University Business Law and Ethics Assignment: Contractual Terms

This assignment analyzes a business law case concerning a contract dispute. The paper addresses the issue of whether the gluten-free nature of almond flour was a term of the contract, examining implied terms and the tests for their existence, referencing the BP Refinery v Shire of Hastings and Philips Electronique v British Sky Broadcasting Ltd cases. It then explores whether an implied gluten-free term existed between Dan and Jacob, considering business efficacy, necessity, and bystander tests. The assignment also differentiates between conditions and warranties, specifically analyzing the impact of a breach of warranty regarding cake icing. Finally, it examines the responsibility of a seller for a breach of warranty and the validity of an exemption clause in the context of the case, referencing relevant legal precedents and principles.

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1. The issue is whether it was a term of the contract, whether the Almond –flour would be
gluten free.
In BP Refinery v Shire of Hastings (BP Refinery), as extended in Philips Electronique v
British Sky Broadcasting Ltd (Philips), Lord Neuberger gave conditions which are necessary for
terms to be implied in a contract; the terms include;
 It must be very obvious that it goes without saying
 The terms should not contradict a term which is expressly stated in the contract
 The term should be reasonable
 The term should promote the efficiency of the business
 The terms should also be capable of a clear expression.
The contract had gluten-free Almond as a term because when Mikaela calls Ricky, she asks if
their Almond flour is gluten- free, and Ricky affirms that. So it is a presumed factor by Mikaela
while making an order that all the Almond flour sold by Tower flours is gluten free. Mikaela
relies on the statement made by Ricky to make her order, despite the lack of clarification at the
point of offer and acceptance, it is a silent term in the contract. There is an implied term which is
pretty obvious to both parties, just not stated in the contract (Boella, Boella,. and Pannett, 2009
p.115).
2. The issue is whether Dan and Jacob had an implied gluten-free term in their contract.
Given the background of the parties, the court would take the position of a reasonable
person to determine whether such an implied term exists. Looking at the tests in the case of
Phillips starting with the business efficacy test, we question whether the gluten –free flour gives

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efficacy to the business. The business efficacy test is seen in The Moorcock (1889) 14 PD 64,
where the court concluded that if a business makes sense without a term, then it will not be
implied. In this case the business between Dan, Jacob and Mikaela makes sense without the
gluten- free term. The necessity test requires that a term is fulfilled, without inputting a particular
term. In the case of Mikaela, we see her making the cakes without using gluten-free flour thus
fulfilling the contractual obligations (Stone & Devenney, 2014 p.240).
The bystander's test requires that a term is obvious that it goes without saying. In the case
of Mikaela, Dan and Jacob, the term that they wanted flour which is gluten- free is not obvious to
Mikaela, since it was not discussed. It is until the contractual obligations are fulfilled that we
realize, Dan and Jacob anticipated that their almond cake would be gluten free. Hence it is not an
obvious term to a bystander (Poole, 2012, p.35).
Dan and Jacob had no contract to state that their cake should be gluten- free. They did not
expressly request for gluten free flour, even though they requested for almond flour. There is an
express term in the contract requesting almond flour; there are no other terms because Dan and
Jacob did not take due diligence to ask whether the flour was gluten free. If their request for
almond flour were based on Mikaela's assurance that the flour was gluten free, then they would
have had an implied term in the contract relying on the fact that the flour was gluten- free. Dan
and Jacob just requested almond flour, not necessarily gluten- free. Thus a gluten-free contract
did not exist, but just a contract requiring them to be supplied with almond cake (Stone, 2010
p.248).

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3. The issue is whether the icing is a condition or a warranty
A warranty is a term of a contract which is an assurance or a promise. IT is less
significant than a condition. A condition goes to the root of the contract, but a warranty does not.
When warranties are breached, they do not entirely deprive party benefits to the whole contract.
Depending on the weight of the importance of terms, one term could be a condition in one
contract but a warranty on the other. The icing on the cake, in this case, is a warranty as it does
not affect the benefits of the contract. When a warranty is breached, one can only claim for
damages (Goldring, Maher, McKeough & Pearson, 2008 p.471).
4. The issue is whether Mikaela is responsible for the wrong icing on Kimiko's cake, even
after posting that she will not be responsible for breach of warranties.
Warranties are put in place to apportion risk. Warranties provide a mechanism which
could help in price adjustments if the information given is false when the context of sale is put
into consideration. This is possible after enough information is collected in the process of
disclosure. Warranties should not be used instead of due diligence. A breach of warranty raises
an onus on the part of the claimant to show the loss. Disclosure of conditions prevents the buyer
from bringing an action against the seller (Austen-Baker, 2017 p. 12-50).
In the above scenario, we see a breach of warranty because the icing used is green instead of
purple is a case of breach of warranty. The seller, on the one hand, has placed as sign
indemnifying herself from breach of warranties. At the point of a transaction the buyer new that
the seller had posted something freeing him from breach of warranties. At that point, the buyer
can be said to have waivered his right by going ahead with the contract. The warranty is an
exemption clause which limits the liability of the seller. Such exemption clauses should be

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reasonable so as not to bring unfairness to the contract. In Overland Shoes Ltd v Schenkers
(1998), the defendants were not allowed to claim that a contract was unfair and unreasonable. In
this case, the buyer knew the terms well even at the point of entering into the contract, therefore
the seller is exempted from warranties by the exemption clause. A person who breaches a
warranty is responsible only for the foreseeable harm caused by such breach. In this case, it is
just a loss of expectation, and there is no harm necessarily when green icing is used on the cake
as opposed to purple icing (Gregory, 2010 p. 131).

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References
Austen-Baker, R., 2017. Implied terms in English contract law. Edward Elgar Publishing.
Boella, M.J., Boella, M. and Pannett, A., 2009. Principles of hospitality law. Cengage Learning
EMEA.
Gregory Klass, 2010. Contract Law in the USA. Kluwer Law International.
Hunter, H., 2017. Modern Law of Contracts. Consumer protection law. Federation Press.
Poole, J., 2012. Casebook on contract law. Oxford University Press.
Reform, D.F.W.S. and Act, C.P., 2010. Public Law 111-203. US Statutes at Large, 124, p.1633.
Stone, R. and Devenney, J., 2014. Text, cases and materials on contract law. Routledge.
Stone, R., 2010. The modern law of contract. Psychology Press.