment later by the machine therefore came too late.” (Elliott and Quinn, 2013, p.
153)
3. Condition & Warranty
“Condition: a term which is vital to the contract, going to be the root of the contract.
Warranty: a less important term. It does not go to the root of the contract, but is subsidiary to the
main purpose of the agreement.” (BPP, p111, 2010)
In the agreement about exchanging a cash register for a dishwashing machine between Ken and
Edie, the written contract stated clearly that both these machines were in good working, otherwise
there is no contract. This is an important term of this contract – a condition to make a valid contract.
However, in fact the cash register never worked and Ken knew that. It means that Ken was in
beach of this contract. Furthermore, ‘in good working’ is the term included in this contract so Ken
had the obligation to ensure that the cash register worked well. In addition, Ken cannot claim that
Edie should have check before taking this cash register. In a world, this is invalid contract so Ken
did not own the washing machine, it still belonged to Edie. In other worlds, Ken had no right to
sell this washing machine to his friend – Gray. As a result, Ken would lose (Bannerman v White,
1861).
ACNB Assignment 1 Fall 2013-2014 7
In Bannerman v White (1861), the courts decided that the statement that the hops had not been
treated with sulphur was a term of the contract because the defendant – White had communicated
the importance of the term and relied on the statement.
Furthermore, “certain terms relating to title to goods and their quality are not only implied into
consumer contracts for sale, but are usually regarded as conditions as opposed to warranties” (the

Sale of Goods Act 1979).
Conclusion
In conclusion, a valid contract must have all essential elements: offer and acceptance,
consideration, capacity and intention in order to become a valid contract. It means that all parties
involving to the contract will be bought by law. There are some kinds of contact such as verbal
contracts, written contracts, implied contracts and collateral contracts. Besides, the decisions of
the courts can be supported by the different terms like warranty, condition, innominate term,
exclusion clauses, etc.
My analysis on the essential elements of a valid contract and the different types of contract was
very good because I could explain who would win in the cases in the scenario based on the theories
and those explanations were also supported by the precedent (real cases). However my analysis
could be better if I could talk more about the different terms in contracts, especially interpreting
the potential remedies and damages.









ACNB Assignment 1 Fall 2013-2014 8
Reference
BPP Business Essentials – Business Law (2010)
Elliott, C. and Quinn, F. 2013. Contract Law. 7th ed. United Kingdom: Pearson Education Limited.
Joshi, S. 2011. Dictionary on legal terms. New Delhi: Excel Books.
Mackenzie, J., Mackenzie, J. and Phillips, M. 2002. Textbook on land law. Oxford: Oxford
University Press.
The Law HandBook. n.d. THE TERMS OF A CONTRACT. [online] Available at:

[Accessed: 29 Oct 2013].


ACNB Assignment 1 Fall 2013-2014 9