the parties were, in theory, free to take their business
elsewhere. The parties were deemed to be of equal bar-
gaining strength. The judges’ assumptions produced
an acceptable legal framework for the regulation of busi-
ness transactions. Parliament, too, played its part by
codifying parts of the common law of particular relev-
ance to the businessman; for example, the law relating
to contracts for the sale of goods became the Sale of
Goods Act 1893 (now the Sale of Goods Act 1979).
However, the same basic rules were applied in situations
where one of the parties was in a weak bargaining
position. Employees, consumers and borrowers, for
example, found themselves without adequate protection
from the law. It has been necessary for Parliament to
intervene to redress the balance between employers and
employees, businessmen and consumers, lenders and
borrowers. In these areas, the concept of freedom of
contract has been modified.
This section is concerned with the legal framework
governing the supply of goods and services. It explores
the nature and extent of any liability which may be
incurred as a consequence of a business transaction,
whether between one business person and another, or
between a business person and a consumer. In order to
understand these specific areas of business law, it is
necessary first to look at the basic ground rules of the
law of contract.
Nature of a contract
A contract has been defined as a legally binding
agreement or, in the words of Sir Frederick Pollock: ‘A
promise or set of promises which the law will enforce.’
However, not all promises or agreements give rise to
contracts. If you agreed to keep the house tidy while your
parents were away on holiday, you would not expect to
find yourself in the county court being sued for breach
of contract if you failed to do so. So what kinds of agree-
ments does the law recognise as creating enforceable
rights and duties?
Types of contract
Contracts may be divided into two broad classes: special-
ity contracts and simple contracts.
1 Speciality contracts. These formal contracts are also
known as deeds. Formerly, these contracts had to be in
writing and ‘signed, sealed and delivered’. However, the
Law of Property (Miscellaneous Provisions) Act 1989
abolished the requirement for a seal on a deed executed
by an individual. Under the 1989 Act it must be clear on
the face of the document that it is intended to be a deed.
The formalities are that the signature of the person mak-
ing the deed must be witnessed and attested. ‘Attesta-
tion’ involves making a statement to the effect that the
deed has been signed in the presence of a witness. The
Court of Appeal has held that the failure to sign in
the presence of a witness will not necessarily invalidate
a deed.Part 3Business transactions
204
Shahv Shah(2001)In 1998 the claimant was induced by the defendants to
invest £1.5 million in a Kenyan bank in which the defend-
ants were senior officers. Later the same year the bank
was placed under statutory management by the Kenyan
authorities and it was unable to repay any of the claim-
ant’s investment. In 1999 the defendants signed a
document described as a deed, in which they agreed to
accept personal liability for repaying the claimant’s money.
Although the document stated that it was executed as a
‘deed... in the presence of’ an attesting witness, it was
in fact taken away by the defendants, signed by them
and then passed on to an attesting witness, who did not
see them sign the document. The defendants argued
that they were not bound by the document because it
did not comply with the formalities for a deed set out in
s 1 of the Law of Property (Miscellaneous Provisions) Act- The Court of Appeal held that the document was
a valid deed and the defendants were bound by it. The
document had been described as a deed, it had been
signed and attested by a witness albeit shortly after
the defendants signed. The Court of Appeal applied the
doctrine of estoppel to prevent the defendants from
denying the validity of the deed. (Estoppel is a rule of evid-
ence which prevents a person from stating what is in
fact true because he has in the past led others to believe
the contrary.) Pill LJ stated that: ‘there are policy reasons
for not permitting a party to escape his obligations under
the deed by reasons of a defect, however minor, in the
way his signature was attested.’
The previous rule that a deed must be written on
paper or parchment has been abolished by the 1989 Act.
The use of seals by corporate bodies is unaffected.