Keenan and Riches’BUSINESS LAW

Guided tour

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Business contracting – generally

Once the businessman has decided on the particularform of business organisation that suits his needs, he

can concentrate on his main purpose: establishing andbuilding up the business. This will involve acquiring

premises and equipment, taking on employees, buyingraw materials and stock, marketing the product or ser-

vice and meeting orders. Underpinning all these businesstransactions is the presence of a contract.

document which has been signed by the parties in theMost people think that a contract is a formal written

presence of independent witnesses. If all contracts tookthis form, there would be little room for argument about

whether the parties had entered into a legally bindingagreement, the obligations they had undertaken or the

consequences of failing to carry out the terms of theagreement. In practice, however, few contracts are like

this. The vast majority of contracts are entered intowithout formalities. The parties may even be unaware of

the legal significance of their actions. Think about theagreements you have made over the past week:

■■buying a newspaper;taking the bus or train into work or college;

■agreeing to complete an assignment by a particulardate;

■■getting a cup of coffee at breaktime;arranging to meet a friend for lunch.

Can all these transactions be classed as contracts? Youprobably feel that some of them were never intended to

have legal consequences. So, what then is a contract?When is a contract formed? What are the obligations of

the parties to a contract? What happens if either partybreaks the agreement? The answers to these questions

are provided by the law of contract.The foundations of the present-day law of contract

were laid in the 19th century. This period in our historysaw the rapid expansion of trade and industry, and,

inevitably, an increase in the volume of commercial dis-putes. Businessmen turned to the courts for a solution.

Gradually, the judges developed a body of settled ruleswhich reflected both the commercial background of the

disputes from which they arose and the prevailing beliefsof the time. The dominant economic philosophy of the

19th century was that the state should not meddle in the affairs of businesslaissez-faireindividualism – the view

and that individuals should be free to determine theirown destinies. This philosophy was mirrored in the law

of contract by two assumptions: freedom of contract andequality of bargaining power. The judges assumed that

everyone was free to choose which contracts they enteredinto and the terms on which they did so. If negotiations

could not produce an acceptable basis for agreement,

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Chapter 7 Introduction to the law

of contract

Learning objectivesAfter studying this chapter you should understand the following main points:

■the distinction between a contract and other types of non-bindingagreement;

■■the essential elements of a binding contract;the factors which may affect the validity of a contract;

■■the ways in which the obligations under a contract may be discharged;the remedies available for breach of contract.

Learning objectives

Located at the start of each chapter the

Learning objectives highlight the key

points you should understand following

your reading of the chapter

Case Summaries

Summaries and commentary of selected

cases throughout highlight the key facts,

legal principle, and context underlying

important cases

Chapter 9The terms of business contracts

was included in the original Sale of Goods Act 1893The division of terms into conditions and warranties

(now the Sale of Goods Act 1979, as amended). In s 11(3) a condition is described as a stipulation ‘the

breach of which may give rise to a right to treat the con-tract as repudiated’, while a warranty is a stipulation ‘the

breach of which may give rise to a claim for damages but not a right to reject the goods and treat the contract

as repudiated’. In recent years, the courts have recog-nised that it may be impossible to classify a term neatly

in advance as either a condition or a warranty. Someundertakings may occupy an intermediate position, in

that the term can be assessed only in the light of the con-sequences of a breach. If a breach of the term results in

severe loss and damage, the injured party will be entitledto repudiate the contract; where the breach involves only

Express and implied terms

Another way in which the contents of a contract can beclassified is according to whether the terms are express

or implied.

Express terms

Express terms are the details of a contract which havebeen specifically agreed between the parties. They may

be contained wholly in a written document or ascer-tained entirely from what the parties said to each other.

In some cases, the terms may be partly written andpartly verbal.

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Poussardv Spiers(1876)

Madame Poussard was engaged to appear in an oper-etta from the start of its London run. Owing to illness,

she was not available until a week after the show hadopened and the producers were forced to engage a sub-

stitute. They now refused Madame Poussard’s offer totake up her part. It was held that the obligation to per-

form from the first night was a condition of the contract.Failure to carry out this term entitled the producers to

repudiate Madame Poussard’s contract.

Bettiniv Gye(1876)

Bettini, an opera singer, was engaged by Gye to appearin a season of concerts. He undertook to be in London

at least six days before the first concert for the purposeof rehearsals. He arrived three days late and Gye refused

to accept his services. It was held that the promise toappear for rehearsals was a less important term of the

contract. Gye could claim compensation for a breach ofwarranty but he could not repudiate Bettini’s contract.

(^2) does not go to the root of the contract. A breach of Warranties.A warranty is a less important term: it
warranty will only give the injured party the right toclaim damages; he cannot repudiate the contract.
illustrated by the following cases.The difference between a condition and a warranty is Cehave NVmbH (The Hansa Nord)v Bremer Handelsgesellschaft (1975)
A clause in a contract for the sale of citrus pulp pelletsstipulated that shipment was ‘to be made in good con-
dition’. Part of one consignment arrived in Rotterdam ina damaged condition and the buyers rejected the whole
cargo. The defects were not particularly serious becausesome time later the buyers bought the very same cargo
at a considerably reduced price, which they then pro-ceeded to use for their original purpose. The Court of
Appeal held that the clause in question was an interme-diate term. The breach was not so serious that it entitled
the buyers to reject the whole cargo. It could be dealtwith by an award of damages.
Harlingv Eddy(1951)
A heifer was put up for sale by auction at Ashford CattleMarket. The sale was subject to the auctioneer’s printed
conditions of sale which stated that the auctioneer didnot guarantee the condition of the animals sold. The
appearance of this particular heifer was so poor whenshe entered the auction ring that no one was prepared to
make a bid for her. The auctioneer then stated that therewas nothing wrong with her and he would guarantee her
in every respect. The heifer was sold to the claimant butwas dead from tuberculosis within three months. The
minor loss, the injured party’s remedies will be restrictedto damages. These intermediate terms have become
known as innominate terms.
95), published in 1979. The provisions of Part I, whichcame into force in January 1983, consist of two sets of
implied terms. The first set applies to contracts for thetransfer of property in goods, the second set to contracts
for hire.
Contracts for the transfer of property in goods
The first set of terms, detailed in ss 2–5 (see below), areimplied into contracts for work and materials and barter,
under which a person acquires ownership of goods. The
Part 3Business transactions
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Figure 10.2Remedies under the Sale of Goods Act 1979 after 31 March 2003
are to the 1982 Act, as amended by the Sale and Supplyof Goods Act 1994, unless otherwise indicated. We will
now examine the provisions of the Act in more detail.
Implied terms in contracts for the supply of goods (Part I)
Part I of the Act was based on the recommendations ofthe Law Commission contained in its Report on Implied
Terms in Contracts for the Supply of Goods(Law Com No
Figures and diagrams
Illustrative figures and diagrams can be
found throughout chapters to strengthen
your understanding of complex legal
processes and areas in Business Law
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